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Mary Vilakazi: Good morning, everyone. Welcome to FirstRand's results presentation for the 6 months ended 31st December 2025. I'll start with the -- I'll start the presentation with an overview of the group's operating environment over the last 6 months. In the period under review, the global macroeconomic backdrop continued to be characterized by heightened geopolitical uncertainty, and this is likely to persist for some time. Global growth slowed and inflation and monetary policy continued to play out differently across the world's largest economies. The FirstRand house view is underpinned by an expectation of ongoing geopolitical fracturing and reorientation. Unfortunately, that does imply more frequent global economic shocks, the impact of which is controlled for in our baseline and risk expectations. The current Middle East conflict is an example of one such shock. In South Africa, the combination of structural reform efforts spearheaded by Operation Vulindlela, fiscal discipline and the lowering of the inflation target have started to have a positive impact. South Africa's sovereign rating improved. The country was removed from the FATF gray list, the currency strengthened and inflation registered the lowest average in years. These factors have mitigated the impact of elevated global uncertainty within the SA macro context. The recent bond market impact of the Middle East conflict have seen bond yields lift 40 basis points off their recent lows. Whilst it is still early days, this is a relatively small impact on the overall bond yield reduction of 220 basis points over the last year. We are monitoring the unfolding events and the related impacts closely. Lower inflation allowed the sub to cut the interest rates and affordability pressures on consumers and households are easing. During the period under review, we saw household borrowing tick up marginally in real terms, whilst corporate borrowing continued to grow strongly, potentially signaling an emerging credit and investment cycle. The RMB/BER Business Confidence Index rose from 44 to 47 since the last quarter, an encouraging data point. Barring the post-COVID recovery, this is the highest business confidence level since 2015, giving us confidence about the emergence of credit and investment cycle for South Africa. Several countries in the group's broader Africa portfolio also made good progress on reforms. Nigeria continued to strengthen its macroeconomic position, while Ghana and Zambia have benefited from the post-debt restructuring reforms implemented over the last few years. The 3 countries made difficult and tough decisions and are now reaping the benefits of the reform processes. Certain cyclical factors also provided support with inflation moderating and growth stabilizing on the back of a positive commodity cycle. By the end of 2025, economic activity in the U.K. had slowed. Inflation eased but remained above target, and the Bank of England responded cautiously. Activity was supported by public sector spending. However, private sector demand remained constrained by still elevated borrowing costs and persistent inflation pressures. Moving on to an unpack of the group's operating performance. And just to recap how the group's operational performance in the first 6 months is tracking against the guidance for the full year to June 2026. Pleasingly, all the key line items are trending as expected. NII is up high single digits with a significantly NIM uplift with NIR print materially higher than the previous year. This strong top line performance has resulted in an improved cost-to-income ratio continuing to be in the 40s range. Credit is in line with our expectations with NPLs looking better given the supportive macro environment. As guided, the group's ROE is moving closer to the top of our stated range of 18% to 22%. These metrics clearly demonstrate the strength of the operational performance delivered by the business, which we are very pleased about. This slide unpacks the performance metrics, particular callouts include the strong growth in earnings, economic profits and NAV accretion. We are also pleased to be in a position to grow the dividend faster than earnings as the high ROE means we continue to generate excess capital. This is earnings and ROE over a 5-year period. The only point I'd like to make here is that earnings growth has shown a stronger trajectory over the past 3 years. This demonstrates the group's ability to deliver higher and more sustainable growth in earnings despite one-off contributions in each year's base, testament to the quality of earnings generated by our franchises. This slide demonstrates the group's -- that the group continues to accrete to NAV. The 5-year CAGR of 8% is testament to the group's ability to consistently deliver value for shareholders. Net income after cost of capital or economic profits is the group's key performance measure for shareholder value creation. We saw very strong growth in this period in NIACC. The 5-year CAGR of 14% in economic profit is particularly pleasing given that this was delivered during a period characterized by muted macros and sluggish GDP growth. It demonstrates the group's ability to deliver on its objective to capture the largest share of economic profits available in the system. The group's superior ROE benefited from an ongoing improvement in return on assets, which increased 5 basis points in the period. This was again a result of the quality of our operational performance, particularly the strong growth in investment income, a recovery in trading income and stable impairments. Gearing continued to decrease and the lower cost of equity contributed 10% to the NIACC growth of 26%. The reduction in the SA risk premium is potentially structural given the improved macroeconomic conditions, fiscal discipline as reflected in the recent budget and delivery on the reform agenda. The market pricing indicates a further ratings upgrade is possible in this calendar year, and this could present potential for a sustainable lower cost of equity going forward for South Africa. This is a snapshot of the operational performances delivered by our client-facing franchises. All the domestic franchises performed extremely well, more than holding their own in a fiercely competitive operating environment. FNB performed well, growing earnings by 8% and significantly lifting ROE to 41%. And within this, FNB SA grew earnings by 10%, offset by softer performance in broader Africa. RMB really had a standout 6 months, lifting its margins and ROE on the back of strong top line growth. WesBank again delivered a solid growth and an impressive ROE given how fiercely competitive the market is. The broader Africa portfolio continues to contribute to overall earnings growth. This year, the performance was driven by RMB's cross-border activities. RMB's in-country CIB businesses delivered an impressive increase of 62% in profits before tax. And FNB's in-country -- broader Africa in-country performance was impacted by macro pressures in Botswana and Mozambique, as we previously signaled. Pleasingly, the long-term strategy of growing in-country franchises remains on track. The group is relentless in its pursuit of high-quality earnings growth and superior ROE. And many of the decisions the team makes are anchored to these -- to deliver on these 2 ambitions. From a balance sheet perspective, this is why we are so focused on growing advances at an appropriate risk-adjusted returns and why we have a limitless appetite for deposits. We are working hard to defend and grow our large valuable transactional franchises, given that they provide a significant underpin to our ROE, and we continue to find sources of capital-light income streams. I'll now cover the performance across the 3 themes, similar to how I presented this in the June results. So let me start with the health and quality of our client-facing franchises. As I mentioned in the previous slide, FNB SA franchise performed really well. Turning to FNB Retail first. The business delivered 14% growth in PBT and was the most significant contributor to FNB's overall ROE uplift. The performance was characterized by solid top line growth with NII growth impacted by tough lending markets with muted demand, although we do expect this to pick up in the second half. NII growth improved on the back of higher transaction volumes and customer growth. The retail credit experience was better than we expected and supported retail earnings growth during this period. I just want to call out the turnaround in the customer growth in the personal segment, where competition is really tough. At June 2025, this segment was struggling to grow customers, but this has now reversed significantly on the back of a strong sales effort. Before migrations to the private segment, personal segment grew customers up 3%. In our early engagements with Optasia, we do see exciting opportunities to leverage their capabilities to further grow FNB's offerings in this segment. The private segment grew up -- grew a solid 8%, driven by customer acquisition and migration from personal segment. And overall, we continue to see growth in FNB's main bank clients. This is up 6%, which demonstrates FNB's success in switching customers banked elsewhere with a single FNB product to a full transactional offering, the strength of the FNB franchise. FNB commercial continues to grow off a high base. NII was supported by steady advances and deposit growth. The commercial deposit franchise remains by far the largest in South Africa. Solid customer growth has supported growth in fees and transactional volumes, supporting NII. Merchant Services experienced margin pressure -- margin compression as FNB responds to a competitive environment. In response, FNB has launched new Speedpoints yesterday with enhanced business solution offerings and competitive pricing points. FNB is still leaning in for SMEs that are well positioned to benefit from the early structural reforms and FNB remains the largest lender in South Africa to this sector. FNB's focus on meeting the needs of SMEs is also supporting its strategy to grow in the community economy with advances now at ZAR 17.3 billion and deposits at ZAR 43.3 billion. As I mentioned earlier, FNB continues to grow NIR and the growth is reflective of the different strategies to defend and grow the transactional franchise. The slide shows that the business continues to achieve steady growth across traditional sources of fees and importantly, is scaling new sources of fees supported by its platform strategy. Digital wallet and PayShap volumes are showing very strong growth. And the PayShap volumes also reflecting the strategy to fulfill client needs or the business strategy to ensure that they fulfill client needs and payments needs as client behavior and adoption evolves. The graph on the right-hand side demonstrates ongoing traction in FNB's long-standing strategy to monetize its value-added services. FNB -- the MVNO business, in particular, is scaling well with users increasing to 3 million. West Bank delivered another strong performance, growing advances in a market showing signs of a sustained recovery, driven by new car sales in the industry, which are up 16% and an emerging replacement cycle. There was a slight recalibration of risk appetite to capture the opportunities emerging from these market dynamics. Origination has shifted from only originating in low to medium risk to a higher proportion of medium-risk customers. This has resulted in some front book strain, but remains well within expectations. The insurance business continues to deliver good growth on the group's own licenses as reflected in the new business APE numbers on the slide. The growth in the in-force APE for life and short term demonstrates the quality of these books. The top line growth has not translated into PBT growth in this period as we continue investing for future growth. This investment in distribution capability will set the business up strongly to grow in FNB's customer base as well as the open market. A data point that supports this thesis is the 38% growth in APE that's been generated from the private adviser distribution channel. As I called out earlier, RMB had an excellent first 6 months of the year. Absolute advances growth declined due to the distribution strategy, but production was robust at significantly higher margins. NIR benefited from a private equity realization and a turnaround from the Global Markets business. All these drivers helped lift RMB's ROE. The HSBC transaction has been successfully completed, introducing 260 new large corporates and multinational clients to RMB. And the chart out here goes out to the technology teams who ensured that there was a seamless transition of these clients, building platform capabilities that the group will be able to leverage in future growth strategies. The strategy to build scale in the corporate transactional bank and the introduction of a dedicated executive focus is resulting in good progress on mining the client base, and it is clear that there's a great deal of runway here. I've already mentioned the turnaround in the Global Markets business. This slide demonstrates that the early recovery is emanating from across the portfolio and the business continues to focus on client franchise activities to ensure that the recovery is sustained. I want to cover the point-in-time ROE at the Aldermore Group. We are still -- we are still executing on a clear medium strategy to move this ROE closer to 15%. However, this journey -- the journey to operational efficiency has required a hefty investment into the current offshoring initiatives. This, in time, will increase operational leverage once completed. In addition, the NIM pressure across the industry has also had an impact on Aldermore's performance in 6 months. This will be partly addressed by Aldermore's objective to diversify into higher-margin asset classes as well as accessing other funding sources post the FCA's motor redress process when Aldermore again can go into the capital markets. The excess capital we continue to hold in the U.K. depresses the Aldermore ROE by 1.5%, but we are hopeful that this will be resolved by the end of this year. The performance from our broader Africa portfolio is pleasing, particularly given the macro pressures in Botswana, which is one of our larger jurisdictions. This portfolio is still relatively undiversified, so volatility in 2 markets will have an impact. However, despite these pressures, the overall profitability and ROE held up well, supported by good performances from Zambia, Nigeria and Namibia. There was cost pressure in Ghana due to the platform investment that's required there. RMB's cross-border business and in-country CIB activities performed strongly, as I mentioned earlier. I want to spend a little time on the overall strength and health of our origination franchises, and Markos will cover line-by-line growth in more detail when he takes over the presentation. This slide unpacks the group's long-standing philosophy on origination. One recent adjustment is a slight shift in WesBank's risk appetite, which I covered earlier. A key element of our FRM strategy is to originate to the most appropriate balance sheet and underwriting vehicles. This has created additional capacity for the group, creating additional capital and funding velocity to support further origination. On Slide 28, here, we can see that the lending growth we have achieved across brands, customer segments and product lines, and we are comfortable with these outcomes. Standouts here are WesBank corporate and commercial, where we have seen growth pick up as the economy shows signs of shifting to a more investment-led cycle. Given the macro backdrop, we expect the modest pickup in retail to accelerate in the second half. The pie chart on the right unpacks the results of the sector-specific lending strategies we have been pursuing. Again, this is a high-level unpack of the credit performance, which Markos will cover in much more detail. The point I'd like to make here is that retail is performing better than our initial expectations and the U.K. normalization this year in the CLR is in line with expectations given the base effect from last year's provision releases. And I want to spend a bit more time on the deposit franchises, which deliver our high-quality capital-light NII. It is extremely pleasing to see that all of the group's deposit franchises delivered good growth over this period. RMB's corporate deposit franchise showing good momentum in South Africa and in broader Africa. The steady strategy to build country deposit franchises in the broader Africa portfolio is also gaining traction. SA retail and commercial deposits continue to increase and grow off an already high base. The group once again benefited from the group treasury's active management of interest rate risk and ALM risks, ensuring that the group earns appropriate value from interest rate risk and credit premium. In the current year, this strategy produced an additional ZAR 1.2 billion of NII compared to an opportunity cost in the comparative period. With interest rates forecasted to further reduce, the ALM strategy is expected to yet again have outperformed as shown in the gray shaded area on the graph. The group's margin was up 8 basis points and up 15 basis points, excluding the U.K. operations. Improved asset margins were achieved through the mix of balance sheet growth and deliberate FRM strategies with disciplined segment execution to ensure appropriate risk return margin considering client channel and market conditions. Where quality credits did not meet the balance sheet costs and frictions, these were matched to alternative platforms and investor base as executed through the RMB distribution strategy. The negative impact to the group margin in funding and liquidity of 11 basis points was a consequence of both the levels of higher levels of excess liquidity and lower return on liquid assets. This is a strong margin outcome achieved through active FRM, which the group will continue to use as a central process to deliver shareholder value. A walk-through of the group's CET1 ratio shows a lifting in the capital position following ongoing optimization, FRM initiatives I've highlighted and Basel reforms. RWA consumption up 70 basis points reflects ongoing growth in constant currency as well as investment in strategic initiatives. A CET1 ratio of 14.4% provides the group with sufficient financial resources to deliver on the group's growth ambitions. The strong level of capital and FRM initiatives support a sustainable dividend cover that remains at the bottom end of the range. I will now hand over to Markos, and I will come back to conclude with the prospects and looking forward. Markos Davias: Thank you, Mary, and good morning, everyone. Considering the backdrop of the group's strategic and operational performance, I'm now pleased to present the financial review of the FirstRand Group for the 6 months ended 31 December 2025. Mary has covered the key performance highlights. And as a quick recap, the group delivered 11% normalized earnings growth, coupled with an improving ROE and a resultant 26% growth in NIACC. This performance did not include an adjustment to the U.K. FCA motor redress provision. However, legal and specialist costs of ZAR 333 million pretax and ZAR 244 million post-tax impacted operating expenses and earnings growth by 1%. The group expects the final redress scheme to be published by the end of March, and we'll update shareholders on any potential impact thereafter. NAV is up 7% with the stronger rand impacting the group's foreign currency translation reserve. Excluding this impact, NAV would be up 10% for the period. The final call out is that the group's stronger CET1 position of 14.4% places it in a position that if required, the group can absorb any of the possible negative outcomes from the U.K. FCA motor commission redress scheme, and Mary will touch on this further in the prospects. The group's normalized earnings growth is driven by a strong top line performance with both NII and NIR up 8% and 12%, respectively, creating positive jaws against credit impairments, which are up 6% at a CLR of 86 basis points and cost growth up 9%. I will unpack all of these shortly. As the only additional note to the slide, RMB implemented a debt-to-equity restructure during the period. As a result, a portion of the nonperforming loan was converted to equity with the remaining loan settled. In accordance with IFRS, the group recognized an investment income gain of ZAR 242 million for this conversion with a settled advance resulting in a release of Stage 3 impairments of ZAR 143 million, and the remainder of the loan was written off. The converted equity exposure is then recognized in associate for the group and the cumulative equity accounted losses resulted in a ZAR 377 million loss in associate earnings line, but the net impact to NIR is therefore ZAR 135 million. Netting these impacts results in only a ZAR 8 million gain being recognized, and hence, I will not cover it further in this presentation. Let me now turn to the quality of the financial performance and its key drivers, starting with NII. Turning to advances. Retail mortgage growth continues to be subdued as overall demand and customer affordability do start to show early signs of improvement. Production has picked up in recent months with this improvement expected to drive momentum into the second half of the financial year. WesBank VAF grew 14%, capturing a large proportion of the bounce back in vehicle sales. An important note is that additional retail risk appetite has been allocated. Mary did touch on this. We are using a data-led basis, and we're expanding lending to the quality side of medium-risk customers as the group continues to monitor improvements in retail credit lending conditions and proactively prepares for an improving affordability cycle. Commercial growth of 9% reflects the consistent and focused strategy Mary alluded to earlier with a continued focus on growing the SME customer base and unsecured SME lending is up 11%. Broader Africa continued to service customer needs for credit products in the group's presence countries, up 9% in constant currency. And as a callout, Zambia showed excellent in-country advances growth of 35%. Aldermore delivered 9% growth in advances, primarily driven by its strong origination network in property finance, which was up 15%. Final point on the slide relates to RMB where growth appears subdued at 7% down, but both translation impacts and the deliberate distribution strategy that Mary touched on earlier impacted its balance sheet growth. But what is pleasing about this, we now have a demonstrable financial data point on the underlying hypothesis with RMB's portfolio margin improving by 20 basis points and despite a smaller balance sheet, RMB lending NII is up 15% for the period. On this slide, we reflect the impact of the RMB distribution strategy and the group's currency translation impacts to total advances with each having a 2% negative impact to growth. The group's deposit franchises continue to show momentum across all of the customer segments with overall growth of 6%. This performance, when coupled with RMB distribution strategy enabled a net 2% reduction in total institutional and other funding and in particular, a reduced term debt securities funding cost, which further benefited NII and margins. The group's institutional funding mix and weighted average term continues to be well managed with the right side graph depicting the funding mix change between FI deposits and NCDs. Reflecting the group's balance sheet strategies and an activity view highlights the effective partnership and FRM discipline between the franchises and group treasury. Lending NII benefited from advances growth and mix changes as well as the improved margins in RMB. Despite 107 basis points decline in average interest rates, both transactional NII and capital endowment activities increased 7%, strongly supported by growth in invested balances and the group's ALM strategies and active portfolio management approach. Group Treasury delivered a very good outcome with NII up 61%, driven by the lower funding costs previously mentioned, improved deployment of currency funding and a partial offset in the lower margins on HQLA that Mary mentioned earlier. The U.K. NII is up only 1% with pressure on cost of funding and deposit margins given the continued elevated level of competition for liabilities and a reducing rate cycle, which had some impact on unhedged capital endowment. Mary has already covered the margin outcome earlier. And here, I depicted in the usual waterfall view. In summary, group margins, excluding the U.K., have expanded 15 basis points, 8 basis points to June '25 and then a further 7 basis points to December. Lending asset margins expansion contributed 12 basis points with RMB a significant contributor to the uplift and with continued disciplined pricing across all the other lending portfolios. As mentioned, the ALM strategies reinforced both deposit and capital endowment margins, with Group Treasury reflecting an 11 basis points impact, mainly due to the lower HQLA margins. The U.K. margin compression resulted in an offset of 7 basis points to the group. Moving to the group's impairment charge, which is up 6%. The group's total CLR remains below the midpoint of the TTC range, with a slight improvement of 2 basis points to the CLR excluding the U.K. An important note at this point is that in the comparative period, the U.K. CLR benefited from one-offs relating to various items, including last year cost of living, and these did not repeat in the current period. These supported the prior period outcome for the group CLR, that was 84 basis points. And if you look at the current period, 86 basis points, this is a normalization of these impacts in effect. The overall diversification of the group portfolio continues to support the CLR below the midpoint of the TTC range. The group's impairment charge of ZAR 7.3 billion further reflects the U.K. normalization as well as front-book strain from balance sheet growth, impacting Stage 1 provisions predominantly. I'll give more color to this shortly in the segmental breakdown of the charge. Stage 2 provisions and subsequent coverage are lower as a result of a migration of a few higher coverage watch list assets to Stage 3 in RMB. This then reflects in the slight growth in Stage 3 provisions and coverage of 43.8% and further contributing to the Stage 3 coverage were increases relating to an aging NPL portfolio and higher operational NPL inflows. The group's overall provision stock remains appropriate at ZAR 56 billion, with a performing coverage of 1.43%. The group's NPL formation continues to reflect a slowing 6-month trend across most portfolios, except WesBank VAF and RMB. RMB had a single counterparty in the cross-border portfolio that migrated straight from Stage 1 to Stage 3 and has been appropriately provided for at this point in time. The particular circumstances of this event are isolated and is not pervasive to the portfolio. This new slide depicts the group's segmental composition of its impairment charge. It aims to highlight the diversification of the credit charge as well as period-on-period increases of each segment's charge. What can be seen is that the U.K. impairment growth accounts for ZAR 338 million of the total ZAR 442 million group increase, with Commercial and broader Africa also up significantly for the period. These were then offset by lower impairment outcomes in Retail and CIB. With this backdrop, let me now unpack these individually. Retail CLR, as expected, trended lower into the bottom end of its TTC range, improved forward-looking macros, better collections, coupled with increased customer prepayments and reduced Stage 3 inflows were all key contributors. Strong book growth in VAF drove some front-book strain, which was more than offset by an improved mortgage outcome as house prices in [ Gauteng and KZN ] showed signs of recovery. Increased NPL coverage driven by time in NPL and slowing lower coverage inflows also weighed in. Retail unsecured is benefiting from lower front-book strain and pleasingly, a decline in debt counseling inflows, albeit this portfolio remains structurally higher than in the past. Commercial's impairment outcome continues to lag Retail, but with signs of improvement since June. There has been no new jump to default counters like in the prior period, but the group has proactively raised out-of-model provisions against the larger Commercial watch list, exposures and potential industry concentrations. The 94 basis points CLR is an improved rolling 6-month print compared to the previous 125 basis points, and remains below the midpoint of the TTC range. A significant driver of the increase in charge relates to what I refer to as good CLR in the form of front-book strain, which is as a result of the continued strong advances growth across most of the Commercial lending portfolios. RMB's impairment charge continues to be best described as benign, with a single counter migrating to Stage 2 due to a rating revision triggering SICR. NPLs continue to see some new inflows from the credit watch list, with an offset from migrations out of NPL as RMB's debt restructuring capability continues to successfully assist customers. In addition, the previously mentioned broader Africa exposure that migrated to Stage 3 also impacted RMB's NPL level and provision increases. And finally, the debt to equity restructure I mentioned earlier impacted RMB. But even if you add it back, RMB is below its TTC range of 30 basis points to 50 basis points. I've already covered the core one-off benefits to the U.K.'s 14 basis points charge in the prior period and the primary reason for the more than doubling of the charge to this year. And during this period, in line with the expectations, the U.K. CLR has trended up to the bottom end of the TTC range, with core performance and collections tracking well. Arrears continue to improve, with new origination resulting in some front-book strain. U.K. forward-looking macros have, on average, compared to the prior period, December '24, deteriorated and key call-outs are a weaker house price index, marginally higher inflation forecast and an upward trend in unemployment. This has resulted in an increased modeled FLI requirement for the period and accounts for more than 50% of the U.K. CLR charge to December. Broader Africa's underlying customer portfolio continues to be resilient. The increase in impairment charges mainly from proactive provisioning in Botswana to capture the potential impacts of the visible slowdown in activity, and additional out-of-model provisions have been raised to cater for the increased uncertainty in Mozambique. Moving on to NIR, where the group delivered 12% growth driven by resilient fee income, a robust recovery in global markets and a private equity realization. Pleasingly, fee and commission income continues to show resilience, up 7%, driven by inflationary fee increases, coupled with 4% growth in both FNB customers and volumes. RMB knowledge-based fees also printed good growth off a relatively high base as it continues to offer clients market-leading structuring, arranging and advisory solutions. Mary has already highlighted the key message from the FNB fee and commission outcome, including the 14% growth in value-added services income. What I'd like to do is just give a little more color to the financial impacts of two of the items she referred to earlier. Firstly, FNB defaulted customers real-time payment requests to the cheaper PayShap rail. This resulted in a reduced contribution and reliance on the old rail and associated fees, and it meant -- you would have seen in her chart, there was a graph that showed payment fees down. It meant that those fees are 33% down for the period, and effectively have been replaced by the other fee income lines if you look at the 7% up at the total level. This strategy also was the key driver to the sixfold increase in the values and volumes that Mary highlighted. Secondly, Mary also highlighted the pressure related to merchant services competition, with fees relatively flat for the period. But what I can also note is that billable devices are actually up 10% for the period. And again, the key takeout is that despite these two big impacts, the group has managed to grow its fee and commission 7%. Total insurance income is up 5% and requires further unpacking. Life is up 13%, with underlying performance in underwritten life growing 14%, credit life up 15% and core life growth of 16%. FNB employee benefits were also moved into FNB life from commercial during the period due to the synergies of the group life and employee benefit offerings, and were a slight offset to the other life product performances based on take-on of a large client Mary mentioned earlier. Short-term insurance continues to scale ahead of expectations, with insurance income up 17%. WesBank benefited from the exit of MotoVantage, which resulted in a rundown portfolio being recognized this year, with no base as the investment was classified as held for sale in the prior period. The offset to these good performances relate to a continued reduction in the income from participation agreements. We have previously noted these are winding down and any new business is being written on the group licenses. In addition, broader Africa is down 26% due to additional weather-related claims in Namibia and a lackluster premium growth in credit-linked products in Botswana. And finally, the group continues to invest in its operational and distribution capabilities, which Mary touched on. In the insurance income, the attributable costs get offset against these and reflect in this chart against the growth levels. These investments are expected to result in ongoing support for growth in policy numbers and new business APE. Trading and other fair value income was driven by the strong recovery in RMB global markets, which Mary unpacked in some detail earlier. This graph does, however, reflect the extent of the recovery and highlights that in the prior period, there were also contributions from fair value income from RMB's PI portfolio and other group treasury related benefits, which in the year-to-date have all been replaced by the global markets revenues. Turning to the significant growth of 65% in investment income, which is predominantly driven by a significant realization in the private equity portfolio. But in addition, RMB's associate earnings in the light gray on the chart also remain resilient, especially considering the lost earnings from the prior year realizations that would no longer be in the base. It highlights the quality of the underlying performance of the investee companies. Pleasingly, despite these realizations, the unrealized value of the private equity portfolio has also increased by 12% to ZAR 8.4 billion, driven primarily by an earnings uplift. WesBank's associates, TFS and VWFS, also had improved performances, driven by advances in NII growth and a good impairment print. VWFS also benefited from a large one-off in the current period, which is not expected to repeat next year. Lastly, the improved overall performance in the bond and equity markets resulted in an uplift of ZAR 239 million in investment income related to the assets backing the group post-retirement employee liability portfolio. Turning to operating expenses, which grew 9%. As mentioned earlier, the costs incurred in response to the U.K. FCA consultation paper resulted in a 1% impact to cost growth, and its impact is included in the appropriate cost lines in the pie chart. Going forward, once a redress scheme is announced, any future legal costs would be allocated against the provision raised as opposed to expense through the income statement. The group also continues to invest and allocate resources to its technology platform. The total IT functional spend across all cost category is up 13% to just under ZAR 11 billion. A more detailed breakdown of this is included in the presentation annexures and the booklet. Professional fee growth of 26% is as a result of increased spend related to the implementation of the HSBC transaction, including API integration, as well as some external professional support during the implementation of a core banking platform in Ghana. These costs are not expected to repeat next year. Advertising and marketing costs increased 14% as FNB continued to invest in its brand value proposition and marketing activities. And the increase in the group's depreciation, repairs and maintenance costs are mainly due to increased campus requirements as staff return more regularly to the office. In addition, amortization costs were impacted by the implementation of a new global markets platform, a portion of which was previously capitalized. And then finally, on OpEx, included in other expenses is the increase in the Department of Home Affairs ID verification fee, which had a 6-monthly impact of ZAR 60 million, and is a new ongoing cost of customer onboarding and compliance. Staff cost remains a significant portion of the cost base and increased 7% for the period. Salary increases of 5%, coupled with average head count growth of 1.5% were the key drivers. Head count growth was focused on growing the group's points of presence, particularly in community economies, with 18 new branches opened during the period. In addition, Mary has mentioned the U.K. strategy to offshore some of its enablement head count as part of improving the overall U.K. cost-to-income ratio and ROE. This does, however, result in transition costs with a period of duplicate head count to appropriately manage the offshoring execution. To date, the costs incurred totaled GBP 2 million and is expected to ramp up by June as the execution nears completion. As highlighted earlier, this performance has resulted in positive cost jaws, with an improved cost-to-income ratio anchored below 49%. And in closing, and as an overall summary from my side, solid group performance with strong business execution and financial outcomes that reflect the progress against the group's strategic framework. Thank you. I will now hand you back to Mary to cover the group's full year prospects. Mary Vilakazi: Okay. We are nearing the end. Thanks, Markos, and turning to prospects. Looking forward in terms of macro developments in South Africa, further moderation in inflation creates scope for additional policy rate cuts. This is, of course, barring the events that are taking place at the moment with the oil price from the Middle East conflict. But set aside, combined with structural reform improvements and supportive commodity cycle prices, we believe that this is expected to begin lifting real GDP growth. With regards to broader Africa, despite global uncertainty, economic prospects for most countries in the portfolio are improving, thanks to lower inflation and policy rates and economic reform progress and supportive commodity prices. We expect this to continue. The key exceptions are linked to domestic governance and debt pressures in the case of Mozambique and the need to diversify the economy following the diamond price correction in the case of Botswana. Hopefully, we have provided you with appropriate insights to support our view that FirstRand is on track to deliver another strong operational performance in line with guidance. We expect to deliver high single-digit growth in NII, a strong NIR trajectory and an improving credit outcome. The combination of a growing top line and an increased focus on managing costs will result in positive jaws, something this management team is fully committed to. As the last bullet on this slide points out, this guidance does not include any potential adjustment to the current accounting provision for the FCA process in the U.K. In closing, I want to identify two significant strategic advantages this group has at its disposal to generate an ongoing strong operational performance for the rest of this year and beyond. Our client-facing franchises are healthy, and they are well positioned for growth as they have demonstrated in the last 6 months of this year, delivering top line -- good quality top line growth, growth in earnings and improving returns. Our FRM strategies, which I consider to be a clear differentiator for FirstRand versus our peers, have added significant value in driving balance sheet efficiency, margin uplift, capital strength and ultimately, a superior ROE. Our strong capital position means that under any expected scenario outcomes from the FCA redress scheme, the Board and the management team are confident that the group will be in a position to pay a dividend on normalized earnings pre the motor provision. This brings me to the end of the results presentation. I'd like to thank the employees across the FirstRand Group for your diligent efforts in looking after our businesses and ensuring that the group executes on its vision of delivering shared prosperity to our customers, to each other, to the communities that we serve. You can be proud of what the group has delivered to its shareholders. And lastly, thank you to our customers across the group. Your trust in us inspires us to innovate, to support your current and evolving needs. I will now pause to take questions, if there are any. Thank you. Mary Vilakazi: Okay. There's a question in front. Unknown Analyst: Mary, compliments on the excellent results. I find it very challenging to see you're sustaining this level of growth because you seem to have accelerated your growth tremendously while the economy has not helped you much at all. If I may make a minor comment, on Slide #11 of your earnings, it would have been very helpful if you had included in that slide a line showing the headline earnings per share. And maybe you could consider that in the future. And then on your private equity realizations, every presentation, they're a feature of the results. What fascinates me is the size of the deals that you must be doing and the quantum. And again, I asked the question how sustainable that might be. And on Slide 23, the global markets growth of 62%, again raises the same sustainability question. And I found your comment at the end, quite telling in terms of the dividend in the context of the U.K. provision. Because unless the world falls apart or the U.K. motor market falls apart, that's never going to impact your overall earnings to any extent to affect your dividend. Mary Vilakazi: Okay. I will take some of those questions. And then Emrie, you can prepare for the private equity related one and the global markets one. Let me see if my memory holds well. So we are confident that we can deliver on the full year earnings guidance and the strong growth print. And as I said, I think the quality of our franchises and the diversified portfolio that we have, it means some other businesses are doing well and others are not doing well. We can have an overall good outcome. So -- and I suppose we've had a number of very large one-offs in the past. And I think our commitment is to ensure that we are overall ensuring that -- the portfolio growth. So the last period that we've operated in, in the last couple of years, the macros in South Africa haven't been particularly supportive, and we are constructive on a better operating environment going forward. And I suppose the fact that our business is 80% in South Africa, this is really the market that we are looking to see some recovery. And you can see we are gaining traction in our strategies in broader Africa, where some of those markets are growing. So I think you can take comfort that our earnings growth is sustainable. I'll ask Emrie to comment on the RMB private equity portfolio, which actually has quite a number of investments and then the global markets recovery -- oh, sorry, Markos will make a note of the headline earnings per share disclosure for next time. I'll come back to the U.K. Emrie Brown: Thanks, Mary. Yes, just firstly, private equity portfolio. I think first of all, for us, we have been very focused over all the years to build a diversified portfolio. And as indicated in the booklet, we, I think, now take a much more active portfolio management approach in respect of the portfolio, which ensures that we make continuous investments. I think if you think back about 5 years ago, that was one of the challenges, we didn't regularly invest. And -- so the portfolio management from an investment perspective, but also managing continuous realizations to have the velocity of capital is very much a focus on how we think about our private equity business. So I think where we are at the moment, based on the contribution of private equity to the overall RMB and FirstRand results, this is the level that we're comfortable with, and we manage that part of our business very much with that in mind. On global markets, yes, I would say this year is more a bounce-back from a low in the prior year as well as very deliberate strategies in how we take our global markets products to our full client base. So we feel that this is a more normalized performance. But having said that, the global markets business is exposed to geopolitics and market movements. So it is always a business where there can be fluctuations, but we feel the foundations we've laid in the business set us up for a much more sustainable performance going forward. Mary Vilakazi: And lastly, on the U.K., I mean the reason we make that statement is because the final redress scheme by the FCA is going to be announced end of this month, they have undertaken. And we haven't -- and we are waiting for that final redress scheme to ultimately understand what the financial impact on the group will be. So we don't have the number, but we also know that there are some scenarios that -- where the number is not the amount that we've provided. And hence, we make that comment that as we've worked through all the expected scenarios from the consultation paper, shareholders can be assured that the capital that we sit with should be able to cover any of those scenarios. So still high levels of uncertainty. But hopefully, the end is near with the redress scheme over the next month. Do we have any other questions online? Sorry, James. James Starke: James Starke from RMB Morgan Stanley. Mary and Markos, congratulations on the strong results. Three questions from me. The first, I think maybe we can pass this one to Harry. On the customer gains in FNB, can you perhaps expand on some of the initiatives you've deployed to turn around the growth trends there? Then just pleasing progress on the cost-to- income ratio more generally, I mean, how do you plan to sustain this momentum going forward? And then lastly, just on capital generation, it is very strong. Can you please expand on your plans for the surplus capital generation, particularly with regards to acquisitions? Mary Vilakazi: Okay. So we just take it in that order. Harry? Hetash Kellan: James, thanks for the question. If you look at the customer growth, I mean, if you look at the investments we've done in terms of infrastructure and people, so you've seen growth in our head count, but a lot of that growth is sitting in our branch network. Branches, I mean, if I remember the number right, between December last year to December now, our branches were up 13. So 13 branches new. At the same time, we're investing in what we call AgencyPlus. That went from 63 to just over 170 AgencyPlus in the last 12 months. So we actually got a larger footprint in order to be able to serve customers. And clearly, we've capacitated that with individuals who are able to sell. So I mean, I think that's probably the largest drivers. Mary Vilakazi: Lots of hard work, James. I think on the cost-to-income ratio, Markos will cover the expense piece and the sustainability of the cost trajectory. But James, fair to say that our ambition is for that cost-to-income ratio to have a full handle looking forward. So Markos, maybe on the cost? Markos Davias: Thanks, James. I mean, I guess we've said it a few times, but positive jaws will result in the CTI improving. So that focus is actually what drives it. And during budget periods, I mean, that's kind of the key point that we drive into the teams when they bring budgets. If you have revenue up by a low number, you better find a way to manage the cost there. What I would say on the cost that's important is that we have a high investment base already in the base. And as we deliver projects, we reinvest that from the current cost structure into the base. So we're not doing this at the expense of important investments. And you can see, where there are one-offs to be incurred to increase implementation costs and the likes, we take them. But effectively, it actually is the base, size of the cost base allows us to kind of manage this to the objective we stated. Thanks. Mary Vilakazi: Okay. And then, James, on your question on the surplus capital. So I mean that we acknowledge. I guess the Board's target range for the CET1 is 11.5% to 12.5%. So at 14.4%, we are way over. I guess you have to appreciate the fact that we've been operating in an environment where there's been high levels of uncertainty because if it wasn't that we had to make sure that we are well positioned to deal with any adverse scenarios, I suppose we would have reconsidered those capital levels in the last year. So hopefully, we are close to doing that, and then we can have a bit more clarity on the capital that we require. So I think we have enough capital to fund any of the growth initiatives that we are looking at. We are not holding on to that level of capital because there's something very big pencil-marked, James. I think it's just to get through the U.K. uncertainty soon. You can trust that we will do the right thing when we have better clarity on the way forward. Andries, do you want to comment? Unknown Executive: Mary? Sorry, yes. Unknown Attendee: [indiscernible] from Reuters. Mary, what's your strategy, if any, around East Africa? I mean we're seeing a lot of activity there. We're seeing South African lenders also having a lot of interest there. I mean are you thinking about it? Are you actively looking in that region? Mary Vilakazi: Okay. This one, I can definitely pass on to Andries, who looks after the broader Africa strategies and as well as M&A activities. Andries Du Toit: Thank you. I'll also link to the previous one. When we do expand to M&A, there's two fundamental cornerstones, we underpin our disciplined FRM and we have to add shareholder value. On expansion, we look at capabilities. Can we acquire capabilities, customers? Is it franchise value? And then to your question, geographical expansion. Eastern Africa is a key market we want to enter. We've had discussions. It didn't come to fruition, and we're looking at appropriate vehicle, but it's very important from a FirstRand perspective, we won't [indiscernible] on our FRM discipline and how do we create shareholder value. Mary Vilakazi: Yes. So we keep looking. We've been looking for a while, though. But hopefully, some of the consolidation activities that are taking place in the market will open up some opportunities for us. There's another question, okay. Okay. There's -- yes, you come here. Do we have questions on the webcast? We've got a few. Okay. Unknown Analyst: Mary, if I may. On Slide 60, there's a caption that says share price incentives linked, a negative. Now I follow your share price probably as closely as you do, and I haven't seen it negative. I know it bounces around. I'm just fascinated to understand the basis of that comment. Mary Vilakazi: Okay. Thanks. Markos can take that. Markos Davias: Thanks. That refers to the share scheme -- employee share scheme, which previously vested at a higher level based on the performance in prior periods. And all it means is that currently, that vesting is expected to be lower based on the current performance measures. And when I say high, it was higher than 100% in the prior year. So it's currently accruing at 100%, which is below that. So it's negative year-on-year. That's the main reason. There's not share price -- there's no share price impacts into the employee share scheme. It comes through IFRS 2 charge. Unknown Analyst: Did I hear you correctly that -- I saw your structured aspects of your performance incentives. Is that the key point here? Markos Davias: Yes. So it's just the way the accounting plays out on the long-term incentive scheme, as such. Mary Vilakazi: Okay. Let's go to the line. Maybe what you can just maybe do is just check if some of the questions we've answered already, and maybe we don't repeat them. Operator: We'll do. Thank you, Mary. Some of them have already been partially answered. We'll start with Baron Nkomo from JPMorgan. Given your strong capital ratios, in which segment or region do you see the greatest opportunity to deploy capital over the next 2 years? I think that's been partially answered. The second one is, what is your strategy to deepen and grow broader Africa franchises? Mary Vilakazi: Okay. So I think opportunities that we see for -- in our business, I think the Corporate and Commercial sector, I think we are quite optimistic about the structural economic reforms and activity that will happen in SA. So I guess there, we would say that that's what we've earmarked. Hopefully, the Retail credit expansion as suggested provides more opportunities for further growth of our Retail franchise. So yes, so I think -- we still think that our balance sheet will probably track more the Corporate, Commercial aspects of opportunities. And I guess, broadly, we are looking at making sure that all our franchises are growing and are actively taking advantage of the different various opportunities. So it's not just penciling in those growth aspects for SA. And then how we -- plans to grow broader Africa. I suppose we are executing on organic strategies. We had an opportunity of buying the Standard Charter book in Zambia. So that provided us an opportunity to scale some of our existing markets. The M&A team continues to look if there are other inorganic opportunities that come our way. But I'd say that we are quite small in Ghana and Nigeria. And I think in the various markets, we still think we've got runway in our current existing portfolio. So -- but there's lots of focus to ensure that we are capturing the growth that we are expecting from the rest of the region. Operator: We've got Charles Russell from SBG Securities. He's got three questions. I think one of them has been answered. The first one is, can you take us through key dates and FirstRand's decisions and responses over the coming 12 months relating to the U.K. motor commission issue? The second one is, can you unpack the 37% growth in trading and fair value income? And then the third one, I think we've answered, saying our CET1 looks very full, but I think we've answered how we're going to manage that. Mary Vilakazi: Okay. Markos? Markos Davias: So on the dates, I mean, we've called out that even recently as this week, the FCA have said that by the end of March, they will give an update on the final redress scheme paper. Obviously, our legal teams would need to work through that together with our specialists, and we would have to then regroup on a path of action if we are happy with the paper or if we are not. So that will play out in the next month. Thereafter, we'll update shareholders once we've got a sense of kind of what the impact is. We've got all our models built and ready for the various scenarios that can play out. And in the booklet, we do call out kind of the three criteria, which are the biggest drivers of impact in things that we didn't agree with in the original paper. Mary Vilakazi: And then the trading income question. Unknown Executive: I didn't get it. Mary Vilakazi: Okay. That's basically the global markets recovery that we spoke about. And there is a slide, I don't know which slide that is, that shows where the global market growth came from. I mentioned that slide number. And yes, I suppose Emrie has covered it earlier on that for global markets, it's a recovery because we had a number of years where we went backwards, and I think it's largely reflective of global markets. Operator: Then the last set of questions is from Ross Krige from Investec. He says, just to clarify on the FY '26 guidance. Does unchanged guidance imply an expectation of high mid-teens earnings growth ex U.K. motor provisions and assuming PE realizations as expected? And then the second question, on the U.K. motor commission-related OpEx, how do you expect this to unfold in H2 '26 and beyond? Mary Vilakazi: Okay. I think Markos has covered the last point by saying that depending on just the path that we take forward, any expenses that get incurred will be charged against the provision that we've released. I think it was just to give an indication that, that base, hopefully -- that base should -- hopefully should not have as many legal expenses as we have incurred, and I think that's how they will be dealt with. And the other question, [ Levo ]? Operator: Just on the guidance. Mary Vilakazi: On the guidance, yes. Okay. Let me step through this slowly. So the guidance we gave for the full year, it had the U.K. provision, obviously, in the base. And we said, assuming there's no other provision, earnings growth should be up mid-teens. So that's the guidance that we are confirming today. And private equity, there's uncertainty. There's always uncertainty, but I guess we are not saying we are -- we're not saying that the guidance is subject to that realization taking place, but we note that there can always be changes in the dates. I think my RMB team are still good for their number. Operator: We have additional questions that have come through online. So the first one is from [ Mario Stratum ]. He does say, well done with your strong insurance new business growth and thank you for your improved disclosure on these businesses. Can you please speak to the near-term outlook for operating expenses growth, the rundown profile for other participation agreements and the potential for short-term insurance to double policy count by FY '30. Mary Vilakazi: Okay. Andries, maybe you can take some of that and then I will fill in for the insurance. And [ Mario ], I suppose all these questions are related to insurance, even the expense outlook. Andries Du Toit: Yes. No problem. The strategy was to obviously originate our own licenses. So that will continue. We're quite confident to the numbers that you've alluded to, both as we go in our own channels and also open market on the short term. Our expenses will probably continue to be at high end as we invest in new products and also new distribution and also further into new business lines where we're underrepresented. And maybe... Mary Vilakazi: Yes, but I mean there's a fair chunk of investment in the distribution channel, Andries, which, once we get to a point whereby surely we have -- we are at the levels we want to operate with, I mean it will be rather acquisition cost versus an investment in that. So that I would say is a part of cost that profile should change. Markos Davias: Maybe just a point to add on the other participating agreements. This year, you'll see the 66% decrease means there's a ZAR 50 million 6-monthly base there. So it's a much more manageable base than what it was in the past year. So its impact is reducing. Operator: And then we have the last one, it comes from Harry Botha from BofA Securities. To clarify, is the mid-teens earnings growth potential still intact for 2026? Are you making any technical adjustments to your hedging program for yield curve changes? Mary Vilakazi: Okay. So the first answer is very simple. Harry, no change to the full year earnings guidance that we provided. Hope that helps. [indiscernible] do you want to comment on the hedging strategy? Unknown Executive: So the hedging strategy follows an investment process. So with the volatility we've been experiencing this week. Certainly, there would be tactical adjustments, but that would follow the investment process that's in place. Mary Vilakazi: Okay. I think -- are we at the end? Operator: Yes, we have no further questions. Mary Vilakazi: Okay. All right. No further questions in the room? Okay. Well, thanks, everybody, for joining. Thanks for your time, and we'll see you in 6 months' time.
Operator: Welcome to the Dürr conference call for the preliminary figures of 2025. I will now hand over to Mathias Christen. Mathias Christen: Thank you, Anna. Welcome to today's call, ladies and gentlemen. The corresponding presentation is available on our website, and I assume you have it in front of you. As you know, we published select key figures in an ad hoc release already on February 17. Nonetheless, there are still enough figures and news to share with you today. The figures usually relate to continued operations with some exceptions that will be marked. Our CEO, Jochen Weyrauch will start on Page 2 before Dietmar Heinrich, our CFO, will take you through the financials. Jochen, the floor is yours, please. Jochen Weyrauch: Thank you, Mathias, and good afternoon to all participants on the call. As the most important figures, as Mathias said, were already released, I would like to start with a wider perspective and share with you what I personally consider the most important achievements of 2025. Basically, we delivered on what we promised. We simplified our group structure and turned Dürr in a more focused technology company with only 3 instead of 5 divisions. This involves sharpening our focus on the core business, which is automating production processes and making them more sustainable and efficient or Sustainable Automation as we call it. In this context, we successfully sold the noncore environmental technology business with a high post-tax book gain of EUR 227 million. On top, we started resizing our administrative structure to adapt to a smaller scope of business and tackle cost savings of EUR 50 million. This was after the capacity measures at HOMAG, a further major step to systematically reduce our fixed costs. The effectiveness of our cost-cutting measures is being testified by the improved operating performance in 2025 that was achieved despite the adverse macro environment. Next is Slide 3. The improved operating performance is reflected by 100 basis points improvement of the EBIT margin before extraordinaries. At 5.6%, the margin even slightly exceeded the target corridor of 4.5% to 5.5%. The group's net profit of EUR 206 million benefited from the good operating performance and the high book profit from the environmental technology sale. At EUR 227 million, the book profit was higher than assumed, mainly due to valuation and currency effects. We met our revised order intake guidance, thanks to a strong finish [ to the ] year. In Q4, customers have more flexibly adapted to the uncertain environment and started to place large strategical orders again. However, I would like to underline that we might see quarterly fluctuations in new orders again as the macro volatility remains high. Sales stood at EUR 4.2 billion and we were not satisfied. But given the fact that we were facing customer-induced project delays, I would still call them solid. Free cash flow for the continued operations reached EUR 162 million and was appreciably higher than projected, mainly because of very high premature payments in Q4 that were expected in 2026. For 2026, we see potential for further earnings improvement. I'd like to talk about the drivers in a few minutes. Slide 4 shows the already released figures relating to the developments I just described. I would like to highlight that we managed to increase operating EBIT by 19% despite the slight drop in sales. This was mainly supported by 50% earnings increase at HOMAG and further improvements in Automotive from an already high base level. Moreover, we benefited from lower cost -- lower expenses for our OneDürrGroup synergy program that will be closed in 2026. On Slide 5, you see strong fourth quarters are not -- as you can see -- as we already mentioned a number of times, strong fourth quarters are not unusual at Dürr. Nonetheless, Q4 2025 was a really good one. As I already mentioned, the good levels of order intake and free cash flow, I would like to underscore the high 7.4% EBIT margin before extraordinaries, mainly resulting from an 11% margin in Automotive and an above 6% margin at HOMAG. Automotive's high margin reflects the division's best-in-class project execution and the effects of the value before volume strategy while HOMAG benefited from its self-help measures. Slide 6 shows that we met or exceeded all of our targets that has in part been revised in July. Please note that the low reported EBIT margin of 0.7% was influenced by high extraordinary expenses of EUR 204 million, while the book gain of EUR 264 million before taxes was not considered in EBIT as it is not attributable to the continued business. On the opposite, net income of the group includes the post-tax book profit and thus doubled to EUR 206 million. Slide 7 reveals the strong impact of the tariff conflicts on order intake in Q2 and Q3. In both quarters, new orders were almost EUR 300 million lower than they should have been in order to meet our initial guidance from March. Q4 included 2 major automotive orders from U.S. and Eastern Europe and the largest order ever for HOMAG in timber house construction equipment. This order from North America has a volume of not much less than EUR 100 million and underlines the outstanding market position of HOMAG when it comes to really large projects. Slide 8, please. The global distribution of order intake was well balanced. We saw the expected declines in those regions that we were very strong in 2025. That means Europe and particularly Germany. While the China share continued to decline, we benefited from higher dynamics in other Asian countries, especially India and Saudi Arabia. Slide 9 underscores that the sale of the environmental technology business was a really successful transaction. This is mainly expressed by the high book profit. Before 2018, [ these ] environmental technology activities were a low-performing business. Then we acquired our main competitor, MEGTEC/Universal, shaped an integrated global player with best-in-class technology and consequently created additional value. This value is reflected in the high book gain we generated from the sale. When looking at the lower table, please keep in mind that the 12% margin in 2025 is not an adequate measure for assessing the selling transaction as it includes EUR 9 million of positive nonoperating allocation effects. Let's have a look on the divisions, starting on Page 11 with Automotive. Looking at the 29% drop in order intake, please consider that the 2024 base was very high due to several exceptionally large orders. On the opposite, Q2 and Q3 2025 were exceptionally weak as automotive OEMs postponed CapEx decisions due to tariff-induced uncertainty. Q4 was appreciably better again with customers resuming strategically important projects. At constant sales, the operating margin exceeded last year's high level and reached a strong 11% in Q4. There were 2 decisive factors for this. Our excellence in order execution under the umbrella of the combined Automotive division and our value before volume strategy with its focus on margins, strong projects in the sales process. Page 12. At the Industrial Automation, order intake [indiscernible] were mainly burdened by the market weakness in the lithium-ion battery business. We restructured this business and transferred it to the Automotive division at the beginning of 2026 to make use of Automotive's execution strength. The negative EBIT includes impairments of EUR 135 million. Of this, EUR 120 million are attributable to the impairment of BBS Automation in July. Further impairments of EUR 15 million were recognized in the battery business in Q4, reflecting the weaker market outlook. A quick view on the other 2 businesses of Industrial Automation. Schenck's balancing technology business showed a very good earnings performance, while at BBS Automation, there's still room for improvement. We installed a new management at BBS at the beginning of 2026, headed by the former Chief Operating Officer of HOMAG. His task is to improve operating excellence at BBS and further develop the strategy. He has a great track record at HOMAG, and I'm very sure he will do a very good job at Industrial Automation and BBS as well. Speaking about HOMAG, the main message on Page 13 is that the division made excellent margin progress despite slightly lower sales and was able to much better cope with the difficult furniture market environment than in 2024. The margin increase of just under 200 basis points is the result of self-help measures and successfully reduced fixed costs. Order intake slightly grew on the back of the accelerating demand in the timber house sector. 3 years after the beginning of the market weakness in the furniture sector, it's still difficult to tell when there will be a real recovery. But what we know is that HOMAG is well prepared for it. Next is Page 14. Service sales were almost on last year's level, even though the uncertain environment prompted customers to temporarily be more cautious in their service spending. With this, I hand over to Dietmar, who will take you through the financials. Dietmar Heinrich: Thank you, Jochen. Ladies and gentlemen, a warm welcome also from my side. Page 16 basically presents figures Jochen already touched upon. Therefore, I would like to limit myself on shedding some light on net income. You can see 2 net income figures here. The first one is minus EUR 50 million for the continuing operations, resulting from the high extraordinary expenses of EUR 204 million, of which EUR 135 million were impairment driven. We will get back to this point more in details later on as well. On the second topic on the bottom, you can see the net income of EUR 206 million of the group as a whole. This additionally includes the post-tax book gain of EUR 227 million from the environmental technology sale. Slide 17 contains information on the quarterly and regional sales split which will certainly be helpful for your follow-up analysis. For now, I would like to directly jump to Slide 18 with the EBIT before extraordinary effects. As mentioned, operating earnings increased by a high 19%, spurred by a strong second half when HOMAG fully benefited from its self-help measures and Automotive contributed very high earnings. High margin towards the end of the year are a characteristic at Dürr. But the 7.4% in Q4 2025 are really remarkable and came close to our midterm target level of 8%. The main earnings driver in the full year was a gross profit increase of EUR 23 million based on lower material costs, good order execution and well-managed personnel costs. And this despite a sales drop compared to previous year. On top, we benefited from lower costs for the OneDürrGroup synergy program as well as from lower negative allocation effects of EUR 9 million. On Slide 19, we show the composition of the extraordinary expenses of EUR 204 million in continued operations. 2/3 were attributable to the impairments and will not lead to any cash out. The second largest item was cost of EUR 38 million for restructuring measures, mainly for the admin adjustments announced in mid-2025 that are well on track. PPA decreased from EUR 42 million to EUR 28 million. On the group level, the extraordinary expenses were opposed by the high book gain of EUR 264 million from the environmental technology transaction. Now let's turn to Page 20. Back in December, we announced that free cash flow would be in the range of EUR 100 million to EUR 200 million and exceed the original target of up to EUR 50 million. In fact, it reached EUR 162 million in the continued business. This resulted from very high customer prepayments before Christmas. We were often asked about the reasons for this. The answer has a lot to do with customers' balance sheet and cash flow considerations. If they expect lower cash flows in the year to come, they will bring forward payments to the old year to reduce future cash outs. Beyond high prepayments, free cash flow mainly benefited from lower cash outs for investments. Page 21 shows that we kept net working capital under respective 2024 levels during the complete year with very low days working capital of 27 at the year-end. While the business volume was almost constant with a sales decline of just under 3%, we strongly reduced inventories, receivables and contract assets. This shows that we are able to keep a decent level of cash in the company, which is even more important when macro uncertainty is high. I'm pleased to say that we saw strong progress in net working capital management at BBS Automation under the Dürr umbrella and that the Automotive division managed to further reduce net working capital to less than 0. Page 22 is next. In the group as a whole, free cash flow expanded to EUR 193 million. Based on this and the EUR 295 million proceeds from the environmental technology sale, we were able to reduce net financial debt by EUR 330 million to only EUR 66 million. This equals to a low leverage of 0.2 and brought back debt to the very comfortable levels before the acquisition of BBS Automation in 2023. My last slide, #23, is on ESG. I would like to point out 2 important facts in our climate reporting. The first one is a reduction of Scope 3 emissions by 27% in 2025. Scope 3 mainly includes emissions in the use phase of our products. 27% is an enormous decline. This figure illustrates the very high relevance of our painting equipment for reducing our customers' CO2 footprint. The reason for the strong reduction is that a large share of the painting equipment we commissioned in 2025 features low-emission technology. The prime example is the world's first paint shop to operate entirely without fossil fuels that we handed over to a customer in Europe. The second fact I would like to draw your attention on is related to the EU taxonomy. We were able for the first time to recognize sales from the spare parts and service business in our taxonomy eligible and taxonomy aligned revenues. This means that almost 1/4 of group revenues are taxonomy aligned compared to 13% in 2024. With this, I would like to hand back to Jochen, who will make you familiar with the outlook for 2026. Jochen Weyrauch: Thank you, Dietmar. Slide 25 expresses that we expect the high level of macro uncertainty to persist in 2026. And looking at the war in the Middle East, this assumption seems absolutely justified. Automotive, we see a solid pipeline with quite a number of CapEx projects in the field of painting and assembly technology. However, the lesson learned from 2025 is that predicting the timing of contract awards is difficult nowadays. There's enough new business out there, but we cannot rule out that projects expected for 2026 might be postponed. Industrial Automation continues to see good prospects in the medtech and consumer sector, while new business with auto OEMs and suppliers is expected to remain volatile given the slower pace of EV transformation. At Woodworking or HOMAG, it's difficult to predict when the furniture business will finally recover. From today's point of view, we would rather expect another challenging year. However, HOMAG is strong enough to cope with this, especially given the upward trend in the timber house business that will support utilization and sales realization. Page 26, please. The war in the Middle East additionally threatens economic stability. This increases uncertainty and makes the outlook for 2026 even more difficult. Provided that the war will not further escalate, but rather be finished in the foreseeable future and under the assumption that no other international conflicts put additional pressure on supply chains and economic stability, we can give the following guidance for 2026. Sounds like a little longer disclaimer this year, however. We see potential to increase both order intake and sales. In the best case, order intake could rise up by up to 8% to EUR 4.2 billion, while sales could expand to up to EUR 4.3 billion. Looking at the ongoing uncertainties and the fragile geopolitical situation, however, we also included the possibility of declining new orders and sales in the guidance. With respect to earnings, our target is to further improve the operating performance and to increase the EBIT margin before extraordinaries to up to 6.5%. This also requires that the world will return to a more stable state soon. Supporting factors from earnings increase in 2026 include further earnings potential at HOMAG, operating improvements at BBS Automation, positive effects from the capacity cuts in the administrative sector and the battery business as well as strongly reduced expenses for the OneDürrGroup synergy program. On the opposite, we expect a onetime burden of around EUR 10 million at HOMAG for the transition to a new ERP system and for ramping up a new factory in Poland that will yield efficiency improvements from 2027 on. For free cash flow, we are giving a guidance of EUR 150 million minus to EUR 0 million. This considers the advanced customer payments at the end of 2025, higher net working capital needs for 2026, the tax payments for the environmental technology sale and the cash out for the administrative adjustments. Moreover, there might be a payment resulting from a tax audit that we will have examined by court, however. Upside potential for free cash flow may arise from customer prepayments in the course of the year that are not yet fully foreseeable. Page 27, please. To keep it short, I would like to refrain from going into detail on the divisional outlook. When looking at this, please note that the shift of the battery business from Industrial Automation to Automotive at the beginning of 2026 and the transfer of the BENZ Tooling business to Woodworking. The joint sales volume of both businesses is around EUR 100 million. This brings us to the summary on Slide 28. 2025 was marked by the transformation of Dürr into a leaner group with only 3 divisions and full focus on automation and sustainable production. Alongside with this, we improved our earnings resilience. Our 2 largest divisions, Automotive and Woodworking, were able to increase earnings in an adverse environment based on operating excellence and self-help measures. Industrial Automation will go the same way and improve its performance under the new management. Order intake was impacted by market uncertainties in 2025, but there is potential for improvements in 2026, provided that the extremely high level of uncertainty that we are facing right now will not last too long. Sales should, if at all, only grow slightly in 2026, but are expected to accelerate more strongly again in 2027. Provided that the geopolitical situation will calm down soon, there are good prospects for further margin improvements in 2026 and beyond based on operating excellence and further cost reductions, for example, in administration. Free cash flow will probably be lower in 2026. However, given our business model, it makes more sense to look at the 3-year cash flow average as this smooths out the high fluctuations in customer payments. Our balance sheet is very solid, securing the funds to grow and further develop our business. In 2026, we will put full focus on further strengthening our efficiency and operating excellence, especially at BBS Automation. Large acquisitions should not be expected this year, but are an option to speed up top line growth beyond 2026. Ladies and gentlemen, thank you very much for listening. Dietmar and I will now be happy to answer your questions. Operator: [Operator Instructions] We have a couple of questions already incoming. We will start with the first question from Nikita Papaccio, Deutsche Bank. Nikita Lal: I would actually have 3. The first one is on your service part of the business. The share of revenues is fluctuating close to 30%. Are there any initiatives or planning to increase the share? The second one is on your margin guidance for your automation business. I understand that you installed a new management team, but could you explain in more detail the building blocks of the margin improvement in 2026, please? And my final question is on dividends. Maybe I oversee it, but any comments here would be really helpful. Jochen Weyrauch: Thank you for your question, Nikita. First on service. We have always ongoing initiatives for the service business. And it's a bit different by division. We have already a very good share of service revenues in Automotive, which we are further expanding with new offerings, for example, our spare parts in many cases now comprise RFID chips to make it easier for our customers to track the lifetime of our products on the one hand. But on the other hand, of course, make our business more captive as companies, let me simplify, like pirates are more difficult to work on similar spare parts. We use a lot digital products in the service system now partially based already on artificial intelligence. This maybe on Automotive. On the HOMAG side, we are developing because we have a very high installed base, a very complex installed base. We are developing very special standardized service and upgrade programs that will help to support the service there as well, just given a few examples. And as you can see on our Industrial Automation business, especially at the BBS side, is not so much used to a strong service business yet. There, we're really kicking off programs to benefit from the [ potential ] that's out there. So lots of programs. And this makes us really very confident that this business will grow. And actually, we've set this as a strategic target even down to our remuneration for the year. On the margin guidance for Industrial Automation, the blocks and improvements, Dietmar, do you want to cover a few topics where we see the improvements? Dietmar Heinrich: It's on one side, continuing the optimization measures that are already established. We will on the -- one impact have the -- negative impact from the lithium-ion business that Jochen mentioned before that was under stress, and we had to do the impairment actually is removed to auto. This helps them to lift already to a certain extent then the margin. The second topic is that we are working on operational excellence in project management that we are improving the footprint continuously. We are combining 2 locations here in Germany that are very close together. That's already agreed upon with the works council there so that we can realize synergies. So that's why we are finally confident that we can reach the margin improvement, but it's not yet where we want to go. So there are still further steps to come finally beyond 2026. Jochen Weyrauch: On the dividends, I think we have -- there is nothing to be communicated yet. So it's difficult to comment on it at this point. Dietmar Heinrich: But Nikita, maybe to add, Jochen, we have the guardrails of 30% to 40% of the net income, but you are for sure aware that in case of extraordinary charges, we did some adjustments. This year, we have, 2025, an extraordinary benefit. So we might consider this. But in general, we are a good friend of a continuous dividend policy. And of course, nevertheless, having our shareholders having a share of the -- or the income [ that is the ] benefit that we produce. So it's a very generic statement, I have to say. We will discuss with the Supervisory Board. And when we get out with the final report at the end of March, you will get information in that regard. Operator: All right. The next question is from Philippe Lorrain from Bernstein. Philippe Lorrain: So I also have like a few questions. So maybe if I can just follow up a little bit on the impairment that you were mentioning for Industrial Automation, if you can quantify that? And also with regard to the guidance that you provide per division, you give indications on the sales for 2025 in the lithium-ion battery system business and also for BENZ. But looking at 2026, what would have been like the kind of figures that you were anticipating for this in terms of order intake and also like the margin impact, maybe the dilutive margin impact on Automotive and the relative margin impact on Industrial Automation would help a little bit. So that would be the first question. Dietmar Heinrich: So Philippe, in regard to the impairment, just to make sure it's LIB that you mentioned. Philippe Lorrain: Yes... Dietmar Heinrich: Because I was still busy taking note, sorry for that. Yes, it's the market situation in the battery market in European market is very, very difficult. That's the area that we focus on because we have been of the opinion that we can gain business in the European market with the drive also for independency in regard to battery supplies in the European Union. We can see that from a customer perspective, this did not materialize finally. We could see the difficulties of Northvolt. We could see Porsche's announcement regarding their joint venture, Cellforce. And we do see that last year, the market in regard to new business was very, very low. At the very end of -- then we reviewed the business opportunities, we reviewed the business plan, and we came to the conclusion that for the foreseeable future, it's not going to build up then finally in the area that we really targeted. And we did then finally impairment of EUR 15 million. So the impairment as a whole is EUR 135 million. As I mentioned before, thereof the EUR 120 million for BBS that we already [ or PAS ] at that time that we already did at the end of the first half of the year and the EUR 15 million now in the fourth quarter for LIB. Philippe Lorrain: Okay. So the margin -- yes, sir. Jochen Weyrauch: Maybe to add to that - go ahead, Philippe. Go. Philippe Lorrain: No, I was just meaning -- so the margin step-ups come basically from the fact that we just reduced the amount of depreciation going forward? Jochen Weyrauch: Yes, it's also operational improvement. So we expect a significant -- after restructuring we've made in the lithium-ion business, we really expect even close to double-digit million improvement in the lithium-ion business as such operationally independent from any depreciations on the business. You were asking also on the dilution for the business, it's... Dietmar Heinrich: Based on last year, it would be around 70 basis points for Automotive in the margin. Philippe Lorrain: Okay. So basically, so if I take like the 7% to 8% target -- margin target range, sorry, for 2026, I would need to hike that by basically like around 70 bps. So more or less what you expect... Dietmar Heinrich: Philippe, when you look to 2020 figures, then you would go down from the 8.6% towards 7.9% in order to have it comparable. And in regard to 2026 guidance, as Jochen outlined, we want to bring back the figure to the breakeven or the business to breakeven for 2026. So the dilutive effect is significantly smaller. Jochen Weyrauch: More comes from volume. And you were asking about volumes, both businesses are in the magnitude of EUR 50 million or a bit more at the moment. Philippe Lorrain: So that was the order intake volume for the LIB. Jochen Weyrauch: Also order intake on lithium-ion was lower last year. We had a good 2024 with a large order that we're currently still executing and BENZ would be around the EUR 50 million roughly, yes. Philippe Lorrain: Okay. Perfect. Then I have like one question maybe on the large order that you had for timber house for HOMAG in Q4, if you can quantify a little bit that kind of impact? Jochen Weyrauch: Yes. That order was close to EUR 100 million in order intake is coming from North America. It will be executed this year and to some extent, also next year. And all in all, in that area, what we call [indiscernible], which is the wooden houses business, we had an order intake of about EUR 200 million last year, record order intake. Philippe Lorrain: Okay, including that order? Jochen Weyrauch: Including that order, yes. Philippe Lorrain: Okay. Perfect. I've got 2 more technical questions, so to say, for you. So the first one is on the announcement that you already preemptively make that you are to revise the 2030 sales guidance. So obviously, there's a need to adjust anyway for the sale of the environmental business of CTS. But are there any other reasons also that push you to do that, say, for instance, like the slightly lighter anticipation in terms of order intake for 2026 versus what could have -- one could have expected, so let's say, me, for example, in terms of growth and also generally like the cautious stance that you have with regard to the geopolitical situation? Jochen Weyrauch: All of what you're saying is valid in a certain sense. However, EUR 100 million up or down, maybe I'm a bit too generous now, in 2026 don't have much impact on 2030, at least I hope. So CTS is a valid discussion. We will be, of course, reviewing growth potentials, which currently we are really revisiting in order to, not too far in the future, redefine what would bring us to the EUR 6 billion or whether the EUR 6 billion are still the EUR 6 billion. Dietmar Heinrich: And Philippe, it's always including both organic growth and inorganic growth, which means acquisition, Jochen pointed out with -- on the presentation, you can see 2026 is on efficiency. But of course, for the future, especially when opportunities coming up to strengthen the business, we will seriously diligently look into them. Jochen Weyrauch: Within the core business. Dietmar Heinrich: Within the core business and with net debt being reduced to a level close to 0, we are also now having a good headroom again to act when opportunities are coming up in the future. Philippe Lorrain: Okay. So maybe you will actually stop targeting such a fixed figure, including, let's say, like M&A and so on and rather guide organically that could actually like be wiser, I guess, going forward? Dietmar Heinrich: We will take it into consideration. Philippe Lorrain: Yes. That's good. And finally, I've got a question for you, Dietmar, because you were mentioning the fact that contract assets were actually reduced. So to which extent do you manage to proactively reduce or keep that under control versus what is it that you actually cannot control? Because I understand there's always a relation between that item and also the sales recognition and the earnings recognition and actually, the market typically likes if contract assets are not too much inflated. So it's good news here, but we get that to be seen. But I was wondering whether there's actually like -- really like something that you can control versus something that you have to actually deal with. Dietmar Heinrich: Yes, you're right, Philippe, and looking into the number, we had a decline of EUR 84 million from end of 2024 to end of '25. So that's a significant decline. But basically, I would say the majority of this, we can manage. I think one of the reasons for this at the very end is in conjunction with the sales recognization, especially the excellent EBIT margin on the automotive side in the fourth quarter business. So a couple of projects have been completed. We had to -- or we could then finally realize the outstanding sales. We could realize then also the profit with releasing contingencies that we had in there, and that was also making a contribution to the drop in the total contract assets as well. Philippe Lorrain: Okay. Perfect. And if you don't mind just like a very -- like a little housekeeping stuff. So you mentioned EUR 10 million of cost for HOMAG for ERP transition. Is it going to be recognized below the line, so i.e., in earnings adjustments or within the guided margin? Dietmar Heinrich: We had internally some discussion, but let's say it this way, the Head of our Audit Committee is not too much a friend of it. Jochen Weyrauch: So it really goes bottom line. Philippe Lorrain: Okay. So in the adjusted EBIT still? Jochen Weyrauch: This is earnings before extraordinary effects. Dietmar Heinrich: And that's also -- Jochen mentioned that we had a decline or we expect a decline or had already a decline last year in the OneDürrGroup synergy program. In that regard, we stopped the one ERP approach, and we finally moved now to a brownfield approach regarding SAP R/3 to S/4 transformation that is division based. And we have on one side, the savings, and we have smaller amounts due to the brownfield approach than in the division, but it's reflected directly in the divisions, and it's shown there. Operator: The next question is from Adrian Pehl, ODDO BHF SE. Adrian Pehl: Actually, 2 questions left from my side. First of all, on the cash flow guidance that you gave, just to get a sense of what defines really the very low end and the upper end of that? Because if you take the 2 years together, i.e., 2025 and your, let's say, very low end of 2026, there's literally any -- hardly any cash flow left on an EBITDA of EUR 600 million. So that seems a very cautious to me, but maybe also the moving parts and building blocks would be interested on that number. And then secondly, on the regional developments, I mean, obviously, throughout the year, we have seen, in particular, China quite soft. And I was wondering also on the order side of things, actually now down to book-to-bill of 0.4 in Q4. First of all, how do you think of that business progressing? And secondly, is that due to a structure of Chinese rather buying Chinese products? So is that a structural thing? Or how should we see it? And then I might have a follow-up on the regional setup. Dietmar Heinrich: Shall I start with the free cash flow guidance? Adrian, in that regard, we mentioned that we received quite big early prepayments or payments in December from our customer side that had a strong influence. Remember that the guidance originally was 0 to EUR 50 million. Now -- then we increased, we got out now with EUR 162 million. Based on the past, maybe we sometimes could overexceed a little bit. So you can roughly say that we received around EUR 100 million more than we expected finally. And this, of course, is missing as a cash inflow in 2026. So that's why we are certain. On the other side, we will not, for ongoing projects, receive significant milestone payments because these earlier payments also to some extent are made. And then we have nonoperating cash outs like we mentioned for the tax on the environmental technology sale. We booked the net gain finally, but the tax payments will be made in 2026. And we have the expected payout from the tax audit in Germany that we are targeting or not targeting, we will have it examined by the court. We don't want to mention the number due to the tax authority not letting to know our real position on this, but we build up respective provisions. So no impact on the profit side impacted. And that's actually -- and of course, when orders are coming in towards the end of the year, we could have again the advantage that we get the initial down payments and then have a better cash flow development despite the fact that not much of the contracts as is being built up during that time. So this defines the upper and the lower end from a verbal explanation. Jochen Weyrauch: On the regional distribution, especially China of the orders, first, as a disclaimer, as you know, in many cases, we have orders that are triple-digit millions. So this can fluctuate over time. However, especially on China, where we've seen some declines, it is -- China is a very competitive market. And from what we see, it's not about in terms of winning the orders, at least in most cases, independent from whether you are local or not local. In fact, we are local for more than 30 years already in China. It is competition. And of course, the market after boom times around adding capacities with now dozens of producers that -- it's natural that the investments have been somewhat down. However, I can note that this year, we've already seen some upwind and book 1/2 orders in automotive, not the big orders, but activities there. So let's see what's happening. And China, of course, is the most competitive market on the planet. This is why we are also continuing to play there, especially to learn from them. And not to forget, we're using our own Chinese facilities to follow Chinese OEMs into the world. So if you look at China from a holistic point of view, it's a bit more than just the order intake mix. Adrian Pehl: Right. And more generally on that, I mean, how are you managing your capacities, in particular on the automotive side of things? So I mean, obviously, your overall profitability was solid in particular in the second half of the year. It looks like you are probably also assuming or selecting orders depending on the margin profile. Is that continuously the case? And how should we think of the margin profile in your order backlog going forward? Jochen Weyrauch: Yes. We have a healthy -- continue to have a healthy margin in the order backlog. And in many cases, with the excellence that we have in order execution, we turn or we even increase the margin that we have in the backlog when executing projects. Then in terms of capacity management, we are very much used still today to manage projects very globally. So when we -- just to give you an example, execute an order in Saudi Arabia, you would have colleagues from China involved, from Korea, from Italy, from Poland, from Germany and probably a few more countries. This is how we are used to execute orders, not saying independently from where they are, but to a large extent. And this is why we can manage capacities quite well. And second, also very important is that a lot of the P&L, especially in automotive, is purchased goods. So we are not so dependent in terms of load in factories because our value adding, our own value adding in terms of products is limited to the amount where we can differentiate with own IP. Operator: So dear ladies and gentlemen, there are no more questions in the queue at the moment. [Operator Instructions] And there is a follow-up from Philippe Lorrain, Bernstein again. Philippe Lorrain: So the first one would be on the extra cost that you had on the continuing business prior to the actual sale of CTS Environmental. So could you quantify that again for the full year of 2025, so we know what negative impact actually leaves the P&L? Dietmar Heinrich: This was around EUR 30 million, Philippe, as a whole, a smaller amount, low to 1-digit million euro, I would say, EUR 3 million to EUR 4 million was already in 2024. The remainder was in 2025. So that's the amount that we spent, and this was related to the carve-out preparation, which was quite complex and was then transaction-related expenses. Philippe Lorrain: Okay. But you had also this -- this also includes the impact of shifting the costs that were actually not recognized anymore in CTS Environmental, but rather in the existing continuing business also [indiscernible] all together? Dietmar Heinrich: That's correct. It recorded in the discontinued operations. Philippe Lorrain: Okay. Perfect. And second question that came to my mind as well, as you were mentioning Saudi Arabia. But with the current situation in the Middle East, so do you have any, let's say, like significant projects where you have works on the ground and so on? And what's the situation like there in this kind of scenario that we are going through in the Middle East? Jochen Weyrauch: Yes. We are -- Philippe, we're having 2 projects that are currently significant, the 2 projects in Saudi Arabia, but they are not at the Persian Gulf side in the East, but they are in the West, near Jeddah, King Abdullah Economic Zone. So far, first of all, our people are safe because we have the people there. We have all the plans to deal with the situation and escalate if necessary. And second, in terms of the supply chain, we're carefully watching. And where necessary, we reroute goods at this point. So, so far, we're not with a view on this region, expect any interruptions. What, of course, we have to carefully watch is our supply chain in general. And there, it's difficult to say at this point. It is what we said before, if this conflict is managed within the foreseeable future, we don't see a real impact. If it takes longer, we will have to see. Operator: Thank you very much. With that, since there are no more questions in the queue, I'm closing the Q&A session again and handing the floor back over to the host. Mathias Christen: Thank you, Anna. Thank you, ladies and gentlemen, for your questions and the discussion. If there are follow-ups, please don't hesitate to contact me. The full annual report will be published on March 26 and the Q1 figures on May 12. We are planning a Capital Markets Day in the course of the year as we are currently examining our midterm sales targets and working on a strategy update. For today, that's it. Take care. Goodbye.
