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Operator: Good afternoon, and welcome to the Elastic Third Quarter Fiscal 2026 Earnings Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Eric Prengel, Global Vice President of Finance. Please go ahead. Eric Prengel: Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Elastic's Third Quarter Fiscal 2026 Financial Results. On the call, we have Ash Kulkarni, Chief Executive Officer; and Navam Welihinda, Chief Financial Officer. Following their prepared remarks, we will take questions. Our press release was issued today after the close of market and is posted on our website. Slides, which are supplemental to the call, can also be found on the Elastic Investor Relations website at ir.elastic.co. Our discussion will include forward-looking statements, which may include predictions, estimates, our expectations regarding demand for our products and solutions and our future revenue and other information. These forward-looking statements are based on factors currently known to us, speak only as to the date of this call and are subject to risks and uncertainties that could cause actual results to differ materially. We disclaim any obligation to update or revise these forward-looking statements unless required by law. Please refer to the risks and uncertainties included in the press release that we issued earlier today, included in the slides posted on the Investor Relations website and those more fully described in our filings with the Securities and Exchange Commission. We will also discuss certain non-GAAP financial measures. Disclosures regarding non-GAAP measures, including reconciliations with the most comparable GAAP measures, can be found in the press release and slides. Unless specifically noted otherwise, all results and comparisons are on a fiscal year-over-year basis. The webcast replay of this call will be available on our company website under the Investor Relations link. Our fourth quarter fiscal 2026 quiet period begins at the close of business on Thursday, April 16, 2026. We will be participating in the Morgan Stanley Technology, Media and Telecom Conference on March 2. With that, I'll turn it over to Ash. Ashutosh Kulkarni: Thank you, Eric, and good afternoon, everyone. Thank you for joining today's call. Elastic delivered yet another outstanding quarter, beating the high end of guidance across all key metrics and showcasing the power of the Elastic platform and our business model. Sustained platform demand, strong sales execution and our relentless focus on customers drove Q3 momentum. As LLMs rapidly evolve their capabilities around inference and reasoning, it is becoming increasingly clear that context is the most important ingredient in making these models useful within an enterprise. With that backdrop, in Q3, we continue to see enterprises choose Elastic to power context for their most critical AI needs. Translating the success to our performance, we achieved 18% total revenue growth and an 18.6% non-GAAP operating margin. Sales-led subscription revenue accelerated to 21% alongside our growing cohort of $100,000 ACV customers, which now exceeds 1,660. Q3 marked our sixth consecutive quarter of strong field execution, driving solid customer commitments and supporting healthy CRPO growth. That execution is also translating into a strong pipeline as we head into Q4. The lifeblood of organizations is the proprietary data that they create, manage and analyze every day to drive business decisions and operations. This data is massive, often many petabytes in scale and simply cannot be moved for cost and security reasons outside of the organization's control. For businesses to use agentic AI, the LLM needs to come to the data. This is where Elastic comes in with our ability to help organizations store and manage all of their data in very cost-effective ways and by providing accurate real-time context to AI by searching through all of this organizational data in real time. Furthermore, Elastic is capable of doing this consistently across cloud and self-managed environments. This hybrid flexibility allows sensitive data and workloads to remain in their preferred environments, eliminating the need for costly replatforming. This unique flexibility is why we continue to displace legacy vendors and niche cloud-native players alike. And the results are clear. The number of commitments for over $1 million in annual commitment value signed this quarter grew over 30% compared to the same period last year, driven by new logos and customer expansion. Consolidation and AI are powerful tailwinds. As organizations manage exploding data volumes, they are turning to Elastic to drive both innovation and efficiency to their search, observability and security needs. For example, we signed a 7-figure new logo deal with a Fortune 100 insurance institution for Elastic Security. Seeking to modernize their security operations, the company initiated a competitive process to replace a legacy SIEM solution that was plagued by slow query speeds, inefficient data retention and rigid SOC workflows. By leveraging features like Logsdb and searchable snapshots, they're consolidating data into a single cyber data lake with integrated AI-powered SIEM workflows, all powered by Elastic and its capabilities, including AI assistant, attack discovery and AI-driven orchestration. This transition enables their analysts to achieve markedly faster cybersecurity detection and remediation outcomes while meeting strict regulatory requirements. In another large deal from the quarter, a global leader in data resiliency software chose Elastic Observability to power the monitoring layer for its new cloud offering. As they migrate their vast user base to the cloud, they are leveraging our full Observability suite, including AI assistant with Logsdb to transform from reactive troubleshooting to intelligent semantic aware analysis. By integrating open telemetry and our vector search capabilities, the customer is now able to proactively detect anomalies and remediate issues using natural language queries, significantly reducing mean time to resolution. They chose Elastic over incumbents due to our deep integration flexibility, superior handling of unstructured data and the ability to provide a single source of truth across the organization. Crucially, as companies navigate their cloud migrations, they require a platform that doesn't force them to choose between their existing data centers and the cloud. Our asymmetric advantage in supporting modern cloud and hybrid environments drove a significant win with a global financial group. During the quarter, we closed a 7-figure expansion deal for Elasticsearch, which serves as the core of their online banking application for tens of millions of users. They needed a central data repository capable of supporting both cloud and self-managed architectures, allowing them to run mission-critical workloads in their preferred environment without compromising performance. Elastic succeeded with their existing MongoDB implementation failed to provide the scalable retrieval and precision necessary to move beyond simple search into production-grade context engineering. Moving forward, they are integrating semantic search and advanced AI features to further personalize the user experience through faster, more accurate retrieval. Central to these enterprise engagements is the rise of agentic AI. Customers are moving from passive Q&A to active agents that drive workflows. Precise action requires precise data. The conversation has shifted from which model to use to how to feed it the most accurate context. Enterprises realize that to unlock the value of AI, they must bridge the gap between their LLMs and their proprietary unstructured and structured data. Elastic makes this AI work. We are the engine that allows enterprises to build production-grade AI systems that are actually worthy of their business. While others offer simple vector databases, we know that vectors alone are not enough. We deliver the full retrieval toolkit from hybrid search to advanced reranking, ensuring that agents have the relevant context they need to take precise actions. This ability to bridge enterprise data to the LLM with our platform is directly translating into expanded AI adoption. In Q3, new customer commitments with AI continued to grow. And we now have over 2,700 customers on Elastic Cloud using us as a vector database with additional customers using us for broader AI capabilities, including agent builder and attack discovery, bringing our total count of AI customers to over 3,000. We now have over 470 customers with an ACV of $100,000 or greater using us for AI. This includes more than 410 using us as a vector database. Cumulatively, AI use cases have now penetrated over 1/4 of our $100,000 ACV customer cohort. We are seeing sustained demand from the largest companies in the world alongside interest from the new wave of AI native companies. During the quarter, we closed multiple new logo and expansion deals with AI-first innovators, validating that our platform is the standard for both established enterprises and disruptors. A leading AI recruiting platform used by large enterprises and start-ups alike chose Elastic's vector database to power their core customer-facing software because our search performance at scale was better than competitors. An AI-enabled driver and fleet safety company expanded their use of Elastic Search in Q3 as they scale into new global regions. Elastic provides the real-time retrieval necessary to power their platform, ensuring they can manage increasing data volumes without sacrificing performance. And a leading AI-native cybersecurity company focused on AI automated penetration testing has integrated our SIEM solution into their product. Elastic centralizes all of their logs without complication, allowing them to effortlessly scale through their massive growth trajectory. At the heart of these wins is the performance of our Search AI platform. We aren't just adding features, we are aggressively optimizing our engine, focusing our development efforts on delivering market-leading relevance, speed and efficiency. In the last 18 months, we have driven 2 orders of magnitude less RAM required for vector search through innovations like better binary quantization or BBQ, Disk BBQ and our Acorn filtering algorithm, among other things. This investment makes Elasticsearch vector search up to 8x faster than OpenSearch. Our superior performance led to one 7-figure deal with a global heavy equipment manufacturer. The customer continues to migrate mission-critical workloads over to Elastic Cloud from OpenSearch to improve scalability and performance. They are relying on our platform to power their high-speed search for telemetry data collected via the StarLink network. By leveraging Logsdb, they have achieved a significant reduction in cloud costs while managing 7 years of historical customer data. Our focus on performance extends to our partnership with NVIDIA as well, where together, we help enterprises deploy AI applications faster without draining IT infrastructure. We recently announced the technical preview of our Elasticsearch GPU plug-in for a GPU-accelerated vector database, which allows for 12x faster indexing. Additionally, the Dell AI data platform, now with NVIDIA and Elastic delivers a tightly integrated AI stack that streamlines the ability to build, deploy and scale AI. By making Elasticsearch a core component of the Dell and NVIDIA AI factories, we are meeting the critical demand for building AI on customer-controlled infrastructure. As we deepen these technical advantages, we strengthen our technical moat while removing friction from scaling AI. This quarter, we reached several product milestones designed to simplify the path from data to action for our customers. We are providing an end-to-end framework for building the next generation of intelligent applications. First, we officially launched the general availability of Agent Builder. Agent Builder allows developers to build secure context-driven AI agents in minutes. Unlike consumer apps that surf the web, our focus is on internal business applications using company data. We piloted agent builder with a Global 100 financial group to investigate and troubleshoot its production infrastructure, demonstrating an order of magnitude improvement in performance for complex issues and democratizing the specialized expertise necessary for rapid troubleshooting. An international entertainment and media company created a chat interface for customer interactions. They found the Agent Builder results to be significantly more reliable and accurate than the other LLM-centric approaches they had tried. Building an agent is only half the battle. The other half is ensuring that agent has the most relevant information at its fingertips. This quarter, we expanded our Elastic inference service to include Jina AI's multilingual reranking models. Jina AI delivers a best-in-class model for search accuracy with Jina V3 currently the #1 reranker in its model size category on the MTEB English retrieval benchmark, a gold standard for search and rag relevance. Jina AI's V5 Nano and V5 small models continue to outpace peers as well, scoring high in retrieval, reranking and other tasks. By making these models available natively, we are allowing our customers to tune their AI applications for maximum precision and recall. Rerank is the critical next step in a context engineering pipeline that ensures the most relevant data is presented to the LLM. Jina's state-of-the-art models delivered superior performance across over 80 languages. While AI provides the reasoning, enterprises still require the reliability of rule-based automation for critical business tasks. This is why we introduced Elastic Workflows in technical preview. Workflows adds automation capability directly into our platform, allowing agents to orchestrate actions across internal and external systems like Slack or ServiceNow. It moves Elastic from being a search box to a complete system of action. Finally, we are delivering on our promise of hybrid flexibility with Cloud Connect for self-managed customers. We recognize that many of our largest customers, particularly in financial services and government, maintain data on-premises for regulatory or sovereignty reasons. However, procuring and managing GPU hardware for AI is a massive hurdle for these teams. Cloud Connect allows customers to keep their data local while securely bursting to Elastic Cloud to leverage NVIDIA GPUs for high-performance inference. This ability to bridge modern AI capabilities with rigorous enterprise requirements is exactly why we are winning large-scale displacements against legacy providers. As organizations prioritize both innovation and operational efficiency, they're moving away from fragmented legacy tools in favor of Elastic's unified search AI platform. The results of this quarter, accelerating growth, large deal momentum and major competitive displacements confirm that our strategy is resonating and that we are winning the race to become the essential infrastructure for the next generation of AI-powered businesses. I want to thank our customers for their partnership, our shareholders for their trust and most importantly, our employees for their tireless spirit of innovation. With that, I will turn the call over to Navam to review our financial results in more detail. Navam Welihinda: Thank you, Ash. Good afternoon, everyone. We delivered yet another outstanding quarter. We outperformed the high end of revenue and profitability guidance ranges, driven by another quarter of consistent execution, strong consumption and strong customer commitments across search, security and observability. The momentum in our performance throughout this fiscal year is a testament to our team's ability to deliver rapid innovation and sales execution consistently quarter-over-quarter. The ongoing market demand we see is translating to total revenue growth, sales-led subscription revenue growth and healthy increases in pipeline generation to support our future growth. These factors together underscore our increasingly strategic value as a critical data platform in the age of AI. Our total revenue in the third quarter was $450 million, representing growth of approximately 18% as reported and 16% on a constant currency basis. Sales-led subscription revenue in the third quarter was $376 million, growing 21% as reported and 19% on a constant currency basis. We saw commitment contribution from both our self-managed and cloud offerings, and aggregate consumption trends in the third quarter remained strong. Our current remaining performance obligations, or CRPO, which is a portion of RPO that we expect to recognize as revenue within the next 12 months, crossed the $1 billion mark for the first time in Q3. CRPO accelerated to approximately $1.06 billion, growing 19% as reported and 15% on a constant currency basis. In our consumption business, we structure customer contracts based on their annual usage. So our CRPO gives us a very clear view into the revenue we will recognize in the next 12 months, giving us visibility and confidence in our business. As Ash mentioned, we saw deal momentum continue in Q3. This quarter's strength was balanced across all geographies, and we continue to see customers make multiyear commitments this quarter, which serves as a clear indicator of how our customers view the Elastic platform as a critical foundational element in their long-term data architectures. The positive momentum was reflected in our RPO, which saw strong growth of 22% in the quarter as reported and 18% on a constant currency basis. Our deal momentum is also evident in the growth of the count of customers with over $100,000 in annual contract value. We ended the third quarter with over 1,660 customers with ACV of more than $100,000, growing 14%. Quarter-over-quarter, we added approximately 60 net new $100,000 ACV customers. We saw strong field execution and healthy growth across our solutions, where search continues to see ongoing momentum from AI. This demand is benefiting both cloud and self-managed where both form factors are relevant for AI use cases. We continue to see customers taking a self-managed license and deploying Elastic into their own modern cloud and hybrid environments. The demand reflects customers' preference for Elastic, which uniquely provides the necessary control and cost efficiency for AI initiatives. AI also continues to be a powerful catalyst for customer expansion. 28% of our greater than $100,000 cohort now utilizes Elastic for AI, which includes incremental AI capabilities like Attack Discovery and Agent Builder. Today, we are still in the early stages of expansion, and we see considerable opportunity for ongoing upside for both new and existing customers to accelerate their AI adoption in the years ahead, particularly as they scale into and within our $100,000 ACV cohort. Now turning to third quarter margins and profitability. I will discuss all measures on a non-GAAP basis. Our commitment to balancing growth with disciplined spending translated into robust operating leverage and strong bottom line results. We continue to focus on costs and efficiency in our business. We recorded subscription gross margins of 82% and total gross margins of 78%, delivering an operating margin of 18.6%. The outperformance on Q3 operating margin was the result of our strong revenue performance, the sustained leverage in our model as well as some Q3 expenses moving into Q4. Due to this outperformance, we now expect to see our full year margins to come in slightly ahead than previously anticipated with updated FY '26 operating margin guidance now at 16.3%. Regarding cash flow, adjusted free cash flow was approximately $54 million in Q3, representing a margin of approximately 12%. Our cash flows are expected to fluctuate on a quarterly basis based on the timing of bookings and collections related to the enterprise booking seasonality. So we continue to manage cash flow on a full year basis. For fiscal 2026, we do not see any change in our full year outlook, where we continue to expect to sustain the level of adjusted free cash flow margins that we achieved in fiscal 2025. We have made significant progress on the $500 million share repurchase program that we announced in October. During the third quarter, we returned approximately $186 million to shareholders, representing purchases of approximately 2.4 million shares. Cumulatively, we have repurchased 3.8 million shares. I mentioned at our Financial Analyst Day in October that we expect to use more than 50% of the $500 million authorized amount in fiscal 2026, and we have already exceeded this goal. As of the end of Q3, we have completed 60% of our repurchase program, and we are continuing our repurchase program here in Q4. Let's move to our outlook for the fourth quarter and the remainder of fiscal 2026. For the fourth quarter of fiscal 2026, we expect total revenue in the range of $445 million to $447 million, representing 15% growth at the midpoint or 13% constant currency growth at the midpoint. We expect sales-led subscription revenue in the range of $371 million to $373 million, representing 18% growth at the midpoint or 15% in constant currency growth at the midpoint. We expect non-GAAP operating margins to be approximately 14.5%. We expect non-GAAP diluted earnings per share in the range of $0.55 to $0.57 using between 105.5 million and 106.5 million diluted weighted average ordinary shares outstanding. Based on our fourth quarter guidance, we are raising our full year total revenue and sales-led subscription revenue targets as well. We expect total revenue in the range of $1.734 billion to $1.736 billion, representing approximately 17% growth at the midpoint or 15% constant currency growth at the midpoint. We expect sales-led subscription revenue in the range of $1.434 billion to $1.436 billion, representing 20% growth at the midpoint or 18% in constant currency growth at the midpoint. We expect non-GAAP operating margin for full fiscal 2026 to be approximately 16.3%. We expect non-GAAP diluted earnings per share in the range of $2.50 to $2.54, using between 107 million and 108 million diluted weighted average ordinary shares outstanding. A few other financial modeling points to keep in mind. The diluted weighted average shares outstanding reflect only share buybacks completed as of January 31, 2026. As you consider comparing sequential quarters, keep in mind that Q4 has 3 fewer days than we had in each of the first 3 quarters of the year, which creates a sequential headwind to revenue, which we have accounted for in our guidance. Also, as is typical with prior Q4 periods, we expect to see seasonally higher expenses related to the timing of employee benefit costs. These expenses were already part of the guidance that we had initially laid out for the year. As in past years, we finalized our plans for the upcoming fiscal year during the fourth quarter, and we will provide our initial FY '27 guide during our earnings call in May. In summary, Q3 was another very strong quarter at Elastic. Consistent sales execution throughout FY '26 continues to drive our sales-led subscription revenue growth expectations higher for the year, validating the durability of this business motion. As I said last quarter, while quarterly revenue can naturally vary in a consumption model, our strong customer commitments drive strong annual growth. Fueled by a highly differentiated platform and the expanding value we deliver to our customers, we remain on track to achieve our medium-term targets for both sales-led subscription revenue growth and adjusted free cash flow. Looking forward, we are confident in our ability to continue to drive profitable growth. We are the critical technology that accelerates data discovery, secures infrastructure and maximizes application performance. With that, I'll open it up for Q&A. Operator: [Operator Instructions] Our first question today is from Sanjit Singh with Morgan Stanley. Sanjit Singh: Congrats on the stability that we're seeing across the business. Navam, I wanted to go back to some of the themes on the Investor Day a couple of months ago. There was a data point that you provided around the AI native customers or the AI customers being a relatively small amount of the customers in fiscal year '24, but driving an outsized degree of expansion, that sort of year 1 to year 2 expansion. And so the gist of this question is that as we get to like 25% penetration of your $100,000 customer cohort, is there an opportunity here for growth to not just be stable, but actually to accelerate on a more sustained basis as we hit those critical tipping points, if you will? Navam Welihinda: Yes. Thanks for the question, Sanjit. And the trends that we laid out during the financial Analyst Day for the generative AI cohort, they remain the same. So we continue to perform well, and we're seeing stronger growth on those generative AI cohorts today as it was when we disclosed it to you during Financial Analyst Day. So we're seeing these tailwinds right now, and we're seeing more of our customers reach the $100,000 mark. Now remember that each of these customers in the $100,000 mark are also early in their journey. So there's this other dimension of additional penetration and maturation in their own AI journey, which will drive faster growth as well. So we're seeing the tailwinds right now. We've seen tailwinds that average to 5%, but there's obviously more that -- there are some customers that have higher growth than that. And to answer your question, yes, absolutely, there is a possibility. The art of the possible is there for us to actually accelerate beyond that 5% that we laid out during Financial Analyst Day, and the trends remain positive. Ashutosh Kulkarni: And Sanjit, just to add to that, that is exactly why we are so focused on the penetration of AI within our customer base. And as these customers, right now, every quarter, you're seeing us increase the penetration. The penetration initially starts with them using us in some small way. And as that usage grows, as you rightly pointed out, that's going to add to the consumption, it's going to add to the overall revenue, and that's going to show in the continued strength and acceleration of the business. Sanjit Singh: Understood. And Ash, maybe a question for you. You made the point in your script about vector search and vector databases are not enough in terms of building a resilient and powerful AI application. And I think a lot of people would agree with that statement. So when we brand the company as a context engine, what are the core pieces that are mandatory to secure status as the leading provider of context for AI applications? Ashutosh Kulkarni: That's a great question. I think the most important thing to keep in mind is context is going to change from task to task. And so the data platform, the context engineering platform that you provide needs to be able to do a whole bunch of things all together in a very consistent way. The first is the ability to bring in any and all kinds of data. And as you know, we have some unique capabilities in our ability to bring in not just structured information, but also unstructured really, really messy information. The second is to then take that data and convert it into vectors for vector search, which is a very powerful technique, especially in the AI world for semantic search, but then also to be able to mix it with hybrid search techniques. That includes textual search and then being able to rerank against multiple techniques to get the most accurate context. So the Jina AI embedding models, the Jina AI reranker models, those are a key part of the overall platform infrastructure. On top of it, then you need something that will allow you to assemble agents using all of these capabilities, and that's what Agent Builder was all about. As you know, it's a relatively new feature from us and a relatively new capability, but we are seeing great traction and adoption within our customer base. Then on top of it, you need workflows because agents are not just about chat anymore. They're not just about conversations. They're about taking precise actions. And that's where the workflow functionality that we released becomes really important. And lastly, the ability to monitor all of this, and that's where our LLM Observability functionality becomes key. So we believe that it's all of these capabilities, Sanjit, that taken together make the platform a very compelling platform for context engineering. And on top of that, we've also added our Elastic inference service. So you don't need to bring your own LLM. We can help you proxy to any LLM of choice that you might want to use. We integrate with pretty much all of them. Operator: The next question is Rob Owens with Piper Sandler. Robbie Owens: I apologize upfront for the flurry of questions in one here, but I will keep it to one question, but maybe 3 parts. Really want to focus on the outperformance in other subscription. And I understand you're going to meet customers where they want to buy. So I guess upfront, was some of that strength potentially pushouts that you saw in the prior quarter? Then if I look at your sales-led subscription forecast for Q4 and the fact it's down quarter-over-quarter, which you haven't seen historically, it's usually a little bit up. Is that really a function of the strength you saw here in the January quarter or something else to be read into that? And lastly, when we think about monetization of self-managed versus cloud customers and your ability to expand them over the coming years, can you maybe articulate the difference between the 2, if there's much there. So again, I apologize for the 3 questions, but hopefully, they're brief answers. Ashutosh Kulkarni: Yes, Rob, let me start. This is Ash. Let me start and then pass it on to Navam. In terms of our strength in self-managed, this is not just about pushouts or anything of that sort. We are continuing to see a lot of strength in our self-managed business. At the end of the day, what we are seeing now, especially with AI is a lot of customers are applying AI on data that they consider to be extremely critical, extremely sensitive. This is not just with government customers. This is also in other regulated industries. And for that reason, they're choosing or they're preferring to keep the data where it's within their control, within their environment. And that doesn't always mean in their own data centers. It might also mean within their own cloud VPCs and we give them the flexibility to be able to do that. So these are modern workloads that continue to grow as their usage of AI grows, and we are going to continue to benefit from it, which is why we believe it is really important to not just look at cloud, but to look at the whole picture and take into account the strong growth that we are seeing even on self-managed. And I'll let Navam address the other questions. Navam Welihinda: Yes, Rob, I'll address your quarterly sequential question. So overall, I'll start with how the business is doing. We're continuing to execute very well on the sales-led motion. This is another quarter of good execution from the sales side. And we saw that play out in our CRPO and RPO numbers accelerating as well. If you're looking at commitments, we're seeing a good commitment volume, and there's no deceleration on that. And on top of that, the pipeline is very healthy and growing each quarter. So overall, from a business perspective, very happy with where the quarter turned out and very positive about the future quarters as well. So that leads us to the guide. So when you think about the guide, we always guide with an appropriate amount of prudence on what we can achieve and outperform every quarter. So when you look about -- look at historical numbers versus actuals and guidance, you're comparing an actual number against a guidance number and the guidance number has risk incorporated into that forward-looking projections. So I'll first point to that. And the second point I'd make is that the fourth quarter has 3 less days, which translates to a 3% headwind or a $14 million -- or $14 million to $15 million headwind for us on a revenue basis because there's just less days of revenue to recognize. And all of that is incorporated in the guide. And if you look at last year's Q4 guidance or Q4 guidance in the past, there have been occasions where we've guided lower than the current quarter. So just keep that in mind. We continue to keep well on track with achieving our midterm targets, and we feel very positive about the strength of the business itself. Operator: The next question is from Matt Hedberg with RBC. Matthew Hedberg: Ash, I wanted to ask you about AI. And obviously, we've all seen pressure of the software market. And I appreciate your comments at the start of the call, it was really helpful to kind of get your perspective on AI. And it seems like there's a lot of great momentum from a customer perspective. I guess my question is, when we're looking at these frontier models, do you see them as future competition or more of a partnership opportunity? Ashutosh Kulkarni: Really, we don't -- in our opinion, AI doesn't displace us. It really depends on us because if you think about these frontier models, they're amazing reasoning engines. Like the way I think about them is they are going to be the operating systems of tomorrow. But just as operating systems today also require data systems to feed appropriate data and context to these operating systems to actually build applications with, you're going to need the same thing going forward. And our role in this whole ecosystem is to make sure that we can very quickly in real time across all of the petabytes of data that every organization holds, give the right context to these LLMs so they can do their job. And that's the reason why I believe that in the world of tomorrow, you're going to have agents talking to each other. You're going to have agents that you build with Elastic agent builders that are talking to Claude Cowork that are talking to things that you build with OpenAI Frontier. And we already support the MCP protocols, the A2A protocols that allow for that kind of communication. So this is a world where we feel that the fact that we have this tremendous position, the capabilities with our vector database, the capabilities with our entire context engineering platform to become a critical part of the infrastructure going forward. And we're already partnering with hyperscalers, and we already integrate with all of these frontier class models today. Matthew Hedberg: It's a great perspective. And then maybe just one quick follow-up about Elastic internally using AI. How are you seeing some of the tangible benefits? And how might that impact headcount in the future? Ashutosh Kulkarni: Yes. Look, we are all in on AI, not just in terms of what we are doing externally in terms of providing the platform that we are building, but also in terms of how we are using AI internally. Just to give you some context on this, a couple of years ago, we built out our first agent, our first support agent within the company. And that's been in production for a long time now. It's what our customers first hit when they have support questions and the amount of queries it's able to answer and the number of support tickets it's able to deflect has not only improved the overall performance, the overall experience for our customers when they come to us for support, but it has also significantly reduced the demand on headcount from our side. So in the last 2 years, even as our business has been growing, and as you can imagine, typically support workloads grow with the business, we have been able to manage that workload growth without adding any headcount to that support team. In other parts of the business, whether it's in HR, whether it's in finance, in legal, we are heavily using AI tools. Some of these are built on our stack. Some of them might be external products that we are leveraging. And even in engineering, we are finding tremendous value in using multiple different code generation tools that we use within the company. So overall, we believe that this is going to definitely help us not just accelerate the pace of innovation, which we're already seeing now, but also improve the productivity and improve the overall efficiency of the business. And that's what's exciting about this. We are able to help our customers with this, but we're also able to benefit from it ourselves. Operator: The next question is from Brian Essex with JPMorgan. Brian Essex: I appreciate your response to Matt's question with regard to your vector database capabilities and context engineering platform. I guess as you look at the changing landscape and you look at different approaches, different ways to think about things, are there anything -- how do we think about the platform and its ability to adhere to some of those approaches. Like, for example, the Page Index approach to RAG. You -- if they solve the cost and latency issues involved with that approach, are you well positioned to benefit from something like that and pivot with your approach? Ashutosh Kulkarni: Yes. Look, RAG, retrieval augmented generation itself has progressed a lot since the last several years when it was first introduced as a concept. But fundamentally, this comes down to finding the most appropriate context that is relevant for the LLM to do its job. Sometimes that requires you to understand specific data relationships that might exist. Sometimes it requires you to just search through all of your data. Sometimes it requires you to understand specific things, things like preferences and so on that you might have captured in other data systems. And it's an amalgamation of all of this. And as RAG continues to evolve, as these techniques become more and more sophisticated, we are actually on the leading front of capturing more than one single technique into our platform. We were one of the first to adopt hybrid search, and we were the first to talk about it. And since then, we have continued with that kind of momentum. So absolutely, I feel very, very confident that we're going to be on the bleeding edge. This is, at the end of the day, what Elastic was born to do. We've always been in the business of relevance. Without relevance, you don't get good search. Without relevance, you don't get good accurate AI. Brian Essex: Great. That's super helpful. Maybe just one quick follow-up. Any traction from the recent CISA win that you had. Are any Fed agencies leveraging that for SIEM referenceability? And are you seeing better activity on the back of that win? Ashutosh Kulkarni: Yes. Thank you. It's been a great success for us already. I think we mentioned it in our press release as well. That SIEM as a service with CISA continues to grow, and we saw additional agencies coming on board even in Q3. So I would expect that CISA win to be just the beginning of multiple agencies coming on to that service over the next several quarters. And fundamentally, CISA is considered to be the primary agency responsible for cybersecurity in the civilian government in the United States. And that just -- that kind of endorsement is something that goes a long way. So it's a very exciting win. Like I said, we are going to benefit from it for many quarters and many years to come. Operator: The next question is from Brent Thill with Jefferies. Brent Thill: Ash, just on the CRPO, 15% constant currency, 15% last quarter. I guess, I mean, good mid-teen growth, but I think everyone is asking why aren't we seeing a faster inflection? I know you have a true north to 20%. It seems like the numbers support that you can accelerate to 20%. But just curious kind of how you bridge to 20% and perhaps why maybe you're not seeing a little bit stronger AI tailwind in the near term? Navam Welihinda: Yes. Thanks for the question, Brent. So I'll start. CRPOs crossed over $1 billion. We're at 19% growth right now. RPO is at 22% growth. That's the best we've seen in 2 years, and we're very happy with the progress that we're making. And if you just look at the absolute dollar additions that we added in the quarter, it's progressing very, very well. So that's all pointing to the core things that are driving that CRPO growth, which is strong customer commitments, which now we've been talking about for a couple of quarters now, and it's been yet another quarter of good -- very good sales execution leading to strong customer commitments. So the AI tailwinds we talked about during Financial Analyst Day, we're seeing them right now, and they are continuing to grow as we see more and more of the $100,000 have -- or adopt AI workloads from us. So we're -- we think that there's a good strong trajectory from this point ahead as we see more AI penetration among our $100,000 customer base. Ashutosh Kulkarni: The other thing that I will say to this, Brent, is that if you look at the full year guide for sales-led subscription revenue, you can see that the strength in our business continues. And look, for us, the midterm guide that we laid out is not the place where we end up. That's the place that we believe we can go beyond that. If you remember, we talked about 20-plus. And really, that's the way we see it. So as more and more customers adopt our AI functionality, given the fact that those cohorts tend to grow and expand faster, we feel very, very good about how we are tracking to that midterm, and we feel very good about the fact that as that traction continues, we feel good about even exceeding what we've talked about in the past. Operator: The next question is from Howard Ma with Guggenheim. Howard Ma: I wanted to ask about cloud. And I guess this one is for Navam, I want to throw out a caveat first, which is that I appreciate your deployment agnosticism and fewer days in Q4. When I look at cloud revenue in Q4 versus Q3 in FY '22 and earlier, there was more of a sequential step-up than in FY '23 through FY '25, which were obviously impacted by -- you had industry-wide cloud optimizations. Also Elastic had company-specific go-to-market issues. But now that the go-to-market execution has improved significantly and given the visibility that you now have into how large customers ramp consumption relative to the commits, and that includes some of the $10 million-plus TCV contracts that you signed last quarter. The question is, is there any reason why the sequential cloud growth in Q4 would not be more in line with the earlier years? Navam Welihinda: So I'll start off with what I always start off on, which is sales-led subscription revenue growth is the right metric for you to focus on in measuring us as a barometer as the success of the company and the barometer of success of the company. And I talked about this during our prepared remarks as well. There's multiple examples, including this quarter of AI workloads being sold as self-managed and deployed either in the customer's cloud or in their hybrid environments. So sales-led subscription grew a healthy 21% this year. If you look at just cloud and the number there, again, is what is the sales-led cloud number, that grew 27% year-over-year this quarter. So we're seeing very good traction on the metric that we matter -- the metric that matters to us, which is sales-led subscription revenue. And also on the annual cloud number this quarter was very good as well at 27%. The forward quarters, number one, you have 3 less days, so that's 3 less days to focus on. The forward quarter is a risk-adjusted number. So you can't really compare an actual to a guidance number. But the point I'd like to make is that we're seeing very strong commitments and very strong performance on sales-led. Operator: Next question is from Ryan MacWilliams with Wells Fargo. DeShaun Fontenot: This is DeShaun on for Ryan MacWilliams. I wanted to ask, it really seems that based on some of the work we've been doing that the number of agents and AI services and production have really increased over the past couple of months. And I wanted to hear from you what you're seeing within your customers? Like are you seeing the types of AI use cases broaden out compared to what you were seeing maybe 2 quarters ago and how that's impacting usage and spend amongst those customers? Ashutosh Kulkarni: Yes, we are seeing the usage broaden out in the sense that we are seeing more and more variety of use cases that involve AI. 8 quarters ago, the bulk of what we were seeing was only around vector databases, vector search, hybrid search, semantic search. It was mostly around the chat-style interface kind of work. Now we are seeing agentic workflows being put together not just around what you would typically think of as search-related workflows, but also around security workflows, around observability workflows. And that was the reason why we gave the stat around our total count of customers using us for various AI use cases beyond just vector database. And that includes things like Agent Builder. That includes things like Attack Discovery. And in these kinds of scenarios, people are trying to automate their SOC workflows, their cybersecurity workflows for detection, for remediation. They're trying to do the same for SRE workflows around Observability. So the variety of use cases is growing. And as that grows, we see an opportunity, not just in our core search business, but also in the work that we're doing in security and observability. Operator: The next question is from Miller Jump with Truth Securities. William Miller Jump: Congrats on the sales-led momentum. Ash, you mentioned a MongoDB competitive win in the prepared remarks. We hadn't heard as much about this head-to-head between the 2 of you until fairly recently. So are you seeing MongoDB increasingly in bake-offs as customers look to build AI apps? Or is that more of a one-off? Ashutosh Kulkarni: No, this was a situation where the customer had started to use that technology for a basic search application. They had some issues scaling it. And as they were trying to build a more scalable solution, especially for hybrid search, they realized that they needed something that could perform, and that was the customer win that I talked about. At the end of the day, where we tend to typically play is in the area of unstructured data. We don't tend to see them as much. But from time to time, you do see these kinds of situations. William Miller Jump: And if I could just ask a quick follow-up for Navam. As large deals are becoming more of a contributor in your go-to-market strategy moving up market, can you just remind us how you're handling those large deals in your guidance process and any considerations around seasonality there? Navam Welihinda: Yes. Seasonality-wise, I think it just follows the normal typical enterprise seasonality pattern where they end up being more tail-end weighted in Q3 and Q4. But we talked about large deals in the last quarter. They happen every quarter. It's just the volume of bookings are bigger towards the tail end of the year. In terms of how we handle it, I think that this is a natural byproduct of just being successful with our customers, particularly the larger customers within the G2K. So we welcome it. When we look at our guidance and what we expect the full year to be, we naturally take a haircut on specific deals that could move from one quarter to another. So that's how we incorporate it into our guidance, a risk-adjusted number on not actually counting on everything going our way. Operator: The next question is from Koji Ikeda with Bank of America. Unknown Analyst: This is [ George McGuen ] on for Koji. I appreciate you guys taking our questions today. I wanted to ask just in the conversations that you guys have with customers and their strategy around adopting AI, how would you say that the tone and the conversations differ versus a year ago? And what kind of inning are they in today versus maybe a year ago in their adoption journey with Elastic? Ashutosh Kulkarni: The general tone is definitely one of greater enthusiasm for AI. I think there's been enough proof points now for AI helping in all kinds of use cases, whether it be around code development, whether it be around customer support, in legal e-discovery, like lots and lots of use cases across all functions. And so we are seeing the conversations be less evangelism and more about helping them put together these kinds of sophisticated agentic applications. So there's definitely been maturity. In terms of the total number of these agents that people have within their organization, that number is still in the early days. Like if you think about the total number of business processes and workflows that can be automated by AI, I think you have to be realistic that we are still in the early days because AI just is a pretty powerful and transformative capability. And what you can do with these LLMs in terms of reasoning can be applied to many, many different functions and different work processes. So we believe that the opportunity is still very significant and still ahead of us. Operator: The next question is from Mike Cikos with Needham. Matthew Calitri: This is Matt Calitri on for Mike Cikos over at Needham. With all the advancements you're making to search with things like the Jina reranking models, are you able to charge customers more? Or is the improved speed and accuracy more of an acquisition vehicle? Ashutosh Kulkarni: So we do charge in terms of consumption, right? So we have a consumption model, as you know. So pretty much everything that you do on our platform, it's metered and effectively based on compute, based on storage and so on. And for anything that's LLM or model related, it's based on tokens, all of our pricing is sort of public on our pricing pages. But yes, with these newer models, we are monetizing everything. And as the usage continues to grow, as customers do more and more on our platform, that is what drives revenue for us. Matthew Calitri: Got it. Very helpful. And then maybe just taking a different slice of the guidance question here. So you beat on the 3Q guide in constant currency and then you raised the constant currency guide for sales-led subscription revenue, but you left constant currency unchanged for the full year guide. And I can appreciate the 3 fewer days and the risk adjusted, but that would have been baked into the prior guide. Can you just help walk through the mechanics there of why that wouldn't have increased? Navam Welihinda: Yes. I mean it's quite simple. The number that we care about is sales-led subscription revenue. We handily beat that number this quarter, and we raised more than we beat. That's a reaction of what we think is happening with the business and the sort of the positive momentum that we're seeing on the sales line. So overall, what we -- we're not thinking about it too much more than we feel good about the forward momentum of sales-led subscription revenue, and we beat the number, and we're raising more than we beat. Operator: The next question is from Eric Heath with KeyBanc Capital Markets. Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Ash Kulkarni for any closing remarks. Ashutosh Kulkarni: Thank you all for joining us today. We here at Elastic are very proud of our business results and excited about the opportunity ahead. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to the Mesoblast financial results for the half year ended December 31, 2025. An announcement and presentation have been lodged with the ASX and are also available on the Home and Investor pages at www.mesoblast.com. [Operator Instructions] As a reminder, this conference call is being recorded. Before we begin, let me remind you that during today's conference call, the company will be making forward-looking statements that represent the company's intentions, expectations or beliefs concerning future events. These forward-looking statements are qualified by important factors set forth in today's announcement and the company's filings with the SEC, which could cause actual results to differ materially from those in such forward-looking statements. In addition, any forward-looking statements represent the company's views only at the date of this webcast and should not be relied upon as representing the company's views of any subsequent date. The company specifically disclaims any obligations to update such statements. With that, I would like to turn the call over to Paul Hughes. Paul Hughes: Thank you. Welcome, everyone, to the Mesoblast financial results call for the period ending 31 December 2025. My name is Paul Hughes. I'm Head of Corporate Finance and Investor Relations. In the room with me today is our CEO, Silviu Itescu; our CFO, Jim O'Brien; and our CCO, Marcelo Santoro. We have a presentation to run through highlighting the financial results and the operations for the period, and then we'll have some time for questions at the end. So now I'll hand over to Silviu to begin. Silviu Itescu: Thank you, Paul. We could go to Slide 4, please. This slide highlights the corporate priorities for 2026. We intend to continue to show strong growth in Ryoncil sales driven by market adoption. We will build a strong cash flow with judicious use of funds for operations and an optimal capital structure. Cultural transition is critical so that we can move to an efficient commercial organization. We will expand Ryoncil label indications and obtain approval -- seek to obtain approval for remestemcel-L products, our second-generation platform. Our manufacturing focus will seek to increase diversification, capacity and cost efficiency for our platforms, and we will continue to focus on appropriate commercial partnering backed by demonstrable value drivers, including FDA approvals, strong revenues and advanced clinical programs. Next slide, please. This year was marked by a very successful product launch. We initially received FDA approval for Ryoncil in December 2024. Ryoncil is the first and only FDA-approved allogeneic mesenchymal stromal cell product. The product was launched in April of 2025 with revenues growing quarter-on-quarter. There is significant unmet need for continued uptake and increasing market adoption. And our net revenue from Ryoncil was USD 49 million in the first half of FY '26. Next slide, please. Paul Hughes: Thanks, Silviu. Jim will take us through the financial slides. Thanks, Jim. James O’Brien: Thank you, Paul. Hi, everybody. I'd like to now review our first half fiscal 2026 operating results. And I should mention that all figures are in U.S. dollars. Total revenues for the period were $51.3 million, driven by the successful launch of Ryoncil. Our net product revenues, as Silviu mentioned, were $49 million, and we had a gross margin of a strong 93%. Our R&D expenses for the period were $46.1 million (sic) [ $46.2 million ] compared to what we reported last year of $5.1 million. Now last year's numbers were a bit skewed because we had a $23 million reversal of the inventory provision once we got approval of Ryoncil. Without that adjustment, the prior year number would have been about $18.1 million. So -- I'm sorry, we would have grown about $18.1 million over the prior year. And again, the spending in the period really related to our adult GVHD trials, back pain and also our LVAD program as well as getting ready for the BLA and some manufacturing work. Our sales and general and administrative expenses were $28.5 million compared to $18 million in the prior year. And that increase really related to the sales and marketing effort that Marcelo and the sales team did in terms of driving sales growth. The loss during the period this year was $40.2 million compared to $48 million in the prior year period. Again, as I mentioned a few moments ago, that prior year loss was impacted by the $23 million worth of reversal on inventory. And -- but for not those items, we were down -- we were up about -- we were down on a net loss of about $30 million year-over-year. Just in terms of our operating spend and our cash flows for the first fiscal quarter -- first fiscal half of the year, excuse me, we were at $30.3 million. As we look to the second half of the year, we expect our operating cash flow usage to decline when compared to the first half of fiscal '26 based upon our projected cash receipts from revenues as well as maintaining disciplined cost control measures and efficiencies in the operation. And on the next slide, just to point out our profitability and growth pipeline from Ryoncil. As I mentioned, we had strong revenues for the period. Gross margin, excluding amortization expense would have been about $44.2 million. Our direct selling costs were $7.7 million. And again, we have strong operating performance that allows us to invest in our R&D programs and our life cycle extensions. And we do have a very robust pipeline, and we continue to invest in our manufacturing footprint as well as building inventory where needed and getting our second-generation products to market. On Page 9, next slide, please. We had $130 million worth of cash at the end of December of this year, which you can also note that the reduction in our net spend over the year, as I said, will decline over the second half of this year. On December 30, 2025, we entered into a $125 million nondilutive credit line facility. The first tranche of which is $75 million was drawn at closing and enabled Mesoblast to replay in full its prior senior secured loan. We also partially repaid the subordinated royalty facility, which will continue to be reduced from ongoing revenue and will be fully repaid by the middle of 2026. The second tranche of $50 million is available to be drawn on our option through June of 2026. The new facility has a lower cost of capital for the company, freed up its major assets to provide flexibility for strategic partnerships and commercialization. In addition, the new facility can be repaid at any time without incurring early prepayment or make-whole fees. It does not include any exit fees and does not cover any of Mesoblast assets, which is a very strong point for the reason why we did this. This is terrific for the company. And we have no restrictions on doing additional unsecured debt or any licensing activities. We're very pleased with this line of credit and believe it will strengthen our balance sheet to support an exciting growth period for Mesoblast. On the next slide, looking ahead to the second half of 2026, we anticipate full year Ryoncil net revenues to range between $110 million and $120 million on a full year basis. With that, I'll turn the call back to Silviu for additional comments. Silviu Itescu: Thanks, Jim. If we can go to Slide 12, I'd like to bring Marcelo Santoro, our Chief Commercial Officer, please. Marcelo Santoro: Thank you very much. Next slide, please. So good afternoon, good morning, everyone. We are extremely pleased with the performance of the launch to date, and I couldn't be proud of the work, the commitment and the passion that our colleagues at Mesoblast demonstrate every single day towards these children. We have treated numerous patients since we launched and Ryoncil is having a transformational impact in the treatment of these children according to the feedback we received from treatment centers and treatment teams. In fact, we are on track to achieve 20% market share by the end of year 1 in the market. The commercial performance to date has been exceptional. This holds true not only against our initial expectations, but also when benchmarked against other successful rare disease launches. We have been laser-focused on building the infrastructure needed to ensure Ryoncil reaches its full potential. I am very happy to report that we have onboarded 49 treatment centers to date. In addition, Ryoncil is now listed on the formulary of 30 of those centers, a number that continues to grow steadily as more P&T committees review and approve its use. Formulary inclusion is critical, as you know, as it streamlines the adoption and use of Ryoncil when it's selected for a patient. Having these many formulary approvals in less than 1 year demonstrates the outstanding value of the product and the tireless commitment of the team to build the appropriate infrastructure to expand utilization. In addition, 13 hospitals have opted to use Optum Frontier, our specialty pharmacy partner, virtually eliminating their financial responsibilities with the product. On the payer side, we have also made exceptional progress. Ryoncil is now covered by insurance plans, representing over 280 million lives across both commercial and government payers. Medicaid coverage is in place in all states and a specific J-Code for Ryoncil, J3402 went into effect on October 1, allowing for more efficient billing and reimbursement for both sites of care and payers, along with CMS published rates. Commercial payer support has also been very strong. All major payers, including Aetna, Cigna, UnitedHealthcare, Anthem, Humana and Prime Therapeutics covering all Blue Cross plans have issued favorable coverage policies for Ryoncil. Notably, these policies do not require step therapy, which simplifies patient access significantly. All of this has occurred within the first 6 months post launch. Next slide, please. From a strategic priority standpoint, the Ryoncil team is 100% focused on 3 key strategic pillars. The first is to proactively identify and prioritize appropriate patients who may benefit from Ryoncil therapy. The second to reinforce our superior patient outcomes in first-line treatment right after steroids. And the third is to empower caregivers to demand Ryoncil for their children. We have been working with several advocacy groups and will soon launch a comprehensive campaign dedicated to supporting both caregivers and patients. With that, let me turn back to Paul. Paul Hughes: Thanks, Marcelo. I'll hand over to Silviu, who's going to take us through the rest of the deck before we open it up to Q&A. Thanks. Silviu Itescu: Thank you. If we could move to Slide 14. This slide summarizes our plans for label expansion of Ryoncil into adults. A pivotal study of Ryoncil as part of second-line treatment regimen in adults with severe steroid-refractory graft versus host disease is underway with our partners at the NIH-funded Bone Marrow Transplant Clinical Trials Network. The basis for this trial is that 50% of adults who have severe GVHD fail existing second-line treatment, including predominantly ruxolitinib. These patients who fail have a 25% abysmal survival at 100 days. We have previously used Ryoncil under expanded access in patients aged 12 and older, in many adults as well, 18 and older who have failed ruxolitinib or other second-line agents and use of our product in this patient population was associated with 76% survival at day 100, a remarkable result. As a result of these results, the final protocol design for the registrational study in adults has been locked down and has been worked through with the FDA recently in a meeting with the FDA agency. We expect that following Central Institutional Review Board approval coming up in March, site initiation and patient enrollment will commence. Next slide, please. Further extension strategy for Ryoncil is focused on various opportunities in pediatric and adult inflammatory diseases. The team is currently evaluating multiple indications to unlock value, including in the inflammatory bowel, neurodegenerative and respiratory conditions. Our portfolio will be prioritized to maximize shareholder return by utilizing either internal investment strategies versus external partnership initiatives. Next slide, Slide 16. Now I'll be updating you on our second-generation platform, rexlemestrocel-L currently being developed for discogenic chronic low back pain and chronic ischemic heart failure. Slide 17, our Phase III chronic low back pain program, a first 404-patient randomized controlled Phase III trial has already completed, and that included about 40% of patients who are opioid dependent. We met with the FDA recently and received positive feedback on potential filing of a BLA based on achieving a clinically meaningful reduction in pain intensity at 12 months between the treatment arm and placebo arm. The robust result in opioid reduction from at least one adequate and well-controlled trial could be included according to our meeting with the agency as part of product labeling, which is a very, very, very important outcome. We, in fact, do already have an RMAT, Regenerative Medicine Advanced Therapy designation for rexlemestrocel-L as a potential opioid-sparing therapy in chronic lower back pain. Next slide. The confirmatory Phase III trial is recruiting currently 300 patients across 40 sites in the U.S. with a primary endpoint, 12-month reduction in pain. As I've mentioned on multiple occasions, FDA has confirmed that, that is an approvable endpoint. The enrollment of these 300 patients is expected to be completed in March or April. Data readout and BLA filing are expected in calendar year 2027. We have, at the same time, undergoing commercial manufacturing in order to leverage our existing capacity and cost efficiencies. I will reinforce that there are many patients who are suffering from this terrible disease. Over 7 million patients across each of the U.S. and EU5 are due to generative this disease, patients who are otherwise have run out of options other than surgery. This is a large unmet need for a potential blockbuster opportunity. Next slide, Slide 19. Now I'd like to update you on Revascor, our product based on our rexlemestrocel-L platform that is being developed for chronic heart failure with reduced ejection fraction and persistent inflammation in either patients with Class II/III heart failure or very end-stage heart failure patients who are being kept alive with a ventricular assist device in the left ventricle. We can go to Slide 20. LVAD implantation improves overall survival in these end-stage patients, and that's well established. However, the underlying causes of heart failure in these patients, notably inflammation, persists. And whilst the left ventricle improving the left side -- the LVAD is improving on the left side of the heart, the right ventricular pump function remains vulnerable and continues to deteriorate. Therefore, progressive right heart failure continues to occur in up to 30% of patients and is the primary cause of multi-organ failure and death in this group of patients, mortality occurring within the first 12 months. In addition, life-threatening major mucosal bleeding due to progressive right heart failure and portal hypertension occur in about 30% of patients and is the major morbidity in this group, the main cause of recurrent hospitalization. Next slide. Now we performed 2 randomized controlled studies in this patient population. The more recent study was called LVAD Study II, and that randomized 159 patients in a 2:1 randomization to provide primary evidence of Revascor's efficacy in reducing major bleeding events. A second study, LVAD Study I, an earlier study, is a supportive study for LVAD II, randomized 30 patients in a 2:1 fashion and provided supportive evidence also of Revascor's efficacy in reducing major bleeding events. Intramyocardial injections in both of these studies of either Revascor or control were performed at the time of LVAD implantation. Importantly, both trials, both randomized controlled trials showed the Revascor reduced cumulative incidence of major bleeding events, life-threatening GI bleeding, the trial's primary efficacy and safety endpoint and related hospitalizations through 6 months, both were significant. We go to the next slide, Slide 22. This provides you with some new data that we have not previously presented. This slide demonstrates the total number of major bleeding events resulting in hospitalizations over 6 months on the left-hand side and over 12 months compared to controls in the entire study LVAD II. As you can see both on the left-hand side and the panel B on the right-hand side, Revascor reduced major bleeding events and hospitalizations by about fivefold, a very significant reduction throughout a 12-month period compared to MPC treatment compared to control treatment. Next slide, please. Now moreover, particularly in the ischemic group of patients, what you can see is that on the left-hand side, in controls, in red, the ischemic controls had approximately a three to fourfold increase in hospitalizations due to right heart failure. The non-ischemics had a very low incidence and risk of heart failure hospitalization. In contrast, on the right-hand side, by 12 months, you can see that the MPC treatment reduced the right heart failure hospitalization events in ischemic patients back to background levels, the same levels as I see in non-ischemic controls. And again, those reductions of hospitalization from right heart failure were significant. Next slide, please. This slide focuses on the risk of death from right heart failure in controls on the left, and in Revascor-treated patients on the right. As you can see in Panel A on the left, amongst patient controls who have at least one hospitalization from right heart failure, the presence of -- sorry, amongst controls, the presence of right heart failure hospitalization, at least 1 right heart failure hospitalization in red was associated with a mortality risk and a hazard ratio of 7 or more than 7 compared to patients who did not have right heart failure. So in controls, particularly early within the first 4 months after LVAD implantation, the presence of a right heart failure hospitalization was a very strong predictor of death. In contrast, what you can see on the right-hand side, amongst Revascor-treated patients, the risk of death, particularly in that early period 4-month period is almost completely abolish. And you can see that the overall survival over a 12-month period in Revascor-treated patient was the same, irrespective of whether they had a right heart failure hospitalization or not. So what this means is that Revascor not only reduces the incidence of hospitalization rates, but protects these patients against death from right heart failure. If you go to the next slide, please. So the summary of these new data, data that I haven't shown you here, but we have also observed is that Revascor reduces the inflammatory cytokines and through inflammation reduction protects the at-risk right ventricle in these patients, the same right ventricle that continues to fail despite the fact that there's an LVAD in the left ventricle. The strengthened right ventricle reduces hospitalization rates in the intensive care unit due to right heart failure and improves survival. The strengthened right ventricle decreases the risk of portal hypertension and therefore, decreases GI bleeding events. This leads us to think very carefully about how Revascor beyond its potential use in patients with left heart failure problems, also has the potential to be used to improve right heart failure function in patients not only with ischemic heart disease, but other causes of right heart failure, including primary pulmonary hypertension and chronic lung diseases. Next slide, please, Slide 26. So let me give you an update on our CHF program, particularly our plans to file for approval. With these new data and our existing orphan drug designation for treating this group of high-risk patients with high mortality as well as FDA's stated preference for randomized controlled trials, Mesoblast is moving from filing for an accelerated approval to filing for a full approval. Unlike an accelerated approval, full approval does not require a confirmatory study. Aligned with FDA on items required for filing the BLA regarding CMC potency assays for product release and commercial manufacturing, we now have these activities well and truly underway, and we expect to file our BLA for full approval for this indication in the next quarter. Let me summarize our highlights and our upcoming milestones. Ryoncil is the first and only FDA-approved MSC product. It delivered net revenues of USD 49 million in the first half of FY '26. As you heard, 49 centers have been onboarded, 64 centers account for 94% of the entire pediatric bone marrow transplant population, so well underway to achieve that in record time. We're initiating label expansion to adult acute GVHD, a market that is 3x larger than the pediatric market. We are currently prioritizing our portfolio, which includes the potential to go into the inflammatory bowel disease, neurodegenerative diseases and respiratory conditions, and we will update the market as we focus on certain areas in priority over others. Our second-generation rexlemestrocel-L is enrolling the second trial in back pain with full enrollment expected to complete by the end of March or end of April. BLA filing next quarter is in line for full approval for patients with right heart failure and end-stage heart failure with LVAD. And we're actively optimizing manufacturing logistics to support commercialization, both of the rexlemestrocel-L pipeline and obviously, to have further inventory for the projected growth in Ryoncil sales. With $130 million in cash on hand as of December 31 and the new credit line that you heard about, which still has the potential for $50 million available to draw down, we're in a very strong financial position. And as you heard earlier, we are projecting full year fiscal 2026 Ryoncil net revenue to range between USD 110 million and USD 120 million. And I think I'll stop there. And hopefully, there are some questions that we can all address. Thank you. Paul Hughes: Operator, if you could please open the lines for questions. Thank you. Operator: [Operator Instructions] Your first question comes from Edward Tenthoff with Piper Sandler. Edward Tenthoff: Congrats on all the great progress across the board. Could you just repeat the guidance you broke up a little bit for this coming year? James O’Brien: Yes. Yes. What we're projecting for the full fiscal year are net revenues ranging from $110 million to $120 million again, on a full year fiscal basis 2026 hitting June 2026. Operator: Your next question comes from Olivia Brayer with Cantor Fitzgerald. Olivia Brayer: I have a few, if you don't mind. Maybe just first on Ryoncil in peds. You all mentioned potentially hitting 20% penetration of that pediatric population by the -- I think it was by the end of your fiscal year, if I heard that correctly. So can you maybe just run through what those assumptions include to get to that 20%? And how high of penetration do you think you can realistically reach in this specifically peds population over time? And then I've got a couple more on your pipeline programs. Marcelo Santoro: Yes. So thank you. So let me start with the second one and then go to the first, right? So the second one, we assume a 40% peak share. And you have to understand, we believe it should be 100%. This is a product that should be used by everyone. But let's be responsible and realistic, a 40% share is reasonable, right? So if you assume a range of patients, and obviously, that's dynamic of 375 patients, that's what the 20% is based on. It's 20% until the end of our fiscal year. That's what we aim on achieving at that point. Olivia Brayer: And is that specifically for the fourth quarter of your fiscal year? Like if I'm kind of doing the math. Silviu Itescu: Yes. Olivia Brayer: Okay. That's helpful. And then for your Revascor BLA next quarter, how is the FDA viewing the ischemic versus non-ischemic phenotypes? And have they given any input on to or around potential labeling language around the ischemic etiology or inflammation biomarkers? Silviu Itescu: Well, so I think it's important to note that in the 159-patient trial, we achieved the principal endpoint of -- in overall in the full patient population without having to go to any subgroups in terms of the cumulative incidence of major bleeding events over 6 months. Also, we achieved a significant reduction in hospitalizations for major bleeding events across the entire patient population without having to go to subgroup. So our position is that we will be seeking a label for the entire patient population, especially given that the confirmatory study, LVAD I, also achieved the same endpoint across all patients. There's no question that the patients at greatest risk are those with ischemic etiology. And those patients have a higher level of inflammation, they have a higher risk for bleeding, right heart failure and death. And interestingly, we saw the very same sort of thing in the larger trial in Class II/III heart failure, where, again, we saw patients with ischemic heart disease as an etiology had high levels of inflammation, greater risk of 3-point MACE and greater treatment benefit. So we will be providing the FDA with the totality of the data that confirm the supportive trials, demonstration that ischemic patients are at greater risk and treatment with our cells is even more effective in that subgroup, but we've achieved the endpoint around the prespecified bleeding endpoint and hospitalization endpoint across the entire population. So that remains to be negotiated. Olivia Brayer: That's helpful. Understood. And then last question is just on the chronic back pain. Can you just clarify what data you're submitting to the FDA? Is it just a new analysis of the pre-existing data? And is your ongoing Phase III not actually going to be part of that submission package? Maybe just some clarity around that update because I do think that is a new disclosure. Silviu Itescu: No, no, no. I didn't mean to say that we wouldn't be submitting the data from the new trial. The new trial, the second trial, which completes enrollment by over the next month to 6 weeks is the plan to complete enrollment. That trial becomes the primary data set and the previous trial becomes a supportive data set. That's certainly our intention. We have spoken with the FDA about looking at the subgroup of patients who are opioid dependent and that's a discussion that is ongoing with the agency. But with respect to the primary endpoint in all comers of pain reduction, we will be using the 2 trials to present full data sets. Olivia Brayer: Okay. But that additional Phase III readout is coming in 2027, correct? Silviu Itescu: That's correct. Olivia Brayer: So will you -- you're kicking off filing before actually having that data? Silviu Itescu: No. The objective is to complete that trial, get the readout and move to a filing with those data in the primary file. Operator: Your next question comes from Madeleine Williams with Canaccord. Madeleine Williams: Just in regards -- just going back to the pediatric Ryoncil and just the FY '26 guidance. Can you speak a little bit to sort of how you're seeing repeat utilization among centers or just how that kind of shakes out over the remaining of the year and sort of just trying to dig into more. Marcelo Santoro: Yes. No, we'd be happy to do that. Yes. So we see the continuous growth in the centers, continuous adoption, not only by more centers, but also repeated use by the current centers we already have, which shows that they are finding utility in the products and repeating the treatment in other children, right? So that's one component. The second component, we're also seeing very big, very large centers coming on board, which will substantially increase our confidence in this guidance. And it's a reality that is happening every day. Silviu Itescu: And I would add to that, I think a major additional components moving forward is continued physician education. We've shown both in our previous Phase III trials and in the real-world data that the earlier this product is used, the greater the survival. it's unquestionable. And so a lot of the effort by the team will be to educate physicians. Physicians have their own practice habits. And they all believe that their particular way of doing things is standard. Nothing is standard in this disease, especially given that only Ryoncil is approved by FDA for treatment of children. So I think a major focus and an area of growth is to educate the majority to use the product as early as possible after steroid failure. Do you agree, Marcelo? Marcelo Santoro: For sure. And I would add 1 more, right? So as a father, unfortunately, my child had something like this horrible disease, I would like to know that this option is available. So it's our obligation to empower them to empower the caregivers, make sure that they understand that this product is available and it's the only FDA-approved product so that they can talk to their treatment teams and ask for this as a potential therapeutic option for their child. Madeleine Williams: That's helpful. And just maybe 1 more for me. Just in regards to Revascor and the full approval -- filing for full approval rather than accelerated. I'm just interested, you've obviously discussed the additional data, but I'm assuming there's sort of been some sort of constructive discussions with the FDA. And just sort of if you can provide more color about what your confidence is in receiving that full approval? Silviu Itescu: Well, we've had multiple discussions with the agency. We understand what they wanted to see and the data that I've highlighted to you today, particularly as it relates to mortality is the #1 area of focus. And the recent guidance by the agency to focus on randomized controlled trials rather than single-arm trials where major endpoints are being targeted like mortality give us the sort of confidence that particularly in an orphan disease indication where a single trial should be viewed as sufficient for approval, full approval. Operator: [Operator Instructions] Your next question comes from Michael Okunewitch with Maxim Group. Michael Okunewitch: Congrats on all the progress. I guess just to kick things off, there's obviously been a lot of changes at the FDA since you first launched the Phase III in chronic lower back pain. So I wanted to see if you've received confirmation from the current FDA administration that the 12-month pain-only endpoint is sufficient for approval? Silviu Itescu: Yes, we have. Absolutely. That's exactly why we had the meeting recently to gain confirmation from the current administration that, that endpoint is an approvable endpoint, and that's exactly what we received. Moreover, the recent guidance from the FDA that a single well-conducted randomized controlled trial is sufficient for approvals in various indications also gives us great confidence that if we achieve that endpoint, this is an approvable trial and approval endpoint. Michael Okunewitch: And then just 1 more for me, and I'll hop back in the queue. I wanted to ask when it comes to the upcoming filing in the Class IV heart failure programs, are there any outstanding items that FDA has requested that you need to finalize before you can submit that next quarter? Silviu Itescu: Well, commercial manufacturing is always a very important component of this. And that is something that we are heavily engaged in. The product rexlemestrocel-L and its Phase III trials was all made at Lonza in the same facility where Ryoncil was made and which was approved for Ryoncil. And we believe that the vast majority of the manufacturing process is quite similar to the Ryoncil process. So I think that will be an advantage in our filing, but that remains -- we need to get some more confirmation from the agency. Nonetheless, we expect that the long history of manufactured product for back pain trials, cardiac trials will hold us in good stead. Operator: That brings us to the end of today's call. I'll hand back to Paul, please. Paul Hughes: Thank you. As you heard today, we're in a strong position with a number of significant milestones in this current second half through the period. We look forward to keeping you updated on the progress and the achievements. I'd like to thank everyone for their interest in Mesoblast and participation in the call today. Thank you, and have a great day. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Peter Taylor: Welcome, everybody, and thank you for joining us today. I have the CEO, Simon Wensley; and the CFO, Mr. Nathan Quinlin, to talk us through the 2025 financial results. And I see the market looks pretty happy about those today already. So, I'm going to hand over to Simon, and we'll have a Q&A session at the end. Thank you, Simon. Simon Wensley: Great. Thanks, Peter. Good afternoon, everyone. Thanks for joining. Really appreciate your support. Yes, look, the really solid set of results for 2025. We really were looking to make a step forward from our implementation of our expansion through 2024. Look, we did that with a 9% increase in production. And I guess that underpinned a lot of what happened from a physical point of view. I might just pull up and share the announcement so people can sort of -- if you haven't had a chance to look at it, it's -- I can sort of cover that off as we go. So hopefully, you can see that. Yes. So as I said, look, the production was an excellent underpinning growth year-on-year. And that, of course, underpinned significant revenue growth as well. We had a reasonably robust market through 2025, and that was largely -- we knew that was coming. It was -- the market was getting tighter and tighter through '23 and '24, and we absolutely were getting the expansion funded and implemented in time for what we could see was going to be a firm price environment. So, we were able to take advantage of that and margins over $30 a tonne in that first half of the year. So look, that was very pleasing to be able to get that year-on-year growth. That's underpinned a record underlying EBITDA of $73 million. That's almost 100% improvement from the prior year. And the net profit obviously is underpinned by a couple of other items. But I would -- before I hand over to Nathan, so this is obviously his baby from a financial results point of view. And I would emphasize a really strong endorsement from the auditors with a clean audit report. But the -- one of the strategic things we've talked about as a company was getting to net cash. We got really, really close. We got to $57.5 million of cash against the debt position of $58.9 million, so just over $1 million away from that after having paid down over $23 million of debt. So, that's really important from a balance sheet perspective and an investor point of view looking to us to secure the company. And then giving us -- we'll talk about in a minute, giving us the opportunity for capital management. That was a really, really critical part of the year. But look, I'll hand over to Nathan to run through some of the other elements in the financials. Nathan Quinlin: Great. Thanks, Simon, and thanks, everyone, for tuning in. Like Simon mentioned, a couple of really pleasing results from a financial perspective there, a very healthy EBITDA number, which is speaking to the quality of earnings coming through at that 6.2 million tonnes amount. And it gives you a sense, I think, of the economies of scale here as well. So particularly around -- and Simon will speak to guidance for 2026 and exactly what we're targeting and it gives you a sense of the economies of scale and the cash generation potential of this asset now with the build capacity in, and confidence around that and our new management operating system that will no doubt deliver those tonnes. So, very pleased to be able to generate that level of EBITDA and free cash flow this year. Like Simon said, we got very, very close to the net cash position, if not for a final shipment, but got very close, leaves us with a little bit of unfinished business, which is not the worst thing as a motivation for a team that's about to get ripping again. So, pleased with that. And then looking forward into some of our other things around like foreign currency, we had a good result with foreign currency this year, much better result than what we had last year, managed to pick our spots fairly well, but most importantly, be able to lock ourselves away up to at least around 75% of our net USD exposure going into 2026 at a very, very healthy around that $0.64, $0.65. So, very pleased to have that locked away. And as you can imagine, particularly as we have this forward outlook and some of the capital management, how important it is to lock some of these things away and control the controllables, and that gives us confidence to be able to be assertive and go out and take the value that's out there. In terms of carryforward losses, also in a good position there, similar to -- and you would have seen this at the half year, not only with the strong results that we had in the half year, but more importantly, the strong outlook that we've got for the business going forward makes us confident and gives us the ability to bring back that previous impairment, bring back that reversal and bring those DTAs or those carryforward losses back onto the books. So, what we have in terms of available carryforward losses is about $184 million in gross terms. So, for the people out there modeling, you would expect to see us start to utilize those all through 2026, and I wouldn't expect us to be in a taxpaying position until probably the second half of 2027. So, a pretty healthy tax shield there for us. Simon will touch on, I'm sure, a little bit more on the buyback. But naturally, particularly with where we see ourselves at the moment, the business outlook that you see also being supported by those impairment reversals and recognition of the carryforward losses makes it pretty clear to us there is a significant undervaluation there, which we're more than happy to invest in Metro at that price. So, I'm very pleased to be able to do that. I'm very pleased to be able to generate some shareholder value through what is otherwise. I'm essentially adding flexibility to the balance sheet through some prudent loan restructuring to make sure that we're balancing out cash flow from a debt servicing perspective and having the opportunity with that flexibility to generate some shareholder value. Thanks, Simon. Simon Wensley: Yes. Great. Thanks, Nathan, and thanks to you and the team for the hard work over the last few months to pull that all together. Very, very good set of results and well presented. Yes. Look, I think Nathan touched on it. The Board -- and we've been pretty clear about this from the start. I mean, we're about -- this is about bringing -- the strategy is about being bringing the Bauxite Hills Mine asset into fruition. The strategy that we outlined early on in second half of 2022 once we stabilized the business and really put an operational and marketing strategy down was to expand the business, gain those economies of scale and get ourselves to the bottom of the cost curve. So, what we said then in the second half of '22 and then when we got -- went to FID and financing in the first quarter of '23 was that by 2026, we're going to be producing at 7 million tonnes and that we were going to have a cost appropriate to be pretty much down at the bottom end of that cost curve. And what that does in commodity terms is provide us with the flexibility to withstand pretty much any market. But it's not in its own right, and Nathan again touched on this. It's all about also derisking the business in every way we possibly can. And that's been allied with just an expansion. It's not been just more of the same. It's been about creating additional resilience. And that's required some change in technology in our business. So in terms of things like increasing the capability of our hauling fleet in terms of speed, in terms of payload, in terms of the roads that they run on. It's been about the wobbler moving away from vibrating screens to roller screens and bringing Ikamba, our offshore floating terminal, which is capable of operating in much more difficult sea conditions. So, these are the sorts of things allied with just an expansion here that have been underpinning this growth. And of course, some of those things don't come quickly or easily, but they're effectively all in place. And that target now of getting to that sort of 7-plus million for 2026 is what this is all about, and the economies of scale will continue to flow towards that cost. But it's also about -- Nathan has touched on derisking the business through the foreign exchange part, and that's obviously well in the money. At the moment, something else that's well in the money is all of our freight contracts. And so the ability to reduce risk for the investor by taking prudent positions in the market to be able to then go about the strategy of implementing these things. So, our freight now is probably AUD 2 to AUD 3 in the money for 2026 versus the prevailing Capesize freight rates, which have been going up pretty much for all of the second half of last year. And of course, in a cost curve, where a cost curve drives industry structure, like it does in most commodities, all that's doing is pushing the cost of delivery of West African bauxite, which is at the margin of our business is pushing that up and up and up. And so we've got -- we're much closer -- even if we were exposed to the spot market for freight, we would still be in a much better position, but we're even in a better position because of the contracted freight, the 2- to 4-year contracts that we've taken out at the beginning of last year to underpin our delivered business. So there's a whole bunch of, I guess, aspects to this that derisk the business. And when we look at that profile with the Board and what we delivered in 2025, but more importantly, what's the outlook for 2026, even the market will be what the market will be, but the ability for us to effectively guarantee that we're going to make margins here moving forward, irrespective of what's happening in the market is an extremely important thing for the Board to consider. And they've been very clear that they're not going to sit on cash. We got to that net cash position. We were able to do some of this other derisking of our cost structure. We put a new team together to be able to drive the improvements that we are making. And so all of that plays into a confidence in the future that has underpinned the buyback here. So we're, of course, working on growth. Growth is, of course, part of our business, but we're not in the mode of -- and certainly not in the game of piling up a war chest. And if we have a growth opportunity, we will bring it to market. It will have to stand on its own 2 feet, and that will be the signal for us to move forward. And whilst Bauxite Hills is producing cash, that will be part of our capital management strategy, and this is just the first step. Nathan, did you just want to touch on any other aspects of the buyback at this point? Nathan Quinlin: Not necessarily, just otherwise setting the context. But in terms of how we'll execute, that will be an on-market buyback, the terms of which have been disclosed in the last release. So, what we're targeting is 5% retirement of shares on issue over a 12-month program. Simon Wensley: Okay. And there'll be more details to follow on that in the very, very near future, so in terms of execution of the buyback. So, look, I think at that point, Peter, we might just pause and see if there's any other -- any questions out there. Peter Taylor: Absolutely, Simon, and thank you as well, Nathan. A couple of questions have come through so far. And with the rerate now occurring, which we see on the screen today and assuming the company is on target tonnes achieved in financial year '26, a strategic acquisition would be good or a dividend? Do you see either occurring? Simon Wensley: Well, look, I guess what I would hope is I see both occurring. And so I've just said -- I've just talked about the cash generated from Bauxite Hills. In the absence of that -- of a very live and current growth option, we will continue to pay that back to shareholders within the risk appetite of the Board. So, that's certainly the case. And like I said, we're absolutely working on some growth options. Look, it wouldn't be prudent to be more specific about that at the moment, but there are -- we're certainly well down the track on a couple of growth options. But like I said, we will bring those to market. We'll be very clear about what they can do for the business and why we're going after them. And indeed, then I suppose, get the feedback from the market. So look, that's certainly the strategy. Peter Taylor: Thanks, Simon. Second question. One for Nathan. Where does the financial assurance paid to the government sit on the balance sheet? Nathan Quinlin: Yes, sure. Sure. So on the balance sheet, the financial assurance amount that is sitting within the financial provisioning scheme will be sitting within the other financial assets that you'll find in the non-current assets on our balance sheet. So that's -- and I think in our previous webinar, we mentioned that, that is a priority over the next couple of months for us to explore how we get that sort of back into our own bank account where we can put that to use rather than sitting there. Som plenty of options for us to look into. Peter Taylor: Thanks, Nathan. Another one for -- actually probably more of an operational and financial one combined. How confident are you that calendar year '26 guidance can be achieved? Have you seen issues from calendar '25 now resolved? Simon Wensley: Yes. So it's a great question. Look, we've gone back and looked in detail at 2024 and '25, so everything since we've been bringing the new flow sheet into action. We've had a look at the things that have pulled us back from delivering higher tonnages. The critical thing here to say is that in terms of the feasibility study, everything -- every part of our flow sheet at the scale that we had set has now delivered on its capacity individually. So, when I look at the clearing and stripping fleet, we had a few issues with that. But we saw at the end of the year that it had -- it was capable of delivering. We just had to plan and execute it better. Our mining and haulage, that has demonstrated the capacity that we need. The screening -- ROM and screening area, that has demonstrated the capacity that we need. The tug and barge -- the barge loader and the tug and barge system, which is basically an integrated system have demonstrated the capacity that we need and the transshippers have certainly demonstrated individually and together the capacity that we need. So the thing now is plugging all of that together, right? And that's where I think outside of a couple of, I might call externality events. And if I look back at '25, for example, the Easter weather event, which caused our channel to collapse on the edges was -- pulled us back certainly by 150,000 tonnes to 200,000 tonnes. And we unfortunately were not able to load the last vessel at the end of December, which was another 170,000 tonnes. So, look, absent those 2 factors, which were largely externally driven, we would have achieved 6.5 million, 6.6 million last year. And then from 6.5 million to 6.6 million to sort of 7 million or 7 million plus, it's really about us not achieving more through each event, any one of our parts of our flow sheet, but actually reducing the variability, plugging them together and allowing them and making them work in a less variable way. So, effectively reducing the bottom quartile performances through that flow sheet. And we have pulled that apart, put it back together again. We've got a different -- I guess, a different structure now in terms of internally about how we're going to go about that, a very strong, I guess, technical and planning group under Nathan, a new short-run operations strategy under Paul Green at the site, who will be effectively looking only forward 2 or 3 ships in terms of where they operate. So, really sort of segmenting that short-run execution, really focusing on that short-run execution and the reduction of variability with the medium-term technical and planning side, so providing that service to the site. So, we're very hopeful, confident that, that is a better way of looking at this. We've spent a lot of time over the last 6 months collecting data from every part of our business. We've been feeding that and analyzing that, and feeding it into a new logistics and operations flow sheet and analysis. That is driving us. Those are coming out with 7-plus million tonne outputs. And so we are certainly driving that. And through the implementation of what we're calling a new management operating system that will be really the processes, the routines, the KPIs that drive that, the ability to sort of look at variants and how that works through. That is how we are about to start our operating season. So, we're expecting to be roughly back around middle of March. As soon as we have some firm [ lakes ] for the first vessels, we'll announce the target for operational restart. We've already got work going on, for example, in the channel. So we can't control the weather, but we can certainly control the impact that the weather has. And so what we've done, as already mentioned, in our processes with the roller screen wobbler. And in Ikamba, we've already reduced the impact that weather has on some parts of our flow sheet. That channel issue already -- we routinely maintain that channel twice a year. So, we had already done that in March of last year before that weather event. In the October maintenance of the channel, we have already widened the channel from 60 to 70 meters. Therefore, if we got an identical event to what happened last year, then the sites slumping into the channel would have minimal effect because we've effectively widened the channel. And this year, we're also going to investigate whether we do have approval to go deeper in that channel with that maintenance work. And so we're going to be looking at trying to create some additional depth or -- which effectively translates into barge capacity, tonnes on barge and in terms of hours per day where we're not affected by tide. So, that's certainly one of the underpinning initiatives this year where we're again trying to go back and look at what affected us last year. And that's been through, for example, the application of a different type of tide with a different type of play with a different approach, and we've had really good results on that in the second channel maintenance activity from last year. So, look, apologies for the very long answer, but I hope that gives an insight to the work that's gone in and the sort of focus that we've got on lifting those bottom quartile shifts, bottom quartile days, bottom quartile weeks up into that level to increase the averages that run through the flow sheet. Peter Taylor: Thank you, Simon. Assuming the wet season holding costs are typically $20 million for the quarter, with the Ikamba dry docking, is that number still about right? And also, can you please let us know when the Ikamba is expected to return to service? Simon Wensley: Nathan, do you want to take that one? Nathan Quinlin: Yes, absolutely. Absolutely. Yes. So in terms of the Ikamba dry docking, so the cost of that dry docking of the cash outlay would be in addition to the typical $20 million cash burn that we see over that period. From a timing perspective, naturally, these costs in a shipyard are driven -- very milestone driven. So, we actually wouldn't expect to see probably 75% of the actual cash burn for that dry docking to actually come through the statements until around sort of April and May and with final payments. So it's fairly spread out. From an overall earnings perspective, our dry docking because most of these work program is statutory in nature, we actually provide for those costs in advance as well. So the full cost of this dry docking is otherwise included in the current set of results that you're seeing. So the impact of that dry docking won't impact our margins. Peter Taylor: Thank you, Nathan. And while you're there, isn't there a strong argument that share buybacks represent better value to shareholders than dividends do until Metro is paying tax, i.e., fully franked dividends? Nathan Quinlin: Yes, I think so. That's certainly our view. With all else being equal, I think that's certainly the more tax-efficient strategy. But even then outside of that, when we're looking at what is ultimately a strong -- what we consider significant undervaluation of the current share price, it makes the buyback all the more obvious strategy, I think. Peter Taylor: Thank you. And Simon, you touched on potential growth options, but how do you view your progression of Metro's EPMs to further support Bauxite Hills? Simon Wensley: Yes. So, optimizing Bauxite Hills continues to be our primary focus, so absolutely the primary focus of the team. The additional resource -- we have about 40-odd million tonnes of resource that is sitting around our current pits. So, that is effectively the easiest resource to get to. We're currently doing more work on that in terms of analyzing the quality of that bauxite. Last year, if you go back and look at our AGM presentation, I talked a little bit about one of the initiatives is that we're looking at screening. We're looking at effectively upgrading -- bauxite upgrading. I mean, this is upgrading of Weipa Star bauxite. It's not a new thing. It's Rio Tinto at Weipa, as I experienced in my career with Rio has been going on effectively for more than 60 years there. So, it's a pretty well-known pathway. However, as we do at Metro, we are not looking at things just as a copy and paste. We're looking very carefully and creatively at the best value way in which to do that. Rio Tinto effectively wash all of their product, which obviously drives a huge amount of additional mining. It drives additional capital, additional cost and they have to manage a massive sort of tailings or fines management program, and they lose about 30%, 35% of the ore. So, we're very, very conscious that, that kind of big bang solution is not probably suitable for Metro. So, we're looking very carefully at individual areas of our resource base of that. And we're also looking at it, what we call a dry screening opportunity where we don't need the use of water. We don't need much lower cost opportunity, obviously, requires the ore to be probably only applicable for about 6 months of our operating season, but we've had some really good initial results from our dry screening trials as well, and we're also looking at selective wet screening. So that not only -- so the first stage of that is the resources that sit around our current sort of pits and reserve. The next stage are resources that sit somewhat distant to that and the nearest ones are north of the river. We've got some exploration tenements, which we started to explore at the end of last year. There's a bit more work to do there. The actual drilling programs are quite straightforward, relatively low cost. We don't have to go down very far to hit bauxite, obviously. So it's then the analysis of that. And particularly if we're looking at the application of screening or so into those leases, obviously, that takes a bit longer again. We've also got existing resources that are not recognized in the resource statement sitting at the old Cape Alumina Pisolite Hills project. So that was -- that is effectively south and east of where we are. So, that -- one of the antecedent companies of Metro is Cape Alumina. They had a project called Pisolite Hills. That was affected by the recognition of a National Park. Those resources are still -- though a proportion of those resources are still on our books and they sit in the same sort of orbit as the Bauxite Hills Mine and just require a kind of access and barging strategy to be able to get to them. And then we've just -- we've been in -- we have some resources very close to the Arakoon, the town of Arakoon down in the southern part of the Weipa bauxite plateau. We've been discussing access to those tenements with [ Manoch ], the local body corporate that represents the traditional owners there. And so we've been progressing access rights to that. And so we do expect subject to agreement to those conduct and compensation agreements to be able to access those tenements there. And one of those tenements was added last year in a deal that we did with Prophet Resources, which is an adjacent tenement to the one that Metro owns. So, we've now sort of doubled the potential size of that exploration opportunity. So, we're still continuing down exploration. Our firm intention is to add resources and reserves to our current resource base. And some of that may be, though, subject to the trials that we're doing this year on the upgrading of dry and wet screening. Peter Taylor: Okay. And finally, Simon, an update on the bauxite market. How do you see things currently, perhaps an outlook? And do you see a return to stability from what was a volatile price market last year? Simon Wensley: Yes. Good question. I mean, I might start at the top level, which is sort of with aluminum. So the -- those following the aluminum value chain will have seen the aluminum price after a dip early in the year, coinciding with the initial, I guess, Trump Liberation Day tariffs. We've seen a very strong recovery of aluminum. And that's being driven by a few things, right? So, there was 74 million tonnes of aluminum produced in the world last year, but it basically wasn't enough to satisfy the demand. And so we're in deficit as China -- China grew by about 2% in its production last year. But again, that wasn't sufficient to put into the market, and they've been importing more aluminum. And the aluminum market at the moment because of these tariffs and also by -- because of the sanctions against some Russian entities is somewhat structurally -- how can I put it? I guess there are structural restrictions in that aluminum market, which are driving outcomes and pricing that is really destined for even further growth. So, you've got pockets of demand that can't be met by local supply. They are then affected by tariffs. So that's the U.S., for example. The price of aluminum in the U.S. is actually almost double that LME price. So if you look at the LME price of over $3,000, it's between $5,000 and $6,000 per tonne because of not only the tariffs, but just the huge deficit that exists in the U.S. market, and they don't have any fast way of getting access to that product. So, there's some fractures and issues in the market. But above all, the demand for aluminum is growing. And so even with this sort of like temporary -- the tariffs clearly caused a dip in demand. And even without a recovery in the China building and construction market, you're still seeing significant 3%, 4% growth in demand for aluminum, and that is just not being able to be supplied out of the industry at the moment. And so China is now very close to its production cap. And so where is that aluminum going to come from? So, predictions are continuing for deficits this year, and that obviously must mean price rises. And the other thing that's driving that growth other than the standard electrification, vehicles, transportation, aerospace, et cetera, is the fact that copper price is going hard as well, and aluminum is a substitute for copper in many applications. So, there's a whole bunch of reasons why. And that's -- so overall, a great environment in the aluminum space, which means that growth in alumina production is required, and that means growth in bauxite -- growth in bauxite demand. Now, when you then break that down, okay, we're in the Asia Pacific. I mean, a lot of that growth is happening in the Asia Pacific. At the moment, though, there is -- as you mentioned, Peter, there's been a bit of a volatile ride. There were some very, very high prices at the end of '24 for bauxite into '23 -- into '25, and then that's come down a bit. Things stabilized a bit, and there's been a bit of a dip, a couple of dollars down again since the end of the year. But the alumina market -- so we supply into that alumina market. It is a bit oversupplied with -- and there is a shake-out occurring, particularly in China, with older plants closing, new plants coming online. But all those new plants are dedicated to imports. So, what's good about that shake-out is you're seeing -- we're seeing alumina plants inland in China looking to curtail and close. And that they've been largely based upon domestic Chinese bauxite and the new plants coming on the coast are 100% dedicated to imports. And so what we're going to see then once this shake-out has sort of worked its way through, we're going to see increased demand for traded bauxite in the Asia Pacific. India is coming along on the rails as well. The Middle East is also planning additional refining capacity. So look, we do see that. And Indonesia has -- is growing its whole chain, the smelting chain, the alumina chain and the bauxite sort of side of things. But I see that largely being contained within the sphere of Indonesia. So Indonesia, I don't think we're going to see a lot of leakage of either alumina or bauxite out of that market. So, look, I think there's a bit of volatility around, but I would just go back to my comment earlier about industry structure, which is as long as the West Africans are supplying into the Asia Pacific and as long as they continue to be 2/3 or 2 months of freight travel away, which I don't think the geography of West Africa is going to change anytime soon, then Metro is in a structurally advantaged position irrespective of whether we have a tight or less tight market to be able to supply into the Asia Pacific at low cost. So, all of the things we've been driving for are going to continue to be relevant in terms of this market structure. Peter Taylor: Thanks. That was a pretty comprehensive coverage of that question. I just got one little one here. We mentioned perhaps in previous webinars discussion of the Kaolin resource or the Kaolin mineralization at Bauxite Hills. Is there any further exploration or interest in that particular mineral there? Simon Wensley: Yes, there is. We've now extracted and tested the product in a few different places in a few different markets. The Kaolin product that we have on a raw basis is of good enough quality to export. Kaolin though, it's a bit more of a fragmented end-use market. So, there's -- Kaolin goes into paints, goes into paper, goes into ceramics, goes into rubber, goes into fiberglass, goes into a whole different -- a huge number of different applications. Each application has a slightly different quality, I guess, specification, has a physical -- the physical state of the kaolin, the fineness of it, et cetera, are very, very different. So it's not a big bulk market that one can understand in a fairly easy brush stroke, but we are continuing to explore that market. I'm not particularly interested in doing a lot of work on Kaolin in terms of upgrading on-site. Skardon River is a great place to run bulk commodities. Whilst we have the bauxite value chain, it does allow us to piggyback the Kaolin on the back of that large-scale value chain and flow sheet, does mean we can then get raw Kaolin to places very, very cheaply. And I guess that's the model that I'm trying to progress. And that does then require, obviously, partners at the other end who are going to take that product and either distribute that or to work on it, whether it's sort of upgrading it through, washing it or by grinding it or by doing something for the particular segments that the Kaolin market needs to drive. But I guess, for us to move the needle there, we'd be look -- we'd be wanting to move 300,000 to 500,000 tonnes of Kaolin to be able to kind of move the needle. I mean, that's quite a lot of Kaolin for the Kaolin market. It's a much, much smaller markets. So the answer is, yes, we've done more work. Yes, we've done more drilling. Yes, we've done some studies on mining. We've done some test work on our flow sheet to be able to prove that it can be dug up. It can be moved. It can be screened. It can be placed on barges and through our transhippers. So, that work has been done. It's really now more market than market side of things and can we see a value proposition for exporting effectively what is a raw bauxite that needs further work done on it. Peter Taylor: Thank you, Simon. Thank you, Nathan. That concludes our questions here today and a good summary of what looks like a pretty positive report and that the market seems to like it, too. So if there are any other further questions, please e-mail them in to Peter@nwrcommunications.com.au. I'll make sure Simon and Nathan get them. And this is being recorded. So, we'll make this available for distribution later on. Thank you, gentlemen. Thank you, everybody, for joining us. Simon Wensley: Thanks, everyone. Nathan Quinlin: Thanks.