Operator: Good evening, ladies and gentlemen. Welcome to the Fourth Quarter 2025 Results Conference Call. I would now like to turn the meeting over to Mr. Rob Wildeboer. Please go ahead. Robert Wildeboer: Good evening, everyone. Thank you for joining today. We always look forward to talking to our shareholders, updating you on our business and answering your questions. We also note that we have other stakeholders, including many of our employees on the call, and our remarks will be addressed to them as well as we disseminate our results and commentary to our network. With me this evening are Pat D'Eramo, Martinrea's CEO; our President, Fred Di Tosto; and our CFO, Peter Cirulis. Today, we will be discussing Martinrea's results for the fourth quarter and full year ended December 31, 2025. I refer you to our usual disclaimer in our press release and our filed documents. On this call, Pat will outline some key highlights and achievements in 2025, touch briefly on the quarter and comment on some of our key initiatives, including machine learning and artificial intelligence. Fred will discuss operations. Peter will go over the financials and our outlook for 2026 and beyond. And I will conclude with some comments on the current trade environment, capital allocation and valuation. Then, we'll open it up to Q&A. So without further ado, here's Pat. Pat D'Eramo: Thanks, Rob, and good evening, everyone. Let me start with a few highlights from this past year. Our safety results continue to be world-class. Our total recordable injury rate or TRIF was 0.71 in 2025, which is among the very best in our industry and much better than the average, which is around 3. We've said it before, there's no better way to show your people that you care about them than to keep them safe. Moving on, we generated just under $200 million in free cash flow in 2025, a new record for the company. This is now the third year in a row where we have generated free cash flow in the $150 million to $200 million range. We have delivered on our commitment of being a consistent generator of strong free cash flow. Our track record is now well established and will continue going forward. We accomplished this while continuing to invest in the business with $238 million in capital expenditures, which is lower than we spent in recent years. This reflects improved capital management, including optimization and reuse of our existing assets. Given the strong cash performance, we were able to reduce our leverage with net debt to adjusted EBITDA ending the year at 1.35x and below the upper end of our target of 1.5x or better. We achieved this while resuming our NCIB activity, spending $8 million to repurchase approximately 779,000 shares in the fourth quarter. Next, we improved our adjusted operating income margin as we continue to drive operational improvements across the organization and obtained commercial recoveries from our customers for EV volume shortfalls and lingering inflationary costs. We also won multiple supplier awards, including the General Motors Supplier of the Year Award and awards from Toyota, Volvo, Nissan, ZF and Caterpillar. Next, our advanced manufacturing team or AMT has made good progress on the machine learning installations across the plant network. To better support our machine learning strategy, we acquired a 10% equity stake in Polyalgorithm Machine Learning or PolyML, a provider of advanced machine learning and data analytics solutions that serve as the core intelligence behind Martinrea's machine learning AI. PolyML uses a proprietary technology called feature importance insights or Fiins AI to expose the most valuable signals in complex data sets. Most conventional black box machine learning focuses on predictive accuracy, and you can't see inside. PolyML technology creates more accurate models that are transparent and fully explainable. This is a unique breakthrough feature. This approach is driving significant improvements in weld quality, efficiency and energy usage. It's also deployed in our press health monitoring, providing an early warning system that will substantially reduce unplanned downtime and maintenance costs. Fiins AI is a key component of Martinrea's machine learning initiative, and we expect our relationship with PolyML to grow over time. Back in October, we acquired the assets of Lyseon North America. As a reminder, Lyseon was a single plant operation in Tulsa, Oklahoma, engaged primarily in manufacturing metal parts and subassemblies for school buses in the U.S. This acquisition adds business with International Motors, formerly Navistar, a high-quality customer that the company sees a lot of opportunity to grow with over time in both buses as well as commercial vehicles. It also broadens our product offering and further diversifies the business in nonautomotive markets. I'm happy to say that the integration is going very well. We are pleased with the progress that we're making there and the prospects of eventually adding more business to the facility in the future. 2025 was a busy year with notable achievements on all fronts. I would like to thank our team for their hard work and dedication in delivering these results. Turning to the fourth quarter, we're pleased with our performance, both operationally and financially. Adjusted operating income margin was up year-over-year as we continue to drive operating improvements and negotiated commercial recoveries with our customers, largely for volume shortfalls on EV programs. Also recall that Q4 of last year was impacted by an inventory correction in North America that affected some of our key programs, most notably with Stellantis. We continue to navigate through the impact of tariff costs on our business. For us, the vast majority of parts that we export from Canada or Mexico into the United States is compliant with the terms of the USMCA and therefore, not subject to tariffs. We do have some exposure, most notably as it relates to Section 232 tariffs on steel and aluminum products that impact some of our components. I'm happy to report that we've been successful in recovering the vast majority of our tariff costs through commercial settlements with our OEM customers. This is a remarkable achievement. Our supply chain operations, sales and commercial teams worked tirelessly to make this happen, and we're proud of it, and we appreciate all of their efforts. Looking at the full year of 2025, we met our outlook for sales and adjusted operating income margin, which came in at 5.6%, above the midpoint of our 5.3% to 5.8% outlook range. We spoke on our last call about the ongoing negotiations with our customer on some sizable commercial items mainly related to EV volume shortfalls. And that these could fall in either the fourth quarter of '25 or the first half of 2026. These discussions are progressing well, and we intend to close on these items in the first half of the year. Most importantly, and as I mentioned earlier, we generated a record free cash flow for the year at just under $200 million, well above our outlook of $150 million to $175 million, reflecting our operational performance and our CapEx discipline. We expect another strong year in 2026, and Peter will have more to say on our outlook for 2026 and beyond later in the call. With that, I'd like to end by thanking the Martinrea team for their tireless work and continued dedication to make our business better every day. And now I'll turn it over to Fred. Fred Di Tosto: Thanks, Pat. Good evening, everyone. As Pat noted, we are executing well, both operationally and financially in the face of ongoing industry dynamics pertaining to trade, tariffs and electric vehicle volumes. We are doing well, managing what's in our control and mitigating what isn't in our control through a focus on continuous improvement, overhead cost reduction, leveraging investments in automation and machine learning and recovery of costs related to tariffs and volume shortfalls on EV programs through commercial settlements with our customers. We have full confidence in our team, and I'd like to thank our people for their dedication and hard work in delivering these results. Turning to our segments, starting with North America. Q4 adjusted operating income margin came in at 6.9%, up 110 basis points year-over-year on the flow-through impact of higher production sales, improved operating performance and higher favorable commercial settlements year-over-year. We ended the full year 2025 at an adjusted operating income margin of 7.3%, up from 6.7% in 2024, a nice year-over-year increase. We continue to operate at a healthy margin in North America, the main growth engine of our business and expect that to continue. In Europe, our Q4 adjusted operating income margin improved significantly year-over-year, narrowing the loss to negative 1.4% from negative 3.6% in Q4 of last year, driven by better flow-through on higher production sales and the benefits of the restructuring actions we previously undertook. For the full year, we are approximately breakeven, a result reflective of a volume environment that remains below expectations and normalized volumes with the improvements we have made across our European operations, we will be positive in the region. Strategically, our objective is to maintain a disciplined, stable presence in the region rather than pursue aggressive growth. Our Rest of World segment delivered a much improved full year performance ending 2025 with a positive operating income margin of 1.3%, a significant increase from the negative 2.1% in 2024. The fourth quarter did show an operating loss, which reflected a lower level of favorable commercial settlements year-over-year. As we have stated before, this segment is small, representing less than 3% of our consolidated sales and results can vary quarter-to-quarter based on program timing and commercial settlements. Our strategy in this region remains deliberate and focused on maintaining only the footprint required to support our global business. In line with that approach, we signed an agreement to sell a small plant in Anting, China after the quarter. We have a strong relationship with the buyer, and we retain a minority interest through a planned transition period. Moving on, I'm very pleased to announce that we've been awarded new business, inclusive of some nice takeover work worth $210 million in annualized sales and mature volumes, which includes $180 million in structural components in our lightweight structures commercial group from Stellantis, Toyota, General Motors and Audi, $20 million in our Propulsion Systems group with Stellantis and Ford and $10 million in our Flexible Manufacturing Group with Volvo Truck and JCB. New business awards during the last 12 months totaled $340 million. Quoting activity is quite robust at the moment, and we have recently won work on a number of program extensions with various customers with a value of over $1 billion in annualized sales and mature volumes. It's important to note that while extensions are replacement work, they support our sales outlook and ultimately help our margin profile as we can generally reprice the business to fully build in the inflationary costs that we have had to absorb over the last few years. Extensions also require less capital for the same amount of volume compared to new programs, which supports our free cash flow. As you can see, we had a strong quarter of new business awards with a diverse group of customers, which we are very happy with. We feel like we have some good momentum building in this area with a very healthy pipeline of quoting activity and opportunities in front of us. A strong quarter of new business awards underscores not only the confidence our customers place in us, but also our ability to deliver the service, expertise and innovation they rely on. Winning new business, in particular, takeover work reflects our team's capacity to respond quickly to customer needs and provide solutions that create real value. That's what we do. We solve customer problems, and we're really good at it. At this point, based on this momentum, we expect a strong 2026 of new business awards, which ultimately will largely start launching in 2028, supporting our 2028 outlook, which Peter will speak to in a few moments. Thank you for your time. And I turn it over to Peter. Peter Cirulis: Thanks, Fred. Looking at the results year-over-year, adjusted operating income came in at $55.1 million, up 37% year-over-year on production sales that were up about 7% or 6% on an organic basis, excluding $14 million in sales from the Lyseon acquisition. Adjusted operating income margin came in at 4.6%, up 110 basis points year-over-year. The margin improvement was a function of the flow-through on higher volumes and operational improvements. Free cash flow came in at $108 million before IFRS-16 lease payments or $93.3 million after IFRS-16 lease payments, up from $76.4 million before lease payments or $63 million after lease payments in quarter 4 of last year, driven mainly by lower CapEx as well as higher EBITDA and lower cash interest and taxes paid. As Pat noted, 2025 free cash flow, excluding these lease payments came in at $199 million, which is a new record for the company. Some of this is timing related, but overall, our free cash flow performance is a function of improved capital discipline and optimization and reuse of our existing assets. Adjusted net earnings per share came at $0.67, up from a loss of $0.21 in the fourth quarter of 2024. Recall that quarter 4 of last year was impacted by an abnormally high tax rate, reflecting a noncash loss that flowed through our tax expense on the P&L due to the rapid depreciation of the Mexican Peso against the U.S. dollar, and this reduced EPS by $0.40. This year, in quarter 4, the peso appreciated and we had the opposite effect, resulting in a noncash gain flowing through our tax expense on the P&L, increasing EPS by $0.30. Again, these are accounting adjustments that exist only under IFRS and do not impact cash or operating income. Turning now to our balance sheet. Net debt, excluding IFRS-16 lease liabilities, decreased by approximately $73 million over quarter 3 to $695 million, reflecting the strong free cash flow generation in the quarter. Our net debt to adjusted EBITDA ratio ended the quarter at 1.35. Our target is 1.5 or better, so we are well within our target. We did this while resuming our share buyback activity under our normal course issuer bid, repurchasing approximately 779,000 shares during the quarter for $8 million. We reduced long-term debt by approximately $113 million in 2025, lowering our financing costs by about $12 million. We believe in a balanced approach between share repurchases and debt reduction. This maintains a strong balance sheet while serving our investors and leaves us well positioned to take advantage of opportunities like we did with the recent acquisition of Lyseon and other investments we've made. Rob will have more to say on our capital allocation priorities in a few moments. Subsequent to year-end, we amended our banking facility, extending our maturity out to 2030 from 2027. We also brought 2 new banks into the syndicate, which is now up to 12. The size of the facility is unchanged other than the accordion feature being increased from USD 300 million to USD 400 million. Covenant terms remain unchanged. We have a great relationship with our lenders, and we thank them for their ongoing support and continued vote of confidence. As for the future, we are rolling out our 2026 outlook, which calls for sales of $4.5 billion to $4.9 billion and adjusted operating income margin of 5.5% to 6% and free cash flow of $125 million to $175 million. Unpacking this, starting with sales, the midpoint of the $4.5 billion to $4.9 billion range reflects a modest year-over-year change that is largely driven by 2 known and isolated factors. The wind down of the Ford Escape program, which contributed roughly $200 million of sales in 2025 and an expected decrease of tooling sales compared to an unusually strong 2025 level. Excluding these items, our underlying production sales are expected to be broadly consistent with 2025. Moving on, our adjusted operating income margin outlook range of 5.5% to 6% assumes an increase from 2025. The main assumption here is that the flow-through impact of the lower sales is expected to be offset through continued operating improvements, including our investments in automation and machine learning that Pat discussed. It also assumes ongoing commercial recoveries for EV volume shortfalls and recovery of the majority of our tariff-related costs similar to what we achieved in 2025. Lastly, we are projecting another strong year of free cash flow in the $125 million to $175 million range. This assumes CapEx comes in at approximately $300 million, which is higher than where we landed last year, in part due to some of the new business award that Fred discussed. There was also some timing impact with certain capital items getting pushed out of the fourth quarter and into 2026. But overall, CapEx is at a good level, reflective of our ongoing capital discipline. As Pat noted, we continue to build on our track record of strong consistent free cash flow generation, which is now well established. Looking further out, we see a lot of opportunity for our business, including inquiries from our customers asking us to look at taking over business from distressed suppliers. We also see opportunities from the rebalancing of global trade that should result in meaningful volumes being reshored to the U.S., increasing quote activity and potential acquisitions. We recently completed our annual budget process and the cadence of our launches should contribute to meaningful organic sales over the next few years. Fred spoke about these new business awards, product extensions and quoting activity in his remarks, and these factors solidify our view. Based on our Board-approved budgets, we expect total sales of between $5.3 billion and $5.5 billion in 2028, assuming no acquisitions. Again, this reflects the cadence of our launch activity as well as some modest improvement in the overall vehicle production volumes. Importantly, 75% of our projected production sales for 2028 is already booked and the balance coming from replacement work where we are the incumbent supplier and high probability new business opportunities. So good organic growth in a relatively flat market. This should help drive adjusted operating income margin to a range of 6.5% to 7% in 2028, which reflects the flow-through impact of higher sales volumes, continued operating improvements, including gains from our automation and machine learning initiatives and lower SG&A costs as we realize and sustain the full benefit from our $50 million in targeted savings. Note that 2027 will be a busy launch year, so more of the growth in sales and margin will come in 2028. The key takeaway is our future is bright, notwithstanding the ongoing issues from tariffs and slow EV sales, which we are effectively navigating through. With that, I would like to thank our people for their hard work and commitment in these continually evolving times. I now turn you over to Rob. Robert Wildeboer: Thanks, Peter. Now that you've heard from our team, I want to make a few takeaway comments on where we are at with USMCA and trade issues, capital allocation and valuation. I'll touch briefly on the Mid East conflict as well. As you have heard, there are many great things happening in our company. We had a good 2025, better than many anticipated in the middle of much trade and tariff uncertainty. Operations are running well. We're embracing new technologies in a prudent way. We are seeing and capitalizing on opportunities. Our financials are really good, and we have a bright future. Regarding the USMCA and trade discussions, while there is always a lot of noise, it seems to me pretty clear that we will very likely not see any tariffs on North American-made auto parts. Scott Bessent himself told me tariffs on auto parts is a very bad idea. This is good for us, but this is a consensus view in Washington, Mexico and Canada. I also foresee no tariffs on Canadian-made autos eventually. That's what we are negotiating for, and that's what the entire industry wants. But let me make an observation that I don't think many realize, and that's perhaps our fault for not emphasizing it more. The fact is over 97% of our sales are made to assembly plants that are not in Canada. That is less than 3% of our revenues worldwide are made from sales of our products to Canadian assembly plants. Most of what we make in Canada is shipped to U.S. assembly plants already, tariff-free. And our U.S. footprint is much bigger than Canada, and our Mexican footprint is even bigger. It is clear to me that our North American auto parts sales are likely not materially impacted even if, for example, Canada faces a tariff on assembly or USMCA discussions don't go well between Canada and the United States. I do believe there is huge consensus in our industry, OEMs and suppliers alike for a tariff-free North American auto industry, autos and parts makers. See, for example, the industry submissions to the administration and Congress, and we will get there. But even if we don't, we will be fine. In terms of the USMCA and other negotiations, we are heavily involved. Mexico is moving forward with the U.S. on a renewed USMCA and Canada is definitely involved in discussions, too. Both Mexico and Canada are insistent on a tripartite deal. I note that Prime Minister Carney recently announced Canada's auto policy in our Alfield plant on February 5, my birthday. It was a good birthday present. The PM and the people wish me a happy birthday. And my present was their declaration that auto is Canada's core manufacturing industry and that this federal government is committed to it with a Made in Canada auto policy. This is good news. I strongly support the government's policy on remissions to reward companies that make vehicles here and to use the remission system as a carrot and a stick to get more assembly in Canada. Good news for parts makers and us. I strongly support the tax and grant incentives to invest here, good news again. And I support the removal of a hypothetical and unachievable EV mandate with a somewhat more realistic approach. I, like others, have some concerns about Chinese EVs in the market, but that is a quota, and Chinese EVs do not qualify for government incentives. Overall, the government has recognized the need for a strong auto industry here, and this is a good time for us in that regard. I also note that governments in the U.S. and Mexico support us as a parts maker unequivocally. The USMCA rules of origin provisions will be tightened in some fashion and the penalties for noncompliance will be increased, which is good news for North American parts suppliers and Martinrea. I believe that the U.S. tariffs on other jurisdictions on parts and vehicles in whatever form they take, will over time, encourage more manufacturing in North America. Again, good news for suppliers and Martinrea. When I go to the U.S. or Mexico, the first question I generally get is what can we do to support you, promote you, get you to invest more, get you to hire more people. It's a great environment. Our company and our industry are simply loved in the U.S. and Mexico. As you recall, we showed growth, much of it in North America over the next few years. By the end of the decade, I believe we will be at around $6 billion in revenues, give or take, without major acquisitions. I note some of our increased revenues could be from taking over a plant here or there as we did with Tulsa in November, but I don't call out a major acquisition. Now let me talk about share price and start with the USMCA context. Before Donald Trump ran for office and started threatening Canada and just about everybody with tariffs, our share price was significantly higher than today. I believe there is a USMCA cloud over our stock. As the things I've just talked about get sorted out, I believe that cloud will disappear. Canadian investors and analysts won't have to read a report every day about something going wrong in the auto industry. Note that we and other auto parts companies saw stock prices come under pressure during Trump's first term, then a recovery once the USMCA was signed. But I think there's a bigger issue here, and it's the receptivity of Canadian shareholders to auto parts companies and their valuations, at least at this time. I might not be the only person who sees this or says this. And I say that's a perception problem and not a real problem with risk or operations. Canadian headquartered auto parts suppliers are among the most competitive in the world. Look at our growth, especially outside the country. Our metrics compare favorably to any of our competitors, especially internationally. The average EV or enterprise value to EBITDA ratio for public U.S. traded auto parts companies is well over 4x, closer to 5x or more in most cases, yet we trade at a discount. And if you look at comparisons to our peer group, companies that are in similar spaces, our margins are top end in comparison, our free cash flow is top end of the range. Our leverage ratio is near the bottom of the range or very strong. And you cannot say the discount is because we are a company that has major revenue exposure to Canadian assembly plants. We have more North American sales than most of them, and our exposure to Canadian assembly plants is relatively low. I believe this discount will go away over time, starting with clarity in the North American tariff environment. Our share price was up 15% or so last year in 2025. That's a decent return. Our share price is pretty flat year-to-date. If we trade at 4x EBITDA even, our price is around $20, depending, of course, on debt levels, share levels and so forth. Our job is to get it there and a simple look at valuations in the U.S. market shows where valuations sit. Now let's touch briefly on the Mid East Iran conflict, which has rolled to markets this week and may do so for a while. Wars are generally not good for markets in general, although they could be positive for some sectors such as oil and defense stocks. Sustained high oil prices are generally not good for automotive sales, at least ICE vehicles. We anticipate that the current situation will eventually stabilize and that oil prices will stabilize too. As one industry player once said, the cure for high oil prices is high oil prices. Over the next few years, we remain bullish on the industry and our place in it. Now let's chat about capital allocation. Our philosophy has been set out on our website. We have followed it very well over the past number of years, even through COVID, chip shortages, inflation, the EV Fiasco and tariff issues. We have invested first to maintain, grow and improve the business organically through strategic investments in technology. We are a stronger company because of it and stronger today than ever before. We have maintained a strong balance sheet. Important for this industry as a supplier bidding on jobs. We have targeted a net debt-to-EBITDA ratio of 1.5x or better, and we're better now. That's where we were in 2019, and we have brought it down from over 3x in early 2022. We paid down over $200 million in debt in the past 3 years to the end of 2025. That's good, we believe. At the same time, we have repurchased shares when appropriate. In the past 3 years, we have repurchased 10% of our outstanding shares and are now down to about 72 million shares outstanding. Since 2009, our last share issuance, we have bought back almost 20% of our outstanding shares on a fully diluted basis. We are not buying back much in the last year, taking a prudent approach given the tariff situation, but resumed in Q4. We will continue to balance our capital allocation, but frankly, the intrinsic value of our shares is higher than the market value as I see it. So we have to work on that, and we will. I see the way companies in the U.S. are valued more richly than we are, and I reflect we are as much a U.S. company as most of them are. I do remember times when we and other Canadian companies trade at a premium to our U.S. counterparts. I hope we get there again. Peter talked about us being a consistent free cash flow producer. We will use that cash to invest in our company, strengthen the balance sheet and buyback some shares. We're making decent money. As the stock market grew, we all know once said, at some point, making good money has got to stand for something. Thanks for your time. Our future is bright. Our people are great and our time in the sun is coming soon. Now it's time for questions. We have shareholders, analysts, employees, even some competitors on the phone. So we may need to be a little bit careful with our comments, but we will answer what we can. And thank you all for calling in. Operator: [Operator Instructions] Your first question comes from the line of Ty Collin from CIBC. Ty Collin: Maybe just to start on the 2026 guidance. I mean, what sort of assumptions underpin the high and low ends of those ranges that you've given? How would you kind of frame those 2 ends of the outlook? Peter Cirulis: Yes. Thanks, Ty. So one of the main underpinnings is that we've got compensation on our tariffs, as we mentioned, at the same level or near the same level as 2025. So that's a base assumption in both the low end and the high end of the range, okay? Then second, we would assume that our operational efficiencies, some of the ones that Pat talked about and also what we talked about, I think, in the second quarter earnings call with our development of the AI and moving that through our footprint is also a major underpinning depending on how quickly we can deploy some of those cost savings. That would be in more of the, say, the high end of the range. Then we've got some recovery of some of our plants that make fluid products is another major underpinning in our range. Ty Collin: Okay. Great. So the expectation is that recoveries are neutral from a margin perspective year-over-year. Did I hear that right? Peter Cirulis: Yes. Basically, year-over-year will be margin neutral, Yes, on the tariffs side, yes. Ty Collin: Okay. And what about on the EV side or just other commercial-related recoveries, what are the expectations around that in the 2026 outlook? Peter Cirulis: Sure. So also, a good question. You'd have to expect that we will have commercial negotiations and offsets as the oscillation and the EVs fits and starts continue to happen. So that will be a part of our business going forward here in the middle term. So as far as performance, if you will, more or less the same on a year-over-year basis. It's going to be in terms of timing, a little bit lumpy. Like we mentioned actually last quarter, we were working on a major negotiation and it didn't happen to fall when we kind of wanted it to, if you will, but we're still working on that. And so the lumpiness of the OCIs, as we call them here, the commercial issues that we negotiate will still be there. But as far as being a component of our guidance, it will be a component of that throughout 2026. Fred Di Tosto: Had that OCI hit last year, I think it's safe to say that year-over-year will probably be down because I do believe that, that activity as -- although it continues, is starting to normalize, become -- becoming less reliant on that, just given the fact that the volume is starting to stabilize in a particular band. So the whole industry is starting to adjust. Ty Collin: Right. Okay. And yes, I guess sticking on that question in the EV business. Obviously, as you said, there's been a pretty significant reset there in terms of expectations. I mean, do you think production plans at this point are kind of appropriately aligned with where the market is? Or do you still think that EVs are maybe an area of risk this year? Pat D'Eramo: This is Pat. They've bottomed out quite a bit, as you know. I don't anticipate significant changes in any of our customers from this point up or down this year. I think they're going to be pretty level for the most part. Peter Cirulis: Yes. I think some of the recent General Motors announcements of their EV platforms ending a little bit early, that's a part of our outlook as well at the moment. So those have been already announced. Ty Collin: Okay. Great. And if I could just sneak one more in on the 2028 outlook that you guys gave. Obviously, some very significant growth baked into that. How should we think about the level of investment needed over the next few years to support that outlook? Peter Cirulis: Yes. So good question as well. So for that, roughly $700 million, I think, in the next couple of years. The way to think about that is roughly around the $300 million range, I would say, approaching, I would say, the depreciation and amortization levels that we've got. As we talked about, some of the -- that's a lot of growth actually and needs a lot of capital. But on the other hand, we've talked about that we are deploying our capital in a more flexible way. So our new generation of, let's say, weld cells and so forth, these are more flexible, can be redeployed with new growth. So that helps mitigate our costs. In addition, we talked about our replacement business. So that takes less capital and also some of these extensions that the customers have talked about. So Fred mentioned as well, that will inherently take less capital than a brand-new program. So for those reasons, we think around $300 million is a good number to go with at the moment. Pat D'Eramo: Yes. And I think it's important to understand, Peter said it, but we've become particularly good at being able to reutilize capital. If you recall, 5 or 6 years ago, as we started to invest in all the new lines when we won all the work in '18 and '19, we said there would be a number of them would be multigenerational, and we're starting to see that pay off as we go forward. Operator: Your next question comes from the line of Michael Glen from Raymond James. Michael Glen: Just on Europe specifically, I'm sort of -- is it safe to assume that this recovery that you're alluding to in the first half of the year is related to the European business? Pat D'Eramo: I don't think we'll speculate on. Why does it matter? Michael Glen: No, but it does matter because your European business is losing money, okay? And like what is the outlook for Europe? Because now you're telling us you're not going to be spending any more money in Europe. So are you committed to Europe? What's the outlook for Europe? And do you think Europe having European exposure is an overhang for your stock? Peter Cirulis: Okay. Now thanks for the clarification, Michael. So I would say in broad terms, the restructuring we've undertaken in the recent past will -- is helpful for us going forward. And it really is a function of, I'd say, the EV recovery in Europe, the volume recovery in Europe. We're at a volume level of industry vehicles around 17 million vehicles in Europe, we're talking about some margins between breakeven and obviously less than in North America, but a decent number for Europe. Our strategy in Europe is to keep the footprint because it is helpful for us when it comes to European customers that are looking to reshore some of their operations, especially in North America. We've seen some of that recently. So for that reason, it's strategic for us. That also occurs in the Asian segment as well. So a lot of our customers in Asia are European-based, and so very helpful there. So while we don't intend to grow the business significantly, we would like to maintain it for customer strategic reasons. Pat D'Eramo: And it has made a significant impact on our local wins in North America. Peter Cirulis: Yes. And I would not expect, though, that, Michael, that we would have margins in the area of our North American segment. That we've mentioned as well that those margins in Europe, while we expect to be better than breakeven depending on some of the commercial issues that we negotiate with our customers on occasion, that the restructuring we've taken is starting to bear fruit. Fred Di Tosto: A good chunk of our growth is from European customers. Michael Glen: And how -- is Europe right now, can you -- is it a drag on your free cash profile? Fred Di Tosto: I mean I wouldn't necessarily say that. I think the market has not been kind right now from a volume perspective there. And I don't know if you picked up on our comments. If the volumes were more normalized, we would be positive. We have proven that in the past that we can actually make money in Europe. So we do expect to get back there at some point, but we need some cooperation from the markets. And while that happens, we're managing our capital profile there and making sure that it doesn't necessarily create a big drag from a free cash flow perspective. So we're working within, call it, internal constraints, if you will. Michael Glen: Okay. And final question, are you guys -- a few years ago, you used to provide quarterly guidance for us. And I would tell you that, that was always a very helpful item in terms of some of the forecasting we did. Is there any plan in place to return to that single quarterly forecast? Peter Cirulis: Not at the moment, Michael. No, there's not a plan to do that, especially with some of -- just every week, there's something new here. So we don't feel prudent at the moment to provide that again at the moment. Pat D'Eramo: That's compounded by the lumpiness that Fred talked about, too, in the commercial settlements because you really don't know when you're going to land them. You know you're going to land them, but they don't necessarily happen when you think they're going to happen. Fred Di Tosto: We also had some comments that what would be helpful is what the next year look like and then update that and going 3 years out or effectively trend lines. But the customer and people dealing with tariff issues and everything else, they don't go by a calendar. They go by -- it's a more detailed, complicated process in terms of where we are. And yes, there's some lumpiness, especially when you get into the commercial discussions. Operator: [Operator Instructions] Your next question comes from the line of Brian Morrison from TD Securities. Brian Morrison: I missed a little bit of the call, but the EV shortfall settlement that Michael was just asking about, what was the high-level magnitude or basis point impact in Q4 that shifted into the first half of next year? Peter Cirulis: Yes. We're not going to disclose that since we're still in the negotiation phase for that particular commercial issue. Brian Morrison: Okay. Maybe, Peter, if you use the midpoint of your '26 and '28 sales and margin guide, your incremental margin is 13.5%. Is this not typically around 20% with your fixed cost structure? Just clarify how you think of increments? Or is this maybe lower-margin European business? Peter Cirulis: No. I would -- it's a good assumption to say that our normal flow-through is 20% to 30% flow-through on incremental sales. Brian Morrison: So why then is the '26 to '28 increment 13.5%? Peter Cirulis: So we'll have some launch cost in there in the middle, right? So most of the revenue and the margin that I mentioned will take place in the '28 time frame. So there'll be some launch costs there in the middle that we'll have to work ourselves through. Brian Morrison: That impacts '28 as well? Peter Cirulis: So there'll be normal inflation that we've got to offset in that year and the incremental depreciation that will take place in that year. Fred Di Tosto: I would say there would be some launch costs in '28 as well because not all this work will be launching on Jan 1. It will be throughout the year. Peter Cirulis: The year could be... Fred Di Tosto: So that will be an element of a drag, I guess, in '28 as well. But you'll see more of it in '27. Peter Cirulis: Work that we're winning now, a lot of that is launching in 2028, and we just had a really good quarter of winning work. That will be 2028 work for the most part. Pat D'Eramo: Right. One of the things that's very encouraging is we're seeing a lot more activity from the OEMs more recently as far as RFQs and so forth. So we expect it to continue to get busier. Brian Morrison: Okay. That makes sense. Maybe just -- maybe for Peter, just when I look at the margin profile, the increase from '25 to '26, just the drivers, I assume it's operating efficiencies, restructuring benefits, the benefit of the settlement that we talked about from '25 and then offset by margin decrements to get a net positive impact on the margin outlook. Are those the key drivers? Is there anything else that I'm missing? Peter Cirulis: No, those are the main drivers. We're going to have, let's say, the plant operating elements that Pat mentioned and some of our AI built in there, if you will, machine learning activities for improvements of quality and being able to do that faster. Then we've got material improvements through some resourcing as we work through these tariff elements. Then you'll have the offsets of the normal inflation in there. Brian Morrison: Okay. Okay. And maybe last question, and Rob, it's more of a curiosity than anything else, but why the long focus upon the valuation discount? I mean it's even greater when you include Nano as cash. Is this -- does this do you think put you on the screen as a target? Or does it make you think that your leverage is below your target and strong free cash flow, you should do an SIB. I'm just -- I'm curious why the focus on it today. Robert Wildeboer: Just reflecting thoughts. So some people have asked us the question to, okay, why don't we just talk to it? A lot of our investors hear the call, a lot of our shareholders hear the call, our employees hear the call. We get that question a lot and just figured we'd address it. I got to come up with something. We don't want to just talk about tariffs all the time. Brian Morrison: Nobody does. Robert Wildeboer: I agree with you 100%. Operator: There are no further questions at this time. I would like to turn the call back to Mr. Rob Wildeboer for closing comments. Please go ahead. Robert Wildeboer: Well, thanks very much for giving us part of your evening. Look forward to any follow-ups, any questions, you know where to get a hold of us and always happy to talk to you. Have a great night. Operator: This brings to a close today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good afternoon. This is Chorus Call. Welcome to the financial results presentation of the financial results as of 31st December 2025. [Operator Instructions] And now the Chairman and Chief Executive Officer, Dr. Nicola Cecconato, is going to give his address. Nicola Cecconato: Thank you. Welcome. I'll give you the consolidated results as of 31st December 2025 and the comparison with consolidated results as of 31st December 2024. The slide illustrates on Page 2, the group's corporate structure as of 31st December 2025. During 2025, the group completed a number of significant extraordinary transactions that changed the scope of its consolidated assets and equity investments held. On 9 May, 2025, Ascopiave acquired 9.8% of the share capital of Ascopiave becoming the sole shareholder. In December 2024, Ascopiave exercised put option on 25% of the share capital of Estenergy and the transfer of the shares took place on June 24, 2025. On July 2025, the transaction for the acquisition from the A2A Group of 100% of AP Reti Gas North S.r.l., a newly formed company, and the transfer of certain business units previously owned by Unareti S.p.A. and LD Reti S.r.l. became effective. The company is active in the gas distribution business in the provinces of Bergamo, Brescia, Cremona, Lodi, and Pavia. On October 2025, Ascopiave S.p.A. transferred to Hera S.p.A. 3% stake its held in Hera Comm S.p.A. On 22 November, 2025, the transaction for the acquisition from Sime Partecipazioni S.p.A. of 100% of the share capital of Societa Impianti Metano S.r.l. [indiscernible]. Active in the gas distribution business in 40 towns in Lombardy, Emilia-Romagna, Piedmont became effective. Changes in the consolidation perimeter and transfer of shareholdings. It should be noted that the company, AP RETI GAS has been consolidated on the 1st July 2025 and the consolidated economic results in 2025 refer to the second half of the year. On 24 June, 2025, the 25% stake in Estenergy was sold. In the financial year 2024, the company's results were consolidated using the equity method until 30 September, 2024, the date of the earliest accounting close prior to the exercise of the put option on the shareholding. In the income statement as at 31st December 2025, dividends received from the company were recognized as financial income and the gain from the sale of equity investments was recognized as well. On October 2025, the 3% stake in Hera Comm was sold. Consolidated income statement for the year 2025. In the 2025 financial year, the group realized revenues of EUR 244.3 million, achieving EBITDA of EUR 154.4 million and EBIT of EUR 92 million. The net balance of financial income and expenses was positive at EUR 11.3 million, an improvement of EUR 21.5 million compared to 2024. This change is mainly explained by higher dividends paid by investee companies in particular by the dividend amounting to EUR 22 million distributed by Estenergy S.p.A. prior to the sale of shares. The portion of the result of companies consolidated using the equity method is negative and equal to minus EUR 0.3 million and refers to the results achieved by the subsidiary, Cogeide S.p.A. in the year 2024 net of the write-down made to adjust the investment to its recoverable value. Compared to the previous year, the item shows a negative change of EUR 8.2 million in the 2024 income statement [indiscernible] realized by Estenergy Group with the recognized for the group share until 30 September, 2024. While there was no recognition in the 2025 financial year. Consolidated balance sheet as of 31 December, 2025 as compared to December 2024, the group has invested capital of EUR 1.247 billion invested in capital stock. EUR 184.2 million in tangible fixed assets, EUR 1.017 billion intangible assets, EUR 66.5 million from the value minority interest has [indiscernible] EUR 22.3 million. [indiscernible] EUR 26.5 million from other fixed assets. Then there was negative balance of working capital items and provisions EUR 87.8 million. The intangible fixed assets shown under asset equal EUR 1.317 billion, mainly consists of gas distribution networks and plants owned by the group, EUR 1.175.8 billion, of which EUR 247.8 million is attributable to AP Reti Gas North S.r.l. [indiscernible] Group and goodwill recognized following business combination. Property, plant and equipment consisting of real estate and the value of renewable energy productive plants. It should be noted that during the fourth quarter of the 2024 financial year, Ascopiave S.p.A. exercised the put option in the remaining shares of the associate Estenergy S.p.A. and consequently from the 1 October, 2024, the revenue of equity investments recognized as of 31 September, 2024 was reclassified [indiscernible]. The sales was completed on 24 June, 2025. Shareholders' equity as of 31 December, 2025 amounted to EUR 912.4 million, an increase of EUR 64.6 million compared to 31 December, 2024. The net financial position was EUR 614.2 million, an increase of EUR 226.6 million compared to the end of 2024. The debt-equity ratio is 0.67. Operating data, gas and renewable energies distribution, as of 31 December, 2025, the group's distribution company has managed approximately 1.468 billion users, an increase 68% compared to 31 December, 2024 of which approximately 599,000 related to the company AP Reti Gas North [indiscernible] during 2025. In 2025 financial [indiscernible] AP Reti Gas North into the scope of consolidation as of 1 July, 2025, we distributed 19 million cubic meters in the second half of 2025. The group has 29 hydro power, wind power plants with an installed capacity of 84.1 megawatts. In the 2025 financial year, electricity production amounted to 187.3 gigawatts, a decrease of 30.3 gigawatts, minus 14% compared to the same period of the previous financial year, the latter being characterized by significant rainfall. Evolution of distribution, veritable [indiscernible] revenues and current revenues. Revenues EUR 244.3 million recording an increase of EUR 39.4 million determined by enlargement of the consolidation perimeter by EUR 48.9 million, increased of EUR 10.9 million in gas distribution tariff revenues, the decrease of EUR 5.5 million in revenues from the sale of electricity generated from renewable sources, the decrease of EUR 11.7 million in revenues from energy efficient certificate. The decrease in other revenues of EUR 3.2 million. Gas distribution tariff revenues amounted to EUR 189.8 million and further increase of EUR 50.3 million compared to the previous year. [indiscernible] EUR 39.5 million with expansion of the consolidation perimeter on a like-for-like basis and EUR 10.9 million of which 8.6 million due to the revision of 2020-2024 tariff operating costs envisaged by ARERA Resolution 87/2025. Revenues from the products of energy from renewable sources amounted to EUR 22.6 million, decreased by EUR 5.5 million. Decrease is mainly explained by the lower volume of energy produced. Operating profit, other operating expenses. Operating income amounted to EUR 92 million, showed an increase of EUR 40.3 million due to the enlargement of the scope of consolidation, EUR 13.9 million; increase of EUR 10.9 million in gas distribution tariff revenues, decrease in revenue from the sale of electricity generated from renewable sources, EUR 5.5 million. The decrease in amortization and depreciation, EUR 0.2 million, capital gains of EUR 26.4 million related to the sale of 25% stake in Estenergy, an increase in net operating expenses of EUR 5.5 million. Net operating expenses EUR 84.6 million increased by EUR 20.5 million due to the change in falling revenue and cost items. Enlargement of the scope of consolidation EUR 15 million. Low concession fees two towns, EUR 1.4 million. Higher personnel costs, EUR 1.7 million; higher consulting costs, EUR 3.8 million, of which total EUR 2 million related to the acquisition of AP Reti Gas North. Low compensation to directors and statutory auditors, EUR 0.4 million. Lower gas meter reading costs, EUR 0.5 million. Higher non-recurring cist EUR 2.1 million. Other changes with a negative impact, EUR 0.2 million. Number of Employes and personnel cost. As of 31 December, 2025, the group had 733 employees on the payroll, an increase of 238 compared to 31 December, 2024. This increase is mainly explained by the consolidation of AP Reti Gas North, which have 230 employees as of 31 December, 2025 and AP Reti Gas Next Grids with 17 employees. The overall EUR 23.9 personnel cost increased by EUR 5.8 million driven by enlargement of consolidation perimeter of EUR 4.1 million, EUR 0.4 million increase in capitalized labor cost, EUR 2.1 million increase in current personnel cost mainly due to higher cost of incentive plans and ordinary salary increases during March, the contractual increases provided by national labor contracts and in part individual recognition. Captain Expenditures. Investments in tangible and intangible assets realized during the year amounted to EUR 93.7 million increased by EUR 12.6 million. Investments made by the company in AP Reti Gas North consolidated 1 July, 2025 amount to EUR 4.3 million. Most of the technical investments on the like-for-like basis related to the [indiscernible] and modernization of gas distribution network and plants amounted to EUR 41.9 million, of which EUR 16.3 million in connections, EUR 22.5 million in network expansions [indiscernible] and EUR 2.1 million in reduction plans. Investments in metering equipment amounted to EUR 11.9 million. Investment in the renewable energy sector amounted to EUR 21.1 million, mainly related to costs incurred for the maintenance and expansion of hydroelectric plant EUR 3.5 million, for the construction of photovoltaic plants EUR 7.2 million, and for the construction of other green energy plant EUR 10 million. Other investments amounted to EUR 6.5 million, related investments in land and buildings EUR 2.3 million; hardware and software EUR 2.7 million; company vehicles, EUR 0.9 million; and infrastructure, EUR 0.5 million. Net financial position and cash flow. The net financial position, effective 31 December, 2025 EUR 614.2 million, an increase of EUR 226 million compared to 31 December, 2024. During the year, cash flow generated financial resources of EUR 97.9 million. Net investment in tangible and intangible assets resulted in cash outflows of EUR 93.8 million. Net working capital management generated resources of EUR 9.5 million. The group collected dividends of EUR 27.4 million from subsidiaries, not consolidated on a line-by-line basis. Shareholders' equity resulted in cash outflows of EUR 32.5 million and the distribution of dividends to shareholders. Acquisition of [indiscernible] resulted in cash outflows of EUR 518.2 million of which EUR 456.8 million for the acquisition of the AP Reti Gas North and EUR 46 million for AP Reti Gas Next Grids. The sale of equity investment generated [indiscernible] of which EUR 204.1 million from the sale of equity investments in Estenergy and EUR 54.8 million from the sale Hera Comm. The purchase of equity investments resulted in cash outflows of EUR 472.2 million. The realization of equity investments generated resources of EUR 234.1 million. Financial debt as of 31 December, 2025 amounted to EUR 577.1 million [indiscernible] 49% variable rate and the weighted average cost of debt in the year 3.11%. Before [indiscernible] the Board of Directors of Ascopiave in consideration of the results of the year and the solidity of the group's equity and financial structure will propose at the Shareholders' Meeting, the distribution of a dividend of EUR 0.16 per share, for a total of EUR 34.6 million, an amount calculated on the basis of the shares in circulation and the closing date of the financial year. If approved at the shareholders' Meeting, the dividend will be paid in May 2026 with ex-dividend date on 08 May 2026. I have finished the presentation, now the Q&A session is going to start. Thank you. Operator: [Operator Instructions] First question from Alessandro Di Vito, Mediobanca. Alessandro Di Vito: The first question is relating to the field. Other operators in the field have forecasted an acceleration of optimistic forecast for the year. Do you take part in any tender in the year? The second question is about the increase in revenues due to the positive optimistic forecast. The third and last question if can you give us some guidance on the trends that you expect for 2026. Nicola Cecconato: I'm going to answer some of your questions. [indiscernible] answers to questions will be more specific. On the gas tenders, sure, we also have received, from the contracting stations we have received news that there could be gas tenders during the year. The premises are good. So what you say, what you have read is indeed true as in the past, it has been blocked, but the gas tenders, there will be this year, tenders have already been published. So since we are interested in taking part in some of the tenders, we cannot give you all the information, it is confidential. In the industrial plans, we have already stated that Ascopiave would take part in some of the tenders. We have indicated in [indiscernible] the plan as to what our policy is going to be in 2026. So once the tenders are officially published, then you will know as well the [indiscernible] and what our policies will be, what evaluations will be. For example, in the strategic plan, we have already stated what our policies will be in 2027-2028. So you know more or less are the perimeter of our [indiscernible]. We are ready to take part if they are officially opened. And if there are growth drivers that [indiscernible] the opportunities, relating to the impact on [indiscernible] I'm going to give you a very quick evaluation. [indiscernible] based on the results, the amount we expect to pay between EUR 1.6 million - EUR 1.8 million. Relating to the prospect 2026, we will publish -- we will give some guidance. We will give you some guidance, some tangible guidance, but for that, we need the official publication of tenders. So already in our press release, we have given -- in our strategic planned press release, we have already issued the policies of what our policy will be and the framework within which we will operate. So since we have acquired some new assets, so we also have to take that into consideration. So next year, there could be an increase surely in our turnover, in our revenues. Some of our assets that we have acquired from [indiscernible] will be perfected. We are going to work on it to enhance the performance of these assets. Obviously, we have also to consider what antitrust dictates to us. But what we need to do, our goal is only to increase our performance in the gas sector. That's for sure. This is one of the goals of the year 2026 that we have set for ourselves. Once we have - we will be [indiscernible] so the result of 2026 can surely be an improvement of what we have achieved, what we have accomplished in the year 2025. So EUR 8.6 million is the tariff balance that we have achieved, that we have also managed to get from Estenergy. And -- so the dividends have to be taken into considerations. The dividends have been extremely generous this year as you must have seen from EUR 22 million of dividends as you have seen from our press release. So these components [indiscernible] to be taken into consideration. So anyway, whatever we do, we do it bearing in mind the stability of the regulatory framework. This is the forecast, these are the numbers that we can provide you in order that you can make your own guess on our 2026 performance. Operator: [Operator Instructions] The next question is a follow-up from Alessandro Di Vito, Mediobanca. Alessandro Di Vito: An additional question from me. So what do you expect for the year 2027 if France is excluded from the RAB basis? Nicola Cecconato: We haven't made any simulation on this. There is a trend that tax rates are going to increase. So sincerely, we cannot give you any tangible guidance on this. But there is no constant figure that we can give you. There will surely be consequences from the cost level, dividend. Anyway, the regulatory framework is still standing. So we just hope there will be no adverse effect. So I hope [indiscernible] is going to take into consideration that there is a new situation that has emerged. But as of today, we don't know and we haven't made any simulation. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions. So thank you very much for your participation and see you at the next call. Thanks a lot. This is a Chorus Call. The conference is over. Thank you. You can disconnect your phone.