Hung Hoeng Chow: Good morning, and a warm welcome to Olam Group's annual briefing for the results ended the year 2025. Happy Chinese New Year to all of you. Our full year results delivered at this time of the year always marks the beginning of an auspicious year. I'm Hung Hoeng, the Olam Group Investor Relations, and it's always my pleasure to host this briefing along with our senior leadership team at Olam, led by, on my right, Olam Co-Founder and Group CEO, Sunny Verghese; to his right, CEO of ofi, Olam Food Ingredients, A. Shekhar; and our Group CFO, N. Muthukumar, at the end of the table. But before Muthu will deliver a presentation of our group consolidated financials for the year, Shekhar and Sunny will present the segmentals of the respective operating groups, Shekhar, ofi; and Sunny as CEO of Olam Agri for the Olam Agri results. Sunny will also cover the same for the Remaining Olam Group before moving on to our reorganization plan update and also telling us what he thinks of the future outlook and prospects for the group. And before we begin, please read the cautionary note on forward-looking statements carefully. I thank you for your attention. I'll hand over the voice to Muthu. Neelamani Muthukumar: Thank you, Hung Hoeng. Good morning, and a warm welcome once again to all of you for our 2025 annual results briefing. I would like to start with wishing you all [Foreign Language] the Year of Horse. So we all have an auspicious beginning. As you all know, there is changes to the presentation because of the imminent demerger of Olam Agri, which we had announced as a sale of 44.53% to SALIC, a subsidiary of PIF, the sovereign wealth fund of the Kingdom of Saudi Arabia. So the presentation is on 2 slides. As per accounting standards, we will be presenting a combination of ofi and the Remaining Olam Group. But for all of us to understand the real business as a combined Olam Group, we would be taking the liberty of presenting as one consolidated group, including Olam Agri. So the first slide, as you are seeing, is excluding Olam Agri presentation. We are at 4.4 million tonnes of full volume for the full year 2025 with roughly $30 billion of revenue, up 29%. And as you all know, we had historical high prices of the commodity that is in the ofi portfolio, particularly cocoa and coffee, and that has resulted in a significant increase in revenue to $30 billion, converting into an EBIT of $1.26 billion and a PATMI of $444 million. More importantly, the important metric that we track and report, which is operational PATMI, up 136% year-on-year at $511 million. The huge swing to the positive side on the free cash flow to equity, reflecting the normalization of prices in the ofi portfolio, resulting in a significant reduction in usage of working capital and automatically resulting in a positive free cash flow to equity of roughly $360 million in the year ending 2025, and that has resulted in a significant reduction in gearing, down from 2.79x in 2024 to 1.87x. Now with combined Olam Group, including Olam Agri, you can see that the volume is an overall of 59 -- 58 million tonnes, up 17%, resulting in a revenue -- combined Olam Group revenue of $67 billion, up 19%. And an EBIT from $1.26 billion, excluding Olam Agri, resulting in a $2.2 billion EBIT, up 13%. PATMI and operational PATMI remaining the same because regardless of however we see as discontinuing operations or combined operations, the resulting PATMI is $511 million, up 136% year-on-year. And gearing with Olam Agri down from 2.79x to 2.69x. So no surprise here on the volumes. 92% of the 58 million tonnes has been contributed by Olam Agri, the remaining 6% from ofi and roughly 2% by the Remaining Olam Group. However, as you all know, because of historical high prices in the ofi portfolio of commodities, that has resulted in a significant contribution in the revenue of ofi at 42.5% with Olam Agri contributing 56% and the balance roughly 2% from the Remaining Olam Group. In terms of the $2.2 billion of EBIT, 42% came from Olam Agri, 49% came from ofi and the balance 9% from the Remaining Olam Group. As you all will notice, the Remaining Olam Group has performed very strongly during the year. We had talked about it in the first half results that we presented in August of 2025, and that trend has continued for the Remaining Olam Group, contributing to 9% of the total EBIT of $2.2 billion. We have a $25.5 billion of total invested capital, roughly 61% coming from ofi, 30% contributed by Olam Agri and the balance, roughly 9% from the Remaining Olam Group. This is again a detailed presentation of the results, excluding Olam Agri. You can see that a PATMI of $444 million, out of which $170 million contributed from the continuing operation comprising of ofi and Remaining Olam Group, and roughly $274 million being contributed by Olam Agri. However, the operational PATMI is up from $511 million compared to $216 million year-on-year, which is represented to appropriately reflect the apple-to-apple comparison, contributed by the continuing operation of $224 million and the balance $287 million contributed by discontinuing operations. As I had highlighted earlier, you can see that in the continuing operations, it was a negative results last year of $105 million, has swung to a positive of $223 million, mainly because we had strong results contributed by the Remaining Olam Group businesses. Volume increased from roughly 49 million tonnes to 58 million tonnes, primarily from Olam Agri of 8.6 million tonnes increase in the cash trading business, primarily contributed by grains, oilseeds and edible oil trading. In terms of overall core operating profit, which is EBIT, we grew from $1.9 billion to $2.2 billion. As I had highlighted earlier, it was a swing of $350 million year-on-year contributed by the Remaining Olam Group businesses. In terms of operational PATMI, we talked about a significant increase from $216 million last year, a growth of $295 million year-on-year, resulting in an overall operational PATMI for the group at $511 million contributed by strong operating growth of $255 million from the EBIT growth. We had less exceptional items during the year that contributed to $63 million of profits as well as lower finance cost on the result of lower interest rates of -- and resulting in a lower interest cost of $53 million overall, moving from $216 million to $511 million of operational PATMI. In terms of invested capital, we talked about a margin reduction at $25.48 billion, primarily because of lower working capital utilization of ofi, resulting in the normalization of commodity prices, especially cocoa and coffee during the year of 2025. Gearing accordingly, excluding Olam Agri, dropped significantly from 2.79x to 1.87x nominal net debt to equity. However, more importantly, what we track and report, adjusting for RMI and secured receivables, dropped from 0.68x to 0.55x and including Olam Agri on a combined basis, adjusted for RMI, the net debt to equity was at 0.58x. This resulted in a significant swing in the free cash flow to equity. As I had highlighted earlier, we had a negative free cash flow to equity last year, primarily because of significant usage of working capital, particularly in ofi and with the normalization of commodity prices in the ofi portfolio had resulted in a positive free cash flow to equity of $360 million, primarily a swing of $6.3 billion year-on-year. Needless to add, some of the bankers are here and who are hearing us, thank you once again for your continued support. We have sufficient liquidity with diversified pools of capital with a healthy headroom of $7.6 billion over a total available liquidity of $15.5 billion, contributed by roughly $2.2 billion of cash, $8.8 billion of readily marketable inventories, roughly $0.5 billion of secured receivables and more importantly, $4 billion of unutilized bank lines. With that, I will hand over to Shekhar for presenting the ofi segmental results. Thank you. Shekhar Anantharaman: Thank you, Muthu, and a warm welcome from my side, too, and a happy Lunar New Year to you. I hope it is successful -- healthy, happy and successful for all of us. So as always, I'll kick off the ofi segmental results. This is a slide all of you have seen for a long time, but I'm always very happy to share it at the start of every presentation because this is a strategy that we embarked on when we created ofi 5 years ago, now 6 years ago. And we have stayed true to the strategy. The market has done many things. The world has gone through many things. All of us are aware of that. But we have stayed focused on backing the strategy, investing behind it in brick-and-mortar, greenfield as well as acquisitions, but more importantly, creating the capabilities and deepening our customer and supplier franchise, which is really what finally matters. And even this year, if I look at the full 25 year, has demonstrated the resilience of this model, the validity of this model and the deepening of our relationships under what -- I mean, the word "unprecedented" has been used many times, I've used it myself. But it has been quite a unique set of circumstances in the marketplace, not just the commodity prices that specifically impacted 2 of ofi's largest platforms, but all the other macroeconomic uncertainty, the tariff pressures, which caused significant and still a moving goalpost for all businesses. And it is the integrated scale, size and footprint that ofi has built over many decades, not just at the start of ofi, but many decades. And the things that we have done over the last 6 years to build on top of that, getting closer to our customers, offering them even more varied capabilities from innovation to solutioning to private label, which was kind of a start -- a few experiments that we started with in 2020, in '25, I'm pleased to say that, that business across nuts, spices and coffee has really come to age. We are sizable in terms of our retailer presence, in terms of the segments that we -- and categories that we play in, in North America, Europe and Asia. So it is now a very significant part. So it was, therefore, a reinstatement of that what we said we did. And '25 was really, again, a year of continuing to do that under fairly tough circumstances. So when you look at the results in terms of EBIT and overall results -- I'll come to the segment in a little bit. The overall results were broadly flat for EBIT, but this is on lower volumes. Last year was not about increasing volumes. It was about really using capital in a very calculated, deliberate, disciplined way and ensuring that we can meet our customer contracts and under prices that were changing up and down, and with amplitudes that have not been seen before by the industry, and with the frequency of up and down moves that are also quite remarkable. So last year, cocoa hit a high of $12,000, ended the year at around $4,000. In the last 8 weeks, it's half of that. Coffee started the year at below $3, went up to well above $4, almost $4.50, ended the year at $3.50. In the last 8 weeks, it's gone up to $3.80 and is trading at $2.80 today, $1 off the highs in the last 8 weeks. So we're not talking here about small moves. We have seen that over 35 years, and we always manage commodity pricing. That is a big part of our capacity and capability that we have. But this has been testing. And so in that situation for us to be able to execute our contracts, ensure that the pricing is passed on to our customer in a fair, transparent and a reasonable way, and ensuring that we can use capital in a disciplined form and manner to ensure that we can maintain our returns, which were tested during this period, that has really been the focus for the business. And beyond that, what is hidden in these numbers is the big changes that have happened in -- like I mentioned about private label, but also in our Food & Beverage Solutions, which is a relatively new segment, but we are moving forward. These things take time, but we are moving forward and deepening our relationships and our solutioning capability with our customers. So if you look at our invested capital, you'll see that directionally, it's coming down. Now this is not reflective of the amount of change that has happened in the last 3 to 4 months. For most of the last year, invested capital, we started high. In the middle of the year, we went up higher. And the changes that have happened to pricing has happened more in Q4 of last year. And you can see that trend in terms of the lowering of closing invested capital, and this will -- over the H1, this will go down further if these prices remain at where they are or where they are headed. And so when we look at our returns, we look at average returns, which is a 3-point average over the year. So that's where you will see that the returns are falling, but this should change, because as we are releasing higher-priced inventory, which is happening already, you saw the changes in cash flow that Muthu pointed out. So the working capital will come down and the returns will improve. What's important to note here is that we are able to pass on the pricing, and that's the critical thing. As long as we can retain our margins, pass on the pricing, maintain our EBIT and ensure that we can get the cost of capital and the risk premium that is required in these markets, that is the important thing, and that's where we believe we have done well, and that's what gives us confidence for the future as the capital comes down, that these returns will improve as well as the earnings will hopefully continue on the growth path. So if you look at the 2 segments in which we report, Global Sourcing remains the foundation on top of which we are building a value-added single ingredient and solutions business. And Global Sourcing was tested. And Global Sourcing came out very well during this period. Small growth in volumes, but almost a 6.5% growth in EBIT being able to showing that -- actually, it's on lower volumes, higher EBIT. So therefore, ability to not only price but also price for risk on a risk-adjusted basis. And therefore, the EBIT per tonne growth that you see is, I think, again, very important part of that we are able to not -- we are able to maintain our earnings and EBIT per tonne. And on capital, again, it deployed a lot of capital for most of the year. That capital is coming down. It's coming down further in Q1. So that's again a good sign that we will be able to ramp up returns on this business as we go through the next year. On the Ingredients & Solutions, we were slightly off on our EBIT. Our volumes have been lower in this business, but -- and in terms of the lead lag in pricing, we have had lower price -- the higher priced contracts are yet to be -- because in the -- in this segment, we have much longer-term contracts and they take time to pass through. So we -- in terms of our pricing and our ability to price these contracts, we have been able to make our earnings, but they will pass through the books as we go through the shipments. A couple of areas which were affected during this period. Certainly, our IS business in coffee was affected because of the sharp increase in coffee prices as well as the change in the -- between the Robusta and Arabica pricing, which impacted margins in the soluble coffee business, but that is now correcting. We were also affected somewhat by the tariffs because of the steep tariffs on Brazil. And therefore, we had set up a new plant there, and that also got impacted. The soluble coffee has been impacted cyclically, but that business is on a very strong footing. And already we see in Q1 and late Q4 of last year and Q1 that the volumes and margins are picking up. So we don't -- we believe that, that will correct itself. And the real big growth in this year across nuts and spices has been on the private label side. So yes, it's been a tough year. It's been, in a sense, a flat year and a year of consolidating, managing risks, managing capital. But the way we are positioned at the end of year and the way the markets are headed and the way we are positioned in those markets, we feel very confident of both improving earnings as well as returns in '26 and beyond. With that, I'll hand over to Sunny and happy to take questions later. Sunny Verghese: Thank you, Shekhar, and good morning to all of you. I have -- I will cover 4 things. First, how Olam Agri, as one of the new operating groups has performed for the year. Second, I will talk about how the remaining group outside of ofi and outside of Olam Agri has performed. Third part is we will provide you on the updated Olam reorganization plan that we shared with you, various elements of that. So we will cover that. And finally, we'll conclude with looking at outlook and prospects. And then the 3 of us will be available to take any questions that you might have. So we'll start with the first part that I described, which is about discussing Olam Agri's performance for the full year FY '25. I won't split it into the first half and second half. First half, we have already briefed you. So I'll just now look at what is the full year performance of the business. But before we go into the details of Olam Agri's business, just to take a lead from what Shekhar articulated for ofi as the direction of travel and the strategy for ofi, I'll just spend a couple of minutes on talking about where Olam Agri is in that context. So first, we are in the business of providing living essentials -- daily living essentials to customers across the globe. So what are these living essentials that we depend on, on a daily basis? It is a provision of food, it's a provision of feed, it's a provision of fuel, it's a provision of fiber, which is clothing. It's a provision of shelter, which is wood for furniture and for building materials. It is for mobility, which is our rubber business, which is about helping support mobility solutions in a market where demand for natural rubber is growing. So these are what we consume on a daily basis. Our job and our business is to provide you those daily living essentials. So that's number one. Number two, in order to provide you those daily living essentials, we have to solve major challenges or gaps in our food and agricultural system. So first, we have to solve the food gap. There is a big and growing gap between the demand for food raw materials and the supply of food raw materials in terms of calories. So we believe that there's going to be an emerging gap of roughly 7,500 trillion calories. In Singapore, we all consume about 3,200 calories of food per day. So if you take all of the globe's population and the population growth, et cetera, per capita calorie consumption, you're going to see an emerging gap by 2030 of roughly 7,500 trillion calories. That's a lot of calories. So our job as part of this ecosystem is to help provide and bridge the gap in terms of food consumption needs of the global population. Secondly, there's a huge gap in terms of land gap. How much of land do we need to provide this 20,000 trillion calories or this 7,500 trillion calories of gap. So we need land of roughly 584 million hectares, which is more than the size of India. So every year, we need to add land that is equivalent to the size of India to be able to bridge that land gap. So if you had to provide reliably daily living essentials to the world's population, we have to solve for the food gap, we'll have to solve for the land gap. Third, we have to solve for the climate gap in terms of emissions. We will have to reduce our emissions from roughly -- by roughly 11 gigatons. That is -- just from the food sector. Food accounts for about 30% of the world's carbon emissions, including land use change. So we have to address how do we produce more food that people need or feed that people need or other agricultural products that people need without destroying the planet and consuming unsustainably. So that is the third challenge, a third gap. The fourth gap that we have is the biodiversity and nature gap. So we are losing a lot of land because of deforestation, as an example. So how do we fulfill the nature gap and how do we also preserve the species that are essential for food production. So whether it's bees, there are 10 million species around the world. We are losing -- we lost almost 1 million of those species, and we are continuing to lose these species at an alarming rate. And they are very essential to make sure that enough food and feed and fiber is produced. So that is what we call the biodiversity gap. There's a water gap. To produce 1 calorie of food, you need roughly 1 liter of water. And 71% of the world's water is coming or going to agriculture. So agriculture is the biggest consumer of water. So if you want to provide all this on a sustainable basis, we need to address the water gap. We also need to address the livelihood gap. So a lot of the small farmers who produce our food, particularly the small farmer systems, they're not at even the poverty line definition. Fifty five percent of our smallholder farmers do not earn enough to subsist in ag. And 90% of them are below a living income. The minimum economic line of poverty is not enough to live a reasonable quality of life. So if you want to access to health and transportation beyond just the basic necessities of life, there is a threshold that you have to meet, which is significantly higher than just the poverty line definition. And that gap today -- almost 90% of the world's smallholder farmers, I'm not talking the large farming systems, are below a living income. And therefore, we are trying to find how we can address and solve that problem if we have to fulfill our business description of supplying daily living essentials to the global population. And then there's the innovation gap. In order for all this to happen, in order to solve for all these challenges and gaps, we need significantly additional capital to innovate production increases, productivity growth without which -- and manage all the climate change issues and the water-related issues and the nature loss issues, we need a lot of money going to research to find the next wave of productivity breakthroughs. So we believe that we are -- our folks in Olam Agri are challenged and motivated by the fact that our mission is quite transformational in terms of us meeting the daily necessities of life. So we have, therefore, developed over the years a differentiated business model that allows us to provide these solutions and that allows us to address the long-term secular drivers in terms of how do we produce and provide sufficient food, feed, fuel, fiber, rubber, wood, all of these products to help meet the growing needs of a growing population. So we have developed a very differentiated business model and the proof of the pudding in the successful execution of this business model is that by the sale of 100% potentially of the Olam Agri business to SALIC, which is a 100% owned PIF subsidiary, and they valued this business at $4 billion plus the closing adjustments. So it could be anywhere between $4 billion to $4.2 billion valuation for Olam Agri, which is about 3.5x our book when we did this transaction, is a clear vindication and demonstration and a proof point that our differentiated model that has helped us to generate these excess returns. We have very high capital efficiency, return on invested capital. And we have very high return on equity, both in return on IC -- return on invested capital and return on equity, we are #1 in our industry, amongst our peer group. And even this year, when our return on equity has come down to 26%, 26% is 2x, 2.5x our peer group average of return on equity. So that is because the model is differentiated. And we have gone through in the past sessions how Olam Agri is very differentiated. So the first thing I want to say about our results -- Olam Agri's result is that, Muthu and his executive team have done a phenomenal job in navigating some of the substantial headwinds that confronted our industry this year. So we had historically low commodity prices across almost our entire portfolio with the exception of palm. So if you look at everything else, soybean, wheat, corn, cotton, they were all at historically depressed prices. So when you have very depressed markets, you also have very poor volatility. A combination of lower prices and lower volatility means that there will be pressure on our margins, and that is what we confronted this year in 2025. So we have to look at our performance in the context of how we have performed on an absolute basis, but how we have performed relatively compared to our competition who are also confronted with these challenges of low commodity or depressed commodity prices and low volatility. So our EBIT, operating profit has come down by 9.2% compared to last year. But this is in the industry context where operating profits have declined for our peer group between 16% and 44%. So against a 16% to 44% drop in the industry peer group and all of you have access to the data because most of them are published results, and we are, I think, amongst the last companies to publish full year results. You will see that the whole industry has had a fairly significant lower performance compared to the last year. In the context of that, a 9.2% decline in operating profits, we are quite pleased with that performance under those challenging circumstances. There's also the issue of -- we were confronted with a lot of macro issues facing us, not just our sector in particular, but it has a very direct impact. So, for example, the trade and tariff wars and the last week's striking down of the Trump administration's tariffs by the Supreme Court, particularly the tariffs, which comes under what we call IEEPC (sic) [ IEEPA ], which is the [ International Economic Emergency Protection Act ]. Under the IEEPA, the Trump administration had targeted to collect $150 billion of import tax revenue, which they are well on the course to achieving it. They will probably exceed the $150 billion target they have. And while they have announced the tariffs from April of last year, it has distorted world trade quite a bit. It has also seeped into U.S. inflation because unlike what Trump and his administration is saying, most of these tariffs are borne by consumers and by the industries who are providing these goods and services. So if this 150 billion tariffs is now going to be cut, then they have now immediately responded by coming up with new kinds of tariffs, which cannot be struck down by the Supreme Court. One is the Trade Act. The trade under the Trade Act under Section 122, they can impose a minimum tariff, which does not need and which cannot be appealed to the Supreme Court. They cannot abolish the Trade Act tariffs. So immediately after the Supreme Court decision was taken, Trump has announced a 10% tariff on a Tuesday -- on a Friday or a Thursday, I think. And then within a day after that, he raised the tariff from 10% to 15% because 15% is a maximum tariff that can be imposed for a limited period of time. It can be imposed as a tariff for about 6 months. So he has said that he will now go up from 10% under the Trade Act, Section 122 to now 15% and is hoping that this set of tariffs, and then what they call Section 232 and Section 302, which is to -- against restrictive trade practices or against -- another provision, they can impose these taxes. So he has now imposed additional taxes through the Trade Act and Trade Expansion Act, different sections, that will allow them to compensate for the loss of revenue as the Supreme Court strikes down the IEEPA tariffs. All this will have -- so for example, on the $150 billion the U.S. administration expected to receive, he's already promised the soybean farmers in the U.S. that out of these tariffs he's collecting, he'll give them $12.5 billion of subsidies to be able to compete and supply their soybeans to the world's largest soybean market, China. Because Brazil and Argentina and other countries were therefore substituting the loss of soybean imports from the U.S. with soybean imports from Brazil, and Brazil has substantially increased its production by increasing its productivity and acreage under cultivation that China does not need to now depend on the U.S. In the past, if they wanted the soybean, they had to depend on the U.S. Now they can avoid not buying anything from the U.S. And as a result of that, the U.S. farmers are facing very depressed soybean prices and therefore, depressed profitability. And they are a big voting lobby for him. So he suggested that he will give them $12.5 billion of subsidies. So if all these subsidiaries are being struck down by the U.S. government, how will it be just one industry. And it's not one industry, one product, soybean, where he has promised $12.5 billion. So against potentially collecting $150 billion of tariff, I think they have already committed for various interest groups and various sectors well in excess of $150 billion they're going to be collecting. So all this will impact how these trade flows are going to be, and we have to be very nimble, very dynamic, very understanding of the specific trade flows and how they will be impacted. We have to position our assets. We have to be, therefore, largely asset-light so that we have the flexibility that if U.S. is not the largest exporter of soybeans, we have to be in those trade flows, which are going to take over that gap that is going to emerge as a result of that. So in that context, I'm spending a little bit of time explaining this context because what I wanted to show is that, the 9.2% reduction in the operating profits of Olam Agri has to be seen in light of the industry headwinds and how everybody has navigated that set of headwinds and how we have accomplished our results differentially. So I'm very pleased with this performance. Our business is cyclical and volatile and that we have to respect and accept. And in order to navigate the inherent cyclicality, structural volatility in this business, the way we do it is to be diversify. So we are diversified across food and feed and fuel and fiber and rubber and wood. That diversification helps us navigate the cyclicality and the inherent volatility in the business. And that is demonstrated by the fact that despite all of these headwinds that we face and what I described to you, we have had a very creditable performance in only having a lower operating profit of 9.2%. And within that there are different stories. Of course, we are a diversified portfolio and diversified across the supply chain that our cash trading business, which is one of our 3 important segments, has contributed only 15% of our operating earnings compared to last year having contributed 21% of our operating earnings. But our processing and value-added business has hit the ball out of the park in terms of -- under all of these challenges, going up in its share of contribution to operating earnings from roughly 59% to 66%. So it has had a very, very good year, and it has made up for some of the challenges that we had in the Origination & Merchandising business. And the Fibre, Agri-industrials & Ag Services business has remained more or less flat, just a 1% decline in share of operating profit this year compared to last year. You can see at the bottom, we have shown that our EBIT per tonne, our operating profit per tonne has declined about $6 from $23 last year to about $17 this year. And that is a reflection of all that we have had. We have compensated for the drop in margins by significant growth in volumes under these circumstances. So we have moved volumes from 45 million tonnes to about 53.5 million tonnes, 8.5 million tonnes growth in our volumes, which although we had lower margins per tonne was able to compensate somewhat for the absolute operating profits that we generated. There are other parts of the Olam Agri portfolio, which has done very well this year. The edible oil trading business has had a very, very good year. The cash trading business in grains, oilseeds lower than last year, but still a very creditable performance. We've had poor performance in the rice business. Very difficult time in the freight business. But there were other performing parts of the business across the 3 segments that have helped us to compensate for some of that loss in those businesses. We have grown our invested capital by about 11%, largely driven by the growth in volumes by about 19%. We have had growth in -- and that is because prices have come off, and therefore, it has not gone proportionately with the volume growth. I'll now just look at it segmentally very briefly. In the Food & Feed segment, we have 2 subsegments. One is the Origination & Merchandising business and the other is the Processing & Value-added business. In the Origination & Merchandising business, as I talked to you about the industry environment and the headwinds, we have actually had almost a 35% decline in the Origination & Merchandising segment. But within that, the various SBUs have performed differentially. Some have performed better than last year, better than budget. Some have performed at plan or at budget and some are below budget with a couple of profit centers and SBUs, which are loss-making in '25 compared to '24. The invested capital in this segment has gone up quite considerably because much of the volume growth that we talked about, the 8.5 million tonnes, a large proportion of that volume growth happened in this segment, requiring us to deploy more capital as far as the Origination & Merchandising business is concerned. Moving on to the next subsegment, which is Processing & Value-added, where I said operating profit has gone up slightly by about 2% from $601 million to $611 million. But you can see the margin per tonne has grown quite significantly from $115 per tonne EBIT per tonne, it has grown to about $127 of EBIT per tonne. And there has been a slight decline in total invested capital from $2.5 billion to about $2.4 billion, so about 4% reduction in total invested capital in the Processing & Value-added. So this has performed well, and this has performed well even compared to the prior year. We had a very good prior year, a very strong prior year in the Processing & Value-added segment. We have continued to improve on that position this year. So overall, this was one of the standout performances amongst the 3 segments. And finally, if you look at the Fibre, Agri-industrials & Ag Services segment, our operating profit has declined 13.6% on the back of a decline in operating margins per tonne of $65, coming down from the prior year of $81 per tonne. And that has contributed in the lower operating profits in the Fibre, Agri-industrials & Ag Services segment. Invested capital has been more or less flat, that's marginal decrease of 1%. But this was the story of the Fibre, Agri-industrials & Ag Services. But within that, some of the businesses have done very well like the rubber business has had its excellent year, again, on the back of a very strong prior year as well. And we have given you some colors in terms of highlights as far as the summary is concerned on how different categories have done within this broader segment of Fibre, Agri-industrials & Ag Services. With that, I want to move on to the Remaining Olam Group. The Remaining Olam Group, as you know, is what is not in ofi, what is not in Olam Agri, that is the part of the Remaining Olam Group. When we started this restructuring, in '24, as you remember, we had roughly 12 businesses and assets under the Remaining Olam Group. In '24, we sold 2 out of the 12 where we are left with 10. So last year, we started the year with 10 remaining assets in the remaining group. And during the course of the year, we have sold or shut down 3 out of the 10. So what we are now left with is 7. So in '26, our role is to try and find the right long-term home for these balance 7 businesses that we have, which as we explained to you when we provided you the reorganization update in April of 2025, we explained to you what we are seeking to do. What we are seeking to do is to responsibly divest these 7 remaining assets to the right long-term owners of these businesses who want to be in these businesses and will, therefore, invest to further grow these businesses. For the Olam Group, it wants to now focus on Olam Agri, which has been sold 100% to SALIC, and it wants to focus then on the remaining main business, which is ofi and prioritize that business. And that will then complete our restructuring journey, which we have been embarked on over the last 4 to 5 years of splitting the Olam Group into 3 individual parts, ofi led by Shekhar and Olam Agri led by Muthu and his executive team, and the Remaining Olam Group, where we are making arrangements once the separation and demerger of Olam Agri happens for a continuing management team to oversee the responsible and orderly divestment of the 7 remaining assets in the group. So how did this RemainCo assets perform last year? So there has been a remarkable turnaround between '24 and '25 in the RemainCo Group. So in '24, we had $152 million of operating losses. We have had a massive positive swing of $342 million from last year's loss to this year's profit number -- operating profit number of $198 million. So the swing was a positive $349.2 million in this business. As Muthu explained when he was introducing the overall performance of the group, he did mention that we had reported a first half non-operating profitability coming from the revaluation of our euro-dollar loans provided by the parent to the remaining group assets. And that was a significant driver to this turnaround. But if you remove the non-operational gain, which we described in great detail in the first half results, the operating performance of each of the remaining assets has been a solid improvement over the prior year. So we are very pleased with this turnaround, and we expect continuing improvement in performance of the remaining 7 assets. This has also reduced our invested capital in this business by 4%, but also dropped our volumes and our revenues by 5% and 7.2%, respectively, because we are discontinuing some of these operations, and therefore, we have loss of volumes and loss of revenues as a result of that restructuring. But this has been quite pleasing because for the last several years, as the reorganization started and was evolving, this was a drag on the consolidated profits of the group. But now we see light at the end of the tunnel in terms of the positive improvement in the operating performance. And if you look at the next 3-year plan that the constituent 7 businesses here have shared, we see good, strong prospects for a sharp turnaround, continuing improvement in the Remaining Olam Group businesses. So I want to move on to the third segment, which is on the reorganization update. As you all know, you are aware of what the reorganization update is. I just want to reinforce the core elements and the core parts of our reorganization. The first element of our reorganization was to create greater focus by splitting the Olam Group into 3 simplified operating entities, with more coherent underlying logic that makes each of these 3 operating groups and the constituent products within those operating groups hang together. So from a very large business, very diversified business, very complex business with lots of moving parts, the first element of our reorganization was to simplify our business, and by sharply focusing these businesses and splitting that into 3 groups, we expected and we have now demonstrated with the Olam Agri sale that we can get the full potential value of these underlying businesses without suffering any multi-business discount, or a conglomerate discount as they call it, or even a Holdco discount. So we can preempt being saddled with a very complex, difficult-to-understand business with being accorded a multi-business operation discount or a conglomerate discount. So that is the first principle of why we did this reorganization. Second is we believe that these 3 businesses are going to be desired by different investors. So the folks who want to be part of the ofi journey are potentially largely different from the folks who want to be part of the Olam Agri journey, and similarly for the RemainCo businesses. And within the RemainCo, the 7 businesses appeal to different sets of investors. Of course, they will all have some common investors group, but largely, they would be preferred to be owned by different investors. And this gives them now an opportunity. When we were one company, there wasn't the opportunity for an investor, A, who wanted to be part of the ofi journey to get an opportunity to invest only in ofi. They could only invest in all the 3 pieces together. Now our investors can decide whether they want to invest in ofi or Olam Agri or OGL, and that will be better aligned to their objectives and their desires. The third part of this was to eliminate the stand-alone intrinsic value because our valuation was co-mingled and people didn't know what would be the underlying value of each of these operating entities. The sale of Olam Agri to SALIC has demonstrated that we can eliminate the stand-alone value of a pure-play kind of company rather than a conglomerate company. And that's why we got the valuation that we got or the rating multiples that we achieved when we sold Olam Agri. And we expect the same uplift and elimination of value when ofi seeks to get new investors in the public markets or capital markets -- private markets whenever it deems it is the right time and opportune time to do that. And that also appeals to the sale or divestment of the remaining assets or businesses of the remaining group. And as we said, we want to, by that, remove any conglomerate and Holdco discount that we will be confronted with. And finally, we are trying to make sure with this reorganization that the rest of the Remaining Olam Group will be made to be debt free. By the steps that we described to you -- the 5 steps that we described to you, we will be able to make it debt-free. And therefore, we can resolve and optimize the overall goals that we have from this reorganization plan. So you'll recall, in April, we provided an update to the reorganization plan and where we stand. And we said we had 3 objectives. One was to delever the Remaining Olam Group. We allocated $2 billion of capital to degear and make Olam Group debt-free and self-standing. And in order to do that, we were counting on different sources of capital, which I'll come to in a minute. We also felt that ofi has a lot of promising growth prospects, and we should re-equitize ofi by providing additional $500 million of equity capital injection in ofi. So that has also been done and accomplished in the first half of the year. That was the second, its $2 billion to make the Olam Group -- Remaining Olam Group debt-free, $0.5 billion to support the growth prospects of ofi. And then we said we want to responsibly divest progressively over time, the remaining 7 assets that we are now left with -- or 7 businesses that we are left within the Remaining Olam Group. We had 2 sources of funds to meet these $2.5 billion requirement, which is the proceeds of the [ Inara ] sale, where we are expecting at the minimum $2.58 billion based on closing adjustments and time when Phase 1 and Phase 2 or Tranche 1 and Tranche 2 of the deal would be done. There could be some potential gains over and beyond this $2.58 billion, which is the basic proceeds that we will collect as a result of this reorganization. And finally, just a quick note on what is the progress since we have communicated this updated reorganization plan is that we are now close to completing the sale of the proposed 64.57% stake in Olam Agri. 35.46% is already held by SALIC. So what is not held by them is 64.57%. And we have now sold that to them in 2 tranches, 80.01% in Tranche 1 and the balance 19.99% in Tranche 2. But there is no -- in the Tranche 2, which is secured by a put and call option, there is no uncertainty about the price for Tranche 2. That has been fixed, and it will not change. And therefore, it is a completely secure transaction from the selling shareholder OGL standpoint. We have only got -- we had 21 approvals to get -- regulatory approvals to get. We have got 20 out of the 21. So we are waiting for the last approval to be got. We hope that will be obtained in the next -- by the end of March, potentially the first fortnight of April, which will bring close to the completion of [ Inara ]. The second update is we sold a 32.4% stake, which we already announced in our ARISE Ports & Logistics business for $175 million, which is at a small premium to our carrying value, our book value. This is our port and logistics business in the Rest of Africa. It is multiple ports in different parts of Africa. We currently own remaining stake of 32.5%. We have already sold the stake. We expect completion and receipt of proceeds from the sale sometime towards the end of April. So that is the second one. The third is, we have completed the $500 million equity injection into ofi, which has helped ofi invest in value-accretive meaningful projects that is in the broad direction of travel that Shekhar described to you that ofi has embarked on. We are also seeking to responsibly divest. As I said, we had 12 assets in '24. It came down to 10 in '25. Out of the 10 in '25, we are now left with 7. And we will see good progress in '26 based on where we stand today and the development of the transactions that we are trying to execute, there should be good progress, material progress that we achieved in '26 on the remaining 7 businesses and assets as well. We have given you some of the examples of the 3 that we have divested or shut down this year. And unfortunately, we didn't have much of an opportunity to initiate share buybacks. The best use of our capital will be to buy back our own shares because our shares are, in our view, extremely dislocated. And that will -- the value will only get crystallized once all of these actions that we are taking is executed. So when [ Inara ] completes, that's 1 data point. When ofi shows progress in all its growth that it is -- profitable growth that it is seeking, that could be another. When we sell the remaining assets of the RemainCo, that will be another proof point. As these proof point, people will begin to understand what is the value of the Olam Group. Till that time, it will be a little bit confusing for people to really discover and understand that value. So we would expect that to happen. So a good time for us to buy back our shares. But because all these things are happening, all these restructuring is happening, all these things are happening in Olam Agri, in ofi and the Remaining Olam Group, we are mostly, all through the year closed, in that we have privileged information that you, as shareholders, do not have. And therefore, we get very limited opportunities. No window, practically no window with the heavy activity -- corporate activity that we are in, which we have knowledge of. And therefore, we cannot get any clear windows, which you might be wondering why we are not -- the reason we're not able to buy is we can't buy without taking the risk of any fiduciary exposure because of the proprietary knowledge and information that we have on these businesses. So that, therefore, completes the third part. I want to then address a specific issue of dividend. It looks like the market is not very happy that we did not pay a second half or final dividend. It's not that we didn't pay a dividend in 2025. We have paid a first half dividend of $0.02 already earlier this year, in August of this year. But in view of the ongoing execution priorities that we have, we want to be conservative in terms of conserving cash. And as we start completing the various things that we mentioned to you, the completion of [ Inara ], the divestment of the RemainCo assets, all of which we are very confident we will get a lot of traction this year. And as we had already reiterated to you at the AGM and the EGM for the permission for the sale of Olam Agri, we had both times mentioned to you that whatever proceeds we get from the RemainCo businesses, so we sell any of those assets, we will pay a special dividend to our shareholders as and when we divest assets. We know that we cannot divest all these assets on 1 day to one customer -- one buyer. So this will be divested at different points in time to different buyers. But each time we divest, the proceeds that we collect from the divestment will be distributed to the shareholders as a special dividend. So we just urge that you're able to see and understand why we have not paid a final dividend and only paid an initial dividend is largely on account of the fact that we want to be prudent, we want to conserve cash till some of these milestones are met as far as the updated reorganization plan is concerned. So if you have a little bit more patience, you should be pleased with the outcome as we implement and execute this plan. With that -- just quickly, I think we have already covered this. Shekhar has covered it in the ofi. I have covered it for the group -- Muthu has covered for the group. We have talked about this for Olam Agri. So this you can read at your leisure in terms of what we see as the full year business prospects and outlook. All of the macro issues are common to all the 3 businesses. So we believe we have a point of view that we will have a continuing weakening U.S. dollar because of the huge fiscal drag in the U.S. and a growing fiscal drag in the U.S. And depending on the tariff uncertainty of what is passed through, what is going to be the final shape and form of the tariffs that is going to overcome this tracking down of the IEEPA tariffs, sticky inflation, because we are seeing the tariff flowing into product inflation already. So we will see sticky inflation. I think it's going to be a bit of a juggling walk even for the new Fed -- with the new Fed Chair, to dramatically reduce interest rates. So we see sticky inflation and potentially some reduction in interest rates. But if there is sticky inflation and there is all of these issues about the weak dollar, et cetera, I think the prospects for a dramatic reduction in interest rates, unless some developments happen, is going to be difficult. Specifically for ofi and specifically for Olam Agri and specifically for the RemainCo assets, we have slightly different perspectives on what the outlooks in each of these businesses will be, which is what is summarized here in this slide. And finally, the key takeaways that I want to summarize is, firstly, very strong PATMI growth on the back of operating profit growth in 2025. Reported earnings growing by 414% over -- compared to last year, and operating earnings growing by 162%. So that is a fantastic year for us. Secondly, completion of the sale of Tranche 1 of Olam Agri, what we call project -- sorry. Sorry. This is about the sale of our Port & Logistics business, ARISE business. That is progressing. We have various regulatory, but also financing and banking arrangements. We need to get consent from all the creditors, et cetera. So all that is progressing well. We hope by the end of April, we should be able to complete the transaction. We have -- the plan to divest the other assets in the Remaining Group, as I said, is making progress. We have nothing to announce today in terms of the completion of sale. But over the course of the next 10 months, the year, we would expect to see some progress and traction and the shareholders can expect to then receive whatever proceeds we're getting from the divestment of these assets as a dividend to shareholders. While I recognize that not announcing a final dividend for the full year has disappointed our shareholders, but I think it is the right thing we do -- we are doing for the long-term interest of the company. And finally, there's an exciting growth that ofi is planning. I'm not -- and the same applies to Olam Agri. I'm not talking about Olam Agri because it is in the final stages of being demerged. But the team in Olam Agri, Muthu and his team are very confident about the stand-alone independent prospects of Olam Agri under the new owner. So ofi, Olam Agri and all the assets of the RemainCo that we are trying to spin off to the right long-term owners of these businesses, all of the teams -- all of the teams including the RemainCo team, which knows that it is going to be sold to different potential investors, all understand that, that is the right solution because they will go to homes and investors and owners who want to further reinvest and grow the business. So I'm very satisfied and pleased that there is a very bright stand-alone independent prospects for ofi and equally strong, if not better prospects, in Olam Agri under the new ownership because SALIC is entirely focused on food security. And therefore, they are the ideal sponsors and future owners of our business. So it is an important change of -- and transformation of the Olam Group portfolio and its 3 operating entities, each of which is looking forward and excited about the long-term future of those businesses. We're happy to now pause here and take any questions that you might have. Hung Hoeng Chow: Thank you, Sunny, Shekhar, and Muthu for the presentation. And we'll move on to questions from the floor. Hung Hoeng Chow: Let me start with you on the floor if you have questions. Yes, Alfred. Can you take a microphone from my colleague there? Alfred Cang: Alfred Cang from Bloomberg News. Could you please update us about the ofi's IPO preparation? Are we still -- is the company still pursuing it? The second part of the question is about cocoa and coffee market. So how would you frame the market structure at this moment? Do you see the market basically is transitioning into surplus? Or it's still a bit tight at this moment for both? Shekhar Anantharaman: Okay. Let me probably answer in the reverse order. All markets are different. But broadly, both cocoa and coffee seem to be headed into a surplus year. The timings are different, the seasons are different and the situations are quite different. As far as cocoa is concerned, there is probably some uncertainty about the mid-crop, which is coming up in West Africa. So therefore, there might be some short-term pressures. But otherwise, from the way the crop is growing and the way the demand/supply has been and where the previous crop has been, clearly, there seems to be a surplus. And I think the entire industry feels that. That's already reflected in prices, probably also a little bit of overcorrection. But that is -- I think the surplus is reflected in the market. In coffee, it's quite clear that the new crop, the '26-'27 crop is going to be a very big crop, significantly higher from less than 40 million bags in Brazil. We are looking at potentially 70 million bags plus, Robusta and Arabica combined. So again, that supply surplus is going to hit. Some impact on demand is already there. But coffee, probably that surplus will hit the markets a bit later when the new crop starts in July, August. So we think directionally, both markets are headed into a surplus with the impact of the last almost 24 months of demand impact as well as supply tightness. But both markets are slightly different in terms of timing and when the surplus will really reflect in prices. Cocoa is reflecting. Coffee, it's probably yet to reflect fully. It's also directionally headed there, but yet to reflect. On your first question, again, a question that we have asked many times, and the answer remains the same. We are clear as part of the whole reorganization that the objective was to create value and unlock value. ofi remains absolutely confident about the path. I mentioned that in my presentation. The pathway for creating value is clear, and we stay focused on that. And the pathway to unlock value, whether it's in the public markets or private markets, both options remain open. We'll do that at a point of time when we need. The business is solid in terms of what it needs to do to kind of grow its pathway. We need to wait for the right. We will never time the market, but we want the right solution, long-term solution, which is right in terms of not just monetizing the value or exiting the business, it's about finding the right long-term value solution for the company. So we're not kind of holding our breath for IPO, but we remain prepared for all alternatives in the public and private markets. Hung Hoeng Chow: The lady in front? Benicia Tan: I'm Benicia from The Business Times. So I'd like to ask, what do you think are some of the key hurdles for the sustainability of the earnings moving forward, given that this is quite a significant rebound? And separately, are you able to comment on the remaining jurisdiction for the SALIC deal, for the divestment of Olam Agri? Like what are some of the requirements of that last jurisdiction? Sunny Verghese: Yes. As you know, we don't normally give short-term forecast. So we're not going to start a new trend by telling you exactly what we expect each of these businesses to do because it is based on many conditions and market conditions, et cetera. But we are, as I mentioned, remain confident about the prospects of all the 3 operating entities. So firstly, ofi, you heard from Shekhar already. And there is expectation of continuing improvement to the financial and operating performance in ofi for the full year. The same thing we are expecting in Olam Agri that we will -- we look forward to significant profitable growth in Olam Agri. And post the completion of [ Inara ], whenever that happens, we think that will provide significant catalysts in how we pursue that profitable growth. We have quite a few ideas, and Muthu and his team is looking forward to the coming year as far as that one is concerned. The third, in terms of the Remaining Olam Group, we want to first focus on the operating improvement of the 7 businesses that we are left with. And your question about whether -- so the non-operational gains that we had in terms of the currency gains -- currency-related gains that we had might not be repeatable, and we don't expect it to be repeatable. But you have seen a distinct improvement in operating performance of the remaining 7 entities that we have in the Olam Group, and we expect that trend will continue in 2026 as well. So we are confident about the prospects of all these 3 businesses for different reasons. For Olam Agri, it is continuing to deliver the solid profitable track record that it has demonstrated over the last 4, 5 years. But now it has got an additional catalyst of a sponsor -- a new owner that's wanting to significantly grow this business. And in the case of ofi, as you've already seen, after the capital injection, some of the initiatives that ofi has taken to grow the business, and they see continuing prospects for the ofi business. So I think it is an inflection point. I think for us, '26, in many aspects and respects, will be an inflection point. And we are looking forward to '26 with some confidence. Yes. Yes. So the regulatory approval, we don't want to specify the country. We also don't want that regulator to be taking their own time because they know that they are the regulator who is holding us up. So we won't be public about that. But when we talk about the 21 approvals that we needed, one approval is from the European Union. European Union is a combination of 27 countries. One regulator that has to approve for us is ECOWAS. ECOWAS is a combination of 21 countries. Then there is COMESA, which is a combination of 6 countries. When we talk of 21, we only count 3. There's actually multiple countries under that jurisdiction. So we have made good progress. This is also a new requirement -- this one that is pending for us is a new requirement. So the application for that regulator also was the last application we made because it is a new requirement, which we are one of the first few companies that are being processed under this new requirement, this new regulation in this regulatory work. But as you know, we announced this deal in 24th of February, 2025. And if it completes as we expected in the next couple of months, next 2 months or so, then it is a remarkable progress in execution. As you've seen, some of the other deals in our industry have been delayed by more than 18 months after they said it will close. It's complex because food is sensitive. Food and water and all these things are very sensitive. And because of the tensions in trade and everything else, China, U.S., all of these issues, the approvals take time. But we are very pleased with the way we have progressed this and Muthu has been responsible for getting this over the line. So we are quite pleased with all that has happened, the progress that we are seeing as far this is concerned. Hung Hoeng Chow: Thank you. I don't see any hands. So I would like to move on to questions from the webcast. I see 2 questions, one for Shekhar and the other for Muthu. Shekhar, the question is regarding the company's ofi's invested capital. How has -- how do you see that going down with the decreasing prices for cocoa and coffee in the coming half year? Can you talk about that? Shekhar Anantharaman: Like I mentioned, obviously, a big part or most -- entirely the part of increase in invested capital was on working capital. And in that, it was also across our secured inventory and receivables. So as prices come down, as they have been coming down, you saw the year-end numbers were lesser, but that happened only for a few months of the year. And as we go through the first half of the year when the higher price inventory and secured receivables is received, that will come down. So we -- it will depend on where prices finally settle down in the 2 products where we have the significant chunk of our working capital and RMI. But we would expect, based on current pricing and current expectation, that it will come down fairly sharply in the second half. But I won't put a number to it. Hung Hoeng Chow: The second question is for Muthu. On the SGD perpetual, the 5.375% coupon that's callable in July, is there any plans to refinance with another SGD perpetual or redeem it with the proceeds from the sale of Olam Agri? Neelamani Muthukumar: So first of all, the perpetuals as and when they are due, and we will take the call in July in terms of calling when it is due. And as far as the refinancing is concerned, whether we want to pursue with the replacement by the same instrument, that is something which we will consider and as appropriate. Because as Sunny had highlighted for the Remaining Olam Group, we have 7 businesses that are remaining. And as and when the sale of Tranche 1 of Olam Agri is complete, as well as some of the divestments which are already on the pipeline, Remaining Olam Group is targeting to be debt-free. And if that objective is achieved, let's say, by July, there may be no requirement for us to refinance the SGD perpetual, and we will take it as it comes. Hung Hoeng Chow: Okay. The third question is on the succession plan for Olam Group. Sunny, would you like to comment? Sunny Verghese: You've already seen a succession plan announced and has taken full effect. So Shekhar was our first succession, becoming the independent CEO of ofi and reporting to an independent Board and an independent Chairman. And Olam Agri successor has been identified. We are not in a position to selectively reveal the name, et cetera. So based on what is going to be the succession plan, we are very confident that Olam Agri is going to be in very good hands. And we will make a few announcements at the time we have the AGM with regard to the succession plan as far as the RemainCo companies are concerned. So all this, you will have to have some patience. We will make all these announcements. But you know that we will do it thoughtfully and carefully. And we have already done the succession in ofi. We are ready for the succession in Olam Agri. We are also ready for the succession in the Olam Group. So you can be rest assured that when we are ready to make those announcements, we'll make those announcements. But we are very comfortable that we have found the right candidates to lead these businesses independent future. Hung Hoeng Chow: There's question on dividend. With the Board's decision not to recommend a final -- second and final dividend, how is the outlook for dividend payouts in the following year? Sunny Verghese: Yes. That will -- so there are 2 kinds of dividends that we can look forward to our shareholders. One is the normal dividends that we pay based on our operating performance. And therefore, being in a position to guess or even discuss what that will be would mean that we give you a forecast on what the operating performance of each of these groups are going to be going forward. And that will not be appropriate. So the remaining or the continuing group, as Muthu presented, the Olam Agri is now a disposable group and a discontinuing business. And the continuing business is ofi and the RemainCo. How much dividends we'll be able to pay from RemainCo and from ofi is a function of ofi's operating performance and contribution to the bottom line. And secondly, with regard to the RemainCo, it is largely from the divestment of these assets and the return of the divestment proceeds to shareholders as a special dividend. So for a normal dividend, we need to make a forecast on what is ofi's growth in profits. And for the special dividends, it is -- you have to make an assessment of what assets will be sold when, how much of divestment proceeds we'll get in a year. We will not wait for half yearly or full year, end of the year, for the special dividends. The special dividends will be paid out to you progressively as and when those transactions are completed. The Olam Agri, the existing shareholders have sold 100% of the business. So the existing shareholders will not partake in the future dividends or profit distributions as far as Olam Agri is concerned. So we cannot be specific about that question. You will get to know more as we announce the first half results and the second half results, and you will know what the improvement in operating profits, et cetera, are going to be, and that will determine the capacity to pay dividends. So the other factor is really how much capital is required to grow and if that growth is value accretive. So we want profitable growth. We want to grow more than our cost of capital. And if the returns by growing that way is something that the shareholders see and the shareholders want you to actually deploy more capital to find that profitable growth. If you're not generating profitable growth, the shareholders rather you return the money to them as dividends. So all those factors will be taken into account and consideration, but we cannot forecast specifically what the dividend prospects of the RemainCo will be today. But we can tell you what we will do. And you can hold us to account that, yes, we have sold an asset, we have distributed the proceeds as a special dividend, that you can hold us to account. Neelamani Muthukumar: And if I might add, really, as shareholders, we should feel confident about the earnings prospects of ofi. The turnaround in the RemainCo that Muthu and Sunny highlighted, again, the operating turnaround of the RemainCo until they are divested is also on a strong trajectory. And that should give you confidence about the dividend paying capacity of the continuing operations after the sale of Olam Agri. And that's what I would like you to take. And then, of course, the actual dividend decision will be happening on a yearly basis or half yearly basis. So I would like to leave you all with a positive disposition with the earnings capacity and trajectory of the continuing operations, and that's what I'd like you to take. Hung Hoeng Chow: Shekhar, there's a question for you on the outlook and what you see as the factors that will affect or increase the EBIT per tonne for ofi. Can you comment on that based on the investments you have in place for ofi as well as the changes in the prices for cocoa and coffee? Shekhar Anantharaman: Sure. I think the markets, I'll leave, because markets can go up and down, and we will price appropriately. So our real medium-term to long-term EBIT per tonne growth is coming from the investments we have made in our value-added ingredients and solutions part of the business. There is modest growth in the global sourcing because as we are doing more specialty, more sustainable, more certified volume tonnage. But to customers, there will be some EBIT per tonne growth. But most of the global sourcing that is getting processed, the value add is really coming out of the EBIT per tonne growth in the Ingredient & Solutions side. There, I would probably split it into 2 -- 3 parts. One, there are investments that we have made recently, where they will come up to full capacity, investments in New Zealand dairy Phase 1, which is coming to capacity this year, but a second expansion is already underway. It's a very high margin, high EBIT per tonne business. Similarly, Brazil coffee that I mentioned is now fully commissioned, is not yet up to full capacity. We're already looking at a fourth phase of our Malaysia dairy. And then there are other investments that we have made in private label, which are still not operating at capacity. So as these come up to full capacity between '26, '27 and '28, there's going to be EBIT per tonne growth coming out of that. So that is investments made, which will take a natural time to get there. And we feel very confident. These are in businesses that we know. These are in businesses where we are making those EBIT per tonnes, incremental EBIT per tonnes. The second area is there are a couple of areas, like I mentioned, where cyclically or structurally, we have had lower EBIT per tonne, I talked about soluble coffee or industrial spices in the past. Those are where performance trajectory has to correct, and we feel again that the actions that we are taking, either -- if it's cyclical, it will correct automatically. If it's structural, we are taking actions. There again, we see EBIT per tonne improvements on this area. The third would be where we'll invest going forward, and we see or where we have invested in capabilities, specifically the Food & Beverage Solutions business, which is all about higher margin, higher value-add items, where it's not so much of more fixed asset investment, there will be, but there will also be more additional solutioning. So there are investment opportunities that we have identified over the next 3 years, which is the other area. So it's not going to be a high volume. So if you look at our guidance, we always stated we are going to look at low- to mid-single digit volume growth. But in terms of EBIT growth, we are looking at high-single digit EBIT growth, signaling clearly that's EBIT per tonne growth that we are looking at. Market prices might have some impact on short-term lead lag. But otherwise, it is the core EBIT growth. There, I want to leave you with the confidence that with what we have invested in, there is growth, with what we are correcting where there's a performance trajectory, which is not performing at level, there is growth, and then there is new investment that we will make in the coming years. So we see -- we feel quite positive. And that's why when the question was asked, we feel that there is enough value creation optionality that we have created in ofi and that we have already invested behind, and that's what we'll be trying to extract in the coming months and years. Hung Hoeng Chow: I think this next questions can be answered by each of you from a strategic, operational and financial standpoint. What are the biggest risks for Olam, or Olam Agri, for Olam Food Ingredients and the Remaining Group in the coming year? Sunny Verghese: I'm delegating to Muthu 2 of those questions, Olam Agri and Olam Group, and Shekhar will take the other one. Neelamani Muthukumar: Thank you, Sunny. So obviously, as we are entering into 2026, the macro climate is challenging. We are seeing unprecedented intervention, especially in the U.S. that is -- can create issues on interest rates, can create continued tensions in terms of the trade flows that can happen, particularly between U.S. and important geographies like India, Brazil and China. Because there were independent trade agreements that were entered into or anticipated and then with this new development after the U.S. Supreme Court had struck off, what Sunny had talked about, again, all bets are off. And that's something that we have to wait and watch. And so apart from the normal supply/demand of the commodities in Olam Agri portfolio that we are well positioned to anticipate and navigate successfully, the macro climate condition is something which we have to be nimble, agile, flexible and have the ability to react very quickly. And that will determine how Olam Agri will perform especially in 2026. As far as the Remaining Olam Group is concerned, Sunny talked about the remaining 7 businesses. The primary objective is continue to look for long-term right owners of these 7 businesses while concurrently ensuring that these businesses continue to improve operational performance. And that we have already demonstrated in 2025. And we believe that these businesses are on a strong footing to continue to improve their operational performance in 2026 as well, while we are pursuing divestment opportunities that will result in the right long-term owners to own these 7 businesses. Shekhar Anantharaman: Yes. I don't think risks are very specific to business. Again, if I oversimplify it, there are controllable risks and uncontrollable -- non-controllable risks. Controllable risks remain the same. Market risk that we have to manage, you have seen what we have done over the last couple of years. And that is a day-to-day business. That is a business as usual. It's very critical that we manage it well and manage it better than the rest of the industry partner or at least as well as that. There's operational risk, which is, again, with the spread and complexity that we have, we need to manage that. And those risks are controllable, have been in the business. I don't think there's anything new. There will be new things happening in different parts, but I think we have to adjust our systems process, people. That's really our risk mitigation there. On the uncontrollable, I think that's what has been impacting the larger industry and grabbing all the attention, geopolitical uncertainty, potential war, all the supply disruption that can happen because of that, we don't know. There, you can only say with a diversified footprint and speed to action, can you respond as well or better than the rest of the industry? So again, that is -- there is a lot of that on the tariff side, on the current situation in the Middle East. And we will have to see how that impact happens. And all we have to be sure is that we can manage it as well as anybody else or as fast as others. So yes, we have to kind of stay cautious, but we feel cautiously optimistic that across the board, across all 3 entities, we have the people, processes and systems in place and the experience over the last 25 years, which is really what will hold us hopefully in good stead. Hung Hoeng Chow: Thank you. This is the last question from the webcast. And is there any other questions from members on the floor? If there's none, I will not stop you from going for your lunch, and I thank you for being here for the last 1.5 hours. It's very cold here. You can see I'm freezing, chattering. So thank you for your patience, and we look forward to seeing you in August, if not earlier. Thank you. Sunny Verghese: Thank you very all much. Neelamani Muthukumar: Thank you. Shekhar Anantharaman: Thank you.
Lars Jensen: Good morning, everyone, and welcome to Royal Unibrew's presentation of our annual report for 2025. My name is Lars Jensen. I'm the CEO of Royal Unibrew, and I'm today joined by our CFO, Lars Vestergaard; and Flemming Nielsen, Investor Relations. We will take you through the highlights of the year, performance across our segments, the financial development and our outlook for 2026. After the presentation, we will open for questions. Now please turn to Slide #2. And before we begin, please note the usual disclaimer regarding forward-looking statements and risk factors that may cause actual results to differ from expectations. And with that, let's move to Slide #3 and the highlights of 2025. On Slide #3 here, we summarize 2025 in a few key points. '25 was a year where disciplined execution really made the difference. We delivered 5% revenue growth in line with our guidance of 5% to 6% and EBIT increased by 12% at the top end of our 8% to 12% guidance range. Our EBIT margin expanded by 90 basis points to 14%, reflecting continued improvement in operational efficiency across the organization. We also made good progress on our sustainability agenda during the year, both within our environmental and climate initiatives and within employee safety, which has been a key priority for us in 2025. At the same time, we continue to strengthen cash generation and the balance sheet enabled shareholder returns, including share buybacks executed in '25 and a new program launched -- just launched and running until mid-August 2026. Importantly, this performance was delivered in a market environment that remained characterized by cautious consumer sentiment and ongoing macroeconomic uncertainty. What makes the results particularly encouraging is that progress was broad-based across all segments and supported by stronger quality of revenue and continued operational efficiency. Based on this solid foundation, we have provided guidance for 2026 of 6% to 10% organic EBIT growth, which we will come back to later in the presentation. Now please turn to Slide #4. If we step back, our performance in '25 rests on 2 key pillars: category focus and operational efficiency. Over the past 5 years, our growth category framework has guided how we allocate capital, management attention and commercial resources. This focus has become increasingly important in a market environment characterized by soft consumer demand and changing consumer preferences. In 2025, approximately 60% of group net revenue was generated within our defined growth categories, no/low sugar CSD, enhanced beverages, RTD and premium beverages. This category exposure supported growth ahead of the market. During '25, we also sharpened revenue quality by exiting certain lower-margin activities. While this reduces top line in isolation, it strengthens the group's earnings profile going forward. From '26, this step will reduce group revenue by around 3.5% with no EBIT impact and with no volume impact. The revenue decline is predominantly related to snacks and will mainly affect the Northern European segment. Operational efficiency remains deeply embedded in our culture. Across production, logistics and back-office functions, we continue to optimize our footprint, simplify processes and capture operating leverage. This is both in our established markets and in our newer markets. The strong EBIT margin development in '25 demonstrates that this mindset is delivering results, not only in our established markets, but also in the newer ones. Finally, our long-term ambitions remained unchanged. We continue to target an organic EBIT growth of 6% to 8% per year, double-digit earnings per share growth and continuous improvement in return on invested capital, which improved to 13% in '25. Please turn to Slide 5. Our growth category framework continues to guide our resource allocation. These are categories with stronger growth, driven by changing consumer trends. Today, around 60% of group net revenue sits in 4 growth categories, and we achieved average growth of 6% across the categories. No/low sugar carbonated soft drinks grew 9% in '25. We continue to see strong growth as consumers prefer drinks with less calories or no calories. Growth is driven by both local brands like Faxe Kondi and our partner brands like Pepsi. Enhanced beverages grew 5% in '25. The category includes energy drinks and beverages with added vitamins and similarly. The growth is mainly driven by our local brands like Faxe Kondi Booster and Sourcy Vitamin Water in the Netherlands. Across markets, we continue to see strong demand for functional propositions. Ready-to-drink with alcohol grew 1% in '25. The category includes ready-made cocktails and also ciders, so in many different shapes and forms. Our portfolio includes both partner brands and local strong propositions, including Original Long Drink in Finland, Shaker in Denmark and [indiscernible] in Norway. Premium grew 4% in '25 and includes beer brands like Ceres in Italy and our premium beer portfolios across markets. The category also includes malt drinks and lemonades and other premium soft drinks. The framework ensures that we concentrate investments where long-term demand trends are the strongest, and that discipline continues to pay off. Now please turn to Slide #6, and let's focus on the regional developments. Northern Europe is our largest segment, accounting for around 2/3 of group net revenue and EBIT. In '25, we delivered a solid performance in what remains a relatively flat market environment. Full year revenue grew by 2%, while EBIT increased by 4% and with the strongest momentum in the second half of the year. In Denmark, we gained value market share across most categories. Faxe Kondi continued to outperform in no/low sugar soft drinks, Booster maintained strong momentum in energy and Shaker delivered solid growth in ready-to-drink. In beer, both Royal and Heineken grew despite an overall declining beer market. Finland remained impacted by cautious consumer behavior across both on and off-trade. Even so, we maintained a slightly improved market position in key categories, including no/low soft drink, premium beverages and enhanced beverages. The acquisition of Minttu and other spirit brands also contributed positively in '25. In Norway, commercial momentum improved through the year, particularly the RTD and beer, but also Faxe Kondi that has been launched in '25 is showing promising rates of sales out of the stores. We completed key integration milestones and production has now been consolidated in Bergen, supporting long-term efficiency. In the Baltics, the market was affected by relatively cold summer and an intense price environment. Despite this, we gained share in premium beer, energy drinks and enhanced waters while maintaining a strong cost discipline. Overall, Northern Europe continues to demonstrate the strength of our multi-beverage model, supported by strong execution from our local teams. Now please turn to Slide #7. Western Europe was our strongest performing segment in '25. Revenue grew by 12% up for the full year. BeLux contributed 9 percentage points to that growth, reflecting that it was not included in the comparable base for the first 9 months. EBIT increased by 55%, driven by operating leverage, efficiency initiatives and strong profitability improvements in Italy and France. In Italy, we continue to gain market share with Ceres and Faxe beer and with Crodo in soft drinks. As previously communicated, we have reduced the private label production to prioritize our own brands. This supported price mix, while higher local production also helped reduce logistic costs. Underlying growth of own brands was about 6% in volume terms. In France, Lorina and Crazy Tiger delivered continued value share gains, supported by focused brand activation and expansion into new consumption occasions. In the Netherlands, margin improved through price pack and promotion optimization. And despite exiting unprofitable promotions, we delivered net revenue growth for the year. With a strengthened sales organization and enhanced production capability, the business is well positioned for continued progress. Finally, in BeLux, execution is progressing in line with the plan, and we estimate that we increased value market share. As expected, BeLux was loss-making in '25, but we remain confident that our strategic initiatives and strong local engagement will drive long-term value creation. Western Europe illustrates the operating leverage in our multi-niche models when scale mix and discipline align. Please turn to Slide #8, and let's have a look at International, where growth accelerated strongly towards the end of the year. Volume grew 33% organically in Q4 and 16% for the year. Net revenue increased by 15% in Q4 and 7% for the year. Full year volume growth was slightly ahead of sell-out as we build in-market inventory to support the higher growth. As a reminder, this business is inherited more volatile with quarterly volumes influenced by shipping timing and distributor inventory movements. U.S. tariff developments drove inventory buildup in late '24 for the first half of -- and for the first half of '25, followed by inventory reductions in the second half. Price and mix in '25 was negatively impacted by strong growth in beer in African markets, most notably in Q4. Africa remains a structurally attractive growth region, but carries lower net revenue per hectoliter due to our distributor-based model. Net revenue in '25 was also impacted by unfavorable currency movements and tariffs. Growth in '25 were driven by Faxe beer, soft drinks, including Crodo and the malt beverages with brands such as Vitamalt. For the full year, EBIT increased by 14% to DKK 239 million with a 100 basis points margin expansion to 15.5%, which reflects a solid underlying performance. EBIT declined in the second half, driven by earnings phasing related to the tariff-driven inventory buildup earlier in the year and subsequently unwinding in the second half. And with that, I will hand over to Lars for the financial review on Slide #9. Lars Vestergaard: Thank you, Lars, and good morning to all. First, I will briefly walk you through the group P&L. Net revenue increased by 6% in Q4 and by 5% for the full year. Growth accelerated into the fourth quarter. And importantly, Q4 was on a fully comparable basis with BeLux also in the comparison number in '24. Gross profit grew faster than revenue, up 9% in Q4 and 6% for the year. This reflects our continued focus on profitable growth with mix improvements and efficiency delivering solid margin expansion. Gross margin increased by 120 basis points in the quarter and by 50 basis points for the year. The cost base developed in a disciplined manner in '25. Cost growth reflects the impact from BeLux and recent acquisitions, while the underlying development demonstrates continued focus on efficiency and cost control. As we have seen during the year, efficiency has mainly been achieved within sales and distribution expenses, while we continue to invest in sales and marketing to support our growth ambitions. We are seeing clear benefits from our improved production footprint and initiatives to streamline logistics and distribution operations. Admin cost is increasing compared to '24 as we are investing in digital and have added BeLux to our footprint. The level in '25 is a good baseline for your modeling. This needs to be looked at on an annual basis as there can be some quarterly differences. EBIT increased by 9% in Q4 and by 12% for the full year. The EBIT margin expanded by 90 basis points to 14%, driven by operating leverage and ongoing optimization initiatives with Western Europe contributing strongly, as discussed earlier. Net financial expenses amounted to DKK 254 million for the full year, fully in line with expectations. Tax rate was 20.7%, impacted by the capitalization of tax loss carryforwards. Our normalized underlying tax rate is 22%. Overall, this delivered a 25% increase in adjusted earnings per share in '25. This excludes the impact from the sale of shareholdings in 2024. Now let's move to Slide #10 and look at the cash flow. Let me start with a few key messages on cash flow and capital discipline. We delivered strong cash conversion in '25. Financial gearing remains in line with our targets and ROIC continues to improve. Cash flow from operating activities increased by 9% to DKK 2.4 billion, driven by higher earnings and continued discipline in our net working capital management. CapEx amounted to DKK 1 billion or 6.4% of net revenue. This was below our expected level, mainly reflecting the delay of certain investments into '26. Free cash flow for the year was DKK 1.4 billion. While this is broadly in line with last year, it is important to know that 2024 benefited from the proceeds of sale of shareholdings in Poland. Adjusted for this, underlying free cash flow increased by 12% in '25. Net interest-bearing debt ended the year at DKK 5.7 billion with leverage at 2x EBITDA, fully in line with our capital structure ambitions. Finally, return on invested capital improved to 13%, supported by higher earnings and improved capital efficiency. As previously communicated, Norway and Benelux remains on track to deliver around 10% cash ROIC by the end of 2026. Overall, the number reflects strong cash generation discipline in our capital allocations and continued progress on return. Now please turn to Slide #11. Our capital allocation priorities have been the same for a number of years. We want to maintain financial flexibility, gearing below 2.4 -- 2.5, investment in organic growth with attractive returns, pursuing value-accretive acquisitions when relevant, and finally, return excess capital through dividends and share buyback. This disciplined approach continues to support both growth and shareholder returns. The last couple of years, we have been running at -- a CapEx program above normal level. For '26, we expect CapEx around 7% of net revenue and some delays into '27 as it looks at this point in time. In other words, the lower CapEx in '25 will impact '26 and '27, same projects, same costs, but a slightly different timing. Proposed dividend per share is DKK 16 per share. And today, we start a share buyback program of DKK 400 million. This runs until mid-August, so this is not a full year number. Please turn to Slide #12. Our growth and value creation formula is unchanged and straightforward. We aim to deliver volume growth ahead of underlying markets, value growth through disciplined mix and price pack management, continued operational efficiency and cost control and disciplined capital allocation, including M&A and share buybacks. Together, these drivers support our long-term organic EBIT growth targets of 6% to 8% and 10% to 14% earnings per share growth. Naturally, each year is different. The relative contribution from volume, value and efficiencies will vary over time depending on market condition. And as always, the timing of M&A is inherently difficult to predict. Please turn to Slide #13. So if we look -- if we should conclude on our performance on organic EBIT growth, then we have delivered solidly since 2022, the year where inflation impacted earnings. The drivers of high organic EBIT growth is, to a large extent, the growth framework that delivers volume growth. The teams have also been good at value management and focusing on the parts of the portfolio with good margins. And finally, cost efficiency is a substantial contributor. These numbers also reflect good progress in acquired companies. Our guidance suggests that our plans for 2026 are solid, and we continue the strong trend we have had in the recent couple of years. ROIC is also on a positive trajectory, and we expect this to continue in the coming years as we harvest the benefits from acquisitions in the past years and solid organic growth in earnings. Please turn to Slide #14 and the 2026 outlook. We continue to expect a challenging consumer environment across our markets, and our guidance reflects a cautious and disciplined approach. For 2026, we expect organic EBIT growth of 6% to 10%. This is ahead of our long-term target of 6% to 8%, building on the strong margin and efficiency improvements delivered in '25. We no longer guide on net revenue, but if you model net revenue for '26 to be broadly in line with 2025, then that would be a fair assumption. This reflects continued underlying growth in our beverage business, offset by the exit of lower-margin activities. As previously communicated, these exits are expected to reduce reported net revenue by around 3.5%, impacting mainly the Northern European segment with no impact on volumes or expected EBIT. Net financial expenses are expected to be around DKK 250 million, excluding currency effects, and the effective tax rate is guided to be around 22%. CapEx is expected to be around 7% of net revenue, including repayments on leasing facilities. We expect limited commodity inflation, which we plan to offset through efficiencies and improved net revenue per hectoliter. Profitability in 2026 may, as always, be influenced by changing consumer sentiment, channel mix, the competitive environment and weather conditions during the peak season. And with that, I'll give you the word back to Lars. Lars Jensen: Thank you, Lars, and let's move to Slide #15 for sustainability, which remains an integrated part of how we run the business. It supports our efficiency, our resilience and long-term value creation. On this slide, we have listed some of the most important targets. We will not go into details with those now, but there's a comprehensive 70 pages in the full year statement for the ones that are interested in the details. Now please turn to Slide #16. Looking ahead to '26, our management agenda is clear and a continuation of '25. We continue executing on growth strategy across our markets. Innovation remains a key priority as we expand and refresh our beverage portfolio to stay closely aligned with the consumer trends. At the same time, we will maintain a strong focus on operational efficiency. Sustainability remains firmly embedded in how we run the business, and we will continue to make progress on our agenda here. And finally, everything we do is geared towards delivering on our long-term financial targets. The picture here shown the Norwegian Uno-X Mobility Cycling team we just announced a partnership with. Looking forward to see the effects for our Faxe Kondi Hero brand on that one. Now please turn to the final slide, which is Slide #17, and let me wrap up with the key takeaways. We delivered a solid financial performance in '25, fully in line with our guidance. Performance was strong across markets, supported by disciplined execution and continued growth in our priority categories. Operational efficiency remains a key driver, and this is clearly reflected in the margin expansion we delivered during the year. At the same time, strong cash flow generation and a robust balance sheet gives us the flexibility to continue investing in the business and returning capital to shareholders at the same time. Looking ahead, we expect organic EBIT growth of 6% to 10% in 2026, reflecting continued focus on profitable growth and efficiency in a still challenging environment. Thanks for your attention, and we are now ready to take your questions. Operator: [Operator Instructions] We will now take the first question from the line of Aron Adamski from Goldman Sachs. Aron Adamski: I have 3 questions. First, on Netherlands. Can you give us an idea of where your EBIT margin stands right now? Is it still around high single digits? And given you're launching new pack formats there, can you give us some color on how the single-serve mix in that country compares to your other Pepsi businesses? My second question is on the efficiency agenda. Could you give us some color on how much EBIT uplift do you expect the new warehouse in Denmark and the site closure in Norway to deliver within the guidance that you announced? And also what other efficiency projects are on the agenda for this year? And how do you expect them to be phased? And third, the last question on M&A in light of the press headlines we've seen yesterday. Can you please give us an update on what type of deals are on top of your M&A agenda? And if you were to add a new country platform, what are you looking for in a potential asset? Lars Jensen: Yes. If I start maybe with the last question, our M&A priorities have not changed at all. So we would always -- if you rank them in terms of optionality, profitability, likelihood of success, it's always the optimal to bolt on to what we already have. And we have previously highlighted a number of countries in that respect where the organization is ready and where our market positions is not so big that it will be difficult for us to put anything on top. So the priorities have not changed. I would say just one thing, and that is that in this environment that we are seeing out there and when the ones that was rumored to be acquired by us, the Brewdog business, when assets like that or other assets locally come up for sale, there's often -- if you can move fast, there's often a relatively big upside to these type of businesses, assuming that you have an organization in place that can turn these businesses around. We have done it to a smaller extent with assets in our multi-beverage markets. So we will continue to be scouting for those, and we have to be very opportunistic with that kind of M&A activity. If we move to Netherlands, I'm not going to give you a specific number on the margins, but the EBIT margin is moving upwards. We have had a strong focus on moving in a direction where we become competitive. The efficiency levels in the acquired business was not at a level where we were competitive in the marketplace. It's a bit of the same exercise as we went through in Finland more than 10 years ago, which was also the case when we bought that business, we were not competitive in the market. So we have put a big focus on the people agenda, on the efficiency agenda. And that is one of the reasons why that we are building the business. And then the other one that we mentioned in the call is obviously our price pack promotion architecture that we build into it. The first layer was to look at the promotional activity and seeing what is value adding, what is not value adding. And then building the capabilities with, in particular, the new canning line so that we can move into the single-serve propositions, as you mentioned. So we are -- and you say in Pepsi businesses, it's not just about Pepsi businesses, it's all the brands, including Pepsi. And there's no doubt about that the Dutch business is under-indexing on single-serve pack formats. And that is one of the potential drivers for the next many years that we see. So the market is behind compared to the most developed markets in terms of the mix between small pack and big pack. And then we are even under-indexing on that one. So that is a key pillar for the future. Now negotiations, some of them are already done. Some of them are being close to being finalized and so on. So for the Dutch business, I think we need to look at the numbers when we report on Q3 and it's through the high season, then we know if our initiatives have really paid off. And then I'll let you, Lars. Lars Vestergaard: On the efficiency piece, the way we look at the market right now is that consumers and customers are looking for affordability, and we have been under pressure for a number of years. This means efficiency is super important across our business, and that is a theme that we have been running. If you look at the guidance we have for '26, if you just look at our normal growth framework, then you would have 1/4 coming from volumes, 1/4 from value management effect and then half of it coming from efficiencies. This year, we are expecting to deliver more than half from efficiency. So there is a substantial number in our bridge that comes from efficiency this year. Of course, it's early in the year. So things can change, and we remain flexible to ensure that we take the opportunity that presents itself. So we are across the business, looking very intensively into ways of working. We have been trimming on people across the business. We have been looking at complexity, how can we do things simpler. So it's an awful lot of initiatives. The 2 major projects you mentioned, so site closure in Norway as well as investments into efficiency in the main site in Norway is a substantial contributor to the 10% cash ROIC in Norway. If you look at the warehouse in Denmark, this will have a substantial impact on EBITDA as a lot of the costs that we used to use on external warehousing and logistics costs from our site, and Faxe 2 other sites that converts into depreciation. So it has a very attractive impact on EBITDA and a very nice impact on EBIT as well. So it is a substantial contributor, but we don't want to give you the numbers. But I would say in terms of the warehousing, it's also a way to make certain that we are in control of the business because with the growth that we have seen in volumes coming out of the Faxe side over recent years, you cannot be in control if you have products standing all over the country. So this is a way to really get our hands around the business and get in control with an extremely streamlined logistics setup in Denmark. Operator: Our next question is coming from the line of -- one moment, please, Thomas Lind Petersen from Nordea. Thomas Lind Petersen: Also 3 questions from my side. So the first one is regarding your EBIT guidance, 6% to 10%. And then maybe just following up on the previous question, I guess. Could you help us with a bit of the EBIT growth driver elements in that 6% to 10%? You're saying a lot about efficiency here, Lars, but more specifically, is it freight costs from Italy? Is it Benelux, Norway? If you could help us quantify some of that, that would be great. And then a question regarding consumer sentiment in, I guess, the Nordics is probably the most relevant. And just your expectations here. You're still seeing a challenging consumer sentiment, but we are getting tax cuts in some countries and various stimuli from governments. So just wondering here if you don't see anything that could sort of at least help a bit with the consumer sentiment in -- at least in the Nordics. And then the final question would be regarding your EBIT margin. I think if everything pans out as you now guide for 6% to 10% EBIT growth and then basically no top line growth, then we are getting close to an EBIT margin around 15%. I think I remember you mentioning that you have previously worked internally with a 15% EBIT margin as a target. So just wondering where we could go from here. I know you obviously previously had a 20% to 21% long-term EBIT margin, and we will probably not go there at least in the short term, but just try and help us a bit how far can we go? Is 18% or 17% is that realistic in a long-term scenario? Lars Jensen: Thank you, Thomas. The sound was a little bit bad. So I hope we got all the details of your questions. When we look at the consumer sentiment, I think it is generally consumers are a bit reluctant still to go out and spend a lot of money and that's the same scenario as we have seen for a number of years. That said, there's a number of categories where the consumers are actually willing to pay, say, an extra money because they see that they get an added benefit to what they buy. And that may be a perceived value or it's a real value. And that goes straight along with our growth category framework. So if you look at a category like energy drinks, consumers are less price sensitive than they are in a category like carbonated soft drink or mainstream beer. So when we're talking about this, it's as an overall assumption because that is what we see in the marketplace. But there is ways around how to play this in the market, both by category but also by price pack and promotion. So we try as much as we can to -- in the environment that we have today, we try to cater for that in many different aspects. And that's the reason why that you would also see that our bottom line is increasing a bit more than our top line. So that is a whole smart thinking and on top of that, of course, the efficiencies. So that's the environment that we see. People are saving more money than spending more money. It's not a catastrophe, but it's a different toolbox that we need to use. So stimuli or not, it's not something that we see immediately convert into to a different consumer behavior. And then on the EBIT margin, before I hand over to Lars, what we have said is that we believe that with the current makeup of our business, with the mix of the segments that we will be able to take to mid-single teens in terms of EBIT margins. And it's always a balance between absolute earnings growth and EBIT growth from a margin point of view. And so it's difficult to give you a clear answer to that. And this is actually not how we manage the business. That is not towards a specific target. We manage the business towards the growth rates of the EBIT bottom line. And at the same time, as we do that, we want to make sure that the quality of our earnings is intact or is improved. So that's the way that we operate. So we do not have an internal or have had an internal target of hitting 15%. Lars Vestergaard: Yes. So I would say in terms of efficiency and where it comes from, it actually starts in a slightly different place. And as Lars mentioned, quality of earnings and how we run the business is where it starts. So we have a number of people. We have a number of assets, and we really want to make certain that people spend their time on something that generates profit. So in terms of the revenue lines, we're not guiding on it and revenue is not the key driver for us. It is really how can we make certain that the time and the assets we have are utilized in the most effective way to drive organic EBIT growth and make certain that we don't overinvest so that we make certain that if you have low-margin business that requires CapEx that we really put very low down on the priority list. So in terms of the theme that we are running, it is really to make certain that we have clear priorities everywhere in the business about initiatives that you spend time on that they are generating high-margin business. We exit promotional activities with no value. And that, of course, have an effect on the whole cost line. So if you don't spend your time on low-margin business, then you can be more efficient in your salary lines and the assets are used in a better way. And that will give us a higher EBIT, so return on capital employed. So it's not -- what you can say, EBIT margin is not our ultimate target. If we can make a lot more money by compromising EBIT margin a little bit and not investing too much, we will do that. The ultimate target is that we have a high return on capital employed and solid cash conversion. Operator: We will now take the next question from the line of Matthew Ford from BNP. Matthew Ford: I've got 2 questions. The first one is just on sales. Obviously, you just touched on it. And clearly, the sales guidance for the year has sort of -- is a bit more informal than in previous years. But if we think about the sort of flat revenue progression in '26, obviously, you have the impact from the exit of the Snacks business. So underlying, it's sort of 3.5% growth. That implies a bit of a step-up versus the momentum we've seen in 2025. So it would be interesting just to get your sense of where across the business would you expect that to be driven from? Are there any areas of the business markets or categories where you would expect a sort of sequential improvement for any reason in '26 to hit that sort of underlying number? And then the follow-up is just on pricing specifically, obviously embedded within your top line growth. But great to get a sense of your expectations for pricing for 2026 and anything that we should be thinking about in terms of the contribution there? Lars Jensen: Yes. On the net revenue side of things, I think if you look at the quarter, we are organically delivering 3.7% organic net revenue growth. So we are flying faster out of the year than the start of the year. And remember that BeLux now is fully comparable when it comes to Q4. So with the guidance of around where we ended the year for '25 is actually a continuation of the flight attitude that we have established going out of the year. So we don't see the discrepancy that you're alluding to here. With the mix of markets and what we have also said during the call, we have a strong underlying momentum in the business in international. We have it in Italy. We are growing beyond the market in France. We are seeing top line growth is strengthened in the Dutch operation during the second half of the year as our changed, I would say, strategic focus is paying its way. Norway is back to growth since June. We are gaining share. We are winning in important categories, and we have launched soft drinks into that market as well. And then you have the old markets, so to speak, the big markets. And that's, as Lars is saying, that's a choice. We are -- in those markets, we are generally around 30% market share by value in those markets. We are big enough. So of course, we want to gain more volume. But if it's a better choice, not to push too hard on volume and get more from a price pack promotion architecture optimization, then that's the choice. And that brings me into your second question around pricing, which I'm not going to give you any details to that. But I think it's fair to say that when you look at the total market for beverages, there has been a period of time, in particular, in alcohol, where prices have probably, I would say, gone too high and where consumers tend to see that it is becoming more and more expensive and affordability is an element that needs to be thought about. Whereas when it comes to the soft drink side of things and the growth categories with enhanced, they will drive the mix in a higher position of net revenue per hectoliter. And then you have a lot of market mix that you need to put on top of that. So when we look at it, we are not in a super inflationary period. We see consumers that are reluctant to spend and have been that for quite some time and is hunting more for offers. And it's in that environment that we will do our best effort to try to massage the average up, and that can be done by hard price increases, smart price increases, changes of price pack and promotion. And we have all in play and in particular, in the multi-beverage markets. Operator: We will now take the next question from the line of Richard Withagen from Kepler Cheuvreux. Richard Withagen: First question on Finland. Yes, maybe -- I mean, you probably assume that, that will continue to be a challenging market in 2026. Are you changing anything in terms of commercial tactics in Finland in 2026? And maybe you could also give some sense of how the sugar tax or the change in the sugar tax will impact your business in Finland in 2026? And then the second question is on a bit longer term, but you obviously have the medium-term 6% to 8% EBIT growth objective. And Lars Vestergaard already talked about some of the M&A that contributed to growth in the last few years. So what are the opportunities you are looking at to at least deliver on the higher end of this 6% to 8% range in the next, say, 3 to 5 years? Lars Jensen: Good. If I take Finland first. Commercial tactics, we are always massaging and changing our commercial tactics as we go along. We are not changing anything, I would say, significantly compared to what we have done in the second half of '26. So that's a lot along the same lines. I think the biggest thing that we see is in the alco space, where first, that's more like 1.5 years ago, we saw the change in legislation. We saw these fermented beverages with less than 8% alcohol or 8% alcohol coming into the retailers. They took a fair chunk of the market. That is now churning, I would say, back again. So growth have gone out. Shelf space is shrinking and that shelf space is moving more into the hard seltzers and alike, cocktails and with less calories and slightly less alcohol. And in that category, we have done a magnificent job, I would say, over the last 6 to 9 months. After one of our competitors came in with a sharp price point and moved the market, we are now close to being market leader in that category. So a magnificent job done by the Finnish organization. So yes, so this is where we see the biggest change, I would say. And then in general, we still see on-trade in Finland being on the soft side. affordability in on-trade is an issue. So this is also where we are working on how together with the outlet owners and how to increase traffic. And when consumers have entered the bar, the restaurant that they stay for longer. So we are working on various initiatives to help our customers in that. And then I would say, finally, on the sugar tax, if you look at our non-alc portfolio, it is skewed much more towards no/low than the general market. So if anything, it is going to be an advantage for us, but too early to do any conclusions on that as it is fairly early. Lars Vestergaard: And the 6% to 8%, I think the recipe is pretty clear. It is -- make certain that we continue to focus on the growth framework, as Lars explained. And this is a key driver across all our business that is to make certain that we move our business more towards categories that are in growth. They typically also have better margin dynamics than the ones that are in decline. An awful lot of work, as Lars mentioned, on value management, make certain we focus on the SKUs that have higher margin, and we are very cognizant of how much deep promotional activity we participate in. Operating leverage is a key thing for us. We are on top of the cost in all markets. And then we try to do a few structural projects again and again that takes structural cost out of our business. We've mentioned a few today with closing a brewery in Norway and optimizing our logistics footprint in Denmark. But we are building a pipeline of these things, and we need to execute a few of these. And then, of course, we have a strategy to do bolt-on acquisitions. So in the markets where we already have an operation, when we buy businesses, these normally generate not only in the first year, but also in the years following that, good opportunities to deliver EBIT margin -- EBIT growth. So bolt-on acquisitions is a key enabler for continued high organic growth. So this is the way we look at it. And I would say, I think we have been given a gift from our predecessors who made certain that we had a portfolio that was skewed towards growing categories. And I think the work that has been done over the last years to really focus on that, that is a very, very strong enabler of our future growth. Operator: We will now take the next question from the line of Nadine Sarwat from Bernstein. Nadine Sarwat: Yes. So just one question from me, circling back on the topic that was discussed earlier is M&A. You spoke about having previously discussed countries that are attractive from your perspective to potentially enter. Could you refresh our memories to your latest thinking on which of those markets are the most attractive and then more specifically, how the U.K. might fit within that? Lars Jensen: Yes. So on the M&A side, we -- I would say, we have seen -- the Italian team, as an example, have done an excellent job on the LemonSoda acquisition. We have changed totally the business from being a one legged beer business to now have multiple legs. We acquired the brewery in San Giorgio that has been also with help from group supply chain have been totally transformed in a fairly short period of time, has taken over the production for the market and is now a stand-alone operation. If the right proposition would come or pass by in Italy, I think we will be very curious. We have an organization that can deal with it, and we have a strong trajectory that can support that. And then bolt-ons, as I also talked about earlier on, those are highly valuable. We have seen recently the bolt-on of the spirits portfolio in Finland. And I think you can see on the inorganic numbers in Q4, how strong that proposition is building up. So it was an asset that was a part of a really worldwide international business where local brands were squeezed. And by getting them into our portfolio, it really enhances the thinking around the brand, enhance the distribution, the quality of implementation and so on, and it immediately delivers results. So those type of acquisitions, we are, of course, super curious on. There's not a lot of them, but we are very curious on them. And then there's a couple of other markets. Take the Dutch market as an example, we have seen a buildup of profitability. We are seeing that the revenue generation is now going up. We bought a business that literally was flat to declining. So the turnaround is -- I wouldn't say almost completed, but at least the trajectory is totally different than what we acquired. At a certain moment of time, we believe that, that business would potentially be ready to be a consolidator in the Dutch market, which is not a very consolidated market. So depending on the maturity in the different markets, the performance in the market, the organizational stability in the market, we evaluate all the time what is doable and what is doable. And at the end of the day, it always relates to an active seller. Are we super keen on moving into new markets as we speak only if it is something that can deliver a high return on invested capital fairly fast and with not too much risk. So that's the way that we look at it. Operator: We will now take the next question on the line of Mitch Collett from Deutsche Bank. Mitchell Collett: Lars, I think you talked about admin expenses stepping up the digital investments. So could you give some color on where those digital investments are being targeted? And I think you mentioned that it might impact -- there might be some phasing impacts of that admin step-up. So can you maybe talk about what those phasing impacts are? And any other thoughts on how we should think about phasing across fiscal '26? Lars Vestergaard: Yes. So actually, when I talked about phasing, it was actually more a comment on the comparison quarter in '24 where admin expenses in Q4 was pretty low. If you look at admin expenses across '25, they are, I would say, fairly stable and at a level that we believe is the level we look at going forward. So that is what you say, the level that we expect into the future. To drive efficiencies, digital investment is super keen because that's really the place where you can drive a lot of efficiency. So we are looking at a number of tools that can help efficiency across the business, and that drives some IT costs, but also IT has been used to integrate some of the acquisitions we've had. So BeLux have been integrated in '25 into our SAP platform, and there was a number of projects in Norway and in Denmark that we have been executing. So we have been investing more into IT programs to deliver on the efficiency agenda. It's not something that's going to be a material step up from here. So it's just to explain why the number is increasing slightly from '24 into '25. '25 is a good baseline for modeling going forward. Operator: We will now take the next question from the line of Andre Thormann from Danske Bank. André Thormann: I just have 2 questions. First, maybe can you elaborate a bit on how this goal of reaching 10% cash ROIC in 2026 for both Benelux and Norway will contribute to EBIT growth in '26? And maybe the second one on your long-term guidance of the 6% to 8%. Now you have delivered 10% in '25 on organic EBIT growth and you can potentially deliver 10% in 2026. So does this target seem maybe a bit conservative to you? That's my questions. Lars Vestergaard: So if we start with the long-term targets, then we've been above for a couple of years. I would say that it is the synergies from acquisitions that are starting to help us. So we are getting good help from Norway, Sweden and from the Netherlands on these numbers. And then, of course, we have a few CapEx investments that are also helping into '26. And on Norway and the Netherlands, we -- the plans are very clear. We have a lot of good initiatives in, and we can see the run rates are improving in both markets. So we are on target to deliver 10% cash ROIC in both Benelux as well as Norwegian plus the Swedish and parts of the Finnish assets because when you look at the cash flow target for Norway, it includes the business in Sweden as well as a small piece in Finland from the Solera acquisition. So all plans are clear, clear building blocks from -- that is already paying off in '25. And then in '26, there are a few big items that really moves the needle in both Norway and Netherlands. André Thormann: Okay. And maybe just a follow-up on BeLux. Do you still expect that will be a positive EBIT in 2026? Lars Jensen: We are assuming with the initiatives that we are taking currently, we will be assuming not that it's going to be positive, but it's going to be quite neutral on EBIT level. So that's the core assumption for the year. Operator: We will now take the next question from the line of Soren Samsoe from SEB. Soren Samsoe: Just a follow-up on Norway and Holland. So if you could update us a bit on the commercial improvements you're seeing in Norway and Holland and how that's progressing? That's the first question. And then an update on the platform and also the cost base in those countries where you have done restructuring during the second half. Where does this leave you in terms of cost base and operational leverage going into 2026 if you see more volume growth in these markets? Lars Jensen: Yes. We -- so I wouldn't call it restructuring. Soren, that's a big word. We are always adjusting our organizations, as the market changes and our performance is changing and we see opportunities in the market, and we are massaging in some areas, we are taking some admin people out and then we are putting more people into the field. So we do that all the time, and that's also why we do not have anything that we call extraordinary costs because what we do is ordinary course of business. It is changing the flight attitude. Lars talked about efficiency initiatives. So it is changing the flight attitude of the fixed cost in relation to net revenue, and thereby, we create the operational leverage. So we're well positioned, assuming that volume will grow a little bit. We are well positioned to take the benefits of that. And that goes across all countries. It's not just relating to the newer markets like Norway and Netherlands, yes. Soren Samsoe: Okay. So it sounds like we could see some improved operational leverage there. But also another -- just a second question on Italy, where you've seen very good progress and also France, I guess. But Italy is, of course, a much bigger market. The exit rates we're seeing there and the flight attitude as you call it, could that continue into '26 as you see now? Lars Jensen: When we look at the Italian business, we are growing both share and beyond the market in volumes, and it is about a 6% growth, which is not what you would see reported because we have less private label. Now private label over time is, of course, less and less of the totality. We will still keep ourselves open-minded in terms of, I would say, sweating the assets. But what we -- so what we are exiting is the glass bottle private label because chillers is growing rapidly. So in that respect, we are taking one in and one out, but with a much, much higher margin. There is, of course, a limit on how much we can take out of private label because then it's not there anymore. What is left now is what we would call strategic private label because this is with customers where we also do business on our branded portfolio. So this is the status of the Italian business. Operator: We will now take the next question from the line of Andrea Pistacchi from Bank of America. Andrea Pistacchi: I have 3 probably quick, quick questions. The first one, going back now to Netherlands and Belgium, the improving top line trajectory that you're starting to see and the commercial initiatives there. Can you just highlight where your main wins are? And then what -- I mean, over the medium term, as you do better revenue management there, you probably gain share, what sort of top line growth would you expect from Benelux? Can it grow, I don't know, 3%, 4% for you? What do you have in mind? Second, probably a very quick one, costs of exiting Snacks. Have there been any -- have you booked anything in Q4 for this? And how much, please? And the third one, in the last 6 months or so, you've alluded to probably more difficult pricing environment in carbs in Denmark, mainly and probably also Finland. Just an update on that. And is this connected in any way? I think your price/mix in Northern Europe was flattish or thereabouts in the quarter. I mean there's clearly lots of mix effects in there, yes, but if you can comment a bit on pricing in those markets. Lars Jensen: Yes. So second question first, exit cost of Snacks. We have had none. So that has been done in a very smooth way, both from us, PepsiCo and the partner that has taken over. So well done for everybody. When it comes to pricing in general, I think what we see is, again, back to what I said earlier on that in the more mainstream parts of the market, we do see from time to time, and it changes from market to market, some activities that is more volume-driven than value driven. What we, of course, do not have insight into from a competitive behavior point of view, is this is driven by the brand owners or the brand implementers or is this is driven by the trade that wants more traffic in the outlets. It's probably a combination. And when you look at the pricing in the fourth quarter, it has, from a consumer point of view, been more attractive. So slightly deeper on promotional pricing than what we have seen. We have -- so our average pricing for our main categories is not very different than it was a year ago, but where we see some of our competitors have been with average pricing out of the stores at a lower level upon their choices or upon the store's choices, we don't know. But it's not something that is new. It's something that happens occasionally in markets and in categories, yes. Lars Vestergaard: Okay. Just on value management, I think one of the things that is a key, what do you say, tool in the -- right Unibrew toolbox is that we have very granular data on how much money we make on individual screws, on promotions, et cetera. And I would say when we have acquired companies, one of the things we often do is to really make certain that we have that data available for the acquired companies and really make certain that we move the focus towards the segments where we do make money. So that's the first step we do when we start to integrate acquisitions. And that is giving us some good wins in Benelux and Norway as we get more granular insights into where we make money. And then we have a team that takes best practice across the markets and work together with the local organizations to ensure that our price pack architecture is strong in each market, and then we are very focused on the segments where there is money to be made, and we deprioritize the segments where profitability is low. So this is very much about the basic financial ways of working that you focus on where money is made. But of course, when you look at some of the markets and the market share gains we've had in some of the Nordics, we have seen reactions from competition in terms of price because our market shares are growing very strongly over a number of years in -- particularly in Denmark and Finland, where we have been very successful. Andrea Pistacchi: And if I may, sorry, my sort of first question on Benelux, would you expect, as you do more of the revenue management as you've got everything in control now, would you expect the top line trajectory to improve there? And what's the sort of growth ambition in these markets? Lars Jensen: Yes. But I also said it a little bit earlier, Andrea. I think we're doing a lot of changes on price pack. That's predominantly in Holland. We are changing our promotional priorities, which we have seen the effect of positively in the second half of the year mostly. And the success of the new strategy, we'll have to rely on seeing what is happening over the summer in the conversion of selling less big pack sizes at low prices, converting into smaller and instant size consumption occasions. We have had, I would say, a really strong reception by the trade. But of course, the next layer is the consumers. So we'll have to be a little bit patient to conclude on that. But our overall idea about BeLux and Holland and for that matter, Norway is that the trajectory that we bought, which was more kind of like flattish and even to declining businesses is something that we can fix, will fix. Some of it we have fixed. And thereby, we should be able with those relatively small market shares that we have in those markets, we should be able to outgrow the market. So that's what we want to achieve. And with that, I would like to thank everybody for participation. As usual, you know where we are, give us a ring, write to us, and we will be available. Thanks a lot, and enjoy the day.
Operator: Good day, and welcome to the Bubs Australia Limited Half Year '26 Results. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Joe Coote, CEO, to begin the conference. Joe, over to you. Joe Coote: Thank you very much, and good morning, everybody. We're here this morning to talk about our half 1 F'26 results. If we could tab, please. And if we could tab again, please. So just as we get started at Bubs, we acknowledge the traditional custodians of the lands on which we operate. We pay our respects to Elders, past and present. I'm Joe Coote, CEO at Bubs. I've been in my role now just 7 months. So very excited and proud to share with you our half 1 results. I'm joined here this morning by Naomi Verloop, our CFO. Tab, please. So this morning, we will take you through the headlines of our results. We'll update on our trading markets, then Naomi will take over and walk us through our financial results, and then we'll round out with a strategy update. Tab, please. Yes. So as I said, I'm very excited and proud of the team actually to report that we have exceeded our commitments in H1 of F'26. These results have been achieved through setting strategic clarity, focus on growth and then a lot of disciplined execution, particularly in relation to our stock rationing and our air freight. But overall, it's a great result. If I just headline through the main numbers, our revenue was $55.5 million, which was up 14% from prior year. There is a heavy weighting of the U.S. market, which quarter-over-quarter grew -- sorry, half-over-half grew 48%. Our gross profit exceeded our guidance at 48%. Underlying EBITDA pleasingly was $4.4 million positive, which on a comp basis cycles off a negative 0.7%. So we're very happy with that. And then those factors together draw us to today share an upgraded outlook for F'26. So Naomi will share that later. But we're feeling very positive about these results and through the balance of the year. A couple of other highlights just as we get started. We have now moved from strategy development into strategy deployment. And so it's very pleasing to share that we have now got a number of initiatives that are rolling forward, and I'll share some of the outcomes that we've delivered at the back end of this presentation. One of the core things we're focused on is building a high-performing culture. We've done quite a lot of work on this in the half. We've got a group of people now very motivated and committed. We have very clear accountabilities focused around executing in the day and also building a stronger business in the future through deploying strategic initiatives. Over the half, we've made 5 leadership appointments, one of which myself. We've got a new leader from outside the business, leading our commercial business in the U.S.A. We've set up a Global Chief Marketing Officer, also based up in the U.S. We've also secured the gentleman, Chris Lotsaris, who is running the U.S. to come back to Australia, and he is running Australia and rest of world after having delivered great outcomes in his time in the U.S. And finally, we've brought on a leader of our Corporate Services Group. So there's a lot going on at the leadership level, but also more broadly, we have done our inaugural team engagement survey, and we're focused on working with the teams to deliver our high-performance outcomes. Finally, U.S. market access. We continue to make strong progress with the FDA. Interesting to note that overnight, one of our competitors in the U.S. has secured permanent access. And so that's a precedent that we believe stands us in good stead to continue our positive engagement. Tab, please. And then if we tab again, I'll start to talk about the markets. Just as we're getting started on our markets, it's just important to note that we live in a dynamic global environment. I think it's unprecedented in a lot of ways, certainly in the 30 years that I've been in business. And as we look at it, there's really 3 things that we feel are dynamics that are impacting our business. Firstly, the demographic forces. So in the mass market globally in infant formula, there are some negative impacts from declining birth rates. I would call out China as one example where the birth rate was down 17% and then the infant formula dollar sales are down 5%. But pleasingly, our business in China is growing. So we have a strong business model and a strong brand. The other thing to note in terms of demographics is that our consumers, we're very clear who they are. They're a premium, natural consumer. So these cohorts of parents are looking for products similar to the products that we have that are a little differentiated from the mass market. They do tend to attract a higher margin. And so that's the subcategory of the broader category that Bubs participates in. From a regulatory and geopolitical, we are watching with increased interest rate environment, currency with our exposure to the U.S., we have seen a strengthening of the Aussie against the U.S. with the Aussie currently spot rate a little over $70. So we're watching that. Obviously, the tariff environment is interesting to say the least, there's a lot of volatility there. We did watch the recent high court decision in the U.S. and we are working with our advisers in the U.S. to optimize our position in the U.S. in relation to tariffs. Finally, competitors and consumers. There has been globally 2 quality issues in our industry. They're being managed and worked through. We are well aware of those issues, and we're very confident in our quality systems, and we continue to move forward on the basis of the strong quality reputation that we have as Bubs has been obviously from our Australian source. So to summarize, we feel well positioned to navigate the dynamic global environment. We're very happy our brand resonates strongly with our targeted consumers. We operate in diversified markets. So we have some ability to move between those markets. And finally, we have an attractive margin structure given we have the exposure to the premium natural subsegment. Tab, please. Going into the U.S. market, we've seen very strong volume and value growth in the half. We have worked very well with the large retailers. And so if you look at the overall category, we're fortunate to participate in that premium natural category, which is up 44% against the total category only up 3%. We're 8% of that premium natural subcategory. And so in terms of then the retailers that we look to work with, we've done some great work, and we're just cycling through at the moment the annual range review process, where at Target, we'll increase stores. We'll increase the number of products that we have in stores. Amazon gives us the natural coverage, and we're #1 in go on Amazon. Walmart, very pleasingly, we're stepping up very significantly in store count and also the number of products we have in their stores. And then additionally, very pleased to note that we have ranging at Sprouts, which is one of the top premium natural banners in the U.S. And then Sam's Club, which is part of the Walmart Group is the club element of that business, and we have secured ranging at Sam's Club. So if I go straight to the bottom right, you can see the chart there. At the start of February this year, we were a little over 5,500 stores. We're now going into a cycle of growth as these retailers do their annual resets. And so by the end of the year, we are forecasting to be over 8,500 stores with those additional placing. So we're going into a very exciting time where the business will work through the intake of those products, and we believe that that will be a positive for us as we move forward. During the half, we did cycle through some stock rationing. We were rationing the U.S. as authority. We did undertake an airfreight program. I'm very proud that the team executed that very well operationally. We did maintain service level. A lot of that was recognized by the retailers with these additional ranging outcomes that we've secured. With the new marketing focus based up in the U.S., we are very clear who our consumer is. We are moving more and more to some of the next-generation digital platforms like TikTok. We've got exposure to Reddit. AI is becoming a real reality in search. And so our marketing has been rerated to secure those exposures, and we feel really good going forward in relation to our prospects in the U.S. So moving through to China. It's encouraging performance in China. Our growth interestingly in the past period has been concentrated in the second and third tier cities where we are seeing a preference for some of the consumers to move to premium products like Bubs. We're very happy that we're running a very strong business in China, great team against some of the macro headwinds. But because we're in that premium subcategory of imported product because we have a great team, we're doing well. Interestingly, in the half, we did rebalance our stock. So we had a little bit of additional stock sitting in the trade. We've run that down. So our sell-out looks higher than our sell-in, and that sets us up really well for the second half. We're very pleased with the channel performance. The online to offline, the O2O channel is going great guns for us. We've secured an additional 77% of stores and our sell-through in those stores is up 50%. CBEC, which is the imported product, we've maintained our #1 position on Tmall. And we have worked through some of the stock rationing and the stock balancing challenges now. And then coming into the second half, we believe we're well set for sustained growth in China. The chart on the bottom right really shows the story. The 2 channels we play in the O2O and CBEC, both showing strong growth. Tab, please. Australia, we're very focused on investing to reestablish our growth trajectory. Fair to say that while we've maintained our #1 Goat position, we need to do better in Australia. We're working on that. One of the key things we've done, we entered the year with our advertising promotion set at about 8% of net sales in the second half, that's been upgraded to 12%. We've started that. We've seen some positive results. We did do a little bit of price activity, which has been well received by our consumers and retailers. We have started to activate through health care professionals. We have improved on-shelf availability as we work through the stock rationing, and we feel really well set to see a continuation of growth in the Australian market. I would note also that we did discontinue our food portfolio in the half. And so we're very, very focused on our core range of infant formula. And as we go forward, we believe we'll be cycling into stronger performance in our core home market of Australia. Tab, please. So our final segment is our rest of world segment. Again, we were impacted by some stock rationing. Additionally, we did have some regulatory challenges, particularly in the Vietnam market where the health authority has changed some of their requirements. So we've been very diligent to work that through with our distributor partner, Ms. Zhou. So we have resized our distributor relationship. That business has a great capability in health care professionals where we believe we do well in terms of reaching the parents that will be great customers for Bubs. During some of the challenges, we've done a great job to maintain supply. We are active on some of the very modern platforms up there on the right, there's actually a picture of myself on my trip up to Vietnam on TikTok. We do a number of in-store activations. So that other picture is an in-store activation in the modern trade, where we have a very strong following. Japan continues to be a strong market for Bubs. And then Malaysia is an emerging market where we've doubled distribution points in the last 12 months. So it's been resilient against some of the challenges. And again, we feel positive moving forward with our positions in the rest of world markets. Tab. And as we tab, I'll hand over to Naomi Verloop, our CFO, and she'll take us through the financial results. Naomi Verloop: Good morning, everyone, and really pleased to be here today. If we could just have across to the income statement, please. So looking at the P&L, the great takeaway here is our underlying EBITDA result, which came in at $4.4 million versus $0.7 million on the prior corresponding period. The EBITDA reported number came in at $3 million versus $0.6 million in the prior corresponding period. The revenue increase in the U.S.A. was the major driver for these results, increasing by 48%. Overall, revenues were up by 14% versus the prior corresponding period. Gross profit also held up surprisingly well despite the impacts of airfreight and tariffs, but we still managed to come in at 48% and the product mix in terms of more sales being sold through into the U.S.A. allowed us to achieve this result despite the additional tariffs and airfreight we incurred. Operating expenses came in approximately 3% down to $24.5 million versus $25.2 million, and this was primarily due to the completion of the FDA growth studies. So overall, ending the year at $4.4 million on an underlying basis, which was a great result for Bubs. We can move across now to the balance sheet. The key takeaway on the balance sheet is the inventory number. You can see that it has increased from $20.1 million to $28.1 million. We are still progressing through with our inventory rebuild, and that will carry on for the next half. We expect that number to be approximately $8 million to $10 million higher by the time we get to the end of this financial year. You can see trade and other receivables have also increased by $3.7 million. That is in line with the increase in revenues. Trade and other payables also up to $15.7 million from $10.3 million, and that is largely due to extra payments to suppliers for raw materials in particular, goat milk solids and fresh milk supply from Australian farms. You'll also see there that our right-of-use assets have increased up to $6.1 million. This is simply due to the renewal of the lease at our Deloraine dairy facility, which is our manufacturing and head office site in Dandenong South. We'll move across now to cash flow. The main takeaway here on the cash flow is obviously the net cash used in operating activities. So we had a net cash outflow of $5.7 million versus an outflow of $0.5 million at the half last year. This was largely expected and most of it relates to the inventory rebuild process, which we are still currently in the middle of. And as I mentioned earlier, we will continue to invest in inventory in the second half. One of the key takeaways subsequent to December of 2025 is obtaining formal approval from NAB to extend the limit on our working capital facility. So that has actually increased up from $10 million to $20 million and will be very helpful as we go through this inventory rebuild process. Moving across now to margin. We can see that margin has been maintained at 48%. It is down slightly from the 50%, but well above the guidance we were giving of the 40% to 45% range. As I said previously, we have incurred tariffs and air freight, which has been significant. Despite those facts, we've been able to deliver more of our revenues in the U.S.A. market, which are at a higher margin, and that's helped us to achieve a really, really positive result. As we cycle through to the next half, we actually anticipate to incur a higher level of airfreight and tariffs. And so we still expect margins to come in at the 40% to 45% range by the time we get to the end of the year. Moving across to net working capital. We can see net working capital has gone up. We are landing in at $33.4 million for the first half versus $23.2 million. This all relates to the inventory build and the increase in inventories mainly from $20 million to $28 million. You can see, however, that the average net working capital as a percentage of sales has dropped down to 23.9%. It was 25.8% at H2 FY '25 and then at H1, it was 30.7%. That measure really just shows how efficient we are in terms of delivering additional revenues against our working capital, and it just shows that we have the ability to generate more sales on an average basis versus our net working capital. Inventory came in at 28.1%. If you look at the chart just below, we were at 30.3% at the same point last year. So you can see we are quite low given the uplift in revenues. You can see inventory as a percentage of sales is down to 26%. We expect that to pare back up to around 30% by the time we get to the end of the year. Moving now to the FY '26 EBITDA guidance bridge on a full year basis. You can see we landed last year on an underlying number of $0.6 million. We're expecting to come in at $9.5 million on an underlying basis by the end of this year. And our EBITDA reported number is expected to come in at $4.5 million. So the main impacts there are the airfreight and penalty tariff, which we're assuming to come in at around $5.8 million. We also had a one-off payment from Alice & Willis in relation to the legal proceedings, and that was $0.8 million. We do not expect any further funds to be received in relation to this legal proceeding. I'll now just summarize the FY '26 outlook that we've provided. We do anticipate revenues to come in at $120 million to $125 million. It reflects 22% to 27% growth on the prior corresponding period. As I mentioned earlier, we're still targeting that 40% to 45% range on gross profit. That will be lower than what we have delivered for the first half. But as Joe alluded to at the beginning of the call, there's lots of moving pieces there. We have additional airfreight coming in, additional tariffs on non-AU product, and we are living in a very dynamic and changing world with Donald Trump and who knows where the tariffs will land. So those are some of the moving pieces that we're dealing with at the moment. In terms of reported EBITDA, we're going to land at between $4 million and $6 million, and the underlying is going to come in at between $9 million and $11 million. That concludes the financial review. I'll hand back now to Joe for a strategy update. Joe Coote: Thanks, Naomi. And if we could just tab through to the strategy summary page. If we tab again, this is a chart that we will be showing you very regularly as we move forward. As I said at the start of the call, we've moved from strategy development to strategy deployment. So we have active initiatives underway. We are standing up a transformation office as we speak. And so we're excited to share some of that with you at our strategy update later in March, which we will confirm shortly. We will have the new team members in from offshore as well as some of the new roles that we have here in Melbourne. And so we will drill into this strategy at that point in time. But fair to say we feel very comfortable. It's very crisp and clear. It's very focused, as I said, on execution and the delivery of performance improvement initiatives. And I'll say further discussion on that for our strategy update. So if we tab over, I did just want to highlight some of the initiatives that we have underway. Some of these are very substantial. Some will carry on for a number of years and some we have already concluded. So I'll just highlight a couple here. If I start on the left, we have done consumer research in China and the U.S. to confirm our consumer target cohort. And it's very clear who those consumers are, and it's very clear they align to the premium natural subcategory. Moving into the second point, we have upweighted our digital marketing activities to continue our presence on platforms like Meta and Google, but we're moving into some of the new platforms like TikTok and particularly Reddit is driving a lot of the AI search that we're seeing. So our consumers tend to be, we're calling them as seekers and explorers. They tend to be very savvy with the use of digital technology. And so we're really focused on that, and we're very happy with the initial results that we're seeing. Annie, our new Global CMO, will share more of that when she's down with us in March. If we move across to portfolio optimization, we've really had stunning results from the range reviews in the U.S. We're also excited to share that we've ranged in a very premium supermarket banner in China called Ole. We really have great coverage now across those 2 key markets, obviously, as well in our home market with Coles, Willis and Chemist Warehouse. So we are working with the supplier partners. We have great ranging. Now it's about the marketing to step it up and really get the sell-through targeting our consumers. We will share quite a bit on our product development road map in March. We have some exciting things to share there. But we're also very focused on who we are. So there will be some little adjacencies that we'll be looking at that can help us grow our business further faster. Moving across to supply chain, very clear dollar in the bank example where our supply chain team has done a great job. We've done some work in our warehouse where we've got additional capacity, and we're packing containers now. And we've got a run rate underway that will bank $400,000 per annum of cash savings. The next one down there in supply chain that's work in progress that I did want to mention is looking to the U.S. for sourcing of ingredients, the whey proteins that we use as well as the whole milk. Additionally, looking at the supply network, supplying the U.S. from Australia can be challenging. It's a long, thin supply chain. We have tariffs at the border. Geopolitically, it's a good thing as well to be participating within the economy in the U.S. So we're doing a classical buy, build and rent analysis. We're quite progressed through that. And as we grow and outgrow essentially our capacity here in Australia, we have aspiration to look at what a U.S. supply network might be for Bubs. If we move across to enablers, just to round out, we're very focused on culture and high-performing team. We have a great team assembled, very excited to work with such a great group of people. We're also bringing in partners. So we've got a great partner looking at our procurement area through an AI lens. They're a U.S.-based start-up firm called dSilo, they're doing great things for us in that space. Additionally, though, we're very focused on some of the core processes that run a business like Bubs, which is around operations excellence. So just being safe every day, delivering high quality, meeting our promises to our retailers and obviously driving our assets and being efficient in how we spend our cash. And finally, our integrated business planning is another area of focus, particularly the balancing of supply and demand. And as we're a high-growth business, we really need to be looking ahead to see what our growth will be and then convert that back into capacities in terms of shipping, in terms of procurement and in terms of manufacturing. And that's where we've also got a lot of focus, but I'll leave it there. I'm happy to take questions. I'm very excited to showcase the great team that we have when we're together in March. But for today, I'll leave it there and maybe hand back for some questions. Thank you. Operator: [Operator Instructions] And your first question comes from the line of Philip Pepe from Shaw and Partners. Philip Pepe: Well done on a good result. Just looking at your guidance, revenue in particular, you've got a slightly greater second half bias than usual. Is that because you're expecting Australia, and China and some of the other regions to start to grow in the second half to add revenue to what's already a strong U.S. growth? Naomi Verloop: Yes. So we are expecting revenues to normalize in the other regions as well in the second half. So we are expecting a better performance in China due to those selling sell-out rates through to the distributor normalizing. So we should see an uptick in China. In particular, U.S.A. as well will grow further due to that additional ranging of stores that Joe spoke about. So we are expecting a better half for the U.S.A. as well. Philip Pepe: And have we started to see that in February? Naomi Verloop: It depends on when the range reviews start. I'll hand over to Joe to answer that question. Joe Coote: Yes. Phil, we have seen things pick up in China and Australia just in the recent periods. The way the U.S. business works, which I know you understand is there's an annual range review cycle. So we have had confirmation of that range review outcome. And so that massive intake, particularly into Walmart and Target is currently underway. So the product we've been airfreighting up into the U.S. is sitting in the warehouse. It's staged and it's ready to go. The purchase orders are rolling in, and it's really a big pipeline into those stores. And then we wait and see how the consumer offtake goes and then we'll replenish back to those stores. But it's quite a big step-up. So it's exciting at one level, but it's also operationally quite a challenging task to execute, but it will drive a step-up in our sales, absolutely. Operator: Your next question comes from the line of Jonathan Snape from Bell Potter. Jonathan Snape: Just trying to ask a quick one. On the cost you've called out in the U.S. tariffs, airfreight like obviously, one component of that is probably going to be around a little longer than the other. Are you able to kind of split out which element is airfreight as opposed to tariffs? Naomi Verloop: Yes. So we've footnoted that in the P&L slide. So there's $1.8 million in airfreight, and there was about $0.4 million in penalty tariff. So that is tariff over and above the 10% that we incur on non-AU fresh milk supply. So when we purchase goat milk solids from overseas, they might come from the Netherlands or New Zealand or another part of the world, they are actually tariff at a higher rate and it is much higher than the 10%. Jonathan Snape: And how does that flow into your second half thinking? Is the mix kind of the same? Or does it start to move more towards tariffs given, I assume, you probably were selling through some stock that was kind of already there, [ you ] didn't have the tariffs... Naomi Verloop: Yes, we're actually expecting the impact to be larger in the second half, and we're expecting a larger revenue number to come through in the second half. We've got this ranging happening at Walmart that we've been speaking about. So we really have to get the pipe fill there done on that. So that means extra product, and we are going to need to still source from overseas to meet that demand. And some of that is also going to have to be airfreight as well. So we'll also incur additional airfreight, which will be at a higher level than this first half. Jonathan Snape: Yes. Okay. And can I just ask around China? I mean it seems like when I look at all your peers, even some of the bigger ones, there's a massive channel shift that's been going on from China label to English label over the last 6 months, if not last 12 months. And traditionally, Bubs has done pretty well in that environment, not just from CBEC and O2O, but also from Daigou. Are you seeing anything in the Daigou channel at all in terms of resumption of growth at the moment? Interested in your thoughts there. Joe Coote: Yes. We're not seeing a lot in Daigou. We -- as I said, yes, we see that shift to English label, and our team does a great job marketing on platforms. But our O2O growth, as we shared, is very pleasing as well. So we're in that general trade but with the CBEC product. So yes, if that continues, they're favorable to our current positioning, absolutely. So it should be something that we benefit from, I would agree. I can't see that we've seen a lot of it at this point. But we're bullish China more because of the capability of the team that they've [ indiscernible ] in our products. And so yes, that could be another headwind potentially for us. Jonathan Snape: Okay. And if you looked at, I guess, some of these product scarce, most of the, I guess, the recalls have happened from Europe. And I know it's kind of early days because it's been kind of rolling through December and January, more so than anything else. Have you seen any, I guess, benefits start to come maybe from some of that cross-border activity slowing off from Europe and shifting down into regions where you haven't had major product recalls like down here at all? Or is it too early direct to see anything like that? Joe Coote: Yes. Look, it's mixed. I mean the thing as an industry, yes, the families that are impacted by those recalls are where our thoughts go first. And then second, just for our industry, these quality issues are something that we would prefer not to see. You do highlight the recall from Europe. There is also a separate one in the U.S. So it is a dynamic in the U.S. as well. It's a little bit different in the U.S., but it's essentially a quality-related issue. So there is, I'd say, consternation amongst the parents who are formula feeding. So we're working very hard with our customer service and marketing teams to reassure people that the Bubs products remain safe. And we've got a huge focus on our quality. I would say that in pockets, we do see that our sales are responding to some of the gaps that we're seeing. I would also say that in the U.S., some of the ranging outcomes that we've achieved that are so stellar probably somewhat buoyed by the quality issues in some of the people that are participating currently. So -- but with that said, it's a mixed bag. And I would absolutely come back to my opening point, which is yes, we really feel for these parents who are navigating these difficult times in our industry, and we prefer not to see any quality issues anywhere. Operator: [Operator Instructions] Currently, there are no further questions on the phone. So I'd like to hand back. Apologies. You have a question from the line of Mark Topy from Select Equities. Mark Topy: I just want to ask on the production side of things, just how you placed and just give us a bit more insight into how you're ramping up for the inventory build-up. I guess we've got a sense of where you might be producing it, but I'm just wondering about your capability going forward to meet demand. Joe Coote: Yes, Mark, I mean, the way the supply chain works is the physical logistics, which is a fairly long thin supply chain from Australia to predominantly China, U.S. So that's one element. But in the sort of production side, we essentially have a 2-stage production process. We have our own facility in Melbourne in Dandenong, and that facility runs at about 40% to 60% of nameplate capacity. So we run that facility on a 2-shift basis, 6 days a week, and that facility has been operating very well over the past half. And the team that runs that facility do a great job. So we do have capacity there. We work with a network of partners in terms of then turning the milk into powder. So we have a network of supply partners across Victoria. And again, they're doing great work, and we have some capacity there. Where there are some challenges is in the goat milk solids. And so some of that comes off farm here in Victoria. And then we do supplement selectively from some offshore sources that Naomi mentioned, primarily the Netherlands and New Zealand. So you put all that together, the outlook is positive. It takes time, there is a long lead time in each of those steps to secure the goat solids, push it through the dryers and then into the blending and canning lines to get on to a container and across to the U.S. It's a long thin supply chain, as I said at the start. So -- but look, we're very confident that we will rebuild and we will have sufficient safety stock, particularly up in the U.S., and we'll be able to secure the sales that present in these additional range we have in the U.S. retail trade. Mark Topy: Great. Yes, obviously, you meet that demand. And then just secondly, on the kind of what's your read on the goat milk sort of perception in China? There seems to have sort of been a little bit of up and down in terms of the demand. And at one point, goat milk was very strong in terms of some of the other producers in that market. And how are you sort of converting the consumers over even in the U.S. to the goat milk product? Joe Coote: Yes. It ranges like total goat as a percentage of total is one number, and then it tends to be a higher percentage in the subcategory. The premium subcategory has higher participation in goat. In the U.S., it's almost solely in that premium natural subcategory. So the total addressable market, if we can collectively, as an industry, grow goat, that will be very beneficial to Bubs. In the U.S., at the moment, it's about 3% of total market, which is about 6% of the subcategory. So 1 percentage point there because we're about 1/3 of the market. China is a little bit different. China, the participation rate in goat, as you call out, has dropped back a little bit. It's a different sort of proposition in China. It's been more mainstreamed in China over a number of decades and beyond, I would suggest. So we watch that carefully in China. But certainly, with our exposure being a dominant goat player, a tick-up in goat participation in infant formula would be very beneficial. We also have an adult goat product CapriLac in China. So goat in adult is also something we're excited about. And then in Australia, goat, I think, runs at about 6% to 8% of category. So again, we're the #1 in goat. So we do watch those numbers on a total addressable market. And if we can collectively grow the goat participation, we -- naturally rising tide raises all boats. So yes, that's a really good metric to look at, and we look at it carefully. Mark Topy: Yes. And just lastly, just on the Aussie dollar, just touch on FX and any sort of implications there in terms of the sort of nudge up to the Aussie dollar where it is at the moment? Joe Coote: Yes. We don't certainly -- we're an infant formula company, so we don't try and play the currency market. But in terms of our risk management strategy, I'll just hand over to Naomi. Naomi Verloop: Yes. So that uptick that we saw in AUD versus USD only sort of came in around the end of January and up into early Feb. So we're sort of trading around that $0.7 level now. We actually hedge all of our transactional exposure, and we've taken hedges out already through to the end of this year. We'll be going through our budget process for FY '27, and we'll have to obviously rerate what that rate is looking like. So that will have a subsequent effect on the revenues that we report coming through from the U.S.A. But if we do our comparatives in the financials on a constant currency basis, we'll be able to see the true underlying performance. Mark Topy: Right. So if I interpreted that, so there is some crimping of margin then from the higher U.S. dollar-Aussie dollar. Is that the way I'm kind of hearing that? Naomi Verloop: Only on a reported basis, not within the result reported in the U.S.A., so only on consolidation because we are an AUD business. Yes, not transactional because that will be hedged through. But you'll be hedging through at higher rates. So it will have some impact. So there will be an impact. But if it moves higher than $0.7, you're protected against it. If it moves lower and you in at $0.7, then you'll have the opposite effect. Mark Topy: So that implies you're not repatriating cash from the U.S. Is that got some natural hedge over there or from a regulatory view... Naomi Verloop: We are repatriating cash, but there's 2 separate FX impacts. So there's a transactional FX and there is a reported FX, which are 2 different things. Operator: [Operator Instructions] Currently, there are no further questions on the phone lines, so I'd like to hand back. Joe Coote: Well, just to round out, thank you very much for your attendance this morning. And we look forward to having follow-up discussions and see you at the final strategy session in March and the end of the year. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now all disconnect.
Ian Brown: Good morning, everyone, and thank you for joining us today for our results webcast. We're delighted to have you with us. Before we begin, a quick note to say that today's session is being recorded, and a replay will be available on our website shortly after the event. Turning to the agenda. We'll start with a brief introduction from our Chairman, Aubrey Adams. He'll then hand over to Colin Godfrey, our CEO, who will provide an overview of the period before passing to Frankie Whitehead, our CFO, for the financial and operational review. We'll conclude with a live Q&A. [Operator Instructions] And with that, I'll hand over to Aubrey. Aubrey Adams: Good morning, and welcome to our full year results presentation. I'm pleased to be opening today with a strong set of results, reflecting a year of significant strategic progress and excellent delivery across the business. We have continued to execute our strategy with discipline, strengthen the platform for future growth and the business enters the year ahead with a real sense of momentum. Before handing over to Colin and the management team to take you through the detail, I would like to take a moment on a more personal note. This presentation marks my final results as Chairman, as I will be retiring from the Board after 9 very rewarding years. It has been a privilege to serve alongside such a high-quality Board, and I would like to thank my fellow directors, past and present, for their insight, challenge and support. I would also like to extend my sincere thanks to the manager and the wider team for their professionalism, commitment and consistent delivery throughout my tenure. Finally, I would like to thank our shareholders for their continued support and engagement. I leave the business in the strongest position it has ever been with a clear strategy of high-quality portfolio and a management team well placed to continue creating long-term value for shareholders. And it's very pleasing that the company's success has been reflected in its elevation to the FTSE 100, which becomes effective on Monday. With that, I will hand over to Colin to take you through the results in more detail. Colin Godfrey: Thanks, Aubrey. Hello, everyone, and thank you for joining us. We entered 2026 with real momentum, improving occupier demand, the successful integration of recent acquisitions and powerful structural trends across logistics and data centers, all of which plays to the strength of our portfolio and our strategy. And it means that we start this year exceptionally well placed to deliver against our 3 growth drivers and our ambitions to grow adjusted earnings by 50% by 2030. This is a business set up for multiyear compounding growth built on capability, discipline and consistent delivery. Throughout 2025, we delivered strong strategic momentum across our growth drivers. We continue to capture record rental reversion, expanded our logistics development platform and advanced our data center pipeline, including launching our power-first model and progressing as planned with the delivery of our first data center project at Manor Farm, Heathrow. We also fully integrated UKCM, generating very attractive returns and further enhanced our urban exposure with the addition of the Blackstone portfolio. At the same time, we executed a significant disposal program to recycle capital and increase returns. This is embedding highly visible multiyear growth and translating into financial performance. Despite significant capital recycling, we grew net rental income by 10.6%, increased adjusted EPS by 4.1% and delivered 4.4% dividend growth. The financial results demonstrate that the strategy is working. And as a result, we enter 2026 with momentum, visibility and confidence. As shown at the top here, our strategy builds on over a decade of consistent value creation and the evolution of the business has been deliberate and cumulative. Since our IPO in 2013, we've sought to create the most compelling supply chain-focused real estate business in Europe. In 2019, we added the U.K.'s largest logistics development platform with the acquisition of db Symmetry, enabling us to create high-quality buildings and compelling returns. And in 2023, we made our first urban logistics acquisition with Junction 6, Birmingham and subsequently further strengthened our offering through the acquisition of UKCM in 2024 and the portfolio of assets from Blackstone last year. And following 5 years of work in 2025, we launched our power-first data center strategy. The combination of the largest logistics investment portfolio and the largest logistics development platform means that we are the largest logistics real estate business operating in the U.K. This gives us many advantages, including deep market knowledge, strong relationships, a lower cost of capital and increased share liquidity. Each phase has broadened our capability and helped to enhance our performance as the data below shows. Over the past 10 years, we've grown contracted rent from GBP 100 million to GBP 361 million and at the same time, reduced our EPRA cost ratio by 220 basis points as detailed bottom left. That combination continued income growth underpinned by an efficient cost base has delivered strong and sustained total shareholder returns as seen bottom right. Looking forward, we're primed to deliver, and we're entering 2026 with growing momentum in each of our 3 growth drivers. Now I'll come back to this later. But first, I'll hand over to Frankie to cover our financial and operational review. Frankie? Frankie Whitehead: Thank you, and good morning, everyone. As Colin said, 2025 has been another strategically important year for the company, and we've delivered excellent progress across our 3 growth drivers. Our active approach to managing the portfolio has resulted in strong operational performance. And with 2 milestone events during the year, the launch of our data center strategy and the acquisition of the GBP 1 billion logistics portfolio from Blackstone. We expect momentum from these events to accelerate our financial performance into 2026 and beyond. So starting with the headlines. We've delivered strong like-for-like rental growth this year of 4.2%. This has supported an increase in our adjusted EPS of 4.1% to 8.38p per share. And the dividend is up by 4.4% to 8p per share. We have deployed capital into a range of attractive opportunities, which along with valuation uplifts, increased our portfolio value by over 20% this year to GBP 7.9 billion. Our EPRA NTA increased to 187.8p with income growth and ERV growth leading to valuation gains and once again generated attractive returns through our development activity. Now turning to look at income and earnings growth in more detail. Our earnings growth drivers are clear, and these underpin our ambition to deliver adjusted earnings growth of 50% by the end of 2030. Firstly, net rental income has increased by 10.6%, driven by a full year's contribution from the UKCM logistics assets, a 10-week contribution from the Blackstone portfolio and strong like-for-like rental income growth, net of our disposal activity. Income from development management agreements or DMAs, was GBP 15.5 million and in line with expectation. We guide to DMA income reverting to our GBP 3 million to GBP 5 million run rate for the financial year 2026. Secondly, our disciplined cost management has further improved our EPRA cost ratio to 12.4%, one of the most efficient platforms in the sector. This reflects the advantages of our externally managed structure and our commitment to cost efficiency as we scale. We continue to exclude the additional element of DMA income from adjusted earnings to maintain comparability year-on-year. Adjusted EPS growth, excluding net additional DMA income, was 4.1%. And with the dividend growing by 4.4% to 8p, our payout ratio is consistent with the prior year at 95%. Looking at the top right chart, you can see the significant embedded rental potential of 37% between current passing rents and the estimated rental values across the portfolio. This provides us with great near-term visibility over the future growth in net rental income, and we'll be coming back to this later in the presentation. Let me now turn to capital allocation and our robust balance sheet. As already noted, the portfolio increased in value to GBP 7.9 billion. Looking at our allocation of capital on the top right, you see that during the year, we deployed development CapEx in line with our guidance of GBP 231 million into logistics development and GBP 209 million into our first 2 data center schemes. In addition, our logistics acquisitions totaled over GBP 1 billion, the majority of which was the portfolio acquired from Blackstone. This portfolio will deliver a 6% running yield in 2026 and is immediately accretive to adjusted earnings. And we've made excellent progress on capital recycling, shown here on the bottom right, with GBP 416 million of assets sold or exchanged to sell in the year, which means we are now 80% through the disposal program of the UKCM nonstrategic assets. These capital movements and the increase in net debt, which part financed the transaction with Blackstone, resulted in a year-end loan-to-value of 33.2%. And with the GBP 62 million of disposals that were exchanged and have now subsequently completed post the year-end, our pro forma LTV reduces to 32.7%. Drawing this all together and including the equity consideration issued in the year, our EPRA NTA increased to GBP 5.1 billion or 187.8p per share, up 1.2%. We have again delivered compelling underlying total accounting returns. Starting on the left-hand side with our 4.7% earnings yield. We added 1.9% and 2.6% to returns from our investment and development portfolios, respectively. And with capital value performance across the whole portfolio at 2.4% over the year, we delivered an underlying total accounting return of 8.5%. We have separated 3 nonrecurring items here from underlying performance, which span the nonstrategic asset performance, an impairment against our land option portfolio, which I covered at the half year and the technical NTA dilution arising from the shares issued as part consideration for the Blackstone portfolio. This results in the reported total accounting return of 5.5%. And it's worth stating here that we have yet to feel the full financial impact of the Blackstone portfolio of assets and to a larger degree, our live data center projects. And so we're expecting a larger contribution from these components to total returns as we move forward. A component of this performance shown along the bottom was our portfolio ERV growth of 4% over the year, which is attractive in the context of underlying inflation. Our portfolio equivalent yield has remained stable at 5.7%. Moving on now to our asset management performance. Colin highlighted this as our first key growth driver, and we've delivered another year of strong progress. Our asset management team has added GBP 10.5 million of contracted rent through rent reviews and other lease events. Open market rent reviews and hybrid reviews performed particularly strongly, averaging a 36% and 21% increase in passing rent, respectively, all aiding our improved EPRA like-for-like rental growth of 4.2%. And as the bottom left-hand chart highlights, we will see a greater proportion of the portfolio subject to review in 2026 and 2027. And this will deliver an acceleration in the rental income capture over the next few years. And finally, moving on to the right-hand side. Our portfolio vacancy has reduced slightly to 5.6%, reflecting the net effect of our portfolio activity and as expected, the greater level of rotation within the urban assets. Before I move on to our development activity, I want to briefly highlight an important component of the Blackstone transaction, which is the innovative 3-year reversionary bridge. There is a lot of detail on this slide, but essentially, the portfolio acquired came with GBP 20 million of cash, acting as a bridge between the passing rent at acquisition and the market-based ERVs across the portfolio. The release of this reversionary bridge will be recognized within adjusted earnings over the next 3 financial years on a reducing annual basis so that it tapers in line with the actual capture of market level rents as set out at the bottom of this slide. This earnings contribution should be viewed as a baseline for performance from the portfolio with upside available through rent review outperformance or an improvement in portfolio occupancy. Our development platform is our second key growth driver and continues to deliver strong returns for us. During the year, we commenced construction on 1.4 million square feet of space, which has the potential to deliver over GBP 13 million in headline rent. We secured 0.4 million square feet of development lettings this year, adding nearly GBP 4 million to contracted rent at a yield on cost right at the top end of our 6% to 8% target range. Finally, it's fair to say 2025 was a year of macroeconomic uncertainty. This continued to weigh on the pace of occupier decision-making. But as Colin will outline in a moment, occupier confidence is improving, and we ended the year with 1.8 million square feet under construction, representing GBP 19.6 million of potential rent, of which 53% was pre-let. The importance of sustainability to our business is clear, and it continues to play a vital role in driving performance and returns. We provide what clients want, highly modern buildings that are powered by clean energy, are energy efficient and have the power resilience to accommodate future automation. Excluding the portfolio of assets acquired in the year, our EPC rating improved to 86% at B or above. And with the portfolio from Blackstone included, this remains stable versus 2024 at 79%. These new assets present an opportunity for improvement where targeted investment can deliver both sustainability benefits and meaningful value enhancement. Our rooftop solar program increased capacity by 4.5 megawatts in the year to a total of 29 megawatts. And we also continue to invest in natural capital and community programs. This year surpassing 62,000 young people positively impacted through our social value initiatives. All these sustainability actions support long-term occupier demand, reduce obsolescence risk and drive resilience across our estates. Turning to our balance sheet. This remains a real strength and provides flexibility as we invest for growth. During the year, we completed several important pieces of financing. We refinanced and upsized our GBP 400 million revolving credit facility. We issued a new GBP 300 million 7-year public bond at a 4.75% interest rate. And we agreed an acquisition facility to part finance the Blackstone transaction. At the year-end, as set out along the bottom of this slide, we had very strong financing metrics, along with a well-staggered maturity profile and access to a diverse pool of debt capital. These metrics supported our Moody's upgrade to A3 stable in the year. And we've shown on the right how our capitalized interest is evolving, reflecting the higher level of capital investment in live development projects, which is around 2.5x greater than this time last year. Interest capitalized against our logistics developments remains modest due to our capital-light land option model and relatively short construction periods. An addition in the year is the interest capitalized against our data center developments, reflecting earlier land drawdowns, greater infrastructure investment and longer construction periods. However, it's important to note that this cost of finance is fully captured within our underlying appraisal return targets. So looking at some forward guidance. Our development CapEx guidance for 2026 remains unchanged. We expect to maintain our GBP 200 million to GBP 250 million run rate for logistics development and GBP 100 million to GBP 200 million into data center development this year. And we expect to achieve returns in line with previous guidance at between 7% and 8% for logistics currently and 9% to 11% across our 2 data center projects. As we highlighted at the point of the Blackstone transaction, we expect disposals to run at an elevated level this year of between GBP 400 million to GBP 500 million to finance our accretive development activity as well as targeting an LTV at the lower end of the 30% to 35% range. This is all part of our disciplined approach to capital allocation, which ensures we remain optimally positioned for the next phase of growth. This discipline, combined with our access to the multiple funding levers set out across the top of the slide, gives us the appropriate financial flexibility to identify and pursue opportunities as and when they arise, enabling us to invest strategically and proactively for growth. And so drawing all of this together, 2025 has been a year of disciplined delivery and strong financial performance. We're entering 2026 in a great position with a strong balance sheet, multiple funding levers and a clear line of sight across our 3 growth drivers. Our considered approach to managing risk, combined with the scale of the opportunities ahead, underpin our potential to grow adjusted earnings by 50% by the end of 2030. And with that, I will hand you back to Colin. Colin Godfrey: Thank you, Frankie. Turning now to our strategy. The platform that we've built strengthened again this year is now positioned for the next phase of growth. It's diversified, insight-driven, operationally sophisticated and capital efficient. And crucially, it's aligned to the structural demand drivers underpinning logistics and data centers. So we're entering 2026 with the right assets, the right people and the right opportunities. And to drive value in this market environment, our strategy has a simple objective: convert structural demand into superior shareholder returns through a focus on high-quality assets, a direct and active management approach and an insight-driven development model. This strategic focus has created 3 clear and powerful drivers in our business. Firstly, capturing record rental reversion, which requires no or limited capital and delivers high certainty returns. Secondly, developing new logistics assets at a 6% to 8% yield on cost, supported by long-dated capital-efficient and flexible land options. And thirdly, developing pre-let data centers targeting a 9% to 11% yield on cost, enabled by our innovative power-first model. These drivers give us resilient growing income, combined with opportunity for substantial capital growth. Let's start by looking at the U.K. logistics market, where demand is strengthening. Take-up increased in 2025 to 25.6 million square feet, up 22% year-on-year and the best level since the pandemic. Demand is broad-based across e-commerce, retail, manufacturing, defense and 3PLs. Lettings are typically still taking extended periods of time to close, which was accentuated in 2025 by elevated macro uncertainty. But importantly, occupier confidence is improving, and this is feeding through into activity with nearly 10 million square feet under offer heading into 2026. Turning to supply. 20.9 million square feet was delivered in 2025. Vacancy ended the year at 7.1% with new space remaining broadly stable and the secondhand component increasing to nearly half of the total. Occupiers are rotating into higher quality modern buildings, exactly where our portfolio is positioned. And looking ahead, supply is tightening. Space under construction is down 28% year-on-year with speculative development almost 50% lower, pointing to fewer completions in 2026. And against that backdrop, rents continue to grow ahead of inflation with market ERVs up 3.9%. Investment capital markets volumes also increased, aiding price discovery with nearly GBP 9 billion of transactions, noting that the prime yield has held firm at 5.25% since 2022. Turning back to our business. Our portfolio has been curated to maximize our opportunities. We now have a broader range of unit sizes with greater urban penetration and more assets benefiting from open market rent reviews, improving pricing power in a rising market. This is all underpinned by long-dated big box income from a modern portfolio let to some of the world's most recognized companies, as you'll see here on the right. It's exactly the right mix heading into 2026. Our first major growth driver is continuing to capture our in-built rental reversion. And this is an exceptionally attractive and growing opportunity. Through rental reversion and vacancy, we have the opportunity to increase rental income by over GBP 100 million, of which 73% can be delivered within the next 3 years. Delivering this increase requires minimal capital, and our team has a strong track record of meeting or exceeding ERVs. This is high certainty, high-quality income growth and is firmly within our control. Frankie updated you on the excellent progress made in investment sales to support our recycling program. This included GBP 299 million of UKCM nonstrategic assets sold since May 2024 and a further GBP 62 million with contracts exchanged, leaving GBP 86 million in 2 assets, representing around 1% of portfolio value to be sold within the next few months. And one of these is now under offer. So in aggregate, these sales are ahead of the effective cost of acquisition. This is disciplined capital recycling, selling noncore assets and reinvesting into high-returning logistics and data center opportunities. But the primary reason for acquiring UKCM was to capture a high-quality urban logistics portfolio with significant in-built reversion. And we've made great strides in capturing this, having increased contracted rent by 18% since acquisition, supported by strong rent reviews, lease regears and new lettings. And this blueprint for success is mirrored in the Blackstone portfolio transaction, which completed late last year, where we have acquired a high-quality urban logistics portfolio at below replacement cost. These assets are now fully integrated into our platform, and we're already making excellent progress with our asset management initiatives, letting up vacancy and capturing significant rental reversion as demonstrated by the examples shown here on the right-hand side of the slide. Our second growth driver is logistics development. This platform is capable of delivering more than GBP 300 million of additional rental income, nearly doubling today's passing rent. It's capital efficient, supported by long-dated land options and can be flexed according to market conditions and our strategic objectives. As Frankie mentioned, some lettings that we expected to close in Q4 2025 slipped into this year, such that 2026 development activity is primed for delivery with nearly GBP 15 million of rent close to being secured. We have nearly GBP 9 million of pre-let rental income in solicitors' hands, over GBP 5 million of rental income in advanced negotiations, strong occupier engagement across the pipeline, including a 55% increase in pre-let inquiries and yields on costs tracking at the upper end of the 6% to 8% range. Our development platform is, therefore, a significant driver of multiyear income and value growth. And our third and most exciting growth driver is data centers. Demand for data center capacity is strong and is expected to grow significantly, noting that colocators dominate the London market. The constraint to supply in this market is power. There isn't enough in the right locations deliverable within the right time frames. Our power-first model solves that constraint, enabling faster delivery, lower risk and materially higher returns. In the 12 months since we announced our data center strategy, we've created an exciting pipeline of opportunities with more than 230 megawatts of power across our first 2 sites and the potential for GBP 58 million of annual rent, targeting an attractive 9% to 11% yield on cost. At Manor Farm, our first DC project, momentum continues to build. We're in advanced negotiations on a pre-let with an occupier, have agreed a contractor and are primed to make swift progress. We're expecting a planning decision imminently with the planning expect indicating a determination on or before the 17th of March 2026, keeping us on track to begin construction as planned. And we have also made good progress at our second data center site, where we expect a planning decision this year. These are just the first of a series of projects in a pipeline of potential opportunities of over 1 gigawatt. When you bring the 3 growth drivers together, the scale of the opportunity ahead of us becomes clear. We can more than double our rental income to over GBP 800 million across the medium and longer term. We show here the contribution from our 3 growth drivers: rental reversion in gold, development in blue and data centers in red. Today's GBP 337 million of passing rent on the left bridges to GBP 361 million of contracted rent through the burn-off of rent-free periods and signed agreements for lease. You can then see how the growth drivers generate a near-term opportunity to increase passing rent to GBP 425 million driven by reversion and development. A medium-term opportunity to increase this to GBP 562 million, reflecting further reversion and development potential plus a very meaningful additional upside from our first 2 data center projects. And finally, there is the significant long-term opportunity within our extensive logistics land portfolio, taking rent to well above GBP 800 million. Key here is that much of this value is already baked into our business. And as you can see at the bottom, none of this includes future rental growth or additional asset management upside. And crucially, it excludes any benefit from our 1 gigawatt pipeline of further data center opportunities. Now this is why we are so confident in delivering sustained earnings growth and compelling returns for shareholders. So to conclude, we have a resilient and high-quality income stream, an attractive and growing dividend and clear line of sight to material earnings growth with an ambition to grow adjusted earnings by 50% by 2030. We have a strong balance sheet, a proven model and powerful multiyear drivers. And critically, the business is primed for delivery in 2026, particularly through the early stages of our data center program. It's a compelling combination, resilient income, strong and compounding growth and the potential for exceptional returns from data centers in the years ahead. Thank you for listening. And with that, I'll hand you over to Ian, who is coordinating Q&A. Ian Brown: Good morning, everyone, and welcome to the live part of our results presentation this morning, where we are opening up the call to your questions. And I'm joined this morning by -- in addition to Colin and Frankie, Henry Stratton, our Head of Research, to the right of me. And to my left, Charlie Withers, our Head of Director of Development. And I'm being supported on the phones by Sergey, who will coordinate calls. [Operator Instructions] So, I'll hand over to you to open up the lines for questions. Operator: Our first question comes from John Vuong from Kempen. John Vuong: On data centers, so it's considered critical national infrastructure, which means that obtaining planning approval shouldn't be a major hurdle. Just trying to understand the Manor Farm progress. Could you provide a bit more color on what has happened and how this impacts your expected time line? And do you see any risk coming from the first expansion plans? Colin Godfrey: Thanks for the question, Jonathan (sic) [ John ]. Catch the last part of that. But I think you're looking for a bit of color on the progress we've made at Manor Farm. So we submitted planning earlier last year. The planning application proceeded to the inspector, where there was a hearing. That process took place and the planning application was called in by the Secretary of State for determination by the government, which we see as a positive move. The inspector's report has been submitted to the Secretary of State. And the Secretary of State has indicated that a decision should be expected by the 17th of March. So we're not far from that date. We should be hearing very soon. We remain positive in terms of the expectation for the outcome from that decision. Ian Brown: And if I just add to that as well, John, I think the key point as well is that we very much remain within the parameters of the original timetable that we outlined to the market back in -- I think it was January of 2025. John Vuong: And just given the risk... [Technical Difficulty] Ian Brown: Sorry, John. I wouldn't get a word, I'm afraid it's a terrible line. Operator: With this, we'll move now to the next question from Tom Musson from Berenberg. Thomas Musson: Just a question on your target to grow earnings by 50% by 2030. Since you announced that initial target, you've obviously acquired the Blackstone portfolio, which is accretive as you've described. Given the visibility you've got elsewhere on the like-for-like growth plus the confidence you have in delivering on new development, including data centers, isn't that 50% growth target now just very conservative? And could it, in fact, be materially higher? Colin Godfrey: Thanks very much for the question. Frankie, do you want to touch on that? I mean we can do a tag team. Frankie Whitehead: Yes. Look, I think we've got lots of embedded growth as we set out this morning, pointing to our 3 growth drivers there, Tom, the rental reversion that's going to be the biggest contributor to the growth over time, logistics development and data center development. Look, it's a medium-term target. We're certainly on track to deliver that. I think as we perhaps get closer to that 2030 date, we may look to revise the guidance. But as we sit here today, very confident in terms of the delivery, but we're still maintaining the 50% earnings growth by 2030. Colin Godfrey: And just to add to that, I think if you think about the context of the Blackstone acquisition and the increase in our urban component to our portfolio and how we've performed on the UKCM acquisitions. We've delivered an 18% income growth in as many months on UKCM. We believe that the Blackstone portfolio has similar attributes in terms of asset management potential. And so we believe that, that has the potential to perform very strongly for the business in the medium term, underpinning Frankie's reassurance in terms of our expectations for that tail growth. Thomas Musson: Okay. That's clear. And maybe just a second one on Manor Farm. Assuming that you do get a positive planning decision there, how will you expect to phase the capital profits? I see you're talking to accounting for some of those in '26. Just to get an indication of how that phases. Frankie Whitehead: I think if you assume that the planning is delivered this year along with the pre-letting, I think a substantial part of that capital profit would come off of the back of those 2 events. So obviously, there's a bit that comes through during the course of construction, and there will be a bit at the back end once the project is fully derisked. But a substantial part as we sit here today, would be expected in the current financial year off the back of those 2 milestone events, the planning and the pre-letting delivery. Operator: Our next question is from Suraj Goyal from Green Street. Suraj Goyal: Just a couple of questions from me. Firstly, does the ERV growth of 4% for the full year versus the 2.3% at the first half suggest a slowdown in rent growth or any concerns in certain locations? And a follow-on from that, what do you see in terms of sort of net absorption of industrial space across the U.K. and your portfolio more broadly? I know you touched on it a bit during the presentation. And then the second question, could you share some color on how the integration of the Blackstone portfolio is going? And 4 months on, there are parts of the portfolio that are perhaps more challenging or asset management intensive. Colin Godfrey: Okay. Well, I think we take that in reverse order, and then I'll deal with the first -- the last question and then hand over to Henry Stratton. The integration has gone very well. It's still very early days. We are really pleased with the quality of the portfolio that we've acquired from Blackstone. Obviously, this early stage has been about reaching out to our clients, engaging with them, understanding what they're looking for in terms of occupational interest, whether or not we can improve the opportunity for them. And just really talk to them about how happy they are in their space. And in acting -- really, we're putting together business plans, which we started actually prior to the acquisition and starting to engage with customers in acting those business plans. Some of that will include refurbishments, et cetera, as well. So early days, but going very, very well and very, very similarly to UKCM acquisition of that portfolio, as I alluded to earlier. Henry, do you want to... Henry Stratton: Yes. So picking up on the net absorption number, first of all, that was GBP 11 million for the U.K. across 2025. And we've actually now seen 3 half years of incremental improvement in that net absorption figure. So we're seeing positive momentum there in terms of what's happening in the market. It was GBP 10 million the year before, but lighter in the second half of that. So we're seeing that improvement. What we would say is that we're seeing a lot of rotation at the moment from occupiers into higher quality, more modern new space. And as they consolidate and rotate, they're also giving up some of those older buildings. So the vacancy number in the U.K., it's secondhand stock now, which is pushing that higher and it's high-quality new space of the type that we own and develop that occupiers are moving into. And then just in terms of the rental growth outlook, you're right, 1.5% rental growth in the second half of this year at a market level. But again, we see a lot of dynamics in the market that are encouraging on that front. So first of all, on demand, we're seeing growth in the economy. We're seeing retail sales increase, online penetration improve. We're seeing occupier confidence build, but we're also importantly seeing occupiers making more use of their networks. And as I said, that's driving the 25 million square foot of take-up that we saw last year, which is a significant improvement. So encouraging trends as we head into 2026. Colin Godfrey: Yes. And I think just to add to that, our ERV growth of 4%, very much in line with MSCI at 3.9%. And I think the tone that we're seeing in terms of conversations with occupiers is increasingly positive, alluding to what Henry said in terms of their desire to make investment in newer high-quality space. So we don't -- we certainly don't see there's any significant trend there in terms of the level of rental growth, and we expect 2026 to be a strong year moving forward. Operator: The next question is from Neil Green from JPMorgan. Neil Green: Two quick questions from me, please. The first one, just on the Blackstone reversion bridge, just to check, if you beat those ERVs, is that all upside for yourselves? Or is there any kind of type of clawback on that, please? And secondly, you've shown a couple of times how your cost ratio has come down over recent years. And looking at the situation today and hearing your comments on the call, it feels like there's a lot of opportunity to go for. Are there any or do you envisage any resourcing pinch points at this point, please? That's all. Frankie Whitehead: On the first point, there's no clawback arrangement. So all of that upside would be to the benefit of Big Box and Big Box shareholders. Colin Godfrey: Yes. And on the cost ratio point, Neil, we have resourced into the UKCM transaction and subsequently and into the face of the Blackstone transaction. So we are fully staffed. But noting, of course, that those costs are cost to the manager and not to the company. So you can rest assured that we are making sure we've absolutely got all of the right people on the ground, high-caliber people that are engaging, and we're getting some really good results as a consequence of that very, very active approach that we're taking to those assets. Operator: The next question is from Paul May from Barclays. Paul May: Just a couple from me. The like-for-like rental growth and the expectation of reviews and revisions -- reversions, sorry, coming up. It looks like like-for-like rental growth could accelerate over the next few years up to sort of 8%, 7% and then back down to sort of 4% from 28%. Is that a fair assumption in terms of how that will flow through? And then second question, can you just remind everyone on your capitalized interest policy? It looks to have doubled or more than doubled year-on-year, now about 7% of recurring income. Just wondered what is the rate that you use? And what is the policy on what is capitalized? Is that on any of the land or land options that you have, for example? Colin Godfrey: Okay. Thanks for the question, Paul. So the first thing is to remind everyone, we have a 28% reversion in the business. That's held firm. So the rate of capture has been broadly in line with the rate at which the market rents have continued to grow. As for looking forward in terms of like-for-like, I mean, Henry might make a comment on this, but we do expect -- I mean obviously, off the back of the current rates, we do expect the potential for that to improve. But we're certainly not guiding 7% to 8%, Paul, for the near term. We think that a range in the sort of 4%, 5% in the current market. I mean obviously, we'll have to keep an eye on how that progresses. We are seeing improved sentiment occupationally. Henry, do you want to make any comment on that? Henry Stratton: Well, I think just to add on the market side, we're still seeing that rental growth building the reversion side of it. So it's a positive picture there, which obviously the business is then aligned to capture that reversion over time. Colin Godfrey: Frankie? Frankie Whitehead: Yes. So on capitalized interest, obviously, the new feature is the data center investment that we made during the course of the year. The level of capital invested in development activity is about 2.5x greater than this point last year and hence, why that number has grown during the course of the last 12 months. The policy is we capitalize from the point of land drawdown. So nothing pre that. So we're not capitalizing interest on the land option component. Obviously, for the data center, the capital intensity is going to be slightly higher. We're drawing down land earlier. We're investing into infrastructure earlier and the construction cycles are slightly longer on that. So that's where we are. Paul May: So just to follow up on that, what's the rate that you use on capitalized interest? Is it the actual cost of debt? Is it marginal? Is it your average? Frankie Whitehead: So on logistics, we are borrowing from a general pool. So it's the blended cost of debt, the actual blended cost of debt on that. For data centers, we're thinking about that from a sort of project finance perspective. So it's the actual cost of finance that is going into that project at the moment. So we're borrowing under the RCF currently for the first -- the early phases of those 2 projects. So it's the cost of borrowing under the RCF for the data center component. Paul May: And sorry, just a quick one on the like-for-likes. I mean the 7% to 8% you get to from looking at the reversion that you highlight and the portion of the rent that is being pushed through in terms of the rent reviews, is there then a risk that you're not -- are you saying you're not going to capture the full reversion on those reviews? Is that why it's more 4% to 5% than 7% to 8% for the next couple of years? Or is it just a timing factor? Colin Godfrey: No. I think this -- look, we're not giving any specific guidance on any particular period, Paul. But we are confident in the earnings bridge over the medium term. 2026 is expected to have a higher level of rent reviews. I think it's 32%. And you'll see on Slide number -- Ian's got it there. Ian Brown: Slide 22. Colin Godfrey: We've set out the levels of rent that is capable of being captured in that period. What we're not saying is that we're definitely going to capture each of those amounts in each of those periods. So it could ebb and flow a little bit over the course of those years, but we are pretty confident in capturing that over that period of time more generally. Ian Brown: And to put that into context, we reviewed about 21% of the portfolio over the course of 2025. So 32% up for review over the course of 2026 with that GBP 27 million of rental reversion that we think is potentially capturable within the period. Colin Godfrey: So it could be 7% to 8%, but if we capture all of that, to your point. Operator: Our next question is from Max Nimmo from Deutsche Bank. Maxwell Nimmo: I had one question on like-for-like rental growth, but I think you've kind of answered it there. Maybe just on the second data center, I know it's early days, but is there anything you can kind of tell us on that front roughly in terms of timing and your thinking on that one? Colin Godfrey: Charlie, is that something you'd like to? Charlie Withers: Yes, yes. We are -- it's a plot we acquired last year, which we are running on the planning process at the moment, which we're looking to achieve consent during the course of this year. Discussions are going well, and we will look to bring that forward again in a similar fashion to Manor Farm with a pre-let backed construction program. Operator: [Operator Instructions] The next question is from Jonathan Kownator from Goldman Sachs. Jonathan Kownator: Actually, just a follow-up to Max's question. Any discussion already on the site with potential occupiers? And also, can you help us understand how you're thinking about bringing forward the rest of the DC pipeline? Any progress there? And would you consider, again, any joint venture partners, things like that? Colin Godfrey: Sorry, John, is that the occupier question? Was that relating to the second site? Jonathan Kownator: Yes, correct. I don't think you touched upon that, maybe it's a bit early. Colin Godfrey: Charlie, would you like to? Charlie Withers: We are quite early in the process there, but we have had initial engagement with a number of parties. So it's encouraging. Colin Godfrey: Ian, would you like to? Jonathan Kownator: And is it hyperscaler as well? Or what type of occupiers are you targeting for that? Charlie Withers: Similar operators to the people we're engaging with at Manor Farm. Ian Brown: And just with regards to the pipeline, I mean it's very analogous to what we're doing on the logistics development pipeline where we are taking the sort of the gigawatt potential and working each of those schemes through and securing the necessary steps to turn those into what we would call kind of credible delivery state. So again, we'll update the market in due course as we continue to progress that. But as Colin mentioned in the presentation, there's a lot there for us to go for. Colin Godfrey: And it's -- all of these sites are following our power-first strategy. where we're looking to control and deliver a significant amount of power that would be attractive to major DC operators. All of these sites are within the key locations within the U.K. and focus primarily on the London availability zone. Jonathan Kownator: And maybe just one follow-up to that then. How are you finding bringing on that power? Obviously, you have secured agreements, but is bringing on the power effectively upon your schedule? Or are you finding still having secured the principle that it's not that easy to convert into hard infrastructure? Colin Godfrey: Yes. So the point here, John, is really the way we go about what we're doing. And this is something that we've been working on for 5 years, the power team, progressing the power delivery. It's -- I think one needs to think about it from the context of the fact that we are not a typical consumer of power. We're working collaboratively with a JV partner power generators. And so we are, if you like, partly in control of the process and the delivery time lines, which gives us a much stronger conviction in terms of the ability to deliver that power when we need it. So we're not at the whim of the power industry and if you like, sitting in the queue, as is ordinarily the case for most property developers who would acquire a site, then look to achieve planning and power subsequently, hence, hitting the buffers with potentially in the context of [ slow ] by way of example, up to a 10-year wait. So we're not doing that. We are taking a very, very different approach, which we believe is very innovative and it's something that isn't capable of being replicated in the near term because it's taken us several years to where we've got to in that journey. Operator: Thank you. It seems there are currently no further questions over the phone. With this, I'd like to hand the call back over to you for any webcast questions. Over to you, Ian. Ian Brown: Great. Look, I think we'll turn to the webcast. So thanks for submitting your questions through that as well. So starting from the top, a question from John Vuong at Kempen. He asks, what's the size of development starts that you're expecting for 2026, given that you're seeing high inquiries? Second point to that, on the lettings in solicitors' hands and in advanced negotiations, how much of it is new post budget and how much is more from delayed decision-making? And how have you seen occupier demand progress at the start of the year? Colin Godfrey: Okay. Charlie, I don't know if you've got all of those... Charlie Withers: I missed the middle one. I got... Colin Godfrey: We'll brief you. So development starts '26, is the first question. Charlie Withers: Development starts 2026. I think we've guided previously that our CapEx for this year is somewhere between GBP 200 million and GBP 250 million, which is in line with previous years. Square footage will vary depending on the customers that we're talking to. So -- but our CapEx guidance is in line with previous years. In terms of occupier demand, which I think was your final question, we are seeing increased levels of occupier demand across both the standing stock portfolio with those buildings that we've got recently completed or currently under construction and a substantially increased level of pre-let build-to-suit inquiries compared to 12 months ago. So we're encouraged by the level of occupier demand and the prospects for increased lettings and development this year. Colin Godfrey: And that's really reflective of what we're seeing in the market more generally that Henry alluded to earlier. And I think the other question, the mid-question was of the amount in solicitors' hands and in advanced negotiations. The question was about how much of that has been delayed essentially in terms of decision-making, Charlie? Charlie Withers: Well, the square footage that we have in solicitors' hands is 0.9 million square feet, GBP 8.9 million of rent. That -- all of that we were expecting or hoping would slip into last year. But as with build-to-suits, it's -- they're more challenging to get over the line than deals on standing stock, and those have slipped. So I hope that answers that question. Colin Godfrey: And I think Henry has touched on this a little bit later. We have seen in recent times, occupiers, we've sort of used the expression sitting on their hands. There has been reticence from C-suite to make really significant investment. And some of these buildings, as Henry alluded to, if you're coming out of a secondhand building to a very large significant facility and you are investing in automation, that is a long-term, very significant investment you're making in the business. And companies have been holding back as a consequence of geopolitical risk, some of the economic shocks that they've seen. But we are now starting to see more positive sentiment with occupiers planning for these major decisions. That's the mood music coming through. That's what we're now seeing on the ground in terms of the letting activity. And that's why we're pretty confident in terms of the outlook for the market moving forward. Next question? Ian Brown: Just checking. I think that might be it. I think we might have exhausted our questions, Colin. Colin Godfrey: Okay. Well, it remains then for me to thank everyone for joining. I'm very thankful for you taking the time to join us. The Chairman mentioned our entry to the FTSE 100 at the start of the presentation. And I just wanted to take the opportunity to thank all of our stakeholders, advisers, everyone that's helped us along the journey of the last 12.5 years to reach this milestone, which we're very proud of, and we're really thankful for your support over that time and also for my colleagues that have worked tirelessly alongside me over that period. So thanks to everyone. I hope you have a great day, and we look forward to catching up with you soon. Thank you. Bye-bye.
Operator: Good day, and welcome to Vallourec's 2025 Full Year Results Presentation hosted by Philippe Guillemot, Chairman of the Board and Chief Executive Officer; and Nathalie Delbreuve, Chief Financial Officer. [Operator Instructions] And now I would like to hand the call over to Daniel Thomson, Director of Investor Relations. Please go ahead, sir. Daniel Thomson: Thank you. Good morning, ladies and gentlemen, and thank you for joining us for Vallourec's Fourth Quarter 2025 Results Presentation. I'm Daniel Thomson, Director of Investor Relations at Vallourec. I'm joined today by Vallourec's Chairman and Chief Executive Officer, Philippe Guillemot and Vallourec's Chief Financial Officer, Nathalie Delbreuve. Before we begin our presentation, I would like to note that this conference call will be recorded. A replay will be available following the call. You can find the audio webcast on our Investor Relations website. The presentation slides referred to during this call are also available for download here. Today's call will contain forward-looking statements. Future results may differ materially from statements or projections made on today's call. The forward-looking statements and risk factors that could affect those statements are referenced on Slide 2 of today's presentation. They are also included in our Universal Registration Document filed with the French Financial Markets regulator, the AMF. This presentation will be followed by a Q&A session. I'll now turn the call over to Philippe Guillemot. Philippe Guillemot: Thank you, Dan. Welcome, ladies and gentlemen, and thank you for joining us to discuss Vallourec's fourth quarter and full year 2025 results. You can see today's agenda on Slide 3. I will move directly to Slide 5, where I will start by discussing the highlights of 2025. 2025 was another transformative year for Vallourec. We progressed several major strategic initiatives and achieved key financial milestones. We continue to drive operational excellence through the organization, including the execution of our cost reduction program in Brazil completed in Q2 ahead of schedule. We significantly narrowed the profitability gap with our primary peers, demonstrating the effectiveness of our strategy and execution. We stayed true to our value-over-volume operating model, securing a new and enhanced long-term agreement with Petrobras, winning major high-value tenders across the Middle East and driving market share and margin growth in the U.S. through our domestic footprint. We continue to streamline our sources and uses of capital, executing the sale of our non-core Serimax welding operations and redeeming 10% of our long-term notes. Importantly, we also positioned the company for profitable growth. We successfully acquired and integrated Thermotite do Brasil, adding to our line pipe coating capabilities. These are increasingly serving as a key differentiator in deepwater projects. In the U.S., we broke ground on a USD 48 million premium threading line investment in Youngstown to increase capacity to thread VAM high-torque connections, which are increasingly used in onshore wells with long laterals. We made further progress on the Phase 2 extension of the mine ahead of expected completion in 2027. As Nathalie will discuss, we built on our growing track record of consistent cash generation with over EUR 400 million of total cash generated in 2025 for the third straight year. These improvements in our profitability and financial resilience were recognized with investment-grade credit ratings across all 3 rating agencies, setting the stage for further optimization of our balance sheet on more favorable terms. Finally, in May, we paid a substantial dividend to shareholders for the first time in a decade, executed a minor buyback and work to enable our much more significant 2026 share buyback. Let's turn to Slide 6 to discuss our results and outlook. In the fourth quarter, we delivered solid results once again with group EBITDA of EUR 214 million, above the midpoint of our guidance. This came with a robust 21% margin. We delivered excellent total cash generation of EUR 177 million, thanks to robust collection and inventory management. In the first quarter, we expect tubes EBITDA per tonne to remain stable sequentially, while volumes will be below the Q4 2025 level due to slower international bookings in H2 2025. In Mine & Forest, production sold is expected to be around 1.4 million tonnes. As a result, we expect Q1 EBITDA to range between EUR 165 million and EUR 195 million. In the U.S., our assets remain highly utilized and recent booking activity remains strong. Industry pricing has softened slightly, but we are encouraged by the downward trend in imports and the resilience of our customers' activity. In international markets, commercial activity remains somehow subdued in H2 2025. But in the Middle East, we are now seeing clear signs of acceleration, especially in markets with higher level of unconventional activity. We see potential for activity to increase in the second semester and beyond as the oil market rebalances, gas-related activity increases and our customers face accelerating decline rates. Turning to capital allocation. We are making good progress with our EUR 200 million buyback announced in January with EUR 150 million remaining under the current program. We have purchased 3 million shares year-to-date. Now let me provide you with an update on 2026 shareholder return on Slide 7. Today, I am pleased to announce Vallourec's expectation to propose in addition to the EUR 200 million share buyback, an interim dividend of approximately EUR 450 million to be distributed in the third quarter this year. This would take the total return to shareholders to approximately EUR 650 million between January and August 2026, representing a year-on-year increase of around EUR 280 million. This distribution represents approximately 90% of our 2025 total cash generation and 100% of the proceeds of the warrants, which are expected to be exercised before the end of June. We have adopted a balanced distribution framework, limiting warrant dilution through buybacks, growing our dividend and maintaining a defensive balance sheet. Based on our current share price, this distribution represents a potential interim dividend of EUR 1.75 per share including the anticipated dilution from the exercise of warrants. This is a healthy increase of EUR 0.25 compared to last year's EUR 1.5 per share. Turning to Slide 8. We show the usual comparison versus our primary public peer. The trend is clearly positive over the past year, and we remain focused on eliminating the gap entirely. We continue to outperform in terms of return on capital, which is a key focus of our medium-term road map. And on that note, let's turn to Slide 10 for an update on our strategic priorities. We have made substantial efforts to streamline our core asset base over the past several years, but there is still work to be done. Our key strategic priorities in 2026 are directed at unlocking this potential. First, we will continue to drive operational excellence throughout the group. This is not a passive process. We are actively implementing a new management system, which is firmly results-driven and embedded in daily operations across all business functions. Bertrand Frischmann, our Chief Operations Officer, is responsible for its implementation. We look forward on sharing more about this program with you in the coming months. Secondly, we will continue to optimize our asset base to drive improved return on capital. And third, we are actively investing to position ourselves for profitable growth. Let me talk about a few examples on the later 2 initiatives now. Let's turn to Slide 11. Here, you can see the targeted set of high-return projects we have executed since the launch of the new Vallourec plan in 2022. You will recall we began with a major downsizing of our rolling capacity in Germany and rightsizing in China and ultimately Brazil. We made the strategic decision to close loss-making capacity and exit low-margin business. More recently, our focus has turned to the upstream and downstream elements of our value chain and is more about enabling profitable growth than shrinking our assets. In our upstream process, we have invested to expand capacity for high-quality iron ore production at our mine in Brazil. Production from the Phase 1 extension started at the end of 2024. We are now working on Phase 2 with completion still scheduled for sometime in 2027. We are now undertaking projects to reconfigure our steelmaking assets in Brazil to reduce complexity and maximize operational flexibility, including the ability to run our steelmaking operations without the use of our blast furnace. In our downstream operations, we are investing heavily in our flaring and coating capabilities where technology barriers and returns on capital are higher. We are adding to our threading line capability in the U.S., adding both large diameter and high torque capabilities. Meanwhile, we see significant opportunities in advanced coating solutions and we'll be investing in both line pipe and OCTG coating line this year. All of these projects will be executed within our expected CapEx envelope of EUR 150 million to EUR 200 million on top of significantly increased spending on safety initiatives as laid out in our capital allocation framework. Let's turn to Slide 12. to discuss one way in which we are positioning for profitable growth. At our Capital Market Day in 2023, we highlighted our favorable positioning in the conventional geothermal market and the upside that could materialize in more advanced technologies. We are now seeing clear signs that these next-generation technologies are moving towards widespread adoption. The momentum is driven by rising demand for low carbon baseload and dispatchable power with AI hyperscalers investing heavily to secure supply. The IEA has recently highlighted a fivefold surge in next-generation geothermal financing over the past 3 years to $2.2 billion in 2025. The increase in financing has been underpinned by rapid technological progress, much of which relates to learnings from the shale industry. With drilling and well costs representing up to 80% of total cost, significant improvements in drilling speeds are dramatically improving geothermal project economics. You can see the high potential of this market in the chart on the right, which comes on top of expected growth in conventional geothermal. We are already experiencing a significant increase in our geothermal bookings as our customers begin to execute on development pipelines that are orders of magnitude above today's installed capacity. We are uniquely positioned to benefit from this growth, thanks to our domestic footprint in the 2 largest markets for geothermal today, the U.S and Indonesia. Our cutting-edge research and development expertise has allowed us to continuously improve our product offering to meet the high demand of geothermal wells placed on tubular products. And we can pair these products with our world-class service offering. Let's look more closely at the next-generation geothermal opportunity. I am on Slide 13. You can see the elements that differentiate traditional geothermal from next-generation applications. On the left, you have conventional geothermal, which has seen steady growth over time but is restricted by the requirements for hot water reservoirs and sufficient subsurface permeability. In the middle, enhanced geothermal mitigates the permeability constraint by using Shell like technology to add subsurface fractures into deeper conventional geothermal systems. In closed loops or advanced geothermal, the only requirement is hot rock with no need for an external water source or permeable rock. Naturally, this opens up the resource potential exponentially. Turning to Slide 14. You can see the typical characteristics for each geothermal development type. Much like the oil and gas industry use rapidly advancing technology to tap into unconventional and ultra-deepwater fields in the early 2000s, the geothermal industry is pushing technological boundaries that open new markets. Vallourec is ideally positioned from its expertise in shale development to serve enhanced geothermal market. Similarly, our unique vacuum insulated tubing solution is ideal for closed-loop system. This is not a fantastic. We are already serving customers across all of these product categories. Clearly, though the growth potential in next-generation solution, coupled with Vallourec's higher revenue opportunity per megawatt makes the growth in advanced and enhanced applications quite compelling. As you may have seen, in January, we announced an exclusive partnership with XGS Energy to support their delivery of a 3 gigawatt pipeline of commercial advanced geothermal projects across the Western U.S. We hope this will be the first of many such fruitful relationships in this industry. Now let's turn to our usual discussion on the OCTG market. I am on Slide 16, where we focus on the U.S. market. On the demand front, the horizontal oil rig count has been stable since mid-2025. Gas-directed drilling activity has increased through 2025 and into 2026. A wave of LNG project start-ups and growing domestic gas demand is supporting market expectations. Rigs drilling for gas now account for 1/4 of the total count, up from 17% a year ago. Looking at the supply side, imports continued to decline for the fourth quarter following the administration's increase in Section 232 steel tariffs in June. Notably, we can see from the chart that the tariff has been more effective in curbing seamless imports compared to welded imports. On the right, seamless spot pricing has moderated slightly since the third quarter, though prices increased in both January and February alongside improving sentiment. Overall, we are encouraged by the improving supply side dynamics and the resilience of our customers' activity. Let's move to the international OCTG market on Slide 17. Demand remained stable in international markets, but was somewhat subdued in 2025 compared to the beginning of 2024. We saw slower tender activity in the second half of 2025 that will cause us to start 2026 at a slower shipment cadence. In most of our core regions in the Middle East, Africa and Latin America, we have continued to perform well, in part due to our strong positions in high-value markets like unconventional gas and deepwater. Looking ahead, in the Middle East, we are seeing some signs of an activity acceleration, especially in markets with higher levels of unconventional activity for which we are supporting customers today with our high top premium connections. Our premium portfolio often allows us to outperform the price indicators we show on the right side of this slide. That said, the latest outlook from Rystad does show an improvement in market pricing in January. I confirm that our average booking prices for international markets have remained at healthy levels due to our ongoing focus on value over volume. I will now hand the call over to Nathalie to comment on our financial results. Nathalie Delbreuve: Thank you, Philippe, and good morning, everyone. So let me now lead you through our key figures and results for Q4 and the full year 2025. So let's turn to Slide 19 to discuss our full year results and the key figures. As you can see, tube volumes were 1,244 kilotons for the full year 2025, so down slightly year-over-year with lower tubes volumes in South America and Eastern Hemisphere, not fully offset by stronger volumes in the U.S. The full year EBITDA was EUR 819 million versus EUR 832 million for the full year 2024. This slight decline includes a significant adverse foreign exchange impact of EUR 47 million. Tubes volume decline was more than offset by positive price/mix effect in tubes, stronger contribution from mine and forest and continued cost reduction initiatives, maintaining a strong 21% margin. Net income was EUR 355 million versus EUR 452 million in 2024. Let's remember that 2024 was impacted by positive one-offs with the sale of the Rath site in Germany, generating a gain of sale of EUR 139 million and with our refinancing last year. Overall, we continue to build on our track record of generating consistent net income. Net cash ended the year at EUR 39 million, slightly higher than end of 2024 and after EUR 370 million having been returned to shareholders. So moving to Slide 20, we can see that we continue to build on our track record in Q4. It has now been 13 quarters that the EBITDA margin has been around 20%, showing the strong resilience of the group, its ability to adjust costs and maintain a strong margin. Since 2022, we have been reducing our working capital requirements in number of days, as you can see on the top right. In Q4 2025, we further improved our working capital requirement with robust collections and inventory management. You can see on the bottom left that we have a track record of healthy positive total cash generation with EUR 177 million total cash generated in Q4 2025, which leads to positive cash at the end of the year, as you can see on the right. Let's turn now to Slide 21 to start discussing our Q4 results and key figures. So revenues were EUR 1.043 billion, down 2% year-over-year, but again, impacted by negative currency effect of minus 6%. So revenues at constant foreign exchange rates are up 4%. Reduction in volumes sold were more than offset by improvement in price/mix and minor positive effect in Mine and Forest. EBITDA was EUR 214 million or 20.5% of revenues, stable compared to Q4 2024. Foreign exchange impact quarter-over-quarter is negative by EUR 10 million. So like for the full year, the positive price/mix effect in tubes across all regions as well as lower costs and cost savings did offset the impact of lower volumes, which I will comment in the next slide. Adjusted free cash flow in Q4 2025 was EUR 204 million to be compared to EUR 178 million in Q4 '24, which I will comment in more details later. And this led, as we saw to a net cash position, it's EUR 39 million achieved at the year-end. We will now look at Tube performance in Q4 on Slide 22 and also 23. So looking at volumes, Page 22, you can see that volumes were stronger quarter-over-quarter as we guided. They were lower year-over-year, mainly due to our U.S. import business in the Gulf of America as expected and certain regions in Eastern Hemisphere. Average selling price was higher year-over-year as mix shifted more to international in Q4. Overall, Q4 Tubes revenue was 2% higher year-over-year and even 8% higher at constant foreign exchange. Revenue mix by geography that you see in the bottom left shows a reduction in North America contribution due to the decrease in imports versus Q4 2024, but also to a strong contribution from Middle East. Slide 23, we can see the Tubes profitability. So Tubes EBITDA was EUR 183 million and 18% of revenue. So as you can see, our margin is very stable and resilient. Tubes EBITDA per tonne at EUR 548 increased by EUR 37 per tonne year-over-year and even EUR 65 if you consider constant foreign exchange rate, confirming again, the positive impact of our value over volume strategy. The decrease versus Q3 2024 EBITDA per tonne is due to a less favorable mix this quarter and a lower proportion of services. So let's move now and look at the Mine and Forest performance on Slide 24. The production sold in Q4 '25 was close to 1.5 million tonnes, outperforming our expectations voiced during our Q3 call, leading to full year volume of 6.2 million tonnes. Mine and Forest EBITDA, as you can see on the right bottom, reached EUR 38 million and 48% of total revenue, increasing sequentially by 10%. This reflects higher iron ore market prices, partially offset by seasonally lower volumes. For the full year, EBITDA reached EUR 171 million, up significantly year-over-year, reflecting higher quality in ore after the start-up of the Phase 1 extension in late 2024. So let's look now on Slide 25 at our net income key drivers and evolution. We continue to deliver a solid bottom line, as you can see on the right. In Q4, net income was EUR 96 million, that is 9% of total revenue, net income group share. You can see that Q4 2024 net result was higher at EUR 163 million. Again, as already explained, in 2024, the group net results had benefited from the one-off book gain on sale of the Rath site in Germany for EUR 139 million. Looking on the left at Q4, you can see that -- and the bridge from EBITDA to net income group share, you can see that depreciation and amortization amount to minus EUR 52 million, very much in line with previous quarters and Q4. Financial result is minus EUR 16 million. In the other pillar of the bridge includes restructuring and some one-off impacts such as in the quarter, a positive reversal of impairment of assets in China for plus EUR 38 million, reflecting the good operational performance and evolution of China. Income tax is minus EUR 35 million. Effective tax rate was 26% in Q4 2025. Let's look now at cash flow analysis on Slide 26. We can see how we convert EBITDA into cash flow for the quarter and for the full year. We had excellent total cash generation in Q4 of EUR 177 million, resulting in over 80% conversion of EBITDA to cash, thanks to robust collection and inventory management, driving the change in working capital that you see on the left. CapEx was minus EUR 55 million, a bit elevated versus prior quarters as work continues on our growth projects. And as you can see on the right, we did remain within the EUR 150 million to EUR 200 million range as disclosed in our CMD in the full year 2025 with total CapEx for the year of EUR 176 million. So for the full year '25, we delivered over EUR 400 million of total cash generation for the third straight year with restructuring costs halving year-over-year and continued structural improvement in our working capital as we optimize our operations. And in the last slide, let's look at our debt and liquidity. So thanks to the excellent net cash generation I just commented, we turned net cash positive in Q4 with plus EUR 39 million on the balance sheet -- of cash on the balance sheet at the end of the year. As you can see on the right, we have significant liquidity above EUR 1.6 billion, of which nearly EUR 1 billion in cash. Philippe Guillemot: Thank you, Nathalie. Let's turn to Slide 29 to discuss our outlook. Starting with our tubes business. In the first quarter, we expect volumes to decrease sequentially. EBITDA per tonne should remain similar to the fourth quarter level. For the full year, we expect our North America tubes business to see sustained strength in volume, thanks to market share gains during 2025. We expect a slight near-term decrease in U.S. market prices with improving industry supply-demand conditions, setting the stage for potential improvement later in the year. In our international tubes business, we expect lower sales volume in H1 2026 due to slower booking in H2 2025. We see activity recovery in the key Middle Eastern markets, setting the stage for higher second half volumes. We expect market pricing to remain broadly stable versus the second half of 2025 with discrete customer contracts driving selective price upside. For Mine and Forest, we expect production sold to be around 1.4 million tonnes in the first quarter. We expect full year production of around 5.5 million tonnes, slightly lower year-over-year due to an improved production process focusing on value over volume. At the group level, we expect our first quarter EBITDA to range between EUR 165 million and EUR 195 million. Let's conclude on Slide 30. We are driving further improvement in return on capital through a relentless push towards operational excellence and asset streamlining. We are positioning for future profitable growth through targeted research and development and capital investments to solve the energy challenges of today and tomorrow. Finally, we are delivering on our commitments to shareholders, targeting a substantial EUR 650 million in shareholder returns in the first 8 months of 2026 while maintaining our crisis-proof balance sheet. Thank you again for your attention. Nathalie and I are now ready to take your questions. Operator: [Operator Instructions] We have a question from Paul Redman from BNP Paribas. Paul Redman: I just wanted to ask 2 questions. Firstly, was about the buyback and the distributions. And you've guided EUR 650 million of payout to shareholder in 2026. I just wanted to ask about the allocation and why you've allocated the -- well, additional cash to dividend rather than to buyback to kind of offset some of the dilution impact of the warrants in 2026? And then my second question was on working capital. You've had a big release this quarter. I want to go into a little bit more detail on what the drivers of that is. And also, how do we think about working capital into 2026? Philippe Guillemot: Okay. First, I will take your first question. As you know, we have launched a share buyback plan for EUR 200 million to be executed by end of June. But given the daily volume credit and obviously, how we can execute share buyback, I think we were a bit capped -- and that's why we only allocated EUR 200 million out of the EUR 650 million to share buyback. Remaining being, as you have seen, the sum of the proceeds of the share buyback -- of the warrants and what was not used for the share buyback from the total cash generation of '25. Second, on the return on capital employed and working cap, you clearly understood that since I joined, my main focus was on deleveraging the balance sheet of Vallourec, and we reached the zero net debt end of '24. And again, end of '25, we have a positive net cash of EUR 39 million but the levers we have used to achieve such performance was obviously to work on every aspect of our capital employed, starting with the working cap. And by the way, there is a nice slide in Nathalie's presentation, where you can see that our working cap in days of sales continue to decrease, and we still see further room for further improvement. And on our asset base, as I have mentioned in my presentation, we continue to question and challenge any asset we have in Vallourec, which is not absolutely needed to generate, obviously, the performance we are contemplating. Operator: We have a question from Matt Smith from BofA. Matthew Smith: I wanted to start on the mine, if I could. You talked to a new strategy, sort of value over volume there. I wonder if you could give us any update in terms of where you might put new guidance perhaps for annual EBITDA for that business versus what you've presented in the past? What is the net-net of that strategy? And I suppose a follow-up would be, does that have any implications for future mine expansion plans that you've talked to before, please? That would be the first one. And then the second one would be -- thank you for the updates as ever around the U.S. sort of OCTG market. I can see those seamless imports coming down. I think the one sort of topic that scratch my head out a bit is domestic supply in the U.S. There was actually a source of a lot of supply growth in 2025, which doesn't seem to get much airtime. And I just wondered if you could talk to the drivers of increased supply, domestic production in '25. And if you saw the picture any differently for '26, your insights there would be really appreciated. Philippe Guillemot: Okay. Thank you. So let's start with the mine. First, we are very consistent with what we said in September 2023 about what we expect from the mine. You remember, Phase 1, now fully executed around EUR 100 million EBITDA. Phase 2 completed EUR 125 million. So there is no deviation versus what we said in 2023. What has changed in the meantime is that we have applied our recipe for success, value over volume to the mine too. So today, we extract less [ ROM, ] but we are able to generate -- to produce more iron ore, more high-quality iron ore and obviously, the EBITDA we are looking for. So that's the logic behind this. So again, I insist no change versus what we said in September '23 about what we expect from the mine. As far as the U.S. -- OCTG U.S. market is concerned, several -- yes, first, imports have declined since the implementation of the 232 import tariff, which obviously led customers to buy more from domestic capacity. So in fact, First effect is a better use of existing domestic capacity, starting with ours. And as I said, we have nice volumes, and we are well loaded with our capacity today. On top, what we see is a better sentiment and as you have seen, Pipe Logic slightly going up in Jan, in Feb again, which obviously give us confidence that at some point, the balance between supply and demand will translate into upward pressure on prices. And this is likely to obviously happen in '26. On top, as we mentioned, we have invested in additional capacity to produce high-torque connection for unconventional drilling. That's a change in the market. And the market is becoming more premium. As you have seen, our customers are able to produce as much oil with less rigs, less wells, thanks to this technology. Obviously, there is a real appetite for this technology that we have developed and for which we have gained market share. And obviously, we intend to continue to gain market share. Operator: [Operator Instructions] We have a question from Kevin Roger from Kepler Cheuvreux. Kevin Roger: I have 2, if I may. The first one is maybe to understand a bit more the Q1 guidance because at the time of the Q3 earnings, we were mentioning some shift in volumes from Q4 '25 to H1 '26. So I was wondering if the lower volumes that you mentioned for Q1 means that those volume has been shifting to Q2 and maybe to understand a bit more the implication that we saw between the 2 quarters. And the second one, you talked about the geothermal activities during the presentation quite a lot. And recently, you signed a deal with XGS. When we make some math with the elements that you shared with us, this framework agreement could represent quite a lot of revenue, maybe something like EUR 1.5 billion. So I was wondering if you can share a bit with us how you do see this XGS partnership impacting the revenue for Vallourec in '26, '27 and '28, please? Philippe Guillemot: Yes. Going back to Q1 volume being lower than Q4, I remind you that our volume in Q4 were much higher than Q3. So obviously, this has to be put in perspective. When oil price started to go down, we have seen last year in H2 customers not canceling investment plans, but taking more time to decide on their investment and placing orders. And that's what's reflected in our bookings and will translate in H1 in our invoicing. But again, as I said, we see clear pickup since the beginning of the year as, by the way, oil price went up $10 since. So that's why I think the profile of this year volume-wise is likely to be similar to the one of '25. As far as geothermal is concerned, thank you for noticing, obviously, to bouncing back on what we said on geothermal. It's a new market which is opening. And again, 3 years ago, obviously, we had -- we decided to obviously invest time and money on research and development on new application for our know-how. And this geothermal and advanced technology was the right bet. And yes, today, and again thanks to the data centers, which are popping everywhere and the huge need for baseload electricity, this technology now have obviously a good prospect. And as I said, there is more project in the pipeline than the existing installed base, and we are positioned on it. We mentioned about XGS for which we provide unique technology with -- we are the only one able to provide the famous VIT technology, vacuum insulated tubes. And when you do the math, yes, I think your conclusion is the right one. I think these wells because geothermal is based on wells require technologies, premium technology we have. And obviously, this will come on top of our technologies to support our customers on unconventional, more gas-directed production. Kevin Roger: But sorry, if I may follow up, how would you, in a way, see the phasing? Would you consider that those opportunities will mostly materialize in '28 because those guys needs to get a lot of financing? Or you do see already a lot of stuff in '27, for example, or even sooner? Philippe Guillemot: Data centers need electricity now and in the next few years. So there is no time to wait and geothermal project can be executed as fast as they can drill. So it's already today. And obviously, it will ramp up nicely over the next years, but it's not something for the future. It's already something for projects which are currently in execution phase. Operator: [Operator Instructions] We have a question from Baptiste Lebacq from ODDO BHF. Baptiste Lebacq: Two questions from my side. First one is, if I look at your slide, Page 11, I see you still have, let's say, a quite tense investment program for 2026. Does it mean that in terms of CapEx, we should be in the upper range of your, let's say, CapEx guidance that you gave into 2025? And second question is on the geothermal market versus hydrogen market. It seems that you are more bullish right now on geothermal than, let's say, on hydrogen market. What is your view on the hydrogen market? Is it, let's say, the next wave after geothermal in terms of sequence for you? Philippe Guillemot: Yes. As far as CapEx is concerned, yes, we gave you on Page 11, a sense of what we have been doing since 2022. Many projects, obviously, are in execution phase in '26. But nevertheless, we will be within the envelope we shared with you between EUR 150 million to EUR 200 million. So no risk to go beyond what we said. So we stay obviously very disciplined on our capital allocation. The good news is that, obviously, the return on investment of all these projects is fairly consistent with our will to increase over time our return on capital employed. As far as hydrogen and geothermal is concerned, it's true that 3 years ago, nobody was talking about Gen AI. Nobody was talking about data centers, hyperscale. Today, that's a fact. There is a lot of investment. There is need for basal electricity and geothermal is one of the solution to provide these huge quantities of basal electricity. So it's clear that it's come now faster than hydrogen and green hydrogen. Nevertheless, on green hydrogen, we are in talks with many customers whose projects are in the FEED phase, so engineering phase, which sooner or later will reach the FID stage, investment decision stage. So that's something to come that will come on top. And as you remember, our Delphy storage solution is the only one available today to store between 1 and 100 tonnes of hydrogen. So more to come. And as you remember, we have decided to manage this business as a turnkey business. So obviously, it could be a nice addition to our revenue and profitability in the future, and it's fully part of our 5-year plan. Operator: Now we have a question from Julien Thomas from TPICAP. Julien Thomas: I have 2, please. The first one would be about maybe your take on your German partners' agreement regarding HKM JVs. Do you have something to share with us or something like that? And the second question about your improvement in EBITDA per tonne. Could you give us what come from downstream investment versus, let's say, historical restructuring of existing capacities? Philippe Guillemot: Well, first on HKM, yes, yes, the agreement between thyssenkrupp and Salzgitter opened the door for us as thyssenkrupp will do to sell our shares to Salzgitter and terminate our shareholding of HKM. Obviously, there will be -- we'll have to provision for all the work Salzgitter will have to do when they will be. But this is fully already covered by our balance sheet provision. So I think we are -- there is -- I think it's -- for us, it's a good news. I think thyssenkrupp and Salzgitter have reached this agreement and that now we can execute this transaction. As far as the EBITDA per tonne is concerned, EBITDA is a result of obviously, average selling price, which is driven by our value over volume strategy. You remember, when I joined Vallourec volume were 1.850 million tonnes. We are now slightly above 1.2 million tonnes. So drastic change with the past, but average selling price has significantly increased. And EBITDA per tonne is a consequence of cost. And we have worked a lot in the last few years, and we continue to do so to continue to lower our cost structure and ensure it's a very highly flexible industrial footprint. So whatever the volume, we protect our margin, thanks to our ability to flex cost whenever we need it to adapt to the sequence of bookings and the cycle of this industry. So that's why we are able to -- we have been able to close the gap with our primary peer on EBITDA per tonne. And you've seen the data on the slide showed earlier. And we will obviously continue to do so, and we have projects in order to continue to improve on that front. Operator: We have a question from Mike Pickup from Barclays Capital. Mick Pickup: It's Mike here from Barclays. Just a quick one. You talked about the international business improving in the second half. Is there anything significant that we should be keeping an eye on something like the big Kuwait orders? Or is it just a general pickup across the regions? Philippe Guillemot: Well, first, 2 things. One, when barrel of Brent is going up USD 10, it's clear that there is an incentive for our customers to go a bit faster on executing their plans. Second, what we see is that there are major unconventional oil field opening, which require many wells using our technologies, starting with iDRAC. So that's something which seems to pick up significantly since the beginning of the year. And we may -- yes, you -- we may communicate more widely in the future. Operator: We have a question from Paul Redman from BNP Paribas. Paul Redman: Am I able to ask one more? Philippe Guillemot: Yes. Paul Redman: I just want to touch on Venezuela quickly. One of your peers spoke in length about opportunity in Venezuela. I kind of wanted to ask about your position in the country and whether this is a market you think you'll be able to sell volumes into in the relatively near future. Philippe Guillemot: So we used to sell to Venezuela years ago. What has changed in the meantime is now thanks to all the investment we did in Brazil, we are able to make the pipe which are needed for Venezuela in Brazil. So obviously, much closer than it was in the past coming from Germany. The onshore oilfield in Brazil are sour. So you need sour service pipes, which we make and which are obviously very premium pipes. So from a product standpoint, I think we are uniquely positioned. And on top, as you know, given our strong presence in the U.S., we are the #2 player on onshore business in the U.S. We have close relationship with the U.S. customers. So today, we have a task force, which is a mix of our U.S. sales team and Brazilian production team in order to seize any opportunities that may come in Venezuela. So more to come, will depend, obviously, how fast our customers go forward with their project. Operator: We have a question from Jean-Luc Romain from CIC CIB. Jean-Luc Romain: My question also relates to geothermal. You mentioned rightfully that the product you will deliver is very specific with kind of pipe in pipe also. What's the limiting -- do you have a limiting factor which will be the capacity to produce those pipes in terms of your growth in sales? Or do you have a strong capacity to do this? Philippe Guillemot: We have available capacity. VIT is a process in itself because we need to weld pipe inside another pipe. So that's a specific industrial setup that we have and for which we have capacity available. So no, obviously, it's clear that if we double our volume, thanks to this new market, at some point, we will reach our capacity limit, but it's not yet the case. And anyway, it's good to know that whatever to be on more than one market and obviously, to mitigate any up and downs on any market, there is the one oil and gas. Jean-Luc Romain: Understood. And from what you said, the EBITDA associated to the growth in geothermal could rapidly become in the tens of millions? Or could it be maybe at a later stage in the hundreds of millions. Philippe Guillemot: In 2022, I said that we were expecting between -- maybe in 2023, that we were expecting between 10% and 15% of our group EBITDA coming from this new energy applications. So it's fully part of it. It's fully part of it. And obviously, we are very strict with our value over volume strategy, and I can guarantee you that it will not be dilutive to our EBITDA per tonne. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Philippe Guillemot: Thank you. Thank you all. I'm very pleased to be in the position we are today. Vallourec is a fully transformed company, evidenced clearly by our investment-grade balance sheet and the robust returns we are delivering to our shareholders again in 2026. Meanwhile, we continue to see opportunities as we drive operational excellence across our organization and position for profitable growth. We are well positioned to serve the energy challenges of today and tomorrow. Operator, you may end the call.