Stephanie Luyten: Good morning. Thank you for joining us as we present Elia Group's Full Year Figures and have a look at what 2026 will bring for the Group. I'm joined today with our CEO, Bernard Gustin; and Marco Nix. Bernard Gustin: Good morning. Stephanie Luyten: Good morning, both. Before we start, please take a moment to review the on-screen disclaimer. It contains some important information you should take note of. And as always, the slides will be and the script will be published on our live stream afterwards. Bernard, I'll let you kick off. Bernard Gustin: Thank you, Stephanie. I want to start by saying how proud I am of what we've achieved this year. Three achievements stand out. First, we secured financing for significant growth and reestablished market trust. When I took on this role, there were questions about our capacity to fund ambitious growth and deliver on our promises. Addressing this was my main focus. And I'm pleased to say that we are back on track. Second, we delivered operationally investing EUR 5.2 billion in CapEx this year, more than triple our historical annual average. And third, we are attracting exceptional talent. Despite challenges, people want to join us because they see Elia Group as a place to make a real difference and help build the energy infrastructure of the future. That tells me we have the right people and the right vision. Stephanie Luyten: Thank you, Bernard. Before Marco takes us through the financials, let's have a look together at the major highlights that defined the year. [Presentation] Bernard Gustin: Well, 2025 was indeed a year marked by major milestones, collective achievements and moments that shaped who we are and where we are heading. When it comes to project execution, 2025 was a year of real tangible progress. In Belgium, we continued to advance on several strategic infrastructure projects that form the backbone of the country's future electricity system. Ventilus and the Boucle du Hainaut, both critical missing links in connecting large volumes of offshore wind and reinforcing Belgium's North-South transmission corridor progressed through key regulatory and construction milestones. These projects are essential for integrating the Princess Elisabeth zone, strengthening system reliability and ensuring Belgium can transport renewable energy efficiently across the country. BRABO III also entered its final stretch, further reinforcing the Antwerp region and enhancing cross-border capacity with the Netherlands. The construction of the Princess Elisabeth Island also continued to advance steadily. The installation of the concrete caisson made solid progress with 11 of the 23 caisson already installed at the sea. And the remaining units are ready for deployment as soon as weather conditions allow it. This brings Belgium another step closer to achieving its decarbonization targets. And in Germany, we also saw real progress. On SuedOstLink+, one of the country's most important North-South transmission corridors with permitting moving ahead and technical preparation advancing, the project is now getting much closer to implementation. At the same time, offshore progress stayed on track. We successfully completed the cable laying for Ostwind 3, the link for the next wave of wind projects at the German Baltic Sea, securing future capacity to integrate more renewable energy. And on Bornholm Energy Island, Germany and Denmark signed a landmark agreement for 3 gigawatts of offshore wind connected through new hybrid grid links to both countries. It's a major step forward future toward future cross-border offshore grids in the Baltic Sea and support Germany's vision for a more meshed and resilient offshore system. We also put 2 new high-voltage lines into service, each over 100 kilometers, boosting our transmission capacity and strengthening stability across key parts of the German grid. So overall, it was a year of strong delivery with our teams moving forward the strategic projects, but at the same time, congestion is becoming more visible. As more renewables connect to the system, and that's a good thing, our consumption patterns also evolve and that is putting pressure on our grid. And this isn't just a Belgian or a German challenge, it's a European one. Our recent study on storage shows just how quickly the landscape is changing. Storage and batteries, in particular, will be a cornerstone of the future system. But equally important is the question, how, where and when storage operates. Today, the current wave of connection request isn't always a healthy growth. We are seeing a huge number of speculative projects across Europe. In Germany alone, TSOs are facing requests equivalent to the load of 100 million households. That's not sustainable. It strains the grid, dodge the queue and delays more mature investments that society actually needs. This is why we advocate for a new approach. We need to prioritize system relevant mature projects and move away from a first come, first serve logic that is now being exploited and risk driving up cost for all consumers. This is where the EU grid package helps set the direction. It supports anticipatory investment and clearer rules so that flexibility, renewables and storage can work together as aligned pillars of a sustainable, affordable and secure system. Marco Nix: And another key factor for our long-term investment needs is the right regulatory frameworks. Based on what we know so far about the German regulation, we welcome BSR's ambition and its recognition that the full package matters for investors. However, the draft framework still does not provide the balanced and internationally competitive returns needed to attract the level of capital required for the grid expansion. Key adjustments are still necessary, particularly on return on equity level, debt cost coverage, OpEx predictability and the effectiveness of the incentive schemes to ensure the framework truly supports the unprecedented investment effort ahead. We remain committed to constructive dialogue to help shape the final determination that safeguards investments capability and supports Germany's long-term energy goals. To speak about 50Hertz goals, we will now share a short video from the CEO of 50Hertz, Stefan Kapferer, on the progress made and the milestones still ahead of us. Stefan Kapferer: With a new focus on resilience of the energy infrastructure and affordability of energy transition, it became clear in 2025 that an overarching responsibility for the electricity system is urgently needed. This can only be delivered by companies like Elia Group with 2 national TSOs, ETB in Belgium and 50Hertz in Germany. In 2026, 50Hertz will once again invest a record high amount of money in additional grid infrastructure, substations and new connections for consumers, EUR 5.1 billion. So affordability of the energy transition will be key. We have to harvest efficiency potential, and we have to take care that only those projects are included in the next grid expansion development plan, which are really needed to make the energy transition happen. And to finance these challenges, the current review of the regulatory framework in Germany has to deliver an internationally competitive return on equity to guarantee that the engagement of the investors will be the same also in the upcoming years. Stephanie Luyten: 2026 will be a year in which significant regulatory developments and grid planning milestones emerge in both our countries, giving us much more clarity on the investment landscape and its associated returns. To build on that, I'd like to turn to the CEO of Frederic Dunon. He will walk us through the challenges and opportunities shaping our next steps. Frederic Dunon: Discussions will begin on our regulatory framework for the period '28, '31. Two major objectives are at stake. First, to ensure that market parties have the right incentives to allow safe and efficient system development and operation. And second, to ensure that Elia has a financial and human means to realize the plans approved by the authorities. The design of our '27, '37 federal development plan will be at the center of attention of our authorities. Indeed, it will define the boundaries of possible futures in terms of energy, industrial and economical policies. Whereas development plans were seen in the past as an administrative process, it is now well understood that they are the foundation of our major society for the coming decades. Stephanie Luyten: Now that we've looked at Belgium and Germany, let's shift to what's happening internationally. As you know, we took a minority investment in energyRe Giga at the end of 2023 with a clear understanding that this is a long development cycle model and that progress would not be linear. Since then, the U.S. environment has evolved. At federal level, the current administration has created uncertainty for offshore wind with slower permitting and approvals while at the same time, many states continue to actively push for grid expansion. In parallel, the U.S. power system is facing rapidly rising electricity demand driven by electrification and data centers, which reinforces the structural need for additional transmission capacity. Last year, we also saw the acceleration of the phaseout of the wind and solar tax credits. This puts pressure on the developers to bring the projects forward and required adjustments in project structures and portfolios across the sector. Against this backdrop, we have taken a disciplined approach, prioritizing value protection over speed. As a result, contributions from energyRe Giga to the Group results will come later than initially expected, but we remain supportive of the investment and of its long-term strategic rationale. As we already flagged at our Q3 results, Clean Path New York faced a setback. For SOO Green, the picture is more positive. Permitting is close to completion and land acquisition is largely secured. Finally, the offshore project, Leading Light Wind is, as you know, currently on hold under the present federal administration. Translated in financials, this means the group recognizes an impairment on its U.S. assets of EUR 99.1 million. This consists of 2 elements. On the one hand, a EUR 70.8 million write-off on the energyRe Giga portfolio, an additional provision of EUR 28.3 million, reflecting the group's remaining commitment to invest USD 150 million to reach its 35.1% ownership stake. Let me remind you that this impairment is a noncash and reflects a prudent reassessment of, on the one hand, value and timing, and it's not at all a change in our discipline or our financial strength. Our exposure remains well controlled. Our commitments are fully manageable within our balance sheet, and we retain flexibility on the pace of future capital deployment. Marco Nix: Thank you, Stephanie. Let me now elaborate on some of the headline figures for '25. We delivered strong progress across all fronts in 2025. Our 5-year CapEx plan remains fairly on track. We invested EUR 5.2 billion, EUR 1.4 billion in Belgium and EUR 3.8 billion in Germany. As a result, our regulatory asset base expanded to EUR 22.6 billion. Our hiring drive in '25 was also a success. We welcomed again more than 760 new employees, strengthening our operational capabilities and supporting the growth objectives we laid out during the Capital Markets Day. On the operational side, system performance remained outstanding. Grid reliability reached 99.9% in Belgium and 99.8% in Germany, positioning our TSOs among the most reliable grid operators in Europe. These figures highlight our continued focus on operational excellence and the effectiveness of our investments in technology, infrastructure and talent. In terms of financial results, the group delivered a strong performance with net profit attributable to Elia Group shareholders of EUR 556.6 million. This corresponds to an adjusted return on equity of 7.3% and earnings per share of EUR 5.51 per share. As shown on the slide, we indeed had a busy year on funding as well. We proactively secured the funding needed to support our strategic priorities in Belgium and Germany. We executed a well-diversified financing program across entities and instruments, reflecting the greater flexibility we have embedded into our funding strategy. A key focus early in the year was strengthening the balance sheet. We completed a EUR 2.2 billion equity package, which reinforced our capital base, broadened our strategic partnerships and provided significant financial flexibility. On the debt side, we raised EUR 3.6 billion in green financing through loans and bonds and both Elia and Eurogrid issued their first EU-labeled green bonds, an important milestone that broadened again our investor base and reinforced the central role of sustainable finance within our capital structure. At the start of the year, Standard & Poor's reaffirmed the credit ratings of all entities. We also strengthened liquidity, bringing the total available funds at year-end at EUR 11.9 billion, which underpins our prudent risk profile and supports our investment-grade ratings. Overall, the group's investment plan is backed by a robust financial framework designed to maintain its current ratings, ensuring continued strong access to capital markets and providing funding flexibility. Finally, the group is progressing on the various options of the funding toolkit as outlined to the market. Elia Group delivered strong operational and financial results reflected in a sharp increase in adjusted net profit. These figures excludes material one-offs and reflects the group's underlying performance. Adjusted net profit rose by 39.8% to EUR 716.5 million, driven by CapEx execution, higher equity remuneration and solid operations. Additionally, the third segment benefited from the first time of a tax benefit linked to the application of tax consolidation in Belgium. Germany remained the largest contributor, delivering just over 60% of the group adjusted result. Belgium added around 38%, while nonregulated activities and Nemo Link contributed EUR 5 million, including EUR 33.4 million in one-off adjustments, the reported net profit reached EUR 683 million. After noncontrolling interest and hybrid costs, net profit attributable to Elia Group shareholders increased by 32% to EUR 556.6 million. On this slide, we show that the reported figures include several nonrecurring items, both in Germany and in the nonregulated activities. We adjust for those to show the underlying performance. Starting with Germany, the reported net profit includes a EUR 46.5 million deferred tax impact. This relates to the revaluation of deferred taxes following the planned reduction in the German federal corporate tax rate from 15% down to 10% between the years '28 to '32. Turning to the third segment. There are 2 main adjusted items. As said by Stephanie, the U.S. impairment amounting to EUR 99.1 million negatively. On the positive side, the tax consolidation had a positive impact due to the application of the Belgium tax consolidation mechanism and linked to the tax periods prior to '25. It is there of a one-off effect, not reflected of a recurring tax benefit. After adjusting for all these items, adjusted net profit amounts to EUR 716.5 million at Group level. Stephanie Luyten: The RAB remains the core driver of the group's regulated remuneration. Supported by the execution of our investment program, Elia Group's RAB increased by 22.5% year-on-year, reaching EUR 22.6 billion at the end of '25, up from EUR 18.5 billion in 2024. This increase reflects the acceleration of major infrastructure projects in both Belgium and Germany that are critical to integrating growing volumes of renewable generation, reinforcing cross-border capacity and strengthening the overall system resilience. These investments ensure we can deliver the energy transition at the lowest societal costs, while contributing to Europe's long-term energy autonomy. When we look ahead, we expect an average annual RAB growth of over 20% for the period '24 to 2028, supported by around EUR 21.6 billion of cumulative CapEx over the next 3 years. As we have invested EUR 5.2 billion across our Belgium and German grids, the impact on our funding metrics remains well under control. Net financial debt increased by around EUR 1 billion, bringing the total to EUR 14.1 billion. This limited increase reflects the successful capital increase and the fact that a large share of our investment was funded through operating cash flows. Our average cost of debt rose slightly to 2.9%, and the portfolio remains very well protected from interest rate volatility with 98% of our debt held at fixed rates. Finally, our credit profile remains solid. Standard & Poor's reaffirmed our BBB rating with a stable outlook, underscoring the resilience of our financial structure and the strength of our funding strategy. Marco Nix: As this concludes the group overview, let me guide you through into the segments, starting with Belgium. In '25, adjusted net profit rose by 27% to EUR 272 million. This was mainly driven by a EUR 30 million increase in fair remuneration, reflecting continued RAB growth, higher equity and improved risk-free rate to 3.2% Incentives were up slightly by EUR 1.1 million. Beyond the regulatory result, the outcomes was also influenced by IFRS restatements. These were mainly driven by higher capitalized borrowing costs from the larger portfolio of assets under construction as well as tariff compensation for the costs linked to the capital increase. This compensation is recorded as equity under IFRS, but these costs are fully passed through to the tariffs under the embedded debt principle. In total, the Belgium segment delivered a return on equity of 6.2% for the year. For Germany, the adjusted net profit rose to EUR 439 million, up 42%. This strong performance is the result of several key factors. First, asset growth continues to be the biggest driver of the result, combined with imputed depreciation and cost of debt coverage. This was further supported by a slight increase in the allowed equity remuneration on new investments, reaching 5.7% for the year. On the cost side, the onshore OpEx outperformance declined slightly by EUR 3 million. The inflation index-based year revenues helped to offset most of the operational cost increases, associated with our expanding activity footprint. At the same time, a number of offsetting effects also incurred. Depreciation increased as several major projects were successfully commissioned and brought online. Financial costs rose due to the higher interest expenses from debt financing. This was balanced by capitalized interest during construction, which increased and interest income from a prefinancing agreement. After including a one-off deferred tax revaluation gain of EUR 46.5 million, net profit reached EUR 485 million. Considering the adjusted net profit, 50Hertz achieved a total return on equity of 11.1% for the year. Finally, the nonregulated activities and Nemo Link segment delivered an adjusted net profit of EUR 5.3 million in '25. This performance was mainly driven by the application of group contributions for the '25 financial year, which contributed EUR 24.7 million to the result. This reflects the Belgian tax consolidation mechanism that allows to utilize a tax loss at the group level and Eurogrid International. The positive impact followed a legislative change adopted at year-end, which removed the discriminatory treatment previously applicable when combining the group contribution regime with the dividend received deduction regime. This positive effect was partly offset by several factors, mainly higher holding company costs, a lower contribution of our consultancy business, EGI. Finally, Nemo Link contributed slightly less to the result. After taking into account net adjusted items, the net loss amounts to minus EUR 74.5 million. Stephanie Luyten: Before we move to the final part of the presentation, our financial guidance for 2026, I'd like to briefly touch on the group's dividend policy. Elia Group proposes a dividend of EUR 2.05 per share. This dividend proposal will be submitted for approval at the Annual General Meeting and is expected to be paid in June 2026. Marco Nix: Ending with the outlook for '26, Elia Group expects a net profit at Elia Group share in the range between EUR 690 million and EUR 740 million. In Belgium, we plan to invest around EUR 1.7 billion, delivering an adjusted net profit between EUR 290 million and EUR 320 million. While in Germany, we plan to invest around EUR 5.1 billion and an adjusted net result in the range of EUR 585 million and EUR 625 million. The nonregulated and Nemo Link segment is expected to report an adjusted loss of minus EUR 10 million to EUR 30 million. Bernard Gustin: Well, thank you, Stephanie. Thank you, Marco. Before we move into our Q&A session, let me share some closing remarks with you. Earlier this year, the Hamburg North Sea Summit highlighted the urgency of building an integrated offshore grid with European TSOs presenting a joint framework for hybrid interconnections and shared cost models capable of enabling up to 1,000 terawatt hour of clean energy by 2050. At the same time, the Hamburg declaration committed key North Sea countries to delivering 100 gigawatts of joint offshore wind projects, underscoring that system security and sovereignty will increase, increasingly depend on collaborative offshore development rather than isolated national solutions. Complementing this, Mrs. von der Leyen, underscored at the recent Antwerp Industry Summit that Europe's continued dependence on fossil fuels exposes industry to volatile price swings and highlighted the urgent need to reduce this exposure by accelerating the shift towards stable homegrown clean energy sources. The current war in the Middle East underlines once again how vulnerable Europe remains to external shocks. Strengthening and interconnecting the European grid is, therefore, essential, not only to expand access to affordable clean electricity, but also to reinforce Europe's energy sovereignty and reduce dependence on increasingly unstable fossil fuel supply. In this context, Elia Group stands out as the only international electricity transmission group in Europe, combining a multi-country footprint, deep operational presence in both the North and Baltic Seas and a public-private capital structure capable of aligning public anchors with long-term private investors behind strategic and critical infrastructure. This combination is exceptionally unique in our sector and precisely what Europe needs in these troubled times. Our leadership is most visible in our flagship hybrid interconnector portfolio, the first of its kind in Europe and the foundation of tomorrow's meshed offshore grid. Kriegers, yes, thinks and acts on European scale. Together with Energnet, they already have put the world's first hybrid interconnector Kriegers Flak into operation. Furthermore, together with Denmark, they will realize Bornholm Energy Island, unlocking large-scale offshore wind in the Baltic Sea and connect through hybrid HVDC links. And in Belgium, Princess Elisabeth Island and Nautilus could form one of Europe's earliest true hybrid offshore hubs, pulling up to 3.5 gigawatt of offshore wind, while interconnecting Belgium and the U.K. HansaLink, a key project of our entity WindGrid, expands this logic across new cross-border corridors, drawing private capital into offshore infrastructure at scale. And with Nemo Link operating reliably for years, we have already proven our capability to deliver, operate and maintain complex interconnectors safely and efficiently. This portfolio is unmatched in Europe. No other player combines so many hybrid assets across the 2 strategic European sea basins under one group, not as concept, but as concrete investable projects that show how offshore wind and interconnection can be planned, financed and built together. Thank you for your attention. Stephanie, I think we are now ready to move to the Q&A section. Stephanie Luyten: Yes. Thank you, Bernard. And in the meantime, Yannick Dekoninck, our Head of Corporate Finance, has also joined us. Stephanie Luyten: So let's turn to the screen. I see that our first question comes from UBS, Wanda. Wierzbicka Serwinowska: Congratulations on the results and the CapEx delivery because there were some concerns last year if you will deliver. The first question -- I mean, 2 questions to Marco. The first one is on the capitalized cost at the net income level. I mean, what was it in 2025 for 50Hertz because I couldn't see it disclosed. And what is embedded in your 2026 guidance? And also, if you could give us any rough guidance on the capitalized cost until 2028, that would be much appreciated. It's a very hard to model item. And the second question is on the S&P. As you said, back in September, S&P confirmed the rating, but they also said that the Elia Group consolidated business risk has marginally increased. And they raised the FFO to net debt threshold by 100 bps. And they also assume that your CapEx post-2029 will moderate. So does a higher FFO to net debt requirement worry you when thinking about CapEx plan or funding beyond 2028? Marco Nix: Maybe start with the technical question then on the capitalized borrowing costs. It's indeed something we are mindful of in the figures of '25, which are subject to disclosure finally, with the annual accounts at year-end, there's a part close to EUR 90 million considered in the German figures. So what is a noncash result contribution. So -- and that puts a little bit 11% into a certain perspective as, of course, this is being included in the 11% guidance. For the future growth, it's indeed linked to some degree with the investments to be taken. However, it's not linear simply as we try to limit the impact to some degree, and it's being connected to a relatively short period between 2 milestones of the projects, where I must admit that that's a little bit hard to model in the future. But I assume on one hand, that the IFRS standard is subject of a change, which might help us then in the future to limit that impact. However, it will grow. And as a rule of thumb, potentially, it's good to look into the investments in the year being taken compared with the previous year, how it will be growing in the year '26. Wierzbicka Serwinowska: So what should we -- what is embedded in your guidance because your guidance for 50Hertz was running much, much above consensus? Marco Nix: In the guidance of 50Hertz, it's a similar area, so between EUR 90 million and EUR 100 million. So that's currently what we have embedded there. Bernard Gustin: And then... Marco Nix: So then on the FFO to net debt. So currently, after the capital raise, we feel rather comfortable, in particular, with an eye on the liquidity position the group currently has. So therefore, we are not in a rush. Of course, we are looking into the horizon beyond '29. But as we stated, it's subject of the new CapEx plan, which is still under development as both the grid development plan in Germany and the federal development plan in Belgium is still under construction, if you want to say it like this. And as this is the underlying combined with the regulation of our future capacity in funding and of course, in remuneration, that is a necessary input for our funding plans. And of course, the rating will play a significant role in there as, of course, we don't expect that the growth will stop and taking that into perspective, there's a solid investment-grade position being needed to fund the investments in the future as well. Stephanie Luyten: Thank you, Wanda. Let's go to the next question. I believe it's from Bank of America, Julius. Julius Nickelsen: I have 2. The first one is on German regulation. So in the draft methodology that came out in December, I think the BNetzA for now ruled out the concept of a return on equity adder. But I believe since then, you've and the other TSO have provided some evidence why there should be an adder. So if you have any update, do you still believe that this could come in the final methodology? Any update on the reception that would be quite useful. And then the second question is a little bit more high level. But if I look out to like beyond the summer and towards the end of the year. Correct me if I'm wrong, but I think at that point in time, you should have the new Belgium returns, the final methodology in Germany and a good idea on the grid development plan in both countries. Could there be a point in time where you will upgrade the market -- update the market on your investment plan and maybe roll forward to 2030 with the new CMD? It would be useful to know. Marco Nix: Maybe starting from the last question and then developing to the other ones. Our expectation will be more towards year-end or beginning of next year to have that clarity as there are some specific aspect that you name a few of them in the regulation, but on the CapEx plan as well. To name a few, in Germany, that will be the total amount and the sequence of the offshore grid connections, which will play a big role in our CapEx program, or the question on overhead lines versus cabling in the big DC corridors. And that will, of course, change significantly the means being needed to realize that CapEx program. And this debate, to be fair, is still open. So there, we do not see really a landing zone for the time being. A little bit the same in Belgium with the Princess Elisabeth Island and the DC components or the interconnector there. Even though government will potentially take a position then in the second quarter, you do see kind of delay in that decision-making as this was originally being foreseen in March. So therefore, likely that it's more towards the end of the year where we have that kind of clarity. So on the point you mentioned in regards to the framework, in the conference, BNetzA hosted, they stated a little bit that they are not convinced yet on an adder to the return on equity. That's still a subject of a discussion, at least they opened the door for, and we provided some evidence that this is being needed. But it's fair to say there's an ongoing discussion on that one. What is, first of all, a positive sign that the door has not been closed. But so far, it's not being drafted in any adjustment of the determination of the return rates for the future. Stephanie Luyten: Thank you, Julius. Are there any other questions? I do not see -- Temi. Good morning, Temi, please go ahead. We have you here with us. Temitope Sulaiman: Congrats also on the results presentation this morning. I've got a couple of questions, but I'll keep it to 2. One is just clarity on your 2026 net debt expectations. If you can provide an update on that, that would be very helpful. Clarity on the Belgian regulatory time lines in terms of the consultations, but also the final determinations. And then finally, it seems that you've had strong operational delivery in Belgium and Germany, '24, '25, '26, you've raised the guidance above consensus expectations. And I'm just wondering whether you might consider revisiting your '24 to '28 guidance in terms of returns and when maybe you might consider that? Yannick Dekoninck: Maybe net debt, I will take. So on net debt for '26, we expect to land with the CapEx that we have announced at a net debt of around EUR 19.5 billion. So that's what we are targeting for in '26. Marco Nix: On Belgium regulation, there's a relatively straightforward path being published. So there will be a public consultation on 14th of April, if I'm not -- 17th or mid of April. Bernard Gustin: [indiscernible] Marco Nix: Mid of April. So happy to invite you to comment on that one once it is being out there and a final determination in the course of quarter 2. So end of half year, there is likely a robust visibility how the scheme will look like. Stephanie Luyten: And in terms of guidance? Marco Nix: Guidance, I think we still stick to the guidance which we have given as the growth is still intact with the double-digit percentage growth on the EPS and on the net results to the shareholders and around, as you have seen in the past, the 20% growth on the RAB. So that's quite consistent to each other, even though the guidance for '26 seems to be a little bit higher than the expectation, if you make it linear, but that comes from some of the aspects, which are not that fully linearized as we try to optimize the results, of course, as we can. And in connection with commissioning, for instance, we might have one or the other year an outliner and '26 seems to be one of them as a couple of significant investments come to commissioning, which gives us a favor in particular, in Germany. Stephanie Luyten: The next question will come from Piotr from Citibank. Piotr Dzieciolowski: I have a couple of questions. So the first one I wanted to ask you about this financial result in 50Hertz. So in your disclosures, you also point out apart from increased capitalized interest, you point out to accrued interest from the developer of an offshore platform of EUR 28 million, plus EUR 10 million from discounting effects on long-term provisions. So just wanted to understand, can you please explain on this first item what it really means? And is there any change on these numbers between '25 and '26? So I'm trying to get a bridge between '25 and '26 financial item. Is it just capitalized interest going up and these things disappear? Or how shall we think about these items? And second question, I wanted to ask you about your actual performance. So in your Slide 20, sorry, Slide 19, you said that the net income of ETB increased by EUR 1 million because of incentives. I was under impression that the incentives should grow in line with RAB with the size of the business, but it doesn't seem so. So can you please tell us how do you assume the incentives increment between the '25, '26? And likewise, you don't disclose incentives for the 50Hertz. I think there are some outperformance. So can you also say like operationally, do you improve -- or do you keep like a size of outperformance in line with the business growing with RAB growing or that basically the incentives and outperformance becomes bigger -- smaller relative to the size of RAB and so on. So these were 2 questions. Marco Nix: Okay. Maybe taking the first one on the wind farm contract, which we closed. So there's a nearshore wind farm at the German coast, which is being connected by 50Hertz in an AC technology. And for efficiency reasons, we agreed on to share the platform with the wind farm developer so that not both needs to have a platform being erected, what saves costs for both sides. And it's more or less a 50-50 split there. As the wind farm developer pushed back for some of the costs to some degree, and we had a relatively long-lasting negotiations on that one. We finally agreed on that the funding costs, the financing costs of this chunk, which is related to the final agreement, and which will be borne by the wind farm operator are being out of the regulatory sphere. So that's something the 50Hertz and Elia Group can keep finally. And the number you referred to is the accumulated interest income over the periods once we started that construction. So the effect itself will remain, but the order of magnitude will potentially go down as this is a kind of loan agreement, which is related on one hand to the size and the second to the scheme where there's some flexibility on the wind farm operator side once they are paying us, then, of course, the interest connected to the outstanding exposure will be lower in one of the years. And as this wind farm will likely be -- the connection of the wind farm will likely be finished in '26 and the wind farm operator will potentially commission its assets then beginning of '27, despite the fact that there's a 15 years period on that contract, there might be some changes over time in the payment scheme as the flexibility is on the wind farm operator. So that's a little bit long explanation. It's relatively complex matter, but likely that there will be an interest income over a certain period of time with different kind of order of magnitude. Bernard Gustin: Okay. And maybe, Piotr, on your question on the incentives in Belgium, it's indeed correct that they increased by EUR 1 million compared to last year. And it's indeed correct that they are, to a certain extent, correlated with the RAB, but as well, they are -- they have in the regulation a maximum amount that you can have on certain incentives. So that's one element. And some of the incentives are a bit, I would say, binary between 0 to 1. If you remember last year, we had a cable issue linked to the availability of the MOG in '24. So we had no incentive at that year. This year, we have a full incentive, a full maximum amount. So that gives a little bit why you don't see exactly that linear evolution on the incentives. Nevertheless, I think we had a solid operational results where incentives remain quite important to the overall result in Belgium. Stephanie Luyten: Let's now turn to Deutsche Bank, Olly. Olly Jeffery: Two questions from my side, please, like everyone else. So the first one just is on CapEx. Now I appreciate that you need to wait for the grid development plans to give a precise view on future CapEx for '29 onwards, and that's more likely to impact presumably CapEx in the 2030s. Are you able to give kind of a high-level view in Germany of kind of the broad level of increase you think might be likely given that most of the changes to the grid development plan are probably going to impact in the 2030s. Any insight you can give there would be helpful. And then secondly, just on funding the plan from '29 and onwards. I know obviously, you don't want to be precise about this. But could you say, is there a credible scenario where you think you might be able to fund CapEx in '29 and 2030 without the need for equity using the rest of your equity toolkit with the hybrids and opening up the capital structure of some of the TSOs potentially? Any views on that would be great. Bernard Gustin: Taking the first one, it's still, as we said, a little bit too premature to lay out a number. So if you take the total volume, which is currently as a price tag being seen on a total grid development plan in Germany, you can compare the EUR 320 billion, which was the number in the last grid development plan, which the EUR 340 billion, which is currently the number connected to the most likely scenario. It's not chosen yet, but that gives a little bit the view that likely the outcome will be rather the same with an eye on EUR 345 billion in terms of euros. However, there will be a kind of different allocation on that one. And that what makes it that's hard for the time being really to say the CapEx is further growing or going down at a certain point of time. As, of course, only part of the EUR 340 billion are connected then to 50Hertz to the Elia Group. So as a rule of thumb, it was 20% all the time. But the spread over 20 years is a difference than the spread over 10 years. So that's -- I mean, that's the simple math. And as the former government was quite in a rush to complete or to set very ambitious targets, which partially have been out of reality, the current government is more pragmatic in that view, and that's a little bit what still the debate is on. Stephanie Luyten: And on the funding? Marco Nix: On the funding, I mean, we have full flexibility now. So that's currently what we are going to execute. That's all our options are valid. We are working on further optionalities as well. But please, as we don't have the CapEx numbers currently in place, we do not want to give guess how we are continuing to fund the growth in the future at this moment. Stephanie Luyten: Nor do we have the regulatory framework set in place? Bernard Gustin: Yes, it's a bit early... Stephanie Luyten: So I think it would be a bit too early. But thank you for the questions. I see the next questions will come from ODDO, Thijs. Thijs Berkelder: A couple of questions. Do you still require probably an additional EUR 2 billion of equity? And can you confirm that you still aim to raise this via in principle, EUR 4 billion of hybrids? Second question is on your Energy Island and the DC connectivity there as well as for the U.K. connector. The HVDC cost price was too high. Any reason in your view why HVDC pricing now should be lower? And third is on the North Sea offshore wind projects targeting 15 gigawatts installations by 2031. What can we expect as impact for your CapEx from that plant compared to what we currently are installing on the North Sea? Marco Nix: Yes. Maybe starting with the first one. Our toolkits provide us flexibility, and we stated that it can be both hybrid -- the hybrid capacity potentially being sufficient at this point of time, while another option is to open the capital on one of the subsidiaries and/or finding structural solutions to help us funding the growth. And that's still something we are closely monitoring. And there's a couple of key elements to be considered and criteria's in the decision-making, once is timing. Another one is, of course, cost of capital. Third one is execution to name a few of them. And as we have a strong liquidity position and of course, the credit rating is comfortable as well. So we are carefully looking for the best solutions there. And once this is being decided, it can be both extremes. So both elements of the toolkit would gives us the credit in total, so it has the potential. However, it could be a combination as well depending on the point of time where we make the decision. Bernard Gustin: On the Princess Elisabeth Island, I would say that, first, it was the right decision to postpone the project because, as you know, at the time, we were really in a very heated market on the HVDC component. However, the teams have been working on updated design. We have also some very good discussion between U.K. and Belgium on how to best share the cost and the benefits of the project. And I hope that in the coming weeks, months, we can come with a solution that fits with the original objectives, while being more reasonable from a cost point of view. We see that the HVDC technology remains an expensive technology, but we also see that the heat that we had a few months ago is a little bit lower. On your North Sea approach, which actually the Princess Elisabeth Island is a subpart of. As I explained in my conclusion, I think we are really, as Elia Group extremely well positioned being the only transmission group having a portfolio of assets already in our base today. But of different nature because we have the Belgian port on the North Sea. We have the projects on the Baltic Sea with Windanker's. But we have also with our subsidiary, WindGrid, a project called HansaLink. And the advantage, of course, of this setup is that it's a setup where you can also use financial players who can help the financing of the project. So I'm not going to preempt on the decision of Europe. I think, by the way, we see with what's happening now in the Middle East that it's high time that we reduce our dependency on gas and that offshore wind in the North and the Baltic Sea is a critical element in there. We will see how Europe will evolve in -- and the grid package already goes that direction, but how they translate that into a series of projects. But I think what's interesting is that Elia by its strategic geographic positioning, by its current portfolio of projects, but also by its setup where we can leverage financing capital at different levels is very well placed to play a role in there. And already in our current portfolio of projects and in our current asset base, we have projects on both seas in the North and in the Baltic Sea. Stephanie Luyten: Are there -- yes. I see the next question coming. Unknown Analyst: And also from my side, compliments for the good results and outlook, of course. Yes, on the -- I'm still going to try on the North Sea, and thank you for the answers so far. But looking at the ambitions and with the involvement of TSOs as well in these kind of framework ambitions that were published, a step-up to 15 gigawatts already in 2031 and for a number of years, even a decade. And now looking at your CapEx approaching EUR 7 billion. So let's say, connecting all these gigawatts already upfront or preparing for that upfront and for a number of years to come. Is it fair to say that, yes, maybe previous assumptions on EUR 7 billion being the higher end of forward CapEx. Is that something that we need to reassess to a larger number, higher number? That's my first question. And the second one is on CapEx, and it's a great achievement that, of course, you met the expectation after the -- I think the questions that were raised at the midyear presentation. What should we expect for 2026? Will it be a more balanced picture of the EUR 6.8 billion or also 1/3, 2/3, maybe some guidance there. Bernard Gustin: I will take the first one and let the team go for the second one. I think the guidance remains the same. So we are on EUR 7 billion CapEx because we are talking on a series of projects that we know. Then we will have to see how the developments happen, and we will be looking at it as you do. And according to the developments, of course, Elia Group wants to position itself on these developments. But I think then there will be also another way at looking at it. And I think from the European standpoint, from the political standpoint, we will have also to think of the tools to make sure that we can reach those developments without having always a direct impact on the balance sheet of the TSOs. And that's where I say with some of our tools like WindGrid and so, we are very well placed to test those type of model. We will also have to see what Europe does in terms of SAF funding and other conditions. So just to say, within the current framework, we are in the current guidance, and there is no reason to change. Of course, we remain attentive and opportunist of what it would develop. But I think then there would be other ways of looking at the thing and not directly in the CapEx of a TSO, which will be one of the topic to manage if we want to reach this great ambition, but also needed ambition when you see the situation of Europe. Marco Nix: And maybe to complement, we published recently a paper then which could be a way forward in the future to fund in particular the far offshore wind farm developments and the connection to that one mainly via hybrid interconnectors, where we are facing several constraints to go ahead there, and that could be an element with the so-called WSPV concept, which helps both on one hand to unlock a little bit resistance in one or the other countries. And secondly, combine the forces with giving some securities by public authorities like European investment banks, for instance, and combining with private capital to fund that in the future, as Bernard rightly said, it's questionable whether all TSO can absorb simply these big request of capital in the future. In regards to our CapEx program, it's likely that you will do see a heavy loaded second half year again as this is, on one hand, a little bit in nature as during the summer, most of the construction is being made. And then, of course, we usually account for the progress once a certain milestone has been reached, and that's likely more in autumn than in spring. And the second one is that at least in Germany, gives us a favor to have that backloaded profile. As usually, you get remunerated for the average of the year while -- for the capital cost as well. While, of course, the later you will have it, the bigger the gain could be. And that's something which we have seen in the results as well as, in particular, the difference between the real funding costs and the funding costs, which are being embedded in the grid fees gives us a favor to some degree and contributes to results, too. Stephanie Luyten: And let's go to Wim from KBC. Wim Hoste: Yes. I hope you can hear me. Stephanie Luyten: Very well. Marco Nix: Yes. Wim Hoste: All right. Also congrats from me. Lots of questions have been asked. I just want to throw in some add-ons. If I want to come back to the financing, the equity raise potential, and I understand regulatory framework has to be put in place. Can you give an idea, suppose that if you want to do something like an ABB like in '24, EUR 0.5 billion, if that's possible, what you need to do, whether you would need to have some kind of Board's agreement first, if that's a possibility simply because the share price has rallied quite a lot. It's more than doubled since the last capital raise. So how you feel about that? Then smaller questions on the dividend. I think in the past, you said that, that would go in line with inflation. I think it stays more flat now. Is that also the outlook for the future? I completely would agree that would make sense as well. And then lastly, more like a general question and something that we've seen in the U.S. where the government has asked big tech to -- yes, basically pay via some kind of taxes to upgrade the grid because obviously, we know that, that demands a lot of investments to accommodate all the hyperscale investments. So just your view, is that something that could be possible in Europe? Obviously, things move a little bit slower. But if there's anything that you can say just in order to kind of divert the pressure that we have seen and the pushback from industry and consumers on -- yes, obviously, offloading a lot of the investments via the energy prices. So those are my 3 questions. Stephanie Luyten: Maybe I can tackle the dividends, if you like. We indeed gave a dividend or proposing a dividend of EUR 2.05. But what you need to take is as a basis is actually the EUR 2 because when we did the capital increase, we actually restated the dividend. And if we were to increase the dividend on a restated basis, it would be close to EUR 2, but we did not want to pay less than last year dividend. So we have increased it slightly. That has been our rationale for the EUR 2.05. Marco Nix: And we do see that as a strong signal that the investment in the Elia Group is a value-accretive one and the dividend payment is one of the elements there. So that gives some certainty that our growth path is intact. Stephanie Luyten: Regarding the ABB, what do we need to have in place for that? First of all, yes, we will have to have an authorized capital in order to do such a transaction. But we -- as Marco already highlighted today, we are not looking to use any nondilutive -- we are looking to use nondilutive options. And I think there, we have enough flexibility. The way forward would be towards the future to bring back unauthorized capital, put that in place, and that are the first steps that we need to take. Bernard Gustin: And on the U.S., well, first of all, it reminds us of the potential in the U.S. We have a little bit of a setback at the moment, but we are convinced that over the long run, we know the situation of the grid in the U.S. It's certainly not at level with the AI ambition that the U.S. has and the battle of AI will pass via a strong grid. So I think it's good that we are positioned in there. It will take a little bit more longer than expected, but I'm convinced that the potential is the same because the grid becomes a critical asset in every region of the world that want to electrify. The debate, of course, is who needs to pay, and we see the investments that the hyperscalers are doing and all things relative, the investment in the grids are indeed a fraction of the investments they are generally doing. So the idea to make them contribute is a political decision where it will be difficult for me to take a position, but it's clear that we've seen in our countries that the development of AI and data centers is representing a certain burden on the net, burden on the consumption. And I think at some point, there are 2 positions that need to be taken. The first one is what do we want in terms of industrial development and where do we give the priorities in terms of segments, AI, data centers versus general industry. And then how do we make sure that the general consumer is not hampered by a consumption that is not responsible for. So I think I don't know what is the exact recipe, but the direction is certainly a direction to investigate. Marco Nix: And maybe to complement on that one, on one hand, there are multiple congestions on all these connection requests. So funding is one. So in Germany, for instance, the consumers are not paying for the direct connection. It's indeed then the applicant. On the other side, we do see that the grid is heavily loaded and simply that makes a congestion in connecting a new device to the grid. So as this is something we need to be careful of as well to protect our people in doing the works there. And last but not least, it's not all the time that visible how mature the project is. And our lead time, it's fair to say, are still longer than the ones from this developer. And as they want to go in a staged process usually with extending the devices which are consuming them at the stage, but we are designing the -- yes, the connection only once. So that's all the time a little bit mismatch in the planning horizon. That's something which we need to work on commonly to make sure that we do see how mature the project is that we can give some access being granted and we can rely on that one as well as, of course, we want to prevent that we invest in an area where nothing is going to happen. As we honestly have seen in Germany with the ship industry as Intel canceled the big factory in an area of Magdeburg, and then the TSO was forced to bring down the commitments in that area. However, the land has been already being acquired. So that's a mismatch, which we need to be careful on as, of course, we need to protect then the final consumer, as Bernard rightly says, that we are not socializing cost of the industry, yes. That's a little bit what we are in. Bernard Gustin: But it's clear that AI needs the grid, but the grid also needs AI. And we will also -- and we are really developing an AI strategy and developing -- we are already using a lot of AI, but we want to accelerate there because AI is also a way to solve some of the bottleneck issues that we have today. So it's really a very close relationship, both ends. Stephanie Luyten: Let's now move to Juan from Kepler. Juan Rodriguez: I have 2, which are more of a follow-up, if I may. The first one is on guidance. Can you please confirm that you have no additional hybrids included on your 2026 guidance? And on guidance as well, what is the targeted return on equity that you have on Belgium and Germany within the guidance that you've given, especially on Germany as is substantially above expectations? And the second one is on the U.S. impairments. What are your expectations now in terms of the timing and size of the expected earnings contribution that you expect in the region going forward? If you can give us more clarity on that, that will be helpful. Marco Nix: You take the hybrid? Yannick Dekoninck: I think in the guidance that we have given is a guidance that takes into consideration multiple options that we have in the funding toolkit. So we do not exclude -- to be clear, we do not exclude a hybrid issuance, but the guidance that we have published this morning takes into consideration multiple options. Now in terms of return on equity, as you know, we are not guiding specifically on the return on equity for a specific year. We have guided on the return on equity over the period, over the regulatory period, both in Germany and Belgium. So that's still something that we are targeting for, knowing that you could have certain variability year-over-year due to important one-off effects like we had this year. That's also why we have been very clear on what that one-off effect was in Germany. Marco Nix: So to remind you, the average guidance which we have given was between 7% and 8% in Belgium, while in Germany, it was 8% to 10%. Stephanie Luyten: Yes. And on the impairment? Bernard Gustin: Did we miss one? Stephanie Luyten: Yes. I think on the U.S. impairment on the timing, when we could expect a positive contribution, but that one is a little early to say today because there's still a lot of uncertainty on when those projects and how and when they will materialize, but that's more towards the end of the decade, I would say. Bernard Gustin: Yes. And it's clear that, as you know, we have 3 projects, the project on Clean Path, New York, which is a line in New York, didn't pass some regulatory approval, what we call a priority transmission project, but it doesn't take away that New York needs an extra transmission line. And so we will use the assets to participate to further project development. So there, we believe we are rather facing a delay. You know the uncertainty that exists today in the U.S. about the offshore and things can turn very quickly one way or the other. So our strategy there is to secure the assets that we have in place. We have already the leasing rights on this project, that's Leading Light Wind. And on SOO Green there for the moment, that's a project that, as Stephanie explained in the presentation, continues on its path of the different regulatory hurdles. And so there, for the moment, there is no reason to review the project. So as you say, we are rather delaying in time. But as I said to your colleague just earlier, I'm convinced that the fundamentals stay and at some point, somebody will see that these projects are heavily needed. Marco Nix: So in the '26 guidance, there's no positive contribution being expected to make that clear. Stephanie Luyten: Thank you, Juan. Let's now turn to Alberto from Exane. Alberto de Antonio Gardeta: Congratulations for the results. A couple of follow-ups from my side. The first one is regarding the German regulation. Maybe if you could -- based on the like already published consultation papers, if you could quantify what are your expectations in terms of ROE and WACC based on the current consultation papers and what else is needed? So maybe if you could give us some guidance of what will be your expected level of returns in order to get the competitive returns that you need for being competitive in the equity markets? And the second one will be regarding the potential update to the market, the potential Capital Market Day. You have said that maybe by the end of the year or beginning of 2027. When do you know that we will have more visibility if this is happening or if we can consider as confirmed or it's still pending? Stephanie Luyten: I think maybe I'll start on the Capital Markets Day. That's still very much pending. As Marco clearly said, there are still a lot of moving factors. We don't yet have clarity in Germany. And also in Germany, the final elements will only be defined somewhere in 2027. So that's why we cannot fix to a date somewhere in the future. So next to that, we also have grid development planning that is ongoing in Belgium, in Germany. Those time lines aren't super fixed neither. So this will be something, I think, towards the end of the year, we will have more clarity on. So I do not expect us to really do a CMD still this year. Marco Nix: So to come to the German regulation, if you really look into the paper, even though it's heavy reading, I would say, it's for the time being, for our perception, more a description of a structural approach while the ingredients are not being flagged yet. And even though a WACC model could be something comparable, but the big debate on the cost of debt coverage is not finished yet. So that's still ongoing, but a rating adjustment is being made, which kind of reference rate is being used. These elements are still pending. That's why it's a little bit too early really to say what the outcome could look like, and we previously discussed equity or return adder for the TSOs, what is still in the discussion, which is not in yet. So I would say we are not there yet with that what we assume BSR could deploy. However, our clear target is not being worse than today. And if you take the return on equity, which we disclosed and take off all the accounting items, there's still a return rate above 8.4%, which is, if you want to name it, a kind of cash return. And as BSR already said, the total package matters, that's something we are requesting, and that's something which we are targeting to get out of it. Which elements shall we put in place. There, we have some openness. So if there's an incentive being put in place, which gives us an order of magnitude lending there, we are fine with it as well. We are happy to get challenged in terms of our operations. But so far, it's not really clear. So therefore, we are hesitating to give a guidance what it could give for the time being. Stephanie Luyten: Thank you, Alberto. Let's now -- I see Olly, you have some further follow-up questions? Can you hear us, Olly? Olly Jeffery: Yes. Just one follow-up question, please. Going back to the discussion on the capitalized interest within the guidance for '26 at 50Hertz. Is that -- which is noncash. Is there anything else within that '26 guide 50Hertz that is noncash in addition to the capitalized interest that we should know about? Or is that the only item? Marco Nix: I wouldn't say it material. There is -- now we come a little bit in great territory as we assume commissioning, which gives us a full depreciation in the revenues, there's a cash connected to that one, while the depreciation is lower, the real depreciation, which we are recording in that year. So for us, it's a cash item, which contributes to the results as well. While the capitalized borrowing cost is a noncash item as this is reverted later stage. So -- and therefore, I would keep it on that one, knowing that, of course, the example which I raised could give us a favor in the results of next year as well. And as I said, if you only linearize that, the result would look a little bit outstanding compared to that linearization in line with the CapEx, which you otherwise would compute. Yannick Dekoninck: And maybe if I can complement it, Marco, for those that have been following us for a couple of years, you see that we also have sometimes discounting of interconnecting provisions or interconnected income. As you know, you -- sometimes have spike in the forward rates that has an impact on those long-term provisions. That's not something that we estimate or take into account in the guidance as such, but that's always something that can happen. We were confronted with that a little bit at the end of Q4 of this year, where the interest rates started to move up. But that's not something that we can -- that we have a control on. That's not something that we can steer. So there, we have a neutral approach. But in the actuals, of course, that can have an impact. Olly Jeffery: And what was the impact of that in the '25 results from that movement at the end of Q4? Yannick Dekoninck: I think at the end of Q4, we had a net impact of EUR 22 million that was coming from this discounting of provisions. Stephanie Luyten: Thank you, Olly. If there are no further questions, let's wrap up today's presentation. First of all, a big thank you to all the teams who have contributed. Thank you, Bernard, Marco, Yannick. Marco Nix: Thank you, Stephanie. Stephanie Luyten: And thank you for joining us today. Have a nice day, and see you soon.
Operator: Good afternoon. My name is Ina, and I will be your conference operator today. I would like to welcome everyone to Thinkific's Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Joo-Hun Kim, Head of Investor Relations. Please go ahead. Joo-Hun Kim: Thank you, and good afternoon, everyone. Welcome to Thinkific's Fourth Quarter and Full Year 2025 Financial Results Earnings Call. Joining me today are Greg Smith, CEO and Co-Founder of Thinkific; and Corinne Hua, CFO. After the prepared remarks, we will open up the call to questions. During the call today, we will discuss our business outlook and make forward-looking statements that are based on assumptions and therefore, subject to risks and uncertainties that could cause actual results to differ materially from those projected. These comments are based on our predictions and expectations as of today. We undertake no obligation to update these statements, except as required by law. You can read about these risks and uncertainties in our regulatory filings that were filed earlier today. Our commentary today will include adjusted financial measures, which are non-IFRS measures. They should be considered as a supplement to and not a substitute for IFRS measures. Reconciliations between the two can be found in our regulatory documents, which are available on our website. In addition, our commentary today will include key performance indicators that help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Such key performance indicators may be calculated in a manner different to similar key performance indicators used by other companies. I should also note, we have a slide deck that supports our remarks available to download on the webcast interface or on our website. Finally, all dollar amounts discussed today are in U.S. dollars unless otherwise indicated. I will now turn the call over to Greg Smith, CEO and Co-Founder of Thinkific. Greg Smith: Thank you, Joo-Hun. Good afternoon, everyone. Thank you for joining us. We ended 2025 encouraged by the progress we're making in executing our upmarket strategy as demonstrated by our Q4 results, which came in at the high end of our guidance range. While it's still partway into our transformation, the progress we made in 2025 gives us confidence that the new strategic direction is translating into measurable execution gains. Our 2026 priorities are clear, and we are focused on executing to validate and accelerate the path we are on. We are strengthening engineering excellence by deeply integrating AI into our development processes and platform capabilities while sharpening our go-to-market execution. With releases like Thinker AI agents, we believe we are innovating to deliver the tools that will allow our customers to grow and scale their businesses more effectively, which in turn will deliver measurable progress to Thinkific. Before we proceed, as was announced in the press release after market close today, Corinne Hua will be stepping down from her role as Chief Financial Officer. She's been an incredible partner and leader during her time of almost 6 years with us. Her financial stewardship allowed us to return to profitability, and her focus on always driving growth is foundational to laying the groundwork for the new strategic direction we're pursuing today. We are grateful for everything she brought to Thinkific, and I want to wish her every success ahead. The search for our new CFO is well underway, and I look forward to providing an update at the appropriate time. Kevin Wilson, who has been involved in Thinkific since before our IPO, will provide strong leadership as our Interim CFO. I've had the pleasure of working with Kevin for nearly 6 years, and I'm very confident in his ability to lead us and the team through this transition. We also announced some updates to the Board of Directors. I'm very pleased to welcome Jean Lavigueur to Thinkific's Board of Directors. Jean brings deep financial leadership and a proven track record guiding high-growth technology companies such as Coveo where he led the company through its IPO until 2023 and Taleo, where he was a Co-Founder and the CFO until 2005 when the company went public on NASDAQ. His experience in public company finance, capital markets and governance will be a significant asset as we advance our current strategic journey. I'd also like to thank Brandon Nussey and Fraser Hall for their dedicated service and contributions during their time on the Board. Both have been instrumental in the success the company has achieved, and I wish them the best in the future. Now turning to the quarter. It's still early in our transformation, but once again, we came in at the high end of our guidance. We see this as a reflection of our ability to continue to execute toward our strategic shift upmarket. Crucially, we are seeing signals that our go-to-market execution is improving. The go-to-market teams are now restaffed with new senior leadership in place, and we are focused on establishing the most effective path to market, including validating our outbound motion. On our last earnings call, I spoke about shifting budgets away from lower ROI campaigns and toward upmarket opportunities. Since then, we have made significant shifts in our marketing spend with good results coming in as planned. We are seeing larger brands with significant expansion opportunities enter our sales pipeline. These results are showing up in the quality of opportunities and scale of customers choosing Thinkific. On our last earnings call, I also shared that currently less than 10% of Thinkific Commerce revenue comes from Plus opportunities and how we are investing in Commerce capabilities to meet the needs of customers with larger sales volumes. This is a big opportunity for us. We've improved our billing environments, functionality for larger group orders, pricing and flexibility and notifications and trial periods for subscriptions. The result of this has been larger customers processing larger volumes being more likely to adopt Thinkific payments and earn more revenue on Thinkific. As a result, this quarter, we saw strong growth in the Commerce revenue generated from Plus customers. We're also seeing growth in customers that generate 5- and 6-figure revenues for Thinkific, and we continue to see strength in multiyear deals with built-in accelerators at over 50% of new deals. We are actively investing in supporting and scaling this upmarket customer segment. We see both the need and opportunity to provide higher levels of support and service for these customers, and we're actively investing in this opportunity. On our last earnings call, I spoke about steps we were taking to strengthen our sales team to handle larger, more complex deals. This quarter, we begin to see the fruits of these labors. In Q4, we secured a major win with the education unit of a large multinational media conglomerate. This win showcases our recent improvements, including our new outbound motion, enhanced support capabilities and a deal team equipped to handle the extra rigor of closing deals with larger businesses. This media company came to Thinkific after realizing that the 2 different legacy learning systems they had were not meeting their needs. Their traditional LMSs were hard to use and navigate and lacked modern feature sets, which contributed to user significant frustration and drop off across their learners experiences. They were looking for a more flexible and scalable solution. Thinkific stood out for our platform adaptability, pricing model and ability to support both internal training and external audience education. Key differentiators included Thinkific's ability to scale to support multiple academies, seamless SSO integration as well as a mobile app that improved accessibility and adoption. On our last earnings call, I also mentioned the creation of our outbound motion. This deal was sourced through this new outbound channel. This represents a significant opportunity for additional growth for Thinkific in the quarters ahead. Despite being a smaller division of a multinational organization, the procurement process was rigorous, typical of large enterprise, but our go-to-market team was able to successfully navigate the complexity. Moreover, our recent investments in higher top-tier support teams demonstrates the readiness and ability to support larger enterprise customers and was key to their choosing Thinkific. Many of the recent improvements we've made have started to bear fruit. However, I'm confident there's a lot more growth to unlock here with the product improvements we have coming in the near term, and we should see our investments help us accelerate. Our release late this February of Thinker is a giant step in delivering on these enhancements. Thinker is our AI agent teaching assistant. Customers of Thinkific can now have their own custom agents that are experts in any media and content customers upload to Thinkific. On our last earnings call, I shared that Thinker would be generally available early in '26. We've now launched Thinker and it's currently available to all of our Plus customers. Thinker represents the next step in Thinkific's broader approach of embedding AI across the learning experience. It allows each of our customers to deploy custom AI agents trained on their own proprietary data to interact directly with their learners. The result is a more engaging, more responsive and more valuable learning experience. Thinker leverages Thinkific's own indexing engine, which is designed for response accuracy, a critical need in offering AI support to students and referencing their learning content. Additionally, Thinker allows our customers to create multiple agents trained on multiple topics. Research shows that interaction with instructors is among the most significant factors affecting learner retention and its absence often contributes to dissatisfaction and dropout decisions in online learning. At the same time, identifying timely upsell and cross-sell opportunities remains difficult as businesses work to maximize revenue per learner. Thinker addresses these challenges by providing an easier navigation, faster answers and personalized experiences that's intended to support higher completion rates and satisfaction. It offloads repetitive questions from educators, freeing them to focus on high-value interactions. Customers can create multiple custom agents that are deeply familiar with their proprietary learning content and answer accurately with reference to this material rather than generic web searches, while maintaining brand consistency with a fully customizable tone to ensure every interaction aligns with the business' unique voice and will soon help unlock revenue opportunities by identifying and acting on potential upsell moments. Thinker also provides analytics about the use of Thinker by students, including on the types of questions they're asking. This helps our customers further refine their content and can even identify new opportunities for additional courses or learning products. As Stephen Ekstrom, CEO and Co-Founder of Learn Tourism shared with us, Thinker helps to amplify the learner experience, supporting self-discovery, responding with a more personal tone and engaging people in ways that reflect how they actually learn. The result is learning that is more effective, more relatable and more memorable at a scale we simply couldn't achieve manually. Thinker is currently available to Plus customers, and we believe it will act as a catalyst to drive further adoption of the platform as well as ARPU or ACV expansion. Now that Thinker agents are actively being used by customers, we are seeing positive feedback. Additionally, we've identified a number of opportunities to expand its capabilities to enhance the offering to our customers and the revenue opportunities for Thinkific. To date, Thinkific is seeing benefits of AI in 2 principal categories: improvements in our productivity and efficiency and how we work, allowing us to produce more value at lower cost in most areas of the company. Specifically, we've seen significant gains in customer support and R&D. Also, we're incorporating AI into our product for the benefit of our customers with Thinker, our custom agents, AI agents for our customers being the most recent innovation here. As a next step, we see an opportunity for some onetime investments to significantly improve future efficiency, productivity and innovation, specifically in R&D. We are currently making some mostly onetime investments to equip our engineering teams with best-in-class AI tools and best practice methodologies. Our expectation from this short-term investment is clear, drives significant productivity increases in our engineering teams. This will mean we'll see a 2% to 5% adjusted EBITDA loss in Q1 as we increase our AI-driven investments and quickly returning to adjusted EBITDA profitability thereafter. We have an ambitious product launch schedule ahead, including a comprehensive platform refresh, enhanced content management and commerce capabilities designed to better serve our ideal customer profile. This surge will enable our teams to operate on a higher level, accelerate our pace and ultimately deliver more value, both internally and ultimately for our customer. Once complete, the company will be ideally positioned to accelerate growth, expand margins or strike the optimal balance between the 2 to best enhance shareholder value. I am genuinely excited about the progress we've made. At the same time, I'm deeply impatient and I'm working hard to accelerate our progress. It takes time for all the actions we took to take effect. With the investments we've made and the strategy we've put in place, I do expect we'll be able to share concrete measurable evidence of progress as we execute on our new strategy by the end of this year. I'll now turn it over to Corinne. Corinne Hua: Thanks, Greg. Good afternoon, everyone. Our fourth quarter financial performance came in at the high end of our guidance range, driven by continued penetration gains in Commerce and progress in focusing on our upmarket opportunity. Fiscal 2025 marked a pivotal period for Thinkific. We embarked on a strategic repositioning, focusing our product road map and go-to-market efforts on a narrow segment upmarket. We believe this more targeted approach addresses a large underserved market who are looking for a comprehensive platform that can help them grow and scale their business. We are confident that this focus will also accelerate Thinkific's long-term growth trajectory. As Greg has already discussed, we are making targeted onetime AI-related investments in research and development to better serve our upmarket customers. These investments are designed to accelerate the delivery of our product road map and drive productivity gains across the entire organization. We expect these investments to position Thinkific to deliver revenue growth and drive sustainable margin expansion, thereby enhancing long-term shareholder value. While we expect an adjusted EBITDA loss in Q1, we will see improvements as we move throughout the year. On to Q4 financial results. For the fourth quarter, revenue was $18.7 million, up 6% year-over-year, driven by the continued penetration of Thinkific Commerce into our customer base and improving execution of the go-to-market teams in Thinkific Plus. For the year, revenue was $73.2 million, up 9% year-over-year. As part of moving upmarket, we've purposefully scaled back certain traditional go-to-market activities where we weren't seeing the returns we expected. These adjustments allowed us to concentrate resources on larger, more strategic accounts with greater lifetime value, positioning the business for more durable, high-quality growth over the long term. ARPU of $175 per month was up 5% in Q4 and up 5% for the full year of 2025. The increase in ARPU came from the growth of Commerce revenue and the continued progress we're seeing in Thinkific Plus, where ARPU is approximately 20x that of a typical Self Serve customer. Subscription revenue for Q4 was $15.2 million and ARR was $61 million, both up 5% year-over-year. For the full year, Subscription revenue was $59.8 million, also up 5%. The growth in Subscription revenue for the quarter and year results from continued strength in Thinkific Plus, offset by softness in Self Serve. Commerce revenue was $3.5 million, up 13% quarter-over-quarter, and $13.4 million or up 32% for the year. The growth reflects continued penetration of Thinkific Commerce across our customer base, including significant improvements within our Plus customer group. Penetration, which is measured as GPV as a percentage of GMV, increased to 62% in Q4 from 61% in the prior quarter and 52% in the prior year. It's worth noting that given our current product offering in Commerce and the makeup of our customer base, we are near a plateau for Commerce adoption. We expect to see penetration growth slow down and flatten as we approach the mid-60% range. The near-term impact of this is we expect normal seasonality of Commerce volumes to result in Q2 Commerce revenue being roughly in line with Q1. From there, we see continued Commerce growth opportunities through a number of levers, including growth of GPV from our larger existing customers, the movement of currently off-platform sales onto Thinkific Payments, continued adoption from new customers, and importantly, as we've moved upmarket, we are seeing more new customers with large sales volumes starting on Thinkific Commerce. GMV for the quarter was $117 million, up 2% versus a 3% growth last quarter and the flat growth in Q4 of 2024. For the full year, GMV was $460 million, flat from the prior year. Take rate of 4.3% for Q4 was down from the 4.5% in Q3 and a 4.4% average for all of fiscal 2025. We expect the take rate to fluctuate around these levels quarter-over-quarter, influenced by the geographical mix of sales and the specific commerce tools utilized. For instance, this quarter saw higher international sales that generally carry a lower take rate as they utilize a lower-cost payment options like ACH. Our sales tax solutions aren't available to them, and they have lower usage of options like buy now, pay later that have a higher take rate. Now on to revenue by customer group. Self Serve revenue reached $13.7 million in Q4, up 3% from Q4 of the prior year. For the full year, Self Serve revenue was $54.2 million, up 6% year-over-year from 2024. Q4 and the full year 2025 growth reflects expanding Commerce revenue, offset by higher churn and lower tier accounts amid our focus upmarket. Thinkific Plus revenue was $5 million, a 17% increase from Q4 of 2024. For the full year 2025, Plus revenue was $19 million, up 21% year-over-year. The deceleration of Thinkific Plus revenue in Q4 relative to the first half of the year and for the same period in 2024 is due to hard compares following the release of the highly anticipated SCORM feature in the summer of 2024 and the sales force disruption that we experienced early in 2025. We are beginning to see positive signs in our sales team as it stabilizes from the summer. We are pivoting ad spend upmarket which along with the rebranding we began the spring of 2025 is having a positive effect. And we see larger companies with greater expansion opportunities entering our sales pipeline. Gross margin was 72.5% as compared to 73% in Q3 and 75% in Q4 of 2024. As we discussed in prior calls, the gradual decline in gross margin over the past 2 years is largely due to a shift in the revenue mix towards Commerce revenue, which carries a gross margin that is lower than Subscription. Moving to operating expenses. Total operating expenses was $13.6 million, in line with the prior quarter and the prior year. We increased our engineering investment of $5.8 million sequentially to accelerate the product road map and advance our AI initiatives. These increases were offset by a reduction of almost $500,000 in sales and marketing, which came in at $4.6 million. The reduction was a result of a decrease in promotions and advertising spend aimed at the creator market. While we have reallocated go-to-market resources towards the upmarket segment, we're still testing and iterating on different paths to market in order to identify the most effective channels before meaningfully ramping spend. For the full year, operating expenses were $54.9 million versus $52.8 million in 2024. The increase in operating expenses in 2025 came from increased investments in product development. Q4 adjusted EBITDA totaled $1 million, representing 6% of total revenue, an improvement of approximately $100,000 compared to Q4 2024. For the full year 2025, adjusted EBITDA was $4 million, up from the $3 million in 2024. Cash from short-term investments as of December 31, 2025, was $51 million, a decrease of $1 million from the prior quarter. This reflects cash usage of $494,000 from operations and $445,000 used in the repurchasing of common shares for the purchase of cancellation. The usage of cash in Q4 is a result of working capital changes that occur intra-quarter. For the full year, cash from operations was a positive $5.6 million. We believe adjusted EBITDA is the best predictor of operating cash flow for the company on a normalized basis. Reiterating Greg's comments, we are making solid progress in embedding AI across the company and see a growing pipeline of opportunity coming from businesses looking for a more comprehensive, scalable platform to help them grow their businesses. To drive continued growth, we are committed to targeted investments with AI within our R&D team. For the first quarter of Q1 2026, we are expecting revenue of $18.6 million to $18.9 million, representing growth of 4% to 6%. We expect adjusted EBITDA to be in the range of a loss of 2% to 5% of revenue due to the aforementioned strategic investments within R&D with improvements in adjusted EBITDA expected as we move through the year. This is my final earnings call as the CFO after almost 6 incredibly rewarding years here at Thinkific. I'm proud of the team I was a part of building across the entire organization and the transformative achievements we've delivered together. Though I'm leaving, I have confidence in the team's ability to lead the organization into the future and look forward to continuing to cheer them on to success. And with that, we are now happy to take your questions. Operator: [Operator Instructions] And your first question comes from the line of Stephen Machielsen from BMO Capital Markets. Stephen Machielsen: So I just want to touch on the increased investment in engineering. I'm sure that some of the releases of the coding tools that have come out since we've last spoke and they're probably helping drive this. But I just want to get a sense of what -- how has your thinking changed about your product road map since last quarter? Are there -- are you accelerating a lot of potentially revenue-generating features as well? Or is it primarily going to be investing in the core platform? Greg Smith: Thanks, Stephen. Good question. Yes. So on the road map and how we're thinking about that, it is -- it has changed, and we just went through actually over the last couple of weeks, a lot of planning around looking at the road map looking ahead. and really how do we leverage AI, both in terms of how we're building, which is where some of the investments are, but also in terms of the product that we're offering. Thinker is a huge step forward in this. Again, that's our AI teaching assistant. It really has the potential to be a stand-alone product that's entirely AI-driven. I'm also looking at or we're looking at a lot of ways that we can leverage the assets that we have that you could not build with AI elsewhere. So there are some network effects. There's some data, significant media assets. These are things that we can leverage to create products for our customers that no one could build on their own. And so there's a lot of opportunity for us to work that into the road map. And Thinker is one big step in this direction, of course. Stephen Machielsen: Okay. And just sticking with Thinker. I know this won't be your last AI-powered tool or I can't imagine it would be. But just wondering how the -- how you're thinking about monetizing it and the economics? And is there enough unit economics in it for it to be eventually rolled out to the rest of the Thinkific base? Greg Smith: Yes. It's -- both good questions. On the monetization, it's included in Plus plans, but there is usage pricing -- or sorry, it's outcome pricing. So as we see customers have success, this does seem to be the fairly standard in terms of how AI tools are being priced. It works great and that customers are paying for the results that we're getting or they're getting. We're seeing good results already from how Thinker is being used already. And so what we get to see is customers have the ability currently to roll this out to their students, their customers. And the more they save and the more they gain from interactions, either they didn't have or have to have because Thinker does it for them or even revenue opportunities that it can create, that turns into billing for us. But right now, it is included with some success outcome and outcome-oriented pricing into the Plus plans. And then in terms of rolling it out to the broad base of customers, we are looking at that. It's -- that will be an interesting one. I think eventually, we will make it available to everyone. But right now, it's really focused on the larger, more successful group of customers and unlocking it for them. Stephen Machielsen: All right. That's it for me. I just want to say, Corinne, it's been great working with you, and I wish you all the success going forward. Operator: And your next question comes from the line of Gavin Fairweather from ATB Cormark. Gavin Fairweather: Maybe just on Self Serve, despite the lower marketing on earlier-stage customers, revenue is pretty flat sequentially this quarter as one might have expected a bit of a decline and the guide for Q1 is showing kind of further growth. So is the readthrough here that you are having success at this stage of the transition kind of backfilling some of that earlier-stage churn with kind of more established customers? Greg Smith: Yes, I'm really impressed with the discipline within our go-to-market teams on spend, and they've self-identified a lot of opportunity over the last few quarters to save. And I think you're seeing part of it reflected in the go-to-market spend, not all of it because some of it is again being redirected upmarket. But they saved a significant amount there and yet they've been able to do it with discipline and intelligent approach such that we're really not seeing much of a decline. In fact, we sort of made estimates as to what kind of a decline we would see, and we're beating all of our estimates. And as you're pointing out the numbers, it's looking pretty good despite the cuts in ad spend there. Gavin Fairweather: Great to hear. And then maybe just curious what you're hearing in the ecosystem on Udemy. I mean, obviously, they've announced their kind of merger with Coursera and then they had that partnership with OpenAI, where they're going to send a bunch of their content kind of into the LLM. Wondering what you're hearing from prospects and customers and whether you could see any kind of opportunities for Thinkific through all that disruption. Greg Smith: Yes, I mean the -- they don't come up in the competitive set for us just because they're the marketplace, and I know you know that, but they don't come up in the competitive set for us in that way and that our customers couldn't use Coursera or Udemy for the same kind of solutions that we offer. But the selling through LLMs is definitely something we've been looking at and have some opportunity to do. I think the -- we've seen Shopify do this. And yes, definitely with MCP, there is that opportunity where you're having your conversation with your favorite LLM and then courses or other learning opportunities are presented to you. In a sense, that is some of what Thinker can do in the future as well. So lots of opportunity for us there and definitely something that's being considered in our road map. Gavin Fairweather: Great. And then just lastly for me, it's been, I don't know 7 months, 8 months since kind of the rebuild of the leadership team in Plus. Your growth was pretty flat sequentially compared to what you did last quarter. But maybe you can just update us on what you're seeing in the pipeline and what you're seeing with the AE team. Obviously, a nice win that you announced alongside the results, but maybe you can just unpack what you're seeing under the hood there, whether we can expect a reacceleration in '26? Greg Smith: Yes, that is the intent is to reaccelerate here. What we're seeing is really the logos that are coming in are excellent, surprised even by the sort of size and pedigree of the companies that are coming to us through our brand and go-to-market. And a lot of what we're hearing from them is that we have things that no one else does. And so there's something we're doing right here, and I think we have a good understanding of it to be able to go and get more of these people coming into the pipeline. We're seeing good results in the retention and upsell and expansion opportunities and what the team is doing there. And there's a lot coming from product that will double down on that opportunity as well. And then the area where we're learning and growing as well as is in being able to land these larger deals. And the one I talked about today was one example, but there's a bunch of others that's come through recently, a few more that are close to closing that the team is doing a great job of quarterbacking these much more complex deals. It's really starting to shift from you're having a one-to-one conversation with a single buying decision-maker at an organization of 25, 50 people to you're having a quarterback a variety of different stakeholders and decision-makers and champions across a larger organization. Again, for much larger deals, which is a great opportunity for us, and we're starting to see the team come together and have some real strength in that as well. So pretty excited about the potential for an acceleration there as well. Gavin Fairweather: Corinne, I'll echo Stephen's comments, it's been great working together. All the best. Operator: And your next question comes from the line of Robert Young from Canaccord Genuity. Robert Young: I guess I'll say, first, Corinne, it's been great working with you. Look forward to working with you somewhere again. For the questions, I was maybe a little bit like Gavin's question. I just wanted to see if you could dig into, maybe give a little more insight into what the top of the funnel looks like and what the sales cycle looks like after these changes. You said that there are customers with significant expansion opportunities. I think you said that some deals have built-in accelerators. I wonder if you could talk a little bit about that. And I think you said 5- to 6-figure deals. Is that MRR or is that annual revenue? If you could talk about what that means. Greg Smith: Yes. So a few things there. The 5- to 6-figure is a simple one, that is annual revenue, and that can be a combination of our Subscription revenue, combined with the potential for Commerce revenue. Another exciting thing that's happening here is we're seeing really good adoption rates from these larger and Plus customers coming in, and they have the potential to do larger volumes than we've seen before. So that's exciting as well. We're seeing those numbers up considerably in terms of the volume of Plus customers who are hopping on to Thinkific Payments. Part of that is a lot of the work we've done on the product side to increase the complexity and power of those features for larger sellers and their expectations. It's interesting. It's been a competitive advantage for us in the selling process and that they're often coming to us where it's not necessarily on their RFP as a requirement because they do have other options to process payments or maybe doing it somewhere else. But then when they realize they can bring it all into one system with us that's truly integrated and works the way they need it to, it quickly becomes a strong selling feature and can help us win the deal. And then yes, on the expansion, part of that is the Commerce component, but part of it is the maturity of the team developing better conversations, better systems and processes for dealing with these more senior customers, offering stronger services on an ongoing basis is creating a lot of opportunities. So within the team of our customer success team, they've done a lot of work that we're quite proud of that's improving this. And so we see more opportunity there. And then, yes, on the multiyear, we're still seeing, over the last few quarters, consistently over 50% of deals are multiyear and that typically has a built-in accelerator over the course of the multiyear deal, which is exciting as well. And we're just now starting to roll over some of those accelerators. So that will be helpful on the expansion going forward as well. Robert Young: Okay. And I would assume most of that's going to be within the Thinkific Plus segment, obviously, but it wasn't so long ago, you were talking about a 30% growth target. Is that still where you think that business will grow over the medium term? Is that still the target? Or would you revise that? Greg Smith: Yes, that's where I'd like to get back to. I think we can do that. There is a ton of opportunity as possible we can do more there. So I don't want to limit us to just that, but I also don't want to give guidance on a very near term for that because we still have a little bit of a way to go to get back there, but there's certainly a lot of opportunity. The -- we've been surprised at the volume of opportunity within the pipeline and what we're seeing and what we're able to generate. Now it's just about getting to work on capitalizing on it, both from a sales and a product perspective. Robert Young: Okay. And then last question, I guess, would be just to push you on this -- the expectation to get back to positive EBITDA. In different parts of the prepared remarks, I think you said that you would like to strike the optimal balance between margins and growth acceleration. And so like would you still expect positive EBITDA for the full year? Or is this a point in time when you're really looking at everything given CFO change and a lot of perhaps the strategy may change, et cetera? Maybe if you could just give a sense to investors how serious you are in that expectation of EBITDA will be positive. Greg Smith: Yes. And to be clear, no connection or relation to CFO change in any of this. And definitely, I'm very serious about getting back to positive. It's where I'm most comfortable operating. I think it's where any business should operate. But at the same time, for this quarter, what we saw was a real opportunity to invest in something that was extremely important for our future, which is really an investment in AI, both in how we're using it for our customers and how we're using it internally. So I think, in the midterm, that will actually play out with a strong ROI, and so it seemed a good investment there. And yes, quite committed to getting back to that profitable level and then scaling it up from there. Operator: And your next question comes from the line of Todd Coupland from CIBC. Thomas Ingham: Great. Corinne, good luck in your -- the next phase of your career, and thanks for all the help. Really appreciate it. I had a few questions. First on the Plus pipeline. What's your sense on the rhythm of that pipeline in terms of efficiency of go-to-market now, how much is yet to be done before you're starting to get that performing at a level you'd like to see it? Are there any milestones that you can sort of put out there for us to help us track sort of pipeline to close rates to maybe other goals that you have there? Could you just talk about that, please? Greg Smith: Yes. And it would probably be useful for us to come back with even more detail on, but I would say that -- I can definitely speak to some of it now in that we're -- some of the things we can where we -- I've talked about some of the things we're doing well, some of the things we can work on here is further improving capitalizing on the pipeline of leads and opportunities that we're generating. They do still close quite quickly. We're still seeing most deals come in at 30, 45 days. One thing that's actually accelerated for us quite considerably is how quickly we're getting customers to launch, which has been a big selling feature as well, which is getting them launched typically in under 60 days when they're coming in with expectations from other companies that it's going to take much longer. That does help with the pipeline because it gets them up and running and helps with the expansion and retention opportunities in the future as well. In terms of time lines, I think through this year, we're going to be seeing some key big improvements, both in terms of lead generation partly through new channels like outbound that we're pushing more significantly now and starting to see. I think that one, we've made a few attempts at it. We finally got -- started to get it figured out where the opportunity is. So that should improve the overall pipeline and the kind of deals that we can be closing there. And so through this year, I think there'll be some key milestones, particularly in Q3 and Q4, where we should see that tick up overall in terms of the impact of the sales pipeline. Thomas Ingham: And you had said you were pleasantly surprised recently for getting selected by these larger entities. What are they picking you for? And who are you replacing? Greg Smith: Yes, it's a combination on both fronts in terms of who we're replacing and what they're picking. Typical legacy LMSs that -- a variety of them that are out there. And the reasons they're picking us, Commerce is one of them, that ability for us to have integrated Commerce into it. Certainly, the user experience and ease of use and the student experience and learning experience, this has been a big one for us, and it's actually something that's going to get a lot more powerful for us over the next few months. We've really over the last 9 months invested heavily in improving our overall learner experience. And so you'll see quite a big improvement on that rolling out in the very near term here and then getting out to all customers over the course of this year. But that's been a big win for us as well. Some of it as well has been our investments in AI. Thinker is starting to win us more deals and have more -- helped with more conversations with customers. So it's a combination of factors, just that ability for us to meet their needs where they are. We actually had one large account come through recently that had a number of competitors in the process and very quickly identified that it wasn't a matter of choosing. The choice became a lot easier when they realized we were the only one that actually met all of their needs. So we have a number of unique things that are helping us win these deals. Operator: That ends our question-and-answer session. I will now hand the call back to Greg Smith for any closing remarks. Greg Smith: Thank you, and thank you for everyone attending. I just want to say one more big thank you to Corinne. It's been amazing working with you, and I know we'll stay in touch lots. And thanks for everyone for attending. Again, I am a mix of impatient and excited about the future. We're seeing a lot of good signs in terms of our road map, the deals that are coming in, the opportunities we have with product and specifically with AI and what we can do with our customers and how we can help them. There are also a variety of things that we're working on that really only we can do that will set us apart and differentiate us even further, especially in this world of increasing use of AI. And so I do see good things ahead, and we're pushing hard to achieve them for all of you. Thank you. Operator: This concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good afternoon. This is Chorus Call. Welcome to the financial results presentation of the financial results as of 31st December 2025. [Operator Instructions] And now the Chairman and Chief Executive Officer, Dr. Nicola Cecconato, is going to give his address. Nicola Cecconato: Thank you. Welcome. I'll give you the consolidated results as of 31st December 2025 and the comparison with consolidated results as of 31st December 2024. The slide illustrates on Page 2, the group's corporate structure as of 31st December 2025. During 2025, the group completed a number of significant extraordinary transactions that changed the scope of its consolidated assets and equity investments held. On 9 May, 2025, Ascopiave acquired 9.8% of the share capital of Ascopiave becoming the sole shareholder. In December 2024, Ascopiave exercised put option on 25% of the share capital of Estenergy and the transfer of the shares took place on June 24, 2025. On July 2025, the transaction for the acquisition from the A2A Group of 100% of AP Reti Gas North S.r.l., a newly formed company, and the transfer of certain business units previously owned by Unareti S.p.A. and LD Reti S.r.l. became effective. The company is active in the gas distribution business in the provinces of Bergamo, Brescia, Cremona, Lodi, and Pavia. On October 2025, Ascopiave S.p.A. transferred to Hera S.p.A. 3% stake its held in Hera Comm S.p.A. On 22 November, 2025, the transaction for the acquisition from Sime Partecipazioni S.p.A. of 100% of the share capital of Societa Impianti Metano S.r.l. [indiscernible]. Active in the gas distribution business in 40 towns in Lombardy, Emilia-Romagna, Piedmont became effective. Changes in the consolidation perimeter and transfer of shareholdings. It should be noted that the company, AP RETI GAS has been consolidated on the 1st July 2025 and the consolidated economic results in 2025 refer to the second half of the year. On 24 June, 2025, the 25% stake in Estenergy was sold. In the financial year 2024, the company's results were consolidated using the equity method until 30 September, 2024, the date of the earliest accounting close prior to the exercise of the put option on the shareholding. In the income statement as at 31st December 2025, dividends received from the company were recognized as financial income and the gain from the sale of equity investments was recognized as well. On October 2025, the 3% stake in Hera Comm was sold. Consolidated income statement for the year 2025. In the 2025 financial year, the group realized revenues of EUR 244.3 million, achieving EBITDA of EUR 154.4 million and EBIT of EUR 92 million. The net balance of financial income and expenses was positive at EUR 11.3 million, an improvement of EUR 21.5 million compared to 2024. This change is mainly explained by higher dividends paid by investee companies in particular by the dividend amounting to EUR 22 million distributed by Estenergy S.p.A. prior to the sale of shares. The portion of the result of companies consolidated using the equity method is negative and equal to minus EUR 0.3 million and refers to the results achieved by the subsidiary, Cogeide S.p.A. in the year 2024 net of the write-down made to adjust the investment to its recoverable value. Compared to the previous year, the item shows a negative change of EUR 8.2 million in the 2024 income statement [indiscernible] realized by Estenergy Group with the recognized for the group share until 30 September, 2024. While there was no recognition in the 2025 financial year. Consolidated balance sheet as of 31 December, 2025 as compared to December 2024, the group has invested capital of EUR 1.247 billion invested in capital stock. EUR 184.2 million in tangible fixed assets, EUR 1.017 billion intangible assets, EUR 66.5 million from the value minority interest has [indiscernible] EUR 22.3 million. [indiscernible] EUR 26.5 million from other fixed assets. Then there was negative balance of working capital items and provisions EUR 87.8 million. The intangible fixed assets shown under asset equal EUR 1.317 billion, mainly consists of gas distribution networks and plants owned by the group, EUR 1.175.8 billion, of which EUR 247.8 million is attributable to AP Reti Gas North S.r.l. [indiscernible] Group and goodwill recognized following business combination. Property, plant and equipment consisting of real estate and the value of renewable energy productive plants. It should be noted that during the fourth quarter of the 2024 financial year, Ascopiave S.p.A. exercised the put option in the remaining shares of the associate Estenergy S.p.A. and consequently from the 1 October, 2024, the revenue of equity investments recognized as of 31 September, 2024 was reclassified [indiscernible]. The sales was completed on 24 June, 2025. Shareholders' equity as of 31 December, 2025 amounted to EUR 912.4 million, an increase of EUR 64.6 million compared to 31 December, 2024. The net financial position was EUR 614.2 million, an increase of EUR 226.6 million compared to the end of 2024. The debt-equity ratio is 0.67. Operating data, gas and renewable energies distribution, as of 31 December, 2025, the group's distribution company has managed approximately 1.468 billion users, an increase 68% compared to 31 December, 2024 of which approximately 599,000 related to the company AP Reti Gas North [indiscernible] during 2025. In 2025 financial [indiscernible] AP Reti Gas North into the scope of consolidation as of 1 July, 2025, we distributed 19 million cubic meters in the second half of 2025. The group has 29 hydro power, wind power plants with an installed capacity of 84.1 megawatts. In the 2025 financial year, electricity production amounted to 187.3 gigawatts, a decrease of 30.3 gigawatts, minus 14% compared to the same period of the previous financial year, the latter being characterized by significant rainfall. Evolution of distribution, veritable [indiscernible] revenues and current revenues. Revenues EUR 244.3 million recording an increase of EUR 39.4 million determined by enlargement of the consolidation perimeter by EUR 48.9 million, increased of EUR 10.9 million in gas distribution tariff revenues, the decrease of EUR 5.5 million in revenues from the sale of electricity generated from renewable sources, the decrease of EUR 11.7 million in revenues from energy efficient certificate. The decrease in other revenues of EUR 3.2 million. Gas distribution tariff revenues amounted to EUR 189.8 million and further increase of EUR 50.3 million compared to the previous year. [indiscernible] EUR 39.5 million with expansion of the consolidation perimeter on a like-for-like basis and EUR 10.9 million of which 8.6 million due to the revision of 2020-2024 tariff operating costs envisaged by ARERA Resolution 87/2025. Revenues from the products of energy from renewable sources amounted to EUR 22.6 million, decreased by EUR 5.5 million. Decrease is mainly explained by the lower volume of energy produced. Operating profit, other operating expenses. Operating income amounted to EUR 92 million, showed an increase of EUR 40.3 million due to the enlargement of the scope of consolidation, EUR 13.9 million; increase of EUR 10.9 million in gas distribution tariff revenues, decrease in revenue from the sale of electricity generated from renewable sources, EUR 5.5 million. The decrease in amortization and depreciation, EUR 0.2 million, capital gains of EUR 26.4 million related to the sale of 25% stake in Estenergy, an increase in net operating expenses of EUR 5.5 million. Net operating expenses EUR 84.6 million increased by EUR 20.5 million due to the change in falling revenue and cost items. Enlargement of the scope of consolidation EUR 15 million. Low concession fees two towns, EUR 1.4 million. Higher personnel costs, EUR 1.7 million; higher consulting costs, EUR 3.8 million, of which total EUR 2 million related to the acquisition of AP Reti Gas North. Low compensation to directors and statutory auditors, EUR 0.4 million. Lower gas meter reading costs, EUR 0.5 million. Higher non-recurring cist EUR 2.1 million. Other changes with a negative impact, EUR 0.2 million. Number of Employes and personnel cost. As of 31 December, 2025, the group had 733 employees on the payroll, an increase of 238 compared to 31 December, 2024. This increase is mainly explained by the consolidation of AP Reti Gas North, which have 230 employees as of 31 December, 2025 and AP Reti Gas Next Grids with 17 employees. The overall EUR 23.9 personnel cost increased by EUR 5.8 million driven by enlargement of consolidation perimeter of EUR 4.1 million, EUR 0.4 million increase in capitalized labor cost, EUR 2.1 million increase in current personnel cost mainly due to higher cost of incentive plans and ordinary salary increases during March, the contractual increases provided by national labor contracts and in part individual recognition. Captain Expenditures. Investments in tangible and intangible assets realized during the year amounted to EUR 93.7 million increased by EUR 12.6 million. Investments made by the company in AP Reti Gas North consolidated 1 July, 2025 amount to EUR 4.3 million. Most of the technical investments on the like-for-like basis related to the [indiscernible] and modernization of gas distribution network and plants amounted to EUR 41.9 million, of which EUR 16.3 million in connections, EUR 22.5 million in network expansions [indiscernible] and EUR 2.1 million in reduction plans. Investments in metering equipment amounted to EUR 11.9 million. Investment in the renewable energy sector amounted to EUR 21.1 million, mainly related to costs incurred for the maintenance and expansion of hydroelectric plant EUR 3.5 million, for the construction of photovoltaic plants EUR 7.2 million, and for the construction of other green energy plant EUR 10 million. Other investments amounted to EUR 6.5 million, related investments in land and buildings EUR 2.3 million; hardware and software EUR 2.7 million; company vehicles, EUR 0.9 million; and infrastructure, EUR 0.5 million. Net financial position and cash flow. The net financial position, effective 31 December, 2025 EUR 614.2 million, an increase of EUR 226 million compared to 31 December, 2024. During the year, cash flow generated financial resources of EUR 97.9 million. Net investment in tangible and intangible assets resulted in cash outflows of EUR 93.8 million. Net working capital management generated resources of EUR 9.5 million. The group collected dividends of EUR 27.4 million from subsidiaries, not consolidated on a line-by-line basis. Shareholders' equity resulted in cash outflows of EUR 32.5 million and the distribution of dividends to shareholders. Acquisition of [indiscernible] resulted in cash outflows of EUR 518.2 million of which EUR 456.8 million for the acquisition of the AP Reti Gas North and EUR 46 million for AP Reti Gas Next Grids. The sale of equity investment generated [indiscernible] of which EUR 204.1 million from the sale of equity investments in Estenergy and EUR 54.8 million from the sale Hera Comm. The purchase of equity investments resulted in cash outflows of EUR 472.2 million. The realization of equity investments generated resources of EUR 234.1 million. Financial debt as of 31 December, 2025 amounted to EUR 577.1 million [indiscernible] 49% variable rate and the weighted average cost of debt in the year 3.11%. Before [indiscernible] the Board of Directors of Ascopiave in consideration of the results of the year and the solidity of the group's equity and financial structure will propose at the Shareholders' Meeting, the distribution of a dividend of EUR 0.16 per share, for a total of EUR 34.6 million, an amount calculated on the basis of the shares in circulation and the closing date of the financial year. If approved at the shareholders' Meeting, the dividend will be paid in May 2026 with ex-dividend date on 08 May 2026. I have finished the presentation, now the Q&A session is going to start. Thank you. Operator: [Operator Instructions] First question from Alessandro Di Vito, Mediobanca. Alessandro Di Vito: The first question is relating to the field. Other operators in the field have forecasted an acceleration of optimistic forecast for the year. Do you take part in any tender in the year? The second question is about the increase in revenues due to the positive optimistic forecast. The third and last question if can you give us some guidance on the trends that you expect for 2026. Nicola Cecconato: I'm going to answer some of your questions. [indiscernible] answers to questions will be more specific. On the gas tenders, sure, we also have received, from the contracting stations we have received news that there could be gas tenders during the year. The premises are good. So what you say, what you have read is indeed true as in the past, it has been blocked, but the gas tenders, there will be this year, tenders have already been published. So since we are interested in taking part in some of the tenders, we cannot give you all the information, it is confidential. In the industrial plans, we have already stated that Ascopiave would take part in some of the tenders. We have indicated in [indiscernible] the plan as to what our policy is going to be in 2026. So once the tenders are officially published, then you will know as well the [indiscernible] and what our policies will be, what evaluations will be. For example, in the strategic plan, we have already stated what our policies will be in 2027-2028. So you know more or less are the perimeter of our [indiscernible]. We are ready to take part if they are officially opened. And if there are growth drivers that [indiscernible] the opportunities, relating to the impact on [indiscernible] I'm going to give you a very quick evaluation. [indiscernible] based on the results, the amount we expect to pay between EUR 1.6 million - EUR 1.8 million. Relating to the prospect 2026, we will publish -- we will give some guidance. We will give you some guidance, some tangible guidance, but for that, we need the official publication of tenders. So already in our press release, we have given -- in our strategic planned press release, we have already issued the policies of what our policy will be and the framework within which we will operate. So since we have acquired some new assets, so we also have to take that into consideration. So next year, there could be an increase surely in our turnover, in our revenues. Some of our assets that we have acquired from [indiscernible] will be perfected. We are going to work on it to enhance the performance of these assets. Obviously, we have also to consider what antitrust dictates to us. But what we need to do, our goal is only to increase our performance in the gas sector. That's for sure. This is one of the goals of the year 2026 that we have set for ourselves. Once we have - we will be [indiscernible] so the result of 2026 can surely be an improvement of what we have achieved, what we have accomplished in the year 2025. So EUR 8.6 million is the tariff balance that we have achieved, that we have also managed to get from Estenergy. And -- so the dividends have to be taken into considerations. The dividends have been extremely generous this year as you must have seen from EUR 22 million of dividends as you have seen from our press release. So these components [indiscernible] to be taken into consideration. So anyway, whatever we do, we do it bearing in mind the stability of the regulatory framework. This is the forecast, these are the numbers that we can provide you in order that you can make your own guess on our 2026 performance. Operator: [Operator Instructions] The next question is a follow-up from Alessandro Di Vito, Mediobanca. Alessandro Di Vito: An additional question from me. So what do you expect for the year 2027 if France is excluded from the RAB basis? Nicola Cecconato: We haven't made any simulation on this. There is a trend that tax rates are going to increase. So sincerely, we cannot give you any tangible guidance on this. But there is no constant figure that we can give you. There will surely be consequences from the cost level, dividend. Anyway, the regulatory framework is still standing. So we just hope there will be no adverse effect. So I hope [indiscernible] is going to take into consideration that there is a new situation that has emerged. But as of today, we don't know and we haven't made any simulation. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions. So thank you very much for your participation and see you at the next call. Thanks a lot. This is a Chorus Call. The conference is over. Thank you. You can disconnect your phone.
Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco Wholesale Corporation Fiscal Second Quarter 2026 Conference Call. [Operator Instructions] I would now like to turn the conference over to Gary Millerchip, Chief Financial Officer. You may begin. Gary Millerchip: Good afternoon, everyone, and thank you for joining us for Costco's Second Quarter 2026 Earnings Call. In addition to covering our second quarter financial results today, we will also review our February sales results. I'd like to start by reminding you that these discussions will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual events, results and our performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call, as well as other risks identified from time to time in the company's public statements and reports filed with the SEC. Forward-looking statements speak only as of the date they are made, and the company does not undertake to update these statements, except as required by law. Comparable sales and comparable sales excluding impacts from changes in gasoline prices and foreign exchange are intended as supplemental information and are not a substitute for net sales presented in accordance with GAAP. Before we dive into our results, I'm delighted to say that Ron Vachris is once again joining me for today's call. I'll now hand over to Ron for some opening comments. Ron Vachris: Thank you, Gary. Good afternoon, everyone, and thank you for joining us today. I'll make a few brief comments about some key business priorities before turning it back over to Gary. Let me start by addressing tariffs, as I know this topic is of great interest to our members and our shareholders. The future impact of tariffs remains extremely fluid as the recently eliminated IEEPA tariffs have now been replaced with new global tariffs for at least the next 150 days. Our buyers continue to act with great agility and urgency, always with the goal of reducing the impact of tariff on prices for our members. We believe our expertise in buying and our limited SKU count model puts us in a position to manage this as well as anyone. Our strategies include moving the country of production when that makes sense, consolidating buying efforts globally to lower the cost of goods, leaning in on Kirkland Signature, where we have the most control of the supply chain and sourcing more items domestically. Let's move to regarding IEEPA tariff refunds. It is not yet clear what the process will be, what refunds, if any, will be received and when this will happen. Throughout the past year, we've taken action to reduce the impact of tariffs. In many cases, we didn't pass the full cost on to our members. The complexity of the tariffs implemented over the past year, including layering of different tariffs on top of each other and multiple changes in rates throughout the year, also made it challenging to track the exact impact to an individual item sold. As we've done in the past, when legal challenges have recovered charges passed on in some form to our members, our commitment will be to find the best way to return this value to our members through lower prices and better values. We'll be transparent in how we plan to do this, if and when we receive any refunds. At Costco, we always want to be the first to lower prices and the last to raise them. During the second quarter, we lowered prices on key items such as eggs, cheese, coffee and some paper products as we saw lower inflation in these commodities. We will continue to be a pricing authority and as some tariffs have been reduced, we are lowering prices on affected items such as certain textiles, bedding and cookware SKUs. Turning to our growth priorities. As I shared last quarter, our real estate and operations teams are focused on increasing our pipeline of new warehouses, both domestically and internationally. Since our last call, we opened 4 warehouses, including 1 relocation in the U.S., 1 net new U.S. location and 2 additional Canadian business centers. This brings our total warehouse count to 924 warehouses worldwide. We currently expect to have 28 net new openings in fiscal year '26 and are targeting 30-plus new openings per year in the coming years. In digital, we continue to make strides with our road map to deliver a more seamless experience for members in warehouse and online. In the warehouses, we're achieving meaningful improvements in the speed of checkout, employee productivity, both as a result of our mobile wallet enhancements, pharmacy pay ahead and the rollout of employee pre-scan technology. We're also piloting automated pay stations that will allow members to pay for their pre-scanned orders seamlessly with an average transaction time of around 8 seconds. Early results show this is improving the flow of traffic, and we've received great member feedback. On our digital sites, we continue to roll out new personalization capabilities, which are resonating well with our members and are starting to have measurable impact on e-commerce sales growth. As consumers embrace AI and their shopping habits, we believe our commitments to providing the best value on great quality items can make Costco a beneficiary of these shifts. We're working closely with the leading AI companies to ensure our values will be visible to existing and potential future Costco members as they engage with these tools. With that, I'll turn it back over to Gary to discuss the results for the quarter, and I'll jump back on during Q&A to field some questions. Gary Millerchip: Thanks, Ron. In today's press release, we reported operating results for the second quarter of fiscal year 2026 for 12 weeks ending February 15. As usual, we published a slide deck under Events and Presentations on our investor website with supplemental information to support today's press release. Net income for the second quarter came in at $2.035 billion or $4.58 per diluted share, up nearly 14% from $1.788 billion or $4.02 per diluted share in the second quarter last year. Net sales for the second quarter were $68.24 billion, an increase of 9.1% from $62.53 billion in Q2 2025. Comparable sales were up 7.4% or 6.7% adjusted for gas price deflation and FX. Excluding gas sales entirely and adjusting for the impact of foreign exchange, comparable sales were up 7.4%. Digitally-enabled comparable sales were up 22.6% or 21.7% adjusted for FX. Our segment breakout of comparable sales is disclosed in both our earnings release and the supplemental slide deck. In terms of Q2 comp sales metrics, FX positively impacted sales by approximately 1.4%, while gas price deflation negatively impacted sales by approximately 0.7%. Traffic or shopping frequency increased 3.1% worldwide. Our average transaction or ticket was up 4.2% worldwide and 3.5% excluding gas price deflation and changes in FX. Moving down the income statement to membership fee income. We reported membership fee income of $1.355 billion, an increase of $162 million or 13.6% year-over-year. Adjusting for FX, the increase was 12.2%. The September 2024 U.S. and Canada membership fee increase accounted for about 1/3 of our membership income growth. Excluding the membership fee increase and FX, membership income grew 7.5% year-over-year. This was driven by continued growth in our membership base and upgrades to executive memberships. At Q2 end, we had 40.4 million paid executive memberships, up 9.5% versus last year. We ended the quarter with 82.1 million total paid members, up 4.8% versus last year and 147.2 million cardholders, up 4.7% year-over-year. In terms of renewal rates, at Q2 end, our U.S. and Canada renewal rate was 92.1%, down 10 basis points from last quarter; and the worldwide rate came in at 89.7%, unchanged from last quarter. The slight decline in the U.S. and Canada renewal rate was due to the factors we have discussed in prior quarters and reflects new online members growing as a percentage of our total base and renewing at a slightly lower rate than warehouse sign-ups. We continue to focus on increasing the renewal rate of these new online members through targeted digital communications and retention strategies. And those efforts partially offset the negative effect of the increased penetration of online sign-ups. Turning to gross margin. Our reported rate was higher year-over-year by 17 basis points and higher 11 basis points without gas deflation, coming in at 11.02% compared to 10.85% last year. Core was lower by 3 basis points and lower by 7 basis points excluding gas deflation. In terms of core margins on their own sales, our core-on-core margins were higher by 22 basis points. The increase in core-on-core margins was broad-based with nonfood, food and sundries and fresh all higher year-over-year. The difference between reported core margins and core-on-core margins was driven by mix changes as well as higher 2% executive rewards and lower income from our co-brand credit card program compared to last year. Ancillary and other businesses gross margin was higher by 19 basis points or 17 basis points excluding gas deflation. This was driven by higher gas profitability and strong growth in pharmacy. LIFO negatively impacted the gross margin rate by 4 basis points. We had a $12 million LIFO charge in Q2 this year compared to a $12 million credit in Q2 last year. This quarter's gross margin rate also included a nonrecurring legal settlement, which had a positive impact of 5 basis points. Moving on to SG&A. Our reported SG&A rate was higher or worse year-over-year by 13 basis points and higher or worse by 8 basis points without gas deflation, coming in at 9.19% compared to last year's 9.06%. The operations component of SG&A was higher or worse by 2 basis points, but better or lower by 2 basis points excluding the impact of gas deflation. Our operators once again did a great job improving productivity and capturing efficiency benefits from the technology investments we've recently implemented. These productivity improvements fully offset last year's wage investments and any impact of extended operating hours. Central was higher or worse by 4 basis points and higher by 3 basis points excluding the impact of gas deflation. This quarter's SG&A also included an increase in general liability reserves to reflect higher expected future costs for prior year claims not yet settled. This negatively impacted the rate by 6 basis points. Below the operating income line, interest expense was $33 million versus $36 million last year. Interest income was $140 million versus $109 million last year, driven by higher cash balances; and FX and other was an $8 million benefit this year versus a $33 million benefit last year, largely due to changes in FX. In terms of income taxes, our tax rate in Q2 was 25.2% compared to 26.2% in Q2 last year. Turning now to some key items of note in the quarter. Capital expenditure in Q2 was $1.29 billion. We estimate CapEx for the full year will be approximately $6.5 billion as we continue to invest in building a larger pipeline of new warehouses, remodeling our existing warehouses to drive continued growth in high-volume buildings, expanding our depot network to support operations and enhancing the member digital experience. In terms of merchandising highlights, the Lunar New Year celebration this year showcased our merchants global buying expertise. We were able to introduce many exciting new items for our members that help drive growth across fresh, foods and sundries and nonfood categories in the U.S. and our international markets. Some of the best sellers included items ranging from duck and quail eggs, Year of the Horse-inspired gold jewelry and bullion and Shine Muscat grapes. We also had a very successful Valentine's Day. In fact, laid out stem-to-stem, the roses we sold in the U.S. for Valentine's Day this year would have stretched all the way from Seattle to New York City and back again. Fresh comparable sales were up low double digits in the quarter, led by meat and bakery. In meat, we saw strong growth in both premium cuts of beef and lower-cost proteins such as ground beef and poultry. In bakery, we continue to see success with the launch of exciting new items like the chocolate hazelnut mini beignets and a variety of seasonal pastries and cookies. Nonfood comp sales were up high single digits in Q2. Top-performing departments were gold and jewelry, tires, majors, health and beauty and small electrics. Unique items continue to play an important role in creating excitement for our members in nonfoods. And our second quarter sales included a $150,000 emerald-cut 5.8 carat diamond ring, a $20,000 Babe Ruth autograph baseball and nearly 200 luxury Whisper golf carts at an average price of approximately $9,000. In food and sundries, comps grew mid-single digits, led by candy and packaged foods. While egg price deflation is expected to continue to be a headwind to sales in food and sundries for the foreseeable future, we're seeing significant unit and market share growth in eggs because of our strong value proposition. Overall inflation decreased slightly in Q2 as we saw lower inflation in foods and sundries and fresh, led by deflation in produce, eggs and dairy. This was partially offset by slightly higher inflation in nonfoods. The supply chain was also relatively stable in Q2, and our merchants feel good about our current inventory position heading into the spring. That said, as we look at the rest of the fiscal year, the situation in the Middle East could impact fuel costs and shipping schedules if there is instability in the region for a sustained period of time. Kirkland Signature remains a top focus to deliver great value for our members with KS items typically offering 15% to 20% value compared to the national brand alternative with equal or better quality. In Q2, we launched approximately 30 new KS items, including crispy wings, blackened salmon and various apparel items. As Ron mentioned earlier, our goal is to be the first to lower prices where we see opportunities to do so. And a few examples this quarter included KS Butter from $13.89 at the end of Q1 to $8.49 at the end of Q2, 12-count KS Organic Coconut Water from $12.79 to $10.99, KS Organic Seaweed from $10.99 to $9.99, and 2-liter KS Italian extra virgin olive oil from $29.99 to $24.99. Within ancillary businesses, pharmacy and food court experienced double-digit comparable sales growth, and optical and hearing had high single-digit growth. Gas comps were negative mid-single digits, driven by mid- to high single digit price deflation, partially offset by gallon growth. Turning to digital. Site traffic in the quarter was up 32% and app traffic was up 45%. Sales of pharmacy, gold and jewelry, toys, tires, small electrics, special events and housewares, all grew double digits year-over-year. And our same-day delivery service offered through Instacart, Uber Eats and DoorDash continue to grow at a faster pace than our overall digital sales. The enhancements we are making to deliver a more personalized digital experience for our members are starting to create measurable impacts. In Q2, our personalized product recommendation carousels drove over $470 million of e-commerce sales, and our newly modernized product display pages are driving incremental sales on our dot-com site as well as increased traffic to our same-day sites. We have a clear road map for future digital enhancements and believe these will allow us to continue to grow digitally-enabled sales at a faster pace than overall sales. Finally, a brief update on our February sales results for the 4 weeks ended this past Sunday, March 1. Net sales for the month came in at $21.69 billion, an increase of 9.5% from $19.81 billion last year. Comparable sales were as follows: the U.S. was up 5.2% or 6% adjusted for gas deflation and FX; Canada was up 12.8% or 9.3% adjusted for gas deflation and FX; Other International was up 17.9% or 10.9% adjusted for gas deflation and FX. And this resulted in total company comp sales of plus 7.9% or plus 7% adjusted for gas deflation and FX. Digitally-enabled sales were up 21.8% or 20.8% adjusted for FX. Total company comparable sales for the month, excluding all gas sales and the impact of foreign exchange, was 7.8%. As a reminder, Lunar and Chinese New Year occurred on February 17, 19 days later this year. This shift positively impacted February Other International and total company sales by approximately 4% and 0.5%, respectively. Our comp traffic or frequency for February was up 3% worldwide and 1.5% in the U.S. Foreign currencies year-over-year relative to the U.S. dollar positively impacted total and comparable sales as follows: Canada by approximately 5%, Other International by approximately 8% and total company by approximately 1.7%. Gas price deflation negatively impacted total reported comp sales by approximately 85 basis points. The average worldwide selling price per gallon was down 7.5% versus last year. Worldwide, the average transaction was up 4.8%, which includes the impacts from gas deflation and FX. Excluding gas deflation and FX, average transaction was up 3.9%. In terms of regional and merchandising categories, the general highlights were as follows: U.S. regions with the strongest comparable sales were the Midwest, Northwest and Southeast. Other International in local currencies, we saw the strongest results in China, Taiwan and Korea. The negative impact of cannibalization was approximately 60 basis points for the total company. Moving to merchandise highlights. The following comparable sales results by category for the month excludes the positive impact of foreign exchange. Food and sundries were positive mid-single digits. Better performing departments included candy, food and frozen foods. Fresh foods were positive low double digits. Better performing departments included meat and bakery. Nonfoods were positive mid-single digits. Better performing departments included jewelry, majors and small appliances. Ancillary business sales were up mid- to high single digits. Pharmacy, food court and optical were the top performers. Gas was down low to mid-single digits, driven by price per gallon changes year-over-year. In terms of upcoming releases, we will announce our March sales results for the 5 weeks ending Sunday, April 5; on Wednesday, April 8, after market close. That concludes our prepared remarks, and we'll now open the line up for questions. Operator: [Operator Instructions] And our first question comes from the line of Chris Horvers with JPMorgan. Christopher Horvers: So a bit of a near-term question here. There's been a lot of noise in January and February on the weather, whether there was a net benefit to January. One of your competitors talked about a headwind into February because of the weather. Could you reconcile how the weather dynamics affected the first 2 months of the year? And then similarly, gold has been very spiked into the beginning of January, has pulled back a little bit here in February. So how are you thinking about how that impacted the business in those 2 months? And how do you think about that, how that could play out for the rest of the year? Gary Millerchip: Chris, thanks for the questions. Maybe on the first part of the question, on the weather, I think, our general view is that it certainly created some volatility during the first 2 months of the year, but we wouldn't really call anything out. I don't think that we would say we think there's a major sort of impact when you look at the total sales results that we posted in January and February. I think the one thing that I probably would mention is that our traffic visits were a little bit lighter in the U.S. in February. The thing that we think may have caused that to look a little bit lighter was because of the weather we had in the Northeast, in particular, we have 55 warehouses that were closed for a full day and then took a couple of days for the local communities to get back up to sort of speed. So I don't know that we call out when you look at the actual total sales that there was anything there that we'd want to call out, but I do think there might have been some impact on visits when you look at the sort of year-over-year growth there in the February results. But beyond that, I don't think there's anything that we would say that you should -- we'd look at in our results and say it was a major impact that should be adjusted for. And then I think more broadly -- I'll maybe just answer it in general terms. You mentioned the question around gold. I think as we look at the overall state of the consumer and our members and how they're shopping, I think it really is, generally big picture, a continuation of the trends that we've seen over the last few quarters where, for sure, members are very focused on quality and value and newness and exciting new items are very important. But when you deliver on those things, we're seeing members are willing to and have the capacity to spend. And I think the fact that our buyers continue to find new and exciting items have resulted in our overall sales results each month when you strip out the noise around calendar shifts and strip out the noise around sort of short-term blips when there's questions around port strikes and tariffs. Overall, our results have been very consistent in that 6% to 7%. So I really wouldn't say there's anything, certainly, changes in different items because as we've adjusted assortment to reflect whether it's tariffs or different member preferences, but overall, very consistent in terms of the results that we've seen. Operator: And our next question comes from the line of Michael Lasser with UBS. Michael Lasser: Ron, you highlighted several innovations that you are currently implementing or testing to improve the member experience as well as increasing the efficiency of the business. Did you size the potential savings from things like prepaying your card or line breaking from your associates? And then as part of that, to what degree will you take those savings, reinvest it back in areas like the store wages, store labor and/or price? And are you starting to see any diminishing returns on the investments that historically Costco has been making and have proven to be quite fruitful? Ron Vachris: You're very welcome. The digital enhancements we're making both online and in the warehouse have all been very beneficial for us. In the warehouse, as you use the example of the pharmacy, our pharmacy business is very strong. Traffic has been significantly up, and the adoption of the new digital enhancements have really allowed us to maintain the staffing we have in place and then handle this new growth of volume we're seeing. It's improving the member experience and it's making the throughput much better, be it the pharmacy app that we've developed or the pay ahead that we have in our warehouses. So it is really -- it's very accretive to us handling this new volume and being efficient as we do that. So we do see some good tailwinds behind that as that moves forward. As far as investing in the business, seeing the same values in that, no, we feel that we still get the same return from our members as we continue to invest in the business out there. And the members are responding very nicely to it, both with traffic and with sales that we see as well. So we feel good that we will continue to reinvest. That's what we do, both in employees and in pricing and in the business overall and expansion, as Gary mentioned and I mentioned in the earlier talk that we just had. And we're not only expanding buildings, we're relocating and we're also upgrading the insides of a lot of our older warehouses too. So we continue to put the money back into the company to drive top line sales and grow our business globally. Operator: And our next question comes from the line of Chuck Grom with Gordon Haskett. Charles Grom: Inventory levels continue to be very well managed. Curious as you look ahead to the spring and summer, are you making any notable changes to the assortment akin to some of the changes you made last fall? And then with rising gas prices in the near term, can you just remind us historically the crossover traffic that you typically see into the club on like-for-like hours? Ron Vachris: Sure. As far as mix goes, going into the spring and summer, we feel we're going back a little more traditional than we've seen last year. The supply chain has balanced out a little bit more. We feel good about the sourcing moves that we've made. So we feel, as far as timing goes, selection, SKU counts, we're back on track again with where we were at the year prior. So I feel good about the lineup that we have. We feel good about production. Shipments until the most recent undertakings have really been -- everything has been on time and moving through very well. So we haven't seen any disruptions from the Middle East in our regular merchandise flow, but we're watching that very cautiously, and we're staying on top of that. So we feel good about the spring and summer. And then as we forecast out into the fall, we feel we're in a good place. As far as gas, I'll let Gary answer that. Gary Millerchip: Yes. Thanks, Ron. Chuck, on gas, generally speaking, we see about half of members that will shop at the gas station will also cross shop at the warehouse. And obviously, as Ron mentioned, early days to know what the impact longer term might be from events in the Middle East at the moment. But generally speaking, if gas prices start to increase, then we tend to see our value position resonates better with members just because, obviously, we want to be the pricing authority on gas. And so when prices are higher, that will tend to cause members to maybe take the extra mile that it might be involved to get to the gas station because of the incremental value they see there. But obviously, we'll have to see what happens with gas prices over the coming months there. Operator: And our next question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: I have 2 unrelated questions. First, the competitive openings are stepping up this year. I imagine there's maybe some membership impact in nearby openings from competitors. Is there anything above and beyond? And then the second part is if a customer speaks to an LLM, how do you show up or how do you want to show up? And are you seeing any opportunities to convert members? Ron Vachris: You're welcome. As far as the new openings coming up, it won't have a negative effect on our membership. We won't see those big swells of new markets that we would see when you go into an existing building. So it balances that out. It really drives our sales with frequency and visits. As we relieve a high-volume warehouse, those tend to build back very quickly. And so we may not see the traditional number of new members, but frequency of members and those type of things start really ramping up in those markets as we see. So we don't see a negative effect, but we don't see the big tailwind we saw with new sign-ups as we would in the new market as well. And for the LLM, I'll take a shot at that. The biggest thing we feel with our quality and our value is we want to show up everywhere we can and everywhere we can. And we want to make sure that Costco is surfacing with all these partners that we feel very confident with our values and our prices. If we're coming up on all these searches, we're going to [ fare ] very well with those. So I don't know if you want to add anything to that, Gary. Gary Millerchip: Well, the only thing, Ron, maybe just to come back to your first answer, I didn't know if, Simeon, your question was when competitors are opening warehouses too. And I guess I would say that really, we don't see any meaningful impact on our membership base or membership growth when we feel we operate today very effectively across the U.S., competing against very different operators. And we tend to focus on being our own toughest competitor, finding ways of how can we lower prices and continue to deliver more value. And so generally speaking, there's nothing I would call out that we see an impact to our membership base when we're competing against different operators in each market. Operator: And our next question comes from the line of John Heinbockel with Guggenheim. John Heinbockel: Ron, 2 maybe international questions, but can you talk about -- so Canada AUVs is now approaching $300 million. Thoughts -- and you're still growing, right? So thoughts on shopability capacity in those clubs, and I know you're opening business centers. So thoughts on that. And then secondly, I think you're going to open 3 outside of international, outside of Canada this year. What does the pipeline look like in '27 and '28, because I think you do want to ramp that up much higher than it is today? Ron Vachris: Okay. Yes. As far as Canada goes, we have 114 buildings now, and we have had some very good success with infilling, and even opened up a couple of new markets in the recent 2 years. Our volume per location is quite high in that market. We have done several things. The technology that we've done in the U.S., we're using in Canada as well. We've recently expanded operating hours in all of our Canadian buildings to help offset some of the traffic increases. So we feel that we've got a very good path of expansion in Canada over the next 5 years, and we feel good that we'll be able to maintain a good, high average volume per location and continue to infill with some great incremental sales there as well. Internationally, yes, they take a little bit longer, a little bit longer before we bring these to fruition as opposed to being in North America. But we feel very good about the future from '27 on in our international markets as we continue to see performance both in Asia and Europe to be very strong. And so we look forward to some good growth expansion. We feel a good balance as we've had in the past, with a good portion of our locations being outside North America and an equal amount being here domestically as well. Operator: And our next question comes from the line of Kate McShane with Goldman Sachs. Katharine McShane: I wondered if I could tack on to the real estate question and just ask about the fact that you noted some new opportunities in real estate are allowing you to enter into markets that you didn't think you could enter into previously. How should we think about this longer term? And how it will influence maybe the number of units you open in a year domestically? Ron Vachris: Okay. Well, we're not changing the model, but we are being a little more creative with the use of things like parking decks. I know it's been announced what we're doing in Los Angeles with the residents above our locations. So we are getting a little more creative. If we want to get into some of these inner cities, you're not going to find 25 acres available for us to go into. So how can we infill in some of these very strong markets like Los Angeles, New York, different places with a unique model for Costco that is going to allow us to continue to expand? We've done a lot of these things in the past. We've proven out the models in Asia, and we've got some very unique business models, and also in Europe as well, that have served us very well. So it's not new to the company. It's a little newer to the U.S. But we feel very good about how we can be efficient, we can maintain the Costco experience in all of these warehouses. But being a little bit -- a little more creative than a standard 25-acre site with 800 parks and 1 level of parking decks out there as well. So that's where we're seeing a lot of the openness to the opportunities to partner with others and get into markets that could have been otherwise tough to get into. Gary Millerchip: And Kate, I think that's kind of allowing us to be able to have more confidence in that plan to achieve that 30 warehouse a year goal that we talked about in the last couple of earnings calls. And when we talk about 30 a year, we look at sort of generally a 5- to 10-year time horizon for warehouses. And we feel like that, that 30 sort of target a year is there to be achieved for that sort of time horizon. And that's the goal that we're working towards as we look at the plan. And roughly just over half of those, we think, would be in the U.S. and just under half would be in the rest of the world, if you include Mexico, Canada, Asia, Europe, Australia and New Zealand in that broader Rest of the World category. Operator: And our next question comes from the line of Edward Kelly with Wells Fargo. Edward Kelly: I was hoping that you could expand on core-on-core margins in the quarter and then maybe how we should be thinking about the back half? The compare seems a little bit tougher there, but just thoughts on how we should be thinking about that would be great. Gary Millerchip: Yes. Thanks, Ed. I'll take a step back overall on gross margin. We were pleased with the quarter overall in gross margin. As you heard us say that the overall result was -- if you adjust for gas deflation, was up 11 basis points, but we had a gain for a nonrecurring legal settlement in there for 6 basis points. So overall, we look at it as being up by 5 basis points in the quarter and being able to achieve that growth when we were also lowering prices for members and managing the impact of tariffs. I think the team did a really good job of being able to stay the course in making sure we're delivering more value while also being able to deliver a good financial outcome for our shareholders. On the core-on-core, specifically, side of it, as you heard us say, we were up 22 basis points. I wouldn't say there's one particular sort of driver of that. It's similar to the themes we shared the last couple of quarters. I think during Q2, in particular, partly would have had some benefit when you look at -- we've said I know in prior discussions that when we see prices coming down, as we saw in some of the deflationary items, often that's a time that's helpful to us because we can lead the sort of the world down with lower prices for our members. But because we turn the inventory so quickly, we also tend to get some financial benefit in there. And then we're continuing to work on supply chain efficiencies and Kirkland Signature penetration continues to improve. So there's a number of different sort of factors, I would say, that help with that. At the same time, as you heard us say, there were some offsets in core because we paid higher 2% rewards. We were lapping some higher income in the credit card program. There is some mix shift as well because our pharmacy business is growing and our e-commerce businesses are both growing at a faster pace than our core sales. So they kind of dilute some of the impact when you look at the total core margin growth. And I share all that context because I think from our perspective, when you think about looking forward, the rate is going to fluctuate and the different elements are going to fluctuate quarter-to-quarter, and we tend to not get too fixated on one individual element of the margin. Our goal is to run the business holistically for the long term. And my comment earlier about some slight improvement in the gross margin rate while lowering prices and continuing to manage the business effectively is how we tend to think about delivering value for, first of all, our members, and in turn, that resulting in members and shareholders. So when you look at the trajectory, I think, I would focus less on one individual metric. I think where I would come back to is if you look at the quarter overall, we were up about 6 basis points. If you look at the last 12 to 24 months, generally, our gross margin has been stable and has grown slightly, and there's been puts and takes with core-on-core and the other elements that I mentioned, but our focus is really on running the business for the long term and making sure we're delivering value for members. But we do think through some of the efficiencies that we create, we can -- we are slightly expanding margin, but it's only slightly because, as Ron mentioned, really where we see meaningful benefit. We're reinvesting in the member to make sure that we're driving top line sales. Operator: And our next question comes from the line of Rupesh Parikh with Oppenheimer. Rupesh Parikh: So just going back to membership growth, so it's sub-5% this quarter. So if you could maybe walk through some of the dynamics at play. And then as you look at your same club membership growth rates, just how those are trending versus your expectations? Gary Millerchip: Yes. Thanks, Rupesh. Yes, maybe again, just taking a step back, big picture. We were pleased with the membership results for the quarter. We saw -- I think you heard us say in the prepared remarks, 7.5% growth in membership fee income if you adjust out the fee increase in FX, so underlying some really strong member loyalty and member fee income growth during the quarter. The bigger part of that was the 9% growth in upgrades, which I think shows that the impact of the $10 Instacart credit that we're offering each month for online shopping and the extended hours and some of the other benefits that we've added are resonating with our members and increasing the level of upgrades. You mentioned the overall paid membership was a driver of that, too, was up about 4.8% during the quarter. As you said, Rupesh, it's a little bit lower than it's been over the last year or so. The last couple of quarters have been around that 5% mark. I think there's really 3 things that I would call out there. One is that we have seen over the last year or so, less new warehouse openings in sort of genuinely new markets. And generally speaking, when we open in Japan or China, there's a dramatic increase and spike in the number of new members. So they certainly help to inflate the overall membership growth. And we really haven't had a meaningful number of those in the last year or so. So that's having an impact on slowing down the rate of growth. Secondly, I'd say we are cycling some strong new member sign-ups a year ago. So we're having some impact of the -- as we cycle those, and still seeing strong member sign-ups, but certainly, we're sort of lapping some higher growth that we saw this time last year. And then I think, I'd also probably say, if you look at the long-term growth rate, as I mentioned, certainly, we've had growth at a higher rate when there have been times where we've had those large new warehouse openings with inflated new members and we've had peaks at certain times where we've seen higher member sign-ups. If you look at our long-term growth rate, it really is in more of that 5% growth range in terms of new members. So I think it's kind of maybe resting more closer to where the long-term growth rate has been. And we think there's still plenty of opportunities to keep growing the membership base, whether it's through adding new benefits as we did some of those this year, whether it's existing warehouses continuing to mature and growing their membership base, as I mentioned earlier, improving the renewal rates as we're making good progress in those as well. And then in our international markets, we tend to be -- while we have a large member base per warehouse, the executive membership base tends to be lower penetrated in those areas as well. So we think there's lots of opportunity for continued growth, but I think those would be the 3 points that I would call out as being the main drivers of us at a slightly lower rate year-over-year than we've been in the quarters prior to the last 2. Operator: And our next question comes from the line of David Bellinger with Mizuho. David Bellinger: Thanks for the questions. It's on renewal rates. The U.S. down about 10 basis points, worldwide flat. So is this the real bottom here? Given the way you calculate renewal rates, do you have a certain time line or time frame in mind when you can see this data set start to improve and move back up again? And then separately, we've noticed some in-warehouse activity, maybe given out a free item when you sign your membership up for auto renew. Can you talk about the uptake for that program and how that's helping renewal rate as well? Gary Millerchip: Sure. Yes. As you mentioned, we called out a few quarters ago that we were seeing a slight decline in the overall membership renewal rate and you characterized it very, very well, which is as we've started to see a meaningful increase over recent years in the member -- in the number of digital members signing up, they do generally renew at a slightly lower rate. And so as they've been building as a percentage of the total base, it's been a real positive for us in terms of adding younger new members and helping with total revenue growth and some of the comments I made about the membership growth, responding to Rupesh's question earlier. But it has had an impact. When you blend those into the total mix of members, it does bring down slightly the overall renewal rate. When we called that out 2 or 3 quarters ago, we said we probably have a few more quarters where we'd expect to see a continuation of a slight decline in the renewal rate because there is that sort of math where those numbers are feeding into the overall renewal calculation. It does bring down the average. I think we're pleased to see that the global rate actually was flat during this quarter and the U.S. rate was only down 10 basis points, as you mentioned. So I think it shows that we're making some good progress with the impact that we thought would happen through the maturation of those online members coming into the overall number, but also with some of the initiatives that we've been driving around contacting and engaging with those new digital members through digital communications, through retention strategies. And if we'd have just played out the impact we would have expected without any of that activity, it would have been a higher decline just with the math of the number of digital members that we're feeding into the overall renewal rate calculation. So we are seeing and showing some impact of the benefit of those programs. The auto renewal is something we've been focused on for some time. We believe as more members have grown over time, there's a real benefit in helping the member from a convenience point of view, having auto renew. And of course, it helps us with membership renewal rates as well. So that's something we've been -- we've had as a program for a while now, and there are certain times where we'll raise the awareness of it in the warehouse for our employees to have a talking point with a promotion of some sort as well. So overall, I think we feel that we're seeing what we expected with the change in the renewal rate. It has slowed down. As we called out before, we may slow a few more quarters where it's kind of reaching that maturation point, but we are very focused on those retention programs and have been pleased with the way that's adjusted the trajectory, and we'll be targeting for that to continue. Operator: And our next question comes from the line of Greg Melich with Evercore ISI. Gregory Melich: I wanted to follow up on inflation. You mentioned how, I believe, it was a little bit less this quarter than the prior quarter. And I'm just curious how much less. If we look at that ticket up 3.4% in the U.S., could we say that inflation was maybe 100 bps of it down from 150 or maybe just sort of frame it? Gary Millerchip: Sure. Yes. Thanks, Greg. On inflation, in general, you heard it exactly right that we did see -- we've been talking about low to mid-single-digit inflation. It was slower in the second quarter, trending towards sort of low single digits, I guess. Now I'll caveat that with that was Q2. Obviously, the world has changed a little bit since we gave that update, and so we'll have to see how things play out with the situation in the Middle East. But certainly, as we look at what happened during the second quarter for us, fresh and food and sundries really drove the lower inflation overall. Ron mentioned it, but we've seen deflation in produce, eggs, butter, cheese, some of these commodities. And they have a meaningful impact, as you might imagine, on food and sundries in particular. We do still see some areas of the business that are inflationary. Beef remains fairly inflationary. And candy is still seeing -- I think, still seeing some of the flow-through that we've seen historically and some of the commodity impacts there as well. But net-net, fresh and food and sundry would have been lower in Q2 than they were in Q1. We saw a little bit of increased inflation in nonfoods, again, modest, I would say, and it wasn't a big impact as you heard us talk about the LIFO impact. So it's still low single-digit inflation in nonfoods, and that would be a little bit of sort of flowing through of tariffs in a couple of areas; and gold, of course, was inflationary during the quarter as well. So overall, sort of tying it to your question about basket, I think it kind of depends on how you define the impact of inflation. We tend to look at it, are there more items in the basket, which would be the units, and they're certainly growing. And then we break down or we'd look at inflation as being 2 components. One would be the price part that I just mentioned, and the other part will be mix changes, so has the item changed in the basket or has the size of the item changed in the basket? And we really don't kind of necessarily pull those apart. But directionally to your point, the inflation as in the actual price increases would only have been a fraction of the total, and the mix changes and the increasing units would have been a meaningful part of the growth as well. Gregory Melich: Got it. Gold bars are helping the mix. Gary Millerchip: It's broader than gold bars, but I think certainly, gold bars have been a great example for us actually of where -- it's one of those examples where it's certainly been a tailwind to the business, but the amount of interest it drives around the brand and the traffic it drives to our websites and some of the cross-selling it drives there, I think it's been a nice surprise of, yes, it's been a great way to deliver value for members, but it's actually, I think, helped elevate other parts of our business, too, by raising more awareness of the things we have to offer online, for example. Operator: And our next question comes from the line of Oliver Chen with TD Cowen. Oliver Chen: On the digital advertising frontier, there's a lot of great opportunity ahead. I'd love your thoughts on what the road map looks like there as well as marketplaces. And then as you zoom out on AI, you're having a lot of great success so far. AI is a technology that involves a lot of different partners, but you've had so much internal excellence. Like what are your thoughts on balancing that development and innovation around AI? And as you look forward, do you have an idea, will it impact pricing, supply chain, merchandising or membership engagement more or less or probably all of the above? But would love your earlier views on where it might be most impactful. Gary Millerchip: Yes. Thanks, Oliver. I'll just try and canter through those relatively quickly. On advertising, I think, we've shared before, as I think you know, that we have a meaningful amount of dollars that we generate from sort of media revenue today, and that is growing double digits. We have over -- I think it's now 1,000 of our suppliers that participate in and engaging with us through placement or sort of being able to provide promotional opportunities for them. From a retail media perspective, we think of that as being somewhat of a new opportunity around how do we get into -- sort of connecting to more of those marketing dollars that our vendors and suppliers are spending. Our first priority is really to build the capabilities internally around delivering more personalized relevant communication to our members. And you heard me mention in the prepared remarks, we're starting to see a few nice examples now where as we build in more of that relevant communication for our members, we're seeing them really respond in a positive way in driving either visits or items in the basket. So really encouraged by that. I'd say we're still in the early innings with retail media because while we've been doing that, we're definitely testing and doing some programs with our suppliers on things like digital TV and targeted MVM amplifications, but they're really kind of the early learning stages. And I think as we continue to build that personalization capability, we will -- we think we'll see some additional benefit really throwing through in advertising. I will sort of caveat as always with our expectation of ourselves is that we'll reinvest the vast majority of that to really deliver more value for the member and drive more top line sales as we do with everything that we do. On the marketplace, I think for us, it's really -- it's been a case of where are there places that we can find services and value that offers more value to our members? We've seen, I think, some really good progress on things like installation services and new values that we can offer around, whether it's garden furniture or garden fixtures and windows, and some of these areas where we see opportunities to really bring unique value to our member with great partners who deliver great quality and value. So there's certainly focus there. And then I would broaden it to some of the services that we offer. As you think about things like Costco Travel and think about some of the additional services that we're offering to members that again, are unique ways in which we can deliver value, and we've been finding a lot of success in really deepening loyalty with members there and growing those elements. That's kind of probably the biggest part of as we think about sort of the marketplace concept of where we think the value can resonate with our members. On AI, I think, for us, it's really we look at it through the lens of -- we think we have a clear view of how we can deliver value for our members and how we support our employees. And so our focus with AI in general is where can it make us better at who we are? We're not really trying to chase things that aren't core to Costco. We think that's been key to what allowed us to navigate previous technology and digital sort of evolutions in the marketplace. And we're really focused on where are the places that we think AI can make us better for our members, can deliver more value for our members, can help our employees be more productive so that we can pay them better and we can deliver more value for our members. So really, that's our overall philosophical approach there. But still early days, but encouraged by the work we've been doing. Operator: And our next question comes from the line of Scot Ciccarelli with Truist Securities. Scot Ciccarelli: I know it's only been about 2 years or so, but the last time you had this much cash on the balance sheet, you did pay out a special dividend. So is that something we could see in the next few quarters? And I guess, on a related front, just given how quickly cash is now building for you, could we see payouts on a more frequent basis than maybe what we've seen in the past? Gary Millerchip: Thanks, Scot. Yes, I wouldn't say our financial strategy has really changed significantly as we think about cash. Our first priority, of course, is always to invest in the business. And as you've seen, we've been investing more capital in the last couple of years to support Ron's priorities that he shared earlier around ensuring we've got the strong pipeline of new warehouses, ensuring that we're investing in our existing warehouses to improve the member experience and support the tremendous growth that we've seen in those warehouses. We're investing in depots and expanding the network there, not only to support our warehouses, but also support the e-commerce growth that we're seeing. And we're investing in digital. And we think there's plenty of opportunities to continue to invest, and we feel good about the returns we can generate from those investments. I think you're right, we are seeing strong cash flow build up. The great thing about our model is it generates significant free cash flow. And even with the investments we're making, we're seeing continued growth in that cash. Our general priorities are, subject to Board approval, we want to continue to grow the regular dividend because we think that's a core sort of fundamental part of demonstrating our confidence in the future growth of the company. And we continue to sort of buy back stock to avoid dilution from executive stock grants. But when we do all those things in the way we have in the past, typically, we still generate excess cash and we're building a stronger cash balance on our balance sheet today. And we do think, with our valuation, the special dividend is probably the most effective way to return excess cash because it keeps flexibility if we want to invest more in capital expenditure in the future as well. What I'd say on special dividend is while our cash balances are back to the levels that they were pre the last special dividend, I think, it's important to remember that to achieve a similar yield to last time when our stock was at $660, the cash would need to be greater. And so we'll continue to review the question of special dividend with our Board, but there are no plans that we could share at this time around a plan for special dividend. Operator: And our next question comes from the line of Kelly Bania with BMO Capital Markets. Kelly Bania: I wanted to ask first, if you could just talk about the pharmacy category. A lot of moving pieces being called out by some of your competitors there with the maximum fair pricing. And just curious how and if that impacts you, it doesn't look like it, but maybe would just want to confirm how you see that going forward. And then just bigger picture, wanted to follow up on the media question and the advertising. And I was curious if you would maybe size up that more specifically. I think, Gary, you said a meaningful amount. But just curious how that looks today or even if not specific on how it is, just maybe relative to where it could be over time. Any color there? Gary Millerchip: Sure. Thanks, Kelly. On the pharmacy side of things, yes, we've had tremendous success with our pharmacy business. I think you've heard us say on a couple of the previous earnings calls that the team is really focused on how do we make sure that we're delivering not just the great value that we always promise to our members, but improving the member experience too. So we've added some new AI tools to improve our in-stock positions on pharmacy, and we've also made some digital enhancements to make it easier for the member to check out at the pharmacy to speed up the experience there as well. So we've seen strong growth in pharmacy. And you may have heard me say in the prepared remarks that the pharmacy business grew at a faster pace than our total sales, which was part of the sort of reason for the disconnect between the core-on-core margin improvement and the core margin overall. I would say we will have a small impact as a result of the change with Medicare and the pricing of the drugs involved there, but nothing that I would call out to think about as a material headwind for us in terms of our top line sales results as we see it today. And I think on retail media, I think really -- we do think it's a significant opportunity, Kelly. But the reason we don't really size it is that it really comes back to my final point that there's tremendous opportunity for us to capture more value, we think, and to help our suppliers actually improve the return on their ad spend. But our focus will be very much on how do we use those dollars to deliver more value back to the member and drive top line sales. So sizing it for us would be more how much value can we create for the member and drive greater investment in our members in the value that we offer. And you would see it more in our top line growth as we're able to achieve that growth versus it being sort of a major change in our margin profile, I would say. Operator: And our final question comes from the line of Zhihan Ma with Bernstein. Zhihan Ma: I wanted to ask about the international expansion side, specifically China, where growth seems to have stalled a bit recently, where I'm sure you're facing some pretty strong local competition and Sam's competition as well. Curious how you think about your business model fitting in a market which is highly e-commerce driven, and what learnings you can gain there that can be applied to the rest of the business as well? Ron Vachris: Thank you. I wouldn't say it was stalled. It was more by design. The way we have opened up the first warehouse is very customary to what we've done when we've gone into every other country. We get in, we open up some warehouses, we learn about the culture, we learn about doing business in that country. And then we're on a good, steady growth pattern from there. We see great opportunities in China as we did before we went into the country. We're very pleased with our business and how we're growing. We feel we can compete with anybody in the country as we do internationally. So I see good things coming for us in China, but it will be customary to our normal growth as we have done that around the world, as we've built out Japan and Korea and Europe the same customary way that Costco grows in these new countries. So we're happy with China, it's growing nicely, and there's more to come in the future for sure. Operator: And ladies and gentlemen, this concludes our question-and-answer session as well as today's call. We thank you for your participation, and you may now disconnect.
Operator: Good afternoon. Thank you for attending the GoPro Fourth Quarter and Fiscal Year 2025 Earnings Call. My name is Cameron, and I'll be your moderator for today. [Operator Instructions]. I would now like to pass the conference over to your host, Robin Stoecker, Director of Corporate Communications with GoPro. You may proceed. Robin Stoecker: Thank you, Cameron. Good afternoon, and welcome to GoPro's Fourth Quarter and Full Year 2025 Earnings Conference Call. With me today are GoPro's CEO, Nicholas Woodman; and CFO and COO, Brian McGee. Today's agenda will include brief commentary from Nick and Brian, followed by Q&A. For detailed information about our fourth quarter and full year 2025 performance as well as outlook, please read our Q4 and full year 2025 earnings press release and management commentary we posted to the Investor Relations section of GoPro's website. Before I pass the call to Nick, I'd like to remind everybody that our remarks today may include forward-looking statements. Forward-looking statements and all other statements that are not historical facts, are not guarantees of future performance and are subject to a number of risks and uncertainties, which may cause actual results to differ materially. Additionally, any forward-looking statements made today are based on assumptions as of today. This means that results could change at any time, and we do not undertake any obligation to update these statements as a result of new information or future events. To better understand the risks and uncertainties that could cause actual results to differ from our commentary, we refer you to our most recent annual report on Form 10-K for the year ended December 31, 2024, which is on file with the Securities and Exchange Commission and other reports that we may file from time to time with the SEC. Today, we may discuss gross margin, operating expense, net profit and loss, adjusted EBITDA as well as basic and diluted net profit and loss per share in accordance with GAAP and on a non-GAAP basis. A reconciliation of GAAP to non-GAAP operating expenses can be found in the press release that was issued this afternoon, which is posted on the Investor Relations section of our website. Unless otherwise noted, all income statement-related numbers that are discussed in the management commentary and remarks made today other than revenue are non-GAAP. Now I'll turn the call over to GoPro's Founder and CEO, Nicholas Woodman. Nicholas Woodman: As Robin mentioned, Brian and I will share brief remarks before going into Q&A, and I want to encourage all on the call to read the detailed management commentary we posted on our Investor Relations website. I'd like to begin by congratulating Brian McGee, GoPro's current EVP, CFO and COO, on his appointment to the role of President and COO. In his expanded role as President, Brian will further strengthen company-wide alignment and execution, enabling cross-functional teams to move faster and more cohesively towards our strategic goals. Brian is a very talented and passionate operator with a collaborative approach to problem solving and strategy development. I'm very excited for what GoPro can accomplish with Brian in his new role. I'm also pleased to share that Brian Tratt, GoPro's current VP of Finance, will serve as our CFO. Brian Tratt has served as an integral part of GoPro's finance team for 13 years and has earned the respect and trust of the entire GoPro organization. I'm excited for him to bring his deep understanding of our business and his fresh perspectives to the CFO role, leading our accounting and finance teams. These leadership changes will become effective on March 17. In 2025, we broadened our hardware and software offerings, delivering on the first stage of our mission to diversify our business and expand our TAM. During the year, we launched our new 360 camera, MAX2, delivering the only true 8K video resolution in the consumer 360 camera category, featuring durable twist and go replaceable lenses, trademark GoPro durability and versatility and the new ecosystem of sixteen 360-centric accessories. We also launched our new LIT HERO camera, an ultra-compact lightweight, rugged action and lifestyle camera that has the widest field-of-view lens in its class and an integrated light, enabling captivating photos and video in even no-light, pitch black scenarios. And we launched our new professional-grade gimbal, Fluid Pro AI, a best-in-class multi-camera AI subject tracking gimbal that's compatible with GoPro cameras, smartphones and point and shoot cameras weighing up to 400 grams. In addition, we launched a steady cadence of new software functionality, including new 360 content editing features such as AI-powered subject tracking and cloud-based 360 editing via our Quik mobile app. Additionally, we launched a GoPro Reframe plug-in for da Vinci Resolve, low light denoise enhancements in the GoPro Player desktop app and Apple Projected Media Profile support for the highest fidelity video playback in Apple Vision Pro. And in Q4, we made progress on several strategic initiatives, including GoPro's AI training program and development of our tech-enabled motorcycle helmet with our partner and leading Italian motorcycle helmet brand, AGV. We're pleased to share a meaningful update on our AI training program. We're now working with select AI partners, providing them access to authentic, high-quality GoPro content contributed by U.S. subscribers who opted in to monetize their GoPro cloud-based content for AI model training. We plan to recognize revenue from the program in Q1. And later this year, we'll make our first monetary payouts to participating GoPro subscribers whose content was selected. The program creates value for all stakeholders. All partners gain real-world video to train their models, participating GoPro subscribers earn money through a revenue share and GoPro benefits from a new scalable high-margin revenue stream. Since launching the program in Q3 2025, we've seen strong subscriber enthusiasm with more than 500,000 hours of diverse high-quality video content submitted to date and steady growth as we continue expanding the program to more subscribers globally. We expect to close further agreements with additional third-party licensing partners throughout 2026. Shifting gears, we continue to advance on our tech-enabled motorcycle helmet program, developed jointly in partnership with AGV. Together, GoPro and AGV are leveraging each other's design, engineering and brand strengths to deliver significant innovations that enhance safety, performance and enjoyment for motorcyclists, all wrapped into a helmet design that is simply stunning in every regard. We look forward to providing investors with more substantial updates on this program later this year, and we plan to publicly share a few product teasers in the near future. So stay tuned for that. Turning to recent developments. On February 26, the U.S. International Trade Commission reaffirmed our design patent rights by issuing exclusion and cease-and-desist orders against Insta360, blocking their infringing products from the U.S. market. This decision, combined with the Patent Trial and Appeal Board's rulings last year upholding multiple patents covering our HyperSmooth technology, validates what we've always known. GoPro is built on original innovation. Our patent portfolio now exceeds 1,500 U.S. patents, and we will continue to defend against competitors who choose to copy rather than create. Our commitment to innovation has driven many advancements in digital imaging from the world's far and away best in-camera video stabilization, HyperSmooth, to industry-leading image quality, resolutions and frame rates, best-in-class wide-angle field-of views and more, all in rugged and versatile small form factor cameras. Our custom GP2 processor played an important role in many of these innovations and helped power our flagship cameras to market-leading positions. At the same time, GoPro imposed a few constraints that limited how far we could push our cameras in certain areas of performance, specifically power efficiency, thermal performance and low light use cases. Most notably, GP2's low light constraint hampered GoPro's ability to compete in the fast-growing premium low light capable camera category, a market segment we estimate to have been approximately 2 million to 2.5 million units annually in 2025. Enter GP3, GoPro's soon-to-be-released next-generation processor, which is designed to deliver industry-leading power efficiency, run times and thermal performance, along with best-in-class low-light performance not yet seen in a small form factor cameras or even many professional cameras. As we announced earlier this week, our new exclusive GP3 processor represents the most significant advancement in processing power and image quality in GoPro's history. Whereas GP2 was a 12-nanometer SoC, GP3 is a 5-nanometer SoC that delivers more than 2x the pixel processing power of GP2, resulting in industry-leading resolutions and frame rates that go far beyond what the competition is capable of. GP3 also features a dedicated AI NPU that enables significant gains in low-light image quality when combined with low light image sensors and industry-leading power efficiency and thermal performance that significantly outperforms the competition. To quantify how efficient -- and far ahead, GP3 is in our own internal testing, we are seeing camera run times ranging from 40% to 90% longer than the competition and similarly impressive thermal performance advantages over the competition in addition to demonstrably better image quality. To say that we're fired up about GP3 and the new GP3-based cameras we're launching in Q2 would be an understatement. We expect GP3 to serve as a pivotal growth catalyst for GoPro, setting new performance benchmarks for the digital imaging industry as a whole, enabling GoPro to lead in our existing core markets and gain meaningful share in new, professional product categories, including the quickly growing low-light camera segment, beginning this Q2. I encourage you to visit the news section of GoPro.com to check out several jaw-dropping images captured with one of our soon-to-be-released GP3 cameras. I think you'll agree with me that GoPro is about to enable a new dimension of performance and capability. Operationally speaking, despite ongoing macroeconomic pressures facing the consumer electronics sector, including tariffs and rising memory costs and supply constraints, we are working towards strengthening our operating profile, as Brian will outline, while also advancing our next product cycle with meaningful technological enhancements. We believe we are at the start of a new era of technological and performance leadership for GoPro. With a clear opportunity to grow revenue and operating income as Brian will share in his remarks. We are highly motivated by what's ahead for GoPro and want to thank our employees, suppliers, retail and distribution partners and our shareholders for your support. We're very excited for what's to come. Now I'll turn the call over to Brian. Brian McGee: Thanks, Nick. Fiscal 2025 improved substantially over 2024 in a number of key areas, including operating expense reductions of $93 million, flat gross margins of 34%, despite a $20 million impact due to IEEPA tariffs, inventory reduction of 35% all culminating in an improvement in cash flow from operations of $104 million. In the fourth quarter of 2025, revenue was $202 million versus our guidance of $220 million, plus or minus $5 million, and we generated positive adjusted EBITDA of $1 million. Cash flow from operations was positive, again, for the third quarter in a row at $16 million, a $41 million improvement year-over-year. Sell-through was at the midpoint of guidance at 625,000 camera units, which resulted in a 30,000 unit decrease in channel inventory. Looking back on the year, notable financial performance highlights include revenue from our retail channel was $482 million or 74% of revenue compared to 75% of 2024 revenue. Revenue from GoPro.com channel, which includes subscription and service revenue was $170 million or 26% of revenue compared to 25% of 2024 revenue. Subscription and service revenue was flat year-over-year at $106 million or 16% of revenue. 2025 street ASP was $357, an 8% improvement year-over-year. Gross margin was 33.8% compared to 34.1% in the prior year despite negative impacts related to IEEPA tariffs of approximately $20 million incurred in 2025. Operating expenses reduced $93 million from $354 million to $261 million, a 26% decrease year-over-year. GAAP and non-GAAP loss per share was $0.59 and $0.30, respectively, compared to prior year loss per share of $2.82 and $2.42, respectively. 2024 GAAP and non-GAAP loss per share were impacted by $1.93 per share due to the establishment of a $295 million tax valuation allowance that was recorded in 2024. Adjusted EBITDA was $29 million -- negative $29 million, compared to negative $72 million in the prior year. Cash flow used in operations was $21 million compared to cash used in operations of $125 million in 2024, a $104 million improvement. Turning to 2026. Our outlook is prefaced by highlighted uncertainty that exists due to volatility in tariff rates, memory pricing, memory availability, consumer confidence, competition, component supply chain and global economic uncertainty. To provide color on our expectations and priorities for the year, we expect revenue to grow in 2026 to a range of $750 million to $800 million or nearly 20%, growth at the midpoint based on our existing lineup of products, the introduction of several new products starting in Q2 and additional AI content licensing this year. We expect subscription and service revenue to grow approximately 10% due to improvements in ARPU growth of 10% and improvements in attach rates and retention rates, which is slightly offset by subscribers projected to be down 7% year-over-year to $2.2 million. We expect operating expenses to be in the range of $220 million to $230 million, down from $261 million in 2025 or a 14% reduction. The anticipated decrease is primarily due to a reduction in litigation expenses, our prior restructuring actions, which resulted in reduced employee-related costs in 2025 and a continued strong focus on expense management. The cumulative effect of our planned actions is expected to result in a reduced operating expense range in 2027 of between $200 million and $210 million. We expect memory price increases, both DRAM and NAND, to impact margin by approximately 500 basis points year-over-year. We expect to have enough memory to meet our unit and revenue goals for 2026. Today, we announced a $50 million financing, of which we closed $25 million. In addition, we amended loan covenants for ABL and debt agreements, the details of which can be found in the 8-K we filed concurrent with today's earnings. We expect our liquidity position to be adequate and we expect to end 2026 with approximately $50 million, plus or minus $5 million in cash, along with an additional $35 million available under our ABL facility and $25 million available under our recent financing agreement. We expect adjusted EBITDA to be in the range of $10 million to $20 million in 2026, an improvement from losses of $29 million in 2025 and $72 million in 2024. Relative to our prior outlook of trailing 12-month adjusted EBITDA of $40 million for 2026, it's worth noting that memory pricing impacted the trailing $40 million EBITDA by $40 million for a total impact of nearly $60 million in 2026. In closing, we believe our strategy is working. We are in the midst of an exciting innovation cycle with the launch of leading products, continued AI content licensing and other services expected over the next several years that we believe will bolster our market position while expanding our TAM. We expect to continue operating expense reduction initiatives in 2026 that we initiated in 2024 to mitigate memory cost increases. We believe we will restore revenue growth and deliver adjusted EBITDA in the range of $10 million to $20 million in 2026. Operator, we're now ready to take questions. Operator: [Operator Instructions]. The first question comes from the line of Erik Woodring with Morgan Stanley. Well, there are currently no questions registered at this time. [Operator Instructions]. Once again, there are currently no questions registered so as a brief reminder. [Operator Instructions]. There are no questions waiting at this time. I would now like to pass the conference back to the management team for any closing remarks. Nicholas Woodman: Thank you, operator, and thanks, everybody, for joining today's call. As we shared, we are excited for the year ahead and particularly for this Q2 and the launch of our new GP3-based cameras that we believe will mark a new era of technical and performance leadership for GoPro, which we believe will ultimately result in revenue and profit growth for the company. Be sure to stay tuned to our social channels for product teases and more as we approach the launch of our new products. Thanks again, everyone. This is Team GoPro signing off. Operator: That concludes today's call, and thank you for your participation, and enjoy the rest of your day.