Operator: Thank you for standing by, and welcome to the Coles Group 1H '26 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Leah Weckert, Managing Director and Chief Executive Officer. Please go ahead. Leah Weckert: Good morning, and thank you for joining us for our half year results call this morning. Before I begin, I would like to acknowledge the traditional custodians of this land on which we meet today, the Wurundjeri people of the Kulin Nation. We acknowledge their strength and resilience and pay our respects to their elders, past and present. I'm joined in the room today by Charlie Elias, our CFO; Matt Swindells, our Chief Operations and Supply Chain Officer; Anna Croft, our Chief Commercial and Sustainability Officer; Michael Courtney, our Chief Customer Experience Officer; and Claire Lauber, our Chief Executive of Liquor. Moving now to Slide 3. I'm pleased that we've been able to deliver another very strong set of results in what is a competitive operating environment. We delivered strong supermarkets earnings growth with continued sales momentum. E-commerce was a key contributor again with sales growing by 27%. Our automation programs are delivering tangible benefits, and we delivered cost savings of $133 million through our Simplify and Save to Invest program. Of course, what matters most to us is our customers, which is why the improvement in our customer satisfaction scores across the business during the half was a key highlight for me. Finally, we completed our Liquorland banner simplification program. And while there are challenges in the overall liquor market, we are seeing positive growth across our convenience portfolio, which is really pleasing. Moving on to Slide 4 and the financial results. We reported group sales revenue of $23.6 billion, an increase of 2.5%. Excluding significant items, group EBIT increased by 10.2% and NPAT increased by 12.5%. In Supermarkets, adjusted for the competitive industrial action in the PCP and excluding tobacco, sales revenue increased by 6.1%. And Supermarkets EBIT increased by a very strong 14.6%, underpinned by top line growth and EBIT margin expansion of 55 basis points. Charlie will talk more to the financials in his presentation. Moving on to Slide 5. During the half, we maintained a consistent focus on executing against our strategic priorities, which once again underpinned our performance for the period. Let's get into this in some more detail, starting on Slide 6 with our first pillar, destination for food and drink. We know value remains front of mind for consumers and delivering on our value commitment to customers remains a priority for us. During the half, we strengthened our value proposition, expanding our range of everyday value products. We ran a winter and spring value campaign and our Shop Scan Win and European Glassware continuity programs each delivered strong engagement with our customers. Our exclusive to Coles portfolio continues to perform well with sales growth of 5.7%. We launched more than 500 new products, and the range was recognized with 17 Product of the Year awards. We know our own brand portfolio is a unique differentiator for Coles, and these new products and awards underscore the momentum we are building in quality and innovation across the portfolio. We also entered into some really exciting exclusive partnerships during the half. One of these was with Marks & Spencer, where we brought a number of their iconic favorites to Australian homes. This included their well-known Percy Pig and Colin the Caterpillar lollies, which turned out to be our most successful lolly launch ever. Our partnership with Grill'd also proved popular, particularly with the rising takeaway trend for those who want to recreate their restaurant or takeaway dinner in their own home. These collaborations broaden our appeal and help ensure we remain a destination for inspiration and everyday meals. We were also pleased with how we executed over the Christmas period, starting with our Christmas range, which showcased more than 340 own brand Christmas products and exclusive specialty drinks. We worked hard in the lead up to Christmas to ensure value was felt where customers needed it most. Our $1 seasonal produce lines in week before Christmas were a simple but powerful example of that commitment. Operationally, we delivered our highest monthly DIFOT results since December 2020, an important sign of the progress we are continuing to make in availability and overall execution. And this leads me to our customer satisfaction scores on Slide 7. As I said at the start, the improvements in customer satisfaction scores were a real highlight with strong improvement across our key metrics of quality, availability, store look and feel, and price. The big takeaway here is that customers are noticing the changes we are making. Improved availability, sharper value, and better execution in stores are translating directly into stronger satisfaction scores, and that gives us real confidence as we look ahead. There is always more to do, but we are very pleased with the progress we are making. Moving now on to Slide 8 and the next pillar of accelerated by digital. We reported another strong half in our e-commerce business with 27% revenue growth in supermarkets, penetration now over 13% and double-digit growth across all shopping missions, whether that be same-day, next-day, Click & Collect or our immediacy offering. We are focused on making sure we have a great offer across all online channels. We've made a lot of progress in e-commerce over the last few years, and customers are responding to this. We know customers have different shopping missions throughout the week, and the investments we have made allow us to provide them with exceptional service that matches their shopping mission. For example, our CFCs allow us to provide the biggest range, better availability and improved freshness for those customers who are looking to do their weekly shop. And our expanded partnership with Uber and our windowless Click & Collect Rapid offer provides us with a leading immediacy proposition. During the period, we made investments in our digital assets and are seeing particularly strong growth in our app metrics with monthly active visitors to the app growing by 32% and the app share of e-commerce revenue now at 54%. Our CFC volumes increased in the half with sales growth again outpacing total supermarkets e-commerce sales growth. Same-day deliveries commenced in Melbourne in the first quarter and Sydney in the second quarter. And we also had a major catchment extension to Geelong and the Surf Coast in Victoria. In terms of our immediacy offering, as I mentioned, we expanded our partnership with Uber Eats with now up to 17,000 products available to purchase through the Uber Eats app. And the windowless Click & Collect Rapid was also expanded to 255 stores nationally. Overall, our online NPS saw a meaningful uplift driven by improved availability, fulfillment and the overall digital customer experience. So, one of the most important points to make here is that we were able to make all of these investments, grow our business, expand catchments, and our immediacy offering while driving efficiencies through technology, scale, and a strong operational focus. We made further improvements to our picking processes in store, increased orders per van, and installed 2 key automation technology features in the CFC with on-grid robotic pick arms and auto frame loading. So, it's been a very pleasing half in terms of e-commerce. Moving now to Slide 9 and loyalty. Flybuys remains an important driver of customer engagement across Coles as well as a key element of our overall value proposition. During the half, Flybuys exceeded 10 million active members, growing by 6.2%. This highlights the continued relevance of personalized value for our customers. We were also pleased to see strong growth in our Coles Plus subscriptions with customers recognizing the additional benefits they receive by becoming part of Coles Plus family, including free delivery, free rapid Click & Collect, and double Flybuys points. Moving now to Slide 10 and our delivered consistently for the future pillar. Our SSI program remains a core part of our DNA. We know the importance of operational efficiency. Delivering consistent and sustainable cost savings through our SSI program enables us to help offset inflation and reinvest in the customer offer. And we see the benefits of that both in our top line as well as our bottom line. This half, we delivered cost savings of $133 million. This brings us to around $700 million since the beginning of FY '24, and we remain firmly on track to achieve more than $1 billion in benefits over the 4-year program. Consistent with previous years, there were many initiatives across different parts of the business that contributed. And again, a common theme with the use of AI and other technology automation to improve the effectiveness and efficiency of our processes. This leads me to Slide 11. We've been building and deploying AI for over a decade. What has changed recently is the pace of capability and the breadth of where we can apply it. For our customers, we are already scaling AI to drive more relevant offers and engagement through personalization across the shopping journey. AI is helping us deliver more personalized and relevant experiences with tailoring engines is improving relevance, conversion and overall customer satisfaction. In parallel, we're also now moving into the next wave, agentic commerce, conversational AI, and real-time personalization, capabilities that will transform how customers engage with us over time. We are proving the relevance, timing and effectiveness of offers and rewards for customers and helping them to find value whilst improving our promotional effectiveness. In our operations, AI is embedded across operational decision-making with a clear focus on outcomes to improve availability, reduce waste and lift productivity. We're using AI in forecasting, demand planning and ranging to improve accuracy and availability. And in stores and in our e-commerce business, AI is helping optimize rostering, improve workflows, pick efficiencies, and dynamic work. Across our supply chain, AI supports optimization in transport and improved workflows. We're also using AI in stores for computer vision for object recognition and loss technology. Now looking ahead, we're building an end-to-end optimization capability across the supply chain from automated DC pallet flows to transport to replenishment. So, decisions are all made as one system and not in silos. A digital twin also lets us simulate scenarios before we change operations. Then we can apply this to execute the best plan in the rural network. The result is improved availability, lower waste, lower cost to serve and faster response time to any disruptions. And we're also looking to optimize online fulfillment capacity across our stores, CFCs and DCs, helping us to decide where orders should flow, how much capacity to allocate and when to flex resources. And finally, for our team members, we're embedding AI tools that make work easier and more productive. Our knowledge assistant is helping teams quickly access policies and procedures, and we've rolled out AI productivity tools, including ChatGPT Enterprise and Microsoft Copilot, and we're partnering with OpenAI on team training. So, it's fair to say that AI is well and truly entrenched within our business, is delivering strong results and has been for some time. But the pace of change is accelerating, and we are really excited by the opportunities that are emerging, particularly in customer-facing agentic AI, and we will be talking about this more in the future as we start to scale. Moving to the next slide. Alongside our financial performance, we remain committed to the role we play in supporting our team members, suppliers, communities, and the environment. So before I hand over to Charlie, I would like to cover off some of our achievements in this area. I will start with our team members. Through our November team engagement poll survey, we maintained our highest ever team member engagement score, remaining in the top quartile. This is a strong reflection of the culture and leadership across the business. Almost 70,000 team members provided their feedback, and it was pleasing to see that delivering for our customers from one of our strongest areas with 90% of team members recognizing our commitment to meeting our customer needs. We also continue to support the well-being of our team members, including through initiatives such as R U OK? Day, where our stores and distribution centers came together to reinforce our care and courage values. We recently launched Round #14 of the Coles Nurture Fund, continuing our long-standing commitment to supporting innovation, sustainability and growth within the Australian supplier community. And we celebrated excellence across our supply base in the 2025 Supplier Partner Awards, recognizing achievements across each of our key trading categories. Our community partnerships remain a defining part of who we are. This half, we raised more than $1.6 million for November and more than $1.8 million for the second by Christmas appeal, helping to provide over 9 million meals for Australians experiencing food insecurity. And finally, we continue to make progress on our sustainability commitments. 87.7% of eligible packaging is now recyclable or reusable, and we maintained 100% renewable electricity usage across our operations, and we continue to divert more than 85% of solid waste from landfill. And with that, I'm now going to hand over to Charlie, who will take you through the financial results in some detail. Sharbel Elias: Great. Thank you, Leah, and good morning, everyone. I'm now on Slide 14, which details our group results. Excluding significant items, we reported group sales revenue of $23.6 billion, an increase of 2.5%. Group EBITDA of $2.2 billion, an increase of 7.8% and group EBIT of $1.2 billion, an increase of 10.2%. NPAT, excluding significant items, increased by 12.5%. Off the back of these results, the Board declared a fully franked interim dividend of $0.41 per share, an increase of 10.8% compared to the prior corresponding period. This is a consistent progression of shareholder returns over time. Moving on to the segment overview on Slide 15. Let's start with Supermarkets. Sales revenue increased by 3.6% with our value proposition continuing to resonate with customers. We adjust for competitive industrial action and excluding tobacco, sales revenue increased by 6.1% EBIT increased by 14.6%, reflecting the strong top line growth, coupled with EBIT margin expansion of 55 basis points to 5.8%, which was underpinned by a 65-basis point increase in gross profit margin. The strong gross profit result was achieved notwithstanding the significant investments we made in value during the period annualized benefits from our DC program, strategic sourcing, SSI initiatives and the growth of Coles 360. Lower tobacco sales also contributed 37 basis points to GP margin. In Liquor, sales revenue declined by 3.2%. The liquor market remains subdued and competitive intensity increased through the period, particularly at the big box end of the market. During the half, we completed our Simply Liquorland store conversion program and our convenience portfolio, representing around 90% of our store network delivered positive sales growth. We are seeing a shift in customer behaviors towards convenience-led purchases. And pleasingly, our stores are well positioned in this convenience space. There is some work to be done to optimize our Liquorland warehouses now that the conversion is complete. Overall Liquor EBIT was impacted by softer top line and $13 million in one-off costs relating to the Simply Liquorland conversions. In other, revenue relates solely to the product supply agreement we have with Viva Energy. As outlined in the results release, the PSA, which is due to expire in April, has been extended and is now due to expire at the end of November to allow Viva to complete the transition to New South Wales, WA and Queensland. The increase in other EBIT was predominantly due to the higher net property gains in the prior corresponding period. Turning to operating cash flow on Slide 16. Before discussing the numbers, I want to highlight a timing impact. The half year ended on the 4th of January. And similar to last year, this resulted in an additional payment run in the final week, creating an additional cash outflow of approximately $560 million. The timing effect impacted several metrics, including cash realization, working capital and net debt. These metrics will normalize in the second half. Operating flow, excluding interest and tax was $1.5 billion with a cash realization ratio of 69%. Adjusting for this additional payment run, the cash realization ratio was 94%. For the full year, we continue to expect cash realization of 100% with the first half timing impact reversing in the second half. The working capital movement primarily reflects increased inventory to support availability over the Christmas period and lower trade and other payables following the additional payment run. The movement in provisions and other largely reflects the flow provision, which is noncash but recognized in EBITDA. Now I'll now move to capital expenditure on Slide 17. Gross operating capital expenditure on an accrued basis was $476 million, a decrease of $66 million compared to the prior corresponding period. We had a higher weighting towards store renewals and new stores across supermarkets and liquor this half as well as a lower spend in relation to our Victorian ADC, and this was as a result of a milestone payment having been recorded in the prior corresponding period. Pleasingly, our Victorian ADC remains both on time and on budget. We also incurred lower capital expenditure in relation to our investments in loss technology. As you know, CapEx falls into 4 key areas: store renewals, growth initiatives, efficiency initiatives and maintenance. Within renewals, we completed 160 store renewals across our network, consisting of 35 supermarkets and 127 liquor stores. These included 122 Simply Liquorland conversions. Within growth, we opened 6 new supermarkets and 11 new liquor stores. We also contribute -- we continue to invest in our e-comm business. Efficiency initiatives included investments in the Victorian ADC, store front-end service transformation and Liquor ordering. Maintenance capital included our ongoing refrigeration electrical replacement programs and life cycle replacement of store and technology assets. We continue to optimize our property portfolio with net property capital expenditure increasing by $157 million, primarily due to an increase in property acquisitions and developments and lower proceeds from divestments. And to reiterate the guidance we provided at our FY '25 results, we continue to expect capital expenditure of approximately $1.2 billion for the full year as we continue to invest in store renewals, digital and technology and growth initiatives. Turning to funding and dividends on Slide 18. Our funding position remains strong. At the end of the half, our weighted average drawn debt maturity was 4.4 years with undrawn facilities of $1.9 billion. As I said earlier, the Coles Board declared a fully franked interim dividend of $0.41 per share, which is a 10.8% uplift versus first half '25 and shows a consistent progression of shareholder returns over time. We will also have a franking credit balance of approximately $600 million after the payment of our interim dividend. Finally, we retained a headroom within our rating agency credit metrics and a strong balance sheet to support growth initiatives with our current published credit ratings of BBB+ with S&P Global and Baa1 with Moody's. And with that, I'll hand it back to Leah to take us through the outlook and concluding comments. Leah Weckert: Thanks, Charlie. So, turning to the outlook on Slide 26. In the first 7 weeks of the third quarter, supermarket revenue increased by 3.7% or 5.3%, excluding tobacco. We're pleased with this strong sales result as we can see through the market share data that it represents above-market growth, continuing the sales momentum we have had for some time. It indicates that in Victoria, we have retained a portion of the customers that we gained as a result of our negative 2.5% continuing to deliver positive sales growth. As I said at the start, the focus for Liquor this period is on leveraging our unified brand, simplifying our processes and improving the performance of our Liquorland Warehouse stores. So overall, I'd say we have had a strong first half and a good start to the third quarter. And with that, I'll now hand back to the operator for Q&A. Operator: [Operator Instructions] Your first question comes from Ben Gilbert from Jarden. Ben Gilbert: Just a question on the trading update. But just on your comments around market growth, just interested if you could give us some color potentially ex Victoria and how within that trading update, you've seen some of the key categories in terms of sort of your health, beauty versus fresh versus sort of the food category? Leah Weckert: Yes. Thanks for the question, Ben. So, as I said, we're quite pleased with the first 7 weeks for 2 reasons really. One is that based on the market share data, we can see that it's above market growth, and that means we have retained a portion of those customers, which means our Victorian sales numbers actually aren't that far off where we are from a national basis. And then we have grown some share on top of that. The data point we received on Wednesday is entirely consistent with the market share data that we have, which is that our major competitor has also performed ahead of market, but that share is not coming from us, and we can see that it's coming from others. I think the second reason that we're pleased with that first 7 weeks is that it just really shows consistency. For those 7 weeks this year, we've got 5.3% ex tobacco. Last year, it was 4.5%. The year before that, it was 6.4%. And that represents really strong sales growth year in, year out. And we are really focused on continuing to drive the flywheel that we talk about, which is strengthen the top line, unlock operating leverage and then reinvest that back into the customer offer. So that's what we're intending to do. In terms of strength of categories, so food continues to be very strong for us. We're seeing good strength across the fresh areas, and you'll see on the customer satisfaction scores that quality is really stepping up. That is actually directly related to our fresh categories. And I would call out meat as one area where we are seeing outperformance in the market in that space. In the nonfood area, that's been a real focus for us. And we would say we're quite encouraged by the emerging trends that we're seeing in that area. We have reconfigured categories in the half to respond to some of the pricing dynamics that we are seeing in the broader market, which means that we have introduced a lot more lines on to EDLP. I mean we know that we're a convenient destination to pick up many of these nonfood products. You think your cleaning products, your paper products, your baby product, it actually makes sense to grab those when you come into the grocery shop. But we're taking very much a category-by-category approach. So, to maybe just give you a bit of color on that. We've invested, for example, into our cup wipes and our Ultra range in cleaning. So, beauty -- sorry, baby and cleaning, private label, and that has driven really strong volume growth for us in that space. We've also taken action on some of the proprietary lines in pet, for example, to be more competitive with some of the players in the market that have recently moved into that space. And on the back of that, we've seen double-digit growth on those lines. So really encouraging in terms of where we're headed there and more to come. Operator: Your next question comes from David Errington from Bank of America. David Errington: Yes, look, I'd like to pick up on that, particularly Slide 7. It's a fantastic looking slide. It's brilliant in terms of customer resonance, and you highlighted as one of your key highlights. But can you bring it to life a little bit, what does it actually mean? Like 330 basis points? Can you put it in context as how big a jump that is availability? I mean they look really impressive, but I don't know what to make of it. And what does shine for me a little bit is price, up only 180 basis points. I don't know if that's good or not, but your gross margin was very powerful, could you have gone a bit harder on price? Can you basically bring Slide 7 to life? Because that looks an incredibly powerful chart, great execution, great improvement in margin. Can you bring to life what drove that? And maybe given that you are higher margin than your competitor, how much firepower that you've got going forward to maintain that sales momentum that you've got? A bit in that question, but if you could have a go at it, that would be really appreciated. Leah Weckert: Thanks, David. We'll try and unpack it. I mean it was a highlight, I think, for all of us as a team because we do have a fundamental belief that if we're increasing customer satisfaction is one of the things that helps us to drive transaction and engagement in store. I think it is a real combination of the execution focus we've had, but also the benefits starting to flow through some of the transformational investments that we've made over a long period of time now. So, I think the benefits we're getting from the ADC, the CFCs, but also the step-up that we've made in terms of the renewal investment. Maybe I might ask Anna and Matt to give us a little bit of color. We'll maybe just work through the slides in order of what the headings are. But we start with quality. Do you want to cover that one? Anna Croft: Yes. David, it's Anna. When it comes to quality, obviously, it's important across the store, but very, very important in fresh, and we've been running a really big fresh transformation program. And that really has seen us take an end-to-end review of quality. So, taking every touch point on where we might aggregate that and how we would look to solve it. And actually, just to give you a bit of a sense of what we've been doing, we've been working through our supplier base to make sure that we have the right suppliers that are fit for the future. And we've gone into deeper end-to-end partnership with that. We've also coupled that with an upweight in our technical resource to really work with those suppliers to really unlock quality and cost. We've really then also focused particularly in meat around our manufacturing network to make sure it's actually closer to stores. So, I think WA to WA. Queensland, we've got a port facility there now, which means that we're faster and we get fresher product to stores and then therefore, give life to customers in store, and we know that's how they measure quality when they see life at home. The other bit we've done is we've invested quite significantly in store team training and also central team training to really focus on quality. coupled with the work that Matt and the team have been doing in supply chain around faster, fresher flows that mean we are flowing product from our supplier base to the stores in a very nuanced way that means we get better life. And on the back of that is probably to hand over to Matt to give a bit of flavor on that because reducing lead times has been a key priority. I might hand to you before we then talk about availability. Matthew Swindells: Sure. Thanks, Anna. David, look, it makes it easier when Anna and the team are super focused upon right supply, right range by store and the right pricing and promo plans. And that does then set us up to leverage the changes that we've made around our supply chain operations and our store operations. And the game we're playing here is speed. So, the faster we can move product, the fresher it will be and importantly, the less waste and markdown we also get. So, our faster fresh flows is essentially a shift away from bringing product in and racking and stacking to then wait to come and pick it later. We really are moving things through the supply chain as fast as possible and measuring in hours as opposed to days. And then similarly tying that in with the store execution where we've got the right display space and the right resourcing to really make sure that the product gets in front of the customer in the least possible time. I would also add, we've now got a couple of years under our belts of our replenishment forecasting system. This was the RELX implementation we did and the final part of our integrated replenishment plans, and so they get better too. So, it's a number of parts that drive the difference in quality. An answer to your question around this 330 basis points a shift, it is a really big shift. And if I think about the 390 basis points, we've then seen improvement in availability, that is at levels that previously we've not really seen. So, they are extremely good results. On availability itself, you probably think about this in 3 areas. So, the first, and I've talked about this again in the past, we're quite focused on foundations. So, this is where we've made the model changes, and we've got the commercial teams really focused upon supply collaboration, the supply chain team focused upon forecast and the logistics of moving product and the store teams super focused on it but it's the consistency with which the teams now work together that's driving the difference. And so we've got a really solid base that we can build on. Importantly, our supplier inbound fulfillment as I thought is at a 6-year high. And through the Christmas period where it traditionally falls away, we saw it maintain a level so we've got stability, not just consistency there. The second part then that enables us to really drive investments as making the difference. That's the ADCs that we have talked to in the CFCs. And we are putting more cars and more products through those ADCs to drive the benefit of not just efficiency but service. And we've also now rolled out our transport management system. which has enabled us to have better control and visibility of our fleet. And that means we are better at picking up from suppliers through Click & Collect, and we're better at delivering to stores as well. So those investments drive a difference. The final part, which I think is probably where we want to see the next level is really a shift from being reactive to being proactive. And this is where we're starting to use data and AI to look for gaps before they occur. So where can we see the problem before it becomes an issue in the store. And we're able to identify at a store SKU level potential out of stocks and target team members to go and manage the inventory closely so that we can then be proactive around availability and prevent any issues before they even occur. And I think that's then the next level, foundations first, technology driving the difference and then the AI and data really becoming proactive rather than reactive, that's setting us up for even further improving availability. So I might -- for the store look and feel, the third part. Leah Weckert: Yes, there's a number of key areas that go into the store look and feel metric. A couple of things I would say, driving this certainly is our renewal program. If I take you back to '22, we would have done 40 renewals. This year, we will complete 70. And actually, what we have done is maintain the blueprint now for some years to get to consistency. What that does is give customer consistency in every store they go into, but it's also enabled us to take the cost per renewal down to do more of those. So certainly a key focus. And we've really started to address what I would call some of the long-term underinvested stores as part of this program, and we're seeing really good progress and customer response there. The other bit that's in this metric is ease of shop, and we focused on the shelf edge through our range program and macro space. We've really stepped on both navigation of space and aisle. And the one big thing here, we've really thought about the integration of our omnichannel to actually remove the friction we see from customers in the store through that. So good progress there. And the big is we fixed up our checkout space through the service transformation program. So that has been a real meaningful step on from a customer satisfaction. So, I'd say there's lots of initiatives driving this. We are certainly focused on how do we continue to elevate this and how do we take it to the next level. So much more to do, but we're pretty pleased with where we are. And then if I come to the final one on price, funny enough actually it is always the hardest metric to move and move the slowest from a customer perspective. So, we are really pleased with 180 basis points. And that's come from all the work that we've talked about before around fewer, deeper, more targeted promotions, removing the noise and making it easier for customers to shop. We're seeing the increase in EDLP in the right categories really driving that price satisfaction -- and again, the work we have done not only on simplifying the range, but also tailoring the range to the store has made it easier for customers to find value and find the products they want shelf. So, a number of key things. Now there's an awful lot more to do in here, and we're really focused around that, but it's pleasing to see that the work we've done over the last 18 months really starting to come to fruition here. So, they would be the big drivers, David, across those. Operator: Your next question comes from Shaun Cousins from UBS. Shaun Cousins: Maybe just a question just on the first seven weeks, sorry, you dropped out Leah when you were talking in your outlook. Do you think you were hurt by the cycling, the Jan '25 period in that Woolworths is now indicating that they got -- that they were hurt in Jan '25. So did Coles benefit there and hence, you're cycling against a period there, which actually means that 37% could be a bit stronger and that you're getting some big industrial action tailwind. And my question is really more around liquor. Just in terms of like-for-like sales are down 2.5% to start the year. Sorry, yes, please, Leah. Sorry, your line is quite -- we're losing you a little bit. Sorry, the team for a second here or there. So, apologies for that. Leah Weckert: Shaun, can you hear me? Shaun Cousins: You're in and out. Leah Weckert: I'm going to go ahead and answer the question. Shaun, are you hearing us okay? Shaun Cousins: Yes, I can hear you now. Leah Weckert: Wonderful. Okay. So, I might reiterate the points I made when Ben asked the question. So, we are definitely still cycling over some disruption from the industrial action last year in the January period. We are pleased, though, with our first seven weeks of sales performance, and there's really two reasons driving that. So based on the market share data, what we have reported today is above-market growth. And that means that we have retained a portion of the customers that came to shop with us last year, and we have grown some share on top of that. What we received on Wednesday is entirely consistent with that market share growth -- with that market share data, I should say. So, our major competitor has also performed ahead of market, but that share is not coming from us, and we can see in the market share data where that is coming from. So, we feel that we have the right pitch in terms of customer at the moment because we are retaining customers, and we are stepping it up. The second thing we're really pleased about on the result is just the consistency, which is something we really prioritize. So, if you look back in prior years, those first 7 weeks, we've reported 5.3% ex-tobacco today. That was 4.5% last year, and it was 6.4% the year before. And so that represents really strong sales growth year in, year out that we are delivering. And we believe that is part of what we're managing to get to work through the strategy of the flywheel of strengthening the top line, unlocking it into the customer offer. Did you get all that. Shaun Cousins: We got most of that. And I think across the 2 answers, I think we've got it. My question is around liquor. Just in terms of your like-for-like to start the year is down 2.5%. Your earnings were down 37% in the first half. You've called out the aggression from Dan Murphy's. As Dan Murphy's remains aggressive on price and really tries to reestablish its sort of price leadership, which is quite existential for them. How does Coles Liquor actually perform, and does your big box just continue to sort of suffer? Just curious around the outlook for earnings. Should we be anticipating earnings to be down another 30% again? I'm just -- you've got a fixed cost base there and a competitor that's quite aggressive. Just curious around the outlook there, please. Leah Weckert: Well, we won't be giving any guidance on where the EBIT will go. But let me make a few comments. So, first of all, we're pleased that we've completed the 222 Liquorland conversions as part of the Simply Liquorland project. And along with that, we have reset range, and we have reset value mechanics in our stores. And ultimately, that entire program of work has really been about how do we attract customers into our offer. And what we're really encouraged by -- and I have to say it's early days. We only finished this process in the middle of December. But early days, we're very encouraged by the NPS uplift that we are seeing. It is a very significant and material uplift that we are seeing in customer satisfaction. And that tells us that those changes are really resonating, which is the first thing you have to achieve with your customers. Now there is no doubt that the backdrop to all of that is the market is very challenging. And we have a subdued market, which is a combination of a structural shift, which is generational around consumption of liquor, but you've also got the impacts in there of cost of living. And certainly, in Q2, we saw an elevation in the competitive intensity in the market. And that disproportionately impacted our large box, so the Liquorland warehouse stores, which is only about 10% of our network. And so, what we were really pleased about is even though those stores were impacted, the 90% of the network, which makes up the convenience formats of Liquorland and Liquorland sellers, that component of our network was in positive growth. And so, you team that up with strong customer scores and positive growth in the heart of our network. We think that, that is actually really positive in terms of setting ourselves up longer term to lean into what we are seeing is quite a few convenience trends coming through in liquor purchasing. Now that being said, we've got work to do on the warehouses, and that's going to be a big focus for us over the next 6 to 12 months. Operator: Your next question comes from Adrian Lemme from Citi. Adrian Lemme: Just want to follow on in terms of the liquor commentary. So, one of the things you talked to there is lower consumption of liquor, a structural shift. I'm just wondering in supermarkets, oral GLP-1s seem to be coming down the pipe and maybe cheaper, which could drive increased uptake in your customer base. How are you thinking about the impacts on demand across the supermarket store, particularly in impulse categories, please? Leah Weckert: Yes. So, it's a great question and one we've been discussing quite a bit as a team. So, I mean, if I come up a level, we're actually seeing a huge trend from customers generally around healthful leaving. And we're seeing that play out in our offer that we have in stores today. So, things like the fact that coconut water is up over 30% on sales. The fact that we're getting the growth out of health powders and supplements. Even things like we've seen a shift even just in the last 6 months in the penetration of fresh produce that is hitting customers' baskets. And you've got items, snacking fresh produce items like baby cucumbers, snacking carrots, salary sticks. They're all in double-digit growth. And so, we are looking at that customer and seeing this behavioral change as there is a shift, again, a bit of a generational shift into healthful eating. We're excited by that. We think that's a really big opportunity and actually plays to many of the strengths that we have in the fresh area of the business, but also the way in which we're leaning into our convenience business. So, if you think about our ready meals, fresh ready meals that we have in the dairy section and frozen meals, our perform meals, in particular, are growing really, really strongly in that space, and they're dietitian designed meals that actually tailor the nutritional content to nutrient-rich and high protein. So, with that as a backdrop, we're already starting to make a shift with a lot of the product development that we're doing and also the ranging work that we do with suppliers to bring in more healthful options in every category. And we look at GLP-1, and we're observing closely what's happening overseas. And what we are seeing from those customers is actually what they are really looking for is solutions. They want to find nutrient-rich food in the supermarket and the supermarket that helps them to navigate that as easily as possible. One of the piece of feedback we hear is it's really hard to navigate supermarket shopping as a GLP-1 user. They have the real potential to be a winner here, and that's what we want to lean into. Operator: Your next question comes from Tom Kierath from Barrenjoey. Thomas Kierath: Just got a question on the gross margin. It's up 65 bps, and I understand you've made some restatements there. But I guess I'm just trying to square away the comment that you're investing in price. Could you maybe just step us through the moving parts on the gross margin? Because it's obviously a pretty big move there. And I guess, quite different to what Woolworths reported a couple of days ago. Sharbel Elias: Great. Thanks, Tom. Firstly, I just want to kind of lead off with the restatement was a prior period restatement. So, we didn't actually restate anything for this half. Look, we're really pleased with the progression in gross profit margin, as you'll note, 65 basis points. And if we look at the drivers, what are the drivers that are actually sort of leading to that sort of growth. Firstly, we're actually seeing the annualized benefits of the investments we're making in the ADCs and specifically this half, Kemps Creek. If you recall, Kemps Creek was in ramp-up last year in FY '25. So, what we're seeing at the moment is both the ADCs at business case in this FY '26 year. And we're definitely seeing benefits in the first half, and we'll continue to see that in the second half. Strategic sourcing and SSI benefits, again, are 2 really important drivers in terms of how we look at gross profit margin. And SSI, you would have seen that we delivered $113 million -- sorry, $133 million this half. And a good portion of that goes into GP. And in fact, I think we're really pleased with that particular program. Coles 360. Coles 360 was actually in double-digit growth for the half, and that is on the back of a number of halves now of double-digit growth. So, we're pleased with how that's sort of tracking. And then we've also called out previously the mix benefits from tobacco. As you know, tobacco sales are lower. That contributes in terms of a gross profit margin benefit, not gross margin dollars, but gross profit margin. So, we're actually really pleased with how they're sort of tracking. And the ADCs, obviously, the implementation costs. So, we successfully removed and unwound those implementation and dual running costs, and that created a benefit for the half. So, look, we're -- at this time, and as we did, we continue to sort of make these targeted investments in value, and therefore, we've been investing in value that's allowed us to do that, which is also driving that top line growth that you're seeing in our results. Thomas Kierath: Just can I just clarify the SSI benefit, like how much came through gross margin versus C0DB of the $133 million. Sharbel Elias: Yes. Well, look, typically, it's been -- yes, as you know, over a longer period of time, it's been 1/3, 2/3, 1/3 in GP and 2/3 in C0DB. This half was a little bit more weighted to CODB, for example. So it's a little bit more weighted to CODB and more like 1/4 in GP and 3/4 in C0DB. Operator: Your next question comes from Michael Simotas from Jefferies. Michael Simotas: Could I just follow on from Tom's question on gross margin? I think the message here is that gross margin would have declined if not for mix, Coles 360, SSI, the ADC benefit, et cetera. Can I just confirm that that is the case? And then you're investing in value for customers, which is great. Do you think you're getting enough support from the supplier base to continue to do that and justify what has been or reward what has been a period of very strong execution from Coles? Leah Weckert: Maybe I'll start that question, and Anna can talk to the supplier piece. But I mean, we haven't done the add up specifically on the gross margin. I mean I think one of the biggest drivers in the gross margin expansion is the tobacco impact, which is the 37 basis points. So that obviously is a very significant mix impact in there. And then you've got the initiatives that we've been doing that Charlie outlined like the ADC with Coles 360, strategic sourcing, et cetera. But we have made investments into value, and so that is definitely an offset in that line. And a big one during the half has been in the red meat space as we've seen costs increase in terms of cost of goods on that. And we know that's really important for customers. So we haven't passed all of that through into retail. But what I would say is it's a core job of ours as management to make sure that we're just managing that GP period to period. And we put in place a plan that works to have a look at what do we think the impact will be and therefore, what initiatives do we need to hit with the right degree of timing to be able to get those benefits coming through. So we're pleased with the overall result that we've been able to get there. Anna, did you want to talk about the relationship with suppliers? Anna Croft: Yes, happy to. What I would say, Michael, is that engaging with our supplier base more broadly to optimize the range and strengthen the customer offer is business as usual for us, and we're incredibly focused on that, and that won't change. I won't go into any specifics on the commercials because that wouldn't be appropriate. But what I would say is that we are incredibly focused on working collaboratively, taking a much longer-term view to drive a real meaningful step change in our offer and our commercials collectively. And it's about getting further ahead together, taking a real end-to-end view of our businesses in a way that accelerates our true differentiation, and that's really where we've been focused on working with our supplier bases on, and that has taken a fully collaborative cross-functional approach, not just a trading approach. We're taking it from a supply chain, from an in-store perspective, and we're really looking credible to grave as to how we think about that going forward. So yes, more work to do, but we're absolutely working with the supplier base on that. Sharbel Elias: And so Michael, what you're actually seeing is actually our 3D strategy actually in action. So that's flywheel effect, right, where we're making very deliberate targeted investments in programs in GP, cost discipline in our CODB, allowing us to reinvest that back into the customer offer, driving top line sales and getting that operational leverage and efficiency because all through that, what you actually saw was also an expansion in our EBIT margin bottom line. So it's really our 3D strategy in action. Operator: Your next question comes from Craig Woolford from MST Marquee. Craig Woolford: I'm interested in the comments about the market share performance. It looks -- it is a great result and interesting how it's played out for both Coles and Woolworths. I assume you're referring to supermarket market share. I'd be interested in how much work you're now doing on other definitions of the market, if we look at results from Chemist Warehouse or Bunnings or the strength in dining out more generally. Maybe the bigger question is how do supermarkets ensure they don't lose share from other retailers as well. Leah Weckert: Yes. Thanks, Craig. It did cut out in the middle, but I think we've probably got the gist of it. So yes, we were talking about supermarket share when we were making those comments around the outlook growth. But obviously, it's a much more competitive and broader competition market than it was 10 years ago. And so the likes of Chemist Warehouse, Bunnings and I think we could probably, based on the comments that you've just made, also talk about things like QSR in that mix. And for us, the approach that we've been taking is to really break that down category by category. And so even within the nonfood space, being very particular about how we think about the different categories in there. And I'll let Anna maybe talk to that one. But certainly, on the food front, we continue to expand our convenience options for customers. And we actually introduced a number of new products into both the meat range, but also into frozen and convenience dairy over the half, which are really leaning into that. And I mentioned the grilled burgers, they're a great example of where we can actually bring share back into the supermarkets channel by giving a product to customers that they feel like it's something that they might eat when they're out, but actually they can prepare it in their own homes. And we've seen fantastic growth in our convenience-based meals out of the freezer section, for example, that's an area that we've expanded significantly. So it is a focus area for us. Those categories that we're talking about there, they are in double-digit growth for us. So they're outperforming the rest of the supermarket. Do you want to talk a bit about nonfood and how we think about the different competitors there, Anna? Anna Croft: Yes, of course. And Craig, I think we've spoken about this quite a lot. It is a clear area of focus for us. What I'm pleased is we're starting to see some real green shoots coming through in both sales performance and market share. And when we look at that, we look at supermarkets market share. But more broadly, we look at kind of health and beauty and our pet business at a total market read because, as you said, our competition is far broader than the supermarket space. And I think what we're pleased about the progress has really been driven by a couple of things. I think sharpening our value and moving to a trusted pricing position through EDLP has made a marked difference. In the quarter, we moved 400 lines in that space, and we made 1,900 value-based in store really emphasize the value we have, and we're starting to see that come through. We've really focused on range where it matters. So in pet and baby and beauty that's really come through. We're using the CFCs very strategically to go deeper on range that really matters as well as a bulk strategy, which really means that we are competing with others outside of the supermarket arena in terms of both neutralizing the value, but making sure that we keep the volume within our business. I think in baby, we've talked about the importance of that. And Leah mentioned, we've been really doubling down on CUB, our own brand. And actually, we've invested in both value and quality, and we're seeing that now being the #1 both volume and value line in those categories. And then on pet, as we said, we've done a lot of work on both value and bulk and that is playing through. We ultimately know, as I said, we are the right convenience spot for customers to buy these categories. So we actually will take a category-by-category approach and make sure that we are being really tailored where we need to put innovation in, where we need to deal with value and where we need to deal with range. So certainly not a one-size-fit approach, and we're taking very much a total market view in these categories rather than the supermarket lens. Operator: Your next question comes from Caleb Wheatley from Macquarie Group. Caleb Wheatley: I wanted to follow up. I know there's been a bit of a discussion so far, but particularly around sort of the forward-looking thoughts on the capacity to reinvest. I mean, as you've spoken about, GP margins are up fairly materially, EBIT margins are up fairly materially. I know there's sort of one-offs and things dropping out that are helping that. But on a sort of go-forward basis, how are you thinking about now the sort of capacity to reinvest from an operational point of view? And I know prices has been a bit of a focus, but just sort of more broadly in the suite of options you have to reinvest from an operational point of view, whether it's kind of service or store ops or loyalty, how are you thinking about sort of your flexibility now? Do you have that margin expansion to reinvest and sort of where the more meaningful opportunities are from here, please? Leah Weckert: Yes. It's a great question. And I think the expansion that we have got in the margin does give us flexibility as we move forward. I think we've been fairly clear in all of our results presentation that we intend to maintain competitiveness. And so we do continue to monitor very closely price and not just from one competitor, but from a full suite of competitors depending on the category that we are talking about, and we will continue to do that. However, we have even just in the last 7 weeks, been what I would say is nuancing our operating model. And that's something that's just BAU for us, which is we look at performance, we look at where we see some opportunities, and we will put money in to help us to capture opportunities. A good example of that would be -- so we've actually seen some real strength in our Sunday trade. And as a result of that, we have made the move to invest more into store remuneration to help us to support that. And from a category perspective in the store, investing into the online space because we can see that there's latent capacity there that we can access. And we're not afraid to put some investment in to really capture that. And particularly through Flybuys, and we will flex on that to get the right outcome that we want. I'm told that you might have missed part of that because we're struggling with clarity today. So I'll just reiterate that one of the things that we've noticed coming into the first 7 weeks of the calendar year has been real strength on Sunday trade in our stores. And we have, as a result of that, made additional investments into store remuneration, so our team to help us to capture the upside of that and in particular, in the online space. Operator: Your next question comes from Bryan Raymond from JPMorgan. Bryan Raymond: Just mine is a bit of a follow-on actually around cost growth. On my numbers, excluding implementation costs, you had 6.6% cash CODB growth in the half. I know there's a lot of moving parts in there. But I just wanted to walk through because it was a bit of a surprise on the upside to me that cash cost growth. I acknowledge you had a pretty big online channel shift. That would be a higher cost channel. You just talked Sunday trading and there's obviously loading there, labor hours in store. But given you had $100 million of SSI benefits, which is the 3/4 of the $133 million in the period in CODB, I'm just surprised that cost growth is running that high. So, if you could help us understand sort of why that is and if that is the path that should continue or if there's some one-offs in there that we need to adjust for? Sharbel Elias: Bryan, thanks for the question. And look, as you know, when we look at CODB and look at cost generally, we look at it as a percentage of sales. And I actually think we are completely tight band over a number of years now in terms of -- as a percentage of sales, particularly if you exclude the sort of the D&A element of that. Cost discipline in our business is very much part of our DNA, right? And you've seen that through our SSI program. Leah mentioned earlier, to date over the last -- since FY'24, we've actually delivered over $700 million of that. That's going to continue. We're going to continue delivering on that, and we're going to continue delivering around that sort of $250 million a year in SSI benefits going forward. Look, we did successfully unwind and the implementation costs, as you did call out, and that was a clear positive. But we have been making very deliberate in strategic investments in our customer offer. So, including our CFCs, which are now fully embedded in our cost base. So, our CFCs are fully embedded in our cost base, they're delivering results and in line with expectations. So, you're seeing that result fall to the bottom line. We're actually making very deliberate investments in data and technology, which is all about improving that customer experience and online growth and omnichannel growth really across the board. So, with these investments, they are driving our top line. And one of the things that I do sort of look at as I look at the -- including GP and including our CODB. And what we're seeing is these investments are driving not only growth but margin growth in our business. Operator: Your next question comes from Richard Barwick from CLSA. Richard Barwick: I've got a question around the CFCs. You do mention that the CFC sales growth was ahead or outpacing your total online or e-commerce growth. Can you put some metrics around that just to give us a sense of how much better your New South Wales and Victoria would be doing online versus the rest of the country. And part of that answer just makes me wonder if you are outpacing online within Victoria, just why -- so it sounds like it wasn't quite enough to get your Victorian sales growth ahead of cycling the industrial action because I think you did call out that Victoria was a little softer than the national rate of growth. So, you sort of put those 2 pieces together for us. Michael Courtney: So Richard, it's Michael here. I did get the first part of the question, which was about CFC growth. And then I missed the second part of the question. So maybe I'll answer the first part first, and then maybe you can follow up and just clarify what the second part of the question was. So, we're not giving specific growth rates for the CFCs. But if I take a step back and talk about proposition types, where we've got Click & Collect, where we've got same-day delivery, where we've got next-day delivery and where we've got immediacy. I think the really pleasing part was that all of those offer types were in double-digit growth throughout the first half. And then next-day delivery, which obviously the CFCs form part of, is still by far and away our largest offer type. So, to be still getting really strong growth through that with the CFCs being a driving factor is really pleasing for us. The proposition continues to ramp up and continues to get really strong customer feedback. And I think that when you look across the positive feedback that we're getting from customers across range, availability and freshness, it's great to see that the customers are seeing the differentiation that is in that offer. So, we're getting really good growth. The operating metrics are in a really good spot in terms of Ocado partners globally where the top performing partner on key operational measures. As Charlie mentioned at the start, we're continuing to invest in that proposition when you look at things like on-grid robotic pick, there's other efficiency measures. So, we're getting really strong growth. It's becoming a really important part of our proposition. The NPS is growing, but an important part also in that as part of being an omnichannel retailer is that we've seen as those volumes have come out of stores and gone into the CFCs, the NPS in store has also improved, which speaks to the benefit of the CFCs, not just as a sales driver, but as a really key part of an omnichannel fulfillment network. Would you mind just clarifying the second part of your question? Richard Barwick: Yes. And the second part was just reconciling that commentary with the comment that Victoria was not growing as quickly as the rest of the country. And I realize that it was in part because of the industrial action but just trying to square those 2 pieces together. And just as a little adjunct to that, at what point are you completely clear of the -- any lingering sort of headwinds from last year's industrial action for Woolworths. So, when are you in sort of clear air there, so we're no longer having to make adjustments for that issue? Leah Weckert: Thanks, Richard. I think that is a million-dollar question. So as we shared, if we go back to when all this was unfolding last year, our big expectation was that there was going to be a cohort of customers that experienced the industrial action where they only came to us because it wasn't convenient to shop somewhere where there was really poor availability, and it's likely that all those customers have just returned back. Then there was a cohort of customers making an active decision between us and our major competitor where the stores are quite closely located. And then there were our online customers that came to us. And it's really the 2 second buckets that we have been working over the course of the last 12 months to put together a plan to say, how do we make sure that now that we've had those customers come and shop with us, that we can retain them. And what we're seeing in the first 7 weeks of data is that we have been successful in retaining a proportion of them, but we are definitely still going over the top of some of the disruption for last year. I think I'm hopeful that we're sort of past it. We aren't spending a lot of time trying to pull it out of the numbers, if I'm honest now. We're just cracking on with continuing to drive sales and do what we need to do. But my expectation would be that Q4, in particular, should be very clean. Richard Barwick: That's an important one because obviously, there's a lot of comparisons with your rate of growth versus Woolworths quarter-by-quarter, and it seems like it's made a difference, obviously, for the first 7 weeks. But if we -- so that's going to impact the third quarter. But if you -- I mean, effectively, your answer is all clear in the fourth quarter, that's what's important. Leah Weckert: That's my expectation. And we definitely -- obviously, we didn't actually receive all the sales that were disrupted as part of the industrial action last year. And I think you're seeing some very interesting reversions going on in the market share data because of that. Operator: Your next question comes from Peter Marks from Goldman Sachs. Peter Marks: My question is just on liquor again. Just wanted to touch on the gross margins. I guess, surprised to see them up in the half. I think you had a 21 basis point headwind from range optimization costs there as well. So I think underlying, they're probably up 40 basis points or so, if that's right. And I think you would have been lapping like a strong period last year as well. So I guess have you managed to drive that improvement in the liquor gross margins in the half? And then just wondering on your trading update, the sales down 2.5%. Are you able to give any indication of whether you're losing share there? Like what's your liquor market data showing in the first 7 weeks? Leah Weckert: Thanks, Peter. The line was a bit garbled. So let me play back what I think we're answering here. The second question you had was around what's our viewpoint on market share. And then the third part was around the expansion of the gross margin, which I might get Claire to answer. Maybe just market share issue though. The data that we have available these days for market share in the liquor market post the changes that were made to the ABS data that's available to us is quite poor these days. So it's actually difficult for us to have a view on that until we see our major competitor come out with their results. So at this stage, we probably couldn't give you a clear view on that one. On the gross margin, Claire, I might ask you maybe to cover that one-off and how we've achieved expansion. Claire Lauber: Thanks, Leah. Yes. So Q2 was obviously a heightened intense competition quarter. We were managing price and promotion intensely through the quarter with a focus to offer compelling offers for our customers. And despite the competitive intensity, we were really pleased that we thought we struck the right balance between driving sales and managing margin, with delivering the gross margin result of 17 basis points improvement. Operator: Your next question comes from Phil Kimber from E&P Capital. Phillip Kimber: My question was just about the online business. Williams has called out that there's been a step-up in competition from all the various players in there. Is that sort of what you're seeing? I mean, your growth rates are very strong. Are you seeing sort of reactions now from a competitive point of view that are maybe higher than they were in the last 3 to 6 months? Matthew Swindells: Yes. Thanks, Phil. So firstly, in terms of our own offer, when we look at whether it's customer acquisition or investment in the customer offer, we haven't increased the investment relative to the prior year. We've obviously had very strong sales growth. So, the level of dollars that we're investing with customers has gone up, but that's a good thing based on the sales growth. Our investment in the customer offer as a percentage of our sales hasn't gone up. So, I wouldn't say that we are investing more. In terms of competition, where I would say that there's been an increase in competition, is probably on the immediacy platforms because, depending on the platform, you've seen more competitors in the grocery space enter, which, a more competitors leads to more competition. But that's why we've taken a really proactive step of expanding our partnership with Uber. So that's something that will allow us to partner more closely with Uber, giving a better offer in terms of range, being able to partner more closely on things like loyalty, and something that's world-first for Uber in terms of the way that we're partnering. We think it's something that's going to allow us to have differentiation in this market as it relates to immediacy and ensure that we have a leading customer offer with strong economics. So, whilst there might be increased competition in certain parts of the market, I think we've taken some really proactive steps to ensure that we've got a winning offer. Operator: Your next question comes from Ben Gilbert from Jarden. Ben Gilbert: Just another one on liquor. It sounds like, obviously, you're probably doing pretty well, given that the pricing competition is more so across 10% of the portfolio. Just interested in how you're seeing the pricing deck across the residual 90 smaller format, where you think you're doing better? Because just anecdotally, your pricing probably seems much sharper than the market there. And I'm wondering if that's where the risk is if your competitors go after the smaller formats, which have probably been left alone a little bit at the moment. Leah Weckert: Yes, it's a great question, Ben. I mean, we're definitely seeing a good uptick in our customer satisfaction around value and price in the small format stores. And we have been very sharp on KPIs there. As we've said, we think that with the shift to convenience, building brand loyalty to Liquorland in that convenience format will be really key going forward. And the value proposition that we have in there is a really important part of that. Operator: Your next question comes from Adrian Lemme from Citi. Adrian Lemme: Just one quick one, please. Just on tobacco. I think we've seen a bit of a crackdown in recent months on illegal tobacco shops. Are you seeing any slight improvement yet coming through in your tobacco performance? It's obviously still a big drag on sales. Leah Weckert: Yes. Sales week-to-week are pretty consistent now for us, and they have been for the last 6 months. We have seen some slight improvements week-to-week when we've seen a couple of the crackdowns, particularly in Queensland and WA, but I'd probably describe it as quite marginal, and it doesn't tend to have longevity around it. So, it can go for a matter of days or a couple of weeks, and then we tend to see it revert back. So that's why, sort of overall, we're still in a sort of a similar position to what we reported at Q1. Operator: Your next question comes from Michael Simotas from Jefferies. Michael Simotas: Charlie, I just wanted to pick up on a comment that you made about the CFCs being embedded in the cost base. Just want to understand exactly what that means. Last year, you called out $40 million of effective start-up costs for the CFC model. How do we think about that going forward? And look, I'm not asking for specific numbers on that, but are there still some costs in the P&L that will come down over time? Or has that flipped to a positive contribution? And then just generally, what's the profitability of your online business look like right now, noting that your competitors disclose margins, and they effectively doubled year-on-year. Sharbel Elias: Yes. So, Michael, let me take that. Great question. So, a couple of things. Firstly, let me go to the CFC side of that equation. We are really pleased with the financial performance of the CFCs. They're absolutely in line with our expectations. And as we said, the CFCs are volume, we're seeing great volume growth, as Michael articulated a little earlier. And what we have seen now in financial performance is that the second half of '25 is better than the first half and certainly an improvement half-on-half and year-on-year in the CFCs. All the one-off implementation, any of those costs, they absolutely go away. So, there are no lingering costs from that perspective. We're really saying, when I mentioned that CFC is, that they're now in the cost base. It's actually part of our business going forward. They're fully embedded there. And I would just encourage, again, as I said earlier, there are elements that go into GP, there are elements that go into CODB, and those changes. From our e-commerce business, generally, again, really pleased with the growth, a positive contributor to earnings. And from that perspective, we're seeing the leverage actually drop to the line. So, you would have seen our e-commerce business has grown at 27% this half. Last half, it was a similar sort of very strong growth rate. And in that time, we've not only grown earnings, but we've absolutely grown our EBIT margin through that perspective. That's the lens which I would look at in terms of the profitability of our business. Operator: Your next question comes from Craig Woolford from MST Marquee. Craig Woolford: Just a follow-up on the inflation path. Without getting bogged down on the technicalities of how Woolworths and Coles measure it, it was surprising to see Coles measure accelerate in 2Q versus Q1, whereas Woolworths measure decelerated in 2Q versus Q1. So perhaps there are some elements in your basket you can talk to that may have added to inflation. And what's your perspective on that inflation outlook over the next 12 months or so? Leah Weckert: Yes. Thanks, Craig. I mean, we did see it accelerate 30 basis points, as you just highlighted quarter-on-quarter. I probably would say that over time, Coles has tracked quite closely to what we see in the CPI data, which gives us some confidence around how the reporting that we do actually aligns to that. The most significant areas of pressure for us from an inflationary perspective have been in the red meat space, so beef and livestock prices are coming in. We haven't passed all of that through to consumers, but it's definitely, some of it has moved through, particularly in the lamb space. We've also seen a bit of inflation in dairy for chilled desserts and milk. Some of that is related to capacity constraints in the market around yogurt. But equally, there have been others on the other side of the ledger. So, eggs have come off now that we're past the avian flu impacts. We've still got deflation in quite a few of the non-food categories where there continues to be very intense price investment across the market. Operator: Your next question comes from Thomas Kierath from Barrenjoey. Thomas Kierath: Just a quick one on depreciation and amortization. I think before you had said it would rise by $115 million this year, and it only went up by $46 million in the first half. How should we kind of think about that for the second half of the full year? Sharbel Elias: Yes. Well, look, thanks, Tom, for that sort of question. Look, we'd expect the second half to be around that sort of $50 million or so increase. So, we're probably expecting -- if you think about the full year, these things are not always a precise science in terms of -- because they do vary on when capital investments and things land. The depreciation is probably more like $100 million or thereabouts for the full year of '26. Operator: Your next question comes from Bryan Raymond from JPMorgan. Bryan Raymond: Might be one for Anna. There's obviously an ACCC case going at the moment. I don't expect you to comment on that specifically. But just wanting to sort of get your thoughts around value perception impacts that might come through from all the press coverage, but particularly how you're thinking about red versus yellow tickets longer-term, like this might be increasing a bit of distrust in some of those red tickets and whether you need to pivot a bit more to high-low. I'm just interested in how you're thinking about the composition of your promotional program going forward. Anna Croft: Thank you, Bryan. I won't comment on the case, but I think that would be appropriate. I think that we remain really focused on how we give our customers great value across the entire basket and making sure we've got the right mechanics in every category. And as we said, in some categories, we've had to move more on to EDLP. The program we've been running around actually doing fewer, bigger, bolder promotions, and that into activity with EDLP seems to be really working for customers, and we can see that through some of those areas. So I think, look, we're just really focused on actually using data and AI to work out how do we get the right promotions to meet the right customer cohorts and how do we do that longer term. And actually, what we are seeing is the work that's done in range is making it simpler for customers to find value. And obviously, our own brand growth in the quarter around really driving quality and value is another lever we have to really simplify that on an ongoing level. So, we're really focused. The outcomes will be the outcomes of where we are on the ACCC, and we'll work through that, whatever that may be. But again, it comes back to making sure that we're doing the right thing across the basket, not in any particular category, but lowering the cost of shopping and giving customers the right value in the right way in the right categories. I don't know whether you want to add anything, Leah? Leah Weckert: I think that's a good answer. Operator: There are no further questions at this time. I'll now hand back to Leah Weckert for closing remarks. Great. Leah Weckert: Thank you for joining us this morning. In summary, we say we're very pleased with the financial results and the strategic achievements that we've delivered over the last half, including strong supermarket sales and EBIT growth, and strength in online. The fact that our automation and operational efficiency programs are now delivering really tangible benefits, including improved customer satisfaction scores and the completion of the Liquorland banner simplification. So, we're seeking to be laser-focused going forward on what really matters to customers, both in the short-term and the long-term. And we know that if we do that, we will continue to move the dial in each period. We know that's what is going to drive our top line, translate to sustainable earnings, and create long-term value for our shareholders. So, thank you for your time this morning, and I look forward to speaking to you again at our third quarter results in April. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Conversation: Rodrigo Caraca: Good morning, everyone. Welcome to the video conference regarding Iochpe-Maxion's Fourth Quarter 2025 Results. I'm Rodrigo Caraca, Senior Investor Relations Manager at the company, and I will be leading this video conference. Today, we are going to have Mr. Pieter Klinkers, CEO; and Mr. Renato Salum available for the question-and-answer session. Please be advised that this video conference is being recorded and will be made available at the company Investor Relations website along with the presentation. We'll be having Mr. Pieter Klinkers presenting in English. For your convenience, simultaneous interpreting into Portuguese and English will be available. [Operator Instructions] Before proceeding, we would like to clarify that any statements made during this video conference regarding the company's business prospects, projections and operational and financial targets constitute the beliefs and assumptions of Iochpe-Maxion's management as well as information currently available by the company. Future projections is not a guarantee of performance. It involves risks, uncertainties that may or may not occur. Now I would like to give the floor to Mr. Pieter Klinkers, CEO for Iochpe-Maxion. Please proceed. Pieter Klinkers: Bom dia, and good morning to everybody from rainy Sao Paulo, but I hope it's still a good morning for everybody. Let's jump into this presentation. And as usual, we start with having a look on the global markets. If we look at light vehicles, it's different than commercial vehicles that you see on the right side. Light vehicles kind of flattish in 2025 versus 2024, whether you look on including China or excluding China, it doesn't matter too much. We used to look at global production ex China because that's a more relevant market for us, but kind of flattish, and we expect the same to happen in 2026. That doesn't mean that everything is flat. I want to remark here that, for instance, 2 markets, Brazil and India, that are important markets for our company. Those markets show more meaningful growth, we believe, in 2026, and that would be good for our company. If we look on the out years there, there's a little bit more growth, like 2% or 1% to 2% per year, and that would bring the light vehicle market back to a volume of about 95 million to 100 million vehicles in the year 2030. If we look on the commercial vehicle side, it's more dynamic there. And unfortunately, in 2025, as everybody knows, it was negative dynamics primarily, but not only in initially North America, then also South America, but also the European market, especially at the end of the year was not great. And so overall, minus 7% in 2025 versus 2024. That's a meaningful downturn. 2026 looks better, and we take that. And I think it's more or less in all the regions that people foresee, and we concur with that view, markets should be better. Just the year 2026 you look at North America, and we will talk a little bit more about North America during this presentation. Like we did in the last presentation, that market is still down 4% to 5%, people say, but we take it because the market was down so much in the second half of 2025, 30%, 40%, especially in the heavy vehicle market. Some of you may remember, I talked about it in the last call, that is the most important market for us is the heavy vehicles, Class 7, Class 8 that we supply from our structural components unit that was hit the most. And if that market comes back to only being minus 5% compared to 2025, taking into consideration that the first half of '25 is pretty good. That means you need to have a good increase during the year 2026 to get back to more or less the volumes that we had as a whole year 2025. So North America, we take that number. And what we see so far this year, it is confirming that. We don't have an outlook for the second half of the year yet, but the first 3 months of the year are in line with the assumptions that we took for the North American market. We believe Brazil will be better, especially in the first half of 2026. And we also believe Europe will be better. That's what we see happening as well. And Asia for us, most importantly there, India should show solid growth as well. So more optimism from a point of view of the truck market for 2026. And then if you look at '27, '28, a little bit more out, that's pretty significant growth. That's good growth. And so even if that materializes to a good extent, not completely, maybe even more. But if these numbers are more or less true, then our company is very well positioned to benefit from those market trends, because we all know that even in the year 2025, and we'll see that later on, even in the year 2025, there where it was possible, like in Europe or like in Asia, we outperformed the market. And so if the market comes back and we keep our performance, which definitely is the aim, and I think it's going to happen, then we should be very well positioned for those numbers -- to capitalize on those numbers. All right. Enough on the market. Let's look at the numbers on the next slide. Our net revenue in 2025, really a mixed number because the first half was pretty strong and then the second half, initially only because of North America truck and then, let's say, during the third quarter, especially the fourth quarter, the Brazil truck production went down, and that hits us not only in our components division in Brazil, but also in wheels. And so that trended our numbers down in the second half of the year. But overall, in the year 2025, we still came up with BRL 15.3 billion turnover, which is slightly up versus 2024. Our gross profit in the fourth quarter of 2025, despite all the drama in North America and also in Brazil from a commercial vehicle point of view, still at 11.7%, which took us to 12% gross profit margin for the whole year, which we believe is a pretty solid number given the circumstances. Our recurring EBITDA, pretty much the same as on the -- same story as on the gross profit, 9.6% in the fourth quarter and still a double-digit margin in 2025. Again, despite that situation in commercial vehicles in the Americas, which is a very important market for our company, we were able to realize double-digit margin over the year 2025. Leverage, 2.65x in the fourth quarter of 2025. That compares to 2.55x in the third quarter of 2025. But we need to keep in mind here that we lowered our forfaiting of factoring by about BRL 100 million. And so if you neutralize that effect, our leverage would actually be pretty much the same in the fourth quarter 2025 than what it was when we talked to you guys about the third quarter 2025. Okay. Now if we look on the revenue by product, it's obvious that our components unit is hit in North America and South America because of commercial vehicles. Our wheels unit is hit in Brazil -- was hit in Brazil because of that. Not in North America, because from a wheels point of view, we supply also truck wheels to the North American market from Mexico, but we supply the medium truck segment, and that was a very different picture, also slowing down, but much less than what we saw in the heavy truck segment. And therefore, instead of having a split of roughly 75% wheels and 25% components in 2025, that number looks more like 80% wheels and 20% components. If we go to the revenue by customer, it's pretty much the same effect that you see there. Just 2 examples there, you see Traton and Daimler which are big customers for our company for components in North America. Their revenue as a percentage of our total revenue goes down meaningfully, but it's being made up by other customers like Toyota, like Stellantis, like Ford, and those are typical wheel customers, of course, light vehicle customers that we serve through our wheels unit. And we were able to not make up completely, but mitigate to a large extent, those impacts that we saw for components in North America in the second half of 2025. If we go to the next slide and we look a little bit more on the regions. Starting with South America. I think this number shows that we have been outperforming the market. Both light vehicle production and commercial vehicle production ultimately was down in 2025 in Brazil, but our revenue is up. Of course, it was more up in the first half when truck was still okay than it was in the second half. But overall, the revenue is up. And of course, that has to do with us outperforming on the light vehicle side, which is the wheel segment, where primarily we did very well from an aluminum wheel point of view that didn't make up everything in the second half. You see second half, fourth quarter was still down, but less than the market. And so again, a mitigating factor of the headwind that we had in the Brazilian market. So market not so good in the second half, but Maxion at least mitigating partially that market effect. If we look on North America on the next slide, this is the drama that we have been talking about that you can read about everywhere, and it has been hitting us hard in the second half of the year. If you want to hear good news about that market, I can tell you that the fourth quarter was not good, but it was a little bit better than the third quarter. So let's see if that's a trend that will continue into 2026. What we saw in the first 2 months is in line with the targets that we put ourselves. And those targets are mostly based on the data that we showed on the first slide that comes from global data from IHS. And so we don't have a visibility yet for the whole year, but at least the start of the year is in line with the assumptions that we took for this year. And so a big impact in North America, but the fourth quarter, at least being a little bit better ultimately than the third quarter. We go to EMEA, which is Europe, in our case, Europe, Turkey and our plant in South Africa, we clearly outperformed the market. I think you see light vehicles was slightly down over the year. Truck was more or less stable over the whole year in Europe, was down in the fourth quarter, was a little bit up in the beginning of the year, but more or less stable over the whole year. And so us being -- having 18% more revenue on truck is a pretty strong number and us having -- Maxion having 13% more revenue in 2025 than what we had in 2024 shows that we are performing solidly or strong, I would say, in this important market for the company. And that's largely based, not only, but largely based on our position that we have in the truck market there. And so that's not only good for the region. It also has been supporting our global results, which if we would have only been acting in North or South America, those would have been impacted more -- impacting more than what we now see in our overall consolidated results for the company. We go to Asia. I've been saying in the last few presentations that my expectation would be for Asia to start playing a bigger role in our overall revenue and margin situation. And we see that happening. It starts happening in the fourth quarter of 2025 this time in [ pass car ], where the market is good, and I think Maxion is outperforming the market there. And our aim certainly will be to continue that trend and also to complete it with truck. My expectation for truck also both for India and for China next year is this year is positive. And so we saw the start of this region outperforming or supporting our results more significantly happening at the end of last year. And our wish is for that to continue not only in '26, but going forward. India, which is the most important location for us in Asia, I would say, it's a very good place to be nowadays. And we're well positioned there. And as we talked about in other presentations, we have a couple of plans in the drawer to do even a little bit more in India going forward. With that, go back on the next slide to some numbers. And so as we talked before, our margin, I think, both in the fourth quarter of 2025, our gross profit margin as well as for the total year 2025, very much in line with 2024, which I believe based on the sudden reduction that we saw in the North American truck market and then also in the Brazilian truck market, that's a pretty solid result, a result that we would have signed up for when we would have known what happened in the second half of the year in primarily North America. If we go to the next slide, it's pretty much the same story on our EBITDA margin, 9.6% recurring EBITDA margin in the fourth quarter of 2025 with that market situation in the Americas from a truck point of view is, we believe, a solid result. And then the 10.1% margin that we delivered over the whole year, double-digit margin with those sudden drops in the truck market in the Americas is also something that we believe is a good outcome for the company. We look on the next slide, the net income. It's a little bit more depressing story, both for the fourth quarter of the year as well as for the total year. And here, you see the reduced income in CV, of course, which you also see in EBITDA, especially when it's not recurring EBITDA, but you see the higher restructuring cost here as well. And also financial expenses, we were not assuming the SELIC to be at the level where it was during most of last year and where it is today. And so that has been hurting many companies, including our company. And also, we had higher taxes in this quarter, particularly in the quarter 4 of 2025 that hurt our net income. And actually, instead of being slightly positive, now it was a negative net income for the quarter. We go to the next slide, look at our investments. We said we have good discipline in place regarding investments. And I think we delivered on our targets, which was to have a meaningful reduction in 2025 versus what we invested in 2024. A little bit more in the fourth quarter, but that was a managed action. We were pushing out some CapEx from more in the beginning of the year to more towards the end of the year. But the final number for the year, the BRL 554 million that you see on this slide is a meaningful reduction versus what we showed -- what we invested in 2024. Go to next slide. You look at our leverage, I talked about it, went slightly up quarter-over-quarter. But then again, the BRL 100 million less factoring that is included in that number basically brings back the leverage to kind of the same level than what we had in -- sorry, in the third quarter of 2025. We go to the next slide. Look at the gross debt, there's not a lot of change here. I think there's still very manageable amounts of debt for 2026 and '27. And then, of course, we have a little bit more work to do to prepare ourselves for refinancing our bonds in 2028, which we will do. And at the same time, we have a lot of cash liquidity available, BRL 1.6 billion in cash and then on top of that BRL 760 million of undrawn credit lines. So I would say a healthy situation from a debt point of view on this slide, like we explained in prior presentations. We go to the next slide. Usually here, what you see, if you remember, we show a few new business wins regarding wheels. We decided to do different this time. This is a picture of -- the guy in the middle is Giorgio Mariani, and he was in China a couple of weeks ago, picking up an award from Cherry for the good work that we do together with Cherry. And we don't talk a lot about all the new business wins that we have with our customers, primarily because we're not allowed to, unfortunately. But I can tell you here that we are growing rapidly with the Chinese OEMs outside of China primarily. And so just to give you a glance, we now have in place purchase orders or we are already supplying not less than 16 Chinese brands all over the world. This is happening in all the regions that we talked about before Asia, Europe, North America, South America. And so some of you may remember that we talked about believing we're well positioned to have higher market shares with the Chinese OEMs when they go outside of China than what we have currently as market shares for our products in the regions where we operate. And that seems to be materializing. And so we're very happy about that. We are very proud to be able to work with the Chinese OEMs that will continue to grow in Brazil, in Europe, in the Americas, we believe, of course, also in Asia. And we like to work together. They recognize our product portfolio, our innovative products, they jump on it, and they also recognize our global footprint when we work with them in China or when we work with them in Asia or we work with them in Europe. Of course, it's a much smaller step to also work together, for instance, in the Americas. And so a good story here for our company that we were hoping for, and that seems to be materializing. We go to the next slide. Last slide, the business summary. I think the year 2025, of course, it was highlighted, if you want to call it a highlight by all the dynamics that were going on with markets -- truck markets under pressure first in North America, then in South America. But we did a good job, I think, as a company in optimizing our structures. We did a good job in not spending more CapEx than we committed to and lowering our CapEx versus 2024. And we did a good job in adapting pretty quickly. We would have not done that. We would certainly not have been able to do a double-digit margin in this kind of market environment for us. So from a cost and from a flexibility point of view, I think the company did a good job. From a growth point of view, as we talked about in prior presentations, we're not planning to do another big investment, build a new plant on the very short term. But we are planning to grow. And so you can grow through increasing shares. We've been doing some of that in 2025. Of course, we will target to do the same in 2026 as well. We are commercializing innovative products, not only with the Chinese OEMs, but also with the Chinese OEMs they're jumping on it. We like it. We both like it, the customers and we -- and that's also creating some growth. And then we will execute some selective growth initiatives. We did it already in Mercosur with our acquisition of Polimetal in Argentina. We are doing some more in Turkey. We may be doing a little bit more in India. We have a series of good smaller projects in the drawer that we will take out of the drawer piece by piece. And so that will create some growth in a little bit different shape and form than just building a new plant left and right. And so in a nutshell, if people ask me, how is the company doing? I would say when I open the newspaper every morning, and I'm sure you do as well, then you see a lot of dynamics. You read a lot about geopolitics. And then when you read about automotive news, it's a tough world, right? There's a lot of write-offs. There's a lot of pressure on profits. I look at our company and say, maybe we didn't reach all the targets that we put ourselves, which was not possible because of some of the negative -- some of the headwinds that we had in important markets for us. But overall, our company is in a very stable position. And even more important, our company is well positioned to deliver on more solid markets in the truck environment and some growth in regions that is predicted by IHS by Global Data that are important for us like Brazil, like India or in Europe, the truck market coming back on top of market share gains. And so I read the news, I read the automotive news. I look at my own -- at our own company, and I think we're not so bad positioned. With that, I open it for questions and answers. Rodrigo Caraca: [Operator Instructions] First question is from Fernanda Urbano from XP. Fernanda Urbano: I have 2 questions. First, in regard to the United States. I know it's a little bit early to say, but I would like to know your projections for 2026, considering your scenario and considering the tariffs? You released that in the fourth quarter. You were seeing some signs of stability for the market, especially for the end of 2025. But I would like now if you can share what is going to happen for 2026. What do you expect as far as time line is concerned so that these tariff effects are going to actually affect the company's sales in the market? And my second question is in regard to Brazil. I would like to explore a little bit the demand for heavy vehicles in Brazil. We see some news today in regard to the beginning of the [ MOVER ] Brazil program and the release for possibilities within the program, posing for more production, especially starting in February. I would like to know from you if you know about this project for Brazil? And I would like to hear about the U.S. as well. Pieter Klinkers: Thank you very much. Very important questions. Let me start with the first one on the U.S. or let's call it North America. As I said, it's too early to give a prediction for the total year 2026. When we ask our customers, they give us more information, let's say, for the next coming months. They're not yet able to talk about the whole year 2026. But what I can tell you is that our assumptions are in line with IHS with Global Data that during the year 2026, there will be a ramp-up of volumes, which needs to be the case if you want to end the year 2026 slightly below 2025. You started 2025 very high. You ended it at a low. It means the curve needs to go -- needs to swing the other way. And I can -- what I can tell you is that at least in the first months of this year, that's what we see happening. Now a lot more needs to happen for that market to come back to the levels that we saw at the beginning of 2025, and I can't give you any better input right now already. But at least the start of the year is in line with our assumptions. From a tariff point of view, this is changing so much as we know that it's sometimes hard to keep track of what's happening and what are the impacts directly or indirectly on your company. But purely from a North American standpoint, I would say, right now, we believe there is little impact for our company because we were handling under the -- or commercializing our products under Section 232, where there is no change. And of course, there's tariffs under Section 232. But since we are supplying from Mexico, which is getting USMCA exemption, that was the case, and that is still the case. And so from that point of view, for our company right now, based on what we understand and based on where we are today, we believe that there is no meaningful impact from the latest changes regarding the tariffs. When we look on Brazil, we're positive on Brazil. Pass car, we believe, will be positive this year, and we're well positioned to profit from that. Our plants are doing well. Our aluminum plants, we moved some equipment from around the world to Brazil to have a little bit more capacity in Brazil. We acquired a majority stake in Polimetal that will help us to generate more capacity for Mercosur, not just for Argentina, but for Mercosur. And so from a pass car point of view, we're well positioned. And then truck, we do have the capacity, both for components and for wheels. And we believe that at least in the first half of the year, yes, the program you're talking about will be helpful. And so we're looking forward for those projections to materialize. I hope that answers your questions? Gives you a little bit more insight? Rodrigo Caraca: Our next question is from Gabriel Rezende, Itau BBA. Gabriel Rezende: I will ask the question in English so Pieter can understand. So just following up on the answer you gave regarding heavy vehicles here in Brazil, if you could comment how you're perceiving the inventory levels for your customers in Brazil, it could be great. Just to get a sense because we have seen a steep deterioration on production levels in the fourth quarter along the latest months into 2025. So just trying to understand whether there's a catch-up in production to happen in the beginning of 2026 here in the Brazilian market. And also, if you could comment -- provide further details on what we could expect for market share gains throughout 2026. As I understand because you gained market share along 2025, you start 2026 with an already high market share. Just trying to understand whether we should see only a carryover effect or if there's additional projects for you to get additional room for you to get in your customers at this point? Pieter Klinkers: For Brazil, we do not foresee any special effect of too high inventories or too low inventories. And so what we see happening is the market coming back to a certain extent in the beginning of this year. And so we do not see any special effect of having too low inventories and the catch-up of production or having too high inventories and still cooling down even though sales of trucks goes up. So it's in line with our assumptions. And those assumptions are better in the first half of 2026 than what we saw in the second half of 2025. When you talk about market share increase, of course, you talk more about Europe and Asia, where that story is happening, especially on the commercial vehicle side. And you're right, some of those market shares they cannot continue to increase. But I would say, some already happened beginning '25, some happened more towards the end of '25. And so my expectation is still to see a positive effect of that. How big that effect will really be depends a little bit on how the market develops and how quickly we can materialize all of our potential. But I agree with you. The story is not endless. But at the same time, I'm hopeful that we will still see some positive effect from that also in 2026 and not only in 2025. I hope that answers. Rodrigo Caraca: Our next question is from Luiza Mussi from Safra. Luiza Mussi Tanus e Bastos: I have 2 questions. First, could you please give some more details in regard to what happened to CapEx in this quarter? And considering your scenario you described, what could we expect in regard to leveraging of the company for 2026? These are my 2 questions. Renato Salum: Well, thank you for your question. Let me explain to you in regard to what happens to the effective taxing for '24 and '25. It is explained by some recurring points that benefit 2024 and they have not been repeated for '25. Some of the movements are in the fourth quarter '24, we had a positive impact of around BRL 30 million, and this is due to a plant in India. It took us 4 years for the ramp-up. And when we can prove that the plant is in a good situation and profitable, we have the trigger for this acknowledgment of the tax-related losses in the company. So we did have this positive impact, and we are not being impacted by the same in 2025. Another important point is what we call inflation account. Considering Turkey is a hyperinflation country, we have the updates of all those numbers with the inflation accounts, and this update happens with equity. When we have this equity update, we generate a credit in equity, and we generate a debt in the operational expenses because it is included as an expense. With this, the PBT was reduced. And when you apply the nominal tax, you have less tax to pay. The inflation account was being applied in the previous years. And on December '25, the Turkish Parliament approved a measure in which the monetary correction is suspended for 2025. and it leaves 2026 as suspended. So this inflation account also has a negative impact of around BRL 40 million. So these are these 2 impacts that we suffer. Of course, we have other positive impacts that lead us to BRL 32 million, and this is the difference between quarters. Another important thing to highlight is timing. When we look at 2025 against '24, we do see an improvement of around BRL 40 million. So our effective tax is not the accounting tax, it's the actual tax that is paid. It was in around 27%. So this is the explanation of what we saw in the fourth quarter. And unfortunately, this inflation account impact affects our net profit, and this is what happened for '24 December. In regard to the leveraging, as Pieter mentioned, we wrap this year at 2.65-fold. Of course, there is a reduction of around BRL 100 million in our factoring operations. And at the end of the day, we would be close to the same leverage we had in Q3. Obviously, there is some deterioration of this leverage from 2.4x last year to 2.56x adjusted. But we also see cash generation that is strong in the company, even with the scenario that we've explained. We see BRL 328 million of cash generated with cash flow, we say indirectly and a series of investment that was in line with what we had appointed, which was around BRL 500 million. So we closed with BRL 508 million. Of course, there is a reduction in cash because there is some liquidity. But in general context, we do generate cash, BRL 328 million and obviously, worsening the working capital in BRL 100 million because we don't follow with factoring. But in view of this scenario, we have managed to control. Even with the impact, we had around BRL 50 million in expenditures with the restructuring, and it impacts EBITDA and leveraging. But we do not have significant deterioration with this scenario. And looking forward, as Pieter said, we are in line with what the agencies have been forecasting in regard to vehicle light or heavy vehicles production. And we are very close to the situation that we are envisioning today. Rodrigo Caraca: Next question is from Joao Andrade from Bank of America. Joao Andrade: My question is in regard to the antitrust investigation occurring in Germany. If you could share a little bit, if you have any estimates so that this investigation is concluded. The fact that you are collaborating with authorities is good, but I would like to hear from you in this regard. Pieter Klinkers: Yes. Joao, thank you for the question. Of course, we cannot speculate about this matter. As you say, we are fully cooperating with the authorities, and there was a next step through this formal notification. And together with the authorities, we are studying what that means, and we're looking how we can best manage the next steps in this procedure. But at this moment, it's really unclear what it means -- if it means something from a financial point of view. And so we're not in a position at this stage of the investigation to give any further comments regarding amounts of money that could be involved or would be involved if they are involved. Rodrigo Caraca: Our next question is from Keefer Kennedy from Citibank. Keefer, can you hear us. With no further questions, we are now closing the Q&A session. I would now like to give the floor to Pieter Klinkers for his final statements. Pieter Klinkers: Thank you very much for your participation. I can inform you that the rain has stopped in Sao Paulo. I hope you -- the rest of your morning, whatever time zone you're in, will be okay. We will work hard this year to deliver the results that we've put ourselves. And during this year, it's still a long year in February. There will be positives, there will be negatives, but I think we're well positioned to hopefully capitalize on a market that especially from a truck point of view is looking to be in better shape in 2026 than it was in 2025. And so I'm looking forward to come back to all of you with our first quarter earnings call in a few months from now. Thank you for listening to us. Bye-bye. Rodrigo Caraca: Good morning, everyone. Welcome to the video conference regarding Iochpe-Maxion's Fourth Quarter 2025 Results. I'm Rodrigo Caraca, Senior Investor Relations Manager at the company, and I will be leading this video conference. Today, we are going to have Mr. Pieter Klinkers, CEO; and Mr. Renato Salum available for the question-and-answer session. Please be advised that this video conference is being recorded and will be made available at the company Investor Relations website along with the presentation. We'll be having Mr. Pieter Klinkers presenting in English. For your convenience, simultaneous interpreting into Portuguese and English will be available. [Operator Instructions] Before proceeding, we would like to clarify that any statements made during this video conference regarding the company's business prospects, projections and operational and financial targets constitute the beliefs and assumptions of Iochpe-Maxion's management as well as information currently available by the company. Future projections is not a guarantee of performance. It involves risks, uncertainties that may or may not occur. Now I would like to give the floor to Mr. Pieter Klinkers, CEO for Iochpe-Maxion. Please proceed. Pieter Klinkers: Bom dia, and good morning to everybody from rainy Sao Paulo, but I hope it's still a good morning for everybody. Let's jump into this presentation. And as usual, we start with having a look on the global markets. If we look at light vehicles, it's different than commercial vehicles that you see on the right side. Light vehicles kind of flattish in 2025 versus 2024, whether you look on including China or excluding China, it doesn't matter too much. We used to look at global production ex China because that's a more relevant market for us, but kind of flattish, and we expect the same to happen in 2026. That doesn't mean that everything is flat. I want to remark here that, for instance, 2 markets, Brazil and India, that are important markets for our company. Those markets show more meaningful growth, we believe, in 2026, and that would be good for our company. If we look on the out years there, there's a little bit more growth, like 2% or 1% to 2% per year, and that would bring the light vehicle market back to a volume of about 95 million to 100 million vehicles in the year 2030. If we look on the commercial vehicle side, it's more dynamic there. And unfortunately, in 2025, as everybody knows, it was negative dynamics primarily, but not only in initially North America, then also South America, but also the European market, especially at the end of the year was not great. And so overall, minus 7% in 2025 versus 2024. That's a meaningful downturn. 