Operator: Good day, everybody, and welcome to Smith & Wesson Brands, Inc. Third Quarter Fiscal 2026 Financial Release and Conference Call. This call is being recorded. At this time, I would like to turn the call over to Kevin Maxwell, Smith & Wesson's General Counsel, who will give us some information about today's call. Thank you. You may begin. Kevin Maxwell: Thank you, and good afternoon. Our comments today may contain forward-looking statements. Our use of the words anticipate, project, estimate, expect, intend, believe and other similar expressions are intended to identify forward-looking statements. Forward-looking statements may also include statements on topics such as our product development, strategies, market share, demand, consumer preferences, inventory conditions for our products, growth opportunities and trends and industry conditions in general. Forward-looking statements represent our current judgment of the future and are subject to risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by our statements today. These risks and uncertainties are described in our SEC filings, which are available on our website, along with a replay of today's call. We have no obligation to update forward-looking statements. We reference certain non-GAAP financial results. Reconciliations of GAAP financial measures to non-GAAP financial measures can be found in our SEC filings and in today's earnings press release, each of which is available on our website. Also, when we reference EPS, we are always referencing fully diluted EPS and any reference to EBITDA to adjusted EBITDA. Before I hand the call over to our speakers, I would like to remind you that when we discuss NICS results, we are referring to adjusted NICS, a metric published by the National Shooting Sports Foundation based on FBI NICS data. Adjusted NICS removes those background checks conducted for purposes other than firearms purchases. Adjusted NICS is generally considered the best available proxy for consumer firearm demand at the retail counter. Because we transfer firearms only to law enforcement agencies and federally licensed distributors and retailers and not to end consumers, NICS generally does not directly correlate to our shipments or market share in any given time period, we believe, mostly due to inventory levels in the channel. Joining us on today's call are Mark Smith, our President and CEO; and Deana McPherson, our CFO. With that, I will turn the call over to Mark. Mark Smith: Thank you, Kevin, and thanks, everyone, for joining us today. We are very pleased with our third quarter results, which demonstrated continued market share growth while simultaneously maintaining resiliency in our pricing power and profitability. This is a direct function of the entire team's discipline in staying focused and executing against our long-term strategy. The strength of the iconic Smith & Wesson brand, along with our laser focus on innovating to keep ahead of market trends. Once again drove impressive average selling prices in the quarter, which, together with increased unit shipments delivered not only solid top line performance, but also translated into both strong profit margins and balance sheet performance. Our Q3 performance exceeded our expectations across the board. Net sales increased over 17% year-over-year to nearly $136 million. EBITDAS of $16.8 million was up nearly 21% and adjusted EPS was $0.08 compared with $0.03 in the prior year period. Importantly, we also delivered another quarter of significant growth in operating cash flow, which is up more than $30 million year-over-year. We believe our purposeful deployment of capital will allow us to continue consistently delivering long-term value for our stockholders. Looking at our performance by category. Our handgun results were exceptional. Our unit shipments of handgun into the sporting goods channel were up 28%, while mix was down 2.2%. With distributor inventory weeks of supply remained flat during the period, this indicates significant market share growth. This outstanding performance was driven by several factors, including strong demand for our newer products, a favorable shift in product mix towards higher price models, robust consumer demand and the benefit of a modest 2% to 3% price increase that we implemented late in the quarter on January 1. Notably, we saw this growth across our entire semi-auto pistol line, indicating that the hard work that the team has been putting in on marketing messaging, targeted promotions and new product development execution across the line is paying dividends. Performance in long guns was consistent with our strategic positioning in the market, and we are pleased with our performance in the categories where we actively compete. For the quarter, our long gun shipments into the sporting good channel were down 25%, while overall mix was down 5.6%. However, we believe this was largely due to channel fill in the prior year period of several new caliber introductions on our higher-end 1854 lever-action rifle products, combined with the relative outperformance in the industry, of the hunting segment versus the self-defense segment, where our product line is more heavily weighted. Diving a little deeper into innovation. New products represented 44% of handgun shipments and 28% of long gun shipments during the quarter. In handguns, while we continue to have success with the BODYGUARD platform, as I just mentioned, the growth we experienced in Q3 was across the entire line of our semi-auto pistols, where we introduced several new models outside the subcompact space, most of which are positioned at higher price points. Once again, I'm incredibly proud of our award-winning product management, engineering, design and production teams who consistently deliver products that resonate with consumers while meeting their expectations of world-class quality and reliability associated with our legendary brand. Driven by this mix NICS shift, and as I mentioned earlier, we were again pleased to continue seeing strong overall average selling prices in the hanging category. with ASPs up 5.2% versus a year ago to over $419 and also above Q2 levels. On the long gun side, ASPs were also strong at $535 although down about 11% versus a year ago. Similarly, NICS was the primary driver here, as I just mentioned, with the year-ago period, including the channel fill of higher-priced new product introduction from the 1854 rifles. For both categories, the strength of the Smith & Wesson brand and our ability to ensure our product assortment is aligned to market trends continues to allow us to maintain healthy pricing and profitability while only participating selectively in promotions. Turning now to our balance sheet. We continue to make significant progress reducing our debt and further strengthening our financial position. We ended Q3 with $75 million in debt versus $90 million at the end of Q2, and we paid down an additional $20 million subsequent to the end of Q3. We were pleased with our internal inventory position of $175 million which was down $23 million versus last Q3, resulting in excellent cash generation in the period of over $20 million. I'd like to once again commend the team for their hard work on our disciplined process for aligning production to sales expectations across the product portfolio, which drove these results. And we're also very pleased with our distributor inventory levels, which remained flat in terms of weeks of supply, maintaining at approximately 9 weeks throughout the quarter, right in line with our target. With our strong sales in the period, this indicates solid sell-through of our products at the retail counter. Before I turn the call over to Deana, I want to touch on a couple of additional points. First, we attended the annual industry SHOT Show in Las Vegas at the end of the quarter, where we were very pleased with customer feedback on our performance, product portfolio and forward strategy. This feedback, combined with our recent results and strong outlook for the remainder of the fiscal year, which Deana will cover in a moment, indicates we are winning in the marketplace. And looking forward, we will continue to be laser-focused on execution across the business and sustaining these gains. Next, the Smith & Western Academy, which launched just 6 months ago, along with our focus on the professional channel is already exceeding our expectations. Thanks to the hard work of our Academy staff and law enforcement sales team and the ongoing success of our purpose-built, rugged and reliable duty weapons, we are not only growing in the consumer channel, but also gaining significant momentum on the law enforcement side. You may have seen that we were awarded a number of large agency orders recently. And as a matter of fact, have shipped to nearly 1,000 separate federal, state and local law enforcement agencies just within the past 18 months. With a strong sales pipeline and growing momentum, we're very pleased with the results to date and beyond proud and humble to be trusted by these men and women with the tools they need to come home safe to their families every day as they put themselves in harm's way to protect and serve our country and our communities. In summary, momentum is strong and building, and our brand and product assortment are driving continued healthy profitability, and we remain confident in the direction and trajectory of our business against the backdrop of a healthy and stable market. We continue to lead with a proven innovation strategy that consistently resonates with consumers backed by the powerful Smith & Wesson brand, along with our commitment to operational excellence and maintaining a strong balance sheet we are well positioned to continue winning in the marketplace and delivering long-term value to our stockholders. As always, I want to thank our entire team of talented Smith & Wesson employees for their tireless dedication and putting their skills to work each and every day to make us successful. With that, I'll turn the call over to Deana to cover the financials. Deana McPherson: Thanks, Mark. Please note that all comparisons are between the third quarter of fiscal 2026 and the third quarter of fiscal 2025, unless stated otherwise. Net sales for our third quarter of $135.7 million were $19.8 million or 17.1% above the prior year on the strength of our new handgun products. During the quarter, distributor inventory in terms of actual units increased by approximately 20% over the end of the prior quarter, but only by about 4% compared with the end of January 2025 with weeks of supply remaining steady at approximately 9 weeks. We believe, based on feedback from our customers, that strong demand for our products will continue in the coming months. Handgun ASPs were up slightly versus Q2 levels due to continued strong demand for certain premium products, but offset by the strength of certain of our lower-priced products. Long gun ASPs decreased by about 11% due to lower overall volume of certain of our higher-priced products, driven by channel fill for new products in the prior year, as Mark covered earlier. Gross margin of 26.2% was up 210 basis points over the prior year on increased production volume combined with lower promotion costs and lower federal excise taxes partially offset by a 160 basis point negative impact from tariffs. Having focused on driving inventory levels down over the last 12 months, we are now turning our focus to increasing production to meet market demand which should continue to have a positive impact on margins. Operating expenses of $28.9 million were $5.7 million higher than the prior year due primarily to a $2.3 million gain on the sale of real estate that was reported last year. Increased profit related and stock-based compensation expense contributed to the remaining increase. Higher revenue and related margin resulted in net income of $3.8 million compared with $2.1 million in the prior year period. GAAP earnings per share in the third quarter was $0.08 compared with $0.05 a year ago. On a non-GAAP basis, earnings per share was $0.08 compared with $0.03 a year ago. Cash generated from operations during the third quarter was $20.5 million compared with cash used from operations of $9.8 million in the prior year quarter. This was due primarily to lower inventory, which decreased $7.9 million during this quarter versus an increase of $2.9 million in the prior year quarter. We spent $3.6 million in capital projects in the third quarter compared with $6.3 million a year ago. We expect our capital spending for the year to be between $25 million and $30 million. We paid $5.8 million in dividends and ended the quarter with $23.5 million in cash and investments and $75 million in borrowings on our line of credit. Subsequent to the end of the quarter, we repaid $20 million on our line, bringing our outstanding borrowings down to $55 million. Finally, our Board has authorized our $0.13 quarterly dividend to be paid to stockholders of record on March 19, with payments to be made on April 2. Looking forward to the fourth quarter, we believe the strength of our brand, product assortment and new product offerings are helping us drive growth and take share in an otherwise stable market. Therefore, we expect our fourth quarter sales will be up 10% to 12% over Q4 2025 sales, with a small reduction in channel inventory as distributors begin to plan for the slower summer months. With 8 additional operating days compared with Q3 and an increase in production to meet demand, we expect Q4 gross margin to increase by several percentage points over Q3 and a point or 2 over last year's fourth quarter. Operating expenses in Q4 will likely be about 10% higher than last year's fourth quarter due to increases in research and development costs, stock compensation, profit sharing and other profit related costs. Additionally, we expect continued healthy cash generation during the fourth quarter. Our effective tax rate is expected to be approximately 29%. With that, operator, can we please open the call to questions from our analysts? Operator: [Operator Instructions] Our first question is from Mark Smith with Lake Street Capital. Mark Smith: I want to ask first about kind of recent pricing changes. Can you talk about any price that's been taken, whether that's been across the board? And anything that you can quantify?. Mark Smith: Sure, Mark. The price increase we put in was effective January 1, as I covered in the prepared remarks. And it was largely across the board. It was -- there were some categories that took a little bit steeper increase and some categories took a little bit, little bit less so just really driven on market demand and our position within each category. But overall, across the board, it was pretty close to 3%. Mark Smith: Okay. Any feedback for as you look at distributors? Or as you think about kind of consumers on that, does it seem like that's gone through well? Or has there been any pushback on the pricing? Mark Smith: No, it's no pushback whatsoever. As you may recall, it's been a little bit since we've taken a price increase and really has gone through smoothly, no impact whatsoever. And I think as you saw from the results, an uptick in demand throughout the quarter. So... Mark Smith: Perfect. And I want to look at just handgun sales, really strong results there, especially as we think about new products. I'm curious, without giving out too much competitive details here, anything that you can expand on, on what's kind of helped drive some of that strength. I'm curious like colorways, some of your ported options? Are these things that have helped or is just having the right product for consumers right now? Mark Smith: Yes. You know we've had great success with BODYGUARD over the last -- really the last couple of years. That category, we kind of own it. On the -- we've done a lot of work and that strategy, I talked about a lot, long-range strategy is let's make sure we're refreshing the entire product line. And I think we're starting to see the results of that. And it's really just it's across the board. It's all of what you just talked about Mark. And obviously, we're not going to give too much detail for the reason you just covered. It's looking at the market trends and having a team that really understands the industry and what is trending out there, where do we need to make some updates and changes. And making those changes, and we've been really happy with the results that are coming out with that. And now that polymer pistol line across the board is really starting to gain a lot of profitable share. And obviously, as we start to move now into one of the -- out of the subcompact into the compact and full-size markets, that's obviously at the higher end of the pricing hierarchy and that is really helping ASPs and the momentum continues. Mark Smith: Perfect. And then just similar question shifting over to long guns. I'm curious, anything that you guys can do today to kind of drive more strength in that long gun market. And I realize there's some things in the comparable that make it this quarter tough. But as we think about the hunting category. Is there interest in entering there? Is there more maybe on SBRs or anything that you can do to drive more long gun business?. Mark Smith: Yes, the SBRs, as you're well aware, the tax changes that occurred on January 1 are helping a little bit there in that category. But at the end of the day, as I covered in the prepared remarks, it really is, it's one is the difficult comp versus last year as we were introducing kind of the last couple of calibers and the lever action rifle, which obviously are at the very high end of our pricing hiearchy on long guns, but also that our product portfolio is kind of more weighted towards that self-defense market and the hunting market, obviously, we're in it with the 1854 and very pleased with the performance there. But there's -- I'll just leave it at this, is there's a lot of white space there for us and we're always looking at long-term opportunities. Mark Smith: Perfect. And I think the last one for me. You called it out a bit in your commentary, just the law enforcement opportunity and improving sales there. I'm curious, just where you're at in that process? It seems like that's a big market and maybe just scratching the surface. Is that something that is a big focus and where you think you can really move the needle on revenue as there's more drive in law enforcement. And then similarly, I'm curious as we think about maybe international within military, if there are similar opportunities. Mark Smith: Yes, it's definitely a focus area as I think you've been around long enough now you know that's a much longer sales cycle than on the consumer side. So what I'm pleased about is the pipeline that we have even with the strong results this quarter, we've got a pretty healthy pipeline coming up behind it. And that is a direct result of all of the intangibles of the academy and being able to service that law enforcement customer in a more meaningful way, purpose-built products, changes to the product, there's innovation happening there as well. And that expands beyond just domestic law enforcement, it moves into federal agencies. state, local and federal and then outside into foreign militaries as well. So a lot of good things happening in that space. Still does remain kind of a smaller section of our business right now, but a lot of momentum there and a pretty healthy pipeline coming up behind it. Operator: Our next question is from Rommel Dionisio with Aegis Capital. Rommel please check for line is muted. I believe he was having some technical difficulties. We do not have any further questions at this time. I would like to turn the conference back over to Mark for closing remarks. Mark Smith: Thank you, operator, and thanks, everyone, for joining us today and your interest in Smith & Wesson. We look forward to speaking with you all again next quarter. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Roy Nir: Good afternoon, everyone, and welcome to Entravision's Fourth Quarter and Full Year 2025 Earnings Call. I'm Roy Nir, Vice President of Financial Reporting and Investor Relations. Joining me today to discuss our results are Michael Christenson, our Chief Executive Officer; and Mark Boelke, our Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to inform you that this call will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ. Please refer to Entravision's SEC filings for a list of risks and uncertainties that could impact actual results. The press release is available on the company's Investor Relations page and was filed with the SEC on Form 8-K. Additional information may also be found on our annual report on Form 10-K, which was also filed today. Our call today is using Zoom. If you'd like to ask a question, please use the Q&A function on the screen, during the call, indicate you name and company, and submit your question in writing. We will try to answer any questions that relate to the topics contained in today's call during the Q&A session. I will now turn the call over to Michael Christenson. Michael Christenson: Thanks, Roy, and thank you to those of you joining this call today. We appreciate your interest and your support. As you saw in our press release, on a consolidated basis, Entravision increased revenue 26% to $134 million in 4Q '25 compared to 4Q '24. We had an operating loss of $21 million in 4Q '25 compared to an operating loss of $49 million in 4Q '24. The 4Q '25 operating loss included a $26 million noncash impairment charge. So we would have had an operating profit if we exclude that adjustment. But as we've said on prior calls, we're committed to growing our business and earning a profit. So we acknowledge that we have work to do to improve our operating performance and profitability, especially in our Media business. We report our results for 2 segments: Media and Advertising Technology & Services, what we call ATS. For our Media segment, our revenue declined 32% in 4Q '25 compared to 4Q '24. This decline was primarily due to lower political revenue. Excluding political revenue, our 4Q '25 results included a 4% increase in local advertising revenue and a 5% decrease in national advertising revenue. Our local operations had 3% lower monthly active advertisers, but this was offset by an 8% increase in revenue per monthly active advertiser. In terms of operating expenses and profitability, as we have discussed in the past, we made a number of important investments in our media business in 2025. We added capacity to our local sales teams, more sellers, and we added digital sales specialists and digital sales operations capabilities, more digital. When we analyzed our local markets and our local advertiser base, we saw an opportunity to increase revenue by adding sales capacity. In addition, virtually all our local advertising customers are advertising in digital channels, search, social, streaming video and streaming audio. And we believe we can serve their needs in digital channels as well as our traditional broadcast, video and audio channels. The increase in operating expenses in our Media segment for these investments is about $8 million on an annualized basis. However, we funded these investments in part by improving efficiency and reducing costs in nonrevenue-generating operations. So as you'll see, total operating expenses in our Media segment were actually 6% lower in 4Q '25 compared to 4Q '24. Since revenue was lower because we did not have political revenue, we did have an operating loss of $428,000 in 4Q '25 compared to an operating profit of $18.5 million in 4Q '24. For our Media segment, we have 2 additional initiatives underway to generate incremental revenue. First, in October of last year, we began broadcasting a new network that we call Altavision. Altavision is broadcast on our multicast capacity across all of our markets. We provide the broadcasting infrastructure and sales, and we also provide local news programming. The balance of the programming is provided by Grupo Multimedios of Monterrey, Mexico. And together, we share the revenue. The stations have been on the air since October, and we've been test marketing with local advertisers since the beginning of this year. In addition, on January 1, 2026, we launched new programming on our full power Orlando television station, WOTF-TV, in a partnership with Hemisphere Media. Hemisphere Media owns WAPA TV, the #1 television station in Puerto Rico. And together, we launched WAPA Orlando Channel 26 to serve the growing Puerto Rican, Caribbean, Central and South American Spanish-speaking communities in Central Florida. There are more than 500,000 Puerto Ricans in the Orlando market, and we are very excited about this new -- the new revenue potential for this business. Now for our Advertising Technology & Services segment. ATS revenue more than doubled in 4Q '25 compared to 4Q '24, and we had more customers and higher spend per customer. We've continued to invest in our ATS segment in 4Q '25 to grow revenue and operating profits. We invested in our engineering team to continue to improve our technology and to build more powerful AI capabilities into our platform. And we invested to increase the capacity of our sales organization and customer operations. In addition, our infrastructure costs, primarily cloud computing costs increased in 4Q '25 compared to 4Q '24 as our infrastructure costs will grow as our revenue grows. They're currently growing at about the same pace as revenue. But as the business gets larger, we expect to see some incremental operating leverage so that these costs will grow at a slower pace than revenue. But the combination of our investments, investments in increased operating expenses, that's the direct operating expenses plus selling, general and administrative expenses were $6.5 million higher in 4Q '25 compared to 4Q '24. That's $26 million higher on an annualized basis. The operating profit for ATS was $12 million in 4Q '25 compared to an operating profit of $2 million in 4Q '24. In our ATS segment, this week, we announced an acquisition. We acquired the technology, platform and product IP of Playback Rewards. Playback Rewards is a reward and loyalty platform. For the past year, we have been developing our own reward platform, but this acquisition presented an opportunity to accelerate our entry into this market with a more robust platform. So to summarize, in Media, we're investing to increase our local sales capacity and to expand our digital sales and digital sales operations capabilities. Again, more sellers and more digital. And in ATS, we're investing to add more engineers to advance our technology and to increase our sales capacity, more technology, better technology and more sellers. We believe these investments will help us build a stronger company. So now I'll ask Mark to share with you more details of our financial results for 4Q '25 and the full year 2025. Mark? Mark Boelke: Thank you, Mike. I'll start by reviewing the performance of each of our 2 reporting segments, again, Media and Advertising Technology & Services. In our Media segment, fourth quarter revenue was $45.8 million, which was down 32% compared to fourth quarter 2024. Full year 2025 revenue was $176.7 million, down 20% compared to full year 2024. As we've noted on previous calls, our Media business began slowly in 2025, in part due to advertiser uncertainty in the environment of a new administration and federal immigration enforcement actions. In addition, there was significant political advertising in 2024 that was not present in 2025. However, we've seen sequential quarterly improvements in revenue as we move through 2025, particularly in local ad sales, and we're seeing momentum and progress in the execution of our revenue strategies. One of our goals is to optimize our organizational structure and the expense of support services in order to align them with revenue and to be profitable in each segment as well as on a consolidated basis. Let's look at total operating expense for the Media business, again, meaning the sum of direct operating expense and selling, general and administrative expense, or SG&A, as those 2 line items are reported in our segment results. Media segment total operating expense in the fourth quarter decreased $2.5 million compared to fourth quarter '24, a decrease of 6%. Operating expense was flat for full year 2025 compared to full year 2024. Starting in Q3 '25, we have taken steps under an ongoing organizational design plan intended to support revenue growth and reduce expenses in our Media segment. Key components of this plan included a reduction in Q3 and Q4 of approximately 5% of the Media segment's total workforce, primarily in back-office roles, and we abandoned several leased facilities with impacted employees transitioning to remote work. We expect these changes to reduce media operating expense by approximately $5 million on an annual basis, and we recorded charges during third and fourth quarter totaling $2.8 million for the expenses associated with these moves. And these charges were reported as restructuring costs on our income statement. The Media segment had an operating loss of $0.4 million in Q4 '25 compared to operating profit of $18.5 million in Q4 '24. The decrease was mainly due to political advertising revenue in Q4 '24 that was not present in Q4 '25. We continue to evaluate the organizational structure of our Media business in order to provide compelling content, drive sales, streamline our organization and optimize expense. And the Media segment operating loss improved significantly from third quarter to fourth quarter '25. Now let's turn to our Ad Tech & Services segment, or ATS. Fourth quarter revenue for the ATS business was $88.6 million. This was an increase of 123% compared to fourth quarter '24 and a sequential increase of 16% from third quarter to fourth quarter '25. Full year 2025 revenue was $270.9 million, an increase of 90% year-over-year compared to full year 2024. As the year progressed through the fourth quarter, we had a higher number of monthly active accounts and higher revenue per monthly active account. As discussed on previous calls, we have had success executing our strategies in the ATS business during 2025, including expanding the sales team and geographic sales coverage and strengthening our AI capabilities and platform technology. ATS total operating expenses increased by 48% in the fourth quarter '25 compared to Q4 '24, an increase of $6.5 million. Operating expenses increased by 54% in full year '25 compared to full year '24. The ATS expense increase was primarily related to the increase in revenue. For example, as Mike mentioned, the expense of cloud computing services has increased as a result of processing more transactions and using stronger AI capabilities built into our ad tech platform. There was an increase in sales commissions and performance compensation as a result of the revenue increase and achievement of other performance metrics. And the ATS business has also hired additional sales, engineering and ad operations staff in recent quarters in order to drive ATS growth and expand into new geographic areas. ATS operating profit was $12.3 million in Q4 '25. This was an increase of 464% versus Q4 '24 and a sequential increase of 26% from the prior quarter, Q3 '25. Operating profit for full year 2025 was $33.8 million, an increase of 317% versus full year 2024. Our goal for the ATS business is to continue to grow revenue and generate positive operating leverage and the ATS revenue increase exceeded the expense increase in terms of percentage and absolute dollars. Combining our 2 operating segments, on a consolidated basis, revenue for fourth quarter '25 was $134.4 million, up 26% compared to fourth quarter '24. Full year 2025 revenue was $447.6 million, up 23% compared to full year '24. The 2 segments together generated a consolidated segment operating profit of $11.9 million in Q4 '25 and $27.6 million for full year '25, a decrease of 43% and 41% compared to the respective prior periods. The decrease was a result of decreasing -- I'm sorry, was a result of decreased operating profit in the Media segment, primarily due to political revenue in 2024 that was not present in 2025, partially offset by increased operating profit in the ATS segment. We had a consolidated operating loss of $20.7 million in Q4 '25 compared to a loss of $48.6 million in Q4 '24. Our consolidated operating loss included a noncash impairment charge of $26 million related to certain FCC licenses. Without this noncash impairment charge, we would have had an operating profit of over $5 million in Q4 '25. Full year 2025 operating loss was $83.4 million versus $52 million for full year 2024, with the increase primarily due to a loss on lease abandonment related to our corporate headquarters and restructuring charges related primarily to our Media segment. Again, our goal is to be profitable for each segment and generate a consolidated operating profit. We have additional work to do, particularly in the Media business, and we remain focused on growing revenue and reducing operating expense throughout 2026 and beyond. Looking at corporate expenses, we have taken significant steps to reduce these expenses over the past few years. Corporate expenses in fourth quarter '25 were $6.5 million, a 13% decrease compared to fourth quarter '24 or about $1 million. The decrease was primarily due to expense reductions in rent and professional services. For full year 2025, we reduced corporate expenses by $10.5 million compared to full year '24, a 28% decrease year-over-year. Going back 1 year further for additional context, corporate expense in 2025 was almost half of the amount of corporate expense in 2023. Entravision's balance sheet remains strong with over $63 million in cash and marketable securities at year-end. We're proud of our strong balance sheet, which we believe sets us apart from others in the industry. In 2025, we made total debt payments of $20 million, reducing our credit facility indebtedness to about $168 million as of year-end. We entered into an amendment to our credit facility in Q3 as previously reported. The amendment was a proactive and strategic move to accelerate debt reduction and provide more financial stability and flexibility under our credit agreement. In addition, we paid $4.6 million in dividends to stockholders in the fourth quarter or $0.05 per share and a total of $18 million for full year 2025 or $0.20 per share. For the first quarter of 2026, our Board of Directors has approved a $0.05 dividend per share payable on March 31 to stockholders of record as of March 17 for a total payment of approximately $4.6 million. Our strategy regarding allocation of cash is, first, reduce debt and maintain low leverage; and second, return capital to our shareholders, primarily through dividends. We look at capital allocation on a 2-year basis to take into account cyclical political advertising that occurs every other year. During the past 2 years, 2024 and 2025, we had about $85 million of net cash provided by operating activities. During this 2-year period, we used about $76 million of that $85 million to pay down debt and pay a shareholder dividend. That's $40 million used to reduce debt and $36 million used to pay dividends to shareholders. 2025 was not a political year, so we did not have meaningful political revenue last year, but we have now entered another political advertising election year here in 2026. We'd like to thank you for joining our call today. We welcome our investors to connect with us through the Investor Relations page on our corporate website, entravision.com, where you will have access to a transcript of this call, the press release containing our fourth quarter and full year financial results and a copy of our annual report filed with the SEC on Form 10-K. At this time, Mike and I would like to open the call for questions from the investment community. Roy, I'll turn it back over to you. Roy Nir: Thank you, Mark. [Operator Instructions] The first question is regarding the outlook for political revenue in 2026. Mike, do you want to address that? Michael Christenson: Yes. So as of today, we are 243 days away from election day 2026. And as you can see in the news, primaries are underway across the country. I think we're very well positioned for a strong political spending environment in 2026. As we've said on prior calls, we believe the Latino vote will be critical to the outcome of the congressional elections in all -- in our 6 Southwestern states. The Cook Political Report lists the 35 closest races of the 435 congressional races, and we are fortunate to have 11 of those 35 in our markets. We also have the important Texas U.S. Senate race, which is, again, getting a lot of press. And then finally, we have governors' races in California, Colorado, Nevada, New Mexico and Texas. So we're very well positioned. And what I would say is, which we've also said on past calls, we believe the Latino vote will be critical to the outcome of these elections. Studies have shown that Latinos are the most persuadable segment of the electorate, and we have a powerful channel for reaching that audience. And what we will say to make it very clear, what we say to everyone, we can get to listen to our pitch, you must win the Latino vote to win your election. And if you want to win the Latino vote, you should double or triple your allocation to Spanish language media. So again, we're very optimistic about how we're positioned for 2026. Roy Nir: Thank you, Mike. We received another question related to the status of renewing the affiliation agreement with TU. Can you provide an update on that? Michael Christenson: Sure. Not much to update since our last call, what we said last time, and it's still the case today. The affiliation agreement with TelevisaUnivision runs through December 31, '26. We've been partners for 3 decades, and our plan is to renew this agreement. So we expect to renew this agreement. But that's all I can say at this point. Roy Nir: Thank you, Mike. Please hold as we review additional questions. Thank you, everyone, for joining us today. Mike, I'll turn it back to you for closing remarks. Michael Christenson: At this point, we'll say thanks, Roy, and thank you again to all of you who are joining our call today. We look forward to speaking with you again when we report our 2026 first quarter results. Thank you very much.
Operator: Good afternoon, and welcome to the ESS Tech Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] During today's call, we may make statements relating to our goals and objectives for future operations, financial and business trends, business prospects, future financial metrics, statements relating to timing for project, New Horizons, manufacturing and delivery, potential future orders from customers, potential future partnerships, our future manufacturing capacity and management's expectations for future performance that constitute forward-looking statements under federal securities laws. Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our SEC filings. Our actual results, performance or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. On this call, we will also discuss financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP, including adjusted EBITDA. A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in our earnings release and investor presentation posted on our website today. A press release detailing these results was issued this afternoon and is available in the Investor Relations section of our company's website, investors.esesinc.com. Hosting today's call will be ESS' Chief Executive Officer, Drew Buckley; and Chief Financial Officer, Kate Suhadolnik. With that, I'll turn the call over to Mr. Buckley. Drew Buckley: Thank you, operator, and good afternoon, everyone. Today, we'll walk through 4 areas: a company overview; our FY '25 operational updates; our pipeline and go-forward strategy; and a financial review from Kate. Let's get started. ESS is a leading manufacturer of long-duration iron flow energy storage solutions traded on the New York Stock Exchange under the ticker GWH. Founded in 2011 with a mission to accelerate decarbonization safely and sustainably, ESS' iron flow technology uses iron, salt and water, some of the most abundant and easy-to-source materials on earth to store energy in a way that is safe, sustainable and built to last. Our flagship product is the Energy Base, a 10- to 22-hour long-duration energy storage system designed for applications where lithium-ion is too costly, too short in duration or simply not safe enough. The Energy Base is a non-containerized and open architecture system, purpose-built for utility-scale grids, hyperscaler data centers, industrial microgrids and defense installations. Unlike lithium-ion, our iron flow technology is designed to deliver unlimited cycling with 0 capacity degradation over a 25-year life. All of our products are manufactured right here in Wilsonville, Oregon, with over 98% domestic content, making ESS one of the only American-made, American-sourced long-duration storage solutions available today. We have scaled manufacturing capacity in place and a Tier 1 pipeline that includes Salt River Project, or SRP, Google and the U.S. Air Force. 2025 was a year of deliberate transformation. The headline is straightforward. ESS has executed on restructuring, made meaningful commercial progress and significantly strengthened our balance sheet. Let me walk through the key milestones. On the commercial side, we were awarded a $9.9 million contract from Concurrent Technologies Corporation and the U.S. Air Force Research Laboratory for a long-duration energy storage system to be deployed at U.S. Clear Space Force Station in Alaska. This is a landmark win. It demonstrates that American-made iron flow storage is ready for mission-critical defense applications. We also announced Project New Horizon, a 5-megawatt, 50-megawatt hour system to be installed at SRP's Copper Crossing Energy and Research Center in Florence, Arizona. Google has been confirmed as an offtaker and will provide cost sharing and multiyear operational testing. Manufacturing is expected to begin this year in 2026 with delivery targeted for December 2027. This is a transformational partnership, a major Southwest utility backed by one of the world's largest energy loads with significant sustainability and resiliency goals. On the leadership front, we made important changes. Kelly Goodman transitioned to the role of Chief Strategy Officer and General Counsel; and Kate Suhadolnik was appointed as our permanent CFO. In February of 2026, we acquired the intellectual property and assets of VoltStorage, a pioneer in iron salt battery technology. This acquisition deepens our technological moat and adds meaningful patent coverage in the long-duration iron flow space in addition to highly valued human capital. VoltStorage gives us a further platform to continue building the strength of our leadership team. We appointed Randall Selesky, former Chief Commercial Officer of VoltStorage as our new Chief Commercial Officer. Chief Operating Officer, Jigish Trivedi, will be departing ESS. We want to thank Mr. Trivedi for his contributions during his tenure, including his leadership during our strategic pivot to Energy base, and we wish him well in his future endeavors. Brian Lisiecki, our current Chief Information Officer, will serve as Interim Chief Operating Officer while we conduct a formal search process. On the balance sheet, we closed a $40 million financing transaction with Yorkville Advisors, launched an ATM equity offering program, raising approximately $8.6 million in gross proceeds and to date, have repaid approximately $28.5 million or 95% of the first $30 million tranche under the Yorkville promissory note. In January 2026, we closed a $15 million registered direct offering priced at a premium to the market. And as of March 1, we have drawn the second $10 million tranche under the Yorkville promissory note. We continue to see a large and growing long-duration energy storage market opportunity. Demand from AI data centers alone is projected to increase 165% by 2030, and the grid will need to deploy 8 terawatt hours of long-duration storage by 2040 to meet clean energy targets. We have the right team in place and the right technology to execute on our near and midterm objectives. With that, I'll turn it over to Kate to walk through the financials. Kate Suhadolnik: Thank you, Drew. I'm pleased to be speaking with you today as ESS' CFO. Revenue for the full year 2025 was $1.6 million, down from $6.3 million in 2024. As Drew noted, this reflects the deliberate transition away from legacy product lines, the Energy Warehouse and Energy Center as we refocus on the Energy Base. Revenue recognized during the year included deliveries of legacy units primarily to related parties, engineering services and extended warranty revenue, partially offset by the wind down of active contracts for legacy business activities in connection with the shift to the Energy Base product offering. Gross loss for the year was $27.7 million, an improvement of 39% compared to a loss of $45.4 million in 2024. Total operating expenses decreased 33% year-over-year to $29.7 million, down from $44.4 million. This reduction reflects the organizational reset we undertook. Research and development expenses declined $3.5 million. Sales and marketing declined $5.3 million and G&A declined $5.9 million as we reduced personnel costs and streamlined operations. We made the smallest cut to R&D to prioritize investment in our product development. Net loss for the full year was $63.4 million compared to $86.2 million in 2024, an improvement of 26%. Adjusted EBITDA improved 38% [indiscernible] of $44.3 million from a loss of $71.3 million in 2024. The [ trajectory ] [indiscernible] costs are coming down meaningfully. And as revenue ramps with the energy base in 2027 and beyond, we believe we are on the path to positive EBITDA. Compared with the prior year, we significantly improved adjusted EBITDA by $27 million. That improvement reflects the significant cost reduction work being done across every line of the business. The quality of those reductions is important. They are structural, not temporary, and they carry forward directly into the Energy Base cost profile. Turning to the balance sheet and liquidity. As of December 31, 2025, we had $14.5 million in unrestricted cash and cash equivalents and $7.5 million in other liquid assets for a combined liquidity position of $22 million. Accounts receivable was essentially 0 and inventory was $0.1 million, consistent with the wind down of legacy product lines. Subsequent to year-end, in January 2026, we closed a $15 million registered direct offering priced at a premium to the market. During 2025, we completed the $40 million Yorkville financing, receiving $30 million immediately and drawing on the second $10 million tranche in February 2026. We raised approximately $8.6 million through our ATM and have repaid approximately $28.5 million or 95% of the first $30 million tranche under the Yorkville promissory note as of March 1, 2026. We will continue strengthening the balance sheet and managing expenses so that we can execute our strategic priorities over the near and long term. With that, I'll turn the call back over to Drew. Drew Buckley: Thank you, Kate. Let me leave you with 3 takeaways from today's call. First, our commercial momentum is real and building. Google is confirmed as an offtaker on Project New Horizon and the $9.9 million CTC and Air Force contract is underway. These are not promises. They are signed agreements with sophisticated counterparties. Second, our financial performance is improving across key metrics. Adjusted EBITDA improved 38% year-over-year, while operating expenses were down 33%. The organizational reset we undertook in 2025 is showing up in the numbers, and those savings are structural. Third, the team and technology are in place to execute. We have a permanent CEO, a permanent CFO, a new Chief Commercial Officer with deep iron flow experience and several other experienced senior employees joining the team and a strengthened IP portfolio following the VoltStorage acquisition. The Energy Base is the right product for the market, and we are ready to deliver. We look forward to updating you on our progress. And with that, we will now open for questions. Operator? Operator: [Operator Instructions] The first question comes from Justin Clare with ROTH Capital Partners. Justin Clare: So I wanted to first start off here. I was [ looking ] in the press release, it indicates that you're anticipating delivery for kind of the 3 key projects that you have in -- to start in 2027. So just considering the time line, how should we think about the outlook for the ramp-up in revenues associated with those projects? Could we see any revenue in 2026? Or is it more likely a contribution in 2027? And then just should we anticipate any legacy unit sales in 2026? Drew Buckley: Justin, it's Drew. Thanks for the question. Yes, so our focus for 2026 will be commercializing the new product, the Energy Base so that we can deliver for Tier 1 customers that have signed up to take delivery in '27 and '28. Those customers alone represent revenues and megawatts installed that are multiples higher than the company has achieved on a cumulative basis since listing in 2021. So it's a really big deal for us, and we're really excited about it. The pipeline to look at that for a second, it remains quite exciting. But we're going to take a pragmatic approach in 2026 to ensure that when we start shipping Energy Base, it's a product of the highest quality. So I would expect 2027 and 2028 when you see most of those revenues to come in. Justin Clare: Got you. Okay. That's helpful. And then just on the Salt River project, wondering if you could provide an update on how you're thinking about the ownership structure there. Are you intending to retain ownership of that project? And then I think there's a 10-year energy storage agreement there. So I think the completion date is December 2027. So then would we anticipate recurring revenue starting in the 2028 time frame for that one? Drew Buckley: Yes. I think we're still in the planning phase for that and deciding how we want to -- so the agreement in and of itself is a PPA agreement for 10 years, like you said. I think we're exploring avenues on how we want to complete that project overall from a sort of financial and structural perspective. So we've got a few ideas. Nothing that I can update you on concrete for now. But as it stands, the contract is a 10-year PPA. So we would start recognizing revenues in 2028 on that. And we're looking at potential different options that we can take to make it more of an equipment sale versus just a PPA. But more we can update on you with that as we get closer. Justin Clare: Got it. Okay. Okay. And then associated with that project, how should we think about the potential for follow-on deployments? Would we need to see kind of the completion of the pilot project along with some operational data before you might see a follow-on? Or is there a potential for something to move faster than that? Drew Buckley: Yes. So there's a follow-on potential project with SRP of a much larger size. I can't comment on their -- the way that they're going to go about the RFP and the entire process for that. But our hope is to have that project operational and have some really good data by the middle of 2028 and to have the data, good data by the middle of 2028 to be clear to put it in, in the end of 2027 as of right now. And we think that's a good time line to have it open for any follow-on opportunities. And again, that goes back to the idea of focusing on the pilot right now, making sure that we execute well and the technology is -- and the product is of the highest quality to set ourselves up for success for this pilot. And then we think the future opportunities around that are really significant. And so what I could say is that with that execution, we think we'll be in a good spot to be in the process for that follow-on project. Justin Clare: Got it. Okay. And then so maybe just one more here, shifting gears to the liquidity. I wondering if you could just speak to plans to potentially repay the second tranche of the promissory notes or plans to use the ATM or contemplate an additional capital raise here? How do you feel about the balance sheet and the strategy going forward? Drew Buckley: Yes, absolutely. Our financial runway has significantly improved since our last conference call in November. The funds we've raised put the balance sheet in a much healthier position here. And we do have further capital needs, to your point, to support our plans in 2027 and beyond. But with the current cash we have on the balance sheet, there's no real rush and we're trying to be much more thoughtful and strategic about how we're thinking about raising capital into the future. As you mentioned, we do have the ATM in place, but I wouldn't say that we're looking to tap that immediately. What we want to do overall is be very thoughtful and strategic about how we access capital into the future. And we feel like we have a pretty good handle on things and a good runway for now. Operator: [Operator Instructions] There are no other questions registered at this time. So I'll pass it back over to Drew Buckley for any additional remarks. Drew Buckley: Thanks, operator, and thank you all for joining us today. We're building something important at ESS, technology that the world genuinely needs, manufactured in America with a team that is focused and fully aligned on execution. The commercial wins we've already seen in early 2026 give me confidence in what this year will bring. And we look forward to sharing more on our developing story at the upcoming 38th Annual ROTH Conference on March 22 to 24 in Dana Point, California. And if we're unable to address any of your questions today, please reach out to Chris Tyson at MZ Group. His contact details are on the back of today's presentation, and he will be happy to follow up. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon, and welcome to AudioEye's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining us for today's call are AudioEye CEO; Mr. David Moradi; and CFO, Ms. Kelly Georgevich. Following their remarks, we will open the call for questions from the company's publishing analysts. I'd like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at www.audioeye.com. Before I turn the call over to AudioEye's Chief Executive Officer, the company would like to remind all participants that statements made by AudioEye management during the course of this conference call that are not historical facts are considered to be forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, confident, will and other similar statements of expectation identify forward-looking statements. These statements are predictions, projections or other statements about future events, and are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in today's press release and the comments made during this conference call and in the Risk Factors section of the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and in its other reports and filings with the Securities and Exchange Commission. Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's beliefs only as of the date hereof. AudioEye does not undertake any duty to update or correct any forward-looking statements. Further, management's remarks today will include certain non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earnings release or otherwise posted in the Investor Relations section of the website at www.audioeye.com. Now I'd like to turn the call over to AudioEye's Chief Executive Officer, Mr. David Moradi. Sir, please proceed. David Moradi: Thank you, operator, and good afternoon, everyone. I'm pleased to report our results for 2025, highlighted by our 40th consecutive quarter of record revenue growth, a remarkable achievement. We are not aware of any other SaaS company in the public markets, which have grown sequentially for 40 straight quarters or more. In addition to 40 sequential quarters of revenue growth, we also demonstrated strong operating cash flow in recent years. In 2025, adjusted EBITDA grew by approximately 35% to a record $9.1 million with a record margin of 22%. For the full year 2025, AudioEye achieved record revenue which was even more impressive given that our performance includes our previously noted accelerated customer migrations last year. I'm happy to report that the integration of these acquired customers is now substantially complete, which should drive meaningful ARR acceleration in 2026 with business momentum in the U.S. and EU. In 2026, we expect adjusted EBITDA to grow by at least 30%, implying adjusted EBITDA of at least $11.8 million for the year. Looking at a couple of quarters ahead, we expect to generate a run rate adjusted EBITDA of $15 million by year-end, driven by AI efficiency across our products and operations. This implies an accelerating rate of cash flow growth into 2027, potentially higher than the 30% we are guiding for this year. As we survey today's technology landscape, while AI coding has been top of mind in 2026, the tangible impacts on people with disabilities are largely being overlooked. AI is accelerating how businesses build digital experiences, but it is also accelerating the pace at which accessibility failures compound. Since LLM's draw data that is not accessible to begin with, digital accessibility on the Internet is not improving and may even be getting worse. With this backdrop, we are seeing increased rates of litigation utilizing AI to detect accessibility issues. We believe 2026 will be the highest year of digital accessibility lawsuit on record. Yesterday, we released our next-generation platform to address these market needs. The next-gen platform unifies AI detection, expert audits and custom fixes in a single platform that delivers unmatched transparency, ease of use and 3 to 4 times of legal protection and other solutions. The platform also utilizes years of proprietary data from detecting and fixing accessibility issues across hundreds of thousands of sites and billions of unique visits. Additionally, we are unaware of any other accessibility solution that delivers custom fixes directly within the platform, which gives customers a complete picture of their accessibility compliance. Other solutions may make claims of custom fixes, but cannot back them up. In prior years, on these conference calls, we called out similar claims from the same vendors that automation couldn't fix 100% of accessibility issues, which proved accurate. The next-gen platform use our proprietary data engine to power its results. In February, an independent study conducted by audience found that AudioEye detected between 89% and 253% more WCAG issues than competitive products. AudioEye was the only solution that identified issues at all WCAG levels, including single A, AA, AAA across every website analyzed. Combining our proprietary data set, with newly released agentic models, creates opportunities to solve digital accessibility in ways that were not possible before. Our pace of innovation, which is leveraging our proprietary data is rapidly accelerating, and we look forward to sharing more updates with you soon. As we enter 2026, we see meaningful opportunities ahead. The EAA is expanding the market globally. The DOJ rule under Title II is increasing regulatory requirements. Record litigation is driving demand. And businesses increasingly recognize that accessibility is not just about compliance, it's about reaching the broadest possible audience, including AI agents that scan a website's accessibility tree instead of the [indiscernible]. Based on our momentum and the market dynamics we're seeing, we are providing the following guidance for 2026: For the first quarter of 2026, we expect revenue of between $10.5 million to $10.6 million, adjusted EBITDA of $2.2 million to $2.3 million and adjusted EPS of $0.17 to $0.18. We typically see lower cash flow in the first quarter as we pay social security taxes and legal and administrative fees associated with the proxy. And this year, we are attending an industry event during the quarter. For the full year 2026, we expect revenue of between $43 million and $44.5 million, and we expect the rate of ARR growth to outpace the rate of revenue growth as we focus less on nonrecurring revenue. We expect adjusted EBITDA will grow by at least 30%, reaching $11.8 million representing a 27% margin at the revenue midpoint. I'll now turn the call over to AudioEye's CFO, Kelly, to review our results in detail. Kelly? Kelly Georgevich: Thank you, David, and good afternoon, everyone. Revenue again reached record levels with Q4 2025 revenue at $10.5 million, an 8% increase from Q4 2024 and a 10% annualized increase sequentially from Q3 2025. On a full year basis, our revenue grew 15% to $40.3 million from $35.2 million in 2024. Breaking this down by channel, our partner and marketplace channel includes all revenue from our SMB-focused marketplace products and revenues from partners who deploy these same products for their SMB customers. For the fourth quarter of 2025, this channel grew 8% year-over-year and represented approximately 59% of ARR. For the full year 2025, this channel's revenue grew 10% from $20.2 million in 2024 to $22.2 million. We continue to see expansion of existing customers and new partners engaging with AudioEye contributing to this channel's group. AudioEye's enterprise channel consists of our larger customers and organizations, including those with non-platform custom websites who generally engage directly with AudioEye sales personnel for pricing and solutions. In Q4 2025, the enterprise channel grew 8% from the comparable period of the prior year. And for the full year 2025, it grew 21% to $18.1 million from $15 million. This growth was driven in part by our expansion into the EU in 2025, which we expect to continue to grow in future periods. The enterprise channel represents approximately 41% of ARR as of December 31, 2025. Annual recurring revenue, or ARR, at the end of the fourth quarter of 2025 was $40 million, a 9% increase over ARR at the end of the fourth quarter of 2024 and an increase of $1.3 million sequentially. Gross profit for the fourth quarter was $8.3 million or approximately 79% of revenue compared to $7.8 million or 80% of revenue in Q4 of 2024. For the full year 2025, our gross margin was approximately 78% with gross profit increasing from $27.9 million in 2024 to $31.6 million in 2025. Going forward, we will be reporting adjusted gross margin, a SaaS industry non-GAAP metric that provides insights in the underlying profitability of our core operations by excluding stock-based compensation and depreciation and amortization included in our cost of revenue. Adjusted gross margin was 85% in Q4 2025 compared to 86% in the prior comparable period. Adjusted gross margin was 84% for the full year 2025 compared to 85% in the prior year comparable period. Even with an 8% increase in revenue, operating expenses in the fourth quarter of 2025 remain consistent with the same quarter last year. On a full year basis, with revenue increasing 15% over the prior year, operating expenses increased 7% or approximately $2 million to $33.4 million, driven primarily by increases in sales and marketing expense. Increase in items such as stock compensation expense, depreciation and amortization and litigation expense were mostly offset by savings in noncash valuation adjustments to liabilities and lower business combination expenses year-over-year. Our total R&D spend in Q4 was approximately $1.6 million, with approximately $450,000 reflected the software development costs in the investing section of the cash flow statement, a decrease from $1.8 million in the fourth quarter of 2024. Total R&D spend was around 15% in Q4 2025 revenue versus 18% in Q4 2024. For the full year, R&D spend was 16% of 2025 revenue versus 19% in 2024 and 29% for 2023, demonstrating our continued progress in operating leverage. Net loss in the fourth quarter of 2025 was $1.1 million or $0.08 per share compared to a net loss of $1.5 million or $0.12 per share in the same year ago period. On a full year basis, net loss for 2025 was $3.1 million or $0.25 per share compared to a net loss of $4.3 million or $0.36 per share in 2024, an improvement of $1.2 million. In the fourth quarter of 2025, we achieved adjusted EBITDA of approximately $2.8 million or $0.22 per share compared to an adjusted EBITDA of $2.3 million or $0.18 per share in the same year ago period. On a full year basis, we produced adjusted EBITDA of approximately $9.1 million or $0.72 per share compared to $6.7 million or $0.55 per share in 2024. This 35% increase in adjusted EBITDA was driven by $5.1 million of revenue growth, a $3.9 million increase in adjusted gross profit and approximately $1 million in savings in adjusted R&D and G&A expenses, partially offset by additional investments in sales and marketing. In the fourth quarter, we repurchased approximately $1 million worth of shares. During the full year 2025, we repurchased approximately $4.6 million worth of shares. The successful refinancing of our debt facility with Western Alliance Bank in Q1 2025 strengthened our balance sheet and reduce our interest expense, positioning us for continued growth with greater financial flexibility. Our balance sheet remains well capitalized with $5.3 million in cash as of December 31, 2025, and an additional $6.6 million in debt facilities available. As of December 31, 2025, our net debt, defined as total debt less cash was $8.1 million, and our net debt to adjusted EBITDA ratio was approximately 0.7x. In the fourth quarter, we generated $2.3 million of free cash flow, calculated as adjusted EBITDA of $2.8 million less $500,000 of software development costs, an improvement of $400,000 from the fourth quarter of 2024. For the full year 2025, adjusted free cash flow was $7.2 million versus $4.9 million in 2024. With that, I'll turn the call back to the operator to open the line for questions. Operator? Operator: [Operator Instructions] Our first question today is coming from Joshua Reilly from Needham & Company. Joshua Reilly: All right. Great. Maybe just starting off, just kind of on the platform updates here. A big piece of what you've done historically is the custom human fixes combined with the automated fixes. And I guess I'm just curious, how much human involvement do you see going forward in the custom fixes relative to what AI can do and how that might drive greater automation in the platform and efficiencies for you. David Moradi: Yes, the tools aren't really that good at accessible content because the internet wasn't coded with accessibility in mind. And as you know, the amount of sites and content are exploding on the Internet. We're seeing an all-time high in litigation. We think lawyers are using AI to the tech issues and draft all these complaints with more websites even to choose from. So I'm not sure when it's going to get there. It's very far away from that now. It's actually getting worse. And the problem hasn't been solved in 25 years. The issue is when you push code, even if the code was coded with accessibility, someone else touches it and it's not accessible anymore. And this is especially true for sites like e-com that are constantly changing. So it's very far off to answer your question in my opinion. Joshua Reilly: Got it. And then -- so along with that, how does the changes you made to the platform along with that concept that you do need to keep the human involvement going, maybe further your differentiation versus some of the competitors. David Moradi: No one has it right in the platform for the custom fixes. So that's the difference and we're using more and more agents with that as well to streamline it further. Joshua Reilly: Got you. Okay. That's helpful. And then if we look at the initial revenue guidance for 2026, maybe you can just kind of help us understand what are the puts and takes investors should be considering including visibility to that revenue guidance relative to the ARR exit rate of about $40 million for Q4 and kind of the growth trends that you saw in 2025 relative to what you're assuming in 2026. David Moradi: Yes. We're being pretty conservative. The major factor is we expect less nonrecurring revenue as we focus more on ARR and some of the acquired customers initially have nonrecurring revenue that we phased out. Kelly can get into this, what this means from a financial standpoint, but we're very bullish about the opportunities in front of us more than ever. We're in a unique position with massive amounts of data from 10 years of these custom and automated fixes and seen all these edge cases over the years. It's a treasure trove of information to drive the agents in the future. But I'll let Kelly answer the rest of that question. Kelly Georgevich: Yes. Just getting into a little bit further. If you look at the guidance for the year, it implies revenue growth of nearly 10%, and that's assuming lower nonrecurring revenue. We do anticipate higher ARR growth in this, so kind of low to mid-teens on the ARR side. Nonrecurring is a small percent of our revenue, about 5% overall, but we're aiming to reduce this even further to focus on ARR this year, and that's impacting that guidance somewhat. Operator: Next question is from George Sutton from Craig-Hallum. George Sutton: So relative to EAA. I'm just wondering if you could give us an update on the investments you're making there, some of the opportunities that you're seeing, for example, we have been seeing some hires in Netherlands as an example. But I know you've signed some nice partners. Just any update on Europe and sort of the opportunity you're seeing there? David Moradi: Yes, sure. As expected, the EU tends to move a bit slower than the U.S. It's a bit bureaucratic, as you know. GDPR took a while to force and then the adoption followed over the next few years, but we are seeing pipeline building nicely, big deals in the pipeline, closed the big one in the fourth quarter and we expect to continue ramping up the EU as the year goes on. But if enforcement happens, which it will at some point, all bets are off. Demand is going to ramp very, very quickly. George Sutton: Got you. And just as my follow-up on the AI side, I was intrigued by your thought that the failures are more pronounced when AI is involved relative to disability. You mentioned internet wasn't necessarily built with disability involved, and I'm going to assume AI hasn't been either. Can you just walk through what would potential partnerships be relative to AI. Could you ultimately be partnering with some of the LLMs, for example, or folks that are building out agents? Just curious your thoughts there. David Moradi: No, we have very unique data. You can do a lot with that. I don't want to give away strategies on this call, but this data unlocks a lot of potential. Those with data own the gold. Operator: Our next question is coming from Zach Cummins from B. Riley. Zach Cummins: David, can you give us an update on potentially a ramp-up in enforcement on the DOJ Title II side. I mean we have the initial compliance date that's coming up here in a little over a month. So just curious, any update on that and progress you're seeing with some of your major partners on the federal side. David Moradi: Yes, the DOJ's requirements are going to go into effect next month, as you said. We haven't heard anything to the contrary. We continue to see momentum on the reseller and even direct channels from states. We're seeing strong momentum from both partners, Finalsite, CivicPlus, and I think there's a huge opportunity to unlock those and really penetrate the customer bases over the next 2, 3 years. Zach Cummins: Understood. And one follow-up question is for Kelly. How should we be thinking about gross margin on, I guess, an adjusted basis now that you're giving out that metric? I know a little bit of a headwind as you did the final migration work with some of those customers to the new platform. But how are you thinking about gross margin as we go through 2026? Kelly Georgevich: Yes. The gross margin and adjusted gross margin, I think we expect to see relatively consistent to what we've seen. So on a gross margin basis, kind of mid- to high 70s as we pay for more AI compute, but we could see higher margins over the next couple of quarters and then adjusted gross margin, we did want to introduce because I think a lot of other SaaS companies use it, and it just is a little bit lucky with stock compensation and depreciation and amortization in there. But I think we expect both to kind of be at similar levels and with opportunities to see further growth in both of those different levers. Zach Cummins: Best of luck with the rest of the quarter. Operator: [Operator Instructions] Our next question is coming from Richard Baldry from ROTH Capital Partners. Richard Baldry: Not sure if I missed this, but the 8,000 customer adds looks to me like the strongest in about 2 years. Sort of curious what do you think the drivers were under -- underneath that, whether they look sustainable or extensible heading forward? David Moradi: Yes. That was a large reseller in the EU, the deal we signed in the fourth quarter that made up a lot of that. We're still in the early innings in the EU, as you know and expect to see a lot more momentum. Richard Baldry: And then if I look at the spending side, the G&A and R&D has been basically flattish for about 2 years, but the sales and marketing has been rising. So could you maybe talk about how you view your current level of sales productivity, how much more do you think you want to invest in that going ahead in fiscal '26 in particular? Kelly Georgevich: Yes. We're always pretty strategic with investments in sales and marketing. I think we'll continue to invest in sales and marketing as long as we keep seeing that ROI, and we do expect to continue to invest in the EU as well. David Moradi: And we're looking for 30% growth in cash flow this year. So tons of leverage dropping to the bottom line. Operator: Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. David Moradi: I'd like to thank our employees, customers and investors for their support. We look forward to providing an update on the next quarter. Thank you. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good afternoon, and welcome to Research Frontiers' investor conference call to discuss the fourth quarter and year-end 2025 results of operations and recent developments. The company will be answering many of the questions that were e-mailed to it prior to this conference call, either in their presentation or as part of the Q&A session at the end. In some cases, the company has responded directly to e-mail questions prior to this call or will do so afterwards in order to answer more questions of general interest to shareholders on this call. Some statements today may contain forward-looking information identified by words such as expect, anticipate and forecast. These reflect the current beliefs and actual results may differ materially from those expressed due to various risk factors, including those detailed in our SEC filings. Research Frontiers assumes no obligation to update or revise these statements. [Operator Instructions] The call is being recorded and will be available for replay on Research Frontiers website at smartglass.com for the next 90 days. [Operator Instructions] I would now like to turn the conference over to Joe Harary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir. Joseph Harary: Thank you, Paul, and thank you, everyone, for joining us for our year-end and fourth quarter 2025 Conference Call. 2025 was a year of not just incremental developments but structural adjustments in the supply chain and meaningful expansion in our automotive pipeline, architectural retrofit execution and new product development and capital positioning. This call is important because when you step back and look at 2024 and 2025 together, the trajectory of this becomes clearer. We have maintained production continuity in automotive through license transitions, expanded OEM engagement with high unit volume vehicle programs, allowing cost reductions by our licensees and expanded engagement through other areas of the vehicle besides just the sunroof. We've seen Ferrari expand production of cards with SPD-SmartGlass and Cadillac enter the market with SPD. We've seen Mercedes showcase SPD broadly in a concept vehicle and launched architectural retrofit initiatives. We've seen advancement in the Black SPD development. We've strengthened our balance sheet. And our licensees, and I think this is important, are making new investments that are specific to SPD business, and they're moving forward and winning new business. We're going to talk about that later. I'll begin with financial results and our recent financing and then address Gauzy directly and then transition to the significant positive developments that have occurred since our last conference call. For the full year 2025 and continuing in 2026, we remain debt-free. We strengthened our working capital. Our royalties improved when adjusted for onetime licensee events early in the year. And let me now just address our February financing directly because we've gotten some questions about it. And keep in mind, I'm trying to save time by answering as many questions as possible. And I have basically taken questions that have been given to us and included many of them in my presentation. So hopefully, that will allow us to efficiently cover a lot of ground because there's a lot of good things to talk about. As we disclosed in our February 18, 2026 Form 8-K, we completed an oversubscribed $1.1 million private placement at $1 per share with 5-year warrants that are at increasing exercise prices. This offering included credit investors, several family members of one of our directors and also importantly, the owner of one of our SPD licensees, and I think even more significant, the one responsible for the SPD architectural retrofit application. And we all believe that the retrofit represents a potentially very significant market. So when the licensee closes to execution of this invests its own capital alongside long-term shareholders, I think that speaks clearly about their confidence in that opportunity. And let me clarify something that I addressed in prior calls. I had stated that we would not need to raise capital if we were paid what we were owed and if we did not experience additional disruptions and there were several in 2025. And I also said we might raise capital for strategic reasons. In 2025, all of these elements were present. We experienced AGP related developments, Gauzy's French subsidiary rehabilitation process and slower collection of certain receivables some of which are now being collected as we speak. At the same time, we saw expanding opportunities in automotive programs, architectural retrofit, black SPD development as well as new product opportunities. Given that combination, we believed that it was prudent to modestly reinforce the balance sheet. We deliberately kept the offering small and focused and was done at a market price. Participants were long-term holders who, other than our licensee had participated in prior friends and family offerings, including our last one in September 2022. The shares were not registered for resale and are subject to at least a 6-month holding period. We entered 2026 with strength in liquidity and no debt and resources to execute on our business. I know a lot of people have been frustrated by the silence that has been coming out of our licensee Gauzy. So let me now address Gauzy directly. In mid-November, Gauzy's French subsidiaries entered into a court supervised rehabilitation proceeding in France. This applies specifically to the French entities. It does not apply to Gauzy's German SPD film production facility. It does not apply to SPD emulsion production in Israel. However, as one would expect through most business organizations, this filing has had some ripple effects. Liquidity has been reallocated by Gauzy to satisfy the French rehabilitation monitors. That allocation appears to have temporarily reduced access to liquidity in other areas of the company, and Gauzy is actively working to address this. Senior management time and attention is understandably at Gauzy been focused on stabilizing and addressing these matters. In addition, Gauzy reduced headcount. And let me just say that sometimes workforce reductions are never easy, but by adjusting expenses and overhead, it can strengthen the long-term sustainability of the company. These actions by Gauzy appear aimed at lowering operating expenses, reducing capital requirements and moving toward a more stable operating profile for Gauzy. And even in the midst of all of this, SPD emulsion production in Israel and SPD film production in Germany continues. In the midst of this, automotive and architectural development programs continue and expand. Gauzy is reconstituting its Board to restore its NASDAQ compliance. They postponed their third quarter 2025 conference call due to the timing of the French filing. But I think it's important to understand that as a foreign issuer, they are required to file financials only semiannually. And as a foreign issuer, their third quarter filing was purely voluntary and their annual filing is not due until the end of April. So they're on a bit of different as you see reporting schedule than we are as a U.S. reporting company. From our standpoint, we remain in regular contact with them almost daily, production inside and outside of France continues. Program execution continues and progress on multiple fronts continues even during these restructuring efforts by Gauzy and we'll talk about some of those things a little later on in the call. So now let me move from the discussion about stabilization to the acceleration of our business. While restructuring efforts were underway, development did not pause. Since our November call, expansion has accelerated. Ferrari continues to produce vehicles utilizing SPD-SmartGlass. And even though license supplier AGP and their European affiliate, Soliver, both filed for bankruptcy protection in 2025. This had a 6-figure impact on recorded royalties for us during 2025. But we successfully transitioned the Ferrari business to another licensee, Isoclima and even though this transition occurred midyear, Isoclima sales levels exceeded their minimum annual royalty thresholds in the third and fourth quarter of 2025. Maintaining continuity through a supply chain shift requires execution even when one has is zig and zag, and we had to do that. So initially, AGP asked that we transition the Ferrari business to their sister company, Soliver in Belgium. And when some of the key suppliers, not SPD, but just in general, for automotive glass pulled their support they moved it back to their production in Peru, and then that didn't survive, so we had to shift it over to Isoclima. But I think that while that was certainly challenging for everybody, we successfully emerged. And I think it illustrates pretty clearly the strength and the robustness of our supply chain. Moving from Ferrari to Cadillac, they also entered the market with SPD-SmartGlass and the Cadillac Celestiq this year. And the Celestiq is General Motors' flagship ultra luxury vehicle. And it has garnered great industry and press accolades with a strong and positive focus on the 4 quadrant SPD smart roof. It represents adoption by a major U.S. OEM or first, and also validates SPD in a next-generation engineered platform for General Motors. We believe this will result in substantial additional business for us. And it's certainly significant that SPD-SmartGlass was chosen and introduced in European ultra performance and American ultra luxury vehicles. Mercedes also recently unveiled a concept vehicle featuring SPD integrated across much of the car, not just the roof. I think it was 75% of the surface area of the glass. As those familiar with the automotive industry understand, concept vehicles often signal direction. They reflect where engineering resources are being allocated and based upon feedback where marketing resources are deployed and what makes it into ultimately new vehicles. Let's reflect, since our November 2025 conference call, I was the keynote speaker at the Automotive Glazing Summit in Detroit. We now have high-volume quotations on 4 models of automotive -- in the automotive sector. Since our last conference call, we have also started work with a new European OEM. And in addition to those models, which can represent hundreds of thousands of units, we also have specialty programs with potential annual volumes in the tens of thousands of units that recently came on board since the last conference call. The automotive pipeline today is broader than at any point in our history. We'll talk a little bit now about some of the new products and technical advances. SPD Black continues to advance and OEMs have made clear their preference for glazing applications that require a neutral or black aesthetic. Black SPD addresses that requirement and broadens the market. We are also advancing new SPD film variants, optical refinements, IR and UV integration, improved manufacturing and yield and broader access to key ancillary technologies to make a super smart window. These are adoption enabling refinements driven by OEM feedback. And of course, we listen carefully to the customer writing the checks. Moving now to the architectural market. Since our last conference call, we and our licensee, AIT, also known as LTI Smart Glass launched the retrofit architectural SPD product at Glass Build America in Orlando. We have identified 4 initial retrofit projects of different sizes. Each highlights a different advantage of the SPD retrofit system, which is why they were selected. In multiple cases, removing exterior glazing would be disruptive or costly. To give an example, in 1 case, the building is a historically designated building. That project initially specified Sage electrochromic glass, but because Sage and their electrochromics required exteriors removal and replacement and something that was actually restricted because of the historical designation, the project pivoted from electrochromic to SPD retrofit. Instead of replacing the facade, SPD upgrades performance from inside the existing frame. Why is this significant? The installed base of buildings globally is vastly larger than annual new construction. And the SPD retrofit system dramatically expands our addressable market and compressors manufacturing and installation time without requiring facade replacement or structural or occupant disruption. It could stay in the building while they do it. Other projects in the retrofit market also span residential and commercial buildings as well as government installations. And since our product launched last quarter, we are focusing on developing some new and innovative ancillary systems and peripherals for the retrofit application. Joseph Harary: With that, I look forward to answering your questions, and we'll first include some of the questions previously sent in by our shareholders in -- so first, without pulling any punches, here are the additional questions we received that were e-mailed to us. And in some cases, I'm combining several related questions into one. And also, we covered some of these topics earlier, but I thought it would be helpful to you to hear some of the questions and for me to go into more detail. Joe, how concerned are you about Gauzy's French rehabilitation proceeding? What happens if things deteriorate further? Well, that's a fair question. And by the way, all indications are that they're not going to deteriorate further. They're actually improving from where I sit. First, it's important to separate the French subsidiary proceedings from the broader organization. The rehabilitation process applies specifically and only to Gauzy's French subsidiaries. It does not apply to the German SPD some production outside of Stuttgart or the SPD emulsion production operations in Israel. SPD film production in Germany continues and SPD emulsion production in Israel continues. Automotive and architectural development programs continue. Market development and new business development for SPD continues. And yes, the French filing required liquidity allocation and management attention. And yes, Gauzy reduced headcount as a part of the restructuring. But restructuring when done properly, can be very -- a very healthy change that strengthens the company. And we, of course, remain in regular contact with Gauzy and from our standpoint, we see operational continuity and SPD production and program execution. I'm going to take another question that's related to that. Do I have a contingency plan of Gauzy does not perform? The answer, Michael, is yes. We do. We have a plan A, B, C and D. My preference is not to have to use any of those. Another question from Mr. Erdman. What can you say about the war? Well, war is bad. And if I had to say what was the most disruptive thing to our business. We have some key technical developments that are on the verge of happening within Gauzy and we have some key meetings with companies outside of Israel that are going to be scheduled for this month or early next month. And really the limiting factor on both was when are they going to open up the Israeli airspace. Right now it's closed. I heard today, I think it was that they're reopening it on Sunday. In some cases, people outside of Israel at Gauzy had to take claims to other countries, then trains and buses, including a 6-hour bus ride to get home. They're very able to operate in these environments where that happens. So kudos to them for the strength and determination to do that. I got another question. Can you provide a postmortem why we didn't get a business on -- and there's a couple of car models mentioned. This is from Jared. I'm going to talk about three of them that are on the list. The only one I'm not talking about is Mercedes, and that's because of some active discussions going on. But one of them was VW. Why don't we get the VW business or the Rivian business, which is somewhat related since they kind of share a lot of the platforms together. VW initially, with the Porsche Taycan went with a PDLC product. And I don't know why they did. So I can't answer the question, why didn't we get the business? I'm sure that they were told some things about the performance and reliability of PDLC as was these other companies. It's probably interesting to note that they took the PDLC out of the out of the Taycan. So sometimes what's promised isn't always delivered. And the question also said, what about in particularly Corvette? I know the reason it has nothing to do with performance. And as many people on the call may know a company that is a well-known supplier of other products to Corvette asked to supply an electrochromic sunroof. It was announced with a lot of fanfare in August of this year by Corvette, there was some good press accolades. And then they realized that they couldn't produce it in scale, and they took it off the configuration list. Another question I got -- and this is from John Nelson. Is there a possibility that SPD can be used on Corvette roofs as a replacement for the sad option that GM offered earlier in 2025? Well, thank you for calling it a sad option. I don't want to disparate anybody, but I'm just reading literally the questions. So thank you, John. Not that I disagree, by the way. Yes. A matter of fact, I think our chances are much higher as a result of what happened there. I think people realize that what we've accomplished in automotive is unprecedented. We're in 4 different OEMs. That means 4 different quality assurance requirements, 4 different supply chain preferences and we were successfully introduced in series production in all of them. So it's something that I highlighted at the Detroit Automotive Glazing Summit that I was the keynote and Chairman of. But I think now it's becoming crystal clear to a lot of the OEMs, how hard that is to do it, what we and our licensees did and what it means to have a reliable supply chain like we have. Let me go back to some other questions. Do we see stabilization efforts underway at Gauzy? Yes, not only that, but continued execution across all their active programs. And they're making progress and they're fixing what are mostly entirely cash flow issues caused by the French bankruptcy. I think once that's done, everything comes together again nicely. And like I said earlier, we're in very close contact almost daily with them. And we've been trying to help them navigate as best we can through some of these issues, and they're very receptive to that. It's another tough question. When do you expect meaningful revenue growth from these automotive programs? And in general, what gives you confidence that 2026 and beyond will be better? Well, thank you for that. Let me start. Not as an excuse but an observation, automotive integration takes time. You're talking about vehicles that have thousands and thousands parts and purchasing decisions and a lot of that has to be coordinated. Fortunately, we have a couple of things going on. Number one, even though these things take time, we started them a while ago. So they're very much well under way. And also another thing that's extremely helpful, and I think every day becomes clear to the OEMs, our SPD technology has been validated across 4 OEMs. And in the auto industry, that's unprecedented, and we have even more OEMs in aircraft. So I think that, that reliability and continuity and maturity of the technology, I think, has been very helpful. But bottom line is the seeds have been planted, getting back to the question, and they've been nourished and now you're seeing them begin to grow. And really, what matters and why I think this year is going to be different and this is going to continue is the breadth of our pipeline and the engagement of engineering that we have. Today, we have Ferrari and McLaren models in production, we have Cadillac newly entered into production with some legs basically within General Motors, some of which I alluded to earlier. Mercedes showcasing SPD broadly in a concept platform, 4 high-volume quotations allowing us to get our costs down meaningfully. Additional new European OEM programs and specialty programs with tens of thousands of unit potential. And also, I think what's helpful is the new SPD related investment by our licensees. So that breadth is broader than at any point in our history. And that's why I think 2026 and beyond will be different. And as programs move from quotation to production, revenue follows, but not before, not in the automotive industry and not with a licensing model. So we focus on execution and integration, getting it into cars reliably. And then for revenue for us and for our licensees, that follows integration. And that's what we've been doing. It's very simple. Next question. Ferrari's low volume, Cadillac is ultra low volume, isn't this still a niche technology? Well, Ferrari and Cadillac and prior to the Mercedes and McLaren all validated performance of SPD technology and the ability of our supply chain to reliably produce for serial production. I might add, produce for serial production across 4 different OEMs with 4 different requirements and 4 different production processes and 4 different procurement processes, we did it. What matters now is expansion. And we have 4 high-volume quotations in the automotive industry. We also have specialty programs in the tens of thousands of unit range. And we also have broader glazing integration discussions beyond just sunroofs. So the pipeline today is about scalability and not just halo vehicles, it's about cost and it's about performance. And we've always had great performance, but the scalability and the costs are things that we're now showing people we can do. Another tough question, also automotive related. If this technology is so compelling, why hasn't a major OEM adopted across all vehicles already? Well, from your mouth to God's ears that it happens, then it might, and I'll give you an example of why that might happen. But automotive adoption is very model specific, at least in the beginning and very platform-specific. OEMs integrate technology based on cost targets, future positioning and design cycles and also what their competition is doing. But we're now seeing broader glazing discussions beyond just sunroof panels, and that represents platform expansion. And a useful historical analogy is antilock brakes. That began as a very expensive item, I mean a fairly significant percentage of the car. But Mercedes took a risk on that one. And even though it was very expensive, and they put in first and high-end vehicles, it eventually became standard across the industry. And as many of you know, we have very good relations with Mercedes, and we speak to them often. And we have pretty much an insider's viewpoint on how they think about things. And I asked the guy that developed the S-Class. And of course, I met him in connection with our work on the SLK and the SL and then the Maybach and the S class. And we had a lot of discussions. And I said to them and I said, Hans, did you have ready regrets about a decision you made? He goes, well, not about SPD, but I did have one regret. We had developed a dynamic shock absorber system that would take the 6 cameras in a car and feed the data into dynamically changing the shock absorbers on the car. And we wanted to call it either Magic Carpet Ride or Magic Glide Control. It made the car really, really smooth to drive. And one day, Dieter Zetsche walked into my office and said, BMW wants to license it from us. And the regret I made as I said, no, because had I said yes, that would have gotten the cost of that down. And if I got the cost of it down by licensing BMW, so that the unit volumes for our supplier were much higher than it would have gone to other carmakers, too. And then it would have been in every one of our cars. So Magic Ride Control would have been in everything at Mercedes, and we'd have a better performing vehicle. So the thinking is and this happens more than I thought it would, that OEMs do share technology. And when they don't, they regret it sometimes. So in our case, adoption, I think, across every model within an OEM will happen when we address 2 things that we spoke about earlier. Cost and color. We have already discussed the significant progress we made in both of these key areas. Next question, which I asked myself today because I'm an investor is, why should investors be patient? Well, first of all, it's a little easier for me to be patient because I have more information as you'd expect, as to what's going on and what's in the pipeline. But I think if you look at this even from an outside viewpoint, investors should be patient because the infrastructure has already been built. We have invested over $125 million in SPD and its markets. That's done. Because these major investments have been made and validated by significant customers, I think that's another reason to be patient. And diversification has increased. Diversification across multiple OEMs, diversification across now you're beginning to see different places in a car where this could be used, and you'll see more of that. I think we should be patient because production continuity has been maintained. I'll mention it very briefly because people sometimes say, well, why do you talk about the competition? I pay attention to the competition. We've had several competitors go bankrupt. The most recent, which you may not be aware of, was eyrise, which is the company that makes architectural liquid crystal. Not PDLC, liquid crystals. So sometimes, when you see something that looks like SPD, it was the eyrise product in an architectural application or they ended up liquidating. And that was within the last month or so. So it's a tough industry. But I think by being smarter, and not that I'm the smarter one, but just setting up a business that was smarter. We've been able to have that production continuity that no one else has had. New OEM programs have opened. Another reason to be patient because those things are seeds that have been planted that will sprout. The architectural retrofit greatly expands the addressable market. These are all structural developments. And durable growth follows those structural expansions, those foundations that we build. So we've also set the table for lower cost and higher revenues, all without requiring large capital expenditures or erosion of profit margins at Research Frontiers. So we've built strong foundations in their we're green from them. And I think that's why investors should be patient. We've discussed a lot of exciting topics so far today, and I'll now ask our operator, Paul, so please open up the conference to any additional questions people participating today might have had that have not already been covered. And just one caveat. We have covered a lot of ground. The call was running a little bit long because there's a lot of exciting things that we wanted to talk about and share with you. So if we've not fully answered any of your questions, but they've been substantially answered, e-mail us rather than ask it on the call because we want to leave time for as many other questions as possible. So Paul, if you can open up the Q&A for live questions, I'd appreciate it. Operator: [Operator Instructions] And our first question comes from Jeff Harvey an investor. Unknown Attendee: So Gauzy announced a $50 million funding proposal. That obviously hasn't gone forward. At least I haven't seen anything to indicate that the funding has been in place. So that's a little disturbing. The other thing is that...... Joseph Harary: Having -- yes, let me address that first because having cut my teeth on corporate transactions as a lawyer and also as the CEO of Research Frontiers. It's not that it hasn't gone forward, but equity credit lines require a registration statement we filed with the SEC and they go effective. Due to kind of the timing of the year, I believe that Gauzy would have to actually have their audited financials in place in order for them to file that registration statement. So I think -- but I think it's also probably important and I don't think I'm revealing anything that I shouldn't about Gauzy's funding plans. But that's more of an intermediate funding plan. They don't need that much money to execute on their business plan and move it forward. And they have access to more immediate, shorter-term capital. That's meant to take care of some of the debt that they have with a particular lender at a higher interest rate. And it's nice to reduce your interest expense. We don't have any debt, so we don't have any interest expense. But they're a different company, so they do. Anyway, I didn't mean to cut you off. I just wanted to address the question while it's fresh. I think you had another question or comment. Unknown Attendee: Yes. Two other things. First of all, the stock has been under $1 for -- I would think getting to a point where they're going to get another letter from the SEC about getting delisted being under $1, but I also.... Joseph Harary: You're talking about Gauzy stock. You're talking about Gauzy stock. Unknown Attendee: Correct. So I think that's -- and the other thing is I would think that they're not going to be able to pay you on time the way you'd like to be paid until they get their financial house in order. So I would think that your expectations of getting royalty revenue from them, again, are going to be subdued near the near term. And I also..... Joseph Harary: Let me address that while it's fresh. Okay. I'm sorry if it's related. I want to make sure I answer all your questions, Jeff. Unknown Attendee: I would think also that potential customers would be reluctant to want to do business with Gauzy given their financial distress. Joseph Harary: Right. They're all excellent observations. Let me maybe put some color on it because like I said, I've been in very close contact with Gauzy throughout this process since pretty much the day after the filing, the bankruptcy filing. So the first question is, are we going to get paid? And the answer is yes. They have stressed to the French -- remember, we get our funding from 2 sources from Gauzy. Vision Systems, which is in France. Now that's directly under the control of the French regulators. And it's more of a monitor to basically just like internally, we have a list of bills that we had to pay, and my office manager presents it to me as CFO and CEO, and I approve it and our audit committee looks at it and it gets approved and then we pay it. What you're doing is you're adding 1 level on top of that, but it's a bureaucratic level, which is a French bureaucratic official that also has to do that. So it could slow down the process. Our invoices have been submitted. I'm told. No guarantee, but I'm told that it typically takes the regulators 1 to 2 weeks to approve something like that. So we're in the queue. As far as post filing things, that's a little smoother because really what they do is they treat prefiling obligations a little bit differently than they do post filings. And November 13 was the prefiling -- was the filing date. So anything that existed, which is about half of our receivables from Gauzy, and from Vision Systems rather, is subject to the French regulator. And the other half is ongoing in the queue for payment. As far as your other question, and it's an excellent observation, are they experiencing any customer concern about their finances? And Jeff, that was the first question I asked them too. Is anybody concerned about your viability or -- said, no, Joe, they're not. We are -- I mean, I'm more focused on SPD film and emulsion obviously. But company-wide, I think when you consider that the flow of revenue and product sales is coming out of France and it's coming out of everywhere else in the world, the customers are continuing to buy. And these are -- some of these are very long-term lucrative contracts that Gauzy has. So because they're long term, the customer has to buy from them and they have to supply and the challenge is, do you have the liquidity to supply what's a very large backlog of orders. And part of this I mean, I'll tell you 2 things. Number 1 is, the backlog -- Gauzy was on track to meet their projections for 2025 until the labor unions initiated this reorganization or rehabilitation proceeding. Then everything stopped because all of a sudden, you have to go through the monitor process to get paid if you're a supplier and it's not just us, it's people that are supplying glass and plastic film and cameras and everything else that they use in their systems. So it's very important to get that restarted quickly, especially since the backlog was tens of millions of dollars of product sales that were profitable. So Gauzy, I think, did what they needed to do, which is they reallocated some capital and some liquidity from other areas of their company to get that flowing quickly because those have longer lead times. And of course, you have the steady-state stuff for research frontiers and other licensees with the SPD emulsion and film. And I'll tell you, yesterday, I was speaking to the CTO of Gauzy and they're producing emulsion. It's ready to go. And they get it over to Germany. Probably after Sunday, it will be a lot easier when they open up the air space. But prior to the word they were getting it too. So it's not -- it's a little bit of a blip. But obviously, you want to see blips as possible. At some point, I imagine, given what Israel has gone through with 2 wars in May when I was there on 7 different fronts. And now this war with Iran, they may very well move a lot more of their emulsion production over to Germany so that -- and their people so that you have less concern about air spaces opening and closing. But I think we're on the tail end of that kind of disruption. So I think we're good. Operator: And our next question comes from Mike Forrester, an investor. Unknown Attendee: My question arises out of the third quarter report of Research Frontiers. And in light of everything you've said about how positive our whole situation is. It leads me to wonder why do we have a capitalization in January at basically $1 a share plus opportunities to buy more stock at $1.10 a share with a selective group of investors, including family members of a director when at the end of the third quarter report, it said we currently expect to have sufficient working capital for more than the next 5 years of operations. End of quote. So how do you justify that? Joseph Harary: Sure. Michael, thank you for bringing that up, and I appreciate the question. So as I mentioned earlier, there was a qualifier on that, which is assuming we get paid what we're owed and assume there's no more supply disruptions because we had one in the second quarter with AGP, as you know. And also for strategic reasons. And what I said earlier in the call, I'm not sure if you were on it, is all three of those factors were present here. Now you asked about directors participating or their family members participating. That was basically the terms were set not with the directors, obviously, they were set with the large investors, the anchor investors that were much larger investors in this offering. And then we were asked, "Hey, why don't you have a director participation in this?" And I said, "Guys, we already circulated our 10-K internally." No company in the world would allow a director to buy stock once that happens. We're closing on this deal. If there's people who know that want to participate on these terms, which have already been set, they're welcome to come into this. And I'll say this to any shareholder out there. Where do these friends and family investors come from? A lot of them had amassed large positions in Research Frontiers and wanted more. And because they have large positions, they would call me throughout the year, throughout the years, I got to know them. Most of the people in this round had invested in the last round, which was in September of 2022. So I knew them there. And they had invested in the prior rounds and the prior rounds and the prior rounds. So these are long-term shareholders. And maybe just to kind of put a color on this, if anybody out there is interested in participating in one of these things, assuming we have to do one again, maybe it's a couple of years before we do it or maybe it's sooner if isn't an acquisition we want to make or a marketing program we want to launch or something like that. Let me know when we're talking, I'm happy to put your name on a list, and we could always figure out if it makes sense for you. But it's not meant to exclude anyone. But these are people that we know and trust. And just to put a little more color on it, in September 2022, the stock that everyone got had a restrictive legend, meaning you cannot sell it in the open market as long as this legend is on the stock certificate. And even though they could have taken that certificate legend off 6 months after the September 2022 offering, nobody in that offering did. So these are long-term holders. And we appreciate that because that's how you get rewarded with a company like this, which has relatively long development cycles with customers in automotive and an aircraft, I think everyone that works in that industry kind of knows about the development cycles. But that's why we did it, and that's why we did it with the people we did. And if anyone is interested, love to hear from you. I can't promise you we're going to do this again. But if we do, and things make sense, we certainly would consider you. Unknown Attendee: Well, it's not just with respect to there being recapitalization, although the third quarter report does mention an expectation that there wouldn't -- this wouldn't happen for 5 years. But....... Joseph Harary: But if you listen to the conference call..... Unknown Attendee: Hang on. Joseph Harary: Okay. I'm sorry. I didn't mean to interrupt you. Unknown Attendee: Well, it's the timing. I mean you're giving us all this glowing information about how Gauzy's situation isn't as bad as the press, so to speak, present it to be. And I'd love to believe that because I have stock in Gauzy as well. But they just filed the bankruptcy or thrown into bankruptcy in mid-November, and here it is January, less than 3 months later that with Research Frontiers' stock plummeting just as Gauzy is plummeting, the offer is at $1 a share. When you talk about '22, I think it was like $2.30 a share and with better warrant rewards for those who reward to the company in terms of the total income. I question the timing, why not wait at least until May. We had at least 12 months before -- according to the latest quarterly report that we have cash and cash equivalents to take us at least 12 months. While this timing is like you're giving a gift to people who may not need that gift. . Joseph Harary: I'm not giving a gift to anyone. This is an investment. But I will say this. Listen to what I said, please. If we were paid what we were owed, and we didn't have any supply disruptions. Two things that didn't happen, by the way. We did that -- we weren't paid what we were owed and we'd have supply disruptions, okay? And if we had a strategic reason, we would do another one. So here we are in March. We have something sitting at a French regulators desk hoping that it gets paid today versus tomorrow. And I don't think anybody on this call would want Research Frontiers to not have the liquidity to execute on our business plan. So I'm thinking about the long-term shareholders and the execution of the business plan and capitalizing on the successes we've had in multiple markets and something no one else has done. And I'm not going to sit there and roll the dice with your money or my money and hope that I get paid on time or hope that there's no more supply disruptions. You wouldn't want a CEO of your company being that reckless. Unknown Attendee: One last question then for you. In light of what you're predicting is when you get the money and so on. Are you going to put out a press release of how things are going so that we might know? Joseph Harary: Yes. We typically don't put out press releases unless there's a specific event like the launch of the Celestiq was a specific event or a major nonfinancial development, but the financial developments are on a cadence of being announced quarterly. And our next quarterly conference call is in the beginning of May. It's not that far off the way that the SEC filing schedule falls, early May is when we typically have our first quarter call. You might see it then. Unknown Attendee: So by then, we should know whether or not Research Frontiers has got its licensing fees from the bankruptcy monitor, right? Joseph Harary: Yes. Yes. I think you'll see a change in our receivables when that happens and in our cash position. And that's not too far off. So financial results, we don't announce in between quarters, but it's close enough where you'll know about it soon enough, I think. Operator: And our next question comes from John Nelson, an Investor. John Nelson: Joe, just a couple of quick questions. You mentioned 4 projects with the retrofit window. Do you have -- can you give us any idea as to how soon any of those could start? . Joseph Harary: I think they -- I mean, they've already started. I mentioned earlier that we're working on some peripherals that go in conjunction with the retrofit window. The retrofit window is a very solid developed product. But now think about any kind of smart window. You're going to want to have ways of controlling it in a smart manner that hopefully will be just as easy to install and integrate as the glasses. So that's one of the things that we're actively working on together. That's LTI and Gauzy and Research Frontiers and the customers to give them a choice. So that's basically what it is. And we've selected different types of projects because I view these not only as revenue sources. I'm not worried about revenue on this. Revenue, when we decide that we're going full force with this, and we have these peripherals all done. AIT has the capacity and the customer base to do this quite quickly without buying a Super Bowl ad or anything like that. But I also want to have white papers so that the architects could get their ideas as to, hey, why would I use this? In some cases, it's obvious. I have building facility management, building envelope issue that I got to deal with. I need glass on the outer skin of the building, but what about things like one of the residents has, I think, 30 or 40 interior windows that to take out the glass and put this in, it's a residential project would be very disruptive to the tenant and very expensive, whereas we could just pop it in and be done with it. And so it's a matter of creating proof points there. John Nelson: Yes. Successful application will create awareness, more awareness...... Joseph Harary: And good news, John, I think -- the good news, John, is that in the architectural market, we have a lot more control over that good news getting out more so than an automotive aircraft where you're somewhat beholden to the OEM. Here, the architects and the homeowners like to brag about what's in their home unless they're rushing oligarchs or something that are trying to lay low. And we've had that happen, too. John Nelson: Okay. And second question is, has Ferrari expressed any interest in expanding the SPD roofs to other models? Joseph Harary: They have. I can't talk about the specifics on that, but they make a lot of money on the [ option ], and they're thrilled with the performance. I mean it has the performance of Ferrari. So what wouldn't they like about it? Operator: Our next question comes from Art Brady, Investor. Art Brady: Basically, I'm interested in learning a lot more about what is happening with the GL project, the Korean company that concentrates on building kiosks? Joseph Harary: I'm not going to talk about a specific project. And I don't think, given that this has been an hour phone call, we should probably spend a lot of time on specifics. But Art, I know you try to reach me earlier in the week, and I typically don't answer shareholder calls right before the SEC filing because I don't want to get any shareholders in trouble, but feel free to call me tomorrow, and we could talk about that. And if you have -- I know you're a resourceful person, you might have some thoughts on that. I'd like to now maybe make some closing remarks. Look at the fact that Ferrari and McLaren have their production continuity going on in Cadillac entering the market and Mercedes integrating SPD broadly in a concept that covered 75% of the car, not just the sunroof and the expanding OEM quotations, high-volume quotations that helped us get the cost down significantly and Black SPD advancing and the architectural retrofit launching and the strengthening of the balance sheet and new investments by our licensees and SPD equipment, and in one case, a direct investment in research frontiers to the friends and family offering. You don't see a static company, you see a foundation that's been built and a technology platform that's being embedded in many of the different places. It's being embedded across geographies worldwide. It's being embedded across vehicle segments. It's being embedded across applications. And the major investments have already been made and the infrastructure has been built. And we've always had the best performance of any SmartGlass technology, and SPD continues to deliver industry-leading performance. And cost and color are being addressed and diversification has increased. The breadth of engagement today is stronger than at any point in our history. And when you connect these developments together, you see a business that is no longer dependent on a single vehicle or a single OEM or a single customer in general or a single market. And we believe all of this positions research printers for durable, diversified growth as these programs mature and enter the marketplace. With that, I want to thank everyone for their participation in the conference call today. If we haven't answered your questions, feel free to e-mail me or call. We try to do the best we can to respond quickly. And I look forward to sharing more upticks with everyone. Operator: This concludes today's conference call. Thank you for attending.
Operator: Good afternoon, and thank you for waiting. Welcome to Rumo's Fourth Quarter 2025 Earnings Presentation. [Operator Instructions] This presentation is being recorded and simultaneous translation is available by clicking on the interpretation button. [Operator Instructions]. Before proceeding, we would like to reiterate that forward-looking statements are based on Rumo's Executive Board's beliefs and assumptions and information currently available to the company. These statements involve risks and uncertainties as they relate to future events and depend on circumstances that may or may not materialize. We recommend that you refer to the disclaimer on the second page of the presentation. Now I'll turn the conference over to Mr. Felipe Saraiva, Rumo's Head of Investor Relations. Mr. Saraiva, you may begin the presentation. Felipe Saraiva: Good afternoon, everyone, and thank you for joining Rumo's earnings conference call for the fourth quarter of 2025. Let me start with the highlights on Slide 3 of the presentation. We closed the quarter with transported volume of 22.9 billion RTK, the all-time high performance in the fourth Q. For the full year, volume increased 5% as a result of structural gains in capacity and operational efficiency. The combination of higher volumes and disciplined execution with lower costs and expenses allowed us to maintain resilient margins. I would like to highlight the 11% nominal reduction in unit fixed costs. showing better productivity levels. Adjusted EBITDA reached BRL 1.8 billion in the quarter, an increase of 8% year-over-year. Investments were BRL 1.5 billion in the quarter, in line with our planning for the period. Financial leverage at the end of the quarter was 1.9x the net debt to adjusted EBITDA ratio, stable compared to the previous one. Moving to Page 4, I will present our market share in the quarter. Our market share remained at consistent levels, reaching 48% in Mato Grosso, 36% in Goias and 65% at the Port of Santos. It's important to note that the fourth quarter had an exceptionally high comparison base for market share. In the fourth quarter last year, export volumes were unusually low, which temporarily increased our market share in that period since we booked our capacity at the beginning of the season. Throughout 2025, we observed a normalization of the market dynamics with market share returning to more normalized levels since the second quarter of the year. Now moving to Page 5, I will share more details about this market dynamic in the Santos corridor, which is our main market. Let me start by reminding that the railway capacity is shared between the Goias and Mato Grosso markets, functioning as a system of communicating vessels. Grain exports in these markets increased compared to 2024, although still below the peak observed in 2023. In this scenario, we expanded our market share compared to 2023, supported by the efficient use of our capacity. I would like to highlight the operational flexibility of the railway with the simultaneous transportation of soybean, corn and soybean meal throughout almost the entire second half of the year, maximizing the use of our assets. In the soybean complex, we recorded volume growth and market share gains compared to the 2023 [ co-crop ]. In corn, the record production was more directed to the domestic market with higher carryover inventories at the end of the season. The railway remains the dominant transportation mode at the Port of Santos, reinforcing our key role in the transportation of agricultural commodities from the Midwest of the country. Moving to Page 6 with the operational indicators. We increased volumes in the Northern operation by 14%, which means more trains running throughout our system. Even so, we maintained stability in our main operational indicators, including transit time and dwell time at the Port of Santos. Regarding energy efficiency, we reduced fuel consumption by 2% with good performance in both the Northern and Southern operations. On Slide 7, I present the operational results and volumes. In the Northern operation, I would like to highlight the strong performance in grains with the simultaneous transportation of the 3 commodities and growth in almost all commercial portfolios. In the Southern operation, we also delivered a quarter of growth with highlights in the agricultural commodities portfolio. Moving to Page 8. Let's look at the highlights for revenues and tariffs. In the fourth Q, we continued the commercial adjustment that started in the second quarter of the year. It's important to remember that the 2024 comparison base reflected a scenario with higher expectations for the corn market, which did not materialize over the last 2 seasons. In this context, transportation prices are now reflecting more closely the actual dynamics and seasonality for our markets. I would like to reinforce our commercial strategy of maximizing value through the efficient use of our capacity. On Page 9, I present the quarterly EBITDA. EBITDA increased 8% in the quarter, reaching BRL 1.8 billion. In the Northern operation, the better performance in fixed costs and expenses in addition to tax-related benefits of roughly BRL 80 million helped to support stable results even in an environment of adjusted prices. In the Southern operation, the higher transported volumes offset the lower average prices during the quarter. In addition, we had tax benefits of roughly BRL 44 million, which also contributed to the quarterly performance. Moving to Page 10, we present the financial results and net income. Net financial expenses in the quarter were BRL 721 million, mainly reflecting a higher net debt base and interest rates. Even so, we delivered adjusted net income of BRL 441 million in the quarter and BRL 2.1 billion in 2025, both growing year-over-year. On Slide 11, we move to debt and leverage. The net debt at the end of the quarter was BRL 15.5 billion, reflecting the cash generation during the period. The financial leverage ratio was 1.9x, the same level as the previous quarter. Our liquidity position remains strong with BRL 7.5 billion in cash position at the year-end and a well-distributed debt maturity profile. As presented in the chart on the right, we have no significant maturities in 2026 and 2027. Additionally, we have BRL 2.7 billion in committed credit lines that remain undrawn. On Page 12, we present investments in the quarter. We invested BRL 1.5 billion in the quarter with BRL 490 million in recurring maintenance and BRL 973 million in expansion. At the Ferrovia do Mato Grosso project, we have accumulated roughly BRL 4 billion in investments since the beginning of the construction, with 80% of physical progress at the end of the year. Now let's move to Page 13 with an update on the soybean market. In the state of Mato Grosso, production is estimated at 52 million tons. Harvesting is progressing normally in the region, slightly above the historical average. Exports from the state are expected to be slightly higher than the last year with an estimated 33 million tons exported. Moving now to Page 14 with the corn outlook. Corn production in the state of Mato Grosso is expected to remain at a high level, close to 60 million tons. The expansion of planted area by roughly 400,000 hectares supports strong agricultural production levels in the state. The corn Safrinha seeding pace is also slightly faster than the historical average. Exports from the state are estimated at roughly 24 million tons with strong production levels offsetting the increase in domestic demand. This concludes my presentation, and we are now available for the Q&A session. Thank you. Operator: Joining us today are Mr. Pedro Palma, Mr. Guilherme Machado and Mr. Felipe Saraiva. Before we begin the Q&A session, Mr. Pedro Palma would like to say a few words. Please go ahead, Mr. Palma. Pedro Palma: Thank you. Good afternoon. Thanks for joining us on Rumo's earnings release call. I'd like to start by reiterating that 2025 was a solid execution year in our operation. We have proven our ability to break records and show our resilience and flexibility to navigate through different market scenarios. As Saraiva said, for instance, we had to operate products such as soybean, corn and soybean meal simultaneously during the second semester. We also made significant progress in our efficiency agenda, both energy efficiency, proving the value of rail engineering and the use of technology that have allowed us to use 135 cars in the North operation improving the whole logistics network and reducing fixed costs and unit SG&A, showing our discipline in reducing company costs and also improving structures and processes. These are inherent values to our culture, and they will continue to be strengthened looking forward. According to our plan, we also made all the planned investments for the year. I'd like to highlight the progress in Phase 1 of the Mato Grosso Railway as we announced in the material we shared with you yesterday. So 80% physical execution halfway through the year and on track for what we had mentioned. The main challenge in the year, and this is no secret to you, was the market environment. We had to do some tactical price repositioning, especially in the grains market, and we concluded that repositioning now this quarter in 2025. To remind you of what happened in the tariff scenario and providing a bit more detail on the North system, we increased prices by approximately 70% between '22 and '24. When we started '25, in the first quarter, we realized that we were too expensive compared to other logistics alternatives. So we had to do some pricing repositioning to adjust our pricing level to market levels to make sure that we could continue to be the best, most suitable competitive solution to be the first choice in logistics for the clients and markets where we operate. We're confident that now we are at a more suitable pricing level. We're working on our value creation -- long-term value creation agenda at the company using our available capacity intelligently. And we also believe in the positive structural side of our market. Rumo is a single logistic platform because of the position of our railway and our terminals, and we operate in the best markets such as Mato Grosso and Goias, where there's growing demand and Rumo has the ability to lead in logistics solutions to meet that demand. One point I'd like to mention is safety, which continues to be a nonnegotiable value to us. In 2025, we restructured all of our safety and security process management. We reduced our incident frequency rate by 40%, both with lost time and no lost time and safe operations are productive operations. We still have some work to do. For instance, the rail security, there have been some events. You may have seen it in the media in the second half of the year. We did have a couple of events that led to a rail incident frequency above what we had expected. But rest assured that all of the events have been analyzed in depth and all the lessons learned have been brought in-house and there was nothing structural in common among all those incidents, but each one of them was a lesson learned that will make us more resilient, more safer and more secure. As I said, safety and security is not a priority. It is a value that we will always continue to pursue. And as for the bottom line, I'd like to reiterate how solid our balance sheet is. We have been efficient in raising funds in the financial market. We raised close to BRL 4 billion in new funding lines, reimbursed credit lines or undrawn credit lines, which ensures financial instruments at a very competitive cost and with a long-term maturity profile. So that will allow us to manage any turbulences with peace of mind. So the company is concluding the year with a very solid balance sheet, relevant operating indicators, very liquid cash position and a great position in terms of investments execution profile. Looking forward, before we move on to the Q&A session, you've seen our volume results in January and February. We started off the year with solid volumes in both operations, both North and South, which makes me excited and confident with regards to the plan we'll be executing on in 2026. And absolutely sure that the company is ready to continue with its agenda to execute and profit from the investments that are being made. Now let's move on to the most interesting part of the presentation, the Q&A. Myself, Guilherme and Felipe are here to take your questions. Have a great afternoon. Operator: [Operator Instructions] First question is from Mr. Lucas Marquiori from BTG Pactual. Please go ahead, Mr. Marquiori. Lucas Marquiori: Based on your disclosure and your comment on the pricing repositioning, Pedro, I understand that you've concluded the tariff repositioning process. So what exactly does that mean now going into this new year? What kind of tariff competitive process are you considering for the Q1 or first half of the year? We've seen road transportation now coming to life, especially at the beginning of the year. So I'd like to understand what your commercial dynamics will be in terms of tariff repositioning that you mentioned for Q1 and Q2 so that we can model it. Pedro Palma: Lucas, thanks for the question. This is Pedro. I'll take your question. Well, we concluded repositioning in this last quarter because we had reached the execution and pricing level that would attract the volumes we expect. So what does that mean for 2026? Let me try and explain. In Q1, obviously, you know that there will be a price reduction compared to the first Q '25 because we started repositioning in Q2 '25. So the comparison basis with Q1 last year is not a great comparison basis. And we said that before because we were clearly outside the right pricing level according to market levels. Now to be specific in terms of what we expect to show in Q1 '26, there will be a price reduction compared to the amounts we were operating with in Q1 '25, that will be just over 10%. So obviously, that will depend on the execution. We are contracted, and that's another point. We are contracted for the whole of Q1 and practically Q2. But in our execution, there is a mix of regions, mix of clients, mix of products that may affect the end price level. But the pricing level that you will see when we publish our -- when we post our results for Q1 will be roughly a 10% reduction compared to Q1 '25. Now moving on to Q2 and consistent with what I said that we started repositioning in Q2 then things, prices should become more stable, which goes to my point, that's when we'll conclude the pricing repositioning process. So all the price changes that we did in '25 were enough to balance our competitive positioning, both -- so I'm not expecting any great pricing variation in terms of Q2 last year. And we have also been able to contract prices for Q1 that are very healthy. Obviously, there was some carryover to the beginning of '26 at the end of the year, but it was the risk of contracting the discussion with our clients in a very healthy environment. And it was all very natural. Also looking at Q2, Lucas, obviously, the second half of the year actually. As you know, those dynamics will depend on the corn dynamics. Corn tends to be a more uncertain crop. So obviously, that means a bit more -- a bit less contracting from clients. So for the second half of the year, we still have relevant volumes to be sold, but we are at a comfortable level for the second half of the year. And in terms of pricing, they are balanced with our prices in 2025, once again, reiterating, and that's why I made that statement. I consider the repricing to be concluded not only because we had reached the right price, but because contracts are coming at the pace that we believe is consistent with what we expect in order to execute on our plans. So the first half of the year is solid. We've made good contracts on track with the prices that we had planned and at price levels that we believe to be suitable for the second half. Everything we've already sold has been sold for the right prices, in line with what we executed on in 2025. And the continuation of the sales process will depend on time the sale dynamics, what happens in the market and our crop projections and our competitive positioning in the logistics market. Operator: Next question is from Mr. Andre Ferreira from Bradesco BBI. Andre Ferreira: Pedro, Guilherme. Thank you for providing us with more on that second question. In terms of CapEx. Could you tell us what the CapEx for 2026 might be and how it will be distributed across your main projects? And what are your expectations for the second phase of the Mato Grosso expansion? Guilherme Lelis Machado: Andre, thanks for the question. This is Guilherme. For 2026, we'll continue with our investment portfolio at the level we had planned. Obviously, the company has been watching market movements in terms of cash generation and cash consumption. We did make an adjustment, and it means that the CapEx level we will be executing in 2026 will be less than the 2025 CapEx, but higher than the 2024 CapEx. So it will be between those 2. And obviously, we'll continue executing on the company's main projects. As we had been saying to you, this will be an important year for us. We'll conclude the Mato Grosso Rail Phase 1. We're going to conclude the main milestones on the tracks and the terminal. We'll also continue with our investment programs in maintenance, which is roughly BRL 2 billion. We're also investing in rolling stock to meet the volume increases that will take place in our operation and -- we also have some investments in our operation as a whole, which includes the construction work schedule in the Paulista network, investing in Fips around the Port of Santos. These are all very important continue to increase productivity in our operations. So as I said, our CapEx this year will be less than last year's, but we won't lose traction in our projects. Let me just say that at that CapEx level, I'm sharing with you now, will include the conclusion of the first phase of Mato Grosso. We haven't planned anything for Phase 2 of the Mato Grosso rail yet. That's under discussion. The company is looking into it, but we don't foresee any investments in the second phase yet because we're still assessing the project. but we are keeping to our schedule. We do have flexibility in that contract, and we are complying with all the metrics in the project. Operator: The next question is from Mr. Guilherme Mendes from JPMorgan. Guilherme Mendes: Pedro, Guilherme, Saraiva. The first question about the contract phase in the first half of the year is very clear. Now in order to understand things in the context of the conflicts in the Middle East, we know that, that's an important region for the demand of Brazilian corn and fertilizer imports. Now this conflict started a few days ago. Have you noticed any change in the pace of contracts for the second half of the year? And maybe looking at the future, how much do you think this conflict might impact on the volume to be contracted for the second half of the year? Pedro Palma: Thanks for the question Guilherme. This is Pedro. Let me answer your question. First of all, the Middle East in terms of operational continuity and supplies is not relevant. So it doesn't mean any relevant risk to our rail. So I just wanted to reiterate that we're not concerned about that. As you put very well, Iran's relevance more specifically in the Middle East, the Brazilian agricultural market finds it relevant in terms of corn export as a destination for the second half of the year. It is relevant. Iran is for the Brazilian corn. It does vary from year-to-year. Last year, they bought a lot, 9.5 million tonnes. The year before, it was 5 million tonnes. So corn has a very capitalized, very fragmented market by nature, which is different to soybean. China is the main client of the Brazilian agricultural soybean. Corn is more capitalized. But Iran is a relevant destination for corn exports. But again, it's a relevant player for exports in the second half of the year. So to be very transparent, my crystal ball is as good as yours. So we're going to have to monitor things to understand how long this conflict will last, what kind of an impact it will have. Looking at current data, historical data, I wouldn't say that it won't cause any relevant problems to Brazilian agriculture, but we'll have to monitor the situation. Obviously, ourselves and the whole market will be monitoring it. As you said, Middle East also supplies some fertilizers to Brazil. And those global logistics networks, they end up changing when those impacts happen. The resilience in global commodities is considerable. You can have an impact on the cost of commodities on prices, but markets that need that product will find a way to meet their needs. So to us, we believe the company's figures will materialize. But obviously, it is a relevant conflict, and we'll continue to monitor it. But right now, we don't believe it's going to be a major problem. We're not terribly concerned about what's happening there and its impact on the company. Operator: Next question is from Mr. Gabriel Rezende from Itau BBA. Gabriel Rezende: Pedro, Guilherme, Felipe. I have a follow-up question about geopolitics, but it's more about fuels. It's clear that Petrobras' pricing practices parity are quite detached now if there is a price adjustment on internal fuels, what do you think is going to happen? If fuel prices go up, do you think there will be more pressure on the margin considering the company is contracted for Q1, but will you consider more take or pay for the second half of the year? How do you see that dynamics? Do you think it could be a net positive for the company? And will it help offset the effect you just mentioned on fertilizers and corn exports. Felipe Saraiva: Gabriel, this is Felipe. Thank you for your question. The impact on Rumo will be mainly diesel. That's the first point we should clarify. We need to look price fluctuations in oil tend to affect diesel prices. So how does pricing dynamics work for Rumo? All volume margins that we have with our clients, both to transport general cargo or grain transportation have a protection mechanism. So we can pass on any fluctuations in the price of fuel. So for the whole volume that's been contracted, we are not exposed. We have a natural hedging mechanism that protects the company's margin in terms of passing on the price. Obviously, that will depend on market conditions. If fuels become more expensive, then rail becomes more competitive because the energy efficiency is better than other corridors that depend on road transportation. If it's not clear, let me know, and I'll try and rephrase my explanation, but that's how we see the fuel dynamics. Operator: The next question is from Mr. Rafael Simonetti from UBS BB. Rafael Simonetti: Pedro, Guilherme, Saraiva. It's about working capital. Now looking at 2025, there was a significant variation compared to 2025. Could you please comment on the main factors that explain that? And also what we can expect for 2026. Guilherme Lelis Machado: Rafael, this is Guilherme. Well, from quarter-to-quarter, there's always some phasing -- sometimes they haven't materialized or they are materializing in terms of cash conversion. And there are many topics, but if I focus on, one, the activation of some extemporaneous tax credits that we had over the year. And the monetization dynamics wasn't exactly as it's passed on to the results. So suppliers, clients dynamics are predictable. We know how they work. It's all very healthy. And there are some specific elements that took place that led to that mismatch, but nothing concerning or nothing that changes the dynamics of our working capital dynamics? Operator: The next question is from Mr. Bruno Amorim from Goldman Sachs. Bruno Amorim: I have a follow-up question about the Mato Grosso extension, please. Over the year, how can the extension contribute with volume? Do you think it can make a relevant volume contribution over the year? And for the next years, how are you going to ramp up the use of that capacity? In terms of Mato Grosso. If you're not going to invest in Mato Grosso Phase 2, and you were going to spend about BRL 2 billion a year on the expansion, then there should be a BRL 1 billion reduction in this year's CapEx compared to last year. I know that there are many moving parts, but -- your CapEx is pointing to a CapEx that's closer to BRL 6 billion than BRL 5 billion. And if we take away BRL 1 billion from last year's CapEx, it will be closer to BRL 5 million. So if you can help us reconcile those points. Maybe there's another project that's ramping up this year. Unknown Executive: Bruno, thanks for the question. As for the first part of your question, yes, the beginning of operations of Phase 1 will happen in Q3. Then we'll have the commissioning phase, the beginning of operations. We'll do it gradually, and we'll be very careful about it. We'll begin to move some volume at the BR70 terminal more consistently in Q4. And the main thing is that the company's current capacity would already be enough to move all that volume that will transport in 2026, which will be more than 90 billion RTK in terms of where we want our operation to be. So the terminal will make its contribution. However, it won't bring any substantial additional capacity. So the portfolio we have right now would be enough for the volume. Now as of 2027, yes, there will be more of an inflow to that terminal, and it will grow as the market grows. Let's not forget, there are 10 million tons, and we want to fill up that capacity. And the volume of our operation should be at the same level as the market grows. Now in terms of our investments, yes, we will continue to make major investments in the company to conclude Mato Grosso Phase 1, that will be roughly BRL 1 billion. approximately. And as I said previously, we'll continue with our plan to make recurring investments in maintenance that will be BRL 2 billion. And there is an increase in investments in rolling stock that's considerable. Over the last few years, we have been increasing our asset pool, but in structures that weren't necessarily the direct use of company funds. We did establish partnerships with clients. We will now resume investments in rolling stock using company capital. Now also to pay for the Paulista Network program, we'll also need to increase investments. So it's not a straightforward math. In our investments mix, there are also increases in other investments in the portfolio that have placed us in that position between '24 and '25. Operator: The next question is from Mr. Rogerio Araujo from Bank of America. Rogério Araújo: Now still on your tariff repositioning dynamics. If I could ask a couple of follow-up questions. First, if you hadn't repositioned your prices, would those volumes have left through other corridors, or would it have stayed in Mato Grosso? Second question, could you talk about Rumo's rail gap compared to other transportation mode alternatives, other corridors? And also what kind of freight price floors can we consider. What would be a level that would make the company comfortable to believe that you've reached the right level. Felipe Saraiva: Rogerio, this is Saraiva. Thank you for your question. It's hard for the company to try and work out in hindsight what would have happened, what would have happened if we had positioned it this way or that way. I can tell you what we did do, what we looked into and what variables we took into account. We started 2025 with the company more expensive than other companies in Mato Grosso and around Mato Grosso. We are more expensive than other logistics solutions. So as we said, we repositioned it by roughly 10% as of Q2. Once we repositioned the prices, our market share level normalized, and that's the indicator that the company prices are now level with market levels. If prices were below -- too far below the competition, then that market share might have been much bigger than it was. So the way we look at it and what we estimate for -- from the competition and what we want in terms of market share for the company suggests that we are at an average competitive level in terms of origins in Mato Grosso. Now for 2026, looking at the first half of the year, it suggests that our price is competitive, and they were good for the clients that decided to use rail transportation. If there's any need to change tactics, the company is always open. We are consistently monitoring the market to position rail transportation competitively. That is the priority. We need to make sure that we are occupying our capacity efficiently and always fitting it with the market reality. If there are capture opportunities in the market, we'll capture them like we did last year. If we need to reposition again, we'll keep an eye out for that. That's it, if you'd like anymore explaintions, we'll be here. Rogério Araújo: That's very clear. Operator: The next question is from Mr. Daniel Gasparete from Itau BBA. Daniel Gasparete: I have a follow-up question to Pedro's comments. I just want to double-check the number. Did you say 10%, a little bit less than 10% for Q1. So I just want to double-check that. And then I'd like to talk about the West Network. How are discussions going? And the last one, if I may, is a bit more qualitative. How are you thinking in terms of commercial policies? Saraiva's comments were very clear. And based on what Pedro said, last year, the company had higher prices than other modes of transportation. So how are you thinking about your prices prospectively to protect yourselves from movements like that in the future? Or is it just a price sake, that's the reality of life, and you need to optimize what you can in terms of cost? Unknown Executive: Thank you for your questions, Daniel. Now I'm going to answer your question about the West Network. Now to be transparent, we've been saying this to the market, and we've been discussing it with the government. And the natural way forward would be to return the asset to the granting authority. That is a concession that we have been aware that hasn't been operating at the right level. We reconditioned the last operation we had in the West Network. Right now, that operation has basically been interrupted. There are no volumes being transported. The last contract has terminated with the last remaining client. We're not allocating any funds to that operation. So the next natural step will be to continue to talk to the government to formally return the asset. And we are doing our best to move diligently in that process. There are no news, nothing new to share with you, and this should happen this year. And the contract will end halfway through the year. So we're not allocating any funds to that network. We won't be allocating any funds as of the second half because the operation has been suspended. So we'll now just formally return the asset to the granting authority. Pedro Palma: This is Pedro now, Andre. I'll take your question about the commercial policies. Just to clarify my comment just over 10% price reduction in Q1 2026 compared to Q1 2025. I'm talking about the North operation consolidated yield specifically, which is the most relevant piece of data in our balance sheet. So that's it. The RTK in North operation in Q1 '26 compared to Q1 '25. In terms of our commercial policy, Daniel, to be very candid with you. I used the expression tactical readjustment, tactical positioning because our strategy hasn't changed. We haven't changed our commercial policy. Our policy has always been and continues to be the most competitive logistics solution or competitive in markets where we choose to operate to ensure that we can use our capacity efficiently and intelligently. That allows us to be the player with the lowest cost to serve with the best capacity and the most resilience in the system, connecting Brazil's main export corridor, which is the Port of Santos. So we'll maximize value creation in that structure is key. What we did in 2025 and when we say that in Q1, our price was wrong, that was actually -- just to go back a bit, we came from a crop failure in 2024. So the information about the right price for 2025 that we knew was going to be a year where there would be good product supply for exports, but it was uncertain. Nobody knew. The market didn't know. We didn't know exactly what the pricing level would be for logistics in Mato Grosso and what level it would become stable in 2025. So Q1 was necessary to find out what the new logistics price would be. As we found out what this new pricing level would be, we've made the adjustments -- there were complexities, but we have been doing it throughout the year. In 2025, we had very healthy volumes. We delivered very consolidated volumes because the only adjustments we made were to the prices. Now the level of uncertainty is much less than it was in Q1 '25. Obviously, things can change. I always reiterate, we can never forget that we work with agricultural commodities that are part of our business. That's why we like to keep a high liquidity position and focus on execution, discipline and being very strict when we use company funds. That's why we need to have an agenda to optimize our costs, looking at unit costs to make sure that we have healthy margin levels regardless of what can happen in the commodities environment, which is where we operate. So we can't give you a guarantee of an absolute price level or absolute crop level. What we can guarantee is that our company is increasingly more solid, disciplined and strict when it comes to everyday expenses so that regardless of what happens, we will be the benchmark player, and we will be able to navigate whatever happens. Thank you. Have a great afternoon. Operator: The Q&A session is now concluded. We would like to hand the floor back to Mr. Guilherme Machado for his closing remarks. Guilherme Lelis Machado: I'd like to conclude the call by thank you all for joining us. And to reiterate, we're very confident about 2026, as you saw in our opening remarks. We had a very solid execution in January and February in terms of volume. We'll begin the year practically with the first half of the year fully contracted, focusing on operating those volumes. And we know that the operations back when there's pressure on our system. We do best when we have demand, and that's when we can optimize our system. We also mentioned that at the end of Q1, we'll have more visibility in terms of prices are going, as Pedro reiterated more than once. We should have a little bit less than 10% reduction. And as of the next quarters, pricing levels will be more compatible with the repositioning that we started in 2025. It's reasonable to believe that we'll have more stable prices over the year. We'll monitor market dynamics. There should be a lot of information available at the beginning of the year. And for volumes that haven't been contracted, we will continue to follow our strategy and look out for any opportunities. We aim to increase transported volumes within our system capacity over 90 billion RTK. We'll continue to comply with our investment portfolio and company contracts and concluding Phase 1 of the Mato Grosso Rail, we are absolutely confident that we will be delivering that project in Q3 2026. We have been working on liability management and liquidity in 2025, and that has made us feel sure that we are liquid and our leverage level is consistent with our business profile and our ability to navigate any volatilities this year, maybe due to election or anything else that might happen. That's it. The company is ready to operate efficiently, cost efficiency, whether they be fixed or variable and executing on our investment portfolio. Thank you once again for joining, and I'll see you again during the call for Q1 2026 or some other time. Thank you. Operator: This concludes Rumo's earnings release video conference. Thank you for joining us, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Eric Born: All right. Good morning, everyone, and welcome to the Grafton Full Year Results Presentation. A few operational highlights from me before I hand over to David, who will guide you through the financial numbers in more detail. Good morning. A resilient Group performance in 2025 with pleasingly a return to revenue and to profit growth. So revenue was up for the full year, 10.4%. Adjusted operating profit was up 7.1%, and our adjusted return on capital employed was up 60 basis points at 10.9%, comfortably exceeding our cost of capital. We made continued progress on our development activities to further strengthen the group, enhanced leadership teams and the talent pool in general across the Group, including bringing in -- for Iberia to really focus on our growth aspiration in that relatively new market for us. We successfully integrated the first platform acquisition we did, Salvador Escoda, which I'm pleased to say delivered the profit growth in line with our plan, and we made good work to prepare that business to be ready to accelerate growth going forward. We also strengthened our market position in the Republic of Ireland with the bolt-on acquisition of HSS Hire into the Chadwicks Group to further extend our hire proposition to our customers. And in general, we delivered a strong cash conversion and preserved a strong balance sheet to continue to support the future development of the Group. So I shall now hand over to David, who goes into more detail. David Arnold: Thank you, Eric, and good morning, everyone. As Eric has already covered off some of the headline details of our performance in 2025, I'll talk you through some of the financial details now starting with the income statement. Revenue of GBP 2.52 billion was 10.4% higher than last year. Thanks to the hard work of our teams across the group, we delivered a resilient adjusted operating margin pre-property profit of 7.3%, only 30 basis points below last year. This reflects a continued focus on margin management with the group achieving a 50 basis point improvement in gross margin, together with a proactive management of our cost base to mitigate the ongoing inflationary environment on operating costs. It's pleasing to report that we saw a return to profit growth for the first time in 3 years, with the group's adjusted operating profit before property profit of GBP 184.3 million, 6.2% ahead of 2024. Adjusted operating profit, including property profit of GBP 5.9 million was 7.1% up to GBP 190.2 million. The net finance cost of GBP 10.1 million was higher and reflected 3 elements: lower interest income on deposits following interest rate cuts, lower cash balances due to acquisitions and share buybacks; and finally, a foreign exchange movement. The effective tax rate was 18.2%. That's lower than the 19.5% indicated at the half year and reflected the geographic mix of group's profits and a credit relating to updated estimates of liabilities relating to prior years. Adjusted earnings per share was 75.4p, 5.1% higher than 2024 and which benefited from our share buyback program. Since we first started our share buybacks in 2022, we've reduced our share count by over 20%, and I'm delighted that we're announcing a new GBP 25 million share buyback today. For more technical guidance on 2026, I've included some information in the appendices, which you may find helpful. As noted in our January trading update, the Group has adopted a new reporting structure that better reflects our strategy and management focus. The Group is now organized into 4 geographical areas, the Island of Ireland, Great Britain, Northern Europe and Iberia. And I've set out on this slide where the various brands now sit. For clarity, all results presented today follow the new reporting structure with comparatives restated. And we've included a couple of slides again in the appendices to help you track through the new segments. Let's look now at movements in revenue for the year in comparison to 2024. The organic movement, which I'll cover in more detail on the next slide, saw revenue increase by GBP 30 million. Acquisitions contributed GBP 195 million of incremental revenue in total, largely due to the full year impact of Salvador Escoda, which reflects the benefit of an additional 10 months of trading compared to 2024. The divestment of the noncore MFP piping business in the Republic of Ireland at the end of May reduced revenue by GBP 5 million. As MFP mostly supplied internal customers, the revenue effect is limited here, but you'll see a larger impact later when we discuss the operating profit impact. Finally, the strengthening of the euro against sterling accounted for an exchange gain of GBP 18 million in the year. This slide analyzes the net increase of GBP 30 million in organic revenue. It should be noted that revenue in the year was supported by modest levels of product price inflation, and that's in contrast to 2024 when product price deflation, particularly in our distribution businesses in Ireland and Great Britain, adversely impacted sales. The Island of Ireland segment, where all businesses delivered year-on-year growth was a key driver of organic growth with revenue up GBP 34 million. In a difficult market, organic revenue in Great Britain was broadly flat year-on-year, which we felt was a creditable performance. Revenue in Northern Europe declined by GBP 6 million, largely due to lower trading activity in Finland. Organic growth in Iberia relates only to the last 2 months of the year as the business was acquired on the 30th of October 2024. Turning now to the movement in reported adjusted operating profit. We'll look at the movement in the profitability of the like-for-like business in a moment. The net impact of new and closed branches had a small positive impact on profits, while the impact of the MFP divestment, which I talked about earlier and is shown separately here, resulted in GBP 2.6 million reduction in profitability. Acquisitions added a total of GBP 13.2 million, mostly driven by Salvador Escoda in Spain with GBP 1.4 million coming from 7 months of trading from the bolt-on acquisition of HSS Hire Ireland. Property profit was up GBP 1.9 million in the year, while the stronger euro had a positive impact on reported sterling profitability. Looking at the movement in adjusted operating profit in our like-for-like business, you can see that all operating segments, except Northern Europe reported an increase in adjusted operating profit. Our businesses in the Island of Ireland delivered a strong profit growth as strong sales performance underpinned gross margin expansion. And in Great Britain, even in a very challenging market and with sales broadly flat, profits were higher, thanks to a 120 basis point improvement in gross margin. Northern Europe experienced a reduction in profits, driven by -- primarily by lower sales in Finland and ongoing operating cost pressures in both the Netherlands and Finland, which I'll cover in more detail in a few minutes. Finally, central costs were higher in the year, partly due to the planned investment made towards the end of 2024 and into 2025 to strengthen capabilities to support the group's strategic priorities. Moving on now to look at each segment in a little bit more detail. Our Island of Ireland segment delivered a strong performance during the year, supported by favorable economic conditions in the Republic of Ireland. Revenue of GBP 1.07 billion increased by 4.3% on a constant currency basis. Average daily like-for-like sales were up by 3.5%, with all businesses reporting year-on-year growth. Woodie's delivered another year of strong growth, supported by a particularly strong performance in plants and garden products with growth driven predominantly by increased transaction volumes alongside modest increases in average transaction values. Chadwicks saw good growth across the hardware, heating and plumbing categories. The gross margin increased by 20 basis points in the year, driven primarily by the strong performance of Chadwicks. Overheads increased due to inflationary pressure, while all our businesses continue to mitigate these impacts through productivity gains, better use of technology and more efficient rostering. Adjusted operating profit of GBP 111 million was 1.8% ahead on a constant currency basis, but the operating margin was slightly down by 20 basis points to 10.4%, largely due to operating cost pressures. The integration of HSS Hire Ireland into Chadwicks continues to progress well with a short-term focus on systems integration. The outlook for the construction market in Ireland remains positive with a focus on accelerating new housing supply expected to continue for at least the next decade. In Northern Ireland, market conditions were and remain more challenging with the construction sector delivering modest growth in 2025, primarily due to an increase in new housing, albeit from a low base. Moving next to the Great Britain. We were especially pleased that our targeted commercial actions delivered a 120 basis point improvement in the gross margin despite a very competitive market backdrop with subdued volumes. Around 60% of our sales in Great Britain are generated from London and the Southeast, and this market has been particularly affected by a weak housing market with London seeing the lowest level of housing starts in 40 years. After a positive start to the year, overall construction activity softened from late quarter 2 and remained that way into the second half with the U.K. government's autumn budget further weighing on consumer sentiment. Revenue in Great Britain of GBP 765 million was broadly unchanged in comparison to prior year. Average daily like-for-like sales were up 0.4% with strong growth in our manufacturing businesses, helped by softer comparators from 2024, largely offset by a modest decline in our distribution businesses, which represent a greater share of sales. Notwithstanding inflationary pressure on costs, especially with respect to labor and property, overheads were tightly controlled across our businesses with the increase in like-for-like overheads contained to 1.8%, well below general inflation levels. Adjusted operating profit of GBP 49.2 million increased by 6.2%, supported by that gross margin expansion. In our Northern Europe segment, performance in the year was below our expectations. Revenue of GBP 469.7 million declined by 1.1% on a constant currency basis. Average daily like-for-like sales increased -- decreased by 0.5% in 2025, with moderate growth in the Netherlands more than offset by a pronounced decline in Finland. Sales increased in the Netherlands, driven primarily by strong branch sales and growth in national key accounts, in addition to increases in project-related sales and modest product price inflation. After a strong start to the year, momentum in the Netherlands eased as several major construction projects reached completion and the start of new projects was delayed. Sales in Finland fell sharply due to difficult market conditions, unfavorably mild weather at the start of the year and temporary operational issues that disrupted our internal supply chain. Challenges have gradually eased in the second half as management took decisive actions. Gross margin increased by 90 basis points in the year, reflecting strong performances in both geographies. In the Netherlands, active commercial management actions more than offset the adverse mix effects of large construction projects and key accounts, which accounted for a higher proportion of sales, whilst gross margin in Finland improved primarily through optimization of rebates and procurement efficiencies. Overheads remained under pressure in the year, reflecting general inflationary pressures, the high settlement agreement under the industry-wide collective labor agreements in the Netherlands and strategic investments which we made to strengthen the Finnish business. Adjusted operating profit of GBP 29.6 million was 17.2% below prior year on a constant currency basis. The operating margin was 120 basis points lower at 6.3%, reflecting the impact of lower sales in Finland and the inflationary pressure on overheads across both geographies. Salvador Escoda is one of Spain's leading distributors of HVAC, water and renewable products, which we acquired at the end of October 2024. We're very pleased with how the integration of the business has progressed and its trading performance in its first full year under Grafton ownership was in line with our pre-acquisition expectations. We've strengthened the business further during 2025, adding resources and support to its experienced management team to create a strong foundation for Salvador Escoda to accelerate organic and inorganic growth in the coming years. Salvador Escoda reported revenue of GBP 212.9 million and delivered an adjusted operating profit of GBP 13.6 million, representing an adjusted operating profit margin of 6.4%. The year-on-year increase reflects the benefit of an additional 10 months of trading in 2025. On a pro forma basis, in comparison to prior year, average daily like-for-like revenue was 6.1% higher, driven by strong growth in the air conditioning, ventilation and refrigeration categories as well as favorable market backdrop. The Spanish economy continues to be one of the fastest-growing economies in Europe with GDP expected to have grown by approximately 3% in 2025. The Spanish construction market is forecast to grow slightly faster by around 3% to 4% in 2026, supported by sustained housing demand, substantial investment in renewable energy and transport infrastructure and the accelerating shift towards energy-efficient and sustainable building practices. Within the construction sector, the HVAC segment is well positioned for strong growth, driven by tighter energy efficiency rules, rising consumer focus on efficiency and higher temperatures across the Iberian Peninsula. Despite navigating significant change in 2025, the business delivered a strong trading performance, outperforming the prior year on both a reported and pro forma basis. The group continues to support the local management team in driving organic growth. New business -- new branches opened in Vic in Catalonia and Plasencia in Extremadura, enhancing our existing market positions in these regions. We continue to assess further growth opportunities in the attractive Iberian market with a strong pipeline of potential new branch locations in hand. Now this slide analyzes our cash flow in the year. As you can see, the group generated strong free cash flow of GBP 168 million in 2025, representing an 88% conversion of adjusted operating profit into cash and contributing to more than GBP 700 million of free cash flow generated over the last 4 years. And some key highlights to note. We were pleased to see a reduction in net working capital of GBP 12 million in the year despite higher sales. Optimizing our investment in net working capital, whilst not compromising our customer proposition continues to be a key focus across the group. We continue to reinvest to strengthen our businesses, notwithstanding current market weakness in certain geographies with a net GBP 41 million invested in replacement and development CapEx. There was a GBP 14.3 million investment in net M&A activity, being the acquisition of HSS Hire Island, partially offset by proceeds from the divestment of our MFP piping business in the Republic of Ireland. And finally, we returned GBP 128 million of capital, net of issued shares under the LTIP and SAYE schemes to shareholders in the year. Of that, GBP 72.6 million was paid in dividends. And you'll have seen from today's results that we propose to increase the full year dividend by 2% to 37.75p per share. Dividend cover for the year was 2x, and it is our intention to restore dividend cover more firmly within the 2 to 3x dividend cover ratio as we move forward. The cash-generative nature of businesses continues to support both shareholder returns and a strong balance sheet, providing significant firepower for the group to capitalize on organic and inorganic development opportunities. At the end of December, our net debt was GBP 123 million, representing a lease-adjusted net debt-to-EBITDA ratio of just under 0.4x, slightly better than at the end of 2024. And finally, just turning to the balance sheet. I'd just note the net working capital increase, which you see there of GBP 8.8 million in comparison to the end of 2024, and that's largely due to the recognition of the deferred consideration related to the divestment of MFP. Adjusted return on capital employed was 10.9%, almost 2 percentage points higher than our estimated weighted average cost of capital and 60 basis points higher than 2024. And I'll now hand back to Eric to talk about current trading trends, our strategy and outlook. Eric Born: Thank you, David. On the left, you can see the average daily like-for-like revenue change in constant currency for Q1 '25 and for the first couple of months in 2026. It's early in the year and the important trading months are still to come. So if you go to the Island of Ireland, wet weather impacted the trading on the Island of Ireland and in Great Britain. However, Ireland delivered some growth, supported by the softer comparators following the storm Eowyn in the prior year during that period. In GB, in Great Britain, the market environment remains challenging, as you can see on the like-for-like numbers. We had modest growth in Northern Europe with a strong Finnish performance, offset by some softer trading in the Netherlands, which was impacted by a change of holidays. In other words, they had the Carnival period in the like-for-like period, which will not deliver the sales you would hope during the period. But ongoing strong momentum in Iberia. From an outlook point of view, Island of Ireland, the construction outlook remains positive in the Island of Ireland with the retail consumer slightly more cautious than previously, but we have a positive outlook overall for the Island of Ireland. In terms of Northern Ireland, we don't expect any significant uplift during 2026. Moving to GB, a slow start, as I mentioned. However, the important months are yet to come and January, February was certainly impacted by bad weather conditions in Great Britain. We would expect a modest market growth in the second half of the year. Northern Europe, the Netherlands construction market is expected to gradually recover during the year. And in terms of Finland, we don't expect any meaningful improvement of the construction market until the second half of the year. Iberia, as David already mentioned, the construction market is expected to grow 3% to 4% during 2026, and we would expect our product segments to do well within that market environment. In terms of medium-term outlook, positive across all geographies because they all are supported by the structural growth drivers of not enough housing and aged housing stock. So the long-term drivers are very positive, and we have strong position in all of those markets. The recovery potential is especially great in Great Britain and Northern Europe, where we have a lot of operating leverage and the business has not cut into the muscle. So whilst we are lean in those businesses, we are ready to take advantage of increasing volumes when they will arrive. Tight cost control really gives us the benefit of the operating leverage as volumes return. So let me say a few words about our strategy. So how do we intend to drive growth and create value going forward. As you know, we focus on European markets with long-term growth characteristics. And within each geographic market, we build strong positions to distribute construction-related products and solutions to our predominantly trade customers. In terms of operating model, we have a federated operating model with local execution, supported by strong group capabilities, how we help the businesses to improve and drive results across the geographies. So what sets us apart are really strong and experienced leaders in each market supported by the group, but the accountability really sits in the market and the ownership. That drives very high colleague engagement and a relentless focus on providing customer service and a real sense of ownership. And I think that's something which really sets us apart because our businesses really care. We also have a very resilient model based on the geographic diversification we have. And you can see this again in this year's results where 2 of our markets are challenged, let's say, in 2 of our markets are in a more positive macro environment, which overall still leads to a very, very strong generative -- cash-generative business, which is a real underlying strength. And as David mentioned earlier, we are very disciplined in terms of our financial discipline. So we will maintain our credit grade rating, and we have a very clear structured approach to capital allocation, which you can see on the right of the slide. So it's really around, first, fund organic growth and keep our existing estate fresh and make sure we have sufficiently invested into the existing estate, pay a dividend in the range of a dividend cover of 2 to 3x with an ambition to move closer to 3x over time than we are at the moment. Third priority, inorganic growth. We have a very strong pipeline, and we are focused on driving growth at this moment in time in our already existing markets. So it's not about planting a flag in another country at this moment in time, focused on the existing markets and then to return surplus capital to our shareholders, which we did again with the announcement this morning of a further GBP 25 million share buyback. And I think the next slide nicely illustrates this in practice when you look around the capital allocation between 2022 and 2025. We started in '22 with a net cash position. We generated over GBP 700 million of free cash flow after replacement CapEx. We then allocated a good chunk, namely GBP 721 million to pay dividends and execute share buybacks and return that money to shareholders, whilst we also invested roughly GBP 100 million in development CapEx and over GBP 160 million in acquisitions. So I think that's a very nice illustration around the cash generation of the business and how we allocate the capital mindfully. But of course, we want to tell you more about all of that and how we drive future growth with a Capital Markets Event, which will be held on May 20 here in London. And the event will focus on the group's strategy and growth ambitions over the medium term and you will have the opportunity to not just meet David and me, but of course, many other senior leaders and see more about the bench strength of the management team we have from all the different geographies. So shall we move over to Q&A. Shane Carberry: Shane Carberry, Goodbody. Two, if I can, please. The first one, just in terms of the gross margin in the U.K., really impressive 120 bps increase year-over-year. Could you talk a little bit about the dynamics behind that and some of the levers that you had to pull to achieve that outturn? And then the second was just to get a little bit more color around Iberia. It's been kind of 14, 15 months now since you bought Salvador Escoda. So how has that process been? Has it integrated as well as you thought it would to date? And just thinking looking forward, now that you've hired a CEO, how should we think about how things are going to evolve from here from an organic and inorganic growth perspective relative to what you might have thought 14, 15 months ago? Eric Born: Okay. So let's start with GB and the margin improvement. I think in general, given we have, as you know, a federated structure, we have people in the businesses who are focused on the bottom line. This is a performance-led culture. And as -- for example, as demand was soft, we saw in some of the activities we did early in the year when we drove promotions that even with support of suppliers, the incremental volume you generate on the promotion activities actually led to a lower gross profit than in absolute pound sterling numbers than if you wouldn't have run a promotion. So the businesses will have been very tactical picking their battles, if you want, and more making sure we deliver an overall attractive basket for our customers rather than drive aggressive price promotions into a market where you will not have the incremental revenue and will be net-net out of pocket. So those were some of the levers. Of course, others were working hard on some of our exclusive and own brands and how are they positioned and what's the share of those and all sorts of commercial activities and collaboration with the suppliers to manage the gross margin overall. But I think that is really something where you have to be nimble and you have -- and I really attribute the strength of the federated structure and that operating model for the businesses to take the right decisions because it will be impossible for us to legislate if you want from a Group point of view, how they have to react to daily trading. So that's the bit on GB. If you look at Iberia, I think that has been a great success so far, right? So we have -- we are absolutely in line with where we expect to be. This is a business we acquired and in year 1 of acquisitions had a higher ROCE than our cost of capital. So we buy a platform which already in year 1, ROCE is greater than our cost of capital. So that's a good thing. Secondly, we had an experienced management team in a family setup, which had to learn a lot about how we do things in a PC environment. So we had to strengthen, for example, the finance function, the HR functions, the health and safety function, property, right? We have growth ambitions, but we wouldn't have had the infrastructure at the moment we acquired the business to accelerate growth beyond 2 or 3 branches a year, even if the opportunities come up, we just didn't have the infrastructure. Nobody have had the backbone and the infrastructure to absorb a bolt-on acquisition and integrate it, right? So that's really the work we have done during this year to create that, if you want the engine room within Salvador Escoda. And now we are ready to accelerate growth organically, but also to absorb bolt-on acquisitions as they might present themselves to execute. So that's within Salvador Escoda. So we strengthened the management team. We still have the same CEO or Managing Director for that operating business, which is Marta Escoda, the daughter of the founder, who already run the business when we bought it. The plan was always -- we singled out Spain or the European Peninsula as a very, very attractive market for 2 reasons. One, it's a growing market. Secondly, it's highly, highly fragmented, right? So it kind of really gives opportunities for M&A as well as organic growth across multiple verticals. So with Marta, we have an excellent person to run Salvador Escoda, but you need a different animal in the local geography to drive our growth ambitions, to help us to get the position we would want to have by 2030. So -- and that was the backdrop why very early on, we made the decision to go out and bring a CEO in for the Iberian Peninsula. And I'm very pleased, Mario has started in January. And I'm convinced we will have more to report over time from how we will successfully grow across Iberia. Charlie Campbell: Charlie Campbell from Stifel. A couple of questions following on from both of those really. So Spain margin 6.4% in the year. It was more like 7% before you bought it. I guess that comes from putting in more infrastructure to support the business and make growth more sustainable. But how should we think about margins longer term in Spain? Should we think about that 7% as achievable and perhaps more as volumes drop through? And secondly, on the GB and on the gross margin, did you change the incentive structure there at all? Are people perhaps more focused on growth than they were before because that really is an extraordinary performance. Eric Born: Look, in Iberia, we do believe there is room to enhance the margins in Salvador Escoda over time. But if I look at Iberia in general, we would expect for this business to substantially grow, so in Iberia and have somewhere a margin corridor between 7% and 10%, would be kind of the margin corridor we would expect to be throughout the cycle in Spain. So I hope that answers that bit. In terms of incentive structure, no, we haven't changed the incentive structure in the business in GB. We have enhanced the management capabilities within GB. So we have a long-serving colleague, which has kind of oversight over CPI, EuroMix and StairBox. And then we have Frank Elkins, who joined us in 2024, right? Time flies when you have fun, in 2024. And he has been really, really focused with the team and enhancing, as I said, the bench strength, which is an ongoing process, right? I always compare this to like a football coach that you -- whenever you have the opportunity, you strengthen your team. It's a team sport, right? And that's exactly what we have done. So the focus or the achievement has been by targeted activities and focus. But people are bonused on delivering the outcome on the bottom line, right? So in a sense, that incentive has always been there. So the incentive hasn't changed. David Arnold: And I suppose just on that financial piece around Spain, as Eric alluded to, the business is exceeding our cost of capital in its first full year and really very much return on capital employed is our sort of foremost guiding financial metric, I suppose. Operating margin is sort of -- is a good metric for quality. But really, it's about driving return on capital employed and cash. Samuel Cullen: Sam Cullen from Peel Hunt. I've got 3, if possible. Coming back on the Selco gross margins, I guess, how do you -- let's say, volumes do pick up second half of the year and they grow again next year. What's the sensitivity around kind of unwinding some of that gross margin increase to take more volume? And how do the guys on the ground judge if, when, how to do that? That's the first one. David Arnold: Should we just pick them off as we've got another couple coming. I mean, look, I think on gross margin, yes, you've got to play the game that's in front of you. And I think in 2025, it was a game of weaker margins. And therefore, what do we do focusing on that bottom line. And I think that mantra continues going forward. So we just need to be nimble and responsive to how the volume and the strength of the market demand sits overall in GB in the same way that we're not focused on market share as a particular metric and are led by what's the impact on the bottom line. I just think we'll be nimble and the gross margin may come down if we see that strength in volume that we know that we can more than recover that by seeding some margin. So it's that flexibility and nimbleness that we need really. Samuel Cullen: Second one is on central costs. I think you highlighted there was a step-up in investment this year. Do we expect that to be at the end of that step-up and it to be kind of inflationary from here? Or do you envisage... David Arnold: No, I think it's a modest amount. I mean, for example, to give a bit of color on some of the areas that we focused on, it was more support on transaction services so that, again, we were better placed to be able to pursue a broad pipeline of acquisitions. It was elements like cybersecurity and support for a number of the ERP implementations that we've got going on around the group. Some of it was bringing sensible things, for example, like payroll into the center and taking it out of the businesses and saving some of the costs in the businesses. So there were sort of a variety of tactical things. Do we think that there will be major moves or significant more increases in central costs? I don't think it will be significantly more in terms of the investment in additional functions or roles. Samuel Cullen: And the last one is back on the U.K. If we don't see a pickup in overall market volumes, do you see wider consolidation in the sector over the medium term, may not be from yourselves but from other players? Eric Born: It's a good question, right? So we have private equity active in the U.K., right? Do I think they -- if there is no recovery, that was your question, do I think there will be a lot of appetite of those ICs to invest more money in the sector? I'm not sure, right? In terms of the listed players -- in theory, there should be more consolidation. If you look at how many general builders merchants there are in the U.K., you would expect there to be more consolidation. Whether that will play out like that is yet to be seen, right? So we -- again, and I'm clear on that, we are -- from our own investment point of view, we believe in the businesses which we have in the U.K. irrespective of where we now sit in the cycle, and we will continue to support those businesses. And if the right organic growth locations come up, whether that's for a Selco or for TG Lynes or for a Leyland or anything, we will invest the money into it if we believe in the case. You have to look throughout the cycle. You can't just sit and think, now it's bad, it will always be bad because the fundamental growth drivers are there in the U.K. The question is when. But if you then come to M&A capital, do we deploy M&A capital in the U.K. Well, for GB, I'm not saying no. But as you will have seen, we look at capital allocation in a framework, which says, do we actually believe this is the right allocation of capital. Do we get a return on capital and the cash generation out of this business, which we think is really accretive for our shareholders and the business over time. And if the answer is, yes, we do and we find a market like that in GB, well, we will allocate capital. But if it's in Spain or in Ireland or somewhere else within our existing markets, we will allocate it. Florence O'Donoghue: Flor O'Donoghue, Davy. Just 2 for me. One is just on OpEx for this year, just your sense of rents, rates, labor, what they're looking like. Second one then is just on selling prices. What's the current state of play in relation to them? David Arnold: So I think on OpEx, I mean, if we look last year, there were a number of high areas of inflation. You take the Netherlands, for example, where there's a collective labor agreement, and we saw salary increases of 6% in 2025. That under the collective labor agreement for 2026 will be more like 4%. So we're definitely seeing it reduce. But I would still think that we'll be working really hard to contain it in that 3% to 3.5% level because of what we see in terms of some of the statutory increases, national insurance effectively for a full year. We've got what's happening on national living wage, for example, either in Ireland or in the U.K. Those pressures are still there. Pressures on property rents in terms of the inflation that we're seeing where you've got 5-year rents that are refixing this year that we've got the catch-up from a few years ago as well. So yes, we'll work really hard, but I would still say it still feels 3%, 3.5% we'll be doing well to contain it to that, I think. And we'll have to work really hard around efficiencies and cost control to mitigate some of the softness in the market. As regards overall, what we're sort of seeing across the piece on selling prices, I would say probably not a too dissimilar picture in '26 to what we saw in '25. Depending upon geography, Netherlands was probably closer to 1%. Ireland on the distribution side was more like 1.5% to 2%. I think we're still in that sort of zone, certainly talking to manufacturers and suppliers. It felt at the start of the year that we were in that sort of zone. Of course, we're slightly in the lap of the gods in terms of exactly what happens to the evolution of inflation in the year. But yes, we started thinking 1%, 1.5%. Christen Hjorth: Christen Hjorth from Deutsche Bank. Just 2 for me. First of all, on the GB like-for-like at the start of the year, just trying to unpick some of the one-offs in there and I suppose the extent to which the first 2 months is a read for the first half and maybe how you exited those first 2 months because obviously, the number was a bit standout on GB. And the second one, sort of maybe a bit similar to Sam's question, but looking at Europe, I mean, there's a few players out there looking to consolidate European distribution. So in the context of that, what really sets Grafton apart, particularly, I'd say, in terms of being the acquirer of choice for some of the businesses that you're looking for? David Arnold: Do you want to pick Europe and I'll come back to GB? Eric Born: Look, many of the consolidator -- not all of them, but many of the consolidators are across Europe are private equity backed, right? So if you look at what we bring to the table is we -- if you think about the family-owned business, we will be a home for the family-owned business and not a transitionary home for family-owned business. And I think that's a major competitive advantage we have. We can have owners talk to people who work for Grafton, who sold their business to Grafton and they can talk about how that experience was for them. And by the way, we do this frequently, right? We have people coming and visit Sitetech or other businesses and which are part of the Chadwicks Group now, and they can really talk about that firsthand experience. We also have that experience with Salvador Escoda, right? How was it for them. And I think that's a major, major benefit. What was the second part of the question? Christen Hjorth: GB like-for-like. David Arnold: Yes, GB like-for-like. I mean, look, the year has started off weakly. There's no doubt in GB. To some extent, it was -- has been influenced by the wet weather. But I think that's an element of it. I think market is -- remains tough at the moment. The good news is that the year is not won or lost in the months of January and February. So there's a lot to play for in the year ahead. There's some really great stuff that we're doing in the GB businesses. So I think confident about that. The underlying market, there's a lot of really good fundamentals that should start to see -- we should start to see some volume growth coming through during the course of this year. The biggest point is really around confidence. That's the thing. And over the last 5 days, that confidence has probably taken a bit of a not more generally. We just need to see how the next sort of few weeks pan out really. But I think if confidence can come back, there's a whole bunch of reasons to feel optimistic about volume growth, I think, in GB. Okay. So I think that looks like it from the room. We haven't got any questions online. Thank you very much, everybody. Enjoy the sunny day. Eric Born: Thank you all. David Arnold: Thanks.