2026 looks better, and we take that. And I think it's more or less in all the regions that people foresee, and we concur with that view, markets should be better. Just the year 2026 you look at North America, and we will talk a little bit more about North America during this presentation. Like we did in the last presentation, that market is still down 4% to 5%, people say, but we take it because the market was down so much in the second half of 2025, 30%, 40%, especially in the heavy vehicle market. Some of you may remember, I talked about it in the last call, that is the most important market for us is the heavy vehicles, Class 7, Class 8 that we supply from our structural components unit that was hit the most. And if that market comes back to only being minus 5% compared to 2025, taking into consideration that the first half of '25 is pretty good. That means you need to have a good increase during the year 2026 to get back to more or less the volumes that we had as a whole year 2025. So North America, we take that number. And what we see so far this year, it is confirming that. We don't have an outlook for the second half of the year yet, but the first 3 months of the year are in line with the assumptions that we took for the North American market. We believe Brazil will be better, especially in the first half of 2026. And we also believe Europe will be better. That's what we see happening as well. And Asia for us, most importantly there, India should show solid growth as well. So more optimism from a point of view of the truck market for 2026. And then if you look at '27, '28, a little bit more out, that's pretty significant growth. That's good growth. And so even if that materializes to a good extent, not completely, maybe even more. But if these numbers are more or less true, then our company is very well positioned to benefit from those market trends, because we all know that even in the year 2025, and we'll see that later on, even in the year 2025, there where it was possible, like in Europe or like in Asia, we outperformed the market. And so if the market comes back and we keep our performance, which definitely is the aim, and I think it's going to happen, then we should be very well positioned for those numbers -- to capitalize on those numbers. All right. Enough on the market. Let's look at the numbers on the next slide. Our net revenue in 2025, really a mixed number because the first half was pretty strong and then the second half, initially only because of North America truck and then, let's say, during the third quarter, especially the fourth quarter, the Brazil truck production went down, and that hits us not only in our components division in Brazil, but also in wheels. And so that trended our numbers down in the second half of the year. But overall, in the year 2025, we still came up with BRL 15.3 billion turnover, which is slightly up versus 2024. Our gross profit in the fourth quarter of 2025, despite all the drama in North America and also in Brazil from a commercial vehicle point of view, still at 11.7%, which took us to 12% gross profit margin for the whole year, which we believe is a pretty solid number given the circumstances. Our recurring EBITDA, pretty much the same as on the -- same story as on the gross profit, 9.6% in the fourth quarter and still a double-digit margin in 2025. Again, despite that situation in commercial vehicles in the Americas, which is a very important market for our company, we were able to realize double-digit margin over the year 2025. Leverage, 2.65x in the fourth quarter of 2025. That compares to 2.55x in the third quarter of 2025. But we need to keep in mind here that we lowered our forfaiting of factoring by about BRL 100 million. And so if you neutralize that effect, our leverage would actually be pretty much the same in the fourth quarter 2025 than what it was when we talked to you guys about the third quarter 2025. Okay. Now if we look on the revenue by product, it's obvious that our components unit is hit in North America and South America because of commercial vehicles. Our wheels unit is hit in Brazil -- was hit in Brazil because of that. Not in North America, because from a wheels point of view, we supply also truck wheels to the North American market from Mexico, but we supply the medium truck segment, and that was a very different picture, also slowing down, but much less than what we saw in the heavy truck segment. And therefore, instead of having a split of roughly 75% wheels and 25% components in 2025, that number looks more like 80% wheels and 20% components. If we go to the revenue by customer, it's pretty much the same effect that you see there. Just 2 examples there, you see Traton and Daimler which are big customers for our company for components in North America. Their revenue as a percentage of our total revenue goes down meaningfully, but it's being made up by other customers like Toyota, like Stellantis, like Ford, and those are typical wheel customers, of course, light vehicle customers that we serve through our wheels unit. And we were able to not make up completely, but mitigate to a large extent, those impacts that we saw for components in North America in the second half of 2025. If we go to the next slide and we look a little bit more on the regions. Starting with South America. I think this number shows that we have been outperforming the market. Both light vehicle production and commercial vehicle production ultimately was down in 2025 in Brazil, but our revenue is up. Of course, it was more up in the first half when truck was still okay than it was in the second half. But overall, the revenue is up. And of course, that has to do with us outperforming on the light vehicle side, which is the wheel segment, where primarily we did very well from an aluminum wheel point of view that didn't make up everything in the second half. You see second half, fourth quarter was still down, but less than the market. And so again, a mitigating factor of the headwind that we had in the Brazilian market. So market not so good in the second half, but Maxion at least mitigating partially that market effect. If we look on North America on the next slide, this is the drama that we have been talking about that you can read about everywhere, and it has been hitting us hard in the second half of the year. If you want to hear good news about that market, I can tell you that the fourth quarter was not good, but it was a little bit better than the third quarter. So let's see if that's a trend that will continue into 2026. What we saw in the first 2 months is in line with the targets that we put ourselves. And those targets are mostly based on the data that we showed on the first slide that comes from global data from IHS. And so we don't have a visibility yet for the whole year, but at least the start of the year is in line with the assumptions that we took for this year. And so a big impact in North America, but the fourth quarter, at least being a little bit better ultimately than the third quarter. We go to EMEA, which is Europe, in our case, Europe, Turkey and our plant in South Africa, we clearly outperformed the market. I think you see light vehicles was slightly down over the year. Truck was more or less stable over the whole year in Europe, was down in the fourth quarter, was a little bit up in the beginning of the year, but more or less stable over the whole year. And so us being -- having 18% more revenue on truck is a pretty strong number and us having -- Maxion having 13% more revenue in 2025 than what we had in 2024 shows that we are performing solidly or strong, I would say, in this important market for the company. And that's largely based, not only, but largely based on our position that we have in the truck market there. And so that's not only good for the region. It also has been supporting our global results, which if we would have only been acting in North or South America, those would have been impacted more -- impacting more than what we now see in our overall consolidated results for the company. We go to Asia. I've been saying in the last few presentations that my expectation would be for Asia to start playing a bigger role in our overall revenue and margin situation. And we see that happening. It starts happening in the fourth quarter of 2025 this time in [ pass car ], where the market is good, and I think Maxion is outperforming the market there. And our aim certainly will be to continue that trend and also to complete it with truck. My expectation for truck also both for India and for China next year is this year is positive. And so we saw the start of this region outperforming or supporting our results more significantly happening at the end of last year. And our wish is for that to continue not only in '26, but going forward. India, which is the most important location for us in Asia, I would say, it's a very good place to be nowadays. And we're well positioned there. And as we talked about in other presentations, we have a couple of plans in the drawer to do even a little bit more in India going forward. With that, go back on the next slide to some numbers. And so as we talked before, our margin, I think, both in the fourth quarter of 2025, our gross profit margin as well as for the total year 2025, very much in line with 2024, which I believe based on the sudden reduction that we saw in the North American truck market and then also in the Brazilian truck market, that's a pretty solid result, a result that we would have signed up for when we would have known what happened in the second half of the year in primarily North America. If we go to the next slide, it's pretty much the same story on our EBITDA margin, 9.6% recurring EBITDA margin in the fourth quarter of 2025 with that market situation in the Americas from a truck point of view is, we believe, a solid result. And then the 10.1% margin that we delivered over the whole year, double-digit margin with those sudden drops in the truck market in the Americas is also something that we believe is a good outcome for the company. We look on the next slide, the net income. It's a little bit more depressing story, both for the fourth quarter of the year as well as for the total year. And here, you see the reduced income in CV, of course, which you also see in EBITDA, especially when it's not recurring EBITDA, but you see the higher restructuring cost here as well. And also financial expenses, we were not assuming the SELIC to be at the level where it was during most of last year and where it is today. And so that has been hurting many companies, including our company. And also, we had higher taxes in this quarter, particularly in the quarter 4 of 2025 that hurt our net income. And actually, instead of being slightly positive, now it was a negative net income for the quarter. We go to the next slide, look at our investments. We said we have good discipline in place regarding investments. And I think we delivered on our targets, which was to have a meaningful reduction in 2025 versus what we invested in 2024. A little bit more in the fourth quarter, but that was a managed action. We were pushing out some CapEx from more in the beginning of the year to more towards the end of the year. But the final number for the year, the BRL 554 million that you see on this slide is a meaningful reduction versus what we showed -- what we invested in 2024. Go to next slide. You look at our leverage, I talked about it, went slightly up quarter-over-quarter. But then again, the BRL 100 million less factoring that is included in that number basically brings back the leverage to kind of the same level than what we had in -- sorry, in the third quarter of 2025. We go to the next slide. Look at the gross debt, there's not a lot of change here. I think there's still very manageable amounts of debt for 2026 and '27. And then, of course, we have a little bit more work to do to prepare ourselves for refinancing our bonds in 2028, which we will do. And at the same time, we have a lot of cash liquidity available, BRL 1.6 billion in cash and then on top of that BRL 760 million of undrawn credit lines. So I would say a healthy situation from a debt point of view on this slide, like we explained in prior presentations. We go to the next slide. Usually here, what you see, if you remember, we show a few new business wins regarding wheels. We decided to do different this time. This is a picture of -- the guy in the middle is Giorgio Mariani, and he was in China a couple of weeks ago, picking up an award from Cherry for the good work that we do together with Cherry. And we don't talk a lot about all the new business wins that we have with our customers, primarily because we're not allowed to, unfortunately. But I can tell you here that we are growing rapidly with the Chinese OEMs outside of China primarily. And so just to give you a glance, we now have in place purchase orders or we are already supplying not less than 16 Chinese brands all over the world. This is happening in all the regions that we talked about before Asia, Europe, North America, South America. And so some of you may remember that we talked about believing we're well positioned to have higher market shares with the Chinese OEMs when they go outside of China than what we have currently as market shares for our products in the regions where we operate. And that seems to be materializing. And so we're very happy about that. We are very proud to be able to work with the Chinese OEMs that will continue to grow in Brazil, in Europe, in the Americas, we believe, of course, also in Asia. And we like to work together. They recognize our product portfolio, our innovative products, they jump on it, and they also recognize our global footprint when we work with them in China or when we work with them in Asia or we work with them in Europe. Of course, it's a much smaller step to also work together, for instance, in the Americas. And so a good story here for our company that we were hoping for, and that seems to be materializing. We go to the next slide. Last slide, the business summary. I think the year 2025, of course, it was highlighted, if you want to call it a highlight by all the dynamics that were going on with markets -- truck markets under pressure first in North America, then in South America. But we did a good job, I think, as a company in optimizing our structures. We did a good job in not spending more CapEx than we committed to and lowering our CapEx versus 2024. And we did a good job in adapting pretty quickly. We would have not done that. We would certainly not have been able to do a double-digit margin in this kind of market environment for us. So from a cost and from a flexibility point of view, I think the company did a good job. From a growth point of view, as we talked about in prior presentations, we're not planning to do another big investment, build a new plant on the very short term. But we are planning to grow. And so you can grow through increasing shares. We've been doing some of that in 2025. Of course, we will target to do the same in 2026 as well. We are commercializing innovative products, not only with the Chinese OEMs, but also with the Chinese OEMs they're jumping on it. We like it. We both like it, the customers and we -- and that's also creating some growth. And then we will execute some selective growth initiatives. We did it already in Mercosur with our acquisition of Polimetal in Argentina. We are doing some more in Turkey. We may be doing a little bit more in India. We have a series of good smaller projects in the drawer that we will take out of the drawer piece by piece. And so that will create some growth in a little bit different shape and form than just building a new plant left and right. And so in a nutshell, if people ask me, how is the company doing? I would say when I open the newspaper every morning, and I'm sure you do as well, then you see a lot of dynamics. You read a lot about geopolitics. And then when you read about automotive news, it's a tough world, right? There's a lot of write-offs. There's a lot of pressure on profits. I look at our company and say, maybe we didn't reach all the targets that we put ourselves, which was not possible because of some of the negative -- some of the headwinds that we had in important markets for us. But overall, our company is in a very stable position. And even more important, our company is well positioned to deliver on more solid markets in the truck environment and some growth in regions that is predicted by IHS by Global Data that are important for us like Brazil, like India or in Europe, the truck market coming back on top of market share gains. And so I read the news, I read the automotive news. I look at my own -- at our own company, and I think we're not so bad positioned. With that, I open it for questions and answers. Rodrigo Caraca: [Operator Instructions] First question is from Fernanda Urbano from XP. Fernanda Urbano: I have 2 questions. First, in regard to the United States. I know it's a little bit early to say, but I would like to know your projections for 2026, considering your scenario and considering the tariffs? You released that in the fourth quarter. You were seeing some signs of stability for the market, especially for the end of 2025. But I would like now if you can share what is going to happen for 2026. What do you expect as far as time line is concerned so that these tariff effects are going to actually affect the company's sales in the market? And my second question is in regard to Brazil. I would like to explore a little bit the demand for heavy vehicles in Brazil. We see some news today in regard to the beginning of the [ MOVER ] Brazil program and the release for possibilities within the program, posing for more production, especially starting in February. I would like to know from you if you know about this project for Brazil? And I would like to hear about the U.S. as well. Pieter Klinkers: Thank you very much. Very important questions. Let me start with the first one on the U.S. or let's call it North America. As I said, it's too early to give a prediction for the total year 2026. When we ask our customers, they give us more information, let's say, for the next coming months. They're not yet able to talk about the whole year 2026. But what I can tell you is that our assumptions are in line with IHS with Global Data that during the year 2026, there will be a ramp-up of volumes, which needs to be the case if you want to end the year 2026 slightly below 2025. You started 2025 very high. You ended it at a low. It means the curve needs to go -- needs to swing the other way. And I can -- what I can tell you is that at least in the first months of this year, that's what we see happening. Now a lot more needs to happen for that market to come back to the levels that we saw at the beginning of 2025, and I can't give you any better input right now already. But at least the start of the year is in line with our assumptions. From a tariff point of view, this is changing so much as we know that it's sometimes hard to keep track of what's happening and what are the impacts directly or indirectly on your company. But purely from a North American standpoint, I would say, right now, we believe there is little impact for our company because we were handling under the -- or commercializing our products under Section 232, where there is no change. And of course, there's tariffs under Section 232. But since we are supplying from Mexico, which is getting USMCA exemption, that was the case, and that is still the case. And so from that point of view, for our company right now, based on what we understand and based on where we are today, we believe that there is no meaningful impact from the latest changes regarding the tariffs. When we look on Brazil, we're positive on Brazil. Pass car, we believe, will be positive this year, and we're well positioned to profit from that. Our plants are doing well. Our aluminum plants, we moved some equipment from around the world to Brazil to have a little bit more capacity in Brazil. We acquired a majority stake in Polimetal that will help us to generate more capacity for Mercosur, not just for Argentina, but for Mercosur. And so from a pass car point of view, we're well positioned. And then truck, we do have the capacity, both for components and for wheels. And we believe that at least in the first half of the year, yes, the program you're talking about will be helpful. And so we're looking forward for those projections to materialize. I hope that answers your questions? Gives you a little bit more insight? Rodrigo Caraca: Our next question is from Gabriel Rezende, Itau BBA. Gabriel Rezende: I will ask the question in English so Pieter can understand. So just following up on the answer you gave regarding heavy vehicles here in Brazil, if you could comment how you're perceiving the inventory levels for your customers in Brazil, it could be great. Just to get a sense because we have seen a steep deterioration on production levels in the fourth quarter along the latest months into 2025. So just trying to understand whether there's a catch-up in production to happen in the beginning of 2026 here in the Brazilian market. And also, if you could comment -- provide further details on what we could expect for market share gains throughout 2026. As I understand because you gained market share along 2025, you start 2026 with an already high market share. Just trying to understand whether we should see only a carryover effect or if there's additional projects for you to get additional room for you to get in your customers at this point? Pieter Klinkers: For Brazil, we do not foresee any special effect of too high inventories or too low inventories. And so what we see happening is the market coming back to a certain extent in the beginning of this year. And so we do not see any special effect of having too low inventories and the catch-up of production or having too high inventories and still cooling down even though sales of trucks goes up. So it's in line with our assumptions. And those assumptions are better in the first half of 2026 than what we saw in the second half of 2025. When you talk about market share increase, of course, you talk more about Europe and Asia, where that story is happening, especially on the commercial vehicle side. And you're right, some of those market shares they cannot continue to increase. But I would say, some already happened beginning '25, some happened more towards the end of '25. And so my expectation is still to see a positive effect of that. How big that effect will really be depends a little bit on how the market develops and how quickly we can materialize all of our potential. But I agree with you. The story is not endless. But at the same time, I'm hopeful that we will still see some positive effect from that also in 2026 and not only in 2025. I hope that answers. Rodrigo Caraca: Our next question is from Luiza Mussi from Safra. Luiza Mussi Tanus e Bastos: I have 2 questions. First, could you please give some more details in regard to what happened to CapEx in this quarter? And considering your scenario you described, what could we expect in regard to leveraging of the company for 2026? These are my 2 questions. Renato Salum: Well, thank you for your question. Let me explain to you in regard to what happens to the effective taxing for '24 and '25. It is explained by some recurring points that benefit 2024 and they have not been repeated for '25. Some of the movements are in the fourth quarter '24, we had a positive impact of around BRL 30 million, and this is due to a plant in India. It took us 4 years for the ramp-up. And when we can prove that the plant is in a good situation and profitable, we have the trigger for this acknowledgment of the tax-related losses in the company. So we did have this positive impact, and we are not being impacted by the same in 2025. Another important point is what we call inflation account. Considering Turkey is a hyperinflation country, we have the updates of all those numbers with the inflation accounts, and this update happens with equity. When we have this equity update, we generate a credit in equity, and we generate a debt in the operational expenses because it is included as an expense. With this, the PBT was reduced. And when you apply the nominal tax, you have less tax to pay. The inflation account was being applied in the previous years. And on December '25, the Turkish Parliament approved a measure in which the monetary correction is suspended for 2025. and it leaves 2026 as suspended. So this inflation account also has a negative impact of around BRL 40 million. So these are these 2 impacts that we suffer. Of course, we have other positive impacts that lead us to BRL 32 million, and this is the difference between quarters. Another important thing to highlight is timing. When we look at 2025 against '24, we do see an improvement of around BRL 40 million. So our effective tax is not the accounting tax, it's the actual tax that is paid. It was in around 27%. So this is the explanation of what we saw in the fourth quarter. And unfortunately, this inflation account impact affects our net profit, and this is what happened for '24 December. In regard to the leveraging, as Pieter mentioned, we wrap this year at 2.65-fold. Of course, there is a reduction of around BRL 100 million in our factoring operations. And at the end of the day, we would be close to the same leverage we had in Q3. Obviously, there is some deterioration of this leverage from 2.4x last year to 2.56x adjusted. But we also see cash generation that is strong in the company, even with the scenario that we've explained. We see BRL 328 million of cash generated with cash flow, we say indirectly and a series of investment that was in line with what we had appointed, which was around BRL 500 million. So we closed with BRL 508 million. Of course, there is a reduction in cash because there is some liquidity. But in general context, we do generate cash, BRL 328 million and obviously, worsening the working capital in BRL 100 million because we don't follow with factoring. But in view of this scenario, we have managed to control. Even with the impact, we had around BRL 50 million in expenditures with the restructuring, and it impacts EBITDA and leveraging. But we do not have significant deterioration with this scenario. And looking forward, as Pieter said, we are in line with what the agencies have been forecasting in regard to vehicle light or heavy vehicles production. And we are very close to the situation that we are envisioning today. Rodrigo Caraca: Next question is from Joao Andrade from Bank of America. Joao Andrade: My question is in regard to the antitrust investigation occurring in Germany. If you could share a little bit, if you have any estimates so that this investigation is concluded. The fact that you are collaborating with authorities is good, but I would like to hear from you in this regard. Pieter Klinkers: Yes. Joao, thank you for the question. Of course, we cannot speculate about this matter. As you say, we are fully cooperating with the authorities, and there was a next step through this formal notification. And together with the authorities, we are studying what that means, and we're looking how we can best manage the next steps in this procedure. But at this moment, it's really unclear what it means -- if it means something from a financial point of view. And so we're not in a position at this stage of the investigation to give any further comments regarding amounts of money that could be involved or would be involved if they are involved. Rodrigo Caraca: Our next question is from Keefer Kennedy from Citibank. Keefer, can you hear us. With no further questions, we are now closing the Q&A session. I would now like to give the floor to Pieter Klinkers for his final statements. Pieter Klinkers: Thank you very much for your participation. I can inform you that the rain has stopped in Sao Paulo. I hope you -- the rest of your morning, whatever time zone you're in, will be okay. We will work hard this year to deliver the results that we've put ourselves. And during this year, it's still a long year in February. There will be positives, there will be negatives, but I think we're well positioned to hopefully capitalize on a market that especially from a truck point of view is looking to be in better shape in 2026 than it was in 2025. And so I'm looking forward to come back to all of you with our first quarter earnings call in a few months from now. Thank you for listening to us. Bye-bye. [Statements in English on this transcript were spoken by an interpreter present on the live call]
Operator: Good day, and welcome to the Enovis Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kyle Rose, Vice President of Investor Relations. Please go ahead. Kyle Rose: Good morning, everyone. Thank you for joining us today for our fourth quarter 2025 results conference call. I'm Kyle Rose, Vice President of Investor Relations. Joining me on the call today are Dami McDonald, Chief Executive Officer, and Ben Berry, Chief Financial Officer. Our earnings release was issued earlier this morning and is available in the Investors section of our website, enovis.com. We also posted a slide presentation in relation to today's call, which can also be found on our website. Both the audio and slide presentation of this call will be archived on the website later today. During the call, we'll be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties, including those set forth in the safe harbor language in today's earnings release and in our filings with the SEC. Actual results might differ materially from any forward-looking statements that we make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intend to update them, except as required by law. For further details regarding any non-GAAP financial measures referenced during the call today, the accompanying reconciliation information relating to those measures can be found in our earnings press release and in the appendix of today's slide presentation. With that, let me turn it over to Damien. Damien? Damien McDonald: Hey, thanks, Kyle. Good morning, everyone, and thank you for joining us today for our fourth quarter and full year 2025 earnings call. Our results reflect strong performance across our global organization. It was a year of meaningful change and progress for the Enovis family, and I'm encouraged by our increasingly focused execution and the opportunities in front of us. We've transformed and reshaped our portfolio in a short amount of time, and 2025 was a pivotal year in moving from integration to execution. Since I joined in May, we've leaned into 3 key priorities: commercial execution, operational excellence and financial discipline. They have guided our strategy and remain the foundation of how we are building a more profitable, capital-efficient growth engine. As part of this work, we are embracing a One Enovis operating mindset, working collaboratively across the company to improve performance, standardize commercial processes and embed our EGX business system more deeply into our daily work. This shift is foundational to both our growth trajectory and margin expansion. Our highlights for the year include organic revenue growth of 6%, with 8% organic growth in Recon, reflecting above-market performance across anatomies. Prevention and Recovery accelerated to 4% organic growth in a market we believe is growing closer to 2%. We also had a solid year operationally. We maintained adjusted EBITDA margins at 18% despite the dynamic global operating environment and the impact of tariffs. As planned, we returned to positive free cash flow of $20 million in 2025, which places us firmly on our path towards our long-term free cash flow conversion targets. Fourth quarter revenue grew 3% on a reported basis and 2% organically. Recon grew 3% and Prevention and Recovery was flat. It's also important to note our fourth quarter had 4 fewer selling days than the prior year, which represented a headwind of 400 basis points to organic growth. In U.S. Recon, we grew 6% on an organic basis in 2025, led by double-digit growth in extremities. Our augmented reverse glenoid system, ARG, continued to gain traction and was key to driving double-digit growth in shoulders. What's exciting here is we have a robust pipeline to support a multiyear cadence of innovation and extremities, and we expect sustained growth in this area. In Hips and Knees, we grew 6% in implants, adjusting for the prior year sales of enabling technology, and we continue to reinforce our portfolio to compete across hospital and ASC settings. In 2025, we launched the Nebula Stent and the OrthoDrive Impactor, and they are performing well early in the adoption cycle. Over 60% of Nebula sales in 2025 were to competitive users, and we expect to more than double the installed base of OrthoDrive in 2026. Internationally, we grew 10% in Recon on an organic basis, including high single-digit growth in hips and knees and double-digit growth in extremities. We're executing across the cross-selling synergies we targeted in each anatomy and are positioned for sustained above-market growth rates in 2026 and beyond. Innovation remains key to our strategy. In 2025, we had 50% more 510(k) clearances than our best prior year. Looking ahead, we have a robust pipeline of new product introductions planned for the next 24 months. We'll showcase many of these innovations, including Arvis at the AAOS conference next week in New Orleans. We plan to deploy Arvis through a flexible business model, purchase, lease per procedure or implant commitment with the primary goal of driving implant utilization. Now moving to P&R, which on an organic basis grew 4% year-over-year in 2025. Global Bracing grew 3%, driven by revenue cycle management, upper extremity and spine bracing. BoneStim was another source of strength for the year, delivering double-digit growth. With the sale of Dr. Comfort in the fourth quarter, 50% of our revenues in P&R are growing higher than mid-single digits. So there's a lot to be excited about across the portfolio, and I'll now turn it over to Ben to walk through the financial details. Phillip Berry: Thanks, Damien. Hello, everyone. We reported fourth quarter sales of $576 million, up 3% versus the prior year on a reported basis and 2% organic growth. As Damien highlighted and as we outlined at the beginning of the year, growth in the fourth quarter was artificially low given the trade-off of 4 selling days between Q1 and Q4. With this dynamic in mind, I'll focus the majority of my comments on the full year results. For the year, we generated $2.2 billion of sales, which represents 7% reported growth, including a 140 basis point tailwind from foreign currency and an 80 basis point headwind from divestments. Organic growth for the year was 6%, led by above-market growth in Recon at 8% and solid mid-single-digit growth from P&R at 4%. Adjusted gross margins increased to 61%, an improvement of 170 basis points, driven by favorable mix, ongoing productivity and realized synergies in our manufacturing and supply chain operations. This was slightly diluted by tariff impacts as we absorbed, mitigated and offset a portion of the roughly $15 million of tariffs we paid in the year. Adjusted EBITDA margin was 17.9%, flat year-over-year as we increased R&D investments, particularly in Recon enabling tech and were unable to fully mitigate the impacts from tariffs. Tax rate for the year was 23.5%. Interest expense was $35 million, down from $57 million last year. As a result, adjusted earnings per share was $3.30, up 16%, driven by gross margin expansion and reduced interest expenses. In the quarter, we recorded a noncash technical impairment of goodwill of $501 million after evaluating the company's stock price and market capitalization relative to the carrying value of our operating units. As stated last quarter, these impairments do not have any impact on Enovis' liquidity, cash flows, debt covenants nor does it have any impact on future operations. We remain confident and optimistic in the long-range plans and positive trajectory of the company. In 2025, we delivered higher sales and earnings than our original guidance. While it was a dynamic operating environment with tariffs, currency fluctuations, abnormal quarterly selling days, we believe the company demonstrated resilience as we continue to make progress towards our long-term goals. From a growth perspective, we were very pleased to see accelerated growth in our P&R segment. Positive portfolio mix and shaping moves that we've executed over the last several years are reading through to top line results. In Recon, we delivered double-digit growth in U.S. Extremities and International Recon. We've been deliberately diversifying and constructing this segment to be a robust growth driver for Enovis with a weighted average market growth rate above the industry norm. In U.S. hip and knee, we've been rejuvenating the portfolio to fill product gaps in hip and enabling technology. Implant growth for the year was 6%, slightly above market, and we're encouraged by the early results from the launch of Nebula and OrthoDrive. As detailed on prior calls, we were delayed in the rollout of Arvisin 2025 and are eager to begin ramping the enhanced product over the course of 2026. Our adjusted EBITDA remained at 17.9% for the year with strong underlying operating performance from positive product and segment mix executed productivity projects and Lima synergy capture. These improvements were offset by increased investments in R&D to support future growth as well as negative impacts from tariffs in the year. We continue to see a clear pathway to 20% plus EBITDA margins driven by positive business mix, productivity and leverage as the business continues to scale. We generated 10% free cash flow conversion in 2025 after a negative 43% in the prior year, as integration efforts are continuing to step down. Leverage has dropped to 3.1x. And in Q4, we were able to successfully refinance our TLA, upsize our revolver and maintain low interest rates on our debt. We will continue to focus on disciplined capital allocation as we climb the cash flow conversion curve and bring leverage levels below 3. Turning to guidance. We expect 2026 to be another year of strong execution and expect revenues in the range of $2.31 billion to $2.37 billion. This includes mid-single-digit organic revenue growth of 4% to 6% year-over-year, inclusive of high single-digit growth in Recon and low single-digit growth in P&R. We expect positive currency tailwinds of 0.5% to 1.5%. And as a reminder, we will have a $41 million headwind in revenues from the divestiture of Dr. Comfort in October of 2025. On margins, we are expecting adjusted EBITDA in the range of $425 million to $435 million, 50 basis points of margin improvement versus prior year. Depreciation is expected to be in the range of $118 million to $122 million. We expect interest and other expenses to be in the range of $30 million to $32 million and an adjusted tax rate of approximately 23% in 2026. Along with these estimates, we expect a share count of approximately 59 million and are forecasting our adjusted earnings per share range to $3.52 to $3.73. Additionally, we expect free cash flow conversion as a percentage of adjusted net income to be 25% plus in 2026, while supporting the final year of substantial investments to integrate Lima and fuel growth. To summarize, 2025 was a dynamic year for Enovis, and our results highlight the power of our diversified portfolio and the continued progress we're making towards sustainable, profitable, capital-efficient growth. Kyle? Kyle Rose: Thanks, Ben. In an effort to accommodate everyone in the Q&A session and keep things to a reasonable time. We ask that analysts keep the questions to one question and one follow-up. You're welcome to rejoin the queue and we will fit you in if we've got time. With that, we'd like to now open the call up to questions. Operator? Operator: [Operator Instructions] The first question comes from Vik Chopra from Wells Fargo. Vikramjeet Chopra: First one, great to see the progress on the free cash flow conversion in 2025. You're now targeting 25% plus for 2026. Can you maybe talk about the specific operational improvements or working capital initiatives that are expected to drive the significant step-up? And then I had a quick follow-up, please. Damien McDonald: Vik, thanks for the question. As you can imagine, we have leveraging our business system, we always have productivity projects in place trying to drive efficiencies and improvements across the board. One of the main drivers of improvement this year, as I mentioned, is we'll continue to step down integration-related costs. Last year, 2025 was the last material year of investments for European medical device regulation remediation. So those costs are stepping down as well. We'll continue to drive efficiencies where we can in working capital. There's some headwind there as the business shifts more towards Recon as it carries higher working capital and CapEx investments, but we can offset that with productivity across the board and across the other business segments. So we still see a clear pathway to the 70% to 80% free cash flow conversion targets that we've laid out, and we believe 2026 is a critical step in the right direction towards those goals. Vikramjeet Chopra: A quick follow-up on Arvis. Can you talk about what's your view on how quickly Arvis can grow in 2026? And are you on track for the next-gen Arvis launch in 2026? Damien McDonald: Yes. Thanks, Vik. So actually, we're excited about starting the rollout of this at AAOS next week. And you think about it in phases, rolling out domestically in 1H, rolling out internationally in 2H. There's -- as we said in the script, there's a model flexibility here. So it's not just going to be straight capital sales. What we're really looking to do is drive implant utilization. So there's not a line of capital sales that we're really targeting. It's a flexible model. We know that one of the key advantages of the product is that it's mobile, it's capital efficient. And so we want to make it as easy as possible for people to use more of our implants. So watch this space. I think we're seeing you next week at AAOS, and the team, we're excited about showcasing this. Operator: The next question comes from Jeff Johnson from Baird. Jeffrey Johnson: Maybe almost staying on the same focal points there, the 2 same focal points. U.S. hip and knee business, you guys have a nice slide in your deck this quarter that shows kind of all the adjustments on selling days and some of the Arvis headwinds. You were very consistently in that 5% to 7% range on U.S. hip and knees if we make those adjustments every quarter of '25. Is that roughly the area you're thinking this year? And would there be any opportunity for Arvis to push that a little above that? Or would you expect that multi-pronged Arvis strategy to fit more with some placements and maybe implant commitments? Damien McDonald: Yes. I'm excited about what I think we can do here. Firstly, the hip and knee expansion, we talked about this with the Nebula and OrthoDrive. Hip is exciting for us. And I think we've said before, 50% of our knee surgeons don't use our hip. So having that portfolio gap filled, I think, is important just for our existing customers. And as I mentioned, 60% of our placements were conversions from competitive hip users. So I think hip of itself has some runway. And then with Arvis, we're expecting the knee focus and then ultimately, the shoulder focus to really lift that whole -- that whole U.S. group. Jeffrey Johnson: And maybe one follow-up, Ben, just on the cash flow question. You did talk in prepared remarks around 510(k) numbers where filings were up quite a bit in 2025. Obviously, this multi-pronged Arvis could cost maybe some cash upfront depending, I guess, on how placements look versus actual outright sales. And Ben, as you take that 25% free cash flow conversion to 70% to 80% over time, are we still set up where we should iteratively over the next few years, continue to see improvements? Or do we hit kind of a ceiling for a couple of years as you work through a couple of these heavy launch years and the initial Arvis strategy? Phillip Berry: Yes. Thanks for the question, Jeff. We see it as continuing to drive incremental improvements in our conversion over the next several years. So we would expect it to continue to accelerate as we get closer to that 70% to 80% goal. Now it's going to take us a couple of years to get there. But overall, I think you'll see us continue to take steps towards that direction year-over-year. Like I said in my prepared remarks is that we still have one more, I'd say, substantial year of investment to integrate Lima, especially as we continue to finish a lot of the executed projects that we had identified across the supply chain to make our supply chain more efficient on the Recon international side. So we'll see continued improvements on free cash flow conversion, and we'll be able to absorb all of those impacts that you described with regards to Arvis and some of the investments that we need to make. One of the great things about Arvis is its very capital light. So one of the opportunities for us is to really be aggressive with this to drive penetration. Operator: The next question comes from Vijay Kumar from Evercore ISI. Vijay Kumar: Congrats on a nice execution on the margins here. Damien, maybe my first question is, was there any cadence issues in the Q4 and any impacts on utilization in -- when you think about Q1, you did mention days impact. I know weather has been a topic. So I'm curious on how we're thinking about Q1 kind of issues impacting organic. Damien McDonald: I'll take a bit of this, and then you can jump on in, Ben. By the way, good morning. Thanks, Vijay, for being on. So Q4, look, there was no underlying change in markets. We performed seasonably lower than our historical data. And if you look at the range shift that we announced back in January, it was basically 1 trading day impact. And the impact was segment, geography and product agnostic. So we didn't see any change in the dynamics at all. It was entirely related to just the way the days fell as we finished the year. Do you want to talk about? Phillip Berry: Yes, Q1 in 2026, Vijay has 2 less days. Q2 has 1 more day and Q4 has 1 more day. So no selling day impacts for us for the full year, but there will be a little bit of a softer impact given the 2 less days in Q1 and the super high comp that we have from 2025. Yes, we, like everyone else, are experiencing some of the weather dynamics that are happening that are putting elective procedures on hold. We think most of that gets recovered in the quarter. And overall, what we've seen so far in terms of the business performance is in line with our expectations. So overall, we think it's going to be another solid year for market performance. And I laid out the day's impact for you there as well. Vijay Kumar: And then maybe, Ben, one on the margins. Gross margins came in nicely in Q4, beat Street estimates. Was this just a mix impact? Or can you talk about sustainability? Do you expect gross margins to expand in fiscal '26? Phillip Berry: Absolutely, Vijay. I think from our perspective; this is really starting to read through a lot of the shaping moves that we've been making as a company over the last several years because the things that Damien mentioned with regards to P&R growth where about half of our portfolio is now mid-single-digit growth. A lot of that comes with products that carry higher than fleet average gross margins in the P&R segment. We're several years into embedding our EGX business system now in the P&R side of the business. You're seeing productivity start to read through. I also mentioned in my prepared remarks that we got synergy capture from Lima that we still see opportunities to drive margin improvements on the Recon side through further activities there. And the mix of extremities growing faster than hip and knee as well as it carried higher gross margins. So the business is really set up to drive positive mix, but that doesn't mean that we won't also be driving productivity and other opportunities to drive gross margins higher over time. That's part of our formula to get to the margin expansion that we lay out from an expectation standpoint every year. So overall, yes, we expect gross margins to go higher, and there's a lot of tailwinds that are supporting that while we're having some headwinds like tariffs that we're having to absorb. Operator: The next question comes from Robbie Marcus from JPMorgan. Robert Marcus: Two for me. First, can I follow up on the fourth quarter comments, and I just want to flush this out a little bit. You say that it boiled down to the miss essentially 1 selling day. We didn't see that happen to any of the other orthopedics peers. So do you think it was simply a selling day misforecast on your end versus what you thought you could do? Or was it due to some products coming in below expectations and that in the end amounted to 1 fewer selling day? Damien McDonald: Yes. Look, it's really simple. We just didn't execute. We missed it by a day as the way the days were falling with where Christmas was. Look, all of that is -- we just didn't execute. And we've got work to do there. I'm new into the gig, and we're working on our disciplined execution. And the first thing I've talked about is commercial execution. And so that's why I say it was segment, geography and product diagnostic. We've just got to get a bit better in how we execute. Robert Marcus: Great. So maybe on that, 2025 ended up at the low end of the initial guidance range. As you set the guidance range for 2026, how are you thinking about the conservatism of this guide? And what are some of the puts and takes that get you to the high end and the low end? Damien McDonald: Well, look, there's a -- pretty dynamic environment. So we've tried to be conservative in our guidance. I mean we know there's a lot of moving parts for everyone. So our approach has been to be conservative. But to the upside, again, we'll point to where we're going with hips and what we're doing with the Nebula opportunity. We're very early in that release. The shoulder compatibility, we now have an implant system that's got basically 3 very great systems, the Prima, the SMR, AltiVate are all completely compatible, and we've only just started that rollout across our shoulder surgeon base. And towards the end of this year, the OUS hip, the Optimus Stem and the RM Cup, we'll be bringing that to the U.S. and that's a great product portfolio given that it's got phenomenal 10-year data. So on the Recon side, we think we've got a lot of runway. On the P&R side, there's reimbursement tailwinds on cold therapy and OA that we're liking. We're really excited about what the team is doing with Manafuse for BoneStim. So again, to the upside. To the downside, we all watch the socials and let's see what happens. But we're doing what we can do to and the things we can control, which is to drive the upside. And as I said, focus on commercial execution. Operator: The next question comes from Danielle Antalffy from UBS. Danielle Antalffy: Damien, I wanted to ask a high-level question of you that has, to some extent, to do with capital deployment. But -- you're now almost a year into this. At a high level, as you take a look at the portfolio and where you sit today from a product breadth of portfolio perspective as well as your competitive positioning, where do you see the most need for whether it's improving execution, continuing to fill out product gaps? And how do you expect -- how do you plan to address that organically, inorganically, what have you? And then I did have one follow-up. Damien McDonald: Sure. Well, look, again, on commercial execution, I think it's in each of the business units, we've got an opportunity to improve where we're going with commercial execution. Now it could be about how we target and segment. It could be about how we do account acquisition and account penetration, two of my favorite metrics to track. And it could be just how we think about positioning and the way we go about putting the various new products into the market and being very specific about our messaging. So there's a lot of opportunity across the board. And each business unit, as we're working into the new year and doing our reviews, we're very focused on that commercial execution. The NPI, the new product introductions are really looking good for us, and we talked about the 510(k)s last year. We've got a really rich pipeline that we're excited about with this cadence of new product launch. A lot of the way I see the orthopedics market is you don't have to do home runs. You have to be good at singles and doubles, and we are working hard to get the cadence and the prioritization of those singles and doubles so that when you walk into a clinician and they say, "hey, what's new," we can talk about that. And I'm very excited about that. Now are we looking for things that tuck in? Yes. But as we've said very emphatically, our capital allocation priority is to reduce debt. So it will be unlikely we do anything unless it's a generational opportunity. And like if we miss it, it will pass us by. But our focus is for capital allocation is debt reduction. And we like the way we can fill in the portfolio with our organic pipeline. Danielle Antalffy: Okay. Got you. And then P&R, you mentioned 50% of the portfolio. I think you said growing mid to-high single-digits. How sustainable is that? And should we -- because I think of this business more as sort of low to mid-single-digit growth so that's faster than what I was thinking. And can more of the portfolio get there? Or how are you thinking about that? Damien McDonald: Yes. Look, I think we've used the word shaping the portfolio. And I think this is where we're going to continue to work not only on product rationalization and SKU rationalization to keep moving up the gross margin curve. But the growth here is important. And now, as we said, 50% of the portfolio is mid-single digit or greater. There's a lot of opportunity for us to continue that. And it comes with our geographic expansion. We have a new leader in Europe who is really bringing a lot of thoughtful and exciting new ways of thinking about the markets. So I like our chances here just in the base portfolio. And as we said, we've launched some recent new things like Manafuse and BoneStim, which is growing very nicely double-digit, and I think has a lot of runway. Phillip Berry: Yes. I would just jump in there, Danielle. I mean it's one of the critical aspects as we think about continuing to construct a portfolio that can get to consistent high single-digit growth capability. The more P&R is growing, the more it helps us to get to that equation given that the Recon business is already growing high single-digits plus. So overall, we've built the portfolio with that in mind to get to high single-digit consistent growth opportunity and continue to shape the organization towards that end. Operator: The next question comes from Mike Matson from Needham. Joseph Conway: This is Joseph on for Mike. Just a couple of product-related questions. I guess, BoneStim, and the laser product, I believe both at least you called out growing at double-digits. I'm just wondering how that growth compares to the market growth rate for those 2 products, respectively. Damien McDonald: Yes. Thanks, Joseph, for the question. We think we're slightly ahead of market in both categories there. With the introduction of Manafuse on the bone growth side, we have a more comprehensive portfolio to really address market opportunities, but this market also has a great opportunity in terms of penetration as well. So overall, we're excited about the future of that portfolio. LiteCure has been a good story from us. We acquired this back in 2022, I believe, or maybe even before that, and it continues to be a really strong performer for us. And we still see lots of opportunity there, not only from the current product line, but as we continue to refresh it with innovation as well, we'll continue to see higher growth rates than the fleet average driven by that product line. Joseph Conway: Okay. Great. And then maybe just on the Optimus launch, how are you guys looking at that in terms of hip growth? Does this kind of keep Enovis at that above-market growth rate? I think around double the market growth rate; I think you called out. Is this an acceleration opportunity? Yes, just wondering how you're thinking about that launch at the end of the year. Kyle Rose: Joe, this is Kyle. Yes, look, we've got a long runway with Nebula. Last year was the first year where we put Nebula and OrthoDrive into the market. So we've got significant plans to continue pushing there. From a longer-term perspective, at the end of this year, we'll bring the first component of Optimus and the RM Cup to the United States market. So it's more of just highlighting the strength in the longer-term pipeline we have. So a lot to be excited about on the hip side. Operator: The next question comes from Keith Hinton from Freedom Capital Markets. Keith Hinton: So I have 2 questions. One is kind of high-level strategic and the next one is more financial. So starting with the strategic question. With regards to the One Enovis initiative, can you just talk about how you're planning to exploit synergies between the two segments between Recon and P&R, both on the revenue side and the cost side, and if you want to differentiate U.S. versus OUS as well? Damien McDonald: Yes, thanks. I really appreciate the question. One of the things that I noticed very early as I joined the group was the 7 business units, which is a valid operating model, didn't share a lot of information, and we didn't optimize how we were investing in either commercial execution or new product development. So one of the things that I think is really important is taking a view across the entire entity. That's the first thing. So how do we optimize where we invest. That's the first part of One Enovis. The second part is how do we collaborate and that's in the field as well. The fact is we've got a number of distributor partners in the U.S. who have great relationships on the P&R side, and we don't share a lot of that information across the group. So one of the things we're working much more on is how do the various commercial organization components talk to each other and share contacts and so that's on the commercial execution. On the operating excellence, there's a lot of work we can do to simplify the organization and how processes run in finance, in HR, in procurement, direct or indirect. So we're really looking right through the P&L at how we can do it. A classic example and something that we had started the journey on was shared services. We had a shared service group in Portugal that was working predominantly in P&R. Putting more effort into using that for the Recon Group internationally is important. We had an outsourced shared service with a provider in India that worked on our revenue cycle management. We're insourcing that, which, by the way, brings a lot of savings, but then we can make productivity improvements in that with AI to get to really driving our RCM processes better. So we're excited about this One Enovis mindset, and we've been campaigning this, firstly, with the key leadership starting in Q4 and now more broadly as we head into Q1 with the organization. Keith Hinton: And then on the financial side of things, so the 50 bps margin improvement this year, and you've kind of guided to 50 bps going forward, obviously, sort of 4 ways to get there. You could improve P&R margins, improve Recon margins, the mix shift towards Recon and then just leveraging corporate costs. So in those kind of buckets, can you help us think about where the 50 bps mostly comes from in 2026 and then going forward, where the 50 bps can come from in '27 and beyond? Phillip Berry: Yes. Thanks for the question, Keith. We continue to focus on really all of those aspects to be clear. But right now, I'd say the focus is really to continue to drive improvements in gross margins that can help fuel some of the investments required on R&D as we continue to tick up in terms of investments to support future innovation and growth of the business there. Damien just outlined several ideas and executed projects that we continue to advance around driving leverage of the cost structure of the enterprise. So that can happen in both business segments and in the SG&A line of the business. So we see opportunities across the board. The near-term focus is to continue to drive the positive mix and gross margin productivity projects that we have in flight as well as getting the synergies out of Lima that we expect. That will help us as we continue to work these other projects that can help us drive improvements in the overall cost structure. Operator: [Operator Instructions] The next question comes from Caitlin Roberts from Canaccord Genuity. Caitlin Cronin: Maybe just focusing on extremities. With the foot and ankle business, where did you end the year? And how are you thinking about the foot and ankle market as we go into 2026? Damien McDonald: Yes. That was a really fascinating year to watch with that foot and ankle. And we've talked about this before. The front end, what we're seeing with clinicians in terms of their bookings and consultations really remained pretty strong. At the back end, we really saw a softness in the market. Now we believe -- again, there's not a lot of market data, but we believe we're significantly outgrowing the market and the competitors in this space. And I think it's because we've got a balanced portfolio that's not just about the bunion market. And that really carried us through with the DynaNail, for example. So extremities for us is a point of real focus for the Recon team. We believe there's a long runway. I'm convinced we've got great clinician partners. I think we've got a great focus and pulse on the whole portfolio. The market for us is something that we're very much watching, particularly on the elective side. But we, as I said, outgrew the market pretty significantly. Caitlin Cronin: Understood. And then just for extremities more broadly, I think you pointed to a multiyear pipeline earlier in the call. Any more color on these opportunities? Damien McDonald: Yes, we really haven't talked about that publicly. As the year progresses, I'm going to be more explicit about those things. You'll see some of it at AAOS. You'll see it at the specific shoulder events. But our focus really here is the fact that we've got a 3 system compatibility now, and we really want to make sure that we're getting to basically every procedure that's valid being a target for us. We've also got an opportunity to expand more into the sports medicine side of the arthroplasty application. Most of our customers are fellowship trained. So we're more on one side of the family than the other. And I think we've got opportunity to expand our go-to-market there. Operator: We have a follow-up question from Keith Hinton. Keith Hinton: Yes. I just wanted to ask strategically on the P&R side. So you said 50% is growing mid-single digit or better, but you're obviously guiding low single-digits. So that implies that on average, the rest is kind of flat-to-down. So how do you think about the process of shaping the portfolio going forward? Do you expect more divestitures to the slower-growing products have good margins? And then how do you think about that from a perspective of just making sure that the portfolio remains of a size where it's continuing to generate the cash that you need to invest in the Recon? Damien McDonald: So I would put this into buckets of activity. One is commercial execution. As we've said, we just have to get better across the portfolio and across the entire sales organization at executing. That's one. Two, we've got geographic expansion opportunities that I think are important that we can exploit that we just have to again get better at, but we've got, I think, some good runway there. Three, I think we should continue to look at shaping the portfolio. There's SKU rationalization, portfolio rationalization to move up the growth profile and the gross margin profile. And then four is to look at the portfolio in its entirety and what are the components of that. And you saw we made the move on Dr. Comfort. I think that's a relevant conversation that we're having with the team. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Kyle Rose for closing remarks. Kyle Rose: Thanks for joining us today. I'm going to hand it over to Damien for some closing remarks. Damien McDonald: Well, thanks, everyone, for joining. As I wrap up, I'd first like to thank all our employees for the ongoing commitment, focus and dedication to improving our patients' lives. After 9 months in the role, I am more excited about the opportunities and the strength that we have in the Enovis team. 2025 was an important year for Enovis. P&R growth accelerated to nearly 4%, 2x the market. Recon outgrew the global market at 8%. We strengthened our portfolio with key new product launches, improved our operating discipline and returned to positive free cash flow. Just as importantly, we made meaningful progress transitioning from a period of portfolio construction to a period of focused execution. As we enter 2026, our priorities are clear. We'll continue to drive commercial execution, expand margins through mix and productivity, step meaningfully up the cash flow curve. We believe our innovation cadence, differentiated portfolio and disciplined capital allocation position us well for durable, profitable growth. So we appreciate your continued interest and look forward to updating you on our progress throughout the year. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Zscaler Second Quarter 2026 Earnings Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kim Watkins, SVP of Investor Relations and Strategic Finance. Please go ahead. Kim Watkins: Good afternoon, and thank you for joining us today. Welcome to Zscaler's Second Quarter Fiscal 2026 Earnings Conference Call. On the call with me today are Jay Chaudhry, Chairman and CEO; and Kevin Rubin, CFO. Please note that we posted our earnings release, shareholder letter and a supplemental financial schedule to our Investor Relations website. Unless otherwise noted, all numbers we talk about today will be on an adjusted non-GAAP basis. You will find a reconciliation of GAAP to the non-GAAP financial measures in our earnings release. Before we get started, I'd like to remind you that today's discussion will contain forward-looking statements, including, but not limited to, the company's anticipated future revenue, annual recurring revenue, net new annual recurring revenue, gross margin, operating profit, net other income, earnings per share and free cash flow margin, our customer response to our products, our expectations regarding AI and its impact on our business and customers, and our market share and market opportunity and our objectives and outlook. These statements and other comments are not guarantees of future performance, but rather are subject to risks and uncertainty, some of which are beyond our control. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a more complete discussion of these risks and uncertainties, please see our filings with the SEC as well as in today's earnings release. I also want to inform you that we'll be attending the following conferences: Morgan Stanley Technology, Media and Telecom Conference on March 2; Loop Capital Markets Investor Conference on March 10; Stifel Technology Conference on March 10; Cantor Global Technology and Industrial Growth Conference on March 11; and Wells Fargo Software Symposium on April 8. And with that, I'll turn the call over to Jay. Jagtar Chaudhry: Thanks, Kim, and thanks to everyone for joining us today. We delivered strong Q2 results, and I couldn't be more proud of the team's execution. ARR grew 25%, reflecting continued strong demand for our platform. We are confident in our outlook for the second half of fiscal 2026. And as a result, we are increasing our guidance across the board. I'd like to zoom out for a moment and talk about what's on everyone's mind, AI. AI is the single most transformative technology of our time, and its mass adoption is only just beginning. We believe Zscaler is the security platform for the AI era, because we already protect users, data and applications across clouds and the Internet at scale. Just as we enable customers to securely accelerate digital transformation and cloud adoption, we believe we are uniquely positioned to secure the AI transformation, driving continued demand for our platform. Organizations are rapidly adopting AI to drive productivity and innovation, but doing so is creating new vulnerabilities, significantly expanding the attack surface and increasing cyber threats in scale, sophistication and speed, recasting AI from a productivity engine into a dangerous security threat. During my conversations with more than 100 CEOs and CIOs, including many at the World Economic Forum in Davos last month, the urgency of securing AI is one of the top concerns on their minds. This is the opportunity for Zscaler's industry-leading Zero Trust Exchange, which enables our customers to securely scale AI for the agentic era and beyond. Zscaler minimizes the attack surface and limits lateral movement with our unique Zero Trust architecture that enables direct one-to-one communication among users, applications and AI agents. I started Zscaler with an initial focus on securing users with Zero Trust. Then we extended our platform to deliver Zero Trust for workloads, branches and devices, which has increased our TAM significantly and extended our technology lead from other vendors who are still trying to build a SASE solution for user security. Now we are extending our global Zero Trust Exchange platform to secure AI applications, AI agent communication and agentic workflow at scale. As AI agents are unleashed within the enterprise, it won't be long before billions of AI agents interacting with each other will have access to mission-critical applications and sensitive data. Just like users and organizations, AI agents are also becoming the weakest link in cybersecurity. Imagine a threat actor hijacking even one of an organization's AI agents resulting in a serious breach. AI agents shift the threat landscape and operate autonomously at speeds far exceeding humans, exponentially increasing agentic traffic while compressing the time to prevent, detect and respond to threats. This is becoming even more acute as AI agents or apps exposed to the Internet can be scanned and targeted in seconds. Securing this new reality requires in-line policy enforcement at massive scale. This is what Zscaler is built to deliver. Zscaler stands for the Zenith of scalability. Effective AI security requires a proven global Zero Trust Exchange infrastructure, and we believe Zscaler is the only cybersecurity platform for the AI age that's able to secure at this unprecedented speed and scale, creating a durable advantage. We have 15-plus years of experience operating our own cloud across 160-plus data centers worldwide, offering real-time security services with 99.999% reliability. This global infrastructure is critical to secure AI agent communication. Our software is present on millions of end-user devices, servers as well as in the cloud and branch offices, and it enables us to get agentic traffic to our Zero Trust Exchange, giving us a unique advantage. With our AI platform capabilities, we processed nearly 1 trillion AI transactions in calendar 2025. We are also processing millions of MCP requests through our exchange on a monthly basis, up from literally nothing a couple of quarters ago. As an example, a large Fortune 100 financial services customer is using our Zero Trust Exchange to enforce policy for the software development agents. In another example, a CISO of a Fortune 500 entertainment company, a Zscaler customer, shared with me that with little deployment effort, he was able to turn on Zscaler Exchange to enforce policy for AI traffic and is securing over 4 million prompts per week. Our Zero Trust Exchange is fundamentally different from competitive firewall-based security architecture that connects users or AI agents to a network and then allows them to roam free, dramatically increasing the risk of cyber breaches. We expect these advantages, including significant architectural differentiation and our large customer base to drive short-term and long-term demand for our platform. Turning back to the quarter. Our results reflect robust demand across all 3 of our growth pillars. AI Security, Zero Trust Everywhere, and Data Security Everywhere. I will start with AI Security, which includes 2 product areas: AI Protect, our recently introduced solution to secure the use of AI and agentic operations. I will begin with AI Protect, which secures the full spectrum of enterprise AI adoption and solves a range of cyber and data loss challenges. Zscaler ThreatLabz Research found that in calendar 2025, AI application use within our customer base expanded to over 3,400, a quadrupling in the last 12 months alone, with data transfers to AI apps exceeding 18,000 terabytes. Many of these apps have serious vulnerabilities. Zscaler AI Protect gives customers a single integrated way to secure AI at scale by discovering and managing all AI assets, including shadow AI uses, enforcing safe access to approved apps and inspecting every prompt and response in real time to stop data leaks and attacks like prompt injection. For customers building their AI models and applications, our AI Red Teaming solution performs continuous security assessment. This quarter, we integrated our AI Red Teaming and our Guardrail products to provide true closed-loop security. While our Zscaler AI Protect solution is new, we see demand rapidly accelerating, including landing new logos, representing a massive future growth opportunity. This quarter, several large enterprises adopted our solution. In an 8-figure new logo win, we landed a Fortune 500 semiconductor manufacturer. This customer expanded its use of our platform to include AI Protect and Data Security solutions to block access to unsanctioned applications, prevent public LLM data leakage and provide visibility into prompts. Zscaler's integrated AI Protect solution spanning the entire AI life cycle was a key differentiator for this new logo win. In another example, in a 7-figure upsell deal, a Global 2000 construction company, which is securing users with Zscaler, added our AI Protect solution to prevent data leakage and enforce acceptable use controls for access to GenAI applications. The second product area of our AI security is Agentic Operations, which includes our Agentic SecOps and Agentic IT Ops solutions. we are significantly advancing our Agentic SecOps capabilities by integrating Red Canary's agent framework with the deep security insights we generate from the Zscaler Zero Trust Exchange, which processes more than 500 billion transactions every day, more than 20x the number of daily Google searches. This fusion of capabilities simplifies customer operations, automates threat hunting, and provides more accurate, actionable threat prioritization. Some of our wins for our Agentic SecOps solutions this quarter include a leading AI software and research organization, a Global 2000 utilities energy company, and a Global 2000 oil and gas company. In Agentic IT operations, our innovations include Zscaler Digital Experience or ZDX CoPilot, which combines Agentic technology with a conversational interface to troubleshoot and resolve performance issues of applications and network and endpoint devices. Booking for ZDX Advanced Plus, which includes our ZDX CoPilot product, crossed $100 million over the last 12 months, growing more than 80% year-over-year. We are soon launching an AI agent for ZDX that will automate multiple troubleshooting tasks, resulting in faster diagnosis and resolution of performance issues. Overall, I'm very pleased to see growing demand and continued momentum for our AI Security solutions. Our next growth pillar is Zero Trust Everywhere, which includes revenue from customers who are more broadly adopting our Zero Trust architecture by purchasing all of the following: Zero Trust Users, Zero Trust Branch, and Zero Trust Cloud. We pioneered the Zero Trust Users market by disrupting the traditional proxy and VPN markets, and we are a clear market leader. With our Zero Trust Branch, we are disrupting branch firewalls, software-defined networks or SD-WAN and MPLS networks. With Zero Trust Cloud, we are disrupting virtual firewalls in the cloud. We are seeing ARR from Zero Trust Branch and Zero Trust Cloud growing significantly as we dramatically reduce cost and complexity. The number of Zero Trust Everywhere enterprises has grown at a rapid pace and now sits at over 550, up from over 130 a year ago. The pricing of Zero Trust Branch and Zero Trust Cloud are based upon the number of devices, the number of workloads and the amount of traffic, which keeps growing. This expansion also creates a flywheel effect, generating follow-on demand for our Data Security and AI Security offerings. Let me give an example of a Zero Trust Branch win at a subsidiary of a Fortune 500 retailer, who significantly expanded its deployment of Zero Trust Branch to over 1,000 sites in a 7-figure upsell, making it one of our largest ever Zero Trust Branch deals. The use cases for this customer were frictionless M&A integration and rapidly bringing both newly acquired and greenfield sites online. This order also included our AI Protect solution to secure sensitive data from GenAI apps. In Q2, 45% of the total customers who bought our Zero Trust Branch solution were new logos, demonstrating that Zero Trust Branch is helping us grow our new logos. This is also a clear proof that for better cyber protection, customers want each branch to become like an Internet cafe and replace SD-WAN, which is often sold by SASE vendors. Another important part of our Zero Trust Everywhere solution is Zero Trust Cloud, which reduces cost and operational complexity by eliminating virtual firewalls in data center and cloud environments and can be deployed in 10 minutes. We're seeing tremendous momentum for Zero Trust Cloud. To share a customer example, in one of our largest ever Zero Trust Cloud wins, a Global 2000 financial services customer signed a 7-figure deal, increasing their ARR to more than $5 million, up over 40%. Zero Trust Cloud is priced based on traffic, creating a natural path for ARR to grow as customer traffic grows. This deployment will eliminate a large number of virtual firewalls in their multiple cloud environments, which significantly reduces the operational burden of managing firewalls in multiple clouds and improves cyber posture by preventing lateral threat movement. With significant wins, we are proving that for better cyber protection, customers want each cloud workload to become like an island and communicate only through our Zero Trust Exchange and displace virtual firewalls. Our opportunity is to secure millions of workloads. Our third growth pillar is Data Security Everywhere, which is 8 modules, including Data Discovery, Data Classification, Posture Management, and Data Loss Prevention. We are seeing significant traction driven by enterprises consolidating the data security point products onto our integrated platform and simplifying deployments. The growing use of AI apps is making data protection essential, generating strong demand for our solution. Let me share an example. In an 8-figure upsell win, a Global 2000 financial services customer expanded its adoption of our platform by purchasing additional data security modules, strengthening protection for sensitive data across its organization. This customer selected us over well-known competitors to replace multiple legacy point products due to our unified policy for various data sources and channels. With this purchase, the ARR for this customer increased nearly 5x. We believe Zscaler is incredibly well positioned to secure the AI era. As the number of agents expands, the unique Zero Trust architecture becomes even more crucial, minimizing attack surfaces and limiting lateral movement by enabling direct one-to-one communication. In summary, our growth opportunity is straightforward. Traffic flowing through our Zero Trust Exchange for secure communication expands our revenue opportunity. In the agentic era, the traffic from Zscaler's more than 50 million users, servers, cloud workloads, branch locations and AI agents will grow exponentially, driven by billions of autonomous agents. We believe that Zero Trust communication will be the only way to provide the real-time protection customers need to adopt AI safely and securely. We run the largest in-line globally distributed security cloud platform in the world, processing more than 500 billion transactions every day, more than 20x the number of daily Google searches. This proprietary anonymized data is used to train our AI engine, a powerful differentiator to stop ever-changing threats at speed and scale. We provide the global infrastructure, which enables our customers to secure communication and apply policies in real time at wire speed. Today, we are trusted by more than 45% of Fortune 500 companies, and we expect to continue expanding our partnership over time. In addition, with just 4,400 of more than 20,000 largest enterprises in the world as Zscaler customers today, we have a significant opportunity ahead. This gives us a durable runway for long-term growth from both upsell and new logo opportunities. Protecting AI is not just a job or task for Zscaler, it is our mission. We believe Zscaler is the cybersecurity platform for the AI age. Now I will hand it over to Kevin to walk through the financials. Kevin Rubin: Thanks, Jay. We delivered strong Q2 '26 results, exceeding our targets while investing with discipline. With 26% revenue growth and a 36% free cash flow margin, we achieved Rule of 62 performance in the first half of the year, placing us among the elite companies that consistently outperform the Rule of 40. Our Q2 '26 net new ARR was $156 million, up 19%, bringing total ARR to $3.4 billion, up 25% year-over-year. Net new ARR benefited from strength in large deals and volume of deals. In particular, the Americas closed twice the number of $1 million-plus deals this year as compared to last year. Excluding the contribution from our acquisition of Red Canary, net new ARR was $139 million, up 7% year-over-year and total ARR up 21%. These results compared to an exceptionally strong 24% net new ARR growth last year. Red Canary exited Q2 with $114 million of ARR. For the first half of the year, net new ARR, excluding Red Canary, grew 10% year-over-year, accelerating from 1% last year. This quarter, our Zero Trust Internet Access, or ZIA, and Zero Trust Private Access, or ZPA, ARR remained healthy and grew in the mid-teens. We have steadily expanded our Zero Trust platform beyond users to protect branches, workloads, AI applications and now AI agents. We believe AI agents will drive a meaningful increase in machine-to-machine and agent-to-agent interactions over time. In Q2, our non-seat-based metered usage solutions delivered just over 1/4 of new ACV and the ARR tied to those offerings grew more than 100% year-over-year. Revenue of $816 million grew 26% year-over-year and 4% sequentially, exceeding the high end of our guidance. We closed Q2 with 728 customers generating over $1 million of ARR and 3,886 customers exceeding $100,000 in ARR, both growing 18% year-over-year. We also set a record $1 million-plus new ACV deals for a Q2. On a geographic basis, we saw strong growth from the Americas, which accounted for 57% of revenue, up approximately 31% year-over-year. EMEA accounted for 28% of revenue, up approximately 18%, and APJ for 15%, up approximately 23%. Remaining performance obligation, or RPO, of $6.1 billion grew approximately 31%, including approximately 47% classified as current RPO. We are pleased with the strong execution in our account-centric sales motion, which is strengthening our position as a long-term strategic partner and driving deeper customer adoption over time. In Q2, we again delivered double-digit sales productivity growth, reflecting continued improvement in our go-to-market execution with meaningful headroom ahead. We also achieved record pipeline conversion for Q2, signaling stronger pipeline quality and improved visibility. We continued to build strong momentum this quarter with our recently launched Z-Flex program. Z-Flex gives customers with multiyear commitments, the flexibility to activate or swap modules without starting a new procurement cycle, along with premium deployment assistance and support. This program is driving meaningful upsell, shorter sales cycles and greater forward visibility. In Q2, Z-Flex generated more than $290 million in TCV, up over 65% quarter-over-quarter. Since launching a year ago, we have delivered approximately $650 million in TCV at an average 4-year term, underscoring customers' long-term commitment to Zscaler. To share a couple of customer examples, in a 5-year 8-figure Z-Flex deal, a large U.S.-based finance and insurance customer nearly tripled its annual spend by expanding its module adoption across 11 existing modules and adopting 5 new modules, including our AI Security solution. In a new logo Z-Flex win, a Fortune 500 retail customer purchased 11 modules in a 5-year 8-figure deal. This customer adopted all of our Zero Trust solutions, including Zero Trust Users, Cloud and Branch, landing as a Zero Trust Everywhere customer. Turning to M&A. I'd like to start with some color on our recent acquisitions. On February 5, we closed the acquisition of SquareX, which extends Zero Trust capabilities into any browser, enabling organizations to leverage standard browsers like Chrome and Edge to secure access on unmanaged devices without requiring a separate third-party enterprise browser or using outdated and costly virtual desktop infrastructure. Next, Red Canary. On February 1, we executed the next phase of integrating the Red Canary teams with the respective Zscaler teams. Red Canary was primarily a technology and talent acquisition. As we shared when we closed this acquisition, churn for MDR businesses is higher than we experienced in our Zscaler business. Post acquisition, Red Canary's churn has been elevated. We'll be providing Red Canary ARR in Q3 and Q4. Turning to operating performance. Non-GAAP gross margin was 80.2% compared to 80.4% a year ago. Non-GAAP operating income of $181 million grew $41 million or 29% as compared to $140 million last year. Non-GAAP operating margin of 22.2% increased 50 basis points year-over-year, reflecting the sales productivity improvements I mentioned earlier, demonstrating leverage on sales and marketing. Turning to the balance sheet. We ended the quarter with $3.5 billion in cash, cash equivalents and short-term investments and $1.7 billion of debt. In Q2, we generated $204 million in operating cash flow, up 14% year-over-year, and CapEx was $18 million or 2% of revenue. Finally, free cash flow margin was 20.7% this quarter, down from 22.1% last year, driven by the timing of cash collections. Looking ahead, I'd like to spend a minute addressing the recent increases in memory, storage and processor prices and availability. So far, we haven't seen a meaningful impact to our operations. However, it could become a factor in the future as we purchase equipment for our data centers and Zero Trust Branch appliances. We'll continue to monitor our costs and adjust customer pricing if needed. Turning to guidance. Let me provide our outlook for Q3 and full year fiscal '26. As a reminder, these numbers are all on a non-GAAP basis. For the third quarter, we expect revenue of $834 million to $836 million, reflecting approximately 23% year-over-year growth; gross margin of approximately 80%; operating profit of $187 million to $189 million, equating to an operating margin of 22.4% to 22.6%; net other income of approximately $25 million; and earnings per share of $1 to $1.01, assuming a 21% tax rate and 167 million fully diluted shares. For the full year fiscal 2026, ARR of $3.730 billion to $3.745 billion or year-over-year growth of approximately 24%. This guidance implies net new ARR growth, excluding Red Canary, of approximately 9.5%. For Red Canary, we expect ARR of approximately $130 million in fiscal '26, up from our prior guidance of $95 million, with net new ARR of approximately $6 million in Q3 and $10 million in Q4. This includes all the business expected in each period, including fiscal '26 renewals, upsells and new logos. For the second half of fiscal '26, we expect approximately 40% of total net new ARR to be recognized in Q3. Revenue of $3.309 billion to $3.322 billion, reflecting year-over-year growth of 23.8% to 24.3%. We expect Red Canary revenue of approximately $125 million in fiscal '26, up from our prior guidance of $90 million. Operating profit of $742 million to $748 million, up approximately 28% to 29% year-over-year, up from our prior guidance of $732 million to $740 million. Earnings per share of $3.99 to $4.02, assuming a 21% tax rate and approximately 169 million fully diluted shares. And free cash flow margin of approximately 26.5% to 27%, reflecting CapEx in the mid-single digits as a percentage of revenue. We are very pleased with the results we delivered in the first half of fiscal '26. We achieved 25% year-over-year ARR growth and record operating income. Excluding Red Canary, our net new ARR growth accelerated to 10% in the first half of the year, up from 1% in the same period last year. We also saw continued momentum with Z-Flex and closed a record number of $1 million-plus ARR deals for Q2. Looking ahead to the second half of the year, we believe we are well positioned to build on this momentum. We will do this by scaling our rapidly expanding AI Security portfolio, expanding Zero Trust Everywhere adoption, and growing our Data Security Everywhere revenue. Ultimately, we remain focused on driving durable, profitable growth with strong cash generation. I want to thank our employees, customers and partners for their continued support. With that, operator, you may now open the call for questions. Operator: [Operator Instructions] Our first question will come from the line of Saket Kalia of Barclays. Saket Kalia: Thank you, team, for the increased disclosure on Red Canary. Very helpful. Jay, maybe for you. I'd love if you could talk about just the competitive backdrop a little bit and anything you can touch on in terms of competitive win rates and what you saw this quarter. I mean, clearly, this is a rising tide market, but there are other players as well. Maybe the question is, where are you winning? And what impact, if any, are they having? Jagtar Chaudhry: Thank you, Saket. We haven't seen much change in the competitive dynamics over the past few quarters. What we saw was a record pipeline conversion for Q2, which is wonderful. And we also had a record Q2 in terms of large deal wins in Q2, and by large deal wins, I mean, over $1 million. I mean, there's a fair amount of noise the market creates out there, SASE this, SASE that. SASE is a collection of all kinds of products. In many of these SASE numbers, legacy firewalls, VPNs get thrown out. But what we are seeing in the market is our customers care about Zero Trust. And as we engage and explain Zero Trust, we almost always win. And by the way, SASE is not equal to Zero Trust, and Zero Trust is what eliminates lateral movement. So very pleased with the performance. Our brand has grown. Most of the large enterprises like us, they know us. And I think the future is great for us. Operator: Our next question will be coming from the line of Brad Zelnick of Deutsche Bank. Brad Zelnick: Congrats again on another great quarter, guys, and also appreciate the additional disclosure. Kevin, it seems you're raising your full year ARR expectation by more than your overachievement in Q2. How much might be from newer acquisitions? And are there any seasonal anomalies we should consider, perhaps slipped deals out of Q2 or anything like that? Kevin Rubin: Thanks, Brad. I appreciate the comments and the question. First of all, just remember, our business seasonality tends to favor H2. So we are going into the second half of the year feeling confident. We do see a strong pipeline of deals going into the back half, which does give us confidence in the raise, excluding Red Canary. So I would point to strength in the overall business as well as just general seasonality that we see in the back half of the year. Operator: Our next question will be coming from the line of Gregg Moskowitz of Mizuho. Gregg Moskowitz: Also welcome the additional disclosure. So thank you for that. Very interesting that your non-seat-based meter usage solutions are now over 25% of new ACV. That's higher than a lot of people had thought. And with the related ARR more than doubling year-over-year, this has the potential to put some upward pressure on the growth algorithm for Zscaler in the future. But Jay, when you kind of look deeper at these non-seat-based solutions, you gave some good color in your prepared remarks, but can you help us better understand what's really most resonating with customers today as well as what you're most excited about going forward? Jagtar Chaudhry: Of course. Yes, we started early on with Zscaler for users for Zero Trust that is largely seat-based. But now we have Zero Trust for workloads, branches, devices, and now we are extending it to AI agents as well. Now even for users, we did have a number of use cases that are non-seat based. This is ZIA, ZPA, where we were doing third-party contractors, guest Wi-Fi or B2B data exchange with suppliers and customers. And yet our growth on Zero Trust Branch and Cloud has been very strong, and that's all non-user or meter pricing. Our AI Security solutions, which are starting small but growing pretty rapidly, are all non-user-based, rather they are token-based. And yes, we are pleased to say that 1/4 of our new business came from metered usage, and we expect it to grow over time, especially with AI agents, because we believe that there will be billions of AI agents. The only way to secure communication of AI agents is to go through Zero Trust Exchange that scales, that's highly reliable and globally distributed, and that's what we have. Operator: And our next question will be coming from the line of Brian Essex of JPMorgan. Brian Essex: Another set of kudos to Kevin for the organic versus inorganic disclosure. Maybe a question for you, Jay, and we saw this quite a lot during -- like a decade ago when digital transformation was the buzzword and a lot of different IT projects were classified as digital transformation products. Similarly, we're starting to hear of a lot of projects where executives are throwing AI on top of their projects to get more budget. And from that perspective, are you beginning to see any attach to budgets outside of security? How are CIOs thinking about funding some of these projects? And is Zscaler a beneficiary of that? Jagtar Chaudhry: Yes. So we are seeing CIOs trying to really move as fast as they can to implement AI security projects. The kind of feeling is, if I'm not doing something, I'll be left behind. That's a clear thing I see as I talk to lots and lots of them. But they do all worry about cybersecurity, especially when you see all these agents showing up every other week. I mean, last night was Perplexity Computer and Claude before that and all these guys keeps on coming. They are definitely creating security issues. So our customers are asking us, what can you provide me for visibility into AI assets and risk associated with that. And then start moving around. How do we control agents? How do we have a policy that can say certain agents can access certain applications. Agents are somewhat like you. They're just more dangerous, and they're growing at a rapid pace. So there is a high degree of interest in proper security, especially Zero Trust or agents that we provide. The budget opens up. The budget either comes from the security side of it or the CIOs are allocating some number of budget out of the AI project. If you're spending $100 on an AI project, you spend $4, $5, $6 on security is viewed as very nominal thing. So we're not seeing budgets as an issue to do AI security projects. It does require that you need to engage at the C level, and we have very good C-level relationships. And we have pretty good brand and credibility with Fortune 500 companies. Operator: Our next question will be coming from the line of Meta Marshall of Morgan Stanley. Meta Marshall: Maybe a question for me, kind of following up on Brian's question of just what you're seeing in terms of sales cycles once kind of a deal is encompassing more AI. I guess just how does it change the dynamic of either kind of needing to take a more holistic view or needing to include more modules? Just what are you seeing there? Jagtar Chaudhry: Thank you. So sales cycle depends on the scope of the project. The first thing our customers are trying to do is put their hands around what do they have in AI environment, what public AI application is being used and what private AIs are being used. So for that, we offer AI asset management. Then they want to do vulnerability assessment, teaming kind of stuff. As they roll out the project, guardrails become important. Last month, we launched a very integrated AI security portfolio. The sales cycle based on what modules they're doing is generally faster, because they are not really trying to go after everything, they want to start somewhere, but they want an integrated solution. And a number of customers have told me, hey, we bought this solution from a start-up, but for 1 year, until I figure out what integrated solution can I get from a trusted vendor like Zscaler, who will be around for the long term. So these sales cycles are faster. They are smaller deals to start with, and I think they'll grow over time, especially most of those deals are based on consumption or tokens. And as usage grows, users or tokens will grow. Operator: And our next question will be coming from Fatima Boolani of Citi. Fatima Boolani: Kevin, this one is for you. I was hoping to take a step back to have you reconcile the comments around Red Canary seeing elevated churn, but also the close to 30% revision on your financial contribution expectation from Red Canary, both to ARR and top line on revenue. So just wanted to kind of better understand. I know you sort of flagged that the Red Canary business generally had much higher levels of churn relative to Zscaler proper. So I just kind of wanted to better understand the dichotomy between those statements and if you can opine on that. Kevin Rubin: Yes, I appreciate the question. So look, I mean, there is an element here that, as we talked about when we did the acquisition, as we do secure the renewals, there is a positive impact to ARR. And so you are seeing some of that come in. My commentary just around the elevated levels of renewals is just to give color around what we are seeing. As a reminder, Red Canary was a technology and talent acquisition, and it is a core feature of the Agentic SOC that we are putting together and combining. And I mentioned that we moved into the next phase of our integration earlier this month and now consolidating those teams, which we're really excited about. So I mean, the reconciliation is really just to give you guys a sense for what we're seeing in the business and how you should think about the second half of the year. Operator: And our next question will be coming from the line of Roger Boyd of UBS. Roger Boyd: Jay, I want to touch on sales productivity. You've made a number of changes to the go-to-market strategy over the past year in order to really help guide customers towards more transformational projects. And I know you mentioned another improvement this quarter, but can you talk about kind of the future ramp you're expecting in terms of sales force productivity? Do you see further room to upside given the push towards more of these transformational deals that are bigger, but maybe more complex? Jagtar Chaudhry: I'll give you a broader view, and Kevin can get into more specific stuff. With the changes we have gone through, we are driving more transformational deals, better engaging with our customers. With that, you're seeing bigger deals, Z-Flex type of deals that are happening and that's leading to improved productivity. In fact, rather, we had a double-digit sales productivity growth. Very pleased with the way sales transformation has happened. As we said last quarter, the transformation is done. Now we keep on executing further. Kevin? Kevin Rubin: Yes. Thanks, Jay. So I want to just kind of double-click on that last point, right? So as we engage with our customers, the account-centric model is a much different level of engagement. We're seeing a lot of interest in Z-Flex and what that looks like from a strategic point of view. And so the nature of the conversations, the way in which we're engaging, the larger deals that we're seeing all will lend itself to continued productivity opportunity going ahead. So as I look forward, I would expect that we will continue to see improvement in productivity as a result. So we are seeing the benefits, and I expect that we'll continue to see an improvement over time. Jagtar Chaudhry: And if I may add, the record pipeline conversion in Q2, as a good indication of that what we want to do is working. Record $1 million dollar deals in Q2, another indication of the results we're getting. Operator: And our next question will be coming from Ittai Kidron of Oppenheimer & Company. Ittai Kidron: Kevin, I wanted to dig in into your comment on the core ZIA, ZPA growth. I think you mentioned mid-teens in ARR. Can you give us a little bit more color what was that growth rate over the last 2, 3 quarters perhaps? And how do we think about expectations for your core ZIA, ZPA business for the next 2, 3 quarters? Kevin Rubin: Yes. Thanks, Ittai. I appreciate the question. We have seen a pretty consistent performance in ZIA, ZPA. We did get some feedback that it would be helpful for you guys to get a little bit more color in that regard, which is why I added that into the script. Keep in mind that ZIA, ZPA as it relates to Zero Trust Everywhere is the foundation and, to a large degree, the base and the opportunity. If you look at the number of customers that we have today, roughly 4,400 out of more than 20,000 potential companies that we think can be customers, you look at it in terms of the Fortune 500, where we still have over half of those to prospect against, there is a massive opportunity left with ZIA, ZPA as we think about it. And even within the companies that we do have on ZIA, ZPA, we have an opportunity to upsell those to Zero Trust Everywhere and then adjacently through the other pillars, Data Security and AI. So from our point of view, it just reiterates the stability in the underlying business and really gives a sense for what's driving kind of the core of the business. But again, we've got these other 3 growth pillars that have been doing exceptionally well. And hopefully, that additional color is helpful for you. Jagtar Chaudhry: One interesting stat on ZIA is that customers on average are tripling their initial purchase in 4 years. That's pretty remarkable. Operator: And our next question will be coming from Gray Powell of BTIG. Gray Powell: Okay. So I want to follow up on some of the earlier questions, and I think you've hit on this somewhat. So you are seeing a lot of momentum in Z-Flex deals. If I'm doing the math correctly, I'm calculating that Z-Flex was over 30% of RPO bookings. I'm not sure if that's how you look at it. But I guess the question is, how does the ARR ramp on a Z-Flex deal compare to customers under historical contracts? And then just any directional commentary you can give on how big a typical Z-Flex customer is at maturity versus traditional or like what they spend? And what's sort of like giving you the most upside from a product perspective? Kevin Rubin: Yes. Thanks for the question. Let me maybe just orientate -- I mean, the way that we look at Z-Flex is it is another opportunity for us to offer a package to a customer that we think is mutually compelling. It gives them flexibility, so they have less concern about being locked into a particular product or product decision in the future. It gives them an opportunity to focus more on long-term partnership versus more transactional selling in nature. And then it does give an opportunity for them to try, in a much easier, less friction way, new modules and expand into those modules. So from a from an offering perspective, it is a much better and more strategic way to engage. We do think over time that more and more of our customers will adopt Z-Flex. It is not something that we mandate or push, but where we feel that it really is well positioned, the field is enabled to be able to offer Z-Flex going forward. Your question around differences in ramps, et cetera. Fundamentally, 2 deals, if it's a Z-Flex or if it's a non-Z-Flex, so long as they're similar structure, there's no difference in how that shows up in ARR. Z-Flex is by their nature, because they're longer term, they've got more products, they may have a ramp that is built in, so that the customer can deploy along their deployment plan, which could take anywhere from 6 months to a year. But I wouldn't think about Z-Flex is creating a different dynamic with respect to ARR other than it's just another level of indication that we are very strategic in that environment. The average Z-Flex deal is typically an 8-figure TCV commitment. And for those deals that we've done thus far, it's been about a 4-year period. As we've talked about, they tend to be 3- to 5-year deals. And right now, the average is about 4. So hopefully, that's helpful color. Operator: And our next question will be coming from the line of Jonathan Ruykhaver of Cantor Fitzgerald. Jonathan Ruykhaver: So I think, Jay, this is for you. Just curious, when you look at SquareX, from my understanding, you're embedding browser security via an extension rather than having a dedicated secure browser. Can you just talk about that? It seems like the flexibility could be a plus, but is there any trade-off between control and functionality between extension and full browser? And then just curious also on your view of how critical is the browser layer to winning broader Zero Trust deals over the next couple of years? Jagtar Chaudhry: Thank you. Very good question. So we have been offering Zero Trust Isolation solution using any standard browser for managed and unmanaged devices. Managed, no problem. Unmanaged devices means they were using their standard browser. Some customers wanted something like a device posture check on an unmanaged device. And for that, one option was you buy a full-blown enterprise browser from a third party. We looked at some of those acquisitions a couple of years ago. We did not like it. Full-blown browser with its own vulnerabilities and customers don't like one more agent, or in this case, this is one more mega agent on their endpoint. So what we found was with SquareX acquisition, we could add the security functionality such as device posture check using browser extensions on unmanaged device. It's a wonderful use case, but generally for third-party type of stuff for us. So it's a clean, better solution rather than trying to have full-blown third-party browser. And it really takes care of the gap that we have in this environment. So we think it expands our TAM. We have lots of customers who are using browser isolation. This actually will help us expand it to handle some of the third parties who will come from unmanaged devices. So very pleased with the acquisition and the fit and the early market reaction to it. Operator: And our next question will be coming from the line of Eric Heath of KeyBanc. Eric Heath: Maybe I wanted to come back as an extension to Gregg's earlier question thinking about AI agents. So AI agents will drive a lot of network traffic. So Jay, Kevin, just how should we think about how you can monetize that increased traffic? And Kevin, how we should think about it impacting the model over a longer time period? Jagtar Chaudhry: Yes. Thank you. We think these agents that are growing at a pretty rapid pace will generate a fair amount of traffic. The traffic means they're going to access application A or B, or one agent is going to talk to a second agent. In order to do that, we believe the best security is that they should be going through a zero trust exchange, so that a given agent can only talk to a given agent or applications. Otherwise, imagine one infected or hijacked agent will infect the whole enterprise. That's the biggest value we bring to the table. The more agents, the more agentic traffic, the more value we deliver, and the better revenue opportunity for us. So we look at it as probably the biggest upside for growth of Zscaler business. Operator: And our next question will be coming from the line of Matt Hedberg of RBC. Matthew Hedberg: Strong results you're raising, Kevin, you said by more than the beat. But I just had a clarification on ARR. I just want to make sure that I'm not missing anything. It looks like you raised the ARR midpoint by $30 million. But it looks like in the disclosure, and maybe this is where I'm mistaken, but it looks like you took your Red Canary expectations up from $95 million to $135 million. So to me, that looks like a $35 million raise. So am I interpreting that right? Because I'm just not totally certain about what kind of the organic raise here is for the year. Kevin Rubin: Yes. No, I appreciate the clarification. If you look at this on an organic basis, we are raising the organic net new from 6.7% as our initial raise in the beginning of the year to 9.5% growth for '26. So yes, there is some element of Red Canary that is mechanically inherent in the raise. But the underlying growth and strength in the organic business, giving us confidence to raise to 9.5% net new growth this year is what you're seeing fundamentally in the raised guidance. And keep in mind, just in the first half of this year, net new without Red Canary grew 10% against the backdrop of last year, where it grew 1%. So we are seeing very healthy acceleration in net new ARR growth, both first half and signaling for the back half. Operator: And our next question will be coming from the line of Keith Bachman of BMO. Keith Bachman: Okay. I broke up a little bit there, but I want to go ahead and ask a question about Zero Trust Everywhere. And Jay, the question for you is how significant could this be? You're at 550 customers now, you were at 130 a year ago. Two dimensions of the question are, a, what's the average ARR uplift that you experience when a customer goes to Zero Trust Everywhere? Is there some kind of lift that you could help guide us on? And then how deep do you think this could get with your installed base? What's the potential reach here? Jagtar Chaudhry: Yes. So first of all, we are very pleased with the number of customers becoming Zero Trust Everywhere customers, the number 550 is very good, and these are enterprise customers. They are large customers out there. In terms of lift on ARR, I think we even shared last quarter that we are seeing 2x to 3x essentially move in the ARR when customers are moving to Zero Trust Everywhere, which is very good. In terms of potential out there, I can tell you, a year ago, when I was talking to customers about Zero Trust launch, which essentially replaces MPLS or SD-WAN, I was wondering how many customers will be saying, I love my SD-WAN, okay? I can tell you, I don't find any Zscaler customer. Now these are our customers. They all want to replace SD-WAN for cost reasons and for security reasons. Remember, SD-WAN enables lateral threat movement. So interest is very high in the Branch. On the Cloud side of it, too, it's a fascinating new disruptive play. We have literally no real competition other than old school firewalls and trying to do firewalls in the cloud with IP address and ACL is a nightmare. So we're seeing that traction going. So very bullish on both Zero Trust Branch and Zero Trust Cloud. So I would love to see that every Zscaler customer in a matter of time will be a Zero Trust Everywhere customer. Operator: And that concludes our Q&A session. I would now like to turn the conference back to Jay Chaudhry, CEO, Chairman and Founder, for closing remarks. Jagtar Chaudhry: Thank you for joining us. We look forward to seeing you at one of the investor conferences we'll be attending. Thanks again. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation's Fourth Quarter 2025 Earnings Conference Call. My name is Latanya, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now turn the conference over to your host today, Jorge Casado, Senior Vice President of Investor Relations. Thank you. You may proceed. Jorge Casado: Hello, everyone, and thank you for joining us. With us today are Gary Smalley, CEO and President; Ron Tutor, Executive Chairman; and Ryan Soroka, Executive Vice President and CFO. Before we discuss our results, I will remind everyone that during this call, we will be making forward-looking statements, which are based on management's current assessment of existing trends and information. There is an inherent risk that our actual results could differ materially. You can find our disclosures about risk factors that could contribute to such differences in our Form 10-K, which we are filing today. The company assumes no obligation to update forward-looking statements, whether due to new information, future events or otherwise, other than as required by law. In addition, during today's call, management will be referring to certain non-GAAP financial measures. You can find information and a reconciliation of these non-GAAP financial measures in the earnings release that we issued today and in the Form 10-K being filed today, both of which can be found in the Investors section of our website. Thank you. And with that, I will turn the call over to Gary Smalley. Gary Smalley: Thanks, Jorge. Hello, everyone, and thank you for joining us. Tutor Perini had a tremendous year in 2025, perhaps our best year ever. Our results were highlighted by a record $5.5 billion of revenue, a return to strong profitability that produced $4.29 of adjusted earnings per share, a fourth consecutive year of record operating cash flow with $748 million of cash that shattered last year's record. This enormous cash generation was largely due to the contributions from new and ongoing projects and our record revenue is driven by double-digit backlog growth that we expect will fuel even higher revenue and earnings, increased profitability and continued strong cash flow in 2026 and beyond. A year ago on our earnings call, I shared some of my top priorities as Tutor Perini's then newly appointed CEO, which included a sustained focus on cash, the return to profitability and providing ambitious yet reasonable earnings goals, all with the goal of significantly increasing short- and long-term shareholder value. I'm pleased to report that we have delivered on each of these priorities, which together have helped us to achieve unprecedented share price performance and record returns for our shareholders. There's a lot of enthusiasm here at Tutor Perini and among investors and other business partners about the progress we have made and especially about what the future holds. So it continues to be an exciting time to be a Tutor Perini shareholder, and we want to thank those of you who are shareholders for your support. Our revenue growth accelerated progressively throughout each quarter of 2025, and our record revenue was primarily driven by contributions from various larger, higher-margin projects. As many of these projects continue to ramp up, we expect they will generate further double-digit revenue and earnings growth over the next 2 years. The Civil segment, our highest margin segment, generated more than $2.8 billion of our total revenue in 2025, the highest ever annual revenue for the segment. Consolidated operating income was up significantly in 2025, driven by our larger, higher-margin projects as well as significantly less negative impacts on earnings from legacy dispute resolutions as compared to 2024. In addition to generating record annual revenue, the Civil segment produced its highest ever annual operating income and operating margin in 2025. The Building segment's operating income for 2025 was its highest since 2011. And importantly, the Specialty Contractors segment returned to profitability in the second half of 2025 ahead of expectations. We see higher margins ahead for the Building and Specialty Contractors segments and sustainably strong margins for the Civil segment as many newer large projects continue to ramp up. We concluded 2025 with a robust backlog of $20.6 billion, up 10% year-over-year and had a solid book-to-burn ratio of 1.34x for the year. Our backlog growth was driven by $7.4 billion of new awards and contract adjustments that we booked during the year, the largest of which included the $1.87 billion Midtown bus terminal replacement Phase 1 project in New York, the $1.18 billion Manhattan Tunnel project, also in New York, the UCSF Benioff New Children's Hospital in California valued at approximately $1 billion, a $538 million health care project in California, $241 million of additional funding for the Apra Harbor Waterfront repairs project in Guam, a $182 million military defense project in Guam, the $155 million Diego Rivera Performing Art Center at City College of San Francisco, $131 million of additional funding for an electrical project in Texas and an electrical project at Cook Children's Medical Center in Texas valued at more than $100 million. Looking back a bit further, over the past 3 years, we have won 9 mega projects totaling approximately $16 billion, each valued at approximately $1 billion or more. Three of these were among our major awards of 2025 and all but one were awarded since the summer of 2024. These projects all have very healthy margins, more favorable contractual terms and longer durations than many other large projects we have booked in the past. They also provide us with excellent visibility into our future revenue and earnings over the next several years. We believe our backlog will remain strong in 2026 and beyond. We anticipate booking approximately $1 billion into backlog later this year for the finished trade scope of work for Phase 1 of the Midtown bus terminal project in New York City. And earlier this month, we received $204 million of funding for the Eagle Mountain Casino Phase 2 expansion project in California, a project that was originally awarded and announced last summer. In addition, our subsidiary, Rudolph and Sletten was recently selected for a large new multibillion-dollar health care project in California, which is currently in the preconstruction phase. We expect to book significant additional backlog as this and several other Building segment projects also currently in the preconstruction phase advance to the construction phase over the next several years. Furthermore, we continue to see numerous major bidding opportunities for our Civil and Building segments, many of which should include significant work for our electrical and mechanical business units within the Specialty Contractors segment. Our most significant bidding opportunities over the next 12 to 18 months include, a program believed to be valued at approximately $12 billion for the Sepulveda Transit Corridor, the $3.8 billion Southeast Gateway Line and the $700 million Metro Gold Line Foothill extension, all 3 of which are in California as well as the multibillion-dollar Penn Station transformation project in New York, the $3 billion Newark Liberty International Airport Terminal B project in New Jersey, very similar to the award-winning Terminal A project that we recently completed, the $1.4 billion I-535 Blatnik Bridge project in Minnesota and the $1 billion I-69 ORX Section 2 project connecting Indiana and Kentucky. There are also several large hospitality and gaming opportunities we are pursuing, mostly in the Southwest of the United States. In addition, we continue to have significant Indo-Pacific opportunities driven by the federal government's Pacific Deterrence initiative. Black Construction, our Guam-based subsidiary, has been tremendously successful winning various new projects throughout the region and continues to be well positioned to capture additional major projects over the coming years. We remain highly selective as to which opportunities we will pursue with a continued focus on bidding projects with favorable contractual terms, limited competition and higher margins. Due to the timing of our significant prospective opportunities, most of which start bidding around the middle of 2026 and continue through the first half of next year. And because of the significantly higher revenue we expect to recognize for work already in backlog, we anticipate a modest backlog reduction in the near term, followed by resumed backlog growth as we capture our share of major new projects. So expect a bit more lumpiness in our backlog as we move forward with growth still expected over the medium to longer term rather than the steady backlog increases we have seen virtually every quarter over the past 2 years. That said, growth remains a priority for us in this environment, and we believe we can scale up resources as necessary. While our civil business is expected to continue to drive most of our future growth and profitability as it typically does, a substantial proportion of our Building segment backlog is operating at significantly higher margins than what we have seen historically. For example, our 2 New York City Jail mega projects carry margins that are consistent with large complex building projects of a fixed price nature. In addition, today's large health care campus projects are more technically complex than more traditional commercial office building projects in the past and therefore, also command higher margins. Last November, our Board of Directors authorized our first ever quarterly cash dividend of $0.06 per share as well as a share repurchase program totaling $200 million. And today, the Board declared another $0.06 quarterly dividend, which we paid on March 26. Next, let's turn to our outlook and guidance. Tutor Perini continues to benefit from favorable macroeconomic tailwinds that are driving strong sustained market demand for construction services across all segments. We believe these tailwinds will persist due to the substantial amount of funding that is in place and because our country has for decades and until recently, inadequately funded and prioritized the types of substantial infrastructure investments being made today. Based on our assessment of the current market and business outlook, we anticipate double-digit revenue growth and strong earnings in 2026 with even higher earnings expected in 2027, by which time newer large projects should be in the construction phase. For 2026, we expect adjusted EPS in the range of $4.90 to $5.30. As we did last year, we have factored into our guidance a significant amount of contingency for unknown or unexpected outcomes and developments in 2026, including the possibility of a lower-than-anticipated success rate for future project pursuits, the potential for project delays, slower ramp-ups for our newer projects and any unexpected settlements and/or adverse legal decisions associated with the resolution of disputes. We also continue to expect strong operating cash generation in 2026 and beyond due to increased project execution activities and the anticipated resolution of remaining legacy disputes. We have continued to chisel away at our remaining legacy disputes and made excellent progress in 2025, resolving certain long-standing matters. We are already off to a strong start this year, having recently reached an agreement in principle regarding one of our larger disputes related to a long completed project. We believe that we will finalize a settlement agreement in the coming days, which will not have a material impact on our earnings. However, the settlement is expected to result in the collection of approximately $40 million for Tutor Perini in the near term. Because of our tremendous backlog and ample bidding opportunities, the outlook for Tutor Perini remains incredibly positive even beyond 2026. Thank you. And with that, I will now turn the call over to Ryan to discuss the details of our financial results. Ryan Soroka: Thanks, Gary. Good day, everyone. I will start by discussing our results for the year, after which I will review the fourth quarter and then provide some commentary on our balance sheet and our 2026 guidance assumptions. All comparative references will be against the same period of last year, unless otherwise stated. Operating cash flow was certainly one of the most noteworthy highlights of 2025. As Gary mentioned, we generated a new record operating cash flow of $748 million for the year, up 49% compared to the previous record of $504 million for 2024. This was our fourth straight year of record operating cash, and it was driven by strong collections on newer and ongoing projects, reflecting a significant increase in project execution and improved working capital management with less contribution from dispute resolutions in 2025 compared to previous years. We expect that we will continue to generate strong cash flow in 2026 and beyond, with most of our cash to be generated from organic operations, that is from new and existing projects and occasionally enhanced by dispute resolutions. Revenue for 2025 was $5.5 billion, up 28% with the robust growth primarily due to the increased project execution activities on certain large newer civil and building segment projects in the Northeast, Hawaii and Guam. This included, among others, the Newark Airtrain replacement, the Midtown Bus Terminal Phase 1 project, the Brooklyn and Manhattan jails, the Honolulu Rail project and the Apra Harbor Waterfront repairs project in Guam. Civil segment revenue was $2.8 billion, up a solid 34% due to increased project execution activities on certain large, higher-margin projects in the regions I just mentioned, all of which have substantial scope of work remaining. It was the Civil segment's highest annual revenue ever, reflective of the robust sustained demand that Gary noted, we are seeing for our services. Building segment revenue was $1.9 billion, up 15%, primarily due to increased activities on the Brooklyn and Manhattan Jail projects in New York and a large health care campus project in California, all of which also have substantial scope of work remaining. The Building segment delivered its highest annual revenue since 2020. Specialty Contractors segment revenue was $844 million, up a strong 43% with the growth primarily driven by increased activities on various electrical and mechanical components of some of the large civil and building projects I mentioned. The Specialty segment revenue really started to show strong growth in the second half of 2025, and we expect this growth to continue this year and next year as these and other newer projects advance. Our operating income was driven by higher margin contributions from various Civil and Building segment projects as well as the absence of certain net unfavorable adjustments that impacted our results last year. Operating income was up significantly despite a $110 million increase in share-based compensation expense tied to the near tripling of our stock price in 2025, which affected the fair value of liability classified awards. Our share-based compensation expense is expected to decrease in 2026 and decline much more significantly in 2027 as some of these liability classified awards have now vested and most of the remaining awards will vest by the end of 2026. We are no longer issuing liability classified awards, which should meaningfully reduce earnings volatility. Civil segment operating income for 2025 nearly tripled to $391 million compared to $138 million in 2024, with a segment operating margin of 13.7% for the year within the range of 12% to 15% that we had expected. It was the segment's highest ever operating income and operating margin of any year. The strong increase was primarily due to contributions related to the segment's increased project activities that I mentioned and the absence of certain prior year net unfavorable adjustments. Earlier in 2025, we recorded favorable adjustments that resulted from the settlement of certain change orders and changes in estimates due to improved performance and a favorable project closeout on a domestic mass transit project. These were mostly offset by an unfavorable adjustment in the fourth quarter, which was mostly noncash and associated with the settlement of a legacy dispute on a tunneling project in Canada. Building segment operating income was $58 million, a substantial turnaround compared to the operating loss of $24 million in 2024. The segment's margin for 2025 was 3.1% compared to a negative 1.5% last year. The significant improvement was driven by contributions related to the increased higher-margin project activities I mentioned and the absence of certain prior year unfavorable adjustments. We anticipate Building segment margins in the range of 3% to 6%, fueled by contributions from certain higher-margin projects. The Specialty Contractors segment returned to profitability in the second half of 2025, ahead of expectations, but posted a slight operating loss of $7 million for 2025 compared to a loss of $103 million in 2024. The significant improvement was primarily due to contributions related to the increased activities I mentioned on the electrical and mechanical components of certain Civil and Building segment projects. Many of these projects are in the early stages and are expected to ramp up considerably over the next several years. The improvement was also driven by the absence of certain prior year unfavorable adjustments on several completed projects. Corporate G&A expense was $211 million in 2025 compared to $110 million in 2024, with the increase primarily due to the substantially higher share-based compensation expense that we had in 2025, as discussed earlier. Income tax expense was $61 million in 2025 with an effective tax rate of 30% for the year compared to a tax benefit of $51 million with an effective tax rate of 29.3% in 2024. Net income attributable to Tutor Perini for 2025 was $80 million or $1.51 of GAAP earnings per share compared to a net loss attributable to Tutor Perini of $164 million or a loss of $3.13 per share in 2024. Excluding the impact of share-based compensation expense, net of the associated tax benefit, adjusted net income attributable to Tutor Perini for 2025 was $229 million or $4.29 of adjusted earnings per share compared to an adjusted net loss attributable to Tutor Perini of $124 million or an adjusted loss of $2.37 per share in 2024. Now let's turn to the fourth quarter results. We had a solid turnaround performance across all segments in the fourth quarter in terms of revenue, operating income and margins. As Gary mentioned, our revenue growth accelerated sequentially throughout 2025 with particularly strong growth in the second half of the year that is continuing into 2026. Revenue was $1.5 billion, up 41% compared to $1.1 billion for the fourth quarter of 2024. Civil segment revenue for the quarter was $732 million, up 32%. Building segment revenue was $512 million, up 45% and Specialty Contractors segment revenue was $263 million, up 63%. The strong growth was due to the increased project activity, as I mentioned earlier, on various projects that are ramping up and have significant scope of work remaining. Civil segment operating income was $72 million for the fourth quarter of 2025, up very substantially compared to $4 million of operating income for the fourth quarter of 2024. The significantly lower-than-normal operating income and margin in the 2024 period was due primarily to a temporary earnings reduction of $32 million that resulted from the successful negotiation of significant lower margin and lower risk change orders on a West Coast project. The Civil segment's operating income and margin for the fourth quarter of 2025 would have been substantially higher had it not been for the unfavorable adjustment I mentioned earlier. Building segment operating income was $11 million for the fourth quarter of 2025 compared to a loss from construction operations of $41 million for the fourth quarter of 2024. The improvement was driven by contributions from certain higher-margin projects as well as the absence of prior year unfavorable adjustment on a government building project in Florida. Specialty Contractors segment operating income was $11 million for the quarter, with a margin of 4.4% compared to a loss of $20 million in the fourth quarter of 2024. The segment's performance has continued to improve significantly as their involvement in our large civil and building projects grow. We expect the segment to eventually and consistently generate margins in the 5% to 8% range. For the fourth quarter of 2025, net income attributable to Tutor Perini was $29 million or $0.54 of GAAP EPS compared to a net loss attributable to Tutor Perini of $79 million or a GAAP loss of $1.51 per share in last year's fourth quarter. Adjusted net income attributable to Tutor Perini for the fourth quarter of 2025 was $58 million or $1.07 of adjusted earnings per share compared to an adjusted net loss attributable to Tutor Perini of $78 million or an adjusted loss of $1.49 per share in the fourth quarter of 2024. And now I'll address the balance sheet. In 2025, we paid down our total debt by 24% and reduced our CIE by 13%. The CIE reduction was mostly driven by billings and collections, including those associated with the resolution of various previously disputed matters. Our CIE is expected to continue to decrease over time as we resolve the remaining legacy disputes. Due to our record cash generation, we ended the year in a healthy net cash position with cash and cash equivalents exceeding total debt by $327 million as compared to our $79 million net debt position at the end of 2024. Cash available for general corporate purposes was $271 million at the end of 2025. Overall, our balance sheet is healthier than it's ever been, and our solid net cash position provides us with excellent capital allocation flexibility. Lastly, I'll provide some assumptions regarding our guidance for modeling purposes. G&A expense for 2026 is expected to be between $400 million and $410 million. Depreciation and amortization expense is anticipated to be approximately $50 million in 2026, with depreciation at $48 million and amortization at $2 million. Interest expense for 2026 is expected to be between $40 million and $50 million, of which about $3 million will be noncash. Our effective income tax rate for 2026 is expected to be approximately 27% to 30%. We anticipate noncontrolling interest to be between $75 million and $85 million. We expect approximately 54 million weighted average diluted shares outstanding for 2026. And capital expenditures are anticipated to be approximately $125 million to $135 million, with the vast majority of the CapEx in 2026, approximately $75 million to $85 million being owner-funded for large equipment items on certain large new projects. Thank you. And with that, I will turn the call back over to Gary. Gary Smalley: Thank you, Ryan. In summary, we had our best year ever in 2025, marked by record operating cash flow, record revenue that grew 28% year-over-year, strong operating income and profitability with record annual results for our high-margin Civil segment as well as robust year-end backlog of $20.6 billion that was up 10% year-over-year. With this tremendous backlog, we are confident in our ability to produce double-digit revenue and earnings growth and continued strong annual cash flow in 2026 as our newer projects progress through design and into construction. The outlook for Tutor Perini remains very bright over the next several years as we continue to benefit from favorable macroeconomic tailwinds and strong public and private customer funding that is fueling sustained market demand and numerous major bidding opportunities. As I mentioned earlier, it's an exciting time to be with Tutor Perini, whether as an employee, an investor or other business partner. Thank you. And with that, I will turn the call over to the operator for your questions. Operator: [Operator Instructions] The first question comes from Steven Fisher with UBS. Steven Fisher: Sorry for the background noise here. Congratulations on a very strong 2025. Just a couple of questions to start off on the guidance. Wondering if you could just talk about the coverage you have in your backlog on the outlook. I would think it would be pretty strong in light of all the bookings that you have. But just curious if there's any particular things you need to see still happen and get booked to hit the numbers. And then just from a cadence perspective, first quarter tends to be fairly light relative to the full year due to seasonality, and we've obviously had some pretty tough weather here in parts of the country in the first quarter. So I'm just curious if there are any expectations you want to set there? Gary Smalley: Yes, Steve, thanks for the congrats. This is Gary. Yes, first of all, we've got great visibility into the to the results for 2026 and really beyond. There's not much that has to happen for us to hit the numbers that we've represented. There are going to be some additional awards that could enhance things, and there's some built-in awards that we're expecting that technically, we'd need to hit the numbers, but it's going to happen. It's not like we're expecting some large projects to come our way in order to be able to hit 2026. As far as the seasonality, you're right, Q1 is usually light for us. It's typically the way it goes. It will be the same this year. What's happened primarily in New York with the large snowstorm. That hasn't really -- it's not going to have much of an impact. We've got contingency for that. We've also budgeted expecting Q1 to be light. And then I might as well throw in Manhattan Tunnel. We're back working after about a 2-week suspension. And that's all accounted for in the guidance as well, accounted for by -- with contingency. So we feel good. Steven Fisher: That's great. And then just from a backlog perspective, it sounds like you expect some, I think, lumpiness was the word that you used. But you did cite some potential larger awards in the second half of the year. Just curious, should we be expecting some net burn this year on the backlog? Or do you think there's still enough opportunity to kind of keep it steady at the levels kind of where we are now? And then maybe the bigger picture question is just on -- maybe on the civil side, is there any kind of view you have on kind of where we are in the cycle of bigger projects? I know this is an area where you've had relatively limited competition recently. I'm just kind of curious where you think we are in sort of the bigger picture cycle there. Gary Smalley: Sure, Steve. Look, taking the last part first, we've got good visibility again on a lot of these larger projects for civil. We think that they're on pace to what we are expecting and making good progress on things. And we don't disclose every large project that's out there, just the biggest ones and the ones that are most likely to happen in the near term. We've got -- the first part of your question again, remind me... Steven Fisher: Yes, do you think it will be net burn in the backlog this year? Gary Smalley: Look, we think at the end of the year, we should be -- our plan shows us a little north of where we are currently. I want to introduce the lumpiness concept because we've kind of spoiled everyone, I think, to some extent because over the last 2 years, almost every quarter, we've grown backlog. And it didn't happen this particular quarter with a modest adjustment on a percentage basis. And I just want everyone to know that it could be lumpier than it has been over the last couple of years where every quarter, we seem like we're hitting a new record. But the pipeline is rich. There's a lot of really strong work out there. Look, we won 9 out of 11 of the large awards over the last 1.5 years or so. I don't know if we'll continue that win rate, but we should have a good win rate because we target those projects that we think suit us best and where we think we have a good chance of winning. So I think it all adds up to backlog growth. And whether it's by the end of the year or into next year, it's coming, I can say that. But it's hard to predict exactly when those projects are going to hit backlog. But I wanted just to emphasize that it could be a little bit lumpier than it has been, but it's -- we're going to see growth. And I guess the last is we're going to be generating revenue at an all-time record. 2025 was a record '26 '27 as we go forward, even going to be higher. So it just means that to sustain backlog, you have to have significant awards. So again, that's the reason for the words of caution. Operator: The next question comes from Alex Rygiel with Texas Capital. Alexander Rygiel: Gary and Ryan, very nice quarter. Congratulations. A couple of questions. Gary, can you go a little bit deeper on sort of the improvement in contract terms on new awards and talk about what that means longer term for Tutor Perini? Gary Smalley: Yes, we'll do. Look, in the past, when the competition was heavier for these projects that we pursued, the larger projects, we wanted to change contractual terms, but we were unable to because there's always somebody else that would have accepted the terms and taken the contract. Now what we've been able to do with the limited competition is to work with our customers, our owners in order to drive better payment terms, better terms with respect to no damages for delay, especially in New York, just damages, provisions also on differing site conditions, things that in the past could and sometimes did impact us in a negative way and things that like no damage for delay is something that just the way the statute is written, it's tough to work around in court if you happen to go to court. So now eliminating that provision of the contract is certainly beneficial. So I think what you'll see is less disputes as we go forward. And then -- and part of that is just because it's really a clarification of terms. But also I think that we will less likely end up in court because the pendulum is more -- swung more toward our side, more in the middle so that I think you'll get negotiations and meaningful negotiations before you go to court, preventing you from having to go to court. Alexander Rygiel: And then secondly, I believe as it relates to Rudolph and Sletten, just from a clarity standpoint, did you say it was looking at a multibillion-dollar health care facility. So maybe expand upon that. And then any commentary about opportunities over the next handful of years as it relates to high-tech manufacturing and reshoring? Gary Smalley: Yes. So first, on the multibillion-dollar project, it's a confidential project, so we can't say a whole lot about it. It's -- the multibillion-dollar side, it's closer to $2 billion than anything above that. But we really can't offer much on that other than we're in preconstruction. And usually, when something is in preconstruction, our history shows us a 90% plus chance of heading to construction down the road. So that's what we expect that when we think that will end up as a construction contract for us. the timing of which some of that will come in this year, but probably the majority of it is going to be in 2027. And then could you elaborate on the -- your second question? Alexander Rygiel: And then are you seeing developing opportunities from large manufacturing facilities, fab plants and whatnot and how that might play out over the next handful of years? Gary Smalley: No, not really. Of course, that doesn't hit us on the civil side. But on the building side, the focus right now is on health care, some educational facilities and some multipurpose facilities, hotels, casinos, things like that. But that's really where our focus is. Operator: The next question comes from Adam Thalhimer with Thompson, Davis. Adam Thalhimer: Congrats on the strong year. I wanted to start -- can you give more color on the Canadian project? And how much was the negative impact to Civil in Q4? Gary Smalley: Yes. In Q4, I think it was $42 million, as I recall. And that's a consolidated joint venture. That's the joint venture portion of it. And there was, call it, a dozen, $12 million or $13 million earlier in the year. That's behind us. It's roughly offset by a Midwest project that really of the same magnitude, maybe a little bit more that we recognized over probably the last 3 quarters. of the year. So anyway, it's one of our larger disputed items. We just felt that it was better to resolve that one than to proceed down the path of litigation. Adam Thalhimer: Yes, absolutely. And then how many legacy jobs are left to settle? Gary Smalley: Yes. Let's just say about a dozen. It's -- and there are some yes, we've got around a dozen. And those are of some significance. There are some cats and dogs out there that are smaller amounts that are less meaningful. And as Ryan was just noting here, he's right, we started with about 50. So we've gone from about 4 dozen to a dozen, and we're making progress on some of the others. As you heard, one was just cleared within the last 1.5 weeks. So we'll continue that focus. We're optimistic that some turn favorably for us, right? Some are write-ups, not write-downs. And we hope that's the case with what we have left, but time will tell. But in the meantime, we've tried to put away -- put aside contingency, not just for that, but a lot of other unknowns. So we think that we have enough contingency to cover any unexpected delays, anything that is just not forecasted, including the potential for any write-downs due to litigation outcomes. Adam Thalhimer: Okay. So it really was a great quarter if you strip that out. And then... Gary Smalley: Yes, it was. Adam Thalhimer: And then I wanted to ask, so you brought up -- you made a comment about 2027 construction starts. And I don't expect you to give '27 guidance, but just hoping you could expand on that and what you are trying to say about the 2027 visibility. Gary Smalley: Yes. And Adam, you just said it was a great quarter. given that, well, look, even with that write-down, it was a great quarter. I think that shows the strength of what we're building here with this new work that we have. And that new work carries us past '26 into '27. And you're right, we don't guide multiyear, but '27 is going to be better than '26. I think that's clear. We've said last year around this time, we're saying '25 is going to be good, '26 is going to be better and '27 is going to be better yet, and there's nothing that's changed from that guidance. Operator: The next question comes from Liam Burke with B. Riley. Liam Burke: Ryan, you are bidding on larger and larger, more complex projects. Is there any risk of being resource constrained? And how would that affect your bidding process? Ryan Soroka: Yes. I think at this point, we certainly haven't seen any of the constraints on resources. It's probably important to point out that the majority of our labor is sourced from the union halls. And so we've got agreements in place, whether project-specific or with the union itself for that labor to be supplied. So from our perspective, the day-to-day craft workers, we don't see any constraints, and we don't really see that going forward. Gary Smalley: And from a management standpoint, I think we've talked in the past about that's really where our focus has been because the unions have always done a great job providing us skilled labor when we needed it. But as we've grown, we've been very aggressive and in fact, in a constant recruiting mode to bring in the project managers, project executives that are needed to manage this work. And we feel that we're well equipped there. We're always looking. Anyone out there listening, you want to apply, we're always looking. But at the same time, we think that we're already staffed at an appropriate level for future growth. Liam Burke: Great. And you mentioned in your earlier comments that the specialty margins could be in the, we'll call it, mid-single-digit range. It's a business that's traditionally been marginally profitable at best. Is it the same game plan as building and civil? Or is there something different about the business where you're going to have a pretty meaningful change in profitability? Gary Smalley: Yes. Look, I think what's happened is we have been able to weed out some of the poor contracts that we've had with the poor contractual terms and lower margin work. Now we have higher-margin work, better terms. A lot of the litigation, a lot of the disputes are behind us there, most of them. And so look, if you look at the last 2 quarters of 2025, I think what was a 2.7% operating segment margin and then 4.4% operating margin for the segment in just those last 2 quarters. That's the trend we're on right now. That's what the current work is producing. And so our 1% to 3%, it's really -- it's got contingency in there. We know that the work that we have in hand is going to be in that mid-single-digit range. But then we want to make sure that we hedge it a little bit with any unexpected outcomes. But we feel real good as we clear '26 that we're going to see that 5% to 8% range that we've talked about for some time. Operator: The next question comes from Michael Dudas with Vertical Research. Michael Dudas: Gary, just so as we enter into 2026, you talked about the 9 mega projects, $16 billion in backlog. So as we move forward through 2026 and '27, how do we assume that the project -- the revenue conversion you'll be seeing over the next couple of years will be coming from the enhanced T&C, better backlog or better margin backlog that has been booked and certainly on the targets that you have out into the market, I'm assuming there are similar targets relative to the margin expectations you have currently? Or is there some range or some opportunities there elsewhere going forward? Gary Smalley: Look, I think that margin will only build over time, and that's probably with all segments as these 9 -- the big 9, as we'll say, continue to move into full production. So I think that will certainly have a positive impact on earnings, but also on revenue generation. And as those projects continue to mature and continue to progress, we'll see, I think, some margin enhancement. And look, the new work that we're looking for, we -- as you get more work, and this has been our strategy, we have been, I will say, I don't know if I guess it's more aggressive on margin, but expecting larger margin. You start to fill your coffers. And every time we get another project, we raise margins next time, and it depends a little bit on competition. So I can't say that there's a limit on that, or there's no limit on that and that we'll continue to grow margins forever. But right now, that's the world we're living in where -- and that's what our focus is. Michael Dudas: And the clients are getting more -- maybe they don't like it, but getting more comfortable with that environment given the tightness in the market? Gary Smalley: Yes. I guess that's one way to say it, Mike. I'd say another way is they like what we do. They like us. They like the performance that we provide. They like the quality. They like the timeliness of the work. And then you combine that where the competition, in some cases, is not bidding or in some cases, we're clearly the best product and whether that's on the quality of the work or quality and price. And so I think those factors, we're bidding on work. It's not that they're just handing it away -- hand it out and they're giving it to us and they don't want to. I think we've got a good future here. We're -- the past is driving the future in the past is just solid execution. And yes, we're raising margins, but that's the market that we're in. And we'd be foolish not to with -- as we survey the competition and look at what's in front of us. Michael Dudas: Well said, Gary. Ryan, with the tremendous job you executed here with the balance sheet over the last several years, how is that going to help with business and opportunities going forward in the size of projects and maybe being more sole source versus potential partners? And how do you look at a more -- the optimal size of the balance sheet or what kind of recapitalization can we see given where you are with the debt, the maturities and the cash we're going to have and even further that you're going to be generating in the next few years? Ryan Soroka: Yes. All good questions. I'll try to answer them in order. Just starting with the balance sheet and looking at the debt that we have out there today, 11.8% is a tough coupon to swallow, obviously, and certainly something that we're looking to refinance probably midyear or so is the expectation for some significant interest savings. We're hopeful for a 500 basis point reduction. As far as the level of debt, we're comfortable at that 400-ish mark, in particular, if we extend that out longer term. So we have that liquidity certainty and also that longer-term liquidity view. As it relates to obviously, the operating cash and free cash that we've kicked off over the past 3 years at a record pace. Obviously, that having that cash on hand also gives a better long-term liquidity view and for other stakeholders like the sureties, giving them confidence to -- as we look at some of these future opportunities to bid that sole source as opposed to having to get a JV partner. In 2026 alone, we're talking about, what do we say, $75 million to $85 million of noncontrolling interest. We'd sure like to keep that in-house. Gary Smalley: And I think that's a great answer. Let me just throw something else out there that we haven't really talked a whole lot about. And earlier in the call, we talked about better contractual terms. I mentioned less litigation. Look, there's -- we spent a lot of money over the last several years on litigation expense. And as we have progressed the last couple of years, we're seeing that amount come down. We expect to see that come down even further. Legal expenses are something that, of course, are necessary in business and certainly in this industry. But I think you'll see less and less legal expenses from us, and that's only going to drive profit improvement too. Michael Dudas: That's not a terrible thing, isn't -- just to clarify, Ryan, your interest expense guidance doesn't assume any refinancing recapitalization, correct? Ryan Soroka: So we did broaden the range. And so... Michael Dudas: Okay. Ryan Soroka: Sorry... Gary Smalley: Half the year... Ryan Soroka: Yes, yes. So I mean what we've assumed a refinancing, call it, roughly midyear. Michael Dudas: Just wanted to clarify that. Operator: Thank you. At this time, I would like to turn the floor back to Gary Smalley for closing remarks. Gary Smalley: Thank you all again for your interest and participation today. We look forward to continuing to deliver strong results as we go forward. We'll talk to you again next quarter. Thank you. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Good afternoon. My name is Audra, and I will be your conference call operator today. I would like to welcome everyone to Solventum's Fourth Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. [Operator Instructions] I would now like to turn the program over to your host for today's conference, Amy Wakeham, Senior Vice President of Investor Relations and Finance Communications. Please proceed. Amy Wakeham: Thank you. Good afternoon, and welcome to Solventum's Fourth Quarter Fiscal Year 2025 Earnings Call. Joining me on today's call are Chief Executive Officer, Bryan Hanson; and Chief Financial Officer, Wayde McMillan. A replay of today's earnings call will be available later today on the Investor Relations section of our corporate website. The earnings press release and presentation are both available there now. During today's call, our discussion and any comments we make will be on a non-GAAP basis unless they are specifically called out as GAAP. The non-GAAP information discussed is not intended to be considered in isolation or as a substitute for the reported GAAP financial information. You are encouraged to review the supporting schedules in today's earnings press release to reconcile the non-GAAP measures with the GAAP reported numbers. Additionally, our discussion on today's call will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. These statements are made based on reasonable assumptions. However, our actual results could differ. Please review our SEC filings for a complete discussion of the risk factors that could cause our actual results to differ from any forward-looking statements made today. Following our prepared remarks, we'll hold a Q&A session. [Operator Instructions] I'd like to now hand the call over to Bryan. Bryan Hanson: All right. Thanks, Amy, and to all of our shareholders and everyone else that's interested in the Solventum story. I just want to say thanks for joining us today as we review our fourth quarter and our full year results, along with our 2026 guidance. Well, we closed 2025 with solid momentum, making significant progress in our first full year as a stand-alone public company. Looking back at the year, I'm very proud of what we accomplished. We formally launched our long-range plan and prioritize 5 growth drivers that are expected to now deliver more than 80% of our future growth. We built an experienced leadership team with strong med tech experience but also strong transformation experience, solidified our mission and culture, revamped our innovation process, restructured our global sales organization and through our SKU rationalization program, sale of our Purification & Filtration business, and acquisition of Acera, we rapidly advanced our portfolio strategy as well, all while managing the separation process from 3M. And inside of that, throughout the year, we consistently delivered on our strategic, operational and financial commitments. We improved volume growth, outperformed expectations and tripled our annual sales growth from a year ago. I think it's clear that we are moving toward our long-range revenue targets faster than expected, and have programs in place to overcome external headwinds and execute against our margin targets as well. This team's capacity to deliver results while navigating ongoing separation efforts, ERP implementations and acquisitions and divestitures is a testament to the strong talent and culture we've already built. And building on the foundation of our sales force restructuring project, our revitalized innovation process has meaningfully increased our vitality index. And as a result, we now expect a solid cadence of new product launches in our growth driver areas to drive further momentum with this more optimized sales team. And as our separation progresses, we are gaining full ownership of our IT systems and freeing up needed resources to drive greater overall savings and efficiencies. Our Transform for the Future program was built to capture this opportunity and its impact is reflected in our 2026 operating margin outlook. Okay. Moving to our quarter results. Well, the fourth quarter reflects another quarter of progress and provides a solid foundation as we head into the new year. And during the quarter, we announced and closed our first tuck-in acquisition, Acera Surgical, which not only opens the door to the fast growth synthetic tissue market, it also very well complements our existing technology categories and our call points. And as we move forward, portfolio optimization will remain a key lever for value creation here at Solventum. In other words, we will continue evaluating attractive assets to acquire and assessing our current assets for go-forward fit, and our business performance and resulting healthy balance sheet now provide flexibility to return capital to shareholders. And during the quarter, we announced a $1 billion share repurchase program, which we began executing in January of this year. We see this as a clear and important step in achieving a more balanced capital plan. Okay. Moving to our business performance in the quarter. Overall, we delivered solid sales growth with Dental Solutions and MedSurg performing better than expected. Starting with MedSurg, we continue to leverage our existing brands, our new product innovation and newly specialized sales teams and are seeing traction in each of our growth driver areas, which, as you probably remember, our negative pressure wound therapy, IV site management and sterilization assurance. In our Advanced Wound Care business, we saw continued growth in negative pressure wound therapy, supported specifically by double-digit growth in Prevena and ongoing expansion of our innovative V.A.C. Peel and Place dressing. As mentioned earlier, we recently closed the Acera acquisition, which will now be a part of our Advanced Wound Care business. We're obviously very early in the integration process, but sales teams across our newly combined business will now have access to an expanded suite of technologies to offer our joint customers. And with our combined clinical differentiation, our robust DME and differentiated infrastructure and proprietary technology, we have a meaningful runway for growth acceleration in this business. In the Infection Prevention & Surgical Solutions business, we saw better-than-expected growth supported by our 2 growth driver areas: sterilization assurance and IV site management. Inside sterilization assurance, our strong brand equity continues to provide a solid foundation for our dedicated sales force and early momentum from our [ 3 ] Attest sterilization product launches will continue to support the team's momentum to drive growth going forward. In IV site management, demand for Tegaderm CHG remains strong and our global launch continues to gain momentum. We have meaningful clinical differentiation and our specialized sales teams are focused on converting customers from standard films to this high-value solution that reduces the risk of infection. Tegaderm CHG is still significantly underpenetrated, providing a clear runway for continued growth. And in our Dental Solutions business, our core restoratives growth driver was again a key component of our performance in the quarter. And was supported by our strong existing brands, recent new product launches and the sales force specialization that we put into place in 2025. From a new product launch perspective, we continue to see strong demand for products like ClinPro Clear and Filtek Easy Match, and overall new product sales are driving the majority of our underlying business growth. And building on last quarter service improvements, the Dental team once again significantly reduced back orders, which also contributed to growth in the quarter. Our Health Information Systems business delivered another solid quarter, supported by its growth driver, revenue cycle management, and we continue to see adoption of 360 Encompass progress against our international expansion efforts and gains in autonomous coding. And relative to autonomous coding, our strong automation and acceptance rates are further positioning us as the largest, and importantly, most capable autonomous coding vendor. Over decades, we've built deep rules and algorithms designed to ensure accurate and compliant reimbursement coding. This, combined with our vast data sets and proprietary workflows, uniquely positions us to leverage AI-driven autonomous coding, our customers can trust. And in summary, we finished the year building on the success and the momentum we achieved in the first 3 quarters. And it's clear to me that we have the right team and strategy and our momentum will continue into 2026 and beyond. And with that, I want to thank our global team for their hard work and ongoing commitment to our mission. It's you that are making a difference every single day by delivering for our patients, our customers and our shareholders. And with that, I'll turn the call over to Wayde to review our financial results and our 2026 guidance. Wayde, I'll just pass it to you. Wayde McMillan: Thanks, Bryan. We reported another solid quarter as we completed our first full year as an independent public company. We made progress across both our transformation phases and turning around the business. Our commercial improvements yielded a significant increase in our organic sales growth, putting us on an accelerated path to reach our long-range plan sales growth target. During the year, we were able to absorb tariff headwinds and expand operating margins off of the Q4 2024 baseline, while continuing to invest in commercial enhancements and innovation. We also moved quickly on portfolio optimization, resulting in accelerated execution of our capital plan to pay down debt. Our progress to date, combined with our planned strategies positions us well to deliver our long-range plan margin and free cash flow targets. I'll start with an update on our separation activities, status of portfolio moves and then transition to our quarterly and full year financial performance, concluding with the discussion of our 2026 full year guidance. Overall, our work to complete the separation from 3M is going very well. Thanks to the dedicated separation management teams at both 3M and at Solventum. We are progressing well on major milestones, as we have now exited over 40% of our transition service agreements from 3M and remain on track to exit approximately 90% by the end of 2026. The ERP deployments continue to roll out with a plan to be complete this year. We've just gone live with our latest ERP deployment earlier this month across Asia Pacific, including China, and additional countries in Europe. We have also transitioned approximately half of the more than 1,000 systems to gain system independence from 3M, which is a significant step in our separation. Regarding supply chain, we've taken further steps to separate from 3M and have now reduced our distribution center network to 55 locations, progressing towards our goal of 45. The P&F divestiture activity continues to progress as planned with the target completion at the end of 2027. There is close collaboration to ensure business continuity from Solventum to support the buyer's integration efforts across the nearly 200 transition service agreements. Shifting to our recent Acera acquisition. Our early integration efforts are off to a good start following the close at the end of December. Our main focus is sustaining and accelerating the momentum that the team has generated in recent years. Now turning to our Q4 results. Starting with top line performance. Sales of $2 billion, increased 3.5% on an organic basis compared to prior year and declined 3.7% on a reported basis, which reflects the first full quarter impact of the P&F divestiture following the sale in September 2025. Foreign exchange was a 170 basis point benefit to reported growth, while the net impact of the P&F divestiture and Acera acquisition represented an 890 basis point net impact on our reported growth. Overall, we had stronger-than-expected sales growth driven by MedSurg and Dental. Volume remains the main driver of growth, and pricing remains within the expected range of plus or minus 1%. Our SKU rationalization program also remains on track with 70 basis point impact in the quarter bringing the full year impact to 60 basis points. Moving to the segments. MedSurg delivered $1.2 billion in sales, an increase of 3.2% on an organic basis. Within MedSurg, the Advanced Wound Care business grew 1.7%. Solid performance in our negative pressure wound therapy growth driver was partially offset by headwinds in the separate advanced wound dressings category, which was impacted by SKU exits and back orders. Infection Prevention & Surgical Solutions continues to outpace our expectations, delivering 4.2% growth that was driven by strong business performance partially offset by the remaining reversal of first half volume timing and the SKU rationalization program. Our Dental Solutions segment delivered higher than expected $343 million in sales, an increase of 5.9% on an organic basis. Growth was driven by core restoratives, which benefited from further back order improvement. During 2025, the supply chain team led multiple efforts that helped reduce back orders to historic lows. On a normalized basis, Dental grew closer to 3%. Our HIS segment also contributed to our performance with $348 million in sales, an increase of 3.2% on an organic basis, driven by revenue cycle management software solutions and performance management solutions. Together, this growth more than offset expected declines in clinician productivity solutions. Looking down the P&L. Gross margins were 53.5% of sales, a 230 basis point sequential reduction, which reflects higher logistics costs and timing of manufacturing performance. Higher logistics costs were mainly driven by ERP and distribution center cutover mitigation efforts in the quarter. These headwinds were partially offset by the benefit of the P&F divestiture. On a normalized basis, gross margins were closer to 55%. Sequentially, operating expenses reduced to $672 million from $739 million, which reflects the P&F divestiture, timing of project spend and cost management. In total, we delivered adjusted operating income of $397 million, or an operating margin of 19.9%, below expectations due to gross margin headwinds, partially offset with lower operating expenses. Moving down the P&L to nonoperating items. Our net interest expense and other nonoperating spend improved versus Q3, driven by a $30 million reduction in interest expense and higher interest income. These improvements are due to the full quarter benefit of the P&F divestiture, which resulted in a $2.7 billion debt paydown and a higher cash balance. Lastly, our effective tax rate of 16.6% was favorable due to an end of year release of tax reserves and a regional tax provision in combination with favorable geographic mix. We delivered earnings per share of $1.57, driven by sales outperformance as headwinds in gross margin were partially offset with operating expense savings. Shifting to our balance sheet. We ended the quarter with just under $900 million in cash and equivalents and net debt of $4.2 billion. This includes funding the $725 million Acera acquisition, which closed on December 23rd. We're in a healthy position to accelerate our capital allocation strategy as indicated by our recent $1 billion share repurchase authorization and maintain flexibility to pursue tuck-in M&A. We generated cash flow of $33 million, below our expectations due to higher divestiture costs, the earlier than expected close of the Acera acquisition as well as higher costs to support the ERP and distribution center cutovers. Now moving to full year 2025. We delivered 3.3% organic sales growth ahead of our expectations of 2% to 3% when normalizing for SKU exit impact and mainly the benefit of backorder improvement in Dental, our growth was approximately 3.5%. Operating margins finished at 20.5% within our assumptions of 20% to 21%, while absorbing 65 basis points of tariff impacts that were not contemplated at the beginning of the year. We also completed the Solventum Way restructuring program, exceeding expectations and delivering annualized savings of approximately $125 million at a lower total cost of $90 million. Our adjusted tax rate of 19.1% was also better than our assumption of 20% to 21%. At the bottom line, we generated non-GAAP earnings per share of $6.11, also ahead of our expectations of $5.98 to $6.08. Free cash flow was negative $10 million, below our expectations of $150 million to $250 million due to higher Q4 costs to support portfolio moves and ERP cutovers. Excluding these, we were in line with our expectations. When adjusting for the P&F divestiture and separation costs during 2025, free cash flow would have been approximately $1 billion for the year. Now turning to our 2026 guidance. Starting with our top line. We are guiding to an organic sales growth range of 2% to 3%. This translates to 3% to 4% excluding the continued estimate of 100 basis point impact of SKU exits for '26. While not reflected in our organic sales growth outlook for 2026, we expect our recent Acera acquisition to contribute meaningfully to our reported growth going forward and will roll up as part of Advanced Wound Care sales. We also expect a modest 100 basis point tailwind for foreign exchange, mostly in the first half. Looking down the P&L. We estimate operating margins of 21% to 21.5% for the year, expanding from the 20.5% full year 2025. Underlying, the 50 to 100 basis points of margin expansion is a combination of sales leverage, programmatic savings for supply chain and our Transform for the Future program. We expect portfolio optimization for divestiture and acquisition activity to be neutral to operating margins. Regarding tariffs in place, before last week's Supreme Court ruling, we estimate full year impact of $100 million to $120 million. Given the evolving nature of the environment at this time, we are assuming the impact under any new tariffs will be within a similar range. For earnings per share, we are guiding to a range of $6.40 to $6.60. For free cash flow, we are expecting approximately $200 million in 2026, excluding mainly the impact of costs to separate from 3M as well as payments due to 3M and costs to support the recent divestiture, we would expect to be closer to $1 billion. As a reminder, separation costs reduced significantly in 2027 as we complete the separation from 3M. Other considerations for 2026, include capital expenditures of $400 million to $450 million, an effective tax rate between 19.5% to 20.5% and nonoperating expenses of $300 million primarily due to net interest expense of around $270 million. To provide some additional color related to our first quarter 2026, remember we had a tough comparison given the approximately 180 basis points of additional sales volume benefit in the prior year. And on gross margins, Q1 will reflect the typical sequential seasonal pressure while year-over-year will reflect the additional tariff impact headwinds. All in, we anticipate operating margins will again be the lowest of the year. In conclusion, we delivered another strong quarter to complete our first full year post separation. We're making great progress on our separation from 3M and on our portfolio moves to divest P&F and integrate Acera, and we're moving with urgency towards our long-range plan goals of accelerating sales growth to 4% to 5%, operating margins of 23% to 25%, growing earnings per share at a 10% CAGR, and free cash flow conversion rate above 80%. We want to extend our gratitude to all Solventum team members for their hard work and commitment to our values and mission, enabling better, smarter, safer health care to improve lives while consistently delivering or exceeding on our financial goals. With that, we'll hand it back to the operator for the Q&A portion of the call. Operator: [Operator Instructions] We'll take our first question from Travis Steed at Bank of America. Travis Steed: I guess first on margins. Wayde, I don't know if there's anything onetime in Q4. It was a little light versus the [ Street ] in the quarter. And then on 2026, if you can maybe elaborate a bit more on kind of what's assumed in that 50 to 100 basis points? How much of the $500 million cost savings is baked into that? And anything else that you kind of frame up for the margins in '26? Wayde McMillan: Sure, Travis. So margin is obviously an important part of our story. As we think about Q4 first, approximately 150 basis points of the cost in our gross margins was onetime in nature. So you'll see in our prepared remarks that we shared more normalized gross margin of 55% is more of what we would have expected. And we saw a lot of separation activity in Q4. So it ended up just costing us more. If we think about operating margins, certainly lower than we expected, but really just driven by that headwind in gross margins. We were able to offset it partially with some savings in our operating expenses. And then as we think about 2026, first of all, I'll just say we are committed to growing our sales as well as expanding operating margins each year. And so in that theme, we're now planning to expand operating margins 50 to 100 basis points in 2026, as you mentioned. A couple of things that are important here. Certainly, tariffs are a headwind for us again in 2026. People may recall that we have a very fast inventory turn. And so we had approximately 2 quarters of impact of tariffs in 2025, and so we'll annualize that in 2026. You'll see from our prepared remarks, it's about a doubling of the tariff headwinds for us. And so with that in mind, it's a pretty significant margin expansion. The drivers of that are sales, leverage, as we continue to drive sales on an accelerated basis as well as our programs within gross margin. We've talked about programmatic savings. We gave a lot of detail at our Investor Day. And we've got significant effort to drive favorable gross margins over time. And then as you mentioned, Travis, our more recently announced Transform for the Future restructuring project which is a longer-range project that is targeting several areas of efficiency, and we will start to see some of that in 2026, but it will benefit us more over the long term. So you put all that together, we do think we've got a nice operating margin expansion story again in '26 despite the tariff estimate that we have in the numbers at this time. Travis Steed: Okay. And I guess my follow-up question, since there's been more focus on the health care IT business and some of the AI stuff that's going on, just would kind of love to give you the opportunity to kind of maybe explain that and explain your business a bit more for investors. Bryan Hanson: Yes. Thanks, Travis. I'll probably answer that one. And I assume seeing your note that you might ask that question. So we're actually betting which question you would ask first and you asked both questions. Travis Steed: You know me well. Bryan Hanson: I know you pretty well. So I would just say, first of all, I think it's important to state right out of the gate. We actually see AI as an opportunity more than we do a threat. I think that's -- you could probably end the statement there, but I think that's a really important statement to make. And then there's probably 3 vectors to look at it, which I think could be helpful to people. Number one, I think we see artificial intelligence as a lever to drive autonomous coding. That's why we've been spending so much in that area, and that's what's driving us in autonomous coding. But we don't see it by itself as the answer to autonomous coding. I think that's important, by itself is not the answer. It's just a piece of the equation. And we really don't see AI again by itself as a competitor, we see it as a tool. We see it as a tool, a variable in the equation to solve for autonomous coding. Remember, autonomous reimbursement coding, not computer coding, right? And then three, and this is important because AI will be available to anybody who wants to use it in autonomous coding or revenue cycle management. We truly do believe that we're differentially capable of using AI because, number one, we've been in the market for decades. And as a result of that, we have vast number of proprietary. I'm going to call it algorithms and rules that we have around reimbursement coding, actually close to 1 million plus of those rules and algorithms, which is substantial. And of course, because we have been working at scale with the hospitals, we have very vast data sets as well. So we really believe that what we have available to us allows us to train AI in ways that others can't. So we actually look at this as an opportunity more than we do a threat. But I appreciate you asking the question because there's a lot of folks that may not see it that way. Operator: We'll move next to Jason Bednar at Piper Sandler. Jason Bednar: Wayde, I wanted to come back to some of the guidance points we're making. I appreciate all the color around the first quarter. Maybe I wanted to give you an opportunity to talk if there's any other sequential callout. Last year, '25 was lumpy. It was a good lumpy, but lumpy in that you had the ERP cutover, the DC cutovers that just created some volatility in the volumes. So anything else you'd call out as we try to model throughout the year? And then within that also in the first quarter, should we be considering any headwinds tied to just some of the weather dynamics that may or may not have impacted volumes for your businesses in the first quarter here? Wayde McMillan: Jason. Yes, I can certainly start that one for you. And I'm glad you picked up on the Q1 comments that we had in our prepared remarks because it is the one quarter for us that's a little more challenging. The other quarters in the year look more stable. So maybe I'll just summarize the information that we shared and it's really in the 3 areas: sales, gross margin and OpEx. So for sales, we had 180 basis points of tough comp, and that's put a lot of pressure on our Q1 sales here. And so if you just take the full year guide of 2% to 3% and you take the midpoint, 2.5% if you use the 180 basis points of headwind, you get just under 1%. And so that's how we'd like people to think about the first quarter, and I think that would be a reasonable place to start. If you move down the P&L, operating margin is setting up to be the lowest of the year in Q1, sequentially down from Q4 '25 to Q1 '26 but that's similar to what we experienced last year in 2025. So a very similar setup to last year, and that's really driven by gross margins, which relative to the normalized 55% we gave for Q4, we would expect to see some normal sequential seasonal headwind to that moving from Q4 '25 to Q1 '26. So same set up again as last year. Keep in mind, tariffs are a headwind in the first half as well before we annualize them. And then when you move down operating expenses, kind of similar here. We'll have higher OpEx in Q1 as we have some seasonally higher expenses than Q4 '25. And Q4 '25 was a little unnaturally low as we had some favorable project timing. And then just given the gross margin pressures we were having in the quarter, we did some cost reduction initiatives that gave some favorable OpEx in Q4 as well. We don't have any weather specific things to that specific question, Jason, nothing that we would call out. And then again, I would just say, for the remainder of the year, the setup looks more consistent other than I would just highlight, and it was really the driver of that volume in Q1. This first half, second half impact of IPSS. We had a lot of volume mainly in the first half last year. These were mostly ERP timing-driven impacts. But the good news is they're all contained within the year. So first half, second half dynamic, mostly Q1 additional volume, Q3 give back. But the good news, the story actually gets quite simple at a full year basis, but there is that trade-off, particularly in IPSS between mainly Q1 and Q3. Jason Bednar: All right. Super helpful. Bryan, I wanted to shift over to you, bigger picture question. You mentioned product pipeline that's expanded within some of the core growth categories you've identified or you identified at your Investor Day. Can you give us a sense as to some of the things you're more excited about or expected to be more impactful when we look out this year and also next year? Really to help bridge to that 4% to 5% growth target, knowing that you're targeting 3% to 4% underlying growth this year. What helps accelerate you that last 100 basis points to get to those LRP targets you have out there? Bryan Hanson: Yes. Yes. I appreciate the question. And I would say maybe first, just taking a step back because I have a feeling some of our Solvers are listening to this call as well. And I just want to say that I appreciate the work that they put into revamping and revitalizing our innovation process, and it's paid dividends. As we talked about in the prepared remarks, vitality index has gone up and the cadence is more focused to products that we're going to see. I'm not going to speak specifically about any individual product, as you know, competitive reasons. But maybe I'll give you some color, that I think could at least help, we've got close to 20 new products that we're going to be launching now over the next 2 years relatively evenly over those 2 years. So it's not back-end loaded. And those, as you would expect, just given the size of MedSurg, almost half of those are going to be in MedSurg. The other half is split between HIS and Dental. And as you would expect, a decent portion of those are going to be inside of the growth driver areas. But it's not just those. I kind of look at it as a 3-legged stool, right? You've got this opportunity for new products in that revitalization of innovation that I've been talking about. But we also have existing products and brands that are really strong in the marketplace. And I think some people underappreciate the fact that they're also underpenetrated. So with the new specialized sales organization, we can get after that underpenetration even with existing brands. And the third leg of the stool is just the commercial enhancements we've made. And those really have 3 components to it. First is specialization, which is probably the most important. But we're also training those individuals now to being more clinically at depth, which is very important when you have clinically differentiated technology. And the final one is just to make sure that we have a sales operations team that is best-in-class to focus the organization and to make sure that they have the tools to be successful in the field. So it's all 3 of those really that's driving the growth. Operator: We'll go next to Kevin Caliendo at UBS. Dylan Finley: This is Dylan Finley on for Kevin. Maybe for a minute, could you guys talk about the strong outperformance in Dental this quarter. Again, you grew organically nearly 6%, how much of that was volume expansion versus price capture related to or not related to tariffs? And what do you think a normalized growth rate looks like in Dental, controlling for any sellouts or unusual comps? Bryan Hanson: Okay. Yes. So again, that was another one we thought we'd probably get a question on because it was pretty standout quarter again for Dental. So again, because I know they're listening to the call, congratulations, great quarter. And I would say that probably the -- well, I know the biggest underlying reason for growth is new products. They have done a nice job of revitalizing innovation, launching new products, and that's really what's driving our underlying business performance. Now in the quarter, I think we said in the prepared remarks, that another factor was back order recovery. That's the second quarter in a row. They've done a really good job of capturing back order recovery, and that's boosting us. That's more of a onetime thing. I wouldn't think about that as a go-forward opportunity, but it definitely helped us in the quarter. When we think about the market because I know that's probably inside of your question as well because I'm sure you're covering other companies in Dental. We kind of look at it the same as what you're hearing from others. It's a stable to maybe slightly improving market, but that's really the way we look at it. Stable market, slightly improving, we would expect that to go forward in 2026. But really, the momentum here is the new product development. They're just doing a great job with a specialized sales organization driving it right now. Did you have another one? I didn't want to cut you off there. Sorry about that. Dylan Finley: Sorry, yes, if I had a moment. Looking at the $500 million, the Transform for the Future program, and apologies if this was hit on earlier. But what should we contemplate regarding the phasing of those -- both the costs going into the restructuring and the timing of the benefits? Is that really a big growth driver discretely as we look at the benefit for 26? Or is the phasing more '27 and thereafter? Wayde McMillan: Bryan, I can start that one, if you want. So obviously, a very important program for us. It is a multiyear program from starting this year, 2026 into '29 and '30. Maybe just to highlight, as you said, it's a $500 million cost takeout program. It's meant to support both margin expansion as well as opportunities to meaningfully invest for growth. We want to make sure that we're driving efficiencies that despite things like tariffs, we've got enough efficiencies going so we can continue to reinvest for growth given the importance of us continuing to drive and accelerate that sales growth line. Maybe just a little bit more about the program itself. It's targeted at transforming our cost structure, I mentioned the operational efficiencies and then repositioning us for that profitable growth. We'll be looking at streamlining systems, increasing automation, it's a really comprehensive program. To your question on the phasing, we haven't given details on that. We're still developing the program. As I said, it's a multiyear program. But I would say just generally, we will start to benefit from the program in '26, but the majority of the benefits will be in 2027 and beyond as it just takes time to put the programs together and then execute on them. Bryan Hanson: One other thing maybe to add to that too, what's very important about this program is it is a cultural shift for our organization, all around the concept of continuous improvement. We've got this mantra here that we can be satisfied. We can be happy, but we can never be satisfied, right? So we can be happy and celebrate success, but we can always get better. And that's what this program is, it really is the concept of Transforming for the Future through continuous improvement. And it's not just at the senior level of the organization. This -- it transcends the organization, we're asking everybody to get involved in the program. So it really is a cultural event, not just a savings program. Operator: We'll take our next question from Ryan Zimmerman of BTIG. Ryan Zimmerman: Just following up on the HIS comments, and there's been a lot of investor focus on this, late. I appreciate your answers earlier, Bryan. I got to dig a little deeper, though, and just kind of ask, is there any guardrails that you want to put around this? If this is up for a competitive bidding or competitive entrants and so forth, I mean, how should we think about maybe what's contractually obligated over a certain time period or any other additional details, I think you can give that, again, kind of isolates what impact there may or may not be around the HIS business? Bryan Hanson: Yes. So I would tell you 2 things here. Number one, we have pretty long contracts, multiple year contracts. And so we feel comfortable. And I don't want to rest on that because I do believe we have significant differentiation here. We're a leader today. We absolutely expect to be a leader in this transformation in the future. There's no question in our minds. We do have contractual obligations in our favor and there's switching costs associated with this. It doesn't happen overnight. And I think very importantly for people to remember here is you make mistakes, even small ones in your reimbursement model, in your coding. Not only do you lose revenue, you have the risk of compliance concerns, and there's a trust factor that goes into that. As a matter of fact, we look at autonomous coding competitors, as risking autonomous coding because we don't think they're going to do it the way we would do it, right? Again, using all those rules and all those algorithms that we have that are proprietary to us. So we truly do believe we're going to win. We're going to transform. We're already leading. We feel like we're going to continue to lead. And we do believe -- we really do believe that that's just the way it's going to be. I don't see this at this point in time as a risk. I see it as an opportunity and the contractual piece helps, but we're not going to rest on that. Ryan Zimmerman: Yes. No, that's helpful. I appreciate the color there. And then maybe turning to Acera, what are you embedding for expectations on Acera, if you can provide any high-level commentary around it? I mean I think it was doing, call it, $90 million at the time of acquisition. And so where can that sustain once it turns organic and from a contribution to growth standpoint? Bryan Hanson: Well, I'll tell you, we wouldn't have bought the asset if we didn't believe that it had a real opportunity to help Advance Wound Care and MedSurg and the total business from a revenue growth standpoint. So we feel like it's a great starting point, but it is just a starting point. And to give you some perspective on it, if they're in $1 billion market, growing 10% right now. And they're in a subcategory synthetics inside of that market that's more attractive, and they've got differentiation in that space. So it is a healthy double-digit grower for us. And I want to continue to remind people, it's in the space we already play and have commercial infrastructure. So we have a force multiplier effect given our 2 organizations coming together from a commercial standpoint, but also eventually from an innovation perspective. So I feel really good about this as a separate growth avenue for Advanced Wound Care for the total business, and it's profitable. It's really nice profitability. Operator: We'll move next to David Roman at Goldman Sachs. David Roman: Maybe I could just go into the Dental dynamic in a little bit more detail here. And I think last quarter, there was some more set of dynamics at play here. But maybe, Bryan, if you kind of maybe template Dental as one of the businesses where you have to -- I think you said in the follow-up last quarter that it is a good example when you have new products, what can happen to the top line, but you're seeing kind of that impact in one of those slower-growing categories that you serve. So maybe you could just extrapolate the experience in Dental to when we could -- when you think it's reasonable to expect that same dynamic to play through in MedSurg and HIS? And I just had a follow-up on the buyback. Bryan Hanson: Yes. David, thanks for the question. I agree. I think Dental laid out the road map that was pretty clear to people, but you're already seeing it in MedSurg. It's not just the commercial enhancements that we've made. We are launching new products in both MedSurg and HIS. Just to recap, I'll give you some of -- not a full list of them, but V.A.C. Peel and Place was a big one. Tegaderm CHG was launched in the U.S., but now it's on a global launch. So we're rolling that out around the world. We've had CHG in Ioban as well, which is a new product that we use in [indiscernible] surgical procedures. We've had 3 in test sterilization products, the eBowie-Dick was also launched. So we've got a number of products launched in MedSurg. And in HIS, you've seen various applications in autonomous coding and a lot of applications for Encompass 360 when we look at outside the U.S. implementation. So they're not having product launches right now. The key thing that's driving those product launches is the commercial enhancements. We didn't have those before. And as a result, those products are being launched into a void, if you will, general sales organization. So we're already beginning to see the momentum from those new products. And as I said before, we've got almost 20 new products coming over the next 2 years. David Roman: Got it. And then maybe, Wayde, it looks like the share count still stepped up on both the year-over-year and sequential basis that you obviously announced a large buyback authorization in November. How are you thinking about deploying the buyback? I think that there was quite a bit of volatility in the stock over the past several months. So maybe what -- what's sort of the strategy behind the buyback? And what are the factors that would drive you to deploy it either on a programmatic or more significant basis? Wayde McMillan: Sure, David. So I think directionally, it's reasonable to think about the authorization as offsetting the impact of our stock-based comp dilution and holding that share count relatively flat. I think that's one of the objectives that we have, as you said, without a share repurchase in place over the previous year, our share count went up. And so one of the major goals here is to, number one, offset that stock-based comp. And then over time, it is an opportunity for us. We've got room within the authorization if we see a need or a reason depending on performance of the share price to potentially purchase more shares. Obviously, if we do something like that, we have to work it through with our Board and make those decisions as well. But I think just taking a step back, we're very happy with the accelerated capital plan over the last year, with our ability to pay down debt. And remember back from our Investor Day, that was the primary objective. Most spins spin with a pretty significant amount of debt, and one of our primary goals was to pay down that debt. We did that in an accelerated fashion. And now we're in a position to have more balanced return and returning capital to shareholders via this authorization. So as Bryan said in his prepared remarks, we started that in January. This is our first quarter and we're pretty excited to be moving in this direction as well. Operator: Our next question comes from Brett Fishbin at KeyBanc Capital Markets. Brett Fishbin: First, just wanted to ask on the overall organic revenue guidance of 2% to 3%. And I was curious if you could just directionally provide any commentary on how you're thinking about that across the different segments, whether we should expect any material departure from what we've seen on a normalized basis in 2025? And then also, if the 100 basis point impact from SKUs would be more pronounced in any specific quarter? Wayde McMillan: Bryan, I'm going to start that one. Bryan Hanson: Maybe to rephrase that question on any specific quarter, you could maybe answer that, but also any specific business. Wayde McMillan: Yes. Yes, that's the key. So yes, maybe we'll start there. We don't see a significant difference across the quarters from the program at this time. And so nothing to share there. But as Bryan just highlighted, we do see a significant more impact within MedSurg and particularly, the IPSS business. So as we move from 60 basis points of impact in 25 to 100 basis points of impact in 2026, we'll see the majority of that 100 basis points hitting in the IPSS and MedSurg business. And then back to the front end of your discussion, and Bryan can start with that one. We obviously put a lot of thought into this guidance. And I'm glad you brought it up because it gives us an opportunity to talk a little bit about it. We did intentionally share that for 2025, our sales growth rate on a normalized basis was about 3.5%. And that's important stake in the ground for us. It's really normalized for both the SKU program as well as mainly the dental back order. And so with that 3.5% in mind, the way we looked about our guide for 2026 is we put that at the midpoint of our ex-SKU guide, we're 2% to 3% guide for '26 on a 100 basis point SKUs, we're guiding 3% to 4%. So what that really means is if we continue to perform at an accelerated rate here in 2026, we had big step-up in our growth in 2025. And if we continue that momentum, continue to perform at that level, we'll be at the midpoint of our guidance for 2026. And of course, at the high end, more 4% on an executed basis will be above last year's strong performance. And we're very focused on getting to that because then that would put us on an accelerated basis getting to the low end of our 4% to 5% target for our long-range plan. And so on an ex-SKU basis, the high end of our guidance is already touching the low end of our long-range plan guidance for 2028. So we do feel that 2025 was a very strong year where we really accelerated the sales growth rate. We shared some of that detail in our prepared remarks, so I won't repeat it here. But that's some color in behind the full year. You did call out segments as well. As you know, we don't guide at the segment level, but I can provide a little bit of color here. Overall, we expect all segments to improve their underlying growth year-over-year. And again, the momentum that we see in the business, if it continues, we'll be at the high end. Bryan Hanson: [indiscernible] Because it would be MedSurg is going to be impacted more by SKU and obviously, Dental is going to be impacted by the back order recovery comp. But outside of that, no major impacts to the businesses. Brett Fishbin: All right. That was super helpful. And then just for my follow-up question, I wanted to ask, during the fourth quarter, you announced some changes to the management structure and I was hoping you could just touch on your decision to implement a Chief Commercial Officer position, and any thoughts on how that impacts the broader strategy for Solventum? Bryan Hanson: It's funny because that feels like old news to me already. I was looking at [indiscernible]. Yes. So as you know, we brought Heather in -- to be the primary leader of our businesses. So she is the Chief Commercial Officer now. And I feel very fortunate to be able to bring Heather in. She and I have a history of work at Covidien together. She's worked with me in the past. She's a very strong operator. So it was just serendipity that she became available at the same time that Chris was going to be exiting the organization. So very lucky to get her. But it was really just the continuation of the strategy, which would have been to combine the businesses under a leader. Chris, for his own reasons, couldn't do that and Heather was available, and we were able to get her, which is fantastic for us. I wouldn't read anything else into it, other than the fact that we've got a great operator now looking at synergies across our businesses. Operator: Our next question comes from Vik Chopra at Wells Fargo. Lei Huang: It's Lei calling in for Vik. My first one is on ERP. I think you have another ERP implementation coming this year. Last year, when you had the European one, there was some pull forward buying in the first half. Is that something you should consider for 2026? And I have a follow-up. Wayde McMillan: Yes. So ERPs, obviously, we've got a lot of work going on in this area. We did share in our prepared remarks that we are planning to be done with the 3M separation ERPs in 2026. And so by definition, we've still got several ERPs to go. We've got a couple of large ones both in the first half and the second half of this year. I did share in my prepared remarks that we've started another wave here in February. We've got about 16 countries involved in that wave, and that's off to a really good start. And so we will have several more waves as we go along through the year, but planning again to be done by the end of the year. Regarding volume, we're not [indiscernible] out at this time. It really is dependent upon at what point in the quarter it falls, sometimes if it's early in the quarter, most of the inventory changes have washed out within the quarter. To the extent we see them and if we see additional volume either buying ahead or being delayed as relative to the ERPs, we'll call that out in our actuals, but very difficult to predict those. So we don't call them out. Lei Huang: Got it. That's helpful. And then for my follow-up, you talked about pricing being plus/minus 1% in Q4. Anything we should think about as far as pricing for '26 either for the overall company or across segments? Wayde McMillan: Yes. So as we've shared before, our focus for growing the sustainability of the business is all in volume. Our new products, our commercial efforts, all focused on -- I shouldn't say all, almost all on volume. We certainly have pricing capability, and we've got people looking at price. We do have several areas in the business where we have the ability to raise price than we do. But what we've shared is we expect price to be in a more normalized range of plus or minus 1%. We saw that again in Q4. And that's where we're expecting it to be again in 2026. So we don't see price being an outsized driver of the business again in 2026, more in that normalized range. And our growth will really be on sustainable volume growth. Operator: We'll go next to Rick Wise at Stifel. Frederick Wise: Bryan, just maybe reflect a little bit more on your updated thinking on your M&A strategy? Is it another deal possible? What are you prioritizing it with making so much progress towards, to quote Wayde, on an accelerated path to your long-term targets? Is it more likely we're going to see additional tuck-in growth-enhancing, margin-enhancing deals sooner rather than later? Bryan Hanson: I probably won't speak to the timing, but I was pretty intentional and have been for a while. It was in our prepared remarks and every time I probably talk to you and others is -- it is definitely a lever we will continue to flex for value creation. So portfolio optimization to me and the reason why I'm leaning on it so much is, I don't want people to think because we've done so much so fast that we're finished. This will be a perpetual lever that we're going to continue to flex in the organization, which will include acquiring companies on a tuck-in basis in a serial fashion to be able to drive revenue growth and profitability. It's a requirement. It's got to be mission-centric first and foremost. It's got to be an attractive market with strong profitability in areas that we think we can win. And we'll continue to do that. I won't speak to the timing of that, but we do have the financial flexibility to do them. So that's probably all I'll say on that. But it clearly is a continued lever for us. Frederick Wise: Okay. And just reflecting -- sort of stepping back and reflecting on the increasing probability that your increasing confidence in '28 goals on sales and margins and EPS, et cetera. Maybe just -- I'd be curious to hear maybe Wayde for you, it's like -- is it the SKU program being done as the debt coming down? Is it the exit of the TSA agreement? I mean what's the relative importance over the next 12 months in terms of observing that progress and building confidence in -- as you approach '27, '28? Bryan Hanson: Maybe I'll start on the revenue side, revenue growth line, and you can speak more to the margin. So I'd say proof is kind of in the pudding, right? I mean at the end of the day, you look at our growth rates, and even though when we normalize them, it's 3.5%, as we said, as Wayde just referenced. That's pretty darn good, right? Out of the gate, that's almost 3x, better than what we had in our base a couple of years before the spin. And that's great traction that we're seeing. It's coming from the commercial enhancements that we've made. It's coming from the brands that we already have, and it's coming from those new products that we've talked about. But that is giving us confidence. It was only a short period time ago in March of 2025 that I had people questioning whether we could ever get to the LRP targets that we are providing. I think it's pretty clear we'll not only get there, but we might do it faster than expected. Hopefully, we do it this year. That's the goal. So I think it's really just all the things that we put into place are coming together and the team is making it work even in the face of all of the challenges we continue to throw at them, acquisitions, divestitures, ERP cutover, separations, you name it. This team has stayed focused and delivered. And again, I'll compliment the team that I know is listening, congratulations for that. On the margin side, we've had a lot of headwinds come our way as well since we put that LRP target out but we still feel like we've got the programs in place to deliver on those margin targets. And I think it's important when you think about us versus the organization before spin, we've got like 300 basis points of pressure that we're going to be feeling that we did not have before spin, looking at raw material increases, looking at tariffs that we didn't have before spin. And so that '23 to '25 is really like a '26 to '28 when you look at benchmarking where we were before the spin. So I'm pretty proud of the team leading in there as well. I probably just took everything you were going to say Wayde, so I apologize again on the call there. Wayde McMillan: No, no, I think you covered it really well, Bryan. Maybe just to the sort of second part of your question, Rick, on what are the milestones or things that we need to clear along the way. You touched on a couple of important ones. In order to achieve those margin targets, Bryan mentioned, we do need to clear our separation from 3M. We are very excited. As I shared in my prepared remarks, 90% of the TSAs we plan to have done here in '26. We plan to be through the ERPs here in '26. So '26 is a very important year for us, but we are pretty excited to get to 2027 and put most of that separation work behind us and move a lot of our resources, a lot of our best and brightest focusing on the business versus on the separation. And then maybe, Bryan, I'll just clear a couple of the other metrics we put out earnings per share to 10% CAGR. We are very confident with the initiatives that we have in place that will be supporting that sales growth that Bryan touched on, achieving those operating margins and then driving that 10% EPS CAGR. And then the last thing is the free cash flow conversion over 80%. And we've got these transient issues that we're dealing with today around the separation costs, divestiture costs. And again, we can't wait to be complete -- mostly complete with the separation in '26 and shed a lot of these additional costs starting in '27. And so once we do get beyond those, we will have very strong -- we are a cash -- very strong cash operating company, without, again, those special projects around separation and divestiture. If you clear those out of the way, we're already at our free cash flow conversion targets. And so we're very confident in hitting all those metrics. As Bryan said, sales growth with all the initiatives we have in place, operating margins with the initiatives we have there, including Transform for the Future, will lead us to that EPS 10% CAGR. And then we get beyond these transient projects, and we'll be at our 80-plus percent free cash flow. So very confident on our path to hitting our long-range plan targets by 2028. Operator: And next, we'll move to Steven Valiquette at Mizuho Securities. Steven Valiquette: I guess at this point, it's probably more of a follow-up question, but just to come back on that topic on the TSAs and exiting 90% by the end of '26. For the 10% that's still going to be left, just remind us again, is that really more on the supply side? And then you've talked about you have those 2027 headwinds, there was like a $100 million step-up in inventory costs from 3M or might have been quantified under basis points as well, but is that the piece that would still be kind of hanging out there? Or does some of that dissipated with your progress? Just want to just tie the -- connect the dots around all those components. Wayde McMillan: Yes. Great question, Steven. And that will help us clarify because we do get this question quite a bit. I'll just start on the 90% of TSAs is primarily around separating our systems and our ERPs as well as our distribution centers, and our -- the manufacturing that we do for 3M and the 3M does for us. And so we'll have mostly rebranding work and some supply chain work to do in 2027, that remaining 10%. But I do want to just specifically differentiate between the raw materials work that we do. And that's the additional step-up that you're talking about that 3M gave themselves a contractual option to again step up our cost in 2027, and we've shared that, that's about a 100 basis point headwind for us if that in fact happens. We don't have any updates to share at this time, but we are working with 3M to see if there's a better solution for both companies, frankly, than going that road. So that will be an update down the road. So with that in mind, we've got most of the separation work done in 2026. We do have some rebranding, some supply chain that we'll carry over into 2027. Bryan, if there's anything to add. Bryan Hanson: I think maybe the only other one because sometimes there's confusion on the raw material piece. I just want to make sure that it's clear that with those raw materials, most of that is including intellectual property that we have access to. Actually, we own. There was a concern that we didn't have that intellectual property. We have full ownership rights in our field of use, and it is transferable. We can continue to buy from 3M as a raw material supplier with that intellectual property or we can go to another chemical manufacturer to use them as well. So I just want to be clear that even though we have that long-term supply agreement with 3M, we do have the option because we own the rights to the intellectual property to go elsewhere. Operator: And that concludes the question-and-answer session. I'll now turn the call back over to Amy for closing remarks. Amy Wakeham: Awesome. Thank you, Audra, and thank you, everyone, for listening. We appreciate all your questions. If you do have any follow-ups or need to clarify anything, please don't hesitate to reach out to the Investor Relations team. Audra, you can go ahead and close the call. Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. Welcome to the Intchains Group Limited Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Alice Zhang with The Equity Group. You may begin. Alice Zhang: Thank you, operator. Good evening to everyone. Welcome to Intchains' Fourth Quarter and Full Year 2025 Earnings Conference Call. Please be advised that the discussions on today's call will include forward-looking statements. These statements involve known and unknown risks and uncertainties and are based on the company's current expectations and projections regarding future events that may impact its financial condition, operating results and strategic direction. Although the company believes that expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the company cautions investors that actual results may differ materially from anticipated results. Investor should review other factors that may affect its future results in the company's registration statement and other filings with the SEC. The company undertakes no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances or changes in its expectations, except as required by law. Please note that in today's call, we'll discuss certain non-GAAP financial measures. Please also refer to the reconciliation of non-GAAP measures to the comparable GAAP measures in the earnings press release. The presentation and webcast replay of this conference call will be available on the Intchains' website at www.ir.intchains.com. It is my pleasure to introduce Interim CFO, Mr. Charles Yan, who will provide an overview of full year 2025 financial results, recent operational achievements and the company's long-term growth strategy before opening the floor for questions. Charles, please go ahead. Chaowei Yan: Thank you, Alice, and welcome, everyone. Intchains engaged in the design and development of altcoin mining machines, ETH accumulation and yield-generating strategy as well as the delivery of Web3 infrastructure services. Starting December 2025 following the completion of acquisition and the launch of our Goldshell Stake platform, we also provide cryptocurrency staking services for individual and institutional crypto investors. Altcoin mining hardware and Ethereum accumulation and staking activities are the other core pillars of our businesses with sales of our mining machine being the primary source of our revenues. As discussed in the past, we operate in an industry heavily influenced by cyclical volatility, and this has impacted net revenue for full year 2025. Despite short-term market volatility, our ability to continuously and properly deliver state-of-the-art mining products showcases our business agility supported by a long-term commitment in R&D. 2025 was highlighted by launch of series of mining products, including ALEO, Dogecoin and XTM miners. In Q1, we introduced our first ALEO mining series to the market in response to the rapid growth of the ALEO product demand. The launch achieved a strong customer adoption and contributed to substantially increased revenues in the first quarter. During the year, we also launched our groundbreaking byte -- Goldshell BYTE, dual miner, an innovative solution that allows our customers to maximize mining returns by switching seamlessly between algorithm cards according to market conditions. This new machine has generated significant market interest and law supports -- moral support mining across 6 different cryptocurrencies using our proprietary algorithm cards. Throughout 2025, these products experienced rapid iterations with multiple additional product models released for ALEO and Dogecoin miners. Late in this year, we introduced XTM miners, another high-performing minor series, which accounted for a significant portion of our Q4 net revenues. Together, these product launch have reinforced our market competency, reflecting Intchains' capabilities to seizing early market share in the innovative altcoin projects with the top-tier next-generation mines. During the year, we also continued to explore ways to evaluate -- to elevate our ETH accumulation, holding and staking strategies. On the ETH accumulation side, we continued executing our disciplined and self-funded ETH purchase strategy, always mindful of prevailing market conditions and price, more so during the second half of the year. 2025 was characterized by significant swings in ETH pricing, driven by macroeconomic uncertainty, shifting liquidity conditions and evolving institutional participation in digital assets. ETH experienced a period of sharp upward momentum followed by notable corrections, creating a volatile but opportunity-rich environment. During a year full of volatility in ETH and overall crypto market, we adopted a more mindful approach in accumulating ETH and took a conservative and strategic capital allocation approach in the second half of 2025. That said, our long-term conviction in Ethereum ecosystem hasn't changed, and ETH remains the critical assets in our cryptocurrency strategy. As of December 31, 2025, we held a total of 8,826 ETH, increasing from 5,702 a year ago, growing this position by 56%. The same volatility continued in 2026, with ETH trading within a broad range as macro and crypto sentiment fluctuated. In February, ETH stabilized in a range that highlighted opportunistic entry point for long-term accumulation. As a result, we are pleased to announce that by February 23, 2026, we hit another significant milestone of our ETH accumulation strategy with over 9,000 units of ETH and remain one of the top players of ETH' treasury holders. Moving into the staking aspect of ETH holdings. In 2025, we expanded our digital asset strategy by partnering with FalconX to support ETH's staking activities. Through FalconX institutional-grade platform, we are able to securely stake a portion of our ETH holding, generating yields while maintain operational flexibility and strong risk controls. Furthermore, in December 2025, we acquired a Proof-of-Stake platform and launched Goldshell Stake platform, which operates as we independent PoS service platform under the Goldshell brand. As part of Intchains' comprehensive Web3 infrastructure offering, we now provide poof-of-currency stake services for individual and institutional investors. Converting ETH, our launch, Manta and Conflux and expect to expand this line business to broader international markets, leveraging Goldshell's existing customer base and market presence. I will provide additional details on staking strategy for 2026 shortly. Turning to a summary of our full year 2025 financial performance as compared to full year 2024. FY 2025 revenue of RMB 220.9 million or USD 31.6 million decreased by 21.6% due to cyclical fluctuations in the market and softer demand for our products in this period, whereby our ALEO mining machine series contributed to increased revenues in the first 6 months in 2025, and overall demand for our products become softer during the second half. FY '25 cost of revenue was RMB 204.9 million or USD 29.3 million, an increase of 56.1% (sic) [ 57.1% ], impacted by impairment charges recorded against excess mining machine inventory for certain altcoin minings during the period. FY 2025 total operating expenses were RMB 120.6 million or USD 17.3 million, decreased by 18.7,%, primarily as a result of lower sales and R&D expenses and primarily due to the reduced expenses related to the preliminary and research costs conducted for new altcoin mining projects. As a result of lower revenues and gross margins, FY 2025 loss for operating was RMB 104.7 million or USD 15 million compared to the income from operations of RMB 2.9 million. FY 2025 interest income was RMB 11 million or USD 1.6 million, decreased from FY 2024 mainly due to cash used to acquire ETH-based cryptocurrency. For the full year period, we recorded a gain in fair value of cryptocurrency of RMB 4.8 million or USD 0.7 million, primarily a result of increased ETH holdings by 3,170 units since the beginning of the year, partially offset by an approximately decrease of 12.6% in ETH's price during the period. Net loss for FY 2025 was RMB 52 million or USD 7.4 million compared to a net income of RMB 51.5 million in FY 2024. We continue to maintain a strong balance sheet. As of December 31, 2025, our cash position, which consisted of cash and cash equivalents, deposits and government securities listed in long-term investments and short-term investments was USD 67.8 million. We had current assets of USD 83.2 million, total assets of USD 145.2 million and total liability of just $6.2 million. And I would now like to provide an update to sales of our altcoin mining machines in Mainland China before discussing our 2026 strategies and business focus. On February 6, notice on further preventing and handling risks related to virtual currency was issued, prohibiting the provision of service such as sale of mining machines within Mainland China by mining machine production enterprises. In response to the notice and to ensure full compliance, we are enhancing internal control policies and undertaking ratification measures. I would like to note that although our primary sales markets have consist of overseas end users as well as domestic channel partners within China, the company's business model is designed to serve a global customer base and our channel partners purchase are primarily for export purpose. So as detailed in our earnings release, management does not expect a notice to have a material adverse impact on company's business, financial condition or results of operations. Now moving on to our 2026 business strategies. For 2026 and beyond, our growth is centralized on continued investment in R&D on the development and the sale of our Goldshell mining machines and our ETH accumulation and staking activities, supplemented with cost optimization to improve overall financial performance. In first half of 2026, we remain focused on generating revenues from the sale of our existing mining machine sales that were launched in 2025, including ALEO, Dogecoin, XTM and... Operator: Excuse me, ladies and gentlemen, please continue to stand by. Your conference will resume momentarily. Thank you. Excuse me, ladies and gentlemen, your conference will now resume. Charles, go ahead. Chaowei Yan: Sorry, everyone, let's continue for our earnings conference call. So 2026 is expected to be a year of margin improvement due to steps we took to implement cost management initiatives, including workforce reduction and organizational restructuring, aiming to enhance efficiency, optimize headcount and operate with leaner corporate level -- corporate model. We believe these initiatives will enable us to force resources on core R&D efforts to maintain a leading position in altcoin mining product industry, driving further margin expansion for FY 2026 and beyond. Prior to our altcoin hardware business, we are well equipped to enhance our ETH accumulation and restructure treasury holding strategy. In 2026, Intchains participates continuing a prudent approach in ETH purchasing by pursuing selective value-driven purchases when market conditions are favorable to gradually expand ETH's treasury holdings over time. As of December 31, 2025, the fair value of our cryptocurrency assets other than stablecoins such as USDC and USDT was RMB 187.6 million or USD 26.8 million, which includes approximately 8,826 ETH-based accrual currencies, valued at RMB 186.7 million. In 2026, Intchains continued to accumulate ETH. And as of February 23, 2026, total ETH held reached over 9,070 units. As part of our efforts to generate incremental returns from idle assets, we plan to continue our dual-platform staking approach using FalconX to stake ETH we have accumulated in our Goldshell stake platform to stake our third-party ETH. Staking on 2 platforms allows diversification, and we expect this practice of combination to maximize returns as we build our strategic ETH reserve and also from third-party staking. As an update, as of February 23, 2026, we have a total of 2,600 units of ETH or 28.7% of our total ETH treasury holding, currently staked with 1,000 units or 11% staked in -- on FalconX and 1,600 units or 18% staked in on our own Goldshell Stake platform. Additionally, Goldshell currently stake, 1,359 units of ETH currently owned by crypto investors. We remain optimistic about these initiatives, and we are implementing combining sale of new and existing altcoin mining machines and a solid ETH accumulation holding and staking strategy, along with cost-saving methods we are undertaking to drive solid top line results and improve operation margins in 2026. As a Web3 infrastructure provider, we have a market-leading altcoin hardware business and integrated hardware and software service portfolio, such as Goldshell Wallet and Goldshell Stake and a prudent long-term ETH strategy. With staking service serving as a second growth engine beyond our mining machine business, we have expanded into the blockchain infrastructure service sector. So we are looking to further generate synergies across our business lines, capture and act on additional opportunities as we emerge. With that, operator, please open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Matthew Galinko with Maxim Group. Matthew Galinko: I think you've covered this in the prepared remarks, but just to clarify, do you expect to launch new mining products in the second half of '26 at this point? Chaowei Yan: Yes, we are targeting new altcoin mining machine in the second half, but it's also subject to market conditions and our R&D progress. Currently, we have multiple coins project is under R&D process. Matthew Galinko: Got it. And on the Goldshell Stake, I think you mentioned you have about 1,400 units of ETH staked by third-party investors. Did that come over with the acquisition? Or are those new users for the platform since you rebranded it? Chaowei Yan: I think it's both. Yes. The staked ETH is about -- we cannot -- after the acquisition, it have amount growth in the ETH units. So it's both and half are prior to the acquisition and another half post-acquisition. Thank you. Operator: [Operator Instructions] And we have no further questions at this time. I would like to hand it back to Charles Yan for closing remarks. Chaowei Yan: Yes. Thanks again to all of you for joining us. We are always open to dialogue with investors. Please feel free to reach out to us or our Investor Relations firm, The Equity Group for any additional questions. We look forward to speaking with you all again on our next quarterly call. Thank you. Operator: Thank you. And ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Hello, and welcome to Rocket Labs Fourth Quarter and Full Year 2025 Earnings Conference Call [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Morgan Connaughton, Vice President, Marketing and Communications at Rocket Lab. Thank you. You may begin. Morgan Bailey: Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's Fourth Quarter and Full Year 2025 financial results, business highlights and other updates. Before we begin the call, I'd like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance, and factors that could influence our results are highlighted in today's press release and others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation, and a replay and copy of the presentation will be available on our website. Our speakers today are Rocket Lab's Founder and Chief Executive, Sir Peter Beck; as well as Chief Financial Officer, Adam Spice. They will be discussing key business highlights, including updates on our launch and Space Systems programs. We will discuss financial highlights and outlook before we finish by taking questions. So with that, let me turn the call over to sir Peter. Peter Beck: Thanks very much, Morgan. So I'm going to start today by stealing some of Adam's thunder and sharing some of the financial highlights upfront. We had a new annual revenue record in 2025 coming in at $602 million, which represents 38% growth year-on-year compared with 2024. We also had a record quarter in Q4 with revenue coming up at $180 million, which was up 36% from Q4 last year. At the end of Q4, our backlog sat at a record $1.85 billion, which is up 73% from the same time in 2024. And finally, we also achieved record gross margins in Q4 at 38% GAAP and 44% non-GAAP. As you tend to say on launch day, that's greens all across the board and a great result. It comes down to one thing, and it's simply relentless execution from the Rocket Lab team across our launch and Space Systems programs. Here are some highlights from that execution. I won't labor on these now as we'll go into more detail in the up-and-coming slides. But ultimately, we launched and signed a record number of electron missions and led the way on hypersonics testing with haste and achieved some significant qualification and development milestones on Neutron. On the Space Systems front, we were awarded the largest contract in Rocket Lab's history, successfully delivered the ESCAPADE mission in Mars for NASA, and we had record growth across all of our Space Systems component businesses. On acquisitions, we welcomed Geost in 2025, which officially marked our entrance into payloads and followed this up in Q1 2026 with the acquisition of Optical Support, Inc., which further strengthens our optical systems offering. We also expanded our machining and manufacturing footprint with the acquisition of Precision Components Limited, which actually just closed today and will ultimately support continued scaling of the components manufacturer for both Launch and space systems. More on these in the slides ahead. So on to some quick highlights for Electron and HASTE. Rocket Lab remains the small launch leader globally as the only rocket delivering reliable and high cadence launch opportunities for SmallSat. We launched 21 missions across Electron and HASTE in 2025, which was a new company record. We also launched 7 missions in Q4, our highest number of launches in a single quarter to date. Meanwhile, there were no successful orbit launches of a new U.S. or European small launch vehicle in 2025 at all. And it's very clear when small cell operators need a dedicated ride to orbit, they come to Rocket Lab, and we're proud to hold the title and look forward to expanding it again the record again even further this year. The U.S. government has made no secret of the fact that faster and more frequent hypersonic testing is an urgent need and a national priority. Rocket Lab is the only credible provider that has demonstrated the ability to deliver this capability right now, not years into the future. In 2025, we conducted 3 successful HASTE missions, and the next one is on the pad in Virginia now just days away from launch. This kind of cadence and reliability positions us well for programs like Golden Dome. With more HASTE missions on the books this year, we'll be rapidly building that moat even further. It was a record year for launching missions, but also for signing them. We added more than 30 new launches to the manifest across Electron and HASTE. They came from a nicely diversified customer base spanning the U.S., NASC and defense, commercial constellations and international organizations. We had many returning customers sign new contracts often for bulk buys and multiple launches, but also added new names too, which demonstrates that our small launch customer base continues to expand. In Q4 alone, we signed a new multi-launch deal with BlackSky for 4 new launches, which brings the total number of missions they booked with us to 17. We also signed a contract with a new confidential customer in support of national security. As always, our pipeline for Electron and HASTE remains strong, and we're excited to continue signing new and novel missions as well as a standard repeat and mission profiles in 2026. Now on to Space Systems. Rocket Lab is not new to being a prime contractor, but in Q4, we made an announcement that highlights our substantial growth in satellite market and further cements our position as a preferred disruptive prime. The Space Development Agency or SDA, awarded us an $816 million contract to build an advanced constellation of 18 spacecrafts, equipped with advanced missile warning, tracking and defense sensors to provide global and persistent detection and tracking of emerging missile threats. It's the largest single contract in Rocket Labs history. What's more as a leading merchant supplier into the other Tranche III prime contractors, there are additional subsystem opportunities that could total capture -- could add a total capture value to approximately $1 billion for supplying payloads, solar power reaction wheels and star trackers software and other solutions from our broad portfolio of capabilities. It's important to point out that the acquisition of Geost played a significant role in securing this award. Rocket Lab is the only commercial provider producing both the spacecraft and payloads in-house for SDA and for the tracking layer Tranche III, supporting the government's goals for speed, resilience and affordability in space-based missile defense. This award follows on from our previous prime contract award for SDA's transport layer Beta Tranche II program. With the 2 programs combined, we now have more than $1.3 billion in contracts signed with the SDA. I think an important takeaway from this announcement is not just that we won a significant contract, it's that Rocket Lab is repeatedly winning large awards that have historically been the exclusive legacy -- exclusive to the legacy aerospace primes. We're seeing a new world order established in the defense world with the rise of companies like Anduril and Palantir playing leading roles in disrupting slow bloated traditional players. Rocket Lab is clearly doing this in space and unseating the old guard. Okay. On to Mars. In Q4, the ESCAPADE mission launched and the twin satellites we built for NASA and UC Berkeley are now well on their way to the red planet. With ESCAPADE, we've proved that it's possible to deliver decade-class missions on a drastically shortened time lines and for significantly smaller budgets than typical interplanetary missions. We made this possible through vertical integration, maintaining strict control over schedule and budget. With both spacecraft now successfully commissioned and in a Loiter trajectory near L2, that's a Lagrange point, around 1.5 million kilometers from Earth, Rocket Lab's primary role in the mission will soon be complete when we hand it over to the team at UC Berkeley next month. Even once control has been transferred, we'll be chairing Blue and Gold along as they arrive in Mars orbit in September next year. Our role in ESCAPADE might have reached mission success, but we're not quite finished yet with Mars yet. We've made no secret of the fact that we think Rocket Lab is the strongest contender to deliver NASA's Mars telecommunication Orbit program. An NTO will be fundamental to everything else on Mars, enabling science now and human exploration in the future. We'll make it possible with a rare combination of proven spacecraft, deep space mission experience, reliable rockets and end-to-end space systems capability as a vertically integrated mission provider. Our hardware and our software has enabled some of the most ambitious and successful Mars missions in history, including the Mars Insight Lander, Perseverance Rover, Ingenuity Helicopter, Mars is in our DNA and Rocket Lab has more hardware and on orbiting Mars than just about any other company today. Okay. On to programs. We had a key milestone for LOXSAT, which is our launch plus spacecraft mission to build and deploy an on-orbit cryogenic fuel depot for NASA. This spacecraft is now complete and we will be marching steadily towards launch later this year. Okay. We also have an exciting development to share from our Space Solar business. It requires some background on kind of the state-of-the-art of space solar power, so bear with me a little bit on this one. The satellite industry is rapidly expanding and projected to grow 7x by 2035. Those satellites will all need solar power. Rocket Lab is the world leader in solar space power. So it should come as no surprise that we're the best positioned to serve this growing market. In addition, ambitious opportunities are on the horizon from space-based data centers. As AI and compute demand saw data centers on earth reach their limits, companies are beginning to seriously explore moving data centers to orbit where they can take advantage of the cool conditions and infinite solar energy. But rapid market growth of this size, both for typical constellations and futuristic projects like space-based data centers will be hampered if traditional solar cells are the only option. So it's against this backdrop that I'm proud to announce that Rocket Lab is introducing a space-optimized silicon solar arrays. While silicon is not new in space, it's always suffered from low radiation tolerance and very low life expectancy with poor performance. Our team are the experts in space solar, having developed some of the most complex cells for flagship missions to the Sun and most of the missions on Mars today. The team has produced a silicon array that is a game changer. By harnessing silicon, we're able to deliver a really low cost per watt at industrial scale, enabling gigawatt class power generation and space at kilometer size scale using mass manufacturable lightweight and modular systems. We've also taken the additional step of developing a hybrid solar array solution that incorporates both high-efficiency cells and silicon cells, an approach that leverages the benefits of both technology. When size, weight and power or performance are at a premium, traditional high-efficiency cells are enabling. When cost schedule or cost constellation scale are required, silicon cells can meet that demand. When these factors must be traded off and balanced, hybrid arrays enable a combination of the 2 to deliver an optimal performance at a compelling value. So for new products, we move into new acquisitions. On the top of acquisitions, no doubt, everybody is interested in an update on Mynaric. The German government is still working methodically through the regulatory review process. So there's not much to add at this stage while that sort of runs its course as expected. But we look forward to providing an update once that's concluded. There are a few stories floating around in the media with different theories on how the transaction is progressing. All as I'd say there is don't believe everything you read in the media and online. Otherwise, this month, we have welcomed Optical Support, Inc. to the Rocket Lab team. OSI is a Tucson-based leader in the design and manufacture of custom high-precision optical and electro-optical mechanical instruments. OSI's technology is a key enabler for national security and commercial satellites. They are a key subsystem in Rocket Labs payloads for space protection, space domain awareness, missile warning and tracking defense. The vertical integration opportunities here are clear while we look forward to scaling production and capabilities to serve our customers and our own programs as we've done with many of our other successful acquisitions. And last but not least, we've also acquired Precision Components Limited in New Zealand, again, a known and trusted supplier to us that's now part of the family. With this acquisition, we have established a new precision machining complex that enables a huge increase in machining capacity. So I think it's worth spending just a quick moment here on the strategic importance of our recent optical-focused acquisitions. Vertically integrated high-performance RF and optical payload technologies unlock high-value opportunities for national security and commercial customers. They are key to unlocking programs like Golden Dome and other proliferated mission architectures. Owing to the payload chain enables -- owning the payload chain enables discriminating performance plus greater control over schedule, cost and especially for high-volume constellations. We've already seen this strategy in the action with SDA Tranche III award, and we expect to deliver more value and opportunities to us this year and beyond. We received another strong vote of confidence in our ability to deliver critical national security and defense programs when we were recently selected by the NDA for Shield. In short, we're now onboarded to the program, which has a contract value up to $151 billion, giving us the opportunity to compete for future launch and space systems contracts that deliver these capabilities to the war fighter with increased agility. All of the above ultimately points to one thing, Rocket Lab is a disruptive leader in building the future for space and defense. This was driven home by a recent visit to our facilities in Long Beach by the Secretary of War, Pete Hegseth, during the arsenal of Freedom Tour. The visit highlighted the critical support we already delivered to the war fighter today and showcased our capability to meet ever-evolving needs in the future. And last but not least, before Adam digs into the financials, here's the latest on Neutron. We've got lots of progress to share across Neutron, but I'll start with the topic on everyone's mind, I'm sure, which is the Stage 1 tank update. In January, we shared that Neutron's Stage 1 tank had ruptured during a hydrostatic pressure test at Space Systems complex in Middle River. Now failures aren't uncommon during the qualification phase of any rocket development program, but I do want to point out that this was unexpected. And ultimately, we had anticipated that this tank would pass qualification. Now the tank did meet its anticipated flight loads, but as we prepared to open up the test bound and push the pressures and loads beyond this to understand the margins in the structure, the tank let go earlier than we expected. The post-test review process identified that a manufacturing defect introduced a reduction in the strength at a critical joint in the structure, specifically around the tank closeout, which is an autoclave produced part that interfaces with the bulk composite laminate of the tank and the [indiscernible]. The review of the hardware and test data suggested that the tank otherwise performed as expected. The first tank was handlaid by a third-party contractor while we're getting the automated fiber placement machine up and running. And it's in this handlaid process that a defect was introduced. Now the decision to work with a third-party contractor was ultimately driven by schedule as it would allow us to produce the first tank rapidly while simultaneously commissioning the AFP machine for future tank production. And it's not uncommon for us to run parallel development paths like this to accelerate schedules as it can be a cost-effective way to iterate prototypes and first articles while also standing up long-term production capability to enable fast scaling down the track. Now the next tank is already in production. This time, it's being built on the AFP machine, completely eliminating the possibility of this hand defect reoccurring. It's worth pointing out that Neutron's second stage was largely produced -- was entirely internally passed and qualification -- sorry, -- it's worth pointing out that Neutron's second stage was produced entirely and internally and passed qualification comfortably. Beyond changing the manufacturing process, we also are making some minor design changes to the first stage tank to introduce more margin and improve manufacturability. To be clear, we're happy with the overall tank design. But since we're making a new one, we thought we'd always take the opportunity to tweak things a little bit and optimize it. Once completed, the new tank will undergo an extensive test and qualification campaign to verify flight readiness, and we're going to take a time of that process. The priority will always be to bring a reliable rocket to market even if it means taking a few extra months. Ultimately, the combination of the new tank and the production design tweaks and the test and qualification campaign will adjust Neutron's time frame a little bit. As such, Neutron's first launch is now targeted for Q4 2026. Neutron is still scheduled to come to market in an incredibly aggressive time frame. And what's more, we'll be bringing a robust and thoroughly tested vehicle to the pad. We look forward to sharing more development progress as we run through the final development phases this year. Okay. So on to some milestones in the Neutron program over the past quarter. You would have seen over the next few slides why I'm dubbing this the quarter of qualification. We've taken massive strides in Q4 as well as Q1 so far, successfully qualifying critical flight hardware from large structures through to component level systems. In Q4, the Hungry Hippo fairing successfully passed qualification and then on into Q1, it made its way to wallops. It's an exciting time in Virginia as Neutron flight hardware starts arriving and we can get into the final assembly and integration and test phase. For the Hungary Hippo specifically, that looks like fluid systems and installation of canards and thermal protection systems and then, of course, end-to-end testing. While we work through that in preparation for the first flight, we have the second Hungary Hipo in production for the next Neutron launch vehicle as well. Another successful qualification on the board is Neutron's thrust structure. This is a really complex part of Neutron. It must be able to withstand 2.1 million pounds of thrust, which is more than 44 electrons simultaneously lifting off to give everybody kind of a sense there. The structure is now officially on to final integration, which is the final hurdle before we get into integrated system checkouts, cryogenic proof tests, vehicle hot fires, wet dress and then, of course, launch. It will go through avionics and fluids and subcomponent integration before shipping out to LC-3. Meanwhile, at Middle River, Neutron's interstage is undergoing its own qualification campaign before being shipped to LC-3. Neutron's second stage is hung inside this during flight and then passes through the mouth of the Hungary Hipo and carried orbit. Like the Hungary Hipo, the interstage remains attached to the first stage and reuse. So it needs to undergo a robust testing program so we can assure that it can withstand the forces of launch and landing multiple times. And then Stage 2 is in its final integration and getting ready for its debut on the test standard LC-3. This is a specially built rig on the top of the LC-3 launch mount, where we'll go and conduct a barge of integrated test before ultimately moving into hot fires on the stand. That will be L3's first taste of what of an Archimedes engine and a huge milestone for the development program. So we look forward to testing that soon. Which brings me to the last but not least, Archimedes. Right now, the engines are in boot camp. We are not been nice to them at all. It's all well and good to test engines to expected bounds. But through experience, I've learned that space flight has a way of throwing things at you that aren't expected. Rocket engines don't tend to fail when everything is boring and when you can rely on analysis and simulation to bound and then truly understand performance. Ultimately, engine reliability is gained via testing. There's just no substitute. So that's what we are doing, and we're really pushing them through the edge cases, backing right off the inlet pressure, inducing cavitation and generally doing really nasty stuff to them. Ultimately, you want to know how the engines are going to perform in a really wide range of scenarios on the ground before you put them in the air and find out in flight. Too many rocket companies have not done this, and it typically doesn't end well. This is the same kind of process we undertook when developing Rutherford, the engine on Electron. And right now, we're flying more than 800 of those engines successfully to space. So we'll be bringing the same level of reliability and rigor to Archimedes. Beyond the Stage 1 tank, we've had a really positive quarter for Neutron progress, and this gives you a snapshot of just how much progress we've seen and made on the path to first launch. Major structures and subsystems are passing qualification. And for the first time, we have hardware and final integration. These are the final steps before we go into integrated testing on the pad with hot fire stage tests and then wet dress and then, of course, launch. Beyond the vehicle itself, we have established all the supporting infrastructure to enable first launch and beyond. OC3 has obviously stood up plus production and test facilities are all humming while the regulatory work is all tracking along as we expect. The things to look out for the next few months to know that we're marching steadily towards launch, including more hardware making its way to the launch site, we will be conducting extensive testing of flight hardware and then obviously, that will lead up to Neutron's first flight. So that wraps up the operational highlights. So I'll hand over to Adam for the financial overview and outlook. Adam Spice: Thanks, Pete. Fourth quarter 2025 revenue was a record $180 million, coming in at the high end of our prior guidance range and representing an impressive year-over-year growth of 36%. This strong performance was driven by significant contributions from both of our business segments. Sequentially, revenue increased by 16%, underscoring the continued momentum across the business. Our Space Systems segment delivered $103.8 million in revenue in the quarter, reflecting a sequential decrease of 9.1%. This decline was primarily stemmed from our Satellite Platforms business and our Solar businesses, both of which continue to perform exceptionally well despite the time-to-time programmatic nonlinearity of revenue recognition under ASC 606 and related subcontractor progress. We're fortunate that the growing diversification across Space Systems and Launch can often provide more predictable top line growth despite underlying volatility at the individual product line level. This was one of those quarters where strength in Launch Services more than offset the declines in Space Systems, generating $75.9 million in revenue, representing an 85% quarter-over-quarter increase due to the increase from 4 to 7 launches during the period, including 1 HASTE mission. On a full year basis, 2025 revenue was $602 million, an impressive 38% growth year-on-year. Now turning to gross margin. GAAP gross margin for the fourth quarter was 38%, at the center of our prior guidance range of 37% to 39% and an increase of 100 basis points quarter-over-quarter. Non-GAAP gross margin for the fourth quarter was 44.3%, which was also in line with our prior guidance range of 43% to 45% and an increase of 240 basis points quarter-over-quarter. The sequential improvement in gross margins was primarily driven by an increase in Electron fixed cost absorption due to the increased launch cadence within the quarter, paired with increased contribution from our higher-margin Space Systems components businesses. On a full year basis, GAAP gross margin was 34.4%, an increase of 780 basis points year-over-year, while non-GAAP gross margin was 39.7%, an increase of 770 basis points year-over-year. Relatedly, we ended Q4 with production-related headcount of 1,244, up 46 from the prior quarter. Now before moving on to backlog. I want to take a moment and zoom out and provide perspective on the progress we have made towards our long-term financial model since our NASDAQ listing in 2021. Revenue has grown nearly 10x, achieving a compound annual growth rate exceeding 76%. Gross margins have increased each year, more than doubling the contribution from each dollar of revenue. This expansion highlights our strong and disruptive competitive position in the industry as well as our highly valued and differentiated products and services across the business. The combination of this revenue growth and margin expansion has put the company on a solid foundation and path towards achieving meaningful operating leverage and long-term cash flow generation. Lastly, I thought it's important to call out our SG&A spending as a percentage of revenue as I'm encouraged to see this continue to trend downward as we scale the business. We are constantly driving the business to be fiercely efficient, and I believe that we're positioned to drive even more growth and efficiency in 2026 and beyond. Now turning to backlog. We ended Q4 2025 with approximately $1.85 billion in total backlog, an impressive 69% growth sequentially, primarily due to our recent SDA Tranche III tracking their contract award, which we announced last December. As we've mentioned before, Space Systems backlog in particular, can be lumpy given the timing of these increasingly larger needle-moving program opportunities. But once awarded, they can significantly derisk revenue growth for several years. We continue to cultivate a strong pipeline that includes multi-launch agreements across Electron, HASTE and Neutron as well as large satellite platform contracts across government and commercial programs. Currently, Launch backlog accounts for approximately 26%, while Space Systems represents approximately 74%. Looking ahead, we expect approximately 37% of our current backlog to convert into revenue within the next 12 months, which includes preliminary Tranche III revenue recognition estimates, which we believe will prove to be conservative which, in addition to the healthy sales pipeline are expected to drive incremental top line contribution beyond the current 12-month backlog conversion. Turning to operating expenses. GAAP operating expenses for the fourth quarter of 2025 were $119.3 million, below our guidance range of $122 million to $128 million. Non-GAAP operating expenses for the fourth quarter were $104.5 million, which were also below our guidance range of $107 million to $113 million. The sequential increase in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in prototype and headcount added spending to support our Neutron development program. Specifically, investments ramped up in propulsion as we continue to test Archimedes engines as well as test and integration of mechanical and composite structures at our facility in Middle River, Maryland. In R&D specifically, GAAP expenses increased $8.1 million quarter-over-quarter, while non-GAAP expenses rose $7.7 million. These increases were driven by the ramp-up of our committees production and testing along with higher expenditures related to composite structures and fluids, as just mentioned. Q4 ending R&D head count was 1,012, representing a decrease of 7 from the prior quarter. In SG&A, GAAP expenses decreased $5.1 million quarter-over-quarter, while non-GAAP expenses declined $1.3 million quarter-over-quarter. These decreases were primarily due to a reduction in transaction-related legal and other professional services fees related to M&A and capital markets transactions, paired with a slight reduction in marketing expenses. Q4 ending SG&A head count was 389, representing an increase of 4 from the prior quarter. In summary, total head count at the end of the fourth quarter was 2,645 up 43 heads from the prior quarter. Turning to cash. Purchase of property, equipment and capitalized software licenses were $49.7 million in the fourth quarter of 2025. And an increase of $3.8 million from the $45.9 million in the third quarter. This increase reflects ongoing investments in Neutron development as we continue testing and integrating across the pad at LC-3 in Wallops, Virginia and Middle River, Maryland, expanding capabilities at our engine development complex in Long Beach, California and build-out of the return on investment recovery barge in Louisiana. As we progress towards Neutron's first flight, we expect capital expenditures to remain elevated as we invest in testing, production scaling and infrastructure expansion. GAAP EPS for the fourth quarter was a loss of $0.09 per share, compared to a loss of $0.03 per share in the third quarter. The sequential increase to GAAP EPS loss is mostly attributable to the $41 million tax benefit we recorded during the third quarter, which was due to the partial release of the valuation allowance against our corporate deferred tax assets as, a result of acquiring an equal amount of deferred tax liabilities emanating from the Geost acquisition purchase price accounting. GAAP operating cash flow was a use of $64.5 million in the fourth quarter of 2025, compared to $23.5 million in the third quarter. The sequential increased use of $41 million was almost entirely due to the timing of employee equity program related tax payments. Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated due to Neutron development, longer procurement for SDA, investments in subsequent Neutron tail production and infrastructure expansion to scale the business beyond the initial test flight. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow less purchases of property, equipment and capitalized software in the fourth quarter of 2025, was a use of $114.2 million compared to a use of $69.4 million in the third quarter. The ending balance of cash, cash equivalents, restricted cash and marketable securities with $1.1 billion at the end of the fourth quarter. The sequential increase in liquidity was driven by proceeds from sales of our common stock under our at-the-market equity offering program. which generated $280.6 million during the quarter. These funds are primarily intended to support acquisitions, such as the announced pending Mynaric acquisition, the recently consummated acquisitions of Optical Support, Inc. and Precision Components Limited as well as other targets in our robust M&A pipeline, along with the general corporate expenditures and working capital. We exited Q4 in a strong position to execute on both organic and inorganic growth initiatives and further vertically integrate our supply chain, expand strategic capabilities and grow our addressable market, consistent with what we've done successfully in the past. Adjusted EBITDA loss for the fourth quarter of 2025 was $17.4 million, which was below our guidance range of $23 million to $29 million loss. The sequential decrease of $8.9 million in adjusted EBITDA loss was driven by significant revenue and gross margin improvement, partially offset by increased operating expenses related to Neutron development. With that, let's turn to our guidance for the first quarter of 2026. We expect revenue in the first quarter to range between $185 million and $200 million, representing 7% quarter-on-quarter revenue growth at the midpoint and growth of 57% from the year ago quarter. We anticipate slight slip down in both GAAP and non-GAAP gross margins in the fourth quarter with GAAP gross margin to range between 34% to 36% and non-GAAP gross margin to range between 9% to 41%, with a modest sequential decline driven by a greater mix of Space Systems versus higher-margin Launch and a weaker margin mix within our Space Systems segment. We expect first quarter GAAP operating expenses to range between $120 million and $126 million and non-GAAP operating expenses to range between $106 million and $112 million. The quarter-over-quarter increase were primarily driven by ongoing Neutron development and spending related to Flight 1, including staff costs, prototyping and materials. However, we expect to see a shift in spending from R&D and into flight to inventory throughout 2026, which is an encouraging sign of progress as we move closer toward Neutron's transfers flight and adjusted EBITDA positivity as a result. I'm optimistic that with the impressive strides we've made towards this milestone and currently expect Q1 to mark peak Neutron R&D spending. We expect first quarter GAAP and non-GAAP net interest income to be $8 million, which is a function of higher cash balances as well as conversion of approximately $117 million of convertible notes since December 31. We expect first quarter adjusted EBITDA loss to range between $21 million and $27 million and basic weighted average common shares outstanding to be approximately 605 million shares, which includes convertible preferred shares of approximately 46 million and reflects the conversion of approximately 23 million shares from our outstanding convertible notes thus far in Q1. We there remains only 7.5 million shares or 11% of the original $355 million issuance outstanding. And when taken into the additional context of the retirement of the Trinity equipment line on Q4, we have substantially eliminated -- we have eliminated indebtedness from the business. Lastly, consistent with prior quarters, we expect negative non-GAAP free cash flow in the first quarter to remain at elevated levels, driven by ongoing investments in Neutron development and scaling production. This excludes any potential offsetting effects from financing activities. Last but not least, here are some of the upcoming investor events that we'll be attending in the next few months. And with that, we'll hand the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from Andres Sheppard with Cantor Fitzgerald. Andres Sheppard-Slinger: Adam, maybe I want to start with the backlog. I'm wondering if you can maybe help us build drill a bit deeper in it. And maybe remind us what is included in here, does this include the 40% of revenue from SDA Tranche II 10% of maybe the Tranche III? And what are you including from Neutron and Electron here? Adam Spice: I don't know how much you caught that -- so the -- all of the SDA contracts were added to backlog. So what remains for SDA Tranche II transport layer is still in the backlog. Obviously, what's been recognized as revenue is no longer there. Through the end of Q4, we hadn't recognized any of the Tranche III contract awards. So all of that value is currently in backlog, and that will start to convert into revenue and come out of backlog obviously in that process. As far as Neutron is concerned, I think we've spoken before that we have several flights that are representative in our Launch backlog that's reflected in our filings. So hopefully, that answers your question on backlog composition. Andres Sheppard-Slinger: Yes. That's helpful. And maybe just as a follow-up. So on Neutron, with the shift to Q4 now with the first launch, how should we think about cadence? Will you still target maybe 3 launches within the first 12 months after the first one? How confident are we in the development of the second tank and wondering if maybe we should expect any step-up in CapEx now with the second tank in production. Peter Beck: And I can answer a couple of those and maybe you and summer as well. Andres, so with respect to the tank, I think it's well understood what needs to be done there. And we had built a lot of the second stage tank on the machine. So that really solves that problem. And the way to think about just sort of follow-on flights is it's not quite as dire as like moving all of the follow-on flights 12 months or to the first flight because as you've seen in the presentation, we're already building flat out additional Neutron tail numbers. So it will probably be a slightly faster convergence into subsequent flights because none of the other hardware that's qualified as being halted, obviously, it's just that tank and the AFP machine enables us to build a tank just way more rapidly than with a hand lay process. So I think we'll be in better shape there. Adam Spice: Yes. And Andres, I guess with regards to your question as far as CapEx and so forth related to the second tank that's replacing the first 1 that ruptured I mean the benefit now, as Pete said, of being on the AFP is not only can we produce it faster, but the actual cost to produce that second tank is quite low. The first tank was expensive because as Pete mentioned earlier, it was a hand-laid up tank. It took a long time, this will be much quicker. And also, since we've now commissioned the AFP, we're really just talking about variable costs related to the tank materials, more than anything else because the existing labor is already kind of in the model. So there won't be any increased CapEx and the impact to R&D as a result of the tank failure is actually not -- the tank itself is actually not that significant. Operator: Our next question comes from Edison Yu with Deutsche Bank. . Xin Yu: Wanted to ask a question on space data centers. And I think you had alluded to a lot of interest. I think it's obviously become a topic in the industry. Can you give us a sense on how these kind of early discussions are going with potential customers interested in doing this? And is it realistic to see some type of Rocket Lab content in a space data center, let's say, within the next 2 or 3 years? Peter Beck: So thanks for the question. So I think, look, we're early with data centers. If you look at some of the models, there's a number of things that sort of have to come into focus before they become the logical choice versus terrestrial. But we never want to miss an opportunity and we've been developing the silicon arrays and power solutions for a while now focusing on mega constellations and there's high-volume power applications. But if you stand back objectively and you think about what are all the challenges with putting data centers in orbit, it boils down to really 3 things. One is cost and cadence of Launch to be able to make the model close. And then 2 is heat rejection through various means. And 3 is just sheer power, like there's a gigawatt of electricity, electrical power. So solar arrays of multi kilometers in scale are what's needed. So we wanted to make sure that whether they leave this Earth or not, there'll be Rocket Lab logos all over that stuff. So as far as I'm aware, there's nobody else has a silicon solution quite like we've developed. Xin Yu: Understood. And to your point on heat rejection, I guess, the rate eater, is that a capability you have in-house that you need to develop over time? Or is that something inorganic? Just curious on what needs to be kind of technically done there. Peter Beck: Yes. I mean, look, all of that spacecraft have radiators, I mean, you generate heat, you have to reject it. So there's various kind of ways of doing that piping heat around the spacecraft radiator. So I don't see that as a huge technical challenges just on the scale, that scale required hasn't been achieved before. So that's the challenge there. But to be clear, I mean, I don't foresee us building massive AI data centers any time soon, but those who are at least experimenting with it and looking to go down that path, I think we have a lot of compelling solutions. Xin Yu: Got you. If I could just sneak one quick one in. In terms of just the discussions, can you give us a sense of like the flavor of customers? Are these kind of new customers, nontraditional customers kind of exploring this idea with you? Peter Beck: Yes. I mean we have to be a little bit careful here, but I would say that there's certainly more nontraditional looking at this kind of solution than traditional players. Operator: Our next question comes from Ronald Epstein with Bank of America. Alexander Preston: This is Alex Preston on for Ron. So I know you talked a little bit about progress on the Mynaric acquisition, but I was a little more interested maybe broadly in the environment in Europe and more generally, right? It seems like there's a growing appetite for, call it, indigenous launch in national security space capabilities. And I'm interested if you sort of see this trend yourselves or how you see this developing. I know Pete mentioned no other small launch provider has really succeeded in the last year, but it's still, I think, focus for a lot of people. Peter Beck: Alex, it's a great question. Look, one of the reasons why we like Mynaric and why we think it's important, Europe and Europe more in general, is exactly that point is that -- there's a lot of space nations there that have very little capability with giant aspirations and really short time frames. And I think it's always everybody's desire to build domestic capabilities. But the reality is, if you want to stand up these kind of capabilities really, really quickly. You don't have the decades that it takes to build often these sovereign capabilities. They're very specialist often equipment and facilities and also intellectual property and knowledge. So we see Europe as a great opportunity for us and a real expansion beachhead we can provide solutions at the component level. We can provide solutions at the complete system with respect to a satellite. We can provide launch, and you've seen even European space agencies procure Launch from us now. And once we have a footprint in Europe proper, being eligible for participating in your European programs becomes possible. So I think it is -- it's a great opportunity. There's literally billions and billions of dollars of well-funded government programs underway right now, and the time lines associated with those are conducive or, I would say, not conducive necessarily always to creating sovereign capability. Alexander Preston: Got it. And then I guess it would sound like the attitude is still broadly constructive from what you said versus maybe Europe starting to get a little more distant from U.S.-based providers? Peter Beck: No, I think it's very constructive. I think naturally Europe is looking to create sovereign capability, but often also the conversations we've had, they're very pragmatic and realistic that the capability they're looking to create takes a long time. So working with, for example, a Rocket Lab Europe is a great way to move forward. Alexander Preston: And just real quick, would you characterize is that the same on launch as you went on Space Systems where I think there's a bit more existing indigenous capability in Europe already. Peter Beck: Yes, they're certainly giving it a good college try but not having tremendous success, I would say, -- but that is just how difficult launch is. But I think launch is just so strategically important. You can build all the satellites you want, but if you can't put them in all, but it's kind of pointless. So this is the reason why you have the European Union and ESA launch vehicles that on the face of it aren't that commercially competitive, but they will never go away because the nations need access to orbit. So, I would expect to see that persist for some time and continued investments made in -- into Launch for the -- for Europe. But in saying that everyone is pragmatic and if you need to get stuff all but then pick up the phone. Operator: Our next question comes from Erik Rasmussen with Stifel. Erik Rasmussen: Yes. Maybe just back on Neutron. I appreciate the sort of the update on cadence. And it sounds like with the pushout, naturally, you continue to sort of build out some of those more capabilities in just Neutron infrastructure around Neutron. But post sort of test flight, and we think that sort of Q4 and if it's late Q4, I don't know the timing, but what you think then that first revenue flight? What do you think the timing around that could be? And also when considering that, that probably needs to have a higher level of reliability. And then with that, are you still targeting this as a recovery mission? Peter Beck: Erik, thanks for the question. So the timing of Flight 2 will always depend on the results of Flight 1. If flight 1 goes swimmingly, then the time to get the second vehicle on the pad, we'll endeavor to make it short as possible. If the things to fix this kind of things to fix. But nominally, the timing remains consistent to what we've kind of talked about. And the vehicle will be outfitted with all of its kind of requirements for Flight 1 even for a down range lending, we'll attempt to do the reentry and landing burden space it down. Once again, if all that goes well, then the next one we would intend to slip a barge under. If we pull drive it into the ocean, then we'll probably go to a Flight 2 and get that soft landing right before we go and put infrastructure under that, could be costly to them if we damaged. Erik Rasmussen: Great. And maybe just on Electron. You had a nice launch campaign in 2025, 21 successful launches. What does the manifest and internal planning suggests or this year? And then maybe just the mix between your standard Electron missions and HASTE? Peter Beck: Yes. I mean I'm not sure how much we've disclosed about that. But I mean, certainly, this year, we're looking for more launch than last year. As you saw the bookings and manifest are bulging and we're being in electrons out every sort of 11 or 13 days now. So that's going extremely well. But I'll pass over to Adam, if he wants to comment on -- you want schedule for the year. Adam Spice: Yes, Erik. So I think consistent with prior discussions, we see good growth opportunities in Electron. And when I say electron, I mean Electron and HASTE. So I think you'd expect increase in both standard Electron launches plus growth in the HASTE side of the business. We've normally point people towards kind of 20% growth, I think is a pretty kind of I would say a reasonable estimate for where we see this business growing over the near and intermediate to maybe long term. So I would say we've certainly given the production team direction to produce significantly more rockets in 2026 than in 2025. And as Pete mentioned on the call earlier, we booked over 30 Electron launches in '25. And we always get turns orders. So look, I think if you kind of nominally assume a 20% growth in kind of the Launch business, excluding Neutron, of course, I think that's probably a pretty good place to be. Operator: Our next question comes from Trevor Walsh with Citizens. Trevor Walsh: Peter, maybe first for you, some of your prepared remarks around the OSI acquisition made it sound like that was even further enabling you with the customer as far as just attractiveness for your services and your capabilities, even though it sounds like from the announcement that OSI was actually already in the chain of suppliers with Geost. So is the customer that focused really then, can we assume on just the vertical integration aspect? Or is there also just capabilities, functionality features of that acquisition from a systems perspective that are also attractive? Just trying to gauge kind of how you think customers are really looking at this, if that makes sense. Peter Beck: Yes. No, that's a great question, Trevor. And to be fair, the customers probably don't care that much, other than the fact, what they really care about is, does this sensor arrive on time at a cost and a performance capability that they've never seen before. And that's what we're delivering. And in order for us to be able to guarantee we deliver that, the most critical element of many of these optical systems are, in fact, the optics, bringing and owning that optics in-house really, really drives certainty for us around cost and schedule and innovation. And it's -- yes, they were a supplier to Geost, that's for sure. And when we acquired the Geost business, the first thing we sat down with the leadership team there and said, right, we are the critical supply chain elements that might trip us up and been able to deliver really disruptive and affordable parts or programs for our customers, and this was the #1 thing. I think this makes us very unique amongst the other suppliers of payloads who are outsourcing optics. And it is the most expensive, the most longest lead item in any of these explicit optical payloads. So it was important to own it. Trevor Walsh: Terrific. Super helpful. Adam, maybe just a quick follow-up for you. for your prepared remarks commentary around the backlog and how Tranche III is going to -- sounds like it's maybe conservative in terms of what's going to be recognized in that first 12-month period. Can you just maybe walk us through a little bit of the puts and takes of how -- what's, I guess, influencing that Tranche III rev-rec? Is it just customer timing of when they want deliverables? What's the -- just give us maybe one level deeper, that would be terrific. Adam Spice: Yes. So I think we've articulated previously that typically when you win one of these programs, you can recognize revenue kind of like 10% in the first 12 months after award, then 40% in the second 12 months, 40% in the third 12 months, in the last 12 months, it's about another 10%. So you got a pretty kind of normal bell curve. What I would say is that with -- what really gates our ability to kind of move faster is really our subcon deliveries, right? So would really either kind of helps us accelerate and get through these gates and milestones and rev-rec quicker is our subcons ability to deliver on time. And so I think that, that all goes back to what Pete was talking about earlier and the importance of vertical integration. So to the extent that we can just own more of the platform, we have greater control. And that allows us to have more predictability to how we kind of time revenue recognition and so forth. So I would say that a big job for us in 2026 is across our engineering and production teams is to really make sure we stay on top of what parts are still coming from third parties, make sure that they stay on their deliverables so we can kind of, again, get the program accelerate as much as possible and get more of that revenue recognized. So again, we go into it pretty conservative. I think what we've -- what -- if you look at the pure conversion at 37%, I think that was mentioned earlier of backlog converting, I mean, obviously, a portion of that is Launch but the portion that's related in Space Systems. Some of that is coming from the components and subsystems completely unrelated to SDA Tranche II and Tranche III. But what is in there for Tranche III is, again, assuming some pretty conservative delivery dates from our subcons, and hopefully, we can work with them to do better. Operator: Our next question comes from Ned Morgan with BTIG. Andres Sheppard-Slinger: Actually got Andres on, I don't know what happened there, but all good. I wanted to ask about Space Systems. It seems like it came in a little bit weaker than what consensus might have expected at first. So, I just wanted to know the puts and takes there. I know you explained it, but why might have consensus gone a little bit ahead here in the quarter? Adam Spice: Yes. I don't know that consensus does a great job in breaking out the various pieces of the business, even differentiating much between Launch and Space Systems. And then certainly within Space Systems, I'm not sure they really look at between kind of our platforms business versus the subsystems business. So one of the things I mentioned this in my prepared remarks, is that it is difficult to I would say -- I mean you can't -- to the extent that you can control the execution for your rev-rec requirements under ASC 606. It just depends on how well your subs are executing, right? And how tightly you're working with them to make sure they stay on track. And to your best efforts, I think we've all seen in some fairly public venues customers of these programs talking about how there's been some snags in the supply chain, including from those, for example, like from the optical terminal providers. And so if you look at what we do is we continually look for ways, as Pete mentioned, to just reduce any kind of dependency on third parties as much we can. That's why if you look at Electron, how vertically integrated that vehicle is Neutron will be very similar. We're getting that way more and more with our Space Systems platform offerings where very little is still, I would say, outsourced to third parties. So it's really just a function of, again, you work with them and get them to deliver as aggressively as you possibly can, while not sacrificing quality or cost where we can. So yes, I wouldn't read too much into the granularity that people may have expected from our Space Systems business because 1 of the benefits that we have now from being -- having such a diversified businesses, we really just look at the top line, how can we deliver that sequential growth of the business and sometimes more of it's going to come from Launch. And sometimes the word is going to come from Space Systems and within Space Systems, platforms can have a great quarter and components can be weak and vice versa. And then just gets that much better, and we'll have that many more tools at our disposal when we have Neutron coming online, which is why, obviously, getting that first flight off is so important, why we're all looking so forward to that. Andres Sheppard-Slinger: Yes. No, that's super helpful. I guess to stick with you. I mean, around the 2 acquisitions that were just announced, are there any financials that you can give any kind of color as to what they were doing on a performance basis? And I guess, just how much cost we might be able to see taken out as a result of them being brought in-house? Adam Spice: Yes. Our pipeline is always kind of interesting. It's got a mix of kind of more needle-moving deals from a financial perspective as far as revenue contribution and so forth. These particular deals really much more strategically around, again, vertical integration, reducing risk versus, I would say, providing big access to large external third kind of TAMs, if you will, or adjacent markets. So these are really more, I would say, reducing some margin stacking and also just taking greater control over the programs. So I wouldn't say there's not a, I would say, a material amount of revenue contribution that's going to move the needle from the deals that we just announced. Clearly, Mynaric is -- would be a different story if and when that deal gets approved because that would come with a significant backlog and revenue opportunity. And again, our pipeline also has lots of other deals that have a mixture of just, again, elimination of margin stacking and in some cases, also more meaningful revenue contribution. But these 2, I don't think you need to change your models at all for the impact for these 2 relatively small deals. Operator: Our next question comes from Guatam Khanna with TD Cowen. Gautam Khanna: I was wondering on the Neutron tank failure. Have you guys -- are you high certainty that it was that manual layup process. And therefore, the new process is not going to have the same anomaly? Or is the study still ongoing of what happened? Peter Beck: Yes. No, we undertook a complete pastry analysis, and we're able to find the piece of tank that caused the initiation of the failure. We're able to reproduce the results through analysis and then also through coupon testing as well. So no, we're very, very confident. We understand that value extremely well. Gautam Khanna: Okay. That's great to hear. And then you mentioned some areas where you'd like to take more in-house vertical integration. Can you describe some of those product areas that might be of interest? Peter Beck: Yes. I think if you look across the space craft these days, the areas that we still don't have 100% control of are starting to get smaller and smaller. We have a great RF team, but I think that's an area and we will look to bolster. And we'll seek opportunities to add scale where possible. But I think -- this is just going to be bread and butter for us to constantly make sure that we don't get stung with suppliers that aren't able to deliver for us and continue to vertically integrate. But as Adam pointed out, our M&A pipeline is pretty full, and there's a range of opportunities there from these kind of things that important, don't add huge revenue bottom lines, but they kind of guarantee revenue because we're not going to miss milestones. But they're ranging through to some real needle movers that are much more transformational and as Adam also pointed out, we're always making sure that we have plenty of capital reserves to go and do those more meaningful acquisitions. Operator: Our next question comes from Ryan Koontz with Needham & Company. Ryan Koontz: I want to ask about backlog, Adam, your commentary there as you think about the opportunities ahead over the next, say, 12, 18 months? Obviously, the SDA has been very, very active. And how you think about the composition of your backlog relative to DoD versus commercial, just in terms of the next 12, 18 months? Adam Spice: Yes, all fortunate spot, where traditionally, government business has not really been ever viewed as a hockey stick. I think for us since we're coming in, in such a disruptive way -- and were disruptive, but also the whole architecture where you've gone from Geo to Leo and the number of satellites that are required to support that architecture has just been so strong. We've got so many things that are pushing us in the back as far as kind of where the opportunities are. But I'd say, overall, we've got really big commercial opportunities that we continue to chase even though for me, I was given the choice of chasing a government hockey stick or a commercial hockey stick, I would take the government hockey stick because even though they may not be as dynamic in some cases at a program level as commercial, they always pay their bills. They're pretty clear cut how you work with them. And in that government market, we're just competing with people that seem to be fighting with their hands tied behind their backs, right? So we move much more quickly. We have a lot more tools at our disposal because of our vertical integration. So I love the mix as it's trending towards government. I do think it's also very comforting to have this big commercial hockey stick opportunity out there as well. But I would say that it's -- the pipeline -- when you look at the pipeline of kind of business opportunities, forget the M&A side, it's a pretty balanced set of opportunities between commercial and government. I mean I'll let Pete kind of provide his view, but it seems like we don't just have a choice of kind of taking one fork or the other in the road where we can try to think about how do we take both of those things. And I think we've done a pretty good job balancing, but maybe Pete want to speak about that. Peter Beck: I think you've said it perfectly, Adam. Yes, Mike, I can't add anything better than that. Ryan Koontz: Great. Maybe just a quick follow-up. As you think about Golden Dome and timing and PWSA fitting into that architecture, any updated thoughts on your role there or opportunities when you think that emerges as a truly viable business opportunity for you? Peter Beck: Yes. I think Golden Dome is quite a complex one is obviously, it's a huge program, but it's -- a lot of it is also classified. So it's very difficult to discuss too much. But I would say that in multiple fronts, I think we are well positioned to have a good chunk of this, whether it be launch or satellites, optical terminals, a lot of the optical payloads, the SDA, when the Tranche III SDA win is a clear missile track payload, which is very complicated pallet obviously and critical for the Golden Dome. So as that program formulates and continues to grow, I think we're pretty key piece of that foundation. Operator: Our next question comes from Michael Leshock with KeyBanc Capital Markets. Michael Leshock: I wanted to ask a longer-term question on a potential future Rocket Lab, satellite constellation, just given some of the recent announcements across the industry. And as you mentioned in the presentation, the significant growth in satellites that's expected over the next decade, have there been any changes to your approach on a future constellation of your own or what potential applications you may target? Or is this still a longer-term growth opportunity that really won't be a priority until Neutron is launching consistently? Peter Beck: Yes. Thanks for the question, Michael. I think what's kind of call here is that you've all heard me say that it's going -- space is going to get blurry. It's going to be difficult to determine what is the space company and what is something else company. And that continues -- that thesis really continues to firm now that you look at data centers and all these other kind of opportunities that are growing in space. It's like it is -- the large successful companies are going to be blurry. Are they going to be a space company, are they telecommunications company are they data services company. And your point is really accurate until kind of Neutrons online, and we have multi-ton reusable launch capability. I think that's the time that we can really lean into deploying infrastructure. But in saying that, we're not sort of sitting back and sitting on our hands, thinking about what we could do. I think you can see in just about every avenue, we at least have knowledge or components or exposure. When I say revenue every kind of opportunity that potentially being thought about or used in space today. So it's still too early, Michael, but it's not on a day that doesn't go by where there's not an internal discussion about it. Michael Leshock: Great. And then maybe on the Stage 1 tank rupture, I don't know if I missed it, but how fast can you produce the second tank now with the new AFP machine? And then will that get even faster as you repeat this process over time? Peter Beck: God, look, it's ridiculous. The AFP machine is just is totally ridiculous. I can't remember the exact time line to lay out a dome. But we measure a dome manufacturer on the AFP in days. Actually, the longer pole in the tent dear for a tank manufacturer is not actually laying up and curing the components. It's the joining of the various domes and tanks and barrels together and all the tabs and details of baffles and all those kinds of things actually take the time, but a new tank, we're talking months here not for a complete tank. But from an actual manufacturing of the oral components, it's ridiculously fast. And also that to Adam's point, it's like now that it's all automated, really the only cost of the raw material that's going in there. Operator: Our next question comes from Jan Engelbrecht with Baird. Unknown Analyst: I'd like to get your -- just go back on PWSA and just get your sort of your high-level thoughts about that program. It does seem like your focus will shift more towards the tracking layer given that's really impressive when the Geost acquisition, just how you're thinking about the future of that for Rocket Lab. And then also just we've heard a lot of government reports being issued on the transport layer piece, like how difficult would it be for a commercial variant like Starshield with MILNET to sort of act as the transport area. It seems like there's a lot of things that would stand in the way of that because a commercial Starshield orbits at much lower altitudes than the transport of tracking layer. So there would be a lot of redesign work. But I'll stop there and just to get your overall thoughts there. Peter Beck: I mean we could dig out about this for days, Jen. So yes, it was intentional for us to move up the value chain, if you will. Not the transport layers elementary by no means is a entry, but it's an order of magnitude more difficult and more valuable to be able to doing the tracking stuff. And the tracking stuff is critical for things as things develop for Golden Dome and other kind of programs. So that's the high-value stuff where you want to be, that there's really only a few people in the nation that can successfully execute on. With respect to the transport layer going away, I mean we haven't heard or seen any evidence to that. Obviously, there's a lot of discussion about other providers. But the whole point of the SDA program is kind of all of the spacecraft are integrated very closely with each other, even though they're from other providers, there's a set of requirements that we all must meet for interoperability. So I think your point is a good one. It becomes more difficult to have interoperability when you have something that's quite different. But it will be interesting to see how it all shakes out. But I think for the tasks that SDA is trying to achieve, to me, at least, it makes more sense to have a dedicated transport layer and then the other layers, of course, tracking and then custody and so on, on top of it. Unknown Analyst: Very helpful. And then just a quick follow-up, if I may. I want to be respectful of the Mynaric deal, let that play out as it will, but on optical terminals, sort of at which point, and again, hoping like it works out well here, but at which point do you potentially look at not maybe an alternative supplier of OCTs or does Geost or the new acquisition, OSI have any capability that you could look towards developing these optical terminals over time? Peter Beck: Yes. So Geost has developed some optical terminals. And obviously, we have the optics now in-house as well. But there's just it's incredibly difficult to do. And as we look across the landscape of all of these optical terminal suppliers, of which there's really only 3, Mynaric just stood out as the absolute best with respect to technology. Now they're stuck at other things like running their business, but they make the best terminals. So to go out and develop your own terminal, yes, totally feasible. It's just a time thing. And it would just take longer to do that than it would to acquire. Operator: Our next question comes from Jeff Van Rhee with Craig-Hallum Capital Group. Unknown Shareholder: This is Daniel Hischman on for Jeff Van Rhee. On Mars Telecommunication Orbiter, the $700 million, $750 million there about wondering, it looks like earlier this week, NASA put out an RFP for Mars Telecommunications Network. So a little bit of a name change there. It sounds like that might be a multi-satellite architecture where previously, they were just looking at that one single orbiter. But what can you tell us just about how the competition and market lines positioning for that's been evolving? Peter Beck: Thanks, Jeff. Great question. Yes, so the MTO, as you pointed out, there's a slight change there to network. And as more infrastructure is built on Mars, then, of course, the network will need to be created. The MTO was always intended to be the first of water to come. Look, obviously, we think we're well positioned here. There's -- we have the experience. We have a lot of the capabilities and a lot of the demonstrated capabilities, but I think we'll put our best foot forward there. And of course, others think they can do the job, too. That's the great thing about competition and we'll see who wins. Unknown Analyst: And then Adam, one for you just on the gross margins, which obviously are growing tremendously, I think, what, 8 points up in 2025. And then the guide for Q1 '26 has those stepping back down a few hundred bps and you called out the Space System mix shift, is there anything persistent about that mix shift either in terms of the new business coming online potentially with the SDA transport layer that it's going to have some persistent margin pressure? Or should we be assuming in our models that we'll be getting right back to that more normal cadence of a few hundred bps of expansion as we get back into the later half of the year? Adam Spice: Well, I think gross margin is a -- there's a lot of things that are going on underneath the surface there. So as we continue to grow, there's a call -- a question earlier from Erik about the Electron launch cadence, so I mentioned a 20% launch growth in that. To the extent that we can do better than that, which I think there's opportunities to grow faster in 2026, then that's going to be a positive upward bias to margin. These larger, longer-term programs like SDA Tranche II and Tranche III, they typically come in at relatively at the low end of our gross margin mix, but they have really good operating margin kind of characteristics to them or contribution margin because of the fact that there isn't a tremendous amount of incremental R&D that's kind of outside of the programs. So I would say that in a quarter where you've got a lot more contribution from the big programs like Tranche II and Tranche III, that will put downward pressure, offset hopefully by growth from -- increase in the Electron contributions. The Components business has a quite interesting range of margins. You have some products in there that are more towards, say, 30 points in non-GAAP gross margin, other ones that are kind of north of 70 points of non-GAAP gross margin. So there's a widespread and mix is hard to predict that far out in the year. I mean I do think there will be a supportive trend towards gross margin, but I think it's difficult to really get a lot of granularity kind of much more than, I'd say, maybe 1 or 2 quarters out. But overall, I think as we continue to kind of grow that components mix of the business, more Electron in the mix, it's all going to be positive. Now I think the 1 caveat to that is, as we bring Neutron into production, it will have a margin expansion curve, probably not too dissimilar to what we've experienced on Electron which has been incredibly, it's been a great margin expansion story. But when you bring a new product like a rocket to market, you do things like block upgrades and then that all helps bring down cost, increase performance, so you can sell out more capacity on the rocket, which is helpful to ASP and so forth. But I think the most important thing in the Launch business is rate, right? So it's all about absorbing your fixed overhead or fixed costs related to that program or product. So I think that you're going to see what we'll start to do, our plan is to give you guys as much clarity as we can or break out between Electron, for example, and Neutron as that comes into production. So you can see that continued expansion and kind of that Electron business operating at model and then the trends as Neutron ramps as that goes towards target model as well. Hopefully, it's a bit quicker to get to target model, target margins on Neutron because it's a reasonable launch vehicle, but it will still take several years. So you'll start off with fairly kind of low to even maybe negative gross margin for some of the early flights. But then again, you'll see just like Electron to pop back up and become pretty positive pretty quickly and get to target model. So it's a long-winded answer. I do think, again, the trends are supportive of gross margin expansion, but it could be a little bit kind of volatile and hard to predict quarter-to-quarter when you get more than 1 or 2 quarters out. Operator: Our next question comes from Suji Desilva with Roth Capital. Suji Desilva: Just real quick on the Electron launches. Are there any ASP trends to not add on any tailwinds in the second half? Or are they fairly steady next couple of quarters? Adam Spice: I think that we're going to continue to see a march towards, I'd say as we increase more of the mix towards HASTE, that's helpful to the ASP. I think margins are relatively consistent because even though HASTEs are priced higher, there's a lot more mission assurance and other things go along with them. So absolute dollars are higher. The gross margin percentage is relatively consistent across HASTE and Electron. And then -- so I would say, overall, we've seen a very nice expansion in ASP over the last several years because of the increased mix from HASTE, and I don't see that changing. In fact, we continue to grow that subsegment of the business quite nicely. And again, I just given the things that Pete has talked about earlier regards the Golden Dome and the importance of the hypersonics test capabilities, that's a really strong area of growth for us going forward. So I think overall, a positive bias towards higher ASP per launch. just as we've seen over the last several years. Sujeeva De Silva: Okay. And a follow-up question maybe is for Pete. Pete, maybe you can reflect on versus a few years ago to get to the launch cadence, the customers' payload readiness was something that was variable. Has that changed? Has the nature of the customers changed where you can feel more comfortable that you can hit a 11- to 13-day cadence? Is it just a higher number of customers coming in that you can kind of load them off? Or just any color there would be helpful. Peter Beck: Yes. Thanks, Suji. I would just say that we've probably got better at looking like a duck where it's just on a glassy pond and it looks normal and there's legs flat out underneath it. And with a higher cadence gives us the ability to move customers around. So I would say that, that's just the reality of the Launch business, payloads are ready until they're not. I think we've just got way better at managing those customers having more rockets integrated, ready to go and managing that. So it's great to hear that it looks smooth, but behind the scenes, as everyone's flat out, mixing and matching and making sure that it all looks smooth on the outside. Operator: Our next question comes from Kristine Liwag with Morgan Stanley. Unknown Analyst: This is Justin Lang on for Kristine. Pete, can you just back on the Neutron time line, how do you not run into the Stage 1 tank issue? Would the program have met the earlier goal of getting to the pad here in 1Q? It sounded like from your earlier comments, there was a good volume of qualification work completed in the quarter. So, just trying to assess whether there are other factors that play in this new time line or are really isolated to the Stage 1 tank issue? Peter Beck: Yes. Thanks, Justin. It's kind of hard to say because when the tank let go, like the reverberation went through the test stand and the entire business. So at the moment that happened, everybody just stopped what they were doing and a lot of sense to get on to the tank to figure out what went wrong. So we moved a lot of resources around from lots of parts of the business. So I'd have to go back and have a look and see if we played everything forward with what that time line would have looked like. But sort of hard at this point because we had an anomaly. Adam Spice: I would add one more thing to that. I think if there's a silver lining to the tank anomaly is the fact that because of what happened, it just has given the other kind of subsystem teams, the opportunity to really kind of fully exercise all the demos, if you will, much more than they could have under the compressed time schedule we were working towards. So in some ways, the tank letting go will create certainly a lower risk test flight when that happens later this year. So I think yes, it's -- nobody is ever happy when you have an anomaly. It's something that wasn't planned and certainly wasn't anticipated, but I think it does help us bring down the overall kind of risk stance of the program as we move towards that first test launch. Unknown Analyst: Got it. That makes sense and helpful. And Adam, actually, just one for you back on the SDA award. Curious if you could speak a little bit more to the cash profile in particular and how that lines up against the revenue build curve that you sketched out earlier? Adam Spice: Yes. So actually kind of interesting with these types of programs because of the way that you do the accounting and the rev-rec so under ASC 606, you -- we model these things, though, you always have to be in a positive cash position. So you -- when you kind of work out your milestones and how you're flowing out dollars to your subs and so forth and spending money in the program internally, you always need to be in a position of positive cash in order to be able to recognize revenue along the way. And so this program is consistent with that. We've gotten some questions as to whether or not the partial government shutdown has impacted our customer, in this case, ability to pay as they know. In fact, we got a very large payment from that customer. So the money is still flowing and everything seems to be green lights right now. Operator: There are no further questions at this time. This does conclude the program, and you may now disconnect. Everyone, enjoy the rest of your day.