Operator: Good morning, ladies and gentlemen. Welcome to Grupo Financiero Galicia Fourth Quarter 2025 Earnings Call. This conference is being recorded, and the replay will be available at the company's website at gfgsa.com. [Operator Instructions] Some of the statements made during this conference call will be forward-looking statements within the meaning of the safe harbor provisions of the U.S. federal securities laws and are subject to risks and uncertainty that could cause actual results to differ materially from those expressed. Investors should be aware of events related to the macroeconomic scenario, the financial industry and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Now I will turn the conference over to Mr. Pablo Firvida, Head of Investor Relations. You may begin your conference. Pablo Firvida: Thank you. Good morning, everyone. I will make a short introduction, and then Gonzalo Fernández Covaro, our CFO, will have some words. Latest figures indicate that Argentina's economy grew by 4.4% on average during 2025 and the primary surplus stood at 1.4% of GDP with an overall fiscal result of 0.2% of GDP. The National Consumer Price Index recorded a 7.9% increase during the fourth quarter of 2025. Inflation for the year stood at 31.5%, significantly decelerating from the 117.8% recorded in 2024 and reaching its lowest level in 8 years. However, monthly inflation accelerated during the second half of the year and displayed a 2.8% increase in December after having reached lows of 1.5% in May and 1.6% in June. In January 2026, monthly inflation rose to 2.9%, while the year-on-year rate accelerated to 32.4%. On the monetary side, the Central Bank expanded the monetary base by ARS 0.7 trillion in the fourth quarter and by ARS 13.2 trillion over the year, bringing the year-on-year increase to 44.5% as of the end of 2025. In December 2025, the exchange rate averaged ARS 1,448 per dollar, reflecting a 29.5% year-on-year depreciation. As of January 1, 2026, both the floor and the ceiling of the exchange rate band began to adjust monthly in line with the latest available monthly inflation data. In December 2025, the average rate on peso-denominated private sector time deposits for up to 59 days stood at 26.6%, 6.4 percentage points below the December 2024 average. Private sector deposits in pesos averaged ARS 104.1 trillion in December, increasing by 10.6% during the quarter and 40.1% in the last 12 months. Time deposits rose 4.3% during the quarter and 44.8% in the year. Peso-denominated transactional deposits increased 18.3% during the fourth quarter and 35.2% in year-over-year terms. Private sector dollar-denominated deposits amounted to $36.4 billion in December 2025, increasing 11.7% during the quarter and 14.6% in the last 12 months. Peso-denominated loans to the private sector averaged ARS 87.6 trillion in December, showing a 10.4% quarterly increase and a 73% year-over-year rise. Private sector dollar-denominated loans amounted to $18.2 billion, recording a 0.5% quarterly decrease and an 83.6% annual increase. Turning now to Grupo Galicia. Net income for 2025 amounted to ARS 196 billion, 91% lower than in the previous year, which represented a 0.4% return on average assets and a 2.5% return on average shareholders' equity. Excluding integration expenses, the result would have been ARS 333 billion and the ROE 4.2%. The result was mainly due to profits from Galicia Asset Management for ARS 127 billion from Naranja X for ARS 59 billion and from Galicia Seguros for ARS 40 billion, partially offset by ARS 70 billion loss from Banco Galicia. Going to the fourth quarter, net loss amounted to ARS 84 billion as the improvement of the financial margin was more than offset by the impact of asset quality deterioration. In the quarter, Banco Galicia recorded ARS 104 billion loss, Naranja X, ARS 49 billion loss, while Galicia Asset Management and Galicia Seguros posted profits for ARS 36 billion and ARS 27 billion, respectively. This loss represented a minus 0.7% annualized return on average assets and a minus 4.3% return on average shareholders' equity. The net result from Banco Galicia for the fiscal year was negatively affected by the non-recurring expenses related to the merger with HSBC, without which it would have reported ARS 60 billion profit. In addition, during the year, the financial margin was negatively affected by changes in reserve requirement regulations and by a significant increase in interest rate, which had an impact on the cost of funding. At the same time, loan loss provisions increased significantly compared to 2024, mainly due to the increase in the retail-loan-portfolio-delinquency rates. The most relevant factors for the deterioration of asset quality were the abrupt increase in interest rate in real terms, the loss of purchasing power of customers and the disappearance of the dilution effect on the installments related to a lower level of inflation. During the quarter, the bank reported ARS 105 billion loss, decreasing 6% as compared to the loss of the third quarter. Operating income increased, reaching ARS 164 billion, up from the ARS 6 billion recorded in the previous quarter due to higher net operating income driven by an improvement of financial margin, offset by higher loan loss provisions, which still showed an upward trend. Average interest-earning assets reached ARS 25 trillion, 3% higher than in the previous quarter, primarily due to the increase of the average volume of dollar-denominated loans, which grew 9%. In the same period, its yield increased 130 basis points, reaching 31.4%, 39.7% in the Peso Portfolio and 8% in the Dollar Portfolio. Interest-bearing liabilities increased 4% from September 2025, amounting to ARS 22 trillion, primarily due to an increase of the dollar-denominated deposits. During this period, its cost decreased 220 basis points to 14.3%. Net interest income increased 23% when compared to the third quarter because of a 7% increase in interest income and of a 9% decrease of interest expenses. Net fee income increased 4% from the previous quarter, mainly stood out the fees related with bundles of products and the ones of deposit accounts. Net income from financial instruments decreased 3%. Gains from FX quotation difference were 29% higher from the previous quarter, including the results from foreign currency trading and other operating income decreased 8% in the quarter. Provision for loan losses increased 42% in the quarter and 220% when compared to the fourth quarter of 2024. Deterioration that was mainly focused in the retail portfolio in which NPLs rose to 14.3%, up from 3.2% recorded at the end of the previous year, particularly affecting personal loans and credit card financing. Personnel expenses reached ARS 178 billion and were 50% lower than in the previous quarter as during that period, losses for ARS 181 billion were recorded due to the restructuring plan following the acquisition of HSBC business in Argentina. Administrative expenses were 12% higher than in the previous quarter due to a 13% increase of taxes and to a 23% increase in expenses for maintenance and repairment of goods and IT. Other operating expenses increased 10%, mainly due to a 68% higher charge for other provisions. The income tax charge was positive as the pretax net income was a loss. The bank's financing to the private sector reached ARS 21 trillion at the end of the quarter, down 2% in the quarter with peso financing decreasing 1% and dollar-denominated financing down 5%. Deposits reached ARS 26 trillion, 4% higher than the quarter before, mainly due to a 6% increase in dollar-denominated deposits. The bank's estimated market share of loans to the private sector was 14.3%, 50 basis points lower than at the end of the previous quarter, and the market share of deposits from the private sector was 16.2%, 20 basis points lower than in the third quarter of 2025. The bank's liquid assets represented 93.2% of transactional deposits and 59.4% of total deposits, similar levels to those of the previous quarter. As regards to asset quality, the ratio of non-performing loans to total financing ended the quarter at 6.9%, recording a 110 basis points deterioration as compared to the 5.8% of the third quarter. As I mentioned before, the deterioration is mainly related to the personal loans and credit card financing portfolios. At the same time, the coverage with allowances reached 97.4%, down from the 101.5% recorded a quarter ago. As of the end of December 2025, the bank's total regulatory capital ratio reached 25.2%, increasing 310 basis points from the end of the third quarter, while the Tier 1 ratio was 25.1%, up 330 basis points during the same period. In summary, during the fourth quarter, financial margin partially recovered and efficiency improved, but still asset quality and the monetary loss due to inflation had a significant impact on profitability. Despite this, Grupo Financiero Galicia was able to keep liquidity and solvency metrics at healthy levels, and we expect an improvement in profitability during 2026. Now Gonzalo Fernández Covaro will make some additional remarks. Thank you. Gonzalo Covaro: Thank you, Pablo. Hi, everyone. Well, looking ahead, I mean, we believe Argentina is entering in a phase of stability, more predictable policy framework and renewal potential for great growth. As normalization continues and structural reforms advance, the banking system is expected to play a central role in supporting investment, productive activity and the long-term economic development. So we see a positive trends for the future for the country. Talking about 2026 specifically, we see inflation a bit higher than our first estimation, now at 23% and GDP growing at 3.7%. We're keeping our projections of 25% loan growth for the year, but we see slower pace at the first half and accelerating in the second half, that could put some pressure to our revenues. As we said in prior calls, we expect NPLs in the bank to have their peak in March '26. So during March to be -- to with the peak, but the cost of risk, we are seeing that we already had the peak in the fourth quarter of 2025, and we started to see credit losses charges to the P&L to decrease in the first quarter of 2026 in the bank. In Naranja X, same trend, but with some slower pace, but also same trend. We expect to have the benefit of the restructuring made last year after the HSBC acquisition and to continue to improve our efficiency ratios and to capture those positive effects during 2026. We are keeping our ROE guidance for 2026 in the low-double-digit range, I would say, between 10% and 11% going from low to high during the year. And regarding dividend payments, we are proposing a payment of ARS 190 billion, which ARS 40 billion are subject to Central Bank approval as usual. So with that, I mean, we are open for questions. Operator: [Operator Instructions] Our first question is from Mr. Brian Flores with Citi. Brian Flores: Gonzalo, Pablo. Gonzalo, just a quick follow-up on the 2026 guidance. So basically, you're maintaining around 25% real year-over-year growth in deposits should be a bit lower. I think the last notion you provided was around 20%. So I just wanted to confirm if these ranges are still value. Gonzalo Covaro: Yes, we said deposit between 15% and 20%, but close to not material changes, I would say. Brian Flores: And then something that caught our attention here is that we saw a strong maybe revision of the growth strategy, right? Because you were growing very fast in the first 3 quarters and you slowed down significantly in the last quarter. Just wanted to check if you have changed your focus on growth, if we should see maybe Galicia losing a bit of market share in 2026 as this asset quality is digested? Or do you think you will defend and keep it steady during 2026? Gonzalo Covaro: No. I mean our goal is to keep market share and also increase it -- try to increase it. But I would say that maybe at a slower pace, as I said before, in the first half and accelerating in the second half. I mean, in the last quarter, yes, I mean, you saw mainly a slower pace in the consumer lending. We still in the same scenario in the first quarter. But until we see that it is the right time to accelerate again, that will be, we assume later in the quarters. But in the whole year, we expect really to defend market share and to grow market share. In terms of commercial, we have lending, we have been seeing some lower demand from customers. But there, as you know, our NPLs in the commercial portfolio in the wholesale portfolio are okay. But we are working with our customers and trying to accelerate commercial lending where we see also a lot of opportunities. But to summarize the answer, the idea is to continue protecting defending market share. And -- but as we said, we see lower growth in the first half, I would say, and higher growth in the second half of the year. Brian Flores: If I may, just a very quick follow-up. So in terms of potential catalysts, do you think the recovery could come more from the macro filtering to the micro, or do you think regulatory -- this is more on the regulatory side than on the economic side? Gonzalo Covaro: I would say that the macro should start accelerating impacting the micro. That's something that we haven't seen maybe last year a lot. But we are expecting that the macro -- I mean, I think it's a combination. We, of course, expect the macro to start accelerating the micro at some point, and we believe that the government should take measures to do that because it's what country needs. From regulatory side, I mean, we don't know what will happen. So we are not betting on changes on the regulatory side. Of course, at some point, they may come, but that's something that we cannot manage. So we are not betting on that one. Operator: Our next question comes from Tito Labarta with Goldman Sachs. Daer Labarta: My question, you mentioned already provisioning levels should begin to come down in 1Q, although this quarter was a bit higher than expected, and we're still seeing that deterioration in asset quality. I guess how quickly can it come down? And what does give you that comfort that you maintain the loan growth guidance, but that credit quality should improve sufficiently to be able to grow at a faster pace in the second half of the year? Is there anything that you need to see? Or do you think it's just getting through the cycle another quarter or 2 and things should get better? Or any other -- any risk to that? Gonzalo Covaro: I mean, of course, that's something that we are assessing and monitoring. Anyway, still 25% is lower than the pace that we have been coming in the last year. So it's a deceleration from what we were coming -- so it's not that we keeping the growth of the prior years. But I mean, it's -- we think that is part of the cycle, as you said. We are starting, of course, to focus in different scores and different segments and that's where we're focusing so far our growth, and that's starting to show. Of course, it's lower than what we were happening in the first half of last year. But we believe that 2 things. First, the cycle is going -- is passing. And also, as I said to Brian before, we believe that the -- at some point, the economy, the current economy -- the growth in the economy should start impacting the micro, and we should start seeing activity to rebound in different sectors. And we should see not in every sector, but we, of course, are monitoring niches of customers and groups of customers where we will focus. So we believe that, that should come. Of course, that if the economy doesn't impact the micro and we don't see growth impacting the activity, well, of course, that would be more difficult. But we expect that, that should happen, and that's where we are seeing the growth -- that's why we are maintaining the growth. Daer Labarta: Okay. No, that's helpful. And just on the cost of risk because it was a little bit elevated, you compared to the last quarter, and you said it should, I guess, beginning to improve already in 1Q. But how -- can you get back to the low-double-digits, high-single-digits maybe by the end of the year? Just sort of what kind of magnitude of improvement should we expect from here on the cost of risk? Gonzalo Covaro: Cost of risk, we are seeing to end the year 8%, I would say, for the 12 months of the year of 2026. The last quarter was -- I am talking about the bank. Last quarter was 12.5%. So we are expecting that -- and the year was like 10%, 10.5% this year -- sorry, 2025 full-year, 12.5% in the last quarter, which is the highest, and we expect to end '26 in 8%, that would be the projection we are managing, and we started to see that in the -- we made some updates of our models, the variables, as you know, you need to do every year. In the fourth quarter, that contributed also in the growth of the charges. So that's done, and we don't expect -- we expect that our next update that we need to be making by the end of this year won't be increasing charges. So that also explains the peak on the last quarter. Operator: Our next question comes from Pedro Offenhenden with Latin Securities. Pedro Offenhenden: I wanted to ask on cost. Should we expect some restructuring or acquisition or integration costs throughout the year or the one-offs are largely behind that? Gonzalo Covaro: One-offs are largely behind, as you said. We continue, of course, looking for the right size of the organization and trying to make our organization more efficient. So we may see some things here and there, but nothing material or that will be treated as one-off as last year. So from now on, everything we do is part of our normal operations. So we won't have any big impact like the ones we had last year. Pedro Offenhenden: And do you have some target on efficiency or administrative expenses growth for the year? Gonzalo Covaro: I mean we expect to see -- I mean, a reduction of around 10% to 11% year-over-year, excluding the one-off of last year. Nevertheless, if you consider the one-off of last year, the reduction will be higher. But excluding the one-off in the expense line of last year, we see a reduction of around 10% to 11% year-over-year, and we see efficiency a bit below 40% for the year. Operator: Our next question comes from Yuri Fernandes with JPMorgan. Yuri Fernandes: No, very briefly on margins. If you can help us understand a little bit the trajectory because I guess the risk-adjusted message is clear, right? This was likely the peak and NPLs still could deteriorate a little bit in the first quarter, but the cost of risk is lower. But I'd like to understand the margins because if your cost of risk improves, maybe we could see better risk-adjusted NIMs this year. So maybe just asking, could we see more stable or not? Like what is the view given the mix shift towards commercial lending? And then my second question is regarding -- I think like there are 2 big debates in Argentina, right? One is the ROE recovery -- and the second one is growth, right? Like when growth will pick up, like could we see more than 20% real growth or not? How confident you are on those 2? Like if you were to pick just one for 2026, are you more comfortable that ROEs, they should recover to more normalized level? Or are you more comfortable with growth? Gonzalo Covaro: Okay. Let's go. I think the first question was NIMs. I mean we see -- as you know, the last 4 quarter, we saw December NIMs recuperating. Remember that October, November were still recovering from the higher -- the spike in interest rates of the elections period. We see the first -- for the year, we see around 16.5% the margins for the bank. Total margin for the bank 16.4%, maybe starting a bit higher around 17%, 18% and ending in 16% during the year. But on average for the year, with the mix we are expecting, we see margins around 16.4% for the year. I mean talking about growth and ROEs, I mean, I would say that we are, I would say, determined to protect our share in the market. So we are focusing a lot in -- I mean, it's difficult to answer which are -- with the ones are more sure in an economy that is still recovering and that we still depend on the economy evolution for the growth, of course, I mean, we need the economy to grows as expected and that the macro impacts the micro as we were saying before, and that families should salaries in real terms starts to recovering, which we expect that to happen, but it's something that we depend -- so it cannot be guaranteed. So I would say that our guidance is -- we maintain the guidance because we believe we can achieve both. But of course, we depend on the -- how the economy evolves and not having any surprise like we have, for example, last year in the third quarter with the interest rate spike or stuff like that. I would say that still, it depend on inflation. Remember that inflation accounting for Argentine banks is a big thing. The lower the inflation comes and interest rates goes down, I would say that in relative terms, the higher the impact is when we compare with other banks in the region, for example, because at some point, we may end with an inflation of 15% or 12% and still booking inflation accounting, where other countries with 8% inflation are not booking it. So -- and if you see, it's a big portion of our P&L. So at some point, when that disappear, I would say that hopefully, in 2028, that will help the Argentine financial system to improve ROE significantly. But on top of that, I would say that we can get to ROE levels above 15% next year. So low-double-digits this year, but including inflation accounting, we can achieve above 15% next year. And after 2028 without inflation accounting, I would say that the consolidation of the higher ROEs will be easier and more stable for the banks in Argentina because you won't have that drag on the inflation accounting that as you know, it's a big burden for us. So in summary, I would say that we are -- we think that we can maintain both. But of course, in both cases, we depend on how the economy continues also in the growth in the top line, but also in the NPLs and the cost of risk that, of course, we are counting this to continue to improve because we see the economy growing and the families to -- with enough disposable income, et cetera, et cetera. Yuri Fernandes: If I may, just on the growth, just to touch on deposits. I think the guidance is 15% to 20%, right? Can you break down dollar and pesos on this? And I don't know like we have another tax kind of flexibilization, right? Like the dollar under the mattress kind of the date. Can this be helpful for deposits to grow this year? So just checking if funding could be another part of the equation for growth. Gonzalo Covaro: Yes. I mean regarding the dollar deposit growth, we may see something with this change in the legislation. We don't expect to be as high as the prior effect that we had with the Tax Amnesty that we have between last year and the year before, but some effect it may have. Remember that today, our dollar deposits are almost half of our deposits. Our goal, of course, is to get more profits out of the dollar. So we are seeing how to get more margins on those. I mean, trying to increase the dollar lending. But as you know, we have some restrictions in terms of who we can lend, but that's something that we are focusing a lot because it's increased. I don't know, Pablo, if you remember the growth divided by dollar deposits and peso deposits? Pablo Firvida: It was -- basically, we concentrated in the peso one around 20%. Dollars is more sensitive to political environment, this type of legislation, as you said. And as we are not really making a good profit on dollar deposits we really don't pay that much attention in a way. We forecast more the peso financing and funding more than the dollar one that perhaps is also -- we cannot manage it as much as the peso funding. The peso was 20%, the dollar, I think it was something like 15%, but they take it as a bulk number. Operator: Our next question comes from Mario Estrella with Itau. Mario Estrella: Well, I guess you already answered with the evolution for the next quarters. I believe well, the next quarter is going to be relatively better than 2025, going from lower ROE to higher as we move towards the end of the year, right? And I understood that the drivers for that, of course, is going to be less pressure on the cost of risk side. But because, I mean, the full quarter results, I mean, in terms of NII, I believe they weren't that bad, I would say. So my question is, I mean, with the inflation trend that we've seen, the first quarter was more inflationary than expected. I mean, what are the downside risk that you see for your guidance if inflation keeps surprising in the upside right? Taking into account that monetary correction loss that the fourth quarter was actually higher than in the third one, right? So that kind of shows you the potential downside risk that we can see from much inflation -- for more inflation, right? Gonzalo Covaro: Yes. I mean the downside, of course, as you just mentioned, is more inflation that, of course, affects our balance sheet. So that could be -- if inflation is higher than expected, that could be a downside. And I would say that we are focusing all our efforts in improving the cost of risk. As you can see easily from our results, margins are okay. I mean costs are okay. I mean, efficiency, but of course, that the thing that is putting some sticks in the wheel for profitability is the cost of risk. So that's main focus we have. So I mean -- and that, of course, is for the good and for the bad. I mean we have a lot of room for improvement there. But also if the improvement is lower than we will see an improvement. I mean that we cannot guarantee anything, but my point is we are seeing the improvement. I would say that the risk could be that the improvement is at a slower pace than expected, and that could impact results, not getting the improvements in as fast as we expect during the year. I would say that could be a downward risk that we're facing. We -- so far, January, we came what we are expecting. But of course, the year is long, and we depend on a lot of things on how economy evolves, et cetera, et cetera, that I mentioned before. So on the other hand, top line is important. I mean even though margins are still healthy, we depend, of course, in growth and growing the top line. And of course, that if we don't see the demand of lending because the economy has any deceleration or whatever, well, that could also -- I would say that both -- those 2 could be downward risks. It's not our base case. We are not -- we are expecting that the economy should help on that. But of course, those 2 are downward risk. In the cost side, I think we are okay. We have done a good job in restructuring. As you know, last year, more than 2,000 people from the HSBC acquisition. Of course, we continue to look for more alternatives to continue to improve efficiency. So we continue in that work to always find and adjust the rightsizing of the organization. But I think those are more predictable or manageable by us. The other 2 top line and NPLs, of cost of risk. In our base case, those should come as expected. But of course, if we have different evolution of the economy and also as we were discussing before, how the macro impacts in the micro, we need to start seeing the economic activity in more sectors moves faster. Well, that could be a downward risk, of course. Mario Estrella: I understood that the ROE evolution for this year will be something around high-single-digits. And then 2027 something around 15%, right? I mean, based on improvement in asset quality, right? Is that right? Gonzalo Covaro: Yes, yes. This year, we're saying low-double-digits or high single is close. So you're right? But the idea is between 10% and 11% this year and next year, around 15% or above and to stabilize those in 2028 without inflation accounting. But what you are in the spot of what you just described, yes. Operator: Our next question comes from Bruno Kenji with UBS. Bruno Kenji: It would be a follow-up regarding the recovery that you expected for results next -- this year. When we look to Naranja X and lower ROE levels that we saw in those fourth quarter results, should the recovery on the metrics such as NPL and cost of risk be on the same pace of the bank or it could have a little delay in terms of the recovery? And if that and also reflects on the ROEs, do you think that there might be a lower acceleration of loans considering the portfolio of Naranja X for the first half and then an opportunity to have a quicker recovery in second quarter if the economies have some space for personal loans and retail when we compare to the bank? Gonzalo Covaro: Yes. I would say that we are seeing improvements in NPLs at Naranja X, albeit at a slower pace than the bank. Nevertheless, that what we are seeing, but still expect also improving during the year. And the scenario -- the growth scenario is similar to the bank. We are seeing also higher growth in the second half. As you know, we still are stabilizing the portfolio in Naranja, which is, of course, 100% consumer, so we don't have a commercial portfolio to go there. But we are growing, of course, selectively growing, but at a slower pace during the first months of the year, and we expect us in the bank to regain as we stabilize the portfolio, regain the growth, the faster growth. We will grow, of course, but the faster growth closer to the midterm of the year or something like that. Operator: Our next question is from Santiago Petri with Franklin Templeton. Santiago Petri: Can you help us understand in which segments are you expecting to grow this year, this 20%, 25%? Is it commercial, consumer? And within commercial, which sectors do you see that you can lend to? Gonzalo Covaro: I mean we are growing -- I mean, I would say that we were growing in the first half. Today, the mix is more 45% consumer, 55% companies in the toll in the bank, our mix. I would say the first half, we are focusing a bit more in commercial. So maybe by the end of the year, we will maybe 60%-40%. So this year, we may see more growth in the commercial and the consumer. But of course, we are growing -- we are going to grow both portfolio, but more towards the commercial portfolio, mainly because in the first half, we are -- as well, we are lending at a higher pace than in the consumer side, as I said before. In the commercial portfolio, of course, we are picking segments, I mean, that are less affected or not affected by the change in the economics or the imports opening and everything we know that it is suffering. We are strong and we are focusing a lot in the agribusiness. As you know, we are one of the main banks in that sector, and we continue to do that and our expectations in this year to continue strongly there. We are also lending in the oil and gas sector, not just the big loans, but because that's local bank doesn't have the balance sheet, but also all the supply chain and all the value chain in oil and gas. In mining, we are also making deals with supply chain in that sector. We see -- we also see the automotive industry doing okay. So we are also focusing on that and part of the value chain. So we have different -- we divided our wholesale operations in verticals. We have oil and gas, we have automotive, we have agribusiness, and we are going through all the value chains. We see commerce, retail commerce that at some point, some sectors not doing that good. So we are not growing in those ones. But we are doing a very good and deep analysis in which sectors we believe that are going to be the winners in these changes that the economy is doing or at least in this transition. And the sectors I mentioned are ones that we see growth and there are others like technologicals and a lot of SMEs that do services, provide services that we see them strong that we are also helping them in the growth path. So we see room for growth in the commercial portfolio. Of course, that, as you know, there are sectors that are not doing good, and we have them very clear, and we are not growing those ones. Santiago Petri: A follow-up, if I may. There are some conversations or I don't know how to name it, about the possibility of banks expanding their U.S. dollar lending to non-U.S. dollar revenue-generating entities. Is this something that you see with, are you comfortable with this change in regulation? Gonzalo Covaro: I mean, two things. Regulation could change then we'll see if we apply or we use it or not. I mean, I would say that for us, that would be on a very cautious way. We don't believe that going massive in lending dollars to non-dollar producer will be something safe. So of course, that will be more focused in the Commercial side, the Wholesale side. And if we have big local companies that are very strong or international, but big companies that even though they are not dollar producer, we see that they could -- they are a devaluation or whatever, well, that would be on a case-by-case basis. But we are not seeing anything massive that we will start lending massively if the regulation change massively to non-dollar producers. So my answer would be, we will evaluate it cautiously and do it on a case-by-case basis, but nothing massive. At least is what we are seeing now with this year, with the -- how the economy is evolving in the future, if Argentine start being more dollarized or how the dollar start being more important in the daily trading, well, we may change our mind. But so far, our first reaction is that if this happen, we will do it on a selective basis and cautiously basis. Operator: The question and answer session is over. We would like to hand the floor back to Pablo Firvida for the company's final remarks. Pablo Firvida: Okay. Thank you, everybody, for attending this call. As always, we are available if you have any further questions. Good morning and good afternoon. Bye-bye. Operator: Grupo Financiero Galicia conference is now closed. We thank you for your participation and wish you a nice day.
Operator: Good afternoon, and welcome to Inuvo's Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] This call is being recorded on Thursday, March 5, 2026. I would now like to turn the conference over to Katie Cooper, Director of Marketing. Please go ahead. Katie Cooper: Thank you, operator, and good afternoon. I'd like to thank everyone for joining us today for the Inuvo Fourth Quarter and Full Year 2025 Shareholder Update Call. Today, Inuvo's Chief Executive Officer, Rob Buchner; and Chief Financial Officer, Wally Ruiz, will be your presenters on the call. We would also like to remind our shareholders that we plan to file our 10-K with the Securities and Exchange Commission this evening. Before we begin, I'm going to review the company's safe harbor statement. The statements in this conference call that are not descriptions of historical facts are forward-looking statements relating to future events, and as such, all forward-looking statements are made pursuant to the Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially. When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project and similar expressions as they relate to Inuvo, Inc. are as such a forward-looking statement. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by Inuvo at this time. In addition, other risks are more fully described in Inuvo's public filings with the U.S. Securities and Exchange Commission, which can be reviewed at www.sec.gov. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements. In addition, today's discussions will include references to non-GAAP measures. The company believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. With that, I will now turn the call over to CEO, Rob Buchner. Rob Buchner: Good afternoon. Thank you, Katie, and everyone for joining the call today. Before I begin, I'd like to take a moment to thank the entire Inuvo team as well as our broad group of clients and partners for your support as I've moved into my new position. Thank you for all you do, every day for this company. I'd also like to thank Rich Howe and the Inuvo Board for your confidence in me and for providing an excellent vantage point over these past months as I transition to the new role. As I mentioned on our call in January, I'm taking the helm as CEO at a decisive turning point for our company and for our industry at large. Specifically, as new technologies emerge, consumer behaviors and intent have become more widely distributed across digital media and a agentic systems, making consumer purchase intent more difficult to ascertain. At the same time, the industry has experienced an increase in sophisticated technologies, often nefarious that have allowed lower traffic to masquerade as legitimate, high-intent consumer demand, necessitating quality controls beyond those historically available. This is a systemic industry-wide issue. As such, the industry has been subject to increased regulation, both due to consumer privacy concerns and because of Platform partner's compliance measures to restore integrity of search ecosystems. All of these factors lead to a widening gap between perceived intent and true quality in the advertiser's digital media experience as well as a more difficult operating environment for those reliant on legacy technologies. Put simply, our industry is ripe for disruption. When I was contemplating the CEO role at Inuvo, I had a front row seat for nearly a year to IntentKey's leading-edge tech that I believe is both undervalued and a true antidote to the shortcomings of legacy systems. While today, the field is littered with legacy ad techs that overpromise and failed to deliver on their AI-powered premises, IntentKey was purpose built to the Agentic era. Advancements in adaptive buying systems are very real and establish a widening arena for our Generative AI to be deployed within other Agentic workflows as an intelligence layer. IntentKey provides custom, adaptive audience models in real time, utilizing a large language model that doesn't depend on cookies or other legacy technologies that are being scrutinized by increased regulation and privacy concerns. But the real value proposition is in its speed. IntentKey's actionable intelligence leverages predictive AI, enabling users to enter bid streams faster, up to 24 hours ahead of market moves. When supply and demand dynamics favor higher returns on advertising dollars. As budgets are tightening and return on advertising spend is decreasing at an alarming rate, we have a technology that can identify new prospects and accelerate conversion with dynamic audience modeling. What's more, I believe there is a tremendous opportunity for us as a data provider, leveraging our IntentKey product, there is a path to pursuing data deals that allow advertisers and marketers to directly use IntentKey to custom design their audience models and execute media buys with minimal friction. This shift will require deeper SSP and DSP integrations, but will return a more scalable, reoccurring revenue model going forward. I see an opportunity here to leverage this technology towards higher-margin growth, resulting in a more resilient business for Inuvo. And we have a team that's ready to execute. This shift will take time, but I believe we are well positioned to exploit this market window with a proprietary disruptive technology that is well ahead of the competition. 2026 Is about exploiting near-term opportunities, while laying the groundwork for this evolution. My plan is centered upon 4 strategic pillars: first, a refined go-to-market focus. As the ad agency complex continues to contract, it's imperative that we transition towards high-margin upstream strategic engagements. To do this, we will execute on 3 primary fronts: one, pursue large, high-value deals with CXOs inside of brand organizations, leaders who control budgets and are ensnared by diminishing returns in performance marketing. By pursuing relationships further up in brand authority, I believe we can harness an opportunity to provide brand stewards with greater transparency and actionable information that can help these brands grow, while also increasing our profit margins. Two, big partnerships where we can integrate IntentKey, both as a service and as a data provider because IntentKey can integrate into these legacy and emerging buying systems more effectively than other technologies, I believe we have an opportunity to create exponential growth through integration in ways traditional competitors cannot. What's more, we believe we have a commanding advantage in this area with our large language model, positioning us to become a leader in helping brands navigate this rapidly evolving programmatic landscape. And three, align our deal teams and sales organizations to support high potential verticals. This is a continuation of the work I started as Chief Operating Officer and is an important step toward the kind of growth I envision for the organization. My second pillar is raising IntentKey's industry profile. The evolution of our industry has laid bear 2 strategic imperatives for brands. The first imperative is speed, advertising alignment and ROI in an environment where structural foundations of legacy systems are faltering. The second of these imperatives is the need for privacy-first consumer protection. In this environment, IntentKey's value proposition is clear and significant, and yet I believe undervalued due to a lack of brand awareness. IntentKey is not just another AI-powered ad Platform. It's a Platform that provides intelligence and a meaningful strategic advantage to its users. We have a significant opportunity to drive growth by translating IntentKey's value proposition into sustainable, high retention revenue growth through vertical marketing of the IntentKey Platform, clearly articulated branding of IntentKey's value proposition and 24-hour advanced prediction capabilities and promotion of the brand by showcasing an elevated user experience through IntentPath. The third pillar is continuous product innovation. Inuvo's core competitive advantage is Intent Discovery, delivered through a suite of advanced visualization and compliance tools. We believe that continued advancement of those tools through the adoption of new features, integrations with new DSPs and enhanced privacy features can both deepen budget commitments from our traditional media customers and expand our potential addressable market into other privacy-sensitive verticals. And lastly, our fourth pillar is high-margin growth. Through successful execution on the first 3 pillars and an increased focus on driving Platform-led higher-margin revenue into the business, we can strengthen the company through improved profitability, liquidity and financial resilience. As I sit here today, I believe we're already making some early progress on these 4 pillars. With respect to our go-to-market strategy, we will continue to be drawn to enterprise-grade sales directors. Individuals who can engage with CXOs on a strategic plan versus a transactional basis. These sales directors will court evolve marketers who recognize IntentKey as a foundational intelligence layer for the age of Intent. With this talent in place and aligned with our target verticals, we are positioning ourselves to secure the large service contracts and integrations that can drive stickier, compounding revenue over the long term. As I mentioned on our January call, we entered 2026 with the strongest sales pipeline for IntentKey we've had to date. This builds upon the 83 new clients acquired in 2025. Overall, early year performance reflects improved retention quality, higher average budget commitments and stronger revenue visibility compared to the prior year. In addition, we continue to have active discussions with several high potential IntentKey customers. I hope to share a few of those brand names next quarter. The nature of IntentKey integration and testing necessitates a longer lead-up to deal closings. Still, we expect IntentKey's adoption trajectory to grow beyond historical levels. With respect to raising our industry profile, in the weeks ahead, we'll be launching a product-specific website for IntentKey to further support our sales teams and to encourage self-service trials. This site will host product videos and will showcase new product capabilities. Our corporate site inuvo.com was refreshed this week. And as a leading ad Platform in the search marketplace, we launched clicktransparency.org, which elevates an urgent existing industry initiative to restore click integrity by setting new standards that will drive out low-quality traffic to the ecosystem at large. This initiative is meant to drive greater transparency, effectiveness and safety for consumers, publishers and advertisers they serve. Its charter is aligned with our Platform partners, and we are already getting the attention of other ad tech, competitors and some of the largest ad tech platforms in the world. And with respect to product innovation, we've recently completed integrations with SSP and DSP providers that will expand our addressable market by enabling us to bring IntentKey to companies in new privacy sensitive industry verticals, including pharmaceuticals, health care and government. We are acting with urgency and investing in lead generation and outbound marketing campaigns, laying the groundwork for addressable market growth in the near term, and a transformation to a data provider in the long term. While it's still early, I'm happy to report, we are already in active discussions with companies who require the functionalities provided by these new integrations, whose needs we couldn't address under prior data sources. In addition, we recently began a pilot of a new social media offering that brings IntentKey Audience Intelligence to social media campaigns, effectively opening up a new channel to our sales function. And we are currently exploring ways to expand our offerings into the AI chat environment to harness opportunities arising out of the rapid adoption of AI-assisted surge. And lastly, we're in the process of migrating our data centers to the AWS Cloud, which will provide cost savings, greater scalability and resiliency as we accelerate growth. With respect to high-margin growth, successful execution in pursuing growth in our higher-margin, self-serve and IntentKey products, should translate into stronger financial results and a more financially resilient company in the future. Now I want to be frank, the last couple of months has been challenging to the Platforms side of our business, even though IntentKey is showing robust signs of growth early in the new year. After bottoming out in mid-January, I'm pleased to say that our Platform products have seen signs of recovery. However, we believe the recovery process will be gradual. In light of this, we're taking prudent steps to contain costs where we can until the business returns to normative sales velocity. We're onboarding new partners week-over-week. In the meantime, our AI-powered quality assurance feature, Ranger is live and is continuing to ensure quality, alignment and compliance, closing the gap that necessitated the fourth quarter reset of the system. We remain confident that as we work our way through the self-imposed pullback on this side of the business, we are unlocking our ability to grow sustainably in the future from a more solid foundation. Our industry is at an inflection point. However, it's clear to me that the market is coming around to us and importantly, to IntentKey. Now is the time to move with urgency, driving towards a more durable, compounding future that has much to offer in this changing marketplace. We are working to harness the opportunities before us and believe we have the right strategy to return to strength in the months ahead. With that said, I'll hand it over to Wally who will take you through the financials. Wally Ruiz: Thank you, Rob. Good afternoon, everyone, and thank you for joining us today. I'll start off my comments today with a review of the fourth quarter and full year, then I'll touch on liquidity and our near-term outlook, after which, I'll hand the call back over to Rob for closing comments. First, looking at the fourth quarter, the intentional moves we made with our Platform products resulted in a significant pullback in revenue during the fourth quarter. Fourth quarter 2025 revenue totaled $14.3 million, a decrease of $11.9 million or 46% compared to the fourth quarter of 2024. Partially offsetting this decline was a new campaign introduced in the prior year by another large Platform client that had increased its revenue by 30%. Cost of revenue was 8% higher in the fourth quarter compared to the same quarter a year ago, resulting in gross profit of $9.5 million, a decrease of $12.3 million or 56% from the fourth quarter of 2024. The higher cost of revenue this year was due to the new campaign I just mentioned. Unlike other Platform campaigns where their cost is reported as a marketing cost, this campaign is accounted for as a cost of revenue. Fourth quarter operating expenses were $10.7 million, down more than 50% compared to the fourth quarter of 2024. The driver of lower operating expense was a 60% year-over-year decrease in fourth quarter marketing expenses driven by lower revenue from our largest Platform client. However, all components of operating expense in the fourth quarter were lower than the prior year. This decline in operating expenses helped offset the year-over-year gross margin decline yielding a fourth quarter operating loss of $1.2 million compared to operating income of $220,000 in the same quarter last year. Net loss for the quarter was $594,000 or $0.04 per share. Adjusted EBITDA for the quarter was $360,000. For the full year 2025, revenue increased to $86.2 million compared to $83.8 million in 2024, driven by strong performance in the first half of the year, primarily from our 2 largest Platform clients. Cost of revenue increased to $22 million in 2025, an 83% increase compared to 2024's cost of revenue of $12 million. This increase is a result of the change in the Platform sales mix and in particular, growth with the Platform client with its new campaign, as I previously mentioned. As a reminder, cost of revenue consists primarily of payments to website publishers and app developers who host our ads as well as to media cost of agencies and brands clients. The increased cost of revenue caused gross profit to decrease $7.5 million or 11% in the full year of 2025 compared with 2024. Gross margin for 2025 was 74.5% compared to 85.6% in 2024. Full year 2025 operating expenses were $70.9 million, down $6.4 million or 8% from 2024, driven by a $7.8 million decrease in marketing expenses. General and administrative expenses increased by $1.4 million, primarily due to the reduction in the allowance for expected credit losses recorded last year. Operating loss for the full year 2025 was $6.7 million compared to $5.5 million in 2024. During 2025, we recognized $1.9 million of other income driven by employee credit -- employee retention credits of $1.1 million and $700,000 from a refund relating to a prior period, all of which were received during the year. As a result, we recognized a 2025 net loss of $5.1 million, an improvement of $667,000 compared to the net loss of $5.8 million in 2024. Net loss per share was $0.35 and $0.41 in 2025 and 2024, respectively. 2025 adjusted EBITDA was a negative $1.3 million compared to a negative $816,000 in 2024. Turning to liquidity. We ended the year with $2.8 million in cash and cash equivalents and $6.7 million availability under our borrowing facility as of December 31, 2025. In January, we entered into a $3.3 million subordinated convertible note and we received $6.2 million in connection with a class action settlement claim. These liquidity events have helped us navigate the cash consequences of the pullback in Platforms revenue. We believe we have adequate liquidity to execute on our strategic growth plans. Before I hand the call back to Rob, I want to give a few quick thoughts about 2026. Regarding the Platforms business, as Rob mentioned, we are beginning to see recovery in our revenue after what we believe was a bottom in mid-January. As a result, Q1 Platforms revenue is expected to remain light with recovery coming gradually over the course of the year. I also want to remind everyone that the first and second quarters of 2025 were record revenue quarters for us, making it extremely tough comps year-over-year. With respect to agencies and brands, we're forecasting strong double-digit growth for each quarter of 2026, driven by a very healthy sales pipeline. With that, I will hand the call back over to Rob. Rob? Rob Buchner: Thanks, Wally. It's an exciting time to be part of Inuvo. We say that the precipice of an industry sea change, armed with proprietary technology that we believe can be a wellspring of new growth in the programmatic Agentic era. AI agents will soon handle complex workflows, audience discovery, custom modeling and activation that previously required hours of manual work across multiple platforms. But this shift requires an industry-wide approach with data and technology providers, agencies, DSPs and SSPs collaborating to realize the promise of Agentic advertising. Some of this development is happening today, much of it is still hype. My aim is not to add to the hyperbole, but to pierce it with a bone honest value proposition that resonates with major marketers who are frustrated, confused and mistrusting. I intend to bring the IntentKey story to advertisers through more plain spoken marketing programs that compel trial of our products. The very name IntentKey was [ pressioned ]. It provides a foundational intelligence layer for the so-called age of intent. The marketplace is finally catching up to the reality that success during these seismic shifts require the very things IntentKey provides, speed and real-time, actionable, privacy-first intelligence. With a focus on a clear go-to-market strategy, leveraging our core strengths in audience modeling, building a strong brand presence and driving towards higher-margin opportunities, we believe we can build a stronger, more resilient, compounding business that will translate to greater value for our customers and shareholders. I look forward to updating you on our progress next quarter. With that, I'll now open the call to Q&A. Operator: [Operator Instructions] Your first question comes from the line of Brian Kinstlinger from Alliance Global Partners. Brian Kinstlinger: Congrats, Rob, on the new role. Can you speak to capital -- the capital deployment strategy between your 2 existing businesses plus the new data offering, maybe in the context of the Platforms business requires this substantial marketing dollars which creates a very small return on investment? And then maybe discuss, if any, what investments are needed to make to start that new data opportunity? Rob Buchner: Brian, thanks. And I think I've met many of the people on this call, and Brian, I look forward to working with you in the years ahead. As it relates to capital deployment on the Platforms business, the marketing expense kind of rises and falls with the sales velocity and demand on that platform. So it's a variable that is kind of fixed to that side of the business. Capital as it relates to marketing on IntentKey is really about demand creation and incenting trial of our product, and we're going to be putting a lot of energy in that direction through outbound campaigns and some lead management. Some of those are already in place. Brian Kinstlinger: Yes. Which leads me to my second question. It sounds like you agree Inuvo to me was a first mover in AI for ad tech, but it hasn't capitalized. What are the plans to improve that awareness of IntentKey, maybe give some specifics. I know you mentioned social media, but how else do you gain awareness. You've got these 83 new customers that you added last year. How do you get them to increase wallet share as well. . Rob Buchner: Yes. In terms of raising the profile for IntentKey, that's going to come gradually in time as we free up more cash to invest in marketing. But having -- through thought leadership having more presence at industry conferences. I'm attending Marketecture next week already in New York. That's a very high-profile event, while this industry has gone through change. So I think it's being present where the minds of this industry are. And then it's also beginning to take our use cases to market, especially in some of these high-priority verticals where we have good credentials in getting some of those logos to be referenceable for new. And again, I want to concentrate our marketing against the highest potential high-yield segments, if you will, or verticals, like life sciences, pharmaceutical, health care, automotive, government, where privacy and our differentiation shines the best. So it's getting out there, and it's doing it quarter-over-quarter and building a brand, and the brand is IntentKey. Brian Kinstlinger: Great. My last question maybe for Wally, but maybe Rob chime in if you think. It sounds like revenue will be down substantially next year as you gradually recover from a low point in the March quarter. How should we think about the expenses, given an increased focus on marketing, what we see SG&A increase from the sales side, will that show up in marketing costs like how should we think about the expense side growing from these need to increase that brand awareness for yourself? Rob Buchner: Wally, do you want to take that one? Wally Ruiz: Yes. Thanks. The revenue throughout the year is going to increase. Yes, as we mentioned, Q1 will be light. But the IntentKey is on target, starting in Q1, and we'll continue to grow into each of the succeeding quarters. And the Platform revenue is -- will also -- is at a low point as Rob pointed out in January and is ramping up now. So yes, there is an opportunity for us to catch up in revenue. But to your point, it being lower than last year, we have already started paring back some expenses. And we're being very careful with the expenses that we have for the remainder of the year. I think that one of the things that you had mentioned about the cash deployment on the Platforms earlier is that, yes, the Platforms business does take a lot of cash, but it also gives us an opportunity to use our credit because we're able to receive payments of our revenue prior to having to pay our vendors. One of the advantages of the Platforms business is that it does provide a number of days of working capital to us. So in some ways, I'm not going to say it's entirely self-funding, but it does fund itself to some extent by providing working capital. But yes, I think that the SG&A, I think the G&A, the general and administrative will be -- will remain being flat to down in 2026. Compensation expense will be -- I suspect in our forecast is that it will be lower in 2026 than in 2025. And the marketing cost, as Rob pointed out, is pegged primarily, not entirely, but primarily to revenue growth in the Platforms business. Does that give you some guidance, Brian? Operator: Your next question comes from the line of Jack Vander Aarde from Maxim Group. Jack Vander Aarde: Okay. Welcome on board, Rob. Congrats on the role. Maybe just a quick question for Rob. You mentioned the IntentKey Self-Serve product being a key focus, it sounds like, and it's a very high margin, but maybe lower ASP product line, but I know it's been rapidly growing. Just wondering where does this fit in though in terms of your growth roadmap in terms of, is this going to be the focus and a material part of revenue within the IntentKey segment or overall revenues going forward? How does this play into your overall vision? Rob Buchner: Yes. I would say it's a longer-term ambition because those deals take longer to cultivate. When we get them, and we have several enterprise [ clients ] now, they tend to be stickier. They're almost pure margin. But it's a longer-term evolution of the business on the IntentKey side. But with this Agentic era occurring and us being able to integrate IntentKey into these workflows, both as an intelligence tool, a strategy tool, if you will, and then an audience activation at the executional level. When we can play at a data level, I think it's kind of a game changer, but it's a longer-term ambition rather than a near-term impact. Jack Vander Aarde: Okay. Got you there. And then maybe just for Wally and Rob, I know in the past, there was kind of a soft sort of breakeven target for EBITDA in terms of revenue. Given some of the strategic moving parts here, has -- is there any changes to that nuance as an aggregate, maybe there's changes to the gross margin trade-off versus the OpEx. But are we still looking at kind of $100 million, roughly, revenue as a breakeven? Or -- how do we think about that now as this business roadmap plays out? Wally Ruiz: Yes. I think that's right, Jack. The sales mix in 2026 and beyond is going to change considerably from 2025 and prior. So the -- so having said that, I think that we will be at breakeven. We've always said that $25 million quarter we could be breakeven. And I think we're back to that again. Jack Vander Aarde: Okay. And then just in terms of the operating expenses kind of just going forward is they really did drop off here. Was it really a one-for-one, just with Google or your largest Platform customer? Or is there something else to this we're looking at 2026. Is this a fair -- just under $11 million of total OpEx, it can bounce depending on mix. But it's well below the historical period. So just looking forward into the first quarter, can you give us a sense there? Wally Ruiz: Yes. So yes, marketing costs dropped off because of revenue dropping off from the largest Platform client, and that's -- and that client is starting to ramp up in Q1. So you should expect marketing costs to continue to be low because of that in Q1. As far as compensation goes, I think it's going to be in line with the past quarters, although we have made some adjustments, and there are some severances in Q1 that would affect compensation. G&A, general and administrative is going -- as it's always been, it's been relatively flat, and there's no reason to think that it would grow. Jack Vander Aarde: Okay. Great. And then maybe just one more for Rob, and then I'll hop back in the queue. Just given the long-standing importance of the relationship with Google to the business' history and looking forward and then the recent cash award that you guys received in January, and some of your other larger Platform customers have been long standing. Can you maybe just touch on how do you view these relationships? Is there -- I think the contracts keep getting extended a couple of months at a time. Can you just maybe provide a view on your perspective on that relationship and looking forward? Rob Buchner: Well, listen, it's a key part of the business. And it's important that we stay on the right side of quality and keep the integrity of our network up to those standards. And try to lead the industry and our partner network along those lines. So we continue week over week to do everything that we can to be as compliant and to be a leader in the industry. And that's why we started that industry initiative, clicktransparency.org, I mean, these are all kind of moves that we make to stay on the right side of those contracts. Jack Vander Aarde: Congrats again on the role and look forward to tracking the story. Operator: [Operator Instructions] Your next question comes from the line of Bruce Hood from Excel Group. Bruce Hood: So I just had a quick question following up on previous quarters. There has been mention of a government contract potentially being signed. Is that still in the works? Or is that kind of being pushed off? Rob Buchner: Bruce, no, it's very much alive, and we're weeks away now. I'm very close to that. This is a multiyear, multimillion dollar engagement. These contracts take a long time to work their way through procurement. We've cleared every hurdle and have every indication that we are weeks away from realizing execution of the contract. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over back to Rob Buchner, CEO. Please go ahead, sir. Rob Buchner: Hey guys, I just wanted to say thank you for joining us for this call. I'm getting to know some of you since I was at the LD Micro Conference as COO back in October. I'm only 5 weeks in the chair, there's a lot of moving parts, but I'm incredibly optimistic about the moves that we're making. And if we continue to execute along the lines which we articulated over the course of the last hour, I think it's going to be a really great future. So thanks again, everyone. I look forward to working with all of you going forward. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to the Atea Pharmaceuticals' Fourth Quarter 2025 Financial Results and Business Update Conference Call. [Operator Instructions] I would now like to turn the call over to Jonae Barnes, Senior Vice President of Investor Relations and Corporate Communications at Atea Pharmaceuticals. Ms. Barnes, please proceed. Jonae Barnes: Great. Thank you, operator. Good afternoon, everyone, and welcome to Atea Pharmaceuticals' Fourth Quarter and Full Year 2025 Financial Results and Business Update Conference Call. Earlier today, we issued a press release, which outlines the topics we plan to discuss. You can access the press release as well as the slides that we'll be reviewing today by going to the Investors section of our website at ir.ateapharma.com. With me today from Atea are our Chief Executive Officer and Founder; Dr. Jean-Pierre Sommadossi; Chief Development Officer, Dr. Janet Hammond; Chief Commercial Officer, John Vavricka; Chief Medical Officer; Dr. Arantxa Horga; and Chief Financial Officer and Executive Vice President of Legal, Andrea Corcoran, who will be available for the Q&A portion of today's call. Before we begin the call and as outlined on Slide 2, I would like to remind you that today's discussion will contain forward-looking statements that involve risks and uncertainties. These risks and uncertainties are outlined in today's press release and in the company's recent filings with the Securities and Exchange Commission, which we encourage you to read. Our actual results may differ materially from what is discussed on today's call. With that, I'll now turn the call over to Jean-Pierre. Jean-Pierre Sommadossi: Thank you, Jonae. Good afternoon, everyone, and thank you for joining us. I will begin on Slide 3. I am pleased to report that we have made substantial clinical progress in the last year, advancing our global Phase III program evaluating the regimen of bemnifosbuvir and ruzasvir for the treatment of HCV infections. Due to the rigorous execution of our two pivotal Phase III trials, C-FORWARD and C-BEYOND, we expect top line readout this year for both trials. We also presented several dataset reinforcing the potential best-in-class profile of our regimen at the EASL Congress in 2025 and the Liver Meeting 2025, the Annual Meeting of AASLD. Janet will discuss highlights from these presentations. We convened two panel discussions with key opinion leaders that underscore the need for a new optimized HCV regimen to address treatment paradigm shifts, including the test-and-treat model of care and how our regimen is uniquely positioned to address the current needs of patients and prescribers and expand the market in the U.S. In November, we announced the expansion of our antiviral hepatitis pipeline to address a major unmet medical need for immunocompromised patients living with chronic hepatitis E infection, a liver disease for which there is currently no approved therapy available. If left untreated, it can rapidly progress to cirrhosis within 3 to 5 years. In vitro and in vivo results presented last month at CROI 2026 and at the JPMorgan Healthcare Conference in January support our lead product candidate, AT-587 as a potential first-in-class inhibitor against HEV infection. I will review this exciting program later in the presentation. Moving to Slide 4. I'm pleased to report that our global Phase III HCV program is on track. In December, we completed enrollment for our North American trial, C-BEYOND, with over 880 patients, and we expect to complete enrolling C-FORWARD, our trial outside of North America, by midyear. We anticipate top line results for C-BEYOND midyear and for C-FORWARD by year-end. Following our selection of AT-587 as the lead product candidate in our HEV program, we initiated IND and CTA-enabling studies and anticipate initiating a first-in-human study midyear. Importantly, with $301.8 million of cash, cash equivalents and marketable securities as of December 31, 2025, we are in a strong financial position to execute and complete our Phase III HCV program and advance our new HEV development program. We anticipate our cash runway will extend through 2027. With that, I will now turn the call over to Janet to review the profile of our regimen. Janet Hammond: Thanks, Jean-Pierre. Moving to Slide 6. Hepatitis C remains a significant global health care crisis with an increasing incidence of infections despite the availability of direct-acting antivirals for the past decade. Currently, in the United States, out of the reported 160,000 new chronic infections, only 85,000 patients are treated annually. In 2015, there were approximately 2.5 million people infected in the United States. Today, that number has nearly doubled to approximately 4 million. The unrelenting high rate of new chronic hepatitis C infections, which continues to outpace the number of patients being treated, underscores the need for a new differentiated and optimized therapy. In the map shown on the right, you can see that most countries worldwide, including the United States, are not on track to achieve the World Health Organization's goal of the elimination of hepatitis C by 2030. In fact, current estimates suggest we may not even achieve this goal by 2050. Let's not forget that hepatitis C is the primary cause of liver cancer in the United States, the incidence of which is projected to increase by over 50% within the next 5 years from approximately 850,000 cases in 2025 to 1.4 million people. On Slide 7, we are conducting the first global head-to-head active controlled Phase III trials in our program for hepatitis C, comparing our regimen against the current standard of care, sofosbuvir and velpatasvir, which are marketed as Epclusa. Results support our regimen as a potential best-in-class treatment option for patients infected with HCV with a differentiated profile featuring a highly potent combination with a short treatment duration, low risk for drug-drug interactions and convenience with no food effect. We continue to build out our dataset and recent results demonstrated a low risk for drug-drug interactions with proton pump inhibitors, which are taken by an estimated 35% of hepatitis C infected patients. Moving to Slide 8. We presented several datasets supporting the potential best-in-class profile of the regimen of bemnifosbuvir and ruzasvir last year at the EASL Congress and then at the Liver Meeting. Results from the Phase II study in 275 patients demonstrated the 8-week regimen of BEM-ruzasvir achieved 98% SVR12 in the per-protocol treatment-adherent population and a 95% SVR12 in the efficacy-evaluable population. Additional results demonstrated that the regimen has a high barrier to resistance. The regimen has a low risk for drug-drug interactions, including with proton pump inhibitors, H2 blockers and also standard HIV therapy. There is no need for dose adjustment of bemnifosbuvir in patients with hepatic or renal impairment. The regimen can be taken with or without food. In addition, recently generated data show that in addition to inhibiting HCV RNA replication through chain termination, bemnifosbuvir also inhibits assembly and secretion of new hepatitis C virions, further explaining its high antiviral potency. With that, I'll now turn the call over to Arantxa to provide an update on our Phase III program for hepatitis C. Arantxa? Maria Horga: Thank you, Janet. On Slide 10, C-BEYOND enrolled patients in the U.S. and Canada, and C-FORWARD is enrolling patients in 17 countries outside of North America. Combined, we expect to enroll more than 1,760 patients in our Phase III program. Both trials are open-label, randomized 1:1 against the active comparator and stratified by cirrhosis status, genotype and including patients co-infected with HIV. In patients without cirrhosis, treatment duration is 8 weeks with bemnifosbuvir-ruzasvir and 12 weeks with the standard of care. Patients with compensated cirrhosis receive 12 weeks of treatment with either regimen. The primary endpoint for both studies is sustained viral response or cure 24 weeks after treatment initiation. Slide 11 shows the geographic footprint of our global Phase III program with approximately 120 clinical sites in the U.S. and Canada for C-BEYOND, and another 120 clinical sites in 17 countries outside of North America for C-FORWARD. As J.P. mentioned earlier, C-BEYOND patient enrollment was completed in December with more than 180 patients, and we anticipate top line results midyear. C-FORWARD has a broader global geographic and genotypic footprint, and we expect to complete enrollment midyear and to report top line results by year-end. On Slide 12, let's review the Phase III endpoints, patient population and data analysis for our global Phase III program. In C-BEYOND, the primary endpoint will be analyzed in a modified intent-to-treat population as preferred by the U.S. FDA. The analysis will include patients that have been randomized and dosed regardless of drug adherence or lost to follow-up. The statistical analysis will be based on an imputation model with success or failure depending on PCR value, whether negative or not, prior to patient treatment discontinuation. A key secondary endpoint will include the SVR rate of the per-protocol population. In C-FORWARD, the per-protocol population will be analyzed as the primary endpoint as preferred by the EMA. And the SVR rate will only include patients who are at least 80% adherent as measured by pill count and have an SVR assessment at week 24. A key secondary endpoint will include the SVR rate for a modified intent-to-treat population. The same methods for assessing non-inferiority will be conducted in both Phase III studies on both patient populations. The Phase III studies are powered 90% with 5% non-inferiority margin with expected rates approximating 95% in an mITT population. Using these two approaches in a post-hoc analysis of the Phase II results, the SVR rate was 95% in an mITT population and 98% in the per-protocol population. I will now hand the call over to John Vavricka, our Chief Commercial Officer. John? John Vavricka: Thank you, Arantxa. Moving on to Slide 14. As discussed earlier in the call, the rate of newly reported HCV infections in the U.S. is outpacing treatment. Out of approximately 160,000 new HCV infections, only 85,000 patients are treated annually for a total of approximately $1.3 billion in net sales in the U.S. We have consistently heard from health care providers that the test-and-treat model of care, which allows for HCV testing, diagnosis and treatment at the point of care can reduce the barriers to prompt initiation of therapy that exists today. The test-and-treat model of care has gained broad support, including by the CDC and continues to gain momentum through recent bipartisan efforts to advance HCV elimination in the U.S. Key opinion leaders also [ certainly ] can play a critical role in HCV elimination efforts and agree that a treatment optimized to work seamlessly with this model is still needed. Slide 15. While we are advancing our global Phase III trials, we are also preparing for a commercial product launch. Our commercial package will include a blister card for convenience and adherence with a simple 4-week dosing package. The drug product has a low cost of goods relative to net price. And based on our current projections, we anticipate achieving profitability relatively shortly post-launch. From a commercial standpoint, the U.S. HCV prescriber base is highly concentrated with approximately 6,000 prescribers writing 80% of the DAA prescriptions, making it optimal for efficient commercialization using a focused specialty sales force. We anticipate a commercial sales force of around 75 people, which includes the sales team and medical science liaisons. Let's move on to Slide 16. Using our Phase II results, IQVIA conducted an independent quantitative market research study with 153 U.S. high prescribers. These physicians indicated that they would likely prescribe the BEM-RZR regimen to approximately half of their patients, and the results were similar for all patients regardless of their cirrhosis status. Our market research also showed that U.S. payers responded favorably about the potential to include BEM-RZR in the formulary based on the regimen's profile. I'll now hand the call back to Jean-Pierre to review the HEV program. Jean-Pierre Sommadossi: Thank you, John. Let's now move to Slide 18. Hepatitis E virus or HEV is in an acute and a chronic liver disease. In developing countries, genotype 1 and 2 are most prevalent and the virus is transmitted primarily through contaminated water and mostly cause epidemics of acute self-limiting viral hepatitis. In developed countries, genotype 3 is predominantly transmitted primarily through contaminated food such as undercooked meat. This can cause chronic hepatitis in immunocompromised patients and can progress to cirrhosis within 3 to 5 years, which is much far more aggressive than what is seen with hepatitis C or hepatitis B. With no approved therapies for HEV, there is a significant unmet need for a treatment option. Moving to Slide 19. In recent years, with the increasing number of patients who are immunocompromised, which include solid organ transplant recipients, hematopoietic stem cell transplant recipients, patients with hematologic malignancies such as multiple myeloma, there have been a growing incidence of chronic HEV infection in U.S. and Europe. In the absence of any approved therapies for HEV, the standard of care includes reducing immunosuppression and/or ribavirin administration, which both presents challenges. On Slide 20, each year in the U.S. and Europe, about 3% of approximately 450,000 patients who have these underlying medical conditions are at risk to develop chronic HEV. We estimate that the unmet need for this patient population represents a market opportunity between $750 million to $1 billion per year. And obviously, this will follow on orphan designation. On Slide 21, let's now review data supporting the selection of AT-587, our lead product candidate, a potential first-in-class direct-acting antiviral treatment option for chronic HEV. As you see on this slide, in vitro and in vivo activity of bemnifosbuvir was shown against hepatitis C. However, the more potent in vitro activity of AT-587, combined with the positive PK data, which we'll discuss next, led us to select AT-587 as a lead product candidate. The in vitro data on this slide shows the potent nanomolar antiviral activity of AT-587 against HEV genotype 3 and to remain also active against clinical ribavirin resistance-associated substitutions or RAS. As noted earlier, ribavirin is off-label for the treatment -- is used off-label for the treatment of HEV. On Slide 22, we observed that the in vivo single-dose PK studies in rats and monkeys, AT-587 achieved high plasma concentration of the active triphosphate metabolite surrogate, which were comparable to those obtained with bemnifosbuvir. On Slide 23, of particular importance, we also demonstrated that AT-587 efficiently converted to its active triphosphate metabolite in human hepatocytes, which is the site of viral replication in HEV infection. To date, AT-587 has a clean preclinical safety profile, positioning this product candidate as a first-in-class direct-acting antiviral for chronic HEV. I will now turn the call over to Andrea to discuss Atea financials. Andrea Corcoran: Thanks, Jean-Pierre. As Jonae mentioned in her introductory remarks, earlier today, we issued a press release containing our financial results for the fourth quarter and full year 2025. The statement of operations and balance sheet are on Slides 25 and 26. We are pleased to report that our cash and investments were $301.8 million at December 31, 2025. The funds expended in 2025 were principally directed to the advancement of our HCV Phase III program, evaluating the combination regimen of bemnifosbuvir and ruzasvir and to discovery efforts leading to the nomination in January 2026 of AT-587 as the lead product candidate for the treatment of HEV. In 2025, we also returned $25 million to our stockholders through a share repurchase program. Each of these investments and use of funds reflects our steadfast commitment to drive value for our stockholders. For R&D expenses quarter-over-quarter and year-over-year, there was an increase in 2025 compared to 2024. The net increase in 2025 was principally driven by an increase in external spend for our HCV Phase III clinical development, offset by a decrease in 2025 in external spend for our COVID-19 clinical development and lower internal expenses, primarily related to a decrease in stock-based compensation expense and lower payroll and payroll-related expenses. For G&A expenses quarter-over-quarter and year-over-year, expenses decreased. The net decrease was primarily related to lower stock-based compensation expense, partially offset by increased professional fees. For 2026, we intend to maintain our rigorous financial discipline while remaining laser-focused on execution and value-creating advancement of our HCV and HEV product candidates. As we complete our Phase III clinical trials, prepare to submit our regulatory filings and engage in prelaunch activities, including the manufacturing of commercial launch supply, the substantial majority of our spending in 2026 will be focused on the advancement of our HCV program. With the resources in hand as of the end of the year, we expect to realize value-creating milestones for both programs and project our cash runway to extend through 2027. I'll now hand the call back to Jean-Pierre for closing remarks. Jean-Pierre Sommadossi: Thank you, Andrea. On Slide 27, in closing, 2026 will be a pivotal year for Atea. We are on track to deliver top line Phase III results from C-BEYOND midyear. These results will be followed by the top line results from C-FORWARD by the end of this year. We believe that the target profile of our regimen featuring high efficacy, short treatment duration, low risk of drug-drug interaction, convenience with no food effect will uniquely position us to address the need of today's patients and seamlessly fit in the test-and-treat model of care, which has the potential to bring us closer to the ultimate goal of HCV eradication. Our HEV program represent a strategic expansion of our antiviral pipeline and address a major unmet need in a highly vulnerable patient population for which there is no approved treatment available. We anticipate initiating a first-in-human study midyear with a proof of concept by the end of the year and possible to advance to a Phase II/III trial in the second half of 2027. With that, I will turn the call back over to the operator. Operator: [Operator Instructions] The first question will come from Maxwell Skor with Morgan Stanley. Selena Zhang: This is Selena on for Max. Having achieved your enrollment target for the cirrhotic population for C-BEYOND, does that increase your confidence in hitting your target in C-FORWARD? Jean-Pierre Sommadossi: Arantxa? Maria Horga: We are going to achieve our target overall for the program, both in C-BEYOND and C-FORWARD. The cirrhotic enrollment has not been an issue. Operator: The next question will come from Jonathan Miller with Evercore ISI. Jonathan Miller: As we look forward to a commercial launch in HCV, I guess I'll focus there. Can you talk a little bit about how the commercial landscape is currently organized in terms of contracting? Are there centralized groups that you're going to have to convince to switch over from legacy systems? How is pricing in the commercial universe currently going to evolve as we've seen the legacy regimens get put under significant pricing pressure. So can you talk a little bit about how the commercial landscape has evolved over the past 6, 9 months and how well you're positioned to deal with those changes? Jean-Pierre Sommadossi: Great question, Jon. John? John Vavricka: Sure. So as you know, that the market for -- the distribution market for specialty -- for DAAs is a specialty market. And there are three segments pretty much, commercial, Medicare and Medicaid. All of those current distribution pathways are known and are fully utilized. And we're currently looking at all of those relative to the three segments as well as relative to the payers. So it's a known quantity where we will have to be. We actually have conducted preliminary research with the payers and obviously seeing the profile, it is of interest to them. And it was stated that they would be eager to include it in formulary. As far as for pricing goes, the pricing, it's relatively stable. Year-over-year, Mavyret pricing went up a little bit, but Epclusa pricing -- net pricing did go down. But overall, for the past at least 2 or 3 years, the pricing has been -- the relative overall net pricing has been relatively stable and their market shares are getting pretty close to a 50-50 with the favoring Epclusa. Does that answer your question? Jonathan Miller: Yes, it does. Operator: The next question will come from Andy Hsieh with William Blair. Tsan-Yu Hsieh: So looking at the primary endpoint of C-BEYOND based on the -- modified to intent-to-treat population, am I thinking about this correctly that based on this analysis plan, you can actually really expand the effect size because you can basically magnify a regimen that actually can have flexibility into missing doses and given the more potency profile compared to the standard of care. So that's part number one. And part number two is in a scenario where you can actually show material clinical benefit over the standard of care, say, maybe with a statistical perspective, John, based on your market analysis, how would that change some of the physician response in terms of their excitement or potential market uptake? Jean-Pierre Sommadossi: Good questions, Andy. Arantxa, do you want to try the first one? Maria Horga: Yes. Andy, so the mITT, as you know, is everybody that gets a dose. So there will be a range there from people that will get 1 dose or maybe 5 days of dosing to people who will be almost done with the full picture, so with all the doses. So I think it will be interesting to see how it pans out, what's the minimum, I guess. But right now, we're really aiming for an 8-week regimen. We can do sub-analysis in the future. Jean-Pierre Sommadossi: John? John Vavricka: Yes. We're actually very excited because when we look at the market research that has been done just with the Phase II data, bearing in mind that these physicians had 10 years' experience with two DAAs, and showing them a profile and which as we talked about, the short duration, low likelihood of drug-drug interactions and the convenience of with or without food, just seeing that profile for the first time, they saw it being used in approximately 50% of their patients regardless of their cirrhosis status. So the profile right now stands very, very well. So your question about if there was some kind of a more favorable response in terms of BEM-RZR, obviously, that would play into their likelihood to prescribe BEM-RZR. But we're also very conscious that we play in the specialty arena. And in that specialty arena, obviously, the distribution of market share tends to balance itself out to make sure that the market is preserved over time. Jean-Pierre Sommadossi: Just to add, Andy, it's clear from the KOL and the prescribers that #1 key important feature is the treatment duration. So treatment duration definitely will be on the shortest with Mavyret. But then after when you evaluate all the, I would say, complex aspects with patients with polymedication, we feel that the prescriber will really highly favor our regimen. And then we'll see -- we'll have to wait, the clinical data in terms of all the type of side effects with fatigue and nausea and headache that have been reported. So let's not forget that this is the first head-to-head. There is a lot of world-type studies. But as a controlled randomized clinical study, this is the first one. And let's see what we are going to learn. Tsan-Yu Hsieh: Great. And maybe a quick housekeeping item. Just from an R&D perspective, it seems like there is a one-time Merck license agreement. Can you talk about that just so we have a better sense of kind of going forward, what the... Jean-Pierre Sommadossi: Okay. Sure. Andrea? Andrea Corcoran: So yes, Andy, we have in-licensed ruzasvir, which is the combination product with bemnifosbuvir in the HCV product candidate. We are paying milestones, and we will pay royalties to Merck on successful commercialization. The next milestone will be due when we submit the NDA and the NDA is approved. And we believe that's in 2027. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jean-Pierre Sommadossi for any closing remarks. Jean-Pierre Sommadossi: Thank you all for joining our fourth quarter 2025 and full year earnings conference call, and thank you for your continued support. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, and welcome to Marvell Technology Inc. Fourth Quarter and Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I will now turn the conference over to Mr. Ashish Saran, Senior Vice President of Investor Relations. Thank you. You may begin. Ashish Saran: Good afternoon, everyone. Welcome to Marvell's Fourth Quarter and Fiscal Year 2026 Earnings Call. Joining me today are Matt Murphy, Marvell's Chairman and CEO; Willem Meintjes, CFO; Chris Koopmans, President and COO; and Sandeep Bharathi, President, Data Center Group. Let me remind everyone that certain comments made today include forward-looking statements, which are subject to significant risks and uncertainties that could cause our actual results to differ materially from management's current expectations. Please review the cautionary statements and risk factors contained in our earnings press release, which we filed with the SEC today, and posted on our website, as well as our most recent 8-K, 10-K, 10-Q and other documents filed by us from time to time with the SEC. We do not intend to update our forward-looking statements. During our call today, we will refer to certain non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available on our earnings press release. Let me now turn the call over to Matt for his comments on the quarter. Matt? Matthew Murphy: Thanks, Ashish, and good afternoon, everyone. Let me begin by extending a warm welcome to the Celestial AI and XConn team. We recently closed both acquisitions and the teams are working closely together with joint product road map discussions in full swing with customers. These highly strategic additions further strengthen our technology platform and significantly enhance Marvell's position in the rapidly emerging AI scale-up networking market. I'll provide additional detail on these acquisitions later in today's call. Now turning to our results and business outlook. For the fourth quarter of fiscal 2026, Marvell delivered record revenue of $2.219 billion, reflecting 7% sequential growth. Revenue exceeded the midpoint of guidance, driven by strong demand in our data center end market. As a result, non-GAAP earnings per share of $0.80 exceeded the midpoint of guidance by $0.01. Turning to our full year results. Fiscal 2026 was an exceptional year for Marvell. Revenue grew 42% year-over-year to approximately $8.2 billion as reported, and approximately 45% year-over-year, excluding the divested automotive Ethernet business. Our data center revenue surpassed $6 billion, growing 46% year-over-year. This performance was driven by robust demand for our interconnect, switching and storage products, along with a strong ramp in our custom business, which doubled in fiscal 2026. As we begin fiscal 2027, we are seeing very strong demand across our entire data center portfolio with bookings accelerating at a record pace. This robust demand is reflected in our guidance for the first quarter of fiscal 2027, the total company revenue forecasted now to grow 8% sequentially at the midpoint to $2.4 billion. Looking ahead, we expect to grow revenue every quarter this fiscal year at a similarly strong sequential rate, which would result in Q4 revenue exceeding $3 billion exiting this year. This forecast also implies that our year-over-year revenue growth rate will accelerate each quarter throughout fiscal 2027. As a result, we now expect overall Marvell revenue in fiscal 2027 to grow more than 30% year-over-year, approaching $11 billion. Notably, this outlook is meaningfully higher than what we communicated in our prior updates. Some of you may recall, in September 2025, during an investor call hosted by JPMorgan, we provided a fiscal 2027 revenue outlook of approximately $9.5 billion, which at that time was received positively as it was significantly higher than the market expectations. In our December 2025 earnings call, as CapEx growth forecasts continue to increase, we updated our fiscal 2027 revenue forecast to approximately $10 billion. Today's outlook approaching $11 billion raises our forecast by almost another $1 billion. Importantly, this outlook is driven by Marvell's organic businesses as the recently closed acquisitions are not expected to contribute meaningfully until fiscal 2028. The increase in our overall revenue outlook is all being driven by our data center business. Since December 2025, cloud CapEx expectations have continued to increase, and we have seen our bookings continue to accelerate. As a result, we now see our fiscal 2027 data center revenue growing by 40% year-over-year. We expect all our key product lines in data center to be stronger than our prior outlook. Notably, we expect our interconnect business to more than 50% year-over-year, well above our prior expectation of 30% growth. For our communications and other end market, we expect 10% revenue growth in fiscal 2027. Looking ahead to fiscal 2028, while we assume the rate of CapEx growth moderates from the current fiscal year, we expect continued robust data center revenue growth for Marvell. We expect our interconnect business to significantly outpace cloud CapEx growth, our custom business to at least double year-over-year, and our Ethernet switching business to continue to ramp meaningfully. In addition, we expect Celestial AI and XConn to contribute approximately $250 million in aggregate revenue in fiscal 2028. As a result, we expect data center revenue and fiscal 2028 to grow close to 50% year-over-year. Achievement of our forecast would result in three straight years of data center revenue growth compounding at well over 40%. For our communications end market, we continue to expect low single-digit percentage revenue growth in fiscal 2028, consistent with our prior view. So in aggregate, we expect Marvell's overall revenue in fiscal 2028 to grow close to 40% year-over-year, reaching approximately $15 billion, roughly $2 billion higher than the outlook we provided in our December earnings call, and driving our non-GAAP EPS to well over $5. This outlook is based on demand we are seeing now and designs that are already in execution. As we progress through the fiscal year, we plan on remaining closely aligned with our customers as we expect them to continue to invest in AI infrastructure. With that, I'll provide more context on our numerous growth drivers across our end markets, beginning with data center. In our data center end market, we delivered record fourth quarter revenue of $1.65 billion, representing 9% sequential growth and 21% year-over-year growth. Revenue exceeded our guidance, driven by increased demand across our interconnect portfolio. We achieved sequential growth across all key product lines, including optical interconnects, custom silicon, switching and storage. Looking into the first quarter, we expect our data center revenue to grow approximately 10% sequentially, including a seasonal sequential -- including a seasonal sequential decline in on-premise data center revenue. Let me now highlight the broader trends across both our established data center businesses and our newer growth initiatives, including recent acquisitions. I'll organize the discussion into three categories. Interconnect, switching and custom. I'll begin with Interconnect, where we offer the industry's broadest and comprehensive high-speed connectivity portfolio, addressing scale out, scale across, and scale up networking. In our scale-out PAM franchise, demand remains robust for our 800-gig products. We are also seeing very strong bookings from multiple Tier 1 customers for our 1.6T solutions which entered production in the second half of fiscal 2026. Reflecting this demand in our first-to-market technology leadership, we expect our 1.6T revenue ramp -- to ramp very rapidly in fiscal 2027 with substantial additional growth projected in fiscal 2028. As a result, we expect to continue to maintain leadership in the PAM market at 1.6T just like we have at every PAM generation. Marvell is the first company to productize 200-gigabit per lane technology, enabling the 1.6T transition now underway. While this generation is expected to continue to grow through the end of the decade, Marvell has already demonstrated 400-gig per lane technology. We expect that this will position us to enable the industry's subsequent transition to 3.2T, once 1.6T reaches full maturity. To support campus-wide data centers requiring longer reach than traditional PAM solutions, Marvell has introduced Coherent light, optimized for 2 to 20-kilometer applications within a highly power-efficient outlook. We have already begun shipping first-generation 1.6T Coherent light products and are now introducing a second generation with integrated MACsec security. Turning to scale across interconnects, a technology we pioneered with our 100-gig DCI modules, we continue to lead the market with Coherent 400-gig and newer 800-gig solutions. We are winning new customers and expect to supply DCI modules to all five major U.S. hyperscalers this year. We see significant long-term growth in this market, as the global data center footprint expands and bandwidth requirements between data centers continues to increase. Industry forecasts project that DCI pluggable TAM to grow by more than 5x by calendar 2030, with speeds doubling each generation and feature complexity increasing, including the integration of MACsec. To that end, earlier today, we announced our latest innovations and scale across interconnects, including the industry's first Secure 1.6T ZR and ZR+ DCI modules powered by our new 2-nanometer Coherent DSP. We also introduced a new 2-nanometer 800-gig DSP, which enables second-generation lower-power 800-gig DCI modules. DCI modules powered by these 2-nanometer MACsec-enabled DSPs are expected to begin sampling later this year. This positions Marvell to maintain technology leadership, supported by our proven expertise in large-scale manufacturing of these highly specialized and complex modules. Now let's move to scale-up interconnects, which is an entirely new and rapidly emerging market. We are very excited about what we believe to be a massive opportunity unlocked by Celestial AI's photonic fabric, or PF technology, as well as growing customer traction for our AEC and retimer solutions. As discussed last quarter, Celestial AI's PF technology is expected to enable large-scale commercial deployment of CPO for scale-up connectivity starting next year. Our chiplets will be co-packaged into both custom XPUs and the scale-up which is connecting them together on both sides of the length. With the acquisition now complete, Marvell's engineering and operations teams are fully engaged in bringing Celestial's first generation chiplet into high-volume manufacturing. We remain on track for our forecast for our CPO revenue from Celestial to reach a $500 million annualized run rate in the fourth quarter of fiscal 2028, doubling to a $1 billion annualized run rate by the fourth quarter of fiscal 2029. We have seen strong interest from a broad range of customers in Celestial's photonic fabric technology following the deal announcement. We look forward to updating on our progress in the scale-up interconnect market, which we believe could exceed $10 billion by 2030. In the AEC market, we have secured design wins with 3 Tier 1 U.S. hyperscalers and several additional customers, including model builders and hardware OEMs. We are also seeing strong traction for our retimers. As a result, we expect combined AEC and retimer revenue to more than double year-over-year in fiscal 2027. We continue to innovate through our Golden Cable initiative, a strategic program that delivers a complete solution, including industry-leading software and validated reference designs, enabling ecosystem partners to rapidly design and deploy AEC products at scale. Hyperscale customers benefit from access to multiple high-volume cable OEMs offering fully compatible AECs, both on the same high-performance Marvell DSP and reference design. Turning to data center switching, we delivered strong growth in fiscal 2026 with revenue exceeding $300 million, driven entirely by scale-out applications. Given sustained demand for our current 12.8T products and a strong ramp of next-generation 51.2T products, we now expect data center switch revenue in fiscal 2027 to surpass $600 million, up from the $500 million we had indicated last quarter. We are seeing strong engagement from both existing and new customers for our 51.2T platform, and our upcoming 100T platform, which we begin to -- should we expect to begin sampling in the first half of this fiscal year. Our 100T switch delivers industry-leading power efficiency and lower latency, attributes that are especially critical for AI applications. In scale-up switching, the combination of Marvell and XConn creates a significantly larger team to address rapidly emerging UAL and Ethernet-based opportunities. UA Link builds on decades of PCI ecosystem development and incorporates high-speed interface innovations from Ethernet to meet the bandwidth, latency and reach requirements of next-generation accelerated infrastructure. XConn expands Marvell's switch team with deep PCIe switching expertise, enabling a comprehensive -- enabling comprehensive support to customers building next-generation AI platforms. We are fast tracking our scale-up switch road map by leveraging our extensive experience in developing large reticle size scale-out switch chips, and best-in-class in-house high-performance series. We remain on track to sample our UALink 115T solutions in the second half of this fiscal year with volume production expected in fiscal 2028. In parallel, we continue to advance the Ethernet-based road map with key customers. We're able to further enhance our scale-up road map by enabling integration of our CPO technology from Celestial directly with our switches, delivering a purpose-built, fully optimized end-to-end optical scale-up platform. XConn also adds advanced PCIe and CXL switch solutions, another completely incremental TAM for Marvell. The PCIe Gen 6 and CXL 3.1 solution is based on a monolithic switch architecture supporting up to 256 lanes, delivering the industry's highest ratings and lowest latency. PCIe switching remains foundational in standard compute architectures connecting CPUs to peripherals and increasingly an AI infrastructure to connect CPUs to XPUs. In parallel with next-generation protocols like UALink, PCIe is also adopted for XPU to XPU connectivity, particularly in AI inference systems and small- to medium-sized clusters. CXL is rapidly becoming essential for memory disaggregation in modern data centers. We have been investing in CXL for several years and XConn switching portfolio, combined with Marvell CXL memory expanders create the industry's most comprehensive CXL platform. XConn was already engaged with more than 20 customers prior to the acquisition. As part of Marvell, XConn now benefits from our global sales and marketing reach and strong presence in the data center. As a result, we expect to drive strong growth in both the PCIe and CXL switch markets over the next several years. Turning now to our custom business. This remains one of the most compelling growth drivers for Marvell. In just a few years, we have scaled from zero revenue to $1.5 billion in fiscal 2026. As you may recall, the first meaningful ramp again in the second half of fiscal 2025. Fiscal 2026 marked the first full year of production for those programs. And as a result, we doubled our customer revenue year-over-year. We expect custom revenue to grow more than 20% year-over-year in fiscal 2027, higher than our prior view. We continue to see growth from our Lead XPU program this year, including a transition to its next generation. As I noted last quarter, we have purchased orders covering the entirety of this fiscal year's forecast for this next-generation program and are now ramping production. In addition, we are expecting the growth to continue in fiscal 2028 from this program. We are also deeply engaged on the follow-on generation of this XPU. In addition, several XPU attach programs are ramping in fiscal 2027, including our initial CXL and NIC products. CXL demand is accelerating, partly driven by tight memory supply. Our custom CXL expanders enable customers to reuse prior generation DRAM with new XPUs, GPUs and CPUs, while also supporting near-memory compute operations. A recent white paper from a leading hyperscaler on next-generation LLM inference architectures highlighted, near-memory processing is a key opportunity to improve model performance. They cited Marvell's structure a processor as an example of a CXL-enabled solution that improves programmability and simplify system integration. This all provides a great setup for fiscal 2028, where we continue to expect custom revenue to at least double year-over-year from three primary drivers. First, continued growth from our existing custom programs. Second, multiple XPU attach programs reaching high volume, particularly in custom NIC and CXL applications. As I mentioned last quarter, we have line of sight to revenue exceeding $2 billion by fiscal 2029 from just these two use cases, and we expect to make significant progress towards that outlook through fiscal 2028. Third, our new Tier 1 XPU program ramping into high-volume production. This program has continued to progress well -- very well through development, and we have firm volume requirements for all of next year and are planning for high-volume manufacturing. Beyond programs already won, we are encouraged by strong new design engagements with both existing and new customers. Custom compute is proliferating across the hyperscale ecosystem with inference optimized hardware becoming increasingly important. We are seeing an unprecedented level of activity across multiple new engagements as hyperscalers increased their cadence of custom chip development. We are engaged in deep technical discussions on innovative new architectures, and are seeing a massive opportunity on 2-nanometer and below process technologies. Okay. Turning to our communications and other end markets. We delivered fourth quarter revenue of $567 million, up 2% sequentially and 26% year-over-year. For the first quarter, we expect low single-digit sequential growth on a percentage basis and approximately 30% year-over-year. In summary, we concluded fiscal 2026 on a strong note with revenue growing 42% year-over-year and non-GAAP EPS increasing 81%, roughly twice the rate of revenue growth, demonstrating the strong operating leverage in our business model. Fiscal 2026, we were very active on the M&A front, divesting our automotive Ethernet business for a double-digit revenue multiple, and rapidly redeploying the proceeds into two highly strategic acquisitions. These positioned Marvell at the forefront of the large and incremental AI scale-up networking market. At the same time, we continue to execute our capital return program returning $2.245 billion to stockholders through share repurchases and dividends. So far in fiscal 2027, we are seeing strong bookings across our entire data center portfolio with customers signaling robust demand not only for this year but for the next several years. We believe we are still in the early stages of a strong multiyear growth cycle for Marvell. Our first quarter fiscal 2027 guidance represents 27% year-over-year growth at the midpoint, reaccelerating from 22% in the prior quarter. We expect year-over-year growth to accelerate each quarter throughout fiscal 2027, with revenue exiting the fiscal year at over $3 billion in the fourth quarter. We have raised our fiscal 2027 forecast meaningfully. And in fact, the revenue growth rate we are projecting today for fiscal 2027 is roughly double the outlook we provided just a few months ago in September. This is an exciting moment for Marvell. I want to take a moment to thank our global team for staying focused despite the external noise, and delivering consistent execution, which has enabled record results and positioned us to capitalize on what we expect will be a massive AI opportunity ahead. I look forward to updating you on our progress in the coming quarters. With that, I'll turn the call over to Willem for more detail on our recent results and outlook. Willem Meintjes: Thank you, Matt, and good afternoon, everyone. Let me start by summarizing our full fiscal year 2026 results, which were very robust across the board. In fiscal 2026, Marvell delivered $8.195 billion in revenue, growing 42% year-over-year. This growth was primarily driven by AI demand in our data center end market, as well as the continuing recovery in our communications and other end markets. For the full year, on a GAAP basis, our gross margin was 51%. Operating margin was 16.1%, and earnings per diluted share was $3.07. On a non-GAAP basis, our gross margin was 59.5%. Operating margin was 35.3%, expanding by 640 basis points year-over-year, and earnings per diluted share was $2.84, growing 81% year-over-year. We also significantly increased capital returns to our stockholders, returning $2.245 billion through share purchases and dividends in fiscal 2026, an increase of approximately $1.3 billion from the prior year. Moving on to our financial results for the fourth quarter of fiscal 2026. Revenue in the fourth quarter was $2.219 billion, growing 22% year-over-year and 7% sequentially. Our data center end market was 74% of total revenue, with our communications and other end markets contributing the remaining 26%. GAAP gross margin was 51.7%. Non-GAAP gross margin was 59%. Moving on to operating expenses. GAAP operating expenses were $744 million, including stock-based compensation, amortization of acquired intangible assets, restructuring costs, and acquisition-related costs. Non-GAAP operating expenses came in at $517 million, in line with guidance. Our GAAP operating margin was 18.2%, while our non-GAAP operating margin was 35.7%. For the fourth quarter, GAAP earnings per diluted share was $0.46. Non-GAAP earnings per diluted share was $0.80, above the midpoint of guidance, reflecting year-over-year growth of 33%. Now turning to our cash flow and balance sheet. In the fourth quarter cash flow from operations was $374 million. Our inventory at the end of the fourth quarter was $1.39 billion, growing $374 million from the prior quarter. Our working capital has increased to support the significant revenue growth we are driving. During the quarter, we repurchased $200 million of our stocks through our ongoing capital return program, and returned $51 million to shareholders through cash dividends in the quarter. We expect to continue to return capital through repurchases and dividends. As of the end of the fourth quarter, our total debt was $4.47 billion, with a gross debt-to-EBITDA ratio of 1.38x, and a net debt-to-EBITDA ratio of 0.57x. Our debt ratios have continued to improve as we have driven an increase in our EBITDA. Turning to our guidance for the first quarter of fiscal 2027. We're forecasting revenue to be in the range of $2.4 billion, plus or minus 5%. We expect our GAAP gross margin to be between 51.4% and 52.4%. We expect our non-GAAP gross margin to be between 58.25% and 59.25%. Looking forward, we anticipate that the overall level of revenue and product mix will remain key determinants of our gross margin in every -- in any given quarter. We project our GAAP operating expenses to be approximately $872 million. We anticipate our non-GAAP operating expenses to be approximately $575 million in the first quarter. This is stepping up from the prior quarter due to the typical seasonality in payroll taxes, and employee salary merit increases, as well as the addition of Celestial AI and XConn. The two acquisitions in aggregate are expected to add approximately $75 million to our fiscal 2027 annual non-GAAP operating expenses. We expect our GAAP other income and expense, including interest on our debt, to be an expense of approximately $51 million. We expect our non-GAAP other income and expense, including interest on our debt to be an expense of approximately $48 million. We expect a non-GAAP tax rate of 11%. We expect our basic weighted average shares outstanding to be 876 million, and our diluted weighted average shares outstanding to be $883 million. We anticipate GAAP earnings per diluted share in the range of $0.26 to $0.36. We expect non-GAAP earnings per diluted share in the range of $0.74 to $0.84. As we look ahead to the rest of fiscal 2027, we will continue to invest in growing our business while driving operating leverage. On a sequential basis, we expect non-GAAP OpEx to remain flat in the second quarter and then grow in the low to mid-single digits on a percentage basis in each of the third and fourth quarters, well below the rate of revenue growth Matt provided in his remarks. We are seeing strong growth from our existing franchises and scale out and scale across AI as well as custom, and we are investing to drive new revenue streams from the rapidly emerging AI scale up market. We have entered a robust multiyear growth period and are looking forward to delivering strong earnings growth to our stockholders. With that, we are ready to start our Q&A session. Operator, please open the line and announce Q&A instructions. Thank you. Operator: [Operator Instructions] Your first question comes from Ross Seymore with Deutsche Bank. Ross Seymore: Matt, thanks for all the updates on the out year and well, fiscal year, both this and next. Beyond the magnitude of the revenue growth, can you just talk about the profile of it? Is the customer base broadening? People are always worried especially in your custom business about the concentration of it. So I just wanted to get a little bit more color on the shape of the demand from a customer perspective? Matthew Murphy: Yes. Thanks, Ross. Well, first of all, we're deeply engaged across the entire ecosystem, extremely strong position with the top four U.S. hyperscalers and then the next level. And each of them, we have a different concentration and revenue mix. But just to be super clear, if you look at this year and you look at us driving the company to $11 billion, and then you unpack things like custom, it's not that big a percentage of the total. So that's not what's driving our concentration. I mean by design because of the top four U.S. hyperscalers is spending the bulk of the CapEx, that's where the dollars are going to go. But we're quite diversified across each of them. And some of them we sell a different mix, obviously, of product to. But in the case of all four, within our portfolio, which I just went through the laundry list of all the different types of products that we provide, we're highly diversified within each of these customers. So -- so yes, custom is something that gets a lot of attention. But if you just look at the numbers I gave you and the context as I said, it's a piece of the equation, but not all of it. And then over time, even on the custom business, as you look out through fiscal '28 and fiscal '29, Remember, we've got 20-plus design wins, or products now, sockets that are either in production or going into production, it's going to layer in across all those companies as well. So the diversification is only going to get better over time. But we're very unique in sort of the breadth I think of the products that we offer and the product lines we have to really serve end-to-end the needs of all of our key hyperscalers. And the last two M&As we just did really round that out nicely in terms of adding PCIe, getting -- beefing up the UAL, and then also adding key silicon photonics capabilities. Operator: Your next question comes from Harlan Sur with JPMorgan. Harlan Sur: Congratulations on the strong results and execution. Matt, on your custom XPU and XPU attached subsegment, OpenAI recently inked a partnership with your lead XPU, customer to consume, I think, something like 2 gigawatts worth of your lead customers, next-gen and next-gen XPU. So it feels like the overall demand for AI compute continues to accelerate. Right on top of that, like you said, you're ramping 15 to 20 XPU attached custom programs this year and next year. Within our better outlook for custom this year, and with you already starting to ramp your lead customers next-gen XPU program, do you still anticipate a stronger second half step-up of this XPU program? Or is it more of a linear ramp through the year now? And I think you previously thought that you would exit this year with custom driving about a $2 billion sort of annualized growth rate. What does that exit run rate look like today? Matthew Murphy: Yes. Thanks, Harlan. I think the first part of your question is absolutely seeing strong validation in the market for the AI compute spend, and the fact that a significant portion of that continues to go to companies that are building their own XPUs. So that's a positive trend. We certainly see it. And you're right. Even where we don't necessarily have the XPU, we have XPU attached. So all the XPU attached is going with XPUs in customers where we're not participating. So we're -- we participate across every one of those large companies and more on XPU attached. So that's a very positive trend for us that's driving our positive outlook for sure through this year, which we said custom was going to grow faster than we thought, but more meaningfully into fiscal '28 and '29. And then from a linearity perspective, under the hood, we kind of give you a view of what the sequentials would look like throughout the year. But yes, custom, we have said was going to be a stronger second half due to a program transition. That's still the case. And that -- the type of exit rate you're talking about is certainly still intact and probably has an upward bias to it. If you look at the exit rate we're talking about for the whole company now, we're looking at north of $3 billion. So within that custom continues to have some real upside to it. But that's going to improve meaningfully and the revenue growth is going to continue into fiscal '28 which is basically those programs from the second half now having a full year. So that's going to provide some nice growth. Content increase, then layering in the XPU attach, and then layering in our new program with a new Tier 1 hyperscaler, which is in its early stages, but just even the rough plug we have for them, is significantly lower than actually the wafers that we're planning on starting the material and the production plan we have with our manufacturing supply chain. So I think it's a very reasonable setup for next year with a lot of upward bias depending on if these trends continue. Operator: Your next question comes from Aaron Rakers with Wells Fargo. Aaron Rakers: I guess my first question is on the optics, the electro-optics business. I know Matt, you've talked about in the past that your ability to kind of outgrow the pace of what we're seeing in CapEx spend. So I guess my question is, we've seen some massive upward provisions in CapEx. I think most people look at that and say, "Hey, we're looking at like 60% plus growth this year." Do you think you can grow at that level? And how do you think about the durability of that growth as we move into fiscal '27 -- or fiscal '28? Matthew Murphy: Yes. Aaron, your observation is absolutely correct. And that's why even as we look at the upward momentum we see in the business for this year, a big part of that change is in that electro-optics portfolio. We had been calling it kind of closer to CapEx as we were modeling what we thought we could do this year back in the September call and then even in the -- in my December call. But now it's clearly growing more like -- more like accelerator growth and more like this sort of accelerated CapEx growth. So yes, it's growing like 50% plus this year now. And that momentum is going to continue, okay, into fiscal '28. A couple of things are happening there. The first is that as new XPU, GPU, et cetera, generations are released. There is -- we are seeing some increased concentration on the attach rate of optics. So that's a positive. You get more 1.6T, which has just -- because of its performance, commands higher ASP. So that's going to roll in. And then we have -- yes, we just have some pretty new exciting programs happening in that area. So that business has been growing at like 50% a year-ish. You can give it plus or minus, I get the exact data. But it's been at that rate for some time since we acquired Inphi and the data center stuff really took off. We see that continuing not only through fiscal '28, but that momentum should continue beyond that. Maybe it's not the exact same magnitude, but it's significant. We have a real head of steam on the electro optics business at Marvell. Operator: Your next question comes from Blayne Curtis with Jefferies. Blayne Curtis: Matt, I don't want to ask on the custom business. So I think you feel very confident about the trajectory. I'm just kind of curious, one, can you just help us with '26? Because I mean, you have the big broad swath, but I mean, is that custom business growing 30% this year? I just want to figure out the base that you're going to double. And can you talk about that second major XPU customer? I mean, kind of give this type of guidance, like what kind of confidence do you have in the timing of that program? Matthew Murphy: Sure. Yes. And I think you're talking about -- just to be clear, calendar '26, fiscal '27 set on custom, kind of what numbers are we talking? Is that the first question? The second one is the... Blayne Curtis: Yes, sorry, your fiscal year. But yes, fiscal '27 is at around 30%. And then your confidence level on that second major XPU customer and timing as we try to layer that in to get to that double? Matthew Murphy: Yes, great. And by the way, I don't feel bad. I've been in this job for 10 years, and I still have to translate every day between my fiscal year on my calendar year. So don't feel bad. For fiscal '27 we had been indicating after the double from last year, it would grow 20% this year. So we're just saying that's north of that. So I'm -- I can't give you the exact number now, but it's biased upwards, but it's just -- so just take what I read before that 20%, you can make an estimate but higher, but not significant enough where I would like give you a new number, but just say it's biased higher. So in the ballpark, but higher. So then next year, obviously, gets a little bigger than we thought. And then the reason we're confident is we have line of sight in terms of -- well, first of all, we have history, right? We've built these large scale custom programs before. We've done these ramps before. We have a good sense of when the product is going to go through its key milestones through NPI. We have had very detailed discussions and alignment around the manufacturing plan, and we've aligned up a corridor for fiscal '28 for production on this that would be a lot higher than what I'm indicating to you. I think we're budgeting at the moment for -- is there a delay? Does it take longer, et cetera. And plus, I think at the moment, it seems like a lot of folks aren't really believing it's maybe going to do anything. But I think our plug is very, very reasonable for next year Blayne in terms of what's there. And I think it would bias quite a bit higher if we could just achieve what we're planning on reserving in terms of capacity. So more to come there. But I think we try to call the ball as best we can. And in general, we've done a pretty good job over the years of trying to size and judge things in advance. And then usually, we're pretty good and then they're biased upwards. So we'll see where it lands. But I think it's not a big stretch for this custom business to double next year. Operator: Your next question comes from Ben Reitzes with Melius Research. Benjamin Reitzes: Matt, nice to see the beat and raise. I wanted to ask the question about what got better in a different way? I mean, if you could just unpack since December, the $2 billion, especially the -- how fiscal '28 got $2 billion better since December? What -- if we can unpack that and what exactly got better? And then potentially, I'm going to be a little greedy, what can carry into the next year as well, calendar '28 of those signs that you saw since then? Matthew Murphy: Yes. Thanks, Ben, and great to hear from you a long time. So I think -- one is you just kind of look at it as progression. I mean, it's the first point I'd make is we tried to give a view for investors to be helpful because there's a lot of concern and angst back at the end of last year. So in September, we talked about 9.4-ish for this year. And then that's now -- in December, we said that looks more like 10, and now I'm saying it's more like 11. So some of that is just the progression in terms of time and getting better visibility and more concrete. And then that just ripples into the -- I'll use calendar for a second, calendar '27. But on top of that, I mean, one, we've now got very firm requirements and understand the profile, in particular the interconnect business. And that is, I think we had called it very conservatively, to be frank. And I think even a few analysts last quarter kind of [ dinged ] us saying, well, you're plugging your interconnect business at CapEx, but it really looks more like it should be tied to GPU, XPU. And that's really the case. So I think we're seeing that now in terms of the forecast. So that's come up quite a bit, which then again, the upward revisions we're seeing for this year then ripple into next year. And then I'd say this is all underwritten Ben, by extremely strong bookings and backlog layering in and then the detailed conversations with our customers around supply planning. It's just given us a much more concrete view. And by the way, the other reason I think it's important and why we felt it was important to continue to update on this metric is that we set targets back in April of '24 for calendar '28. We did that around some assumptions around data center market share of 20%. And those numbers looked enormous at the time we talked about it. I think you guys were there. We were doing low billions a quarter in revenue at that time. $1 billion -- I think we had guided $1.1 billion or $1.2 billion when we put out this number that was like $15 billion in data center revenue in four years. And I think everyone thought we were nuts. At our June AI investor event, we said the TAM went up, so that data center revenue bogey kind of moved up to like if you just did the math, moved up to more like $18 billion and change. But now you kind of look at it and you see where we're landing in calendar '26. And now we're sitting here in '27. I mean, it's -- we're very much on track actually to those targets that we had set Ben. And so in a way, yes, it's some upward revisions and that's part of it is just because we have more data, but it actually is also validating, I think, the plan we set actually four years ago about what we thought we could go off and do, which were very lofty ambitions, and we're not there yet, and we have to go execute like crazy me and the whole team. But we're very encouraged by what we're seeing, and the proof is in the pudding that we're getting in terms of the backlog forecast and alignment with our entire supply chain to be ready to go make that happen both this year, next year and in calendar '28. Operator: Your next question comes from Tom O'Malley with Barclays. Thomas O'Malley: I think in the preamble, Matt, you talked about AEC and retimers more than doubling in the fiscal year. Could you maybe give us some perspective on the base there? And then you've been really helpful in the next few years kind of giving the contributing factors of what is a pretty impressive growth profile. Maybe talk a little bit about how much that can contribute in this broader overview? Matthew Murphy: Yes. Tom. Yes, this is still an emerging area for us. So we're -- it's doubling -- over doubling this year, but it's probably in the $200 million range is what I would say. I mean, we actually -- I think based on some of the things we're looking at, maybe that goes higher, but that just gives you a sense of the magnitude. But it's going to keep going from there. I mean this is -- we've seen this in a lot of our emerging product areas when we get into them. Once they start doubling, they kind of keep doubling, and you know this market quite well. There's quite a bit of room, I think, for a bunch of people to participate. So yes, we're very encouraged by what we see based on the traction we have on our products, especially on product leadership. We leverage a lot of our DSP and PAM technology in this area. We inflected when both on the retimer side and AECs move from NRZ to PAM, and that was -- that was our kind of conscious decision to do that. So we're earlier in the cycle because we're coming in, in later generations than some of the existing sockets, but we intend to really invest here in a significant way and participate. Over the long term, we see that as complemented. There's a place in the market for this, and we're going to participate. But obviously, we made the bet when you go back to even the Inphi acquisition five years ago on optics and pluggable optics, in particular, and then now with Celestial also, on CPO on the scale upside. So there's a period of time we're going to participate. I think it's going to be great, and the business is going to do well and it leverages what we have. And I think it's going to be just part of our goal to be the end-to-end provider for our customers of all of these types of solutions. From electrical to optical to silicon photonics various reaches various distances, various form factors. And that's what our customers are looking for, okay? They want to have an interconnect partner that could be the one-stop shop and do it all and have high amounts of leverage on the IP, so they can trust it, because we do it ourselves and also on the firmware and the software, and the system implementations, they also want to make sure that they have reusability. So it's been a virtuous cycle here, just the scale-up part relative to the scale out is smaller but growing rapidly. Operator: Your next question comes from Vivek Arya with Bank of America Securities. Vivek Arya: Matt, I just wanted to first clarify what your XPU attach was last year and what contribution you expect in '27 and '28? And then, kind of, my more strategic question is, when we look at the pattern of your first large XPU program, right, you had a very strong start, followed by competition from another supplier. How would you handicap kind of your exclusivity at the large new XPU customer you plan to start at next year? Matthew Murphy: Yes. Thanks, Vivek. So maybe I'll answer the second one first. So yes, we're -- I think you're asking specifically about our newer program that would ramp next year, and we feel very good about our position. These are very deep engagements we have with our customers. We're two hands on the steering wheel on this. This is multi-generational in nature. Given the rate of innovation and the pace that the technology is moving at, it's really in everybody's best interest to plan, not just one generation out but even farther. And so we've really been able to do that, I think, across the Board with our customers. And so we feel really good about our position there. And the sustainability of that. It still needs to ramp obviously. But certainly, the CapEx envelope is out there to really consume a lot of product, and we're very encouraged by what we see from a road map perspective. And we're investing heavily as a company to be there across the board on all of the key attributes that these big XPU customers care about. So I think more to come on that, as well as future opportunities on XPU for the company. But we feel very good about our position in the next few years in terms of line of sight to hitting the revenue targets that we talked about over the last couple of years and then growing beyond that. And then, yes, I'm sorry, then the -- on the XPU attach, we [ can't ] give the exact numbers, but just maybe big round numbers. And maybe we'll first start with the line of sight just on the NIC and CXL I gave you, which was kind of $2 billion out in '28, and then you layer more on that. So -- and by the way, just -- we had sized for everybody on the call, the XPU attached TAM in the future at about $15 billion in calendar '28. We didn't break it out exactly, but we had a total market share goal of about 20% in that time frame. So I'll just call that $3 billion, we're driving in that area. So let's take a step back now. XPU attached probably in the couple of hundred million ballpark say like this last year, doubling this year, maybe over doubling again the year after. So I think by next year, this thing is probably a $1 billion type business. We'll see how it all shakes out. It's all going to happen under the hood of our custom business with that. But just to give you a sense, it's on a massive trajectory upward, and it's in that category of kind of double plus each year. Operator: Your next question comes from Tore Svanberg with Stifel. Tore Svanberg: Congrats on the record quarter. Matt, I was hoping you could give us a bit of an update on the mix of the opto electronic business. So you talked about 1.6 already shipping. But my understanding is that 800-gig is definitely going to be the bigger volumes this year. So any sense for what the mix is going to look like for fiscal '27 between 1.6, and I guess, 8 and even some 400? Matthew Murphy: Yes. Well, I think you got it right. First of all -- and we've been saying this for a while that 800 was going to be sort of stronger for longer, and I think that was our mantra even last year. And that's still the case for sure. But as I mentioned in the prepared remarks, we had significant shipments actually of 1.6T at the end of last year, and it's going to ramp again pretty hard this year. But 800 will still be the majority. I think it's going to take probably through -- I mean, even next year, 800 is still going to be strong. So I can't give you the exact breakout at the moment, Tore, but part of the -- I think, the uplift as well in terms of just our outlook for interconnect for the year was also based on, kind of, all of our customers revising up in terms of what they were going to need, but maybe a little bit more pronounced in 1.6T and it's really ramping strong with those initial customers we had and more will layer on throughout the year and next year. So yes, maybe more on that later, Tore, but probably not in a position to give you the exact number. And also, I'd say the reason why too, is it's been moving around a lot. I mean, this has been very dynamic in terms of the bookings environment and the demand environment. So I think the mix will have a better view of what that looks like as we progress throughout the year. Operator: Your next question comes from Joe Moore with Morgan Stanley. Joseph Moore: With all the growth that you're looking at here, I wonder if you see anything on the supply chain, that could be challenging for you. My sense is you've come a long way in terms of supply chain management since a couple of years ago, but just any updates there would be great? Matthew Murphy: Yes. Joe, great to hear from you. I'm going to have Chris answer that, our COO. He's been knee deep and had that job for about 5 years, and he's knee-deep in the supply. So Chris, go ahead. Christopher Koopmans: Yes. Thanks, Joe. Look, we've been in a tight supply environment for anything that touches AI, advanced node wafer fabrication, advanced packaging, large body substrate since the launch of ChatGPT. And against that backdrop, to your point, we were still able to grow the company north of 40% in total revenue last year. So we clearly have very, very good relationships with our suppliers. But I would argue that really what helps us we've been forecasting this growth for quite some time. And by giving them multiple years of visibility of what we're going to need and ramping into these numbers is really helping us. And so I'm very confident we've secured the supply that we need for all the growth that Matt outlined this year, next year and beyond. Operator: Your next question comes from Jim Schneider with Goldman Sachs. James Schneider: It's great to hear the increased visibility you have business in the next year, but If I think about the guidance for $15 billion of revenue next year, and $5 of earnings, roughly speaking, that's about 15% to where I see the peak consensus being for next year's revenue, but only about half of that on the earnings side. So can you maybe unpack a bit of what are the moving pieces below the top line? Whether that's gross margin mix, or increased investments to sort of get to that? Or is the $5 number just relatively conservative? Matthew Murphy: Jim, yes, yes, that's like just a floor like it's 5-plus. I mean you can run your own pro forma income statement. But just to give you a sense of how to think about it. So on the top line, we gave you a framework. And then you can also take, basically where we're going to exit this year and you could use whatever number you want to model finally in your model, but we're saying put in 3, or a bit more. And then if you actually just kind of roll through some of the guidance we've given you already for this year on OpEx and the moving pieces on gross margin, we actually start to get to our target operating model, margin model exiting the year. And that probably continues through the next year is a safe assumption. So the number if you put in 15, and you put in that, it probably -- it floats above $5. So that was not a prescriptive number, or a firm number. It was just a 5-plus. People are going to have their own estimates, and you guys will sort of come up with your own view. But yes, no, I'm not making any comment about any kind of margin changes, or dilution, or losing leverage at all. We're going to get leverage -- we're in the mid-30s op margins right now, if you kind of look at where we were last quarter and what we're guiding and that should float up throughout the year. And then not calling it exactly for next year, but it probably would be consistent with our -- certainly our exit rate of this year. And so that's a simple way to think about it. So it's -- that would pop out a number above $5. Operator: And your next question is from Christopher Rolland with Susquehanna International Group. Christopher Rolland: Matt, thanks for answering the question. So mine is around kind of big picture, like the CPO scale-up world. Perhaps if you could describe what it looks like, what it looks like for Marvell? But also in your prepared remarks, you talked about integrating Celestial, it sounds like into the Innovium platform. I was wondering, are there potentially like UALink switch trays that you might be able to integrate this into as well? And just the timing around such products would be cool. Matthew Murphy: Yes. Great. Thanks. So yes, on the initial plan on Celestial -- and where we -- and just by the way, on the big picture side, our view pretty consistently for some time now has been that the deployment of CPO and scale out would be relatively limited relative to the -- especially relative to the amount of pluggable transceivers that we're going to get deployed. And you can go back many, many OFCs ago, and that's been our view. And that's been the case to today, for sure. And then I think on the go forward, relatively wise, it's still the case, although you may see some of the industry. That's not our current plan today, although we could absolutely do that and do that integration with the Celestial technology, and our Innovium CareLink products. And we've done POCs and we've done some work there, but we'll be ready to react to the market there, Chris, when it's needed. On the scale up, and you mentioned UAL, that's a perfect use case where that is where we see that CPO technology inflecting in a pretty big way and Celestial brought us a pretty significant design win and engagement in that area. And that's what we're trying to drive for next year. So when we ramp it next year, at the end of next year, the -- that would be serving the scale-up application and it would be both an integration of the photonic fabric chiplet into the XPU, as well as on the switch side. That's the first one. There will be a whole bunch of shipments on scale up switching that will be copper-based, and that's going to exist for some time, too. But we're seeing very, very strong interest across the board for kind of beyond the next few years of where the CPO for scale-up really starts to inflect. And this has been -- and that's sort of been our recognition over the last year or two, is that's where that's going to happen and that's why we did the M&A and we brought the team on. So to sum it all up, we'll be shipping next year CPO for scale up at one large customer, and then we're working on more for beyond that. And then the rest of those deployments would be still copper-based. I think we'll do one more question and then I'll -- I think we'll wrap it. Operator: Our last question then will come from Mark Lipacis with Evercore ISI. Mark Lipacis: Congrats on the great quarter. Matt, I'm wondering, when you look at these AI systems that your customers are building, it sounds like the way you're talking about it that there's a bigger bottleneck on the connectivity side and the processor side. And so -- but that would be like the part one of the question. And if you agree with that, what's the argument for, why not shift your process or resources to focus more on connectivity? It seems like your lead is a lot more obvious on the connectivity side, it's a higher margin business. That's where the bottleneck is. And seems like there's a higher chance to add more value, to get paid for that value. And by contrast, the processor side sounds like it's quite noisy on the competitive front. And I think you guys probably get dinged on multiple because of that noise. And so what's the kind of -- what's the rationale for not doing something like that? Matthew Murphy: Yes. Thanks, Mark. It's a valid question. So first of all, on the interconnect side -- well, on your first part of your question, I'm not sure what's more of the bottleneck or not? I know for sure, the interconnect is a bottleneck, but you could also argue industry-wide, there's a lot more to do on the processing side. But just to be clear, we are absolutely investing to win on interconnect. Like we're not sort of trading anything off there. I mean we're going all in to make sure that we're the leader here. And that's why you can even see when we did our M&A moves last year, we put all that towards that market. I would say, though, at the same time, we're in the custom business. The -- and you got to break it into two pieces. On the XPU attach side, obviously, that is more margin-rich. And leverages a lot of the Marvell IP, and technology we have, and those typically are our chips that we do. And we've made quite a nice business out of that. And then on the XPU side, we want to be a big time supplier to our customers. We do get strategic advantage, okay, in being in that market though, Mark, which was actually even a reason thinking all the way back to Avera when we acquired it out of IBM -- or sorry, out of GLOBALFOUNDRIES back in 2019. And one of the reasons that I wanted to do that acquisition and get Marvell into custom -- I mean I never envisioned it would be this significant business for us. Okay. Let's be clear, back in 2019, we weren't thinking that we were going to buy an asset for $650 million, and it was going to open up a $50 billion TAM, but it did. And one of the strategic rationales that I had for that deal was that it would put Marvell in a product area where we had to be at the bleeding edge. We had to be at the bleeding edge on nodes, packaging, IP development, and it was a tip of the spear type of product line that I felt would be really good for us to really have a driving force to keep Marvell best-in-class on technology. Because at that time, we were making the move from fast follower to trying to be a technology leader. So now we're in that business. I agree with you. It's got a lot of noise around it, and it's got a lot of controversies over the last year and all the different things that have gone on, and maybe it's affected a multiple. But the fact of the matter is, we're in that business. Our customers are counting on us. We've grown that business from zero to $1.5 billion. It's going to grow again this year. It's going to double the year after. And it's going to be a significant revenue growth driver for Marvell. So I'm not compromising anything on the rest of the portfolio to be in that business. And remember as well, that business also gets significant funding and contribution from our customers who pay us NRE and put their commitment in to make sure that those programs are successful. So we do get underwritten in terms of the support to go do them. And so I'm going to keep -- at this point, I'm in the AI market. I have the full portfolio. I'm going to follow what my customers want me to do. And I'm going to ignore the noise. I mean, if you actually look at last year and all the different things that came out, and all the different noise that was out there, it was all wrong. I mean you actually analysts retracting notes. You had articles that weren't even accurate at all. I mean you had -- honestly, it was all noise. Look at our results that we're guiding, look at our outlook for this year. Look at our outlook for next year. Do you see me blinking? You don't. So yes, we're in the business. We're going to be in the business. Our customers want me to be in this business, and we're going to drive a major significant revenue company at Marvell. I'm very fired up on this topic. Thank you, Mark. All right. Ashish wrap it? Ashish Saran: Go for it. Matthew Murphy: Yes, I got a couple of closing statements. That wasn't it, by the way, everybody. All right. So first, thank you, everybody, for joining the call. I appreciate the interest in the company. It's always fun. Look, our business is on a very strong trajectory, okay? I mentioned on our prepared results. We had record design wins over the past year. Team did a great job. We're seeing record demand. We're on track to grow our data center revenue at or above 40% for the third straight year. And by the way, if I go back 4 years, 5 years, 10 years, this business has been growing at like 35%, 40%, 45% for a very, very long time, and it's going to continue to do that. In fact, for next year, we're looking at that growth accelerating closer to 50% next year, and we're driving the company to try to get this company to $15 billion of revenue next year. It's -- I've been doing this job for 10 years. The team has been incredibly dedicated and we have this massive opportunity in front of us. So as I said to Ben, who asked one of the great questions, we set some very ambitious targets for the company for calendar '28, fiscal '29. Almost 2 years ago, it looked crazy. We're on track. We're on track to achieve the goals that we set. This is the start of it. We're going to continue to update you guys on the progress of the company. And I want to end by just thanking all the Marvell employees for your focus, your commitment, and your commitment to our customers to drive the execution they're looking for, and our goal is to make Marvell one of the big winners in this once-in-a-lifetime episodic AI infrastructure build-out. So thanks, everybody, for your interest in the company. I'll see a bunch of you guys on the East Coast in New York next week. Operator: Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.