Operator: Good afternoon, and welcome to NuScale's Fourth Quarter and Full Year 2025 Earnings Results Conference Call. Today's call is being recorded. A replay of today's conference call will be available and accessible on NuScale's Investor Relations website. The web replay will be available for 30 days following the earnings call. At this time, for opening remarks, I would like to turn the call over to Rodney McMahan, Senior Director of Investor Relations. Please go ahead. Rodney McMahan: Thank you, operator. With us today are John Hopkins, NuScale President and Chief Executive Officer; Ramsey Hamady, Chief Financial Officer; and Clayton Scott, Chief Commercial Officer. We will begin by providing an update on our business followed by a discussion of our financial results. We will then open the phone lines for questions. This afternoon, we posted supplemental slides on our Investor Relations website. As reflected in the safe harbor statements on Slide 2, the information set forth in the presentation and discussed during the course of our remarks and the subsequent Q&A session, includes forward-looking statements, which reflect our current views of existing trends and are subject to a variety of risks and uncertainties. For a detailed discussion of our risk factors that could contribute to differences in our expectations, please refer to our Form 10-K for the year ended December 31, 2025 and our subsequent SEC filings. I'll now turn the call over to John Hopkins. John Hopkins: Thank you, Rodney, and good afternoon, everyone. I'll start with some key highlights from 2025, a year marked by significant progress for NuScale. The U.S. Nuclear Regulatory Commission, or NRC approved our 77-megawatt electric standard design ahead of schedule, allowing us to support a wider range of offtakers and consumers seeking clean baseload energy. NuScale remains the only SMR technology to achieve NRC design certification. And with 12 modules in production, we retain our position as the industry's first mover. Furthermore, our exclusive global commercialization partner, ENTRA1 Energy reached an agreement with the Tennessee Valley Authority or TVA to supply 6 gigawatts of power by deploying the largest nuclear power program in U.S. history. In ENTRA1, we use NuScale SMR technology inside its power plants. Both are incredibly important milestones in our commercialization journey and gives us strong momentum going into 2026 to pioneer the SMR space as the only NRC certified SMR under 10 CFR Part 52 versus other technologies pursuing 10 CFR Part 50. We believe this approach provides NuScale's SMR power plants with a much different risk profile. Now turning to Slide 3. We list NuScale's fourth quarter and recent highlights, which we will discuss in more detail in a moment. They include significant progress made by ENTRA1 and TVA on a power purchase agreement or PPA as well as the completion of our work on Fluor's Phase 2 front-end engineering and design or FEED study for the proposed RoPower Doicesti power plant in Romania. In the continued strengthening of our cash position to ensure NuScale is well funded to pursue its activities. Turning to Slide 4. In September of last year, TVA announced an agreement in connection with the purchase of power from ENTRA1 for 6 gigawatts, which would represent a total deployment of 72 NuScale Power Modules or NPMs and 6 ENTRA1 Energy plants, providing power to support TVA 7-state service region. In the 5 to 6 months since the program was announced, we understand that ENTRA1 and TVA have advanced discussions, maintaining strong momentum in collaboration in their efforts. Our understanding is that the following recent steps have been taken to move the program forward. First, ENTRA1 is assembling an infrastructure experienced team that includes design engineers, a construction contractor, owners' engineers, investors and legal advisers. Second, on project financing, several major financial institutions are working with ENTRA1 and discussions are underway. And 1 major institution has already signed a multibillion dollar term sheet with ENTRA1. Third, on the project execution side, site visits have been conducted and site evaluations are underway by teams of qualified professional engineers and heavy infrastructure experienced individuals. Fourth, sites identified that could each support ENTRA1 plants powered by NuScale SMR technology with respect to the 6 gigawatt program. The prospective site for the first plant deployed has been identified. Fifth, drafting of a definitive PPA is underway with robust engagement from legal teams and progress is being made on transaction documentation and structure. Finally, please note that TVA announced the deal last September, and the new TVA Board was confirmed just this January. Considering all of this, we believe that significant progress has been made relative to time Separately, we'd like to touch on the U.S.-Japan investment initiative, which was discussed in our last earnings call. As noted in recent government announcements under the U.S.-Japan framework agreement, several American and Japanese companies were named as potential recipients of financing from Japan's groundbreaking commitment of $550 billion towards investments in the United States. Two points here. First, we understand and as publicly known, ENTRA1 Energy was one of the several companies named on the fact sheet, chosen by the Japanese government. It is the only American SMR power plant developer on the list, others included engineering and construction firms, OEM companies, investment holding groups in industrial players. Second, Japan has been NuScale's second largest investor since 2022. Their selection of ENTRA1 would validate their continued interest to support NuScale and our SMR deployment via ENTRA1 Energy power plants. While we are still on a subject of ENTRA1 Energy and in the spirit of being helpful to our listeners, I'd like to reiterate a few key points with respect to our ENTRA1 partnership. One, ENTRA1 is an American-owned and controlled development and investment platform that is focused on supporting the commercialization of next-generation base load energy technologies, which includes the NuScale's SMR technology. Two, their mission is to support American and global energy security and economic growth by deploying baseload power infrastructure to generate power. Three, the company is led by an American energy and technology investor and brings together experienced professionals with backgrounds in energy and infrastructure project management, finance, development and asset management. Four, in our partnership, ENTRA1 as the project developer is responsible for financing, project development and deal execution management to build the infrastructure, ENTRA1 works with seasoned engineering and construction firms. Five, ENTRA1 was established to address a need for a strategic developer and investor in a first-of-a-kind industry and to be the first mover to bridge the gap between financing and execution of such first-of-a-kind technologies. Sixth, over the course of several years, ENTRA1 conducted due diligence and analysis on the various nuclear technologies that have been under research and development, and we believe they recognize the value creation opportunity that they could capture around the need of a strategic partner and investor to support nuclear SMR commercialization. Seven, NuScale was selected among several of the reactor technologies analyzed by ENTRA1, along with their financial institutional partners. A, ENTRA1 has professionals with backgrounds in project finance, investment management, engineering, construction management, legal and infrastructure development. And they work with specialized technical partners, contractors, engineering firms, financial institutions and legal advisers for each project phase. It is important to note that TVA and NuScale have had a relationship for almost a decade. And Japan has been an investor in NuScale since 2022. We view these as long-standing follow-on relationships now supporting our commercialization along with our strategic partner, ENTRA1. NuScale has chosen to be a technology provider with our NRC-approved small modular reactors. We chose to pursue an asset-light business model, relying on outsourcing responsibilities outside our scope to reliable third parties. Currently, Doosan Enerbility is our primary manufacturing arm. We chose not to be a manufacturer of the reactors, nor are we the developer of power plant infrastructure that houses the reactor equipment. ENTRA1 is the development arm that helps NuScale commercialize its reactor technology by installing our SMR technology and equipment into their new power plant infrastructure assets. I'd like to remind everyone that the SMR space is a first of a kind within the U.S. nuclear industry, and there are no commercially operating SMR power plants in the United States. All stakeholders and participants in the SMR space are pursuing a first-of-a-kind activity. ENTRA1 and NuScale work closely together to advance the deployment of the NuScale's SMRs in the United States and in global markets. Both teams work in an integrated fashion and in close collaboration while maintaining a common professional work environment. In summary, we are very excited about the TVA ENTRA1 opportunity, which we hope will empower the local economy across TVA's seven-state region, support the fast-growing energy demand for AI data centers, advanced manufacturing in national defense, all while creating thousands of high-quality American jobs, reinforcing America's energy independence and strengthening our country's energy security. Moving to Slide 5. Regarding Romania, by the end of 2025, NuScale completed its FEED 2 work for Fluor Corporation to further RoPower's goal of developing and deploying their 6 module SMR power plant in Romania. In total, NuScale recognized $63.1 million in revenue from licensing fees and engineering work from the FEED 2 study over an 18-month period ending in December 2025. Earlier in this slide, shareholders of Romania's SN Nuclearelectrica overwhelmingly voted in favor of progressing the RoPower project. We understand that this all allows the projects to seek secured financing through further feasibility studies and site-specific design work and to advance the licensing and geotechnical work, finalize a pre-engineering procurement and construction, or EPC contract, and begin negotiating contracts for long lead items. Therefore, we anticipate that they will have pre-EPC activities begin in the second quarter of this year and have an estimated duration of up to 15 months and will include, among other things, the development of a Class 2 cost estimate. We look forward to continuing supporting Fluor on their Doicesti project. Turning to Slide 6. You will find a list of our plant services broken out by pre and post commercial operations date. While the sale of NPMs to ENTRA1 will make up the largest percentage of NuScale's future revenues, those revenues will be complemented by the many different plant services we offer. These plant-related services cover licensing, installation commissioning and post-COD services. We have already seen services generate revenue for NuScale from the RoPower project. And we expect that once the PPA between ENTRA1 and TVA is executed, we will begin generating service revenues related to those projects as well. Specifically from the combined operating license application, or COLA process, plus services related to FEED work for ENTRA1 power plants. Now on Slide 7, we would like to provide an update with respect to an exciting use case for NuScale's SMR technology producing process steam and electricity for chemical plants. Just last month, in collaboration with Oak Ridge National Laboratory in Tennessee, NuScale released the results of a technoeconomic assessment, examining the performance and profitability of company NuScale power modules with a U.S. chemical facility to provide needed generated steam and electric power. The findings showcase that nuclear power, specifically, nuclear power generated by NuScale's SMR technology to help industries that use process steam and electricity in a reliable and profitable manner. A recent second study conducted by Idaho National Labs demonstrated that NuScale's high-temperature process steam is on par with high temperature gas reactors. To further validate this use case, NuScale and Ebara Elliott Energy, a major Japanese industrial player established a collaborative program to fabricate and field test a high-temperature steam compression system at their plant in Pennsylvania. It is further intended that the compressor will be later deployed at a domestic industrial petrochemical site. NuScale and Ebara Elliott are actively in discussions, seeking a petrochemical industrial player for this effort. The results of the Oak Ridge lab study and plans for high temperature compression demonstrator will be presented to the World Petrochemical Conference next month in Houston. In other news, NuScale has also launched a project at the Oak Ridge National Laboratory in Tennessee to use AI to enhance fuel efficiency for multi-module nuclear plants. Beyond what is achievable in nuclear plants with a single reactor, be it small or large. Next month, NuScale will be speaking at the National Academy of Engineering sponsored conference on closing strategy gaps for the future of AI, hosted by the University of Maryland in College Park. NuScale SMRs are the only nuclear technology, large or small that have been certified by the NRC for off-grid behind the meter application. At that event in Maryland, NuScale will be discussing the advantages of off-grid behind the meter, small modular reactors to power data centers. Now over to Ramsey for the financial update. Robert Hamady: Thank you, John, and hello, everyone. Our financial results are available in our filings. So my focus will be on explaining major line items, which can be found on Slide 8. NuScale's overall liquidity increased to $1.3 billion at December 31, 2025, versus $754 million at September 30, 2025 and $442 million at the end of 2024. This liquidity allows NuScale to further enhance supply chain and manufacturing revenues, fund obligation in connection with the advancement of commercialization and further strengthen our balance sheet. As project progress forward, NuScale expects revenues from products and services to support positive cash flow from operations. Moving on to revenue. NuScale reported revenue of $31.5 million for the year ending December 31, 2025 compared to $37 million during the same period in the prior year. This decrease was due to a reduction in revenue recognized in the RoPower technology licensing agreement, which was partially offset by higher Fluor Phase 2 engineering and services revenue. I will conclude my remarks with a brief overview of our capitalization summary, as shown on Slide 9. As you can see on this slide, the number of Class B shares was greatly reduced in the fourth quarter due to Fluor's conversion of their NuScale B shares into Class A common stock. We understand that Fluor continues to monetize their investments in NuScale via open market transactions subject to certain agreed upon restrictions. With that, I'd like to thank you again for joining today and for your continued support of NuScale. We'll now take questions. Operator. Operator: [Operator Instructions] Our first question comes from the line of Eric Stine with Craig Hallum. Eric Stine: So maybe if we could just start on the supply chain and specifically, Doosan, you did talk about that a little bit. But I know that it's committed to 20 modules a year committed to being able to take that higher. So just maybe some commentary on confidence in that, but also curious, it's a pretty differentiated position to actually those are actually being built. And so curious how is that playing into the process with ENTRA1 and TVA? And also, just some of the other opportunities as they progress in your pipeline. Carl Fisher: Yes. This is Carl Fisher, Chief Operating Officer. As you know, we've progressed significantly well with Doosan. We have 12 modules under production right now. So whether -- no matter what the project is, it gives us a significant timing advantage because we have ordered long lead materials and the modules are under production. Eric Stine: Okay. Got you. And in terms of just feeling confident in -- that Doosan is committed and able. I know that they've got a big facility and they are committed to this space, but that they are, in fact, in a position that should TVA -- should that move forward that they could -- I know it's a ways out, but that they could execute on that and help you get to potentially some big numbers. Carl Fisher: Yes. We have extreme confidence with Doosan. The other thing that you should know is that they're increasing their capacity so they can move up to 20 modules per year and then eventually doubling that capacity. I just recently was at Doosan and seen the works that are being done. These 12 modules will set the stage for the next set of 12 modules that could be used with the ENTRA1 projects. And having these already in production, it really gives us a significant timing advantage because we do have the long lead materials already ordered and the modules ready to be fabricated. Eric Stine: Got it. And maybe just turn to the upgrade approval. I know that 6-plus months ago, I asked this on the call, were there customers that were waiting for that upgrade from 50 megawatts to 77 megawatts, what that potentially kind of set in motion. So I guess now that it's 6-plus months later, looking back, what has that impact been on your pipeline, whether it's overall growth of the pipeline or movement within that pipeline? Carl Fisher: Yes. I think, first of all, the upgrade that was approved last year was approved ahead of schedule. And we've got -- there's a lot of confidence we have with the fact that we have that approval because a lot of questions and any concerns that may have had by the regulator were put -- were approved and put aside. In that case, after that and having that FDA approval, our customers, the ones that we've been speaking with and also basically just the general industry, it puts a lot of confidence in the fact that the NRC has made that approval. I'll let Clayton Scott discuss the pipeline aspect of it. But I will say, even for our international projects, having that NRC approval is significant because of the respect that the international community and the international nuclear regulators have for the NRC. John Hopkins: Yes. This is John. We do regular quarterly generally drop-ins with -- to commissioners of the NRC. We were just there 2 weeks ago. And it was a pleasant surprise to speak with the commissioners in relation to expediting processes and et cetera. But they asked a lot of questions because as you know, we are the only one that's ever submitted a design certification application for the SMR space that have been approved. So we've been through the rigor. And so we're -- we've been ready to go and we're just sitting here as a company, wanted to get these things before. And the bottom line still is, I keep saying this, we are the only game in town that has an NRC certified not only to construct but also to operate. Clayton Scott: But I think in addition to the 77-megawatt approval, it's really given an ENTRA1, the opportunity to really push their pipeline, and it's given confidence from the industry to understand that, that regulatory hurdle has been completed. And now that we can reach capacity levels that I think are a little bit more satisfactory when ENTRA1 looks at their overall facilities. Eric Stine: Got it. Helpful. Last one for me. Just -- you mentioned it in your commentary here, but the term sheet with ENTRA1, you mentioned the one financial institution who has entered that. Can you just unpack that a little bit? Is that something that's firm that gets triggered on the signing of a PPA? Or is that something where there would be some additional steps upon that signing to lock that in? William Cooper: Thanks for the question. It's Bill Cooper, General Counsel at NuScale, and we're under NDA with ENTRA1, so we can't say any more about that. Operator: Our next question comes from the line of Ryan Pfingst with B. Riley. Ryan Pfingst: Maybe just a follow-up on that last one. To the extent that you can say, John, you mentioned the major institution that signed a multibillion dollar term sheet with ENTRA1. Is there anything you can share there around who the players might be? What exactly was signed for? Anything there, I think, would be super helpful. William Cooper: Nothing we can share. I'm sorry. Ryan Pfingst: Got it. I'll turn to Romania then. Could you talk about the next phase of the RoPower project? What will entail for NuScale in terms of services rendered or maybe the potential revenue opportunity there? John Hopkins: Yes. This is John. We met with the Romanian government last night, actually. So it's a timely question. As we stated, FEED Phase 2 has been completed as of the last quarter. February, they did have a shareholders meeting that they voted in favor of moving the project forward. RoPower is now authorized to advance the licensing in geotechnical moving towards a pre-EPC and we anticipate NuScale will be generating revenues as soon as -- now understand, we are a subcontractor to Fluor Corporation. And Fluor is in negotiations right now with the RoPower government. Our contract is with Fluor. It's not with the Romanian government, and we explained this last night to the Romanian government, and they understood. We view this as a very important project that right now, we're waiting for the next steps via Fluor and RoPower to do their deal and then we move on. It was an interesting conversation last night. They appreciated it. Ryan Pfingst: Appreciate that. And then just one more. Could you give an update on the status of the material weakness in your financial reporting that you identified last year? And where that stands today? Robert Hamady: This is Ramsey Hamady. In our 2024 annual report, we disclosed a material weakness on internal controls over financial reporting, ICFR is what we term it, and specifically, we focus on something called ITGC, which is information technology general controls. We stated the plan to remediate it. We worked very hard. I would give credit to David Tuttle, our Chief Accounting Officer and his team. And we've come through with a clean bill of health from EY. I think it's a remarkable feat, and so we no longer have that. We addressed it as we said we would. Operator: Next question comes from the line of Sherif Elmaghrabi with BTIG. Sherif Elmaghrabi: First, on Fluor, once they monetize their remaining stake, will they still have right of first refusal as your EPC provider for future projects? William Cooper: This is Bill Cooper again, General Counsel. I'm not familiar with any right of first refusal, but the agreement is otherwise confidential. Sherif Elmaghrabi: Okay. Got it. And then the study you completed with the Oak Ridge National Lab, that study gives us a sense of power module pricing that is significantly lower than large-scale nuclear. Of course, that's part of the value proposition of SMR, but is that sort of the pricing you're aiming for in Romania and with the TVA? Or is it kind of for later-stage projects? John Hopkins: Yes, I'm sorry. Could you repeat the question? Sherif Elmaghrabi: The study that you guys did with the Oak Ridge National Lab, it talks about roughly I think, about $5,500 per kilowatt pricing for your modules. And I'm wondering if that's the sort of pricing that applies for Romania and the TVA. John Hopkins: Yes, I'll have to look into it. I apologize. I'm not familiar with that number. I think what's important here, if you remember over the years, we've said we've seen 3 significant markets. One was coal plant refurbishment, one was working with process companies for need of process heat, it could be for electricity. And the other one, obviously, the elephant in the room is hyperscalers. And these studies, the prevailing notion was that high temperature gas can only produce steam requirements needed for high-pressure steam. We went into an analysis that Oak Ridge or actually INL did for us to show that NuScale light water reactor could provide the economics and efficiencies necessary to provide the steam requirements for these plants. And why this is gaining specific interest, remember, our emergency planning zone is that site boundary. So when I look at process plants in an area like Baytown, Texas, we have multiple companies that share a fence line. ENTRA1 could build that plant outside that fence line, close to the end user and provide if it's process heat, if it's electricity, if they want to do hydro production, and it's not inside the evacuation zone typical of a large-scale nuclear reactor. Clayton Scott: The other thing is, too, John. I think that's really important is we're also the only nuclear technology company, period, that is certified by the NRC for behind-the-meter off the grid applications, and that's a significant benefit. Operator: Next question comes from the line of Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: Yes. Just on cash, $1.3 billion, what's sort of the expected cash burn range for '26? And then can you talk about any sort of swing factors potentially in that as well? Robert Hamady: This is Ramsey Hamady, Chief Financial Officer. As you pointed out, we ended 2025 with approximately $1.3 billion in cash. That's a tremendous achievement. It shows a very defensive position in terms of our liquidity. Post-close disclosure, I believe Note 9 in the financial statements. We noted a payment of about $250 million out. Arithmetically, we can assume about $1 billion of cash on balance sheet today. If I look at my OpEx, apart from what I would call onetime type items, my OpEx stays fairly consistent between $170 million to, call it, $200 million, closer to $193 million actually in 2024 on an adjusted basis. The $1 billion in cash I think our investors and rest assured that we have taken a very conservative, very strong liquidity position. And burn rate or runway is not a problematic item for us. NuScale has the legs to run this race. Derek Soderberg: Got it. That's helpful. And then, Ramsey, you mentioned just the onetime payment. I'm wondering if you can talk about how many more of these sort of onetime payments or milestone payments you guys expect to make associated with the project? And will those payments sort of be a similar magnitude? Or can you help us maybe quantify the potential there. Robert Hamady: Sure. I think on this one, we have been very transparent in our disclosures in our filings. There is a partnership milestone agreement filing, which describes all the payments in great detail. And this is more developer-led model, which I would refer you to. Operator: Next question comes from the line of Nate Pendleton with Texas Capital Securities. Nate Pendleton: Good afternoon. After ENTRA1 signs a binding PPA with TVA, can you talk about what that means from a near-term revenue perspective? And would that revenue be comparable to what we've seen at RoPower thus far? Clayton Scott: This is Clay Scott, Chief Commercial Officer. So what we expect after the PPA is signed, is that we would enter into COLA and FEED activities to generate revenue, which will allow us to move forward. But this is something that I would expect to be more than what we see in RoPower just because the size of the plants are much larger, and we anticipate a little bit more revenue stream in that respect. Nate Pendleton: Got it. And as my follow-up, perhaps saying with you, Clayton, referencing Slide 7 in the chemical plant study. Has that study opened any new doors for the commercial team with that extra layer of validation there? And are there any other applications that you feel are underappreciated as well? Clayton Scott: Yes, there's other discussions that are happening, and we're in concert with ENTRA1 to have those. But at this point in time, we're under NDA, and we can't really disclose anything. Operator: Next question comes from the line of Leanne Hayden with Canaccord Genuity. Leanne Hayden: Just wanted to start by digging into progress of ENTRA1 and TVA. Can you please help us try to understand any sort of gating factors to securing a binding PPA? Understand that there has been some pretty strong progress since January and that you're in the process of drafting the PPA. I do believe you previously guided for binding PPA execution by the end of 2025. So any color around what may have caused that delay would be much appreciated. William Cooper: We've said all that we can say -- this is Bill Cooper, again, General Counsel. We've said all that we can say about the PPA in the prepared remarks. We can't say anything more. Leanne Hayden: Okay. Understood. To the extent that you're able to comment, when can we expect any sort of site permitting or early site submissions associated with the 4 identified sites? Rodney McMahan: This is Rodney. Yes. No, we went through that in the script that kind of laid that out with the 4 sites. So I would just reference that or if not, we can circle up after the call. Operator: And our last question comes from the line of Dimple Gosai with Bank of America. Dimple Gosai: I understand that you don't give guidance, but there's just many different pieces here with the FEED 2 coming to an end and RoPower advancement now while you are also kind of prefunding ENTRA1 and/or Romania. Can you help us or give us a sense of how to think of the revenue and liquidity outlook or call it profile over the next 12 to 24 months, please? Robert Hamady: Dimple, this is Ramsey Hamady. Thank you for your question. As we stated earlier and as you pointed out in your question, we do not give guidance at this point. However, I think looking at our balance sheet, we look at our liquidity position, the company is conservatively positioned and prudently raised capital towards the end of last year or to give us a balance sheet that has lasting power and as I said, run rate and -- pardon me, runway is not an issue for us. Operator: We have another question comes from the line of Brian Lee with Goldman Sachs. All right. That concludes the question-and-answer session. I would like to turn the call back over to John Hopkins for closing remarks. John Hopkins: Thank you, operator. Thank you, operator, and thank you to everyone for joining us today. As we close this period for NuScale, we are excited about the path ahead in 2026. We look forward to continuing to take meaningful strides to our deployment of the only NRC certified SMR technology to support American and global energy security. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Fidelis Insurance Group's Fourth Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded for replay purposes. [Operator Instructions] With that, I will now turn the call over to Miranda Hunter, Head of Investor Relations. Ms. Hunter, please go ahead. Miranda Hunter: Good morning, and welcome to Fidelis Insurance Group's Fourth Quarter 2025 Earnings Conference Call. With me today are Dan Burrows, our CEO; Allan Decleir, our CFO; and Jonny Strickle, our Group Managing Director. Before we begin, I'd like to remind everyone that statements made during the call, including the question-and-answer section, include forward-looking statements. Management's comments regarding expectations, projections, targets and any future results are based upon current assessments and assumptions, and are subject to a number of risks, uncertainties and emerging information developing over time. It is important to note that actual results may differ materially from those expressed or implied today. Additional information regarding factors shaping these outcomes can be found in Fidelis' SEC filings, including our earnings press release issued last night. Management will also make reference to certain non-GAAP and proprietary measures of financial performance. The reconciliation to U.S. GAAP for each non-GAAP financial measure as well as descriptions of proprietary financial measures can be found in our earnings press release and financial supplement available on our website at fidelisinsurance.com. With that, I'll turn the call over to Dan. Daniel Burrows: Good morning, everyone, and thank you for joining our fourth quarter earnings call. Reflecting on our performance, I want to highlight 3 key takeaways. Firstly, our ability to deliver excellent results. Our fourth quarter performance is further validation of our business model. We delivered an 80.6% combined ratio, which represents a 47 point improvement year-over-year for the same period. This is the second consecutive quarter of performance exceeding our long-term targets with the second half of the year, highlighting the true strength of our portfolio and risk management. Secondly, the growth of our platform. We remain focused on identifying the most attractive opportunities in the market and partnering with top-tier underwriting teams to execute our strategy. This disciplined approach enables us to allocate capital where we see the best risk-adjusted returns. Gross premium written grew 7.1% for the full year with new underwriting partners contributing 4 points of this total. We're excited about the progress we continue to make in expanding our network of underwriting partners, and we are well positioned to capitalize on attractive growth opportunities while continuing to deliver strong underwriting margins. Our new name and brand, Pelagos Insurance Capital, best captures our identity and future direction, reflecting our positioning as a capital allocator working with best-in-class underwriting partners. And thirdly, our committed focus on being a best-in-class capital allocator. That focus concentrates on 3 areas: how we underwrite, how we use outwards reinsurance to enhance our risk profile and how we return capital to shareholders. I'd like to briefly touch on all 3 pillars. Our underwriting approach focuses on building a differentiated portfolio. As a leader, we are capturing enhanced pricing and structural efficiencies in a verticalized market while maintaining diversification and continuing to add accretive profitable business through selective new underwriting partnerships. Outwards reinsurance enables us to enhance our risk profile and optimize our portfolio. By thoughtfully combining pricing and structural differentials, we improve margin and increase capital efficiency. In terms of capital management, our first port of call will always be profitable underwriting growth. And because of our robust capital position, we were also able to repurchase over 15 million common shares in 2025, including privately negotiated transactions with a founding shareholder. This action contributed $0.90 to our book value per share in 2025. Overall, our strategic approach to share repurchases has contributed $1.24 of book value per share since the inception of our program in 2024. This combination of discipline, flexibility and execution underscores the strength of our balance sheet and the strategic advantage it provides to pursue both attractive underwriting growth and consistent shareholder returns. Last week, we further increased our common share repurchase authorization to $400 million, providing additional flexibility. We strongly believe that at our current market price, our stock is undervalued and buying shares represents an accretive use of capital. Later in the call, Jonny will go into more detail on our underwriting approach, including the new underwriting partnerships we've added, and our strategic use of outwards reinsurance. Turning to fourth quarter results. We are very pleased to have reported top line premium growth of 3%, a combined ratio of 80.6% and an annualized operating ROAE of 18.3%, meaningfully exceeding our through-the-cycle targets. For the full year, we delivered on our growth objectives, posting an increase of 7% in gross premiums across the year, driven by strong retention rates and continued diversification through new business opportunities, including new strategic partnerships across multiple lines of business. 2025 has been a year of 2 distinct halves. In the first half, we worked to proactively resolve legacy challenges relating to our Russia-Ukraine aviation litigation exposure. Having taken actions to resolve this exposure, in the second half of the year, the underlying strength of the business is clearly visible in our results. These results reinforce the resilience of our platform and our confidence in sustaining strong performance moving forward. Notably, we would have delivered combined ratios well ahead of our through-the-cycle targets for the full year in 2025 and for every year since our IPO, if not for the impact of the Russia-Ukraine aviation litigation. Taking a closer look at the dynamics in each of our segments, our portfolio remains approximately 80% specialty insurance and 20% reinsurance. Within insurance, we delivered 6% growth in 2025 gross premiums written, demonstrating our disciplined approach to capturing growth opportunities where price and structure supported our return hurdles. Asset-backed finance and portfolio credit was a significant driver of growth and opportunity through the year. We continue to see strong margins across these products, which are insulated from traditional market cycles. We have established ourselves as a leader in the structured credit market, driven by our underwriting expertise and our ability to price and structure effective and repeatable solutions for counterparties. In addition, we have seen growth in our mortgage portfolio through our engagement with Euclid Mortgage, who we partnered with at the beginning of 2025. Asset-backed finance and portfolio credit now comprises over 11% of our total premium. These products are characterized by longer earning patterns compared to the rest of our predominantly short-tail focused portfolio. Jonny and Allan will provide further details on the extended earning patterns associated with these lines. In our direct property segment, we successfully maintained overall income year-over-year, which positively demonstrates our ability to navigate dynamic market conditions. We have a disciplined approach to portfolio management. We deploy capital by focusing on margin, optimizing line size and leverage and selectively adding new niche and targeted books of business where we have identified attractive risk-adjusted returns. Examples of this include our expansion into data centers and the onboarding of new underwriting partners. We write a leading book of specialty marine business. Throughout the year, we leveraged our capacity to maximize margins across the subclasses, and in response to strong demand, we took advantage of opportunities to convert attractively priced, large capacity-driven construction risks. We have discussed our caution with respect to aviation throughout the year, and we walked away from risks that did not meet our hurdles. While we did see some improvement in pricing in the all-risks market, largely driven by loss activity in the early part of the year, in general, the uplift was not sufficient to meet our return hurdles. Given the complexity of this line of business, we are not willing to compromise on certain terms and conditions at any price, including governing law and jurisdiction, which can significantly impact loss outcomes. As a result, gross written premium in this line of business declined by approximately 50% year-over-year. And we made the strategic decision to pivot into other attractive areas of the market to allocate capital. Across the insurance portfolio, rate adequacy remains strong. Beyond price alone, our positioning allows us to achieve a consistent differential relative to follow markets. By exercising underwriting leadership and leveraging relationships and line size, we are able to influence structure and terms, not simply accept them, driving stronger risk-adjusted outcomes across the portfolio. Turning to the reinsurance book, where we also continue to see strong margin, we delivered 11% premium growth for the year. Our excellent underwriting results reflects our ability to grow profitably and capitalize on favorable market conditions, including post-loss opportunities. So putting it all together, we are very pleased with our 2025 performance. This is an exciting time, and we are confident in our ability to continue delivering strong performance in the year ahead. With that, I'll turn it over to Allan for a detailed review of our financial results. Jonny will then discuss our strategic approach to capital allocation, and then I'll return to share insights on our market outlook and new brand identity. Allan Decleir: Thanks, Dan, and good morning, everyone. We had an excellent fourth quarter with operating net income of $110 million or $1.09 per diluted common share, resulting in an annualized operating return on average equity of 18.3%, driven by another quarter of strong underwriting performance. We delivered a combined ratio of 80.6%, an improvement of 47 points over the fourth quarter of 2024. Our book value per diluted common share continued to grow to $24.61. Including dividends, this is an increase of 15.2% in the year. For the full year, our operating net income was $205 million or $1.92 per diluted common share, resulting in an operating return on average equity of 8.5%. Our full year results reflect the actions we took in the first half of 2025 to move past the uncertainty associated with the Russia-Ukraine aviation litigation, judiciously settling claims and including the impact of the English High Court judgment. We believe our third and fourth quarter results are excellent demonstrations of the quality of our business. Turning now to our quarterly results. We grew our gross premiums written by 3% to $978 million, bringing our total for the year to $4.7 billion, an increase of 7% compared to 2024. During the fourth quarter, in the Insurance segment, gross premiums written increased by 6% to $981 million. We saw continued growth, including new underwriting partnerships in several lines of business. The fourth quarter typically has minimal premium volume for our Reinsurance segment. The primary changes during the quarter resulted from a reduction in reinstatement premiums that were initially recognized in connection with the California wildfires. This is in line with us lowering our ultimate loss estimates for the wildfires during the quarter. As mentioned by Dan, we continued to walk away from business in certain lines that didn't meet our pricing hurdles, contributing to a 13% decrease in our net premiums earned in the quarter versus prior year. A few points to highlight. First, our strategic decision to decline business that did not meet our pricing hurdles and our underwriting standards. This was most notable within aviation, where gross premiums written were down 50% from 2024. Second, we have taken advantage of many new opportunities and achieved growth in asset-backed finance and portfolio credit, which in 2025 saw an increase of $132 million in gross premiums written versus the prior year. These lines have a longer earnings pattern, generally of 5 to 7 years, compared to the rest of our portfolio, which typically earns out over 1 to 2 years. Finally, reinstatement premiums that were initially recognized in California wildfires were reduced during the fourth quarter. As I mentioned, this is in line with us lowering our ultimate loss estimates. Looking ahead to the first quarter, we expect net earned premiums to range from $450 million to $500 million in our Insurance segment, and $50 million to $60 million in our Reinsurance segment. Our excellent underwriting performance resulted in a combined ratio of 80.6%. I'll break down the components of our quarterly combined ratio in more detail. For the fourth quarter, our catastrophe and large losses were $51 million or 9.1 points of the combined ratio. This is an improvement compared to the same period last year where our catastrophe and large losses were $133 million or 21 points of the combined ratio. The Insurance segment was impacted by Hurricane Melissa in the fourth quarter as well as a satellite loss in our aerospace book, along with a loss event in our political risk violence and terror line of business. In contrast, the Reinsurance segment had no catastrophe and large losses and benefited from the sale of certain subrogation rights related to the California wildfires. During the fourth quarter, our attritional loss ratio was 30.4%. We are pleased to see that the attritional losses have and continue to come through at a low level. As we look to 2026, we see our overall loss ratio in the mid-40% range, which includes attritional losses and cat and large losses. Of this number, in insurance, about 2/3 is from attritional losses and 1/3 is from catastrophe and large losses. In reinsurance, it is split roughly equally between catastrophe and attritional losses. We recognized net favorable prior year development of $35 million for the quarter compared to net adverse development of $270 million in the prior year period related to the action we took to derisk our overall exposure to Russia-Ukraine aviation litigation. A key driver of this quarter's favorable prior year development was $25.6 million in our Insurance segment due to positive development on prior year cat events and from continuing benign attritional development on prior accident years. Turning to expenses. Policy acquisition expenses from third parties were 26.2 points of the combined ratio for the fourth quarter compared with 33.6 points in the prior-year period. We continue to anticipate our annual policy acquisition expense ratio to be in the low 30s for insurance and in the mid-20s for reinsurance, comparable to our year-to-date results. Policy acquisition expenses to the Fidelis partnership were 16.8 points of the combined ratio in the quarter. Finally, our general and administrative expenses were $25 million, including the benefit from Bermuda's substance-based tax credits. This was compared to $24 million in the fourth quarter of 2024. As we expand our pipeline of new underwriting partners, we continue to make strategic investments in our capabilities. This includes further strengthening our talent base and enhancing our infrastructure and technology to support this growth. For 2026, we anticipate these strategic investments will lead to G&A expenses of approximately $29 million per quarter. It's important to emphasize that our business is designed to have a lean and efficient structure and our expense ratio reflects that. This positions us well to scale effectively while maintaining operational discipline. Moving on to our investment results. Our net investment income and net realized and unrealized gains on other investments for the quarter were $47 million. As of December 31, the average rating of our fixed income securities remains very high at A+, with a book yield of 4.9% and average duration of 2.7 years. Overall, these investment results reflect our disciplined approach to portfolio management and our focus on generating attractive risk-adjusted returns while supporting a broader capital allocation strategy. We anticipate that our 2026 investment results will be broadly in line with those of 2025, with our portfolio, including funds, expected to generate a return of approximately 4% to 4.5%. Turning to tax. Our effective tax rate for the year was 18.2% compared to 16.9% in 2024. This 2025 rate reflects a greater proportion of our pretax income generated in higher tax rate jurisdictions. For 2026, we anticipate a full year effective tax rate of approximately 16%, reflecting the projected mix of profits across our 3 operating jurisdictions. Turning to capital management. We are in a very strong capital position, which has enabled us to grow our underwriting portfolio and also return capital to shareholders. In the fourth quarter, we repurchased 6.4 million common shares for $119 million at an average price of $18.47. This includes $83 million through privately negotiated transactions. This brings our 2025 repurchases to 15.2 million common shares at an average price of $17.22. This has been highly accretive on both the book value and earnings per share basis to our shareholders, contributing $0.90 to our book value per share in 2025. Subsequent to December 31 and through February 20, we repurchased an additional 967,000 common shares for $18 million at an average price of $19.12. And as mentioned by Dan, and as announced last week, our Board approved an increased share repurchase authorization of $400 million. In summary, we delivered excellent results for the quarter, further demonstrating our strong capital management, the strength of our portfolio, the effectiveness of our approach to investments and our commitment to delivering returns to shareholders. And with that, I will now turn the call over to Jonny. Jonathan Strickle: Thanks, Allan, and good morning, everyone. Today, I want to emphasize that our core strength lies in being a strategic capital allocator, an approach that not only drives our strong current performance, but also positions us to capitalize on future opportunities and outperform the market going forward. As Dan highlighted, our capital allocation approach consists of 3 core pillars. First, finding the most attractive areas of the market to allocate capital to, and the best partners to execute on our underwriting strategy within those areas. Second, using outwards reinsurance as a flexible tool to support growth, improve margins and optimize our capital structure. And third, leveraging our strong balance sheet to return excess capital to shareholders through dividends and share buybacks. I will focus the remainder of my comments on how we advance those first 2 pillars during the year. Starting with underwriting. Each underwriting partner we work with brings expertise and proven track records in specific underwriting areas, allowing us to deploy capital where we see the most attractive risk-adjusted returns. We have exclusive first right of access through a 10-year rolling agreement to all business written by The Fidelis Partnership, a leading specialty insurance and reinsurance MGA. Only business outside our underwriting appetite, which we choose not to support can be offered and placed with other capital providers. Expanding our underwriting partnerships builds on our proven strategy. Since the start of 2025, we have continued to broaden our network by establishing a growing number of select long-term underwriting partnerships in areas where we see profitable growth. To give you a sense of these new partnerships, I'll highlight a few of the larger ones that we're working with. At the beginning of 2025, we began our first new underwriting partnership with Euclid Mortgage. We entered this partnership with long-standing relationships with the Euclid leadership team. Our first year together has been exceptional, successfully accessing U.S. mortgage risk in a market dominated by the larger players. Our growth in these lines demonstrates both Euclid's technical expertise and our ability to identify and back high-quality partners. We view Euclid as a long-term partner in 2026 and beyond. By providing committed long-term capital and active partnership, we are helping them execute their strategy while benefiting from their level of differentiated access to risk. This is a clear example of how we combine careful partner selection with the capacity to support specialist businesses in building credible, scalable platforms. Later in 2025, we partnered with Bamboo Insurance, a property MGA backed by industry-leading talent. Bamboo is a data-enabled insurance distribution platform, providing homeowners insurance and related products to the residential property markets in California and Texas. The collaboration builds on our property expertise and is highly accretive to our existing portfolio. We are aligned in our view of risk and exposure management, and we are excited to help Bamboo continue to scale their platform into 2026. At 1/1/2026, we initiated a portfolio-wide partnership with Oak Global, providing funds at Lloyd's for their syndicates and making a long-term commitment that we intend to expand as their business grows. We chose to partner with the team at Oak because of the exceptional performance track record of their leadership group and the strong data-driven people-powered culture that they have built. Oak is bringing disciplined specialist capacity into the market, underpinned by technology, data-driven insights and deep expertise, addressing a gap in the Lloyd's market for a scaled reinsurance-focused platform. By committing meaningful long-term underwriting capital, we are supporting both Oak's expertise and the structural opportunity, partnering with a platform built for durability across market cycles. Today, including those noted above, we are actively collaborating with a select group of leading global insurers and reinsurers as well as top-tier MGAs. Our approach to identifying and engaging with partners remains highly selective. We focus on partnering with organizations that demonstrate strong underwriting discipline, deep market expertise, broad market access and a proven track record of performance. We anticipate that contributions from new underwriting partnerships will become an increasingly meaningful component of our premium over time. And our goal is to achieve this growth with a small number of trusted partners that we can grow alongside. In fact, we turn down the vast majority of opportunities we review, underscoring our commitment to quality over quantity. Now let me spend a few minutes talking about why partners seek to work with us. A key reason is that, across our management team, we have decades worth of diverse experience, working directly with industry leaders. We have always placed a strong emphasis on building and maintaining trusted relationships. Underwriters and brokers know that our approach is based upon collaboration, trust and true partnership because they've seen it in action. In addition, I would cite our long-term focus. We are committed to long-term value creation, transparency and alignment of interest with our partners that goes well beyond onetime transactional interactions. This approach ensures that our clients and partners can rely on us for consistent support. Finally, our proven expertise in analyzing portfolio-level deals, combined with a structure, which enables engagement from the entire management team on every opportunity. This gives us the conviction to deploy bespoke solutions at scale, something that our partners have found of great value. Our onboarding of additional underwriting partnerships is a natural extension of what we have been doing successfully since inception. By executing our strategy of partnering with multiple best-in-class underwriting teams, selecting the most compelling opportunities and sizing them appropriately, we expect to further improve portfolio diversification, tightly manage exposures and optimize margins throughout the cycle. Our second strategic pillar is the disciplined use of outwards reinsurance. Our outwards program delivers robust portfolio protection while driving ongoing margin improvement. By combining disciplined execution with long-standing industry relationships and expertise, we secure broad multi-class coverage at strong risk-adjusted pricing. Trusted partnerships with top-tier reinsurers built over decades are a cornerstone of this strategy and a clear competitive advantage. We balance core program development with opportunistic purchases, working with counterparties who understand our portfolio and our underwriting discipline. Our organizational structure and depth of expertise support this approach. Close collaboration between management, underwriting and our inwards partners gives us access to a wide range of products and market insight. This enables us to set an optimized reinsurance program each year and consistently improve outcomes. Throughout 2025, we strengthened our outwards program by securing additional coverage at attractive terms using a blend of traditional reinsurance and ILS. This broadened protection has enhanced overall portfolio margins as we continue to optimize the interplay between our inwards and outwards exposures. We use outwards reinsurance not only to manage downside risk, but also as a flexible tool to support gross line size while still controlling net exposure. This approach reduces volatility and supports a more resilient risk profile across stress scenarios. In January, when we placed the majority of our annual program, we capitalized on favorable market conditions to expand coverage and improve terms, delivering a really strong outcome, which included meaningful rate reductions of around 20%, while upgrading both coverage quality and counterparty security, enhanced structural protection through new aggregate purchases that were not previously available to improve the overall margin protection, and targeted enhancements that broaden coverage, enhancing terms where needed and strengthening program efficiency. In addition, we also sponsored another Herbie Re catastrophe bond, securing $75 million of U.S. earthquake protection, leveraging the pricing available in the cat bond market with what we can achieve writing the inwards portfolio. This renewal underscores the role of outwards reinsurance as a flexible and active portfolio and capital management tool. While January marks the core placement period, we remain opportunistic throughout the year, adding coverage when it improves margins, enhances our risk profile or increases capital efficiency. To provide context on risk exposure, as of January 1, our 1-in-250 California earthquake probable maximum loss is in the mid-single digits as a percentage of shareholders' equity. And our 1-in-100 Southeast Gulf and Caribbean clash exposure remains below 10% of shareholders' equity, which is consistent with our view of risk and return metrics. In closing, we are excited with the progress we continue to make. We have expanded our network of new underwriting partners, which will be key to our growth moving forward. Our strategic use of outwards reinsurance has been proven throughout market cycles to enhance our risk and return profile. And our balance sheet is in a very strong position with broad protection in place to manage peak exposures. And with that, I'll turn it back to Dan to cover our outlook for 2026. Daniel Burrows: Thanks, Jonny. I'd like to emphasize that our top priority is creating shareholder value. We are confident that our focused and strategic approach to capital allocation across our 3 core pillars will continue to differentiate us in the marketplace and drive sustainable value creation for our shareholders. Turning to what we are seeing in the marketplace entering 2026. The broader environment has clearly evolved over the past year. Consistent with what others in the industry have reported, we are seeing a moderation in pricing in some areas. But importantly, we do not see this as a return to the old soft cycle. The correction we have experienced across the portfolio since 2019, including higher attachment points and tighter terms and conditions has created a more durable trading environment. Those features have largely remained intact. Even as headline pricing may have come off a bit, margins and adequacy across the portfolio remains strong. It's important to note that in overall pricing terms, this is taking the market back to levels seen a few years ago, a period widely viewed as one of opportunity and margin, underpinned by underwriting discipline. When I think about the market, the message I really want to get across is that the impact, as we move through the cycle, is not the same for everyone. Outcomes are increasingly differentiated by not only market positioning, but also relevance to clients, quality of relationships. Our portfolio is highly diversified across products, geographies and increasingly underwriting partners. We benefit from strong long-standing market relationships and most importantly, we have the flexibility to allocate our capital dynamically. We remain focused on identifying new areas of opportunity, and we are partnering with those best positioned to execute alongside us. That's why we are confident in our ability to deliver top line growth of mid-single digits in 2026, delivering strong performance through the cycle and continuing to create value for our shareholders. Yesterday, we announced our new brand identity, Pelagos Insurance Capital. This branding underscores our positioning as a capital allocator, working with best-in-class underwriting partners. Pelagos comes from the root of the word archipelago, a community of islands, each unique, yet connected and working together. It reflects how we're built: a global community of teams, locations and trading partners, each bringing distinct expertise and made stronger by the connections between us. We are confident that the Pelagos Insurance Capital brand identity, which we expect to launch in May, provides greater clarity for our people, our clients and our shareholders, highlighting our unique market presence and reinforcing our commitment to building lasting partnerships and meaningful connections. Let me leave you with one final thought on the market. As a capital allocator, we navigate an environment shaped by macroeconomic shifts and ongoing geopolitical disruptions. The evolving risk landscape is creating new opportunities across our industry. In times of uncertainty, our sector's ability to provide innovative solutions becomes even more relevant. For those organizations that can adapt quickly and lead with innovation, these changes are not just challenges, they are catalysts for growth and differentiation. We remain committed to staying at the forefront, leveraging our agility and expertise to deliver value for our clients and our shareholders. And with that, operator, we will now open the line for questions. Operator: [Operator Instructions] With that, our first question comes from Matt Carletti from Citizens. Matthew Carletti: Thank you for the color on kind of the partnerships you've established outside of The Fidelis Partnership. I think that's very helpful in terms of kind of understanding how you go about it. I don't know if this is for Dan or Jonny, but as we think about kind of how that plays out going forward and new partnerships, should we think more about lines of business? Is it more about geographies that maybe you don't have exposure to? Is it more about kind of bespoke products that maybe don't really exist in the market today? I'm just trying to get a feel for kind of how your bingo card looks and what the missing pieces are. Daniel Burrows: Yes. Thanks, Matt. So firstly, I'll start with -- I know that was quite a long introduction, but there was a lot to talk about, a lot of detail. So if you don't get through the questions today or during this call, please come back to us, and we'll take any questions you've got over the course of the coming days. So Matt, great question, as I said. The way we think about underwriting is always to start with the risk strategy, and we think about our capital allocation. So we're always looking at what is the best risk-reward dynamic in the market across all of our options. So that could be underwriting or other capital actions we can take. So we do have flexibility with the arrangement with the TFP about how we deploy. Obviously, we have the ROFR, so we have the right of first refusal on any business that they originate. But outside of that, obviously, we're always looking to execute on the relationships that we've got where we see margin that's attractive to us in other lines of business that are complementary to what we're doing or, in fact, in addition to what we're doing sometimes, then we're going to execute on that. So it could be a mix of everything you just said. I think we don't close ourselves off. There are certain lines of business that aren't attractive to us. I think we've talked about aviation. Obviously, for us, casualty is not in scope at the moment. We don't see them hitting our hurdles at the moment. But I think it's -- in general, it's a mix. It's more about the quality of the underwriter, their track record, the leadership team, does it help to diversify? Is it creating margin for the book. And that, again, expanding the distribution channels that we have through new partners, geography or product line that we're entertaining, all of those things, and we're working hard to do that. Jonny, do you want to add anything? Jonathan Strickle: Yes, I think you covered most of it, Dan. All I'd add is it's a very high bar. I think The Fidelis Partnership have performed very well. If you look at our combined ratio this quarter, it's obviously mostly driven by them. It's [ down ] 80%, 79% last quarter, and we're really pleased with that. And we're not going to lower the bar for new partners. They have to meet or beat that hurdle. I think the other thing I'd highlight is where a partner does meet that, where they do fit in well and hit those characteristics that Dan mentioned, then we're really in a position where we can get comfortable with that very quickly. As I said, the entire management team is able to look at every opportunity. And that gives us the conviction to commit at size and for the long term where we think that's the right thing to do. And I think that's the key to what we bring to partners. We can lead them to concentrate on the underwriting, which is what we've done with The Fidelis Partnership, and benefit from the extra alpha that's generated by allowing that time to them. The only other bit I'd mention is, as I mentioned in the pre remarks, we're really looking to concentrate on a small number of partners and have something that's meaningful and something that can grow over time with them. This isn't something that we see being 100, 200 partners very quickly. It's a small number of core partners that we want to do something meaningful with. Matthew Carletti: And then just a quick follow-up, probably for Allan. I appreciate the guidance you gave us on the net earned premium. As I look at -- let's just take maybe the Insurance segment, kind of the relationship between net earned and net written has definitely come down. It was in the 90s for 2024, and got 75% earning through in 2025 and then even lower, that guide you gave us for Q1. So can you just help us understand, is that -- you mentioned some credit type products and otherwise that have much longer earnings patterns than the rest of the book. Is that what we're seeing there? And then a follow-on to that is that lower level that we're seeing in Q1 to be expected to carry on through the year? I mean it grow as premiums grow, but that relationship hold. Allan Decleir: Yes. Thanks, Matt. This is Allan. Yes, we're obviously pleased with our gross premium written growth during the year of 7% and how this is flowing through our portfolio with a Q4 combined ratio of 80.6%. Three factors are really influencing that delta between earned and written in the quarter, some of it carrying through to 2026, as you're mentioning. First of all, in the quarter, our loss experience improved on California wildfires, reducing our reinstatement premiums. And overall, our reinstatement premiums accounted for approximately 40% of the variance between written and earned growth. Second of all, as Dan mentioned, we came off aviation business throughout the year. This accounted for another 40% of the variance between written and earned. But yes, importantly, as you said, and it will be more obvious going forward, I think that our business mix reflects the positive steps that we've taken to grow in areas with attractive margin, such as asset-backed finance and portfolio credit, which do have longer earnings patterns. So 3 strong reasons for the delta between earned and written, favorable loss experience, disciplined underwriting and a nimble portfolio focused on higher-margin business. And as you mentioned, and as I mentioned in my prepared remarks, the net premium earned, that guidance we're giving forward -- and we did listen to you guys because we know it's hard to sometimes model earned premium, is based on this new expected business mix that we have going forward. And again, the earned asset-backed finance and portfolio credit earned over sort of 5 to 7 years rather than 1 to 2 years, that's something like aviation would earn. Daniel Burrows: Yes. I mean we can, if you want to talk a little bit about the aviation. We did -- it's very important that we demonstrate disciplined underwriting. And that market, we have outlined the challenges, especially given very active loss activity over the last 18 months. We did see some green shoots midyear, especially in the risk market, driven by that loss activity. But ultimately, the pricing did not meet our hurdles and our approach is all about risk-reward trade-off. So as a lot of that business is actually bound in Q4, it's difficult to get how that's going to emerge and how the execution is going to go as late in the year, and that's added to the net earned premium reduction. But part of it is price and part of it is terms and conditions that are just nonnegotiable. So I think as I've said, governing law and jurisdiction can significantly impact loss outcomes, and we're just not going to negotiate on that. So we dropped 50% of the premium. But because we've got a strong capital position, because, through our partnerships, we've got access to market, we've still grown. There's over 100 other lines of business, and we see plenty of margin in the current environment across those. So you've got to -- if you want to grow, you've got to be disciplined, it's got to be with margin, it's got to be profitable, and that's what we're aiming to do across the market cycle. But it did impact, as Allan said, significantly the net earned premium. Operator: Our next question today comes from the line of Meyer Shields from KBW. Meyer Shields: One question to begin with on the new underwriting partners. How should we think of the time line for you ramping up to your targeted participation on their book? Is that -- I mean, I'm assuming with financial -- with The Fidelis Partnership, it's instant. Is there a longer duration before you're at your targeted share of the newer partners' book? Daniel Burrows: Yes, it's a really good question. Obviously, when we're looking at partnerships, first and foremost, it's risk-reward. The characteristics are all very similar, high barriers to entry in that particular market, different distribution, strong teams with good track records with good technical underwriters. So the hit ratio is not going to be extremely high. We probably decline more than 90% of what we see. But we have identified, over the last couple of years, the relationships with those teams that we see being accretive to our business plan. So yes, I think we're in a very strong position now, given our capital strength, the performance of the business. It's working exactly as designed with the partnership. So adding on the complementary new partnerships, diversifying is a smart thing to do. I think in terms of time line, we haven't really set a time line. But certainly, what we'd be aiming for in the medium term is 25% to 30% plus of the book will be with new partnerships. But look, we're also looking for growth with the TFP. So I think we're in a strong enough position from a capital sense that we can do both as long as it's profitable, as long as we hit the very high benchmark that TFP sets and it's accretive to the business. Jonathan Strickle: And what makes it so hard to split between TFP and new underwriting partners is it's not really how we think about it. We don't have a plan for how much to grow with each. We have a plan for where in the market we want to grow, where in the market we think things best add to our risk profile. And then we decide which partner we think is best placed to execute on that. So as the market evolves, that mix between things that TFP execute on for us and things that other partners execute for us shifts, if that makes sense, Meyer. Meyer Shields: Yes, it does. Second question, sort of unrelated, but as the mix shifts more towards longer-duration contracts like asset-backed finance and so on, does that imply an opportunity for extending the investment portfolio duration? Allan Decleir: Yes. Thanks, Meyer. It's Allan here. Obviously, we do consider that as part of our capital allocation process. We are pleased with our investment portfolio producing a 4.4% yield on the year. Our return reflects our strategy that we focus on attractive investment income while targeting an above-average risk-adjusted return through all cycles. We take risk, though, first of all, on the liability side, not on the asset side, and that's consistent with our capital allocation strategy. As I stated in my script, part of the investment this year was -- investment income reduced this year because our capital strategy meant we bought back a lot more shares during the year, $261 million worth, which, as a result, reduced the total amount of investable assets and as a result, hit our investment income. We also paid dividends of $52 million during the year, contributing to shareholder return. So as we look forward, we will expect our returns to be broadly in line. Our expected return is 4% to 4.5% for 2026, but duration is always something we look at, but we're not going to do that immediately. We need to look at how new underwriting partners evolves, how the asset-backed portfolio evolves in terms of duration. But yes, that's always a consideration. Jonathan Strickle: And, Meyer, just to add on, some of the business that we write, it's not like casualty business. It's more long tenure than long tail is how we phrase it. And some of those asset-backed finance policies as a result of that, you get the premium over time. You don't necessarily get it all upfront. So there's not as big a shift in terms of our cash flow pattern as you might expect if we had gone in and written a big casualty book, for example. Operator: Our next question today comes from the line of Leon Cooperman from Omega. Leon Cooperman: Can you hear me? Jonathan Strickle: Yes. Leon Cooperman: Let me just say this. I've learned over the years that the value of the book for a company is a function of what the return on that book value is. Given your returns, I think the way you're trading in the market just seem to be a very well-kept secret. There are 9 analysts that have a forecast for you and the 9 analysts have you worth well below your book value. And it seems to me that you're worth well above book value. A company that can earn 15% to 18% of the book, that book is worth at least twice book value, yet we -- I think a year from today, I can see a book value over 30% and your earnings is close to $4.5, $5 a share. So your stock is 5x earnings and the market is 23x earnings. And your return on book value is higher than the S&P and yet your multiple is 1/4 of it. So is it -- are you not telling your story? Or you're telling your story but nobody listening? Daniel Burrows: Yes. Look, thanks very much, Leon. Good to hear from you. We -- everything you said, we agree with, we're undervalued. If we think about book value growth since the inception of the business, that's up 57%. In dividends, it's higher. In dividends, it's 15% in the last year. Then you look at ROAE, look at the last quarter, combined ratio, there are very few better, if at all, than those numbers going forward. It's -- I don't think it's just about the numbers, though, Lee. It is about the story. We've listened to the messages in the market. People ask questions about the structure. We'll look at the performance, look at the growth in the business. It's working exactly as it was structured as it was meant to do. There were questions around Russia-Ukraine. We've dealt with that. There were questions around the overhang in terms of liquidity. ADIA, one of the bigger PE firms have exited in '25. We've been very front foot about buying shares in the open market, buying out PE when there's P&C opportunities, and then obviously, the diversification with partners, which we're expanding now. So we think we're doing the right things to send the right message out. Consistency is key, making sure quarter after quarter, we're putting up these results. But Leon, be assured, we've got a big conference in Naples coming up this weekend. We'll be on the front foot. Our performance is strong. You need to start thinking about us and our performance as a capital allocator and the valuation should come through. But we're working very hard on that, Leon. Leon Cooperman: I'm not looking to put you out of business in terms of selling you, but I just looked at Zurich [ Reinsurance ] make an offer, and I think they've agreed to buy Beazley and they were paying twice -- over twice the book and about 10, 12x earnings. And if somebody in a slow-growing world where people are looking to buy growth, I would think that we'd be very attractive at a multiple of earnings. Daniel Burrows: Completely agree. And I think, as I said, if we continue on the path that we're on, then we would expect to see a similar run rate in terms of book value growth over the next couple of years. So yes, north of 30%, absolutely. And we would expect our valuation to come to par with that. We think the valuation should be a multiple of book. When you look at our results, they are exceptional. But it's got to be consistent we get that. Leon Cooperman: Congratulations on excellent results. Daniel Burrows: Thanks for your question, Leon. Operator: The next question today comes from the line of [ Peter Knudsen ] from Evercore. Unknown Analyst: The first one, I thought the reinsurance renewal commentary was interesting. I'm just wondering if you could maybe talk about any changes to the retention, if at all, on the XOL program, given the 20% rate decline? And then, in addition, it sounded like you guys were able to purchase an [ agg ] cover for the first time. And so, a, could you provide some details on that? And then b, what does that say about the market? Why do you think you were able to now versus I think you said in the past that wasn't available? Daniel Burrows: Yes. Thanks. Great question. It's Dan. I'll just put into context, the agg deal we spoke about actually was not for cat. We've had agg deals since the inception of Fidelis in 2015. So specifically the natural perils, this was a volatility agg for other lines of business that we kind of said you couldn't have bought that a year ago. So that came on board in the fourth quarter. So we're very pleased with that. But Jonny, do you want to answer the other question? Jonathan Strickle: Yes. I think we found ourselves in a completely different market to a year ago, Peter. I mean on top of the agg Dan mentioned, we also bought aggregate cover in our cat program as well. That certainly wasn't available a year ago. In terms of attachment points, I mean, the exposure going through was up in some ways. I mean you see rates have come off to some extent. Our premium is the same. So that aligns to that story. And we haven't had to push attachment points up at all. In fact, in some places, we've been able to either bring them down or broaden coverage. So we've got more perils attaching at lower attachment points in that. So we're very, very pleased. I mean we've always said that our preference is usually, rather than to cash in on the price reduction, to spend the extra money on getting better, broader and more coverage, and that's what we've done this time. I mean, as I said, we also remain opportunistic. I think there might be opportunities to add to that program as we move through the year. And what really helps us there is we can buy in any market. We buy UNL covers, we buy quota share, we buy ILWs, we buy cat bonds. And we're literally looking at options every week. We're looking at some stuff right now, in fact. Unknown Analyst: Okay. That's really helpful. And then I'm wondering if you guys could just help me -- maybe I'm thinking about this wrong, but maybe talk a little bit about the intellectual property line within ABS and portfolio credit, I guess, in relation to some of the software concerns in the market today. Is that a risk or a concern for you guys at all? Jonathan Strickle: Peter, intellectual property is something that we pulled out of a couple of years ago. And we've given commentary in prior calls that we really didn't have many exposures there. I think we're down to a couple of policies that will run off over the next year or so. We've not seen any real loss activity movement on that in the past few quarters. And it's certainly not something we'd be looking to go back into. Operator: We have now hit the top of the hour, so this will conclude today's question-and-answer session. I'd like to turn the call back over to Dan Burrows for closing remarks. Daniel Burrows: Yes. Look, thank you very much. We really appreciate you joining the call today. As I said earlier, for any additional questions, we're here to take them in the coming days and weeks. Thanks for your support, and I hope you enjoy the remainder of the week, and have a great weekend. Thank you. Operator: Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to the Mesoblast financial results for the half year ended December 31, 2025. An announcement and presentation have been lodged with the ASX and are also available on the Home and Investor pages at www.mesoblast.com. [Operator Instructions] As a reminder, this conference call is being recorded. Before we begin, let me remind you that during today's conference call, the company will be making forward-looking statements that represent the company's intentions, expectations or beliefs concerning future events. These forward-looking statements are qualified by important factors set forth in today's announcement and the company's filings with the SEC, which could cause actual results to differ materially from those in such forward-looking statements. In addition, any forward-looking statements represent the company's views only at the date of this webcast and should not be relied upon as representing the company's views of any subsequent date. The company specifically disclaims any obligations to update such statements. With that, I would like to turn the call over to Paul Hughes. Paul Hughes: Thank you. Welcome, everyone, to the Mesoblast financial results call for the period ending 31 December 2025. My name is Paul Hughes. I'm Head of Corporate Finance and Investor Relations. In the room with me today is our CEO, Silviu Itescu; our CFO, Jim O'Brien; and our CCO, Marcelo Santoro. We have a presentation to run through highlighting the financial results and the operations for the period, and then we'll have some time for questions at the end. So now I'll hand over to Silviu to begin. Silviu Itescu: Thank you, Paul. We could go to Slide 4, please. This slide highlights the corporate priorities for 2026. We intend to continue to show strong growth in Ryoncil sales driven by market adoption. We will build a strong cash flow with judicious use of funds for operations and an optimal capital structure. Cultural transition is critical so that we can move to an efficient commercial organization. We will expand Ryoncil label indications and obtain approval -- seek to obtain approval for remestemcel-L products, our second-generation platform. Our manufacturing focus will seek to increase diversification, capacity and cost efficiency for our platforms, and we will continue to focus on appropriate commercial partnering backed by demonstrable value drivers, including FDA approvals, strong revenues and advanced clinical programs. Next slide, please. This year was marked by a very successful product launch. We initially received FDA approval for Ryoncil in December 2024. Ryoncil is the first and only FDA-approved allogeneic mesenchymal stromal cell product. The product was launched in April of 2025 with revenues growing quarter-on-quarter. There is significant unmet need for continued uptake and increasing market adoption. And our net revenue from Ryoncil was USD 49 million in the first half of FY '26. Next slide, please. Paul Hughes: Thanks, Silviu. Jim will take us through the financial slides. Thanks, Jim. James O’Brien: Thank you, Paul. Hi, everybody. I'd like to now review our first half fiscal 2026 operating results. And I should mention that all figures are in U.S. dollars. Total revenues for the period were $51.3 million, driven by the successful launch of Ryoncil. Our net product revenues, as Silviu mentioned, were $49 million, and we had a gross margin of a strong 93%. Our R&D expenses for the period were $46.1 million (sic) [ $46.2 million ] compared to what we reported last year of $5.1 million. Now last year's numbers were a bit skewed because we had a $23 million reversal of the inventory provision once we got approval of Ryoncil. Without that adjustment, the prior year number would have been about $18.1 million. So -- I'm sorry, we would have grown about $18.1 million over the prior year. And again, the spending in the period really related to our adult GVHD trials, back pain and also our LVAD program as well as getting ready for the BLA and some manufacturing work. Our sales and general and administrative expenses were $28.5 million compared to $18 million in the prior year. And that increase really related to the sales and marketing effort that Marcelo and the sales team did in terms of driving sales growth. The loss during the period this year was $40.2 million compared to $48 million in the prior year period. Again, as I mentioned a few moments ago, that prior year loss was impacted by the $23 million worth of reversal on inventory. And -- but for not those items, we were down -- we were up about -- we were down on a net loss of about $30 million year-over-year. Just in terms of our operating spend and our cash flows for the first fiscal quarter -- first fiscal half of the year, excuse me, we were at $30.3 million. As we look to the second half of the year, we expect our operating cash flow usage to decline when compared to the first half of fiscal '26 based upon our projected cash receipts from revenues as well as maintaining disciplined cost control measures and efficiencies in the operation. And on the next slide, just to point out our profitability and growth pipeline from Ryoncil. As I mentioned, we had strong revenues for the period. Gross margin, excluding amortization expense would have been about $44.2 million. Our direct selling costs were $7.7 million. And again, we have strong operating performance that allows us to invest in our R&D programs and our life cycle extensions. And we do have a very robust pipeline, and we continue to invest in our manufacturing footprint as well as building inventory where needed and getting our second-generation products to market. On Page 9, next slide, please. We had $130 million worth of cash at the end of December of this year, which you can also note that the reduction in our net spend over the year, as I said, will decline over the second half of this year. On December 30, 2025, we entered into a $125 million nondilutive credit line facility. The first tranche of which is $75 million was drawn at closing and enabled Mesoblast to replay in full its prior senior secured loan. We also partially repaid the subordinated royalty facility, which will continue to be reduced from ongoing revenue and will be fully repaid by the middle of 2026. The second tranche of $50 million is available to be drawn on our option through June of 2026. The new facility has a lower cost of capital for the company, freed up its major assets to provide flexibility for strategic partnerships and commercialization. In addition, the new facility can be repaid at any time without incurring early prepayment or make-whole fees. It does not include any exit fees and does not cover any of Mesoblast assets, which is a very strong point for the reason why we did this. This is terrific for the company. And we have no restrictions on doing additional unsecured debt or any licensing activities. We're very pleased with this line of credit and believe it will strengthen our balance sheet to support an exciting growth period for Mesoblast. On the next slide, looking ahead to the second half of 2026, we anticipate full year Ryoncil net revenues to range between $110 million and $120 million on a full year basis. With that, I'll turn the call back to Silviu for additional comments. Silviu Itescu: Thanks, Jim. If we can go to Slide 12, I'd like to bring Marcelo Santoro, our Chief Commercial Officer, please. Marcelo Santoro: Thank you very much. Next slide, please. So good afternoon, good morning, everyone. We are extremely pleased with the performance of the launch to date, and I couldn't be proud of the work, the commitment and the passion that our colleagues at Mesoblast demonstrate every single day towards these children. We have treated numerous patients since we launched and Ryoncil is having a transformational impact in the treatment of these children according to the feedback we received from treatment centers and treatment teams. In fact, we are on track to achieve 20% market share by the end of year 1 in the market. The commercial performance to date has been exceptional. This holds true not only against our initial expectations, but also when benchmarked against other successful rare disease launches. We have been laser-focused on building the infrastructure needed to ensure Ryoncil reaches its full potential. I am very happy to report that we have onboarded 49 treatment centers to date. In addition, Ryoncil is now listed on the formulary of 30 of those centers, a number that continues to grow steadily as more P&T committees review and approve its use. Formulary inclusion is critical, as you know, as it streamlines the adoption and use of Ryoncil when it's selected for a patient. Having these many formulary approvals in less than 1 year demonstrates the outstanding value of the product and the tireless commitment of the team to build the appropriate infrastructure to expand utilization. In addition, 13 hospitals have opted to use Optum Frontier, our specialty pharmacy partner, virtually eliminating their financial responsibilities with the product. On the payer side, we have also made exceptional progress. Ryoncil is now covered by insurance plans, representing over 280 million lives across both commercial and government payers. Medicaid coverage is in place in all states and a specific J-Code for Ryoncil, J3402 went into effect on October 1, allowing for more efficient billing and reimbursement for both sites of care and payers, along with CMS published rates. Commercial payer support has also been very strong. All major payers, including Aetna, Cigna, UnitedHealthcare, Anthem, Humana and Prime Therapeutics covering all Blue Cross plans have issued favorable coverage policies for Ryoncil. Notably, these policies do not require step therapy, which simplifies patient access significantly. All of this has occurred within the first 6 months post launch. Next slide, please. From a strategic priority standpoint, the Ryoncil team is 100% focused on 3 key strategic pillars. The first is to proactively identify and prioritize appropriate patients who may benefit from Ryoncil therapy. The second to reinforce our superior patient outcomes in first-line treatment right after steroids. And the third is to empower caregivers to demand Ryoncil for their children. We have been working with several advocacy groups and will soon launch a comprehensive campaign dedicated to supporting both caregivers and patients. With that, let me turn back to Paul. Paul Hughes: Thanks, Marcelo. I'll hand over to Silviu, who's going to take us through the rest of the deck before we open it up to Q&A. Thanks. Silviu Itescu: Thank you. If we could move to Slide 14. This slide summarizes our plans for label expansion of Ryoncil into adults. A pivotal study of Ryoncil as part of second-line treatment regimen in adults with severe steroid-refractory graft versus host disease is underway with our partners at the NIH-funded Bone Marrow Transplant Clinical Trials Network. The basis for this trial is that 50% of adults who have severe GVHD fail existing second-line treatment, including predominantly ruxolitinib. These patients who fail have a 25% abysmal survival at 100 days. We have previously used Ryoncil under expanded access in patients aged 12 and older, in many adults as well, 18 and older who have failed ruxolitinib or other second-line agents and use of our product in this patient population was associated with 76% survival at day 100, a remarkable result. As a result of these results, the final protocol design for the registrational study in adults has been locked down and has been worked through with the FDA recently in a meeting with the FDA agency. We expect that following Central Institutional Review Board approval coming up in March, site initiation and patient enrollment will commence. Next slide, please. Further extension strategy for Ryoncil is focused on various opportunities in pediatric and adult inflammatory diseases. The team is currently evaluating multiple indications to unlock value, including in the inflammatory bowel, neurodegenerative and respiratory conditions. Our portfolio will be prioritized to maximize shareholder return by utilizing either internal investment strategies versus external partnership initiatives. Next slide, Slide 16. Now I'll be updating you on our second-generation platform, rexlemestrocel-L currently being developed for discogenic chronic low back pain and chronic ischemic heart failure. Slide 17, our Phase III chronic low back pain program, a first 404-patient randomized controlled Phase III trial has already completed, and that included about 40% of patients who are opioid dependent. We met with the FDA recently and received positive feedback on potential filing of a BLA based on achieving a clinically meaningful reduction in pain intensity at 12 months between the treatment arm and placebo arm. The robust result in opioid reduction from at least one adequate and well-controlled trial could be included according to our meeting with the agency as part of product labeling, which is a very, very, very important outcome. We, in fact, do already have an RMAT, Regenerative Medicine Advanced Therapy designation for rexlemestrocel-L as a potential opioid-sparing therapy in chronic lower back pain. Next slide. The confirmatory Phase III trial is recruiting currently 300 patients across 40 sites in the U.S. with a primary endpoint, 12-month reduction in pain. As I've mentioned on multiple occasions, FDA has confirmed that, that is an approvable endpoint. The enrollment of these 300 patients is expected to be completed in March or April. Data readout and BLA filing are expected in calendar year 2027. We have, at the same time, undergoing commercial manufacturing in order to leverage our existing capacity and cost efficiencies. I will reinforce that there are many patients who are suffering from this terrible disease. Over 7 million patients across each of the U.S. and EU5 are due to generative this disease, patients who are otherwise have run out of options other than surgery. This is a large unmet need for a potential blockbuster opportunity. Next slide, Slide 19. Now I'd like to update you on Revascor, our product based on our rexlemestrocel-L platform that is being developed for chronic heart failure with reduced ejection fraction and persistent inflammation in either patients with Class II/III heart failure or very end-stage heart failure patients who are being kept alive with a ventricular assist device in the left ventricle. We can go to Slide 20. LVAD implantation improves overall survival in these end-stage patients, and that's well established. However, the underlying causes of heart failure in these patients, notably inflammation, persists. And whilst the left ventricle improving the left side -- the LVAD is improving on the left side of the heart, the right ventricular pump function remains vulnerable and continues to deteriorate. Therefore, progressive right heart failure continues to occur in up to 30% of patients and is the primary cause of multi-organ failure and death in this group of patients, mortality occurring within the first 12 months. In addition, life-threatening major mucosal bleeding due to progressive right heart failure and portal hypertension occur in about 30% of patients and is the major morbidity in this group, the main cause of recurrent hospitalization. Next slide. Now we performed 2 randomized controlled studies in this patient population. The more recent study was called LVAD Study II, and that randomized 159 patients in a 2:1 randomization to provide primary evidence of Revascor's efficacy in reducing major bleeding events. A second study, LVAD Study I, an earlier study, is a supportive study for LVAD II, randomized 30 patients in a 2:1 fashion and provided supportive evidence also of Revascor's efficacy in reducing major bleeding events. Intramyocardial injections in both of these studies of either Revascor or control were performed at the time of LVAD implantation. Importantly, both trials, both randomized controlled trials showed the Revascor reduced cumulative incidence of major bleeding events, life-threatening GI bleeding, the trial's primary efficacy and safety endpoint and related hospitalizations through 6 months, both were significant. We go to the next slide, Slide 22. This provides you with some new data that we have not previously presented. This slide demonstrates the total number of major bleeding events resulting in hospitalizations over 6 months on the left-hand side and over 12 months compared to controls in the entire study LVAD II. As you can see both on the left-hand side and the panel B on the right-hand side, Revascor reduced major bleeding events and hospitalizations by about fivefold, a very significant reduction throughout a 12-month period compared to MPC treatment compared to control treatment. Next slide, please. Now moreover, particularly in the ischemic group of patients, what you can see is that on the left-hand side, in controls, in red, the ischemic controls had approximately a three to fourfold increase in hospitalizations due to right heart failure. The non-ischemics had a very low incidence and risk of heart failure hospitalization. In contrast, on the right-hand side, by 12 months, you can see that the MPC treatment reduced the right heart failure hospitalization events in ischemic patients back to background levels, the same levels as I see in non-ischemic controls. And again, those reductions of hospitalization from right heart failure were significant. Next slide, please. This slide focuses on the risk of death from right heart failure in controls on the left, and in Revascor-treated patients on the right. As you can see in Panel A on the left, amongst patient controls who have at least one hospitalization from right heart failure, the presence of -- sorry, amongst controls, the presence of right heart failure hospitalization, at least 1 right heart failure hospitalization in red was associated with a mortality risk and a hazard ratio of 7 or more than 7 compared to patients who did not have right heart failure. So in controls, particularly early within the first 4 months after LVAD implantation, the presence of a right heart failure hospitalization was a very strong predictor of death. In contrast, what you can see on the right-hand side, amongst Revascor-treated patients, the risk of death, particularly in that early period 4-month period is almost completely abolish. And you can see that the overall survival over a 12-month period in Revascor-treated patient was the same, irrespective of whether they had a right heart failure hospitalization or not. So what this means is that Revascor not only reduces the incidence of hospitalization rates, but protects these patients against death from right heart failure. If you go to the next slide, please. So the summary of these new data, data that I haven't shown you here, but we have also observed is that Revascor reduces the inflammatory cytokines and through inflammation reduction protects the at-risk right ventricle in these patients, the same right ventricle that continues to fail despite the fact that there's an LVAD in the left ventricle. The strengthened right ventricle reduces hospitalization rates in the intensive care unit due to right heart failure and improves survival. The strengthened right ventricle decreases the risk of portal hypertension and therefore, decreases GI bleeding events. This leads us to think very carefully about how Revascor beyond its potential use in patients with left heart failure problems, also has the potential to be used to improve right heart failure function in patients not only with ischemic heart disease, but other causes of right heart failure, including primary pulmonary hypertension and chronic lung diseases. Next slide, please, Slide 26. So let me give you an update on our CHF program, particularly our plans to file for approval. With these new data and our existing orphan drug designation for treating this group of high-risk patients with high mortality as well as FDA's stated preference for randomized controlled trials, Mesoblast is moving from filing for an accelerated approval to filing for a full approval. Unlike an accelerated approval, full approval does not require a confirmatory study. Aligned with FDA on items required for filing the BLA regarding CMC potency assays for product release and commercial manufacturing, we now have these activities well and truly underway, and we expect to file our BLA for full approval for this indication in the next quarter. Let me summarize our highlights and our upcoming milestones. Ryoncil is the first and only FDA-approved MSC product. It delivered net revenues of USD 49 million in the first half of FY '26. As you heard, 49 centers have been onboarded, 64 centers account for 94% of the entire pediatric bone marrow transplant population, so well underway to achieve that in record time. We're initiating label expansion to adult acute GVHD, a market that is 3x larger than the pediatric market. We are currently prioritizing our portfolio, which includes the potential to go into the inflammatory bowel disease, neurodegenerative diseases and respiratory conditions, and we will update the market as we focus on certain areas in priority over others. Our second-generation rexlemestrocel-L is enrolling the second trial in back pain with full enrollment expected to complete by the end of March or end of April. BLA filing next quarter is in line for full approval for patients with right heart failure and end-stage heart failure with LVAD. And we're actively optimizing manufacturing logistics to support commercialization, both of the rexlemestrocel-L pipeline and obviously, to have further inventory for the projected growth in Ryoncil sales. With $130 million in cash on hand as of December 31 and the new credit line that you heard about, which still has the potential for $50 million available to draw down, we're in a very strong financial position. And as you heard earlier, we are projecting full year fiscal 2026 Ryoncil net revenue to range between USD 110 million and USD 120 million. And I think I'll stop there. And hopefully, there are some questions that we can all address. Thank you. Paul Hughes: Operator, if you could please open the lines for questions. Thank you. Operator: [Operator Instructions] Your first question comes from Edward Tenthoff with Piper Sandler. Edward Tenthoff: Congrats on all the great progress across the board. Could you just repeat the guidance you broke up a little bit for this coming year? James O’Brien: Yes. Yes. What we're projecting for the full fiscal year are net revenues ranging from $110 million to $120 million again, on a full year fiscal basis 2026 hitting June 2026. Operator: Your next question comes from Olivia Brayer with Cantor Fitzgerald. Olivia Brayer: I have a few, if you don't mind. Maybe just first on Ryoncil in peds. You all mentioned potentially hitting 20% penetration of that pediatric population by the -- I think it was by the end of your fiscal year, if I heard that correctly. So can you maybe just run through what those assumptions include to get to that 20%? And how high of penetration do you think you can realistically reach in this specifically peds population over time? And then I've got a couple more on your pipeline programs. Marcelo Santoro: Yes. So thank you. So let me start with the second one and then go to the first, right? So the second one, we assume a 40% peak share. And you have to understand, we believe it should be 100%. This is a product that should be used by everyone. But let's be responsible and realistic, a 40% share is reasonable, right? So if you assume a range of patients, and obviously, that's dynamic of 375 patients, that's what the 20% is based on. It's 20% until the end of our fiscal year. That's what we aim on achieving at that point. Olivia Brayer: And is that specifically for the fourth quarter of your fiscal year? Like if I'm kind of doing the math. Silviu Itescu: Yes. Olivia Brayer: Okay. That's helpful. And then for your Revascor BLA next quarter, how is the FDA viewing the ischemic versus non-ischemic phenotypes? And have they given any input on to or around potential labeling language around the ischemic etiology or inflammation biomarkers? Silviu Itescu: Well, so I think it's important to note that in the 159-patient trial, we achieved the principal endpoint of -- in overall in the full patient population without having to go to any subgroups in terms of the cumulative incidence of major bleeding events over 6 months. Also, we achieved a significant reduction in hospitalizations for major bleeding events across the entire patient population without having to go to subgroup. So our position is that we will be seeking a label for the entire patient population, especially given that the confirmatory study, LVAD I, also achieved the same endpoint across all patients. There's no question that the patients at greatest risk are those with ischemic etiology. And those patients have a higher level of inflammation, they have a higher risk for bleeding, right heart failure and death. And interestingly, we saw the very same sort of thing in the larger trial in Class II/III heart failure, where, again, we saw patients with ischemic heart disease as an etiology had high levels of inflammation, greater risk of 3-point MACE and greater treatment benefit. So we will be providing the FDA with the totality of the data that confirm the supportive trials, demonstration that ischemic patients are at greater risk and treatment with our cells is even more effective in that subgroup, but we've achieved the endpoint around the prespecified bleeding endpoint and hospitalization endpoint across the entire population. So that remains to be negotiated. Olivia Brayer: That's helpful. Understood. And then last question is just on the chronic back pain. Can you just clarify what data you're submitting to the FDA? Is it just a new analysis of the pre-existing data? And is your ongoing Phase III not actually going to be part of that submission package? Maybe just some clarity around that update because I do think that is a new disclosure. Silviu Itescu: No, no, no. I didn't mean to say that we wouldn't be submitting the data from the new trial. The new trial, the second trial, which completes enrollment by over the next month to 6 weeks is the plan to complete enrollment. That trial becomes the primary data set and the previous trial becomes a supportive data set. That's certainly our intention. We have spoken with the FDA about looking at the subgroup of patients who are opioid dependent and that's a discussion that is ongoing with the agency. But with respect to the primary endpoint in all comers of pain reduction, we will be using the 2 trials to present full data sets. Olivia Brayer: Okay. But that additional Phase III readout is coming in 2027, correct? Silviu Itescu: That's correct. Olivia Brayer: So will you -- you're kicking off filing before actually having that data? Silviu Itescu: No. The objective is to complete that trial, get the readout and move to a filing with those data in the primary file. Operator: Your next question comes from Madeleine Williams with Canaccord. Madeleine Williams: Just in regards -- just going back to the pediatric Ryoncil and just the FY '26 guidance. Can you speak a little bit to sort of how you're seeing repeat utilization among centers or just how that kind of shakes out over the remaining of the year and sort of just trying to dig into more. Marcelo Santoro: Yes. No, we'd be happy to do that. Yes. So we see the continuous growth in the centers, continuous adoption, not only by more centers, but also repeated use by the current centers we already have, which shows that they are finding utility in the products and repeating the treatment in other children, right? So that's one component. The second component, we're also seeing very big, very large centers coming on board, which will substantially increase our confidence in this guidance. And it's a reality that is happening every day. Silviu Itescu: And I would add to that, I think a major additional components moving forward is continued physician education. We've shown both in our previous Phase III trials and in the real-world data that the earlier this product is used, the greater the survival. it's unquestionable. And so a lot of the effort by the team will be to educate physicians. Physicians have their own practice habits. And they all believe that their particular way of doing things is standard. Nothing is standard in this disease, especially given that only Ryoncil is approved by FDA for treatment of children. So I think a major focus and an area of growth is to educate the majority to use the product as early as possible after steroid failure. Do you agree, Marcelo? Marcelo Santoro: For sure. And I would add 1 more, right? So as a father, unfortunately, my child had something like this horrible disease, I would like to know that this option is available. So it's our obligation to empower them to empower the caregivers, make sure that they understand that this product is available and it's the only FDA-approved product so that they can talk to their treatment teams and ask for this as a potential therapeutic option for their child. Madeleine Williams: That's helpful. And just maybe 1 more for me. Just in regards to Revascor and the full approval -- filing for full approval rather than accelerated. I'm just interested, you've obviously discussed the additional data, but I'm assuming there's sort of been some sort of constructive discussions with the FDA. And just sort of if you can provide more color about what your confidence is in receiving that full approval? Silviu Itescu: Well, we've had multiple discussions with the agency. We understand what they wanted to see and the data that I've highlighted to you today, particularly as it relates to mortality is the #1 area of focus. And the recent guidance by the agency to focus on randomized controlled trials rather than single-arm trials where major endpoints are being targeted like mortality give us the sort of confidence that particularly in an orphan disease indication where a single trial should be viewed as sufficient for approval, full approval. Operator: [Operator Instructions] Your next question comes from Michael Okunewitch with Maxim Group. Michael Okunewitch: Congrats on all the progress. I guess just to kick things off, there's obviously been a lot of changes at the FDA since you first launched the Phase III in chronic lower back pain. So I wanted to see if you've received confirmation from the current FDA administration that the 12-month pain-only endpoint is sufficient for approval? Silviu Itescu: Yes, we have. Absolutely. That's exactly why we had the meeting recently to gain confirmation from the current administration that, that endpoint is an approvable endpoint, and that's exactly what we received. Moreover, the recent guidance from the FDA that a single well-conducted randomized controlled trial is sufficient for approvals in various indications also gives us great confidence that if we achieve that endpoint, this is an approvable trial and approval endpoint. Michael Okunewitch: And then just 1 more for me, and I'll hop back in the queue. I wanted to ask when it comes to the upcoming filing in the Class IV heart failure programs, are there any outstanding items that FDA has requested that you need to finalize before you can submit that next quarter? Silviu Itescu: Well, commercial manufacturing is always a very important component of this. And that is something that we are heavily engaged in. The product rexlemestrocel-L and its Phase III trials was all made at Lonza in the same facility where Ryoncil was made and which was approved for Ryoncil. And we believe that the vast majority of the manufacturing process is quite similar to the Ryoncil process. So I think that will be an advantage in our filing, but that remains -- we need to get some more confirmation from the agency. Nonetheless, we expect that the long history of manufactured product for back pain trials, cardiac trials will hold us in good stead. Operator: That brings us to the end of today's call. I'll hand back to Paul, please. Paul Hughes: Thank you. As you heard today, we're in a strong position with a number of significant milestones in this current second half through the period. We look forward to keeping you updated on the progress and the achievements. I'd like to thank everyone for their interest in Mesoblast and participation in the call today. Thank you, and have a great day. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Fox Factory Holding Corp.'s Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I'd now like to turn the conference over to Toby Merchant, Chief Legal Officer at Fox Factory Holding Corp. Thank you, sir. You may begin. Toby D. Merchant,: Thank you. Good afternoon, and welcome to Fox Factory's fourth quarter 2025 earnings conference call. I'm joined today by Mike Dennison, Chief Executive Officer; and Dennis Schemm, Chief Financial Officer. First, Mike will provide business updates, and then Dennis will review the quarterly results and outlook. Mike will then provide some closing remarks before we open up the call for your questions. By now, everyone should have access to the earnings release, which went out earlier this afternoon. If you have not had a chance to review the release, it's available on the Investor Relations portion of our website at investor.ridefox.com. Please note that throughout this call, we will refer to Fox Factory as FOX or the company. Before we begin, I would like to remind everyone that the prepared remarks contain forward-looking statements within the meaning of federal securities laws, and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown risks, uncertainties, many of which are outside of the company's control and can cause future results, performance or achievements to differ materially from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors and risks that could cause or contribute to such differences are detailed in the company's quarterly reports on Form 10-Q and in the company's latest annual report on Form 10-K, each filed with the Securities and Exchange Commission. Investors should not place undue reliance on the company's forward-looking statements and except as required by law, the company undertakes no obligation to update any forward-looking statement or other statements herein, whether as a result of new information, future events or otherwise. In addition, where appropriate in today's prepared remarks and within our earnings release, we will refer to certain non-GAAP financial measures to evaluate our business, including adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted net income, adjusted earnings per diluted share, adjusted EBITDA and adjusted EBITDA margin. As we believe these are useful metrics that allow investors to better understand and evaluate the company's core operating performance and trends. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are included in today's earnings release, which has also been posted on our website. And with that, it is my pleasure to turn the call over to our CEO, Mike Dennison. Michael Dennison: Thanks, Toby, and thanks to everyone for joining our fourth quarter call today. I want to use our time today to do something beyond a traditional quarter recap. While we'll cover our fourth quarter results, the more important conversation is about where this business is headed and the specific actions we are taking to improve profitability. We have a comprehensive plan. We're executing against it, and we want to make sure you leave with a clear understanding of the building blocks and how they translate into meaningful improved margins. To this end, we've shifted our guidance approach to lead with adjusted EBITDA to better align with the goals we will outline today and importantly, so you can more easily measure our results. Full year sales were $1.47 billion, which was an increase of 5.3% and fourth quarter sales were $361.1 million, which was an increase of 2.3%. While we demonstrated the relevance of our brands and products across our end markets, our margin performance was not where it needs to be. Revenue growth alone is not the objective. Profitable growth is. And the actions we're laying out today are designed to close that gap with urgency. Ultimately, we are a growth company, and our product pipeline is focused on sustainable long-term growth. However, in the near term and specifically 2026, we must rebuild profitability to establish the appropriate foundation for future growth. We began our initial cost reduction program at the beginning of 2025 with a goal of setting the company on a path to restore our historical adjusted EBITDA margins to the mid- to high teens and accelerate our path to balance sheet improvement. I'm pleased that we successfully delivered our Phase 1 $25 million profit optimization plan on target and on time. This was a comprehensive effort focused on footprint optimization and continuous improvement across all 3 of our operating segments. We consolidated facilities in our AAG and SSG businesses and completed warehouse consolidation work that has positioned us with a more efficient distribution footprint going forward. We improved our supply chains and utilized our machine shops more effectively. While the unforeseen tariffs masked the underlying savings we've achieved, these proactive actions proved to be a valuable tool to help us accelerate countermeasures and tighten our operations. We recognize that there are significant savings to capture and that our work must continue. And we are accelerating our efforts to position the business to achieve best-in-class EBITDA margins when cyclical forces abate and our end markets return to growth, which brings me to Phase 2 of our profit optimization strategy. Where Phase 1 was about consolidation and efficiency, Phase 2 represents a fundamental shift in how we are thinking about the business. Focusing on our core high-margin businesses and products to have elevated FOX and its portfolio of brands to be the leaders in their respective industries. We will continue to operate with a continuous improvement mindset. And as part of our Phase 2 efforts, our leadership team has identified specific cost improvement actions to materially improve profitability while strengthening our core and enabling long-term growth. We have identified critical opportunities across the business, some larger than others and some more complex than others, but all of them lead us to a simpler, more focused and more durable business profile. Dennis will walk you through the financial details around this in his remarks, but I want to take a moment to provide a clear view of the targeted areas of work in 2026. First, business line rationalization. We're exiting businesses within segments that are not accretive from a margin perspective today. The footprint work in Phase 1 gave us better visibility into true profitability by product line and by business. Now we're acting on that visibility. For example, by the end of the quarter, we expect to have divested our Phoenix, Arizona operations, which were dilutive in our AAG segment margins. The exit of Shock Therapy, Upfit UTV and Geiser is expected to reduce working capital and SG&A, improve margins in both percent and dollar terms and simplify our model. The changes are reflected in our 2026 guidance and are the first examples of our rationalization plans. We are not done. We are aggressively evaluating all noncore businesses and all product lines across the entire FOX portfolio and we'll pursue appropriate action where the return profile does not meet our expectations. We will look at strategic alternatives for any business that doesn't deliver 3 key elements: aligned with our core brands, synergistic to our vertical offering and has a durable ability to achieve sustainably accretive profit to the enterprise. Second, supply chain and material cost productivity. We are continuing to evaluate our operations to determine where we have the opportunity for further productivity either through better utilization, reduction of footprint, make or buy optimization efforts and supply chain improvements. Additionally, we are working aggressively to reduce material costs through redesign or actions with suppliers. This work is critical to achieving our margin expectations. However, some of these efforts will necessitate some short-term expense to deliver. And third, a significant reduction in operating expenses. We have opportunities to reduce spending across sales, marketing and G&A functions. We will address marketing and R&D spend that is not aligned with growth and our profitability expectations. These are difficult decisions. We don't take them lightly, but they are necessary to rightsize our cost structure for the business we are running today. In aggregate, our actions are targeting approximately $50 million of incremental realized savings in fiscal 2026. These actions will drive meaningful bottom line improvement in our 2026 results and more importantly, return us to the appropriate foundation to build revenue growth in 2027. In conjunction with our Phase 2 profit optimization initiative and towards our ongoing prioritization of balance sheet improvement, we are also reducing our CapEx spending. We have been in an elevated CapEx cycle where we are spending 3% plus of revenue. In 2026, we're targeting a step down to approximately 2% of revenue. With several years of investment having been made in product capacity and innovation, we have the assets in place to achieve our near- to intermediate-term goals. This shift isn't compromising our ability to grow, but rather is better characterized as a militancy around ROIC metrics and focus, which is driving improved free cash flow generation to help accelerate debt paydown and strengthen our balance sheet. Beyond these management-driven actions, we announced earlier this month that our Board of Directors will be establishing a Transformation Committee focused on operational excellence and margin improvement. The committee will begin its work in the coming month and is expected to advise on the existing Phase 2 actions we have already established as well as unlock additional opportunities that would be incremental to the $50 million target for 2026. Taken together, this is a comprehensive effort with management and Board aligned that will move with urgency. We're not simply managing through a cycle. We're fundamentally repositioning this company to deliver greater operating leverage as we deliver growth over the next several years. Before I get into our segment performance, I want to address an organizational change. As we initiate our Phase 2 cost actions and support the Board's Transformation Committee, Dennis will be dedicating his full attention to these efforts alongside his responsibilities as CFO. To that end, I assumed responsibility for AAG earlier this month to drive critical actions. This is a short-term need to execute the critical actions within AAG, such as the expected divestiture of Phoenix operations I mentioned earlier and overhaul our PVD business as well as meaningful actions within the rest of the portfolio. We will revisit the leadership of this segment later this year once this work has been completed. I want to take a moment to thank Dennis for the work he has done leading AAG. Dennis laid the groundwork for the decisions and actions that are necessary going forward, and I appreciate his time and focus over the last year. While there is much work still to be done in AAG, I believe it will be more efficient and productive short term for me to drive the product line decisions and optimize the operations to support our near-term goals. It's the right time for Dennis to redeploy the same intensity he showed with AAG toward the next phase of our broader cost transformation that will benefit the entire enterprise. Now with that, let me turn to review our segment performance for the fourth quarter. The PVG segment delivered as expected in Q4, overcoming extraneous challenges with net sales of $116.7 million, with our automotive OE business remaining reasonably stable and predictable throughout the quarter. We benefited from our position on premium vehicle SKUs, which continued to outperform the broader automotive market even in challenging conditions. Importantly, PVG delivered margin improvement in fiscal 2025, demonstrating the benefit of our Phase 1 cost actions flowing through to the segment level. This is the type of execution we expect to see across all segments as our Phase 2 actions take hold. The aluminum supplier disruption at our OEM customers impacted our volumes as expected in Q4, creating some timing challenges for both our OEM partners and our business. We estimate the disruption impacted our Q4 revenue by approximately $8 million as compared to historical norms. However, I want to emphasize that this is a temporary issue that will be resolved. Despite this headwind, the underlying business momentum remains strong as our customers expand the product platforms that we support. Our Power Sports business continues to stabilize and improve. We're seeing encouraging signs from our expansion into the motorized 2-wheel space, where growth from new customers is helping offset sluggishness as well as increased content with some of our leading OEM partners, which provides confidence in our ability to drive long-term growth in this space. This diversification strategy is allowing us to navigate through the varying stages of industry and macro cycles across our end markets. On the product development front, our Live Valve aftermarket launch at SEMA in November was exceptional. Previously, enthusiasts could only access our best technology through new vehicle purchases. Now we're expanding access to our dealer and installer network. This is the most advanced technology available in the off-road aftermarket and early indications suggest strong demand from our enthusiasts. In addition, our product development work with OEMs has landed us new platforms with Ducati in motorcycle, Airstream across several premium RV models as well as early revenue from 2 large well-known EV brands in both autonomous mobility and performance off-road. These programs are designed to deliver early revenue now while full production will provide real growth in '27 and beyond. Turning to AAG. As I mentioned, we are taking portfolio actions across the business, and AAG is an area where these actions will have a particularly visible impact in the near term as we divest our operations that were dilutive to the segment's margin profile. These exits will be immediately accretive to AAG's profitability after close. We will continue to evaluate all businesses within the segment against our go-forward return expectations. With that preface, AAG delivered net sales of $126.2 million, up 12.5% year-over-year and 7.1% sequentially, driven by strong demand across our CWH, Sport Truck and RideTech businesses. Importantly, AAG margins would have been meaningfully stronger when excluding the dilutive operations I just described. As I previously mentioned, additional work in PVD and other areas will enable us to fully capture margins in that business necessary to drive a sustainable margin profile necessary across AAG. On the OE side, the programs we've been cultivating will underpin AAG's long-term profitable growth. The performance truck program we launched in Q3 with a major OE partner has been an immediate success. Our initial units are sold out, and we have a strong backlog building into 2026. We did encounter temporary supply chain complexities associated with this pivot to a more OEM aligned strategy, which has been identified and is getting the attention it needs for improvement. During the quarter, these supply chain issues delayed shipments of approximately 300 units to late Q1 and Q2 of 2026. These aren't just one-off builds. They represent a deepening relationship with OEMs who see us as an innovation partner, not just an upfitter. And in Q1, we secured a second similar program with Ford, which was announced at the NADA show earlier this month and is activated for their dealer relationships across the country. These investments further validate our strategy of creating differentiated high-performance vehicles that command premium pricing and provide more predictable and sustainable revenue and profit streams over time. SSG performed largely as expected in what continues to be a challenging environment across both bike and Marzocchi, with Q4 net sales of $118.2 million, down 5% year-over-year. The bike industry as a whole continues to slowly stabilize amid what remains a complex environment. Tariffs are adding pressure to OEMs and driving inventory levels below historical norms. And we're seeing the rise of disruptive market entrants create new competitive dynamics that have forced some legacy bike brands to reconsider their offerings, consolidate or cease operations. Against this challenging backdrop, our bike business ended fiscal 2025 slightly above 2024 in an industry experiencing turbulence and challenges across many of our OEM customers. We believe our stability is a meaningful proof point for the strength of our brand and our competitive positioning. And consistent with our broader messaging today, we're not chasing revenue. We have the financial strength to lead with our brands and a discipline to protect our margin structure while the industry works through its cycle. Our strategy focuses on 3 critical objectives. First, product expansion to leverage the changing mix toward e-bikes and new categories; second, customer expansion to build long-term growth partnerships with the new companies aggressively redefining the sport; and third, continued cost optimization to maintain best-in-class margins even in a flat revenue environment. Turning to Marzocchi. As expected, Q4 was stronger than Q3. The sequential improvement reflects the shift in our distribution channels toward retail that we discussed last quarter as retailers took inventory of our new products ahead of the holiday shopping period. Nevertheless, this was a departure from the plan we had forecasted at the beginning of the year, and we recognize that profitability remains below historical rates in our recent expectations. This margin compression reflects our long-term strategic growth investments in new categories like softball, in-house engineering capabilities, go-to-market improvements and the impact of tariffs. While we maintain our conviction that Marzocchi is the best business in baseball with the best team in baseball, our strategic review of this business will unlock alternative options for consideration as we drive the focus on our core business mentioned previously. Before I turn the call over to Dennis, I would like to recap 2026. In the near term, we are focusing our efforts on meaningful margin improvement. As part of our Phase 2 optimization efforts, we're evaluating all businesses within our portfolio to ensure they meet our profitability standards and strategic objectives. In summary, we're not counting on market recovery or tariff relief. Given these macro realities of elevated interest rates, soft labor markets and channel partners' tightening inventory levels, we remain focused on what we can control in 2026. And with that, I'll turn the call over to Dennis. Dennis Schemm: Thanks, Mike. I'll begin by discussing our fourth quarter financial results, followed by our balance sheet, cash flow and capital allocation strategy before concluding with a review of our outlook for fiscal 2026. Total consolidated net sales in the fourth quarter of fiscal 2025 were $361.1 million, an increase of 2.3% versus the same quarter last year. Gross margin was 28.3% for the fourth quarter of fiscal 2025 compared to 28.9% in the fourth quarter last year, with the decrease primarily driven by shifts in our product line mix and impact of tariffs. Total operating expense for the quarter included a noncash goodwill impairment charge of $295.2 million related to our share price. Adjusted operating expenses, which excludes the impact of the goodwill impairment charge, restructuring and other discrete expenses as well as the amortization of purchased intangibles were $82.6 million or 22.9% of net sales in the fourth quarter of 2025 compared to $76.4 million or 21.7% in the prior year quarter, with the increase primarily attributed to the reinstatement of incentive compensation payouts for the current year compared to no bonus payouts for the prior year period. The company's tax benefit was $33 million in the fourth quarter of fiscal 2025 compared to a tax benefit of $4.1 million in the same period last year with the difference being driven by the impairment of nondeductible goodwill recognized this year. Adjusted net income normalizing for the goodwill impairment was $8.3 million or $0.20 per diluted share compared to $12.8 million or $0.31 per diluted share in the fourth quarter last year. Adjusted EBITDA in the fourth quarter of fiscal 2025 was $35 million compared to $40.4 million in the prior year period. Adjusted EBITDA margin was 9.7% in the fourth quarter of 2025 versus 11.5% in the prior year period. Moving to the balance sheet and cash flows. We continue to execute on working capital management with improved inventory positions supporting our cash flow generation. We also made progress on balance sheet deleveraging, which remains a key priority, which will also be impacted by our progress with the Phase 2 actions that we laid out today. We paid down $13 million of debt during the fourth quarter for a total reduction of $33 million for the year, bringing fiscal year-end debt to $673.5 million. Looking ahead, the combination of our Phase 2 cost actions, CapEx discipline at approximately 2% of revenues and working capital improvements, they are designed to accelerate free cash flow generation and drive meaningful balance sheet deleveraging in fiscal 2026. Now moving on to our outlook. We are introducing full year 2026 guidance that reflects a decline in our top line expectation, which is largely a combination of the business divestitures, product line rationalization and a slightly down market while driving meaningful margin expansion through a comprehensive set of actions that span every part of our cost structure. There are a number of moving parts, so I want to walk you through how they come together because we think it's important that you appreciate both the building blocks and how they roll up into our outlook. We entered fiscal 2026 with momentum from the achievement of our Phase 1 cost program, which delivered $25 million in realized savings in fiscal 2025. We expect approximately $10 million of those actions to carry over as incremental year-on-year benefit in fiscal 2026 as we annualize a full year of footprint and network consolidation savings. Building on that foundation, the Phase 2 elements Mike introduced related to business line rationalization, supply chain and material productivity and a reduction in operating expenses will target our SG&A structure and the complexion of our business portfolio. These actions are expected to deliver approximately $40 million of incremental savings this year in 2026. In total, Phase 1 plus Phase 2 is expected to generate approximately $50 million in cost reductions this year, supporting the approximate 200 basis points of adjusted EBITDA margin improvement that's implied in our guidance. In the near term, we expect margin pressure to remain visible as we work through our supply chain improvement efforts within the AAG segment. We will also continue to feel the impact from the dilutive Phoenix operations through its divestiture toward the end of the first quarter as well as the ongoing effects of tariffs that won't anniversary until later in the second quarter and represent an approximately $15 million of headwind in the first half of the year. Looking toward the balance of the year, we expect a material improvement in EBITDA margin and dollars. To summarize clearly, we are taking comprehensive actions that will provide measurable benefits in 2026. This translates into a material positive step change of approximately 200 basis points improvement in adjusted EBITDA margin from our 2025 rate of 11.5%. The collective focus around these initiatives is strong. This is something we are driving at every level of the organization from the Board and executive team through every operating segment. And as Mike mentioned, the Board's Transformation Committee will begin its work in the coming months, partnering with external advisers to identify further opportunities. Any additional savings that come from that process will be incremental to the approximately $50 million of incremental cost saves from our Phase 1 and Phase 2 profit optimization efforts. Bringing this all together, for the first quarter of fiscal 2026, we expect net sales in the range of $343 million to $369 million and adjusted EBITDA of $27 million to $34 million. To reiterate my earlier comments, we expect the first quarter to be more challenged due to multiple headwinds that aren't fully offset by last year's Phase 1 carryover benefits, including the full year-on-year tariff impact before we anniversary the Liberation Day implementation and difficult comparisons in SSG Bike given the strength of the first half of 2025. As we move into the second quarter and especially the second half of the year, we expect to improve meaningfully. Tariff comparisons normalize, aluminum supply is expected to be fully normalized and the benefits of our Phase 2 actions should materialize. With that context, we expect full year 2026 net sales in the range of $1.328 billion to $1.416 billion, which at the midpoint represents a year-over-year decline of approximately 6.5% and is largely a combination of the divestitures, product line rationalization and a slightly down market that we mentioned. We are guiding to adjusted EBITDA in the range of $174 million to $203 million, which represents a margin of 13.7% at the midpoint or approximately 200 basis points of improvement relative to full year 2025. Capital expenditures are expected to be approximately 2% of revenues, and our tax rate is expected to be 15% to 18%. That wraps up my commentary. Mike, back to you for closing remarks. Michael Dennison: In closing, I want to leave you with 3 key messages. First, we're not waiting for markets to improve. The actions we are taking now around Phase 2 objectives as well as capital discipline and working capital improvements are within our control, and our team is executing them with precision and urgency. Second, our fiscal 2026 targets are achievable through self-help. Our outlook calls for material margin expansion on flattish organic revenues. That's our commitment. When markets do recover, we'll be positioned to deliver even stronger results. Third, our business is built to deliver long-term growth, and we will ensure that growth comes with the right margin and leverage by taking aggressive action to optimize the system end to end. Our performance-defining products continue to resonate with customers. Our operational foundation is stronger following a significant cycle of investment, and our Board and management team are fully aligned on creating value for our shareholders. I'm confident in our ability to demonstrate progress this year toward our goals. I want to thank our employees for their incredible focus and resilience during this time. The decisions we're making today, while difficult, are necessary to position FOX for sustainable profitable growth. With that, operator, please open the call for questions. Operator: [Operator Instructions] We'll move first to Peter McGoldrick with Stifel. Peter McGoldrick: I appreciate all the detail today. I'd like to dive in on the moving parts on guidance. So I was thinking -- I wanted to ask if -- as we think about the underlying growth profile of your ongoing business, can you talk about the revenue and profitability related to those that are expected to be sold at the end of the quarter and what that means for the organic business? Dennis Schemm: Well, what we've been doing is taking a look at the overall complexion of the business, looking at those businesses that are dilutive to our overall profile that we've been expecting. So at the end of the day, after we take out Geiser, Upfit UTV and Shock Therapy, which should happen later on this quarter, that's going to result in a couple hundred basis points of improvement there. And then we're going to continue just to look at other businesses along the way. Marzocchi has not been included in any of this as well. Michael Dennison: And to be clear, Peter, when we talk about 200 basis points of improvement relative to the Phoenix, Arizona operations, that's for AAG specifically. Dennis Schemm: It's a great point. Peter McGoldrick: Okay. I appreciate that. And then as we think about the size and the shape of the go-forward business, can you talk about how much of your current portfolio is -- makes up the sort of the core synergistic and accretive criteria that you pointed to that would be a part of your core business and not related to any potential divestitures or changes in the portfolio? Dennis Schemm: Yes. I think overall, when I think about core and Mike thinks about core, we're thinking SSG Bike is core to our operations. When you look at AAG, core to those operations there are going to be PVD and then your Sport Truck, RideTech, Custom Wheel House and then on PVG, obviously, that is core to who we are as well. Again, though, we're going to be taking a look at everything as we move forward, making sure that it is lining up with the 3 aspects that Mike talked about during his prepared remarks, and that is alignment with our brands and then it's going to be the synergistic nature of that. We've talked about 1 plus 1 equals 3. That needs to continue as well. And then it's got to have the durability of profit generation over the long haul. Operator: We'll move next to Anna Glaessgen with B. Riley Securities. Anna Glaessgen: I'd like -- I'm curious on the thought process behind divesting the Phoenix business, which is focused mostly on Power Sports. I'm curious the extent to which this is a margin play. I don't know the degree to which that was more dilutive than maybe other businesses within the line, maybe a function of the outlook for Power Sports, at least near to medium term. Just any help there as we contemplate maybe what else could be contemplated within the broader portfolio, as you noted, assessing other noncore assets? Michael Dennison: Yes, Anna, it's a good question. When we think about that business and the lens that Dennis just described, which I talked about in the earlier remarks, we have to use a lens of these are good businesses. However, at their current size and scale, to get them to be at the scale we need them to be, to be a productive and durable value component of our enterprise, there is heavy investment, and there has been heavy investment and heavy working capital utilization to support that growth curve. And as we look at the next several years, while they're great businesses, they are hard to own in our portfolio because of the draw on capital, the draw on SG&A and the dilution in the margin for that time frame. So we actually will continue to partner with these companies in product development and innovation in a lot of ways. This is not about us just exiting them in a way that we will never work with them again. That's not the point. The point is in our current portfolio, they just don't fit and the dilution effect over the next 2 years is significant enough that we need to do something different. So this is a well thought out process that we've started in Q4 and, as we've mentioned, executing in Q1. Anna Glaessgen: And then on the guidance, you referenced 3 separate points that are being contemplated in sales, the business divestment, some product rationalization and then thirdly, a down market. Would it be possible to frame up roughly your expectations across the end markets in 2026? Dennis Schemm: In general here, when we talk about the top line, I mean, essentially, what we're getting at is we are going to scale down the business through thoughtful divestitures and product line rationalization. That will be the bulk of that decrease of about 6.5% at the midpoint. In addition, as we look at SG&A and those expenses, we would be -- we need to consider that if we're going to reduce some of those expenses, they're going to have some impact on the top line. So that's another aspect of it. And then in general, we're just hedging against a macro environment that's a little weaker. And so while we always expect our products to outperform, we're trying to put a hedge on the overall market there as well. And so I'd leave you in summary with its divestitures, product line rationalization result in the bulk of the decrease, then it would be the impact of the cost-outs on the SG&A line that deliver that 6.5% decrease. Operator: We'll move next to Scott Stember with ROTH Capital. Scott Stember: Can you talk about tariffs? What was the net impact to the business? I don't know if you mentioned it or not in '25? And what is baked into guidance at this point, assuming no material changes with all the happenings as of late? Dennis Schemm: Yes. So that's a great question. Thanks for that. And so essentially, what we experienced in 2025 was $50 million of gross tariff impact. We were able to offset $25 million of that through cost-out initiatives, et cetera, with supply chain, passing on cost to suppliers and customers, et cetera. And then going forward into 2026, we're estimating an additional $30 million of gross tariff impact, and we expect to mitigate about 50% of that. So leaving a net tariff impact in the first half of 2026 of $15 million. Michael Dennison: And we have not [indiscernible] or input from the most recent noise you mentioned. We -- I think it's too early to try to input some sort of benefit from those -- from the statements and from the Supreme Court. Scott Stember: Got it. And then last question on the balance sheet and cash flow. What was the net leverage ratio at the end of the quarter -- at the end of the year? And what are you targeting as far as free cash flow and the leverage ratio by the end of '26? Dennis Schemm: Yes. So another great question. Balance sheet is obviously a key priority for us moving into 2026 as it was in 2025 as well. We finished comfortably in Q4. We are at 3.74 versus a covenant ratio of 4.5. So we are well within the range there. And as we move forward, cash flow is really going to be primarily a function of the EBITDA contribution that we'll be driving in 2026, along with extreme focus on working capital reductions as well and a reduction in our CapEx. So those are going to be some of the big drivers as we move forward into 2026. Operator: We'll take our next question from Craig Kennison with Baird. Craig Kennison: A lot of information to process. I wanted to follow up on Scott's question with respect to tariffs. Do you plan to pursue a refund of your tariff payments? Michael Dennison: We will do everything possible to get a refund for sure. Now how that works and how that plays out and when that actually arrives, we are not going to put in the guide because that is a crystal ball we cannot see through. Craig Kennison: And then as we look at the businesses that you plan to divest, the way you're speaking about them suggests you have a buyer in place. Can you confirm that's true? And then how would you plan to use the proceeds from any sale? Michael Dennison: That's true and debt reduction. Dennis Schemm: 100% debt reduction. Michael Dennison: It's pretty simple, pretty straightforward. Operator: And this does conclude the Q&A portion of today's program. I would now like to turn the call back to Mike Dennison for any closing remarks. Michael Dennison: Thanks for your time today, everybody, and we will talk to you soon. Have a good evening. Operator: This does conclude the Fox Factory Holding Corporation's fourth quarter 2025 earnings call. You may now disconnect your line and have a great day.