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Operator: Good day, and welcome to the BioCryst Fourth Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nick Wilder with BioCryst. Please go ahead. Nick Wilder: Good morning, and welcome to BioCryst's Full Year 2025 Corporate Update and Financial Results Conference Call. Participating with me today are President and CEO, Charlie Gayer; Chief Financial Officer, Babar Ghias; and Chief Development Officer, Dr. Bill Sheridan. A press release and slide presentation about today's news are available on our Investor Relations website. Today's call may contain forward-looking statements, including statements regarding future results, unaudited and forward-looking financial information, as well as the company's future performance and/or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results, performance, or achievements to be materially different from any future results or performance expressed or implied in this presentation. For additional information, including a detailed discussion of these risks, please refer to Slide 2 of the presentation. In addition, today's conference call includes non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures against the most directly comparable GAAP financial measure, please refer to the earnings press release available on our Investor Relations website. I'd now like to turn the call over to Charlie. Charles Gayer: Thanks, Nick. This is my first earnings call as CEO of BioCryst, and I'm happy about where the company is today and even more excited about our future. We closed 2025 with strong momentum, delivering full-year ORLADEYO revenue of $601.8 million. That was up 38% for the year and 43% when you exclude our Europe business that we sold in October. We are also starting 2026 on a high note as we expanded our HAE portfolio with our acquisition of Astra Therapeutics last month. As I step into my new role, I want to be clear about BioCryst's strategy. We are and will remain a profitable rare disease company committed to meeting the unmet needs of patients through commercialization, innovation, and excellence that is backed by well-understood biology and disciplined clinical development. Where we will continue to evolve is how focused and explicit we are about capital allocation and accountability. We want to ensure that every dollar we deploy has a clear line of sight to driving long-term value creation. Coming back to our HAE portfolio, we see a tremendous opportunity to build value by meeting the needs of a growing number of HAE patients. We view HAE not as a winner-take-all efficacy race, but as a structurally segmented market, driven by biology, patient preference, and real-world experience. Rather than a market that resets with every new entrant, we see a market that segments based on the needs of individual patients. We now have a portfolio of differentiated products in ORLADEYO capsules for ages 12 and up, ORLADEYO pellets for younger kids, and a late-stage asset in Navenibart. Each of these therapies will allow us to achieve growth and durable revenue within specific segments of the market. ORLADEYO has grown strongly in part because of its differentiation as the oral option. But more importantly, there is a "super responder" population that can get injectable-like attack control. We saw in our pivotal trial that just over 50% of patients starting on ORLADEYO stayed on for 2 years and had a 91% reduction from baseline. In the real world, 60% of patients stay on therapy through 12 months, and nearly 50% of all patients who have tried ORLADEYO in the U.S. over the past 5 years are still on therapy. Most ORLADEYO super responders are unlikely to switch even if another oral option reaches the market because their needs are already met. And now we have a new member of the ORLADEYO family. We are excited to launch ORLADEYO pellets for kids ages 2 to under 12 at the Quad AI conference this weekend. The unmet need is significant because HAE and related attacks are underdiagnosed in younger kids, and prophylaxis usage is only half that of adults. Availability of a safe, effective, and targeted oral prophy has the potential to change how kids with HAE grow up, and ORLADEYO is likely to be the only oral option for several years to come. We think about Navenibart through that same lens of structural differentiation in HAE. Navenibart is not intended to replace ORLADEYO. It is intended to allow BioCryst to address patients' needs across the full spectrum of efficacy, dosing, and convenience preferences in HAE prophylaxis. There are approximately 5,000 U.S. patients who have great attack control by injecting anywhere from twice a week to every 4 weeks. Most of them are reluctant to take a chance on oral because they are well controlled already, and the injections themselves are not a barrier to treatment. Oral is not their need. But our research shows that many are very attracted to the idea of a simple, high-efficacy injectable dosed just 2 or 4 times per year. That is a leap patients dosing an injectable 12, 26, or even over 100 times per year are likely to make because it aligns with what they know and provides something better. Our objective is to keep the HAE prophylaxis treatment decisions within the BioCryst portfolio. That is another way we think about long-term durability, not as defending a single product, but as owning the prophy decision framework in HAE. We will offer three compelling options, all from a team that the HAE community knows and trusts. Before turning to Bill, I want to briefly touch on BCX17725, our early-stage program in Netherton syndrome. This is a classic rare disease story - a devastating genetic condition that is underdiagnosed because there are no good treatment options. We are encouraged by the results in healthy volunteers and the investigator's enthusiasm for this program. We're on a path to generate clinical data in patients by the end of the year, and we'll use that evidence plus feedback from patients and investigators to guide next steps. Looking ahead to 2026 and beyond, we see durable revenue growth anchored by a skilled, motivated and resilient commercialization team, meeting the needs of adults and kids who want oral HAE prophylaxis, a second molecule advancing well in late-stage development that has the potential to lead the injectable prophylaxis segment and additional rare disease optionality in our pipeline, positioning BioCryst for sustained value creation. With that, I'll turn it over to Bill to provide more color on our pipeline. William Sheridan: Thank you, Charlie. I'll cover our HAE programs to start with and then provide a brief update on our Netherton syndrome program. First, the Navenibart pivotal Phase III trial continues to recruit very well with strong enthusiasm for the study from investigators and potential trial patients. We expect to complete enrollment of the required 145 patients around the middle of 2026. The primary efficacy analysis of the alpha-Orbit pivotal trial will be the comparison between each navenibart dosing regimen and placebo with the time-normalized rate of investigator-confirmed HAE attacks through 6 months. The Phase II efficacy and safety profile that we are reporting at Quad AI this weekend from the ALPHA-SOLAR Trial is excellent, with no safety signals in 29 patients through up to 24 months of dosing and a reduction from baseline in mean attack rates of 92% for every 3 months of dosing and 90% for every 6 months of dosing. Overall, the mean attack rate decreased from 2.23 per month at baseline to 0.16 per month during navenibart treatment. For both dose regimens, the median attack rate reduction was 97%. These are outstanding results. These strong results illustrate the durability, consistency, and quality of treatment responses with navenibart and provide high confidence that the pivotal trial will be successful. We expect the pivotal trial results to confirm that navenibart every 3 months or every 6 months will set a new standard in the field and provide a very attractive choice for HAE patients seeking injectable prophylactic therapies. Second, we are thrilled that our application for ORLADEYO oral pellets for children aged 2 to less than 12 was approved by the FDA in December 2025. We're now continuing with marketing authorization applications in other major regions with the goal of transforming treatment choice for patients, parents, and children with HAE around the world. Third, our clinical development program for our KLK5 inhibitor, Fc fusion protein BCX17725, in Netherton syndrome, has now moved into patient-focused research. The healthy volunteer parts 1 and 2 of our Phase I trial with single and multiple ascending doses have been completed. BCX17725 was administered by subcutaneous and intravenous routes in these healthy volunteer cohorts. Our investigational drug was safe and well-tolerated. There were no discontinuations, no dose-related adverse findings, and no safety signals. The top dose administered was 12 milligrams per kilogram every 2 weeks for 3 doses. And as noted in our last call, we were pleased to see evidence of the drug being distributed to the epidermis. Drug exposure was approximately linear in proportion to dose, and the estimated half-life was about 12 to 19 days, supporting continued study of every 2-week administration schedules. Today, I'll provide a refresher on study design and an update on progress in the Netherton syndrome cohorts. The study design is outlined on Slide 18. The patient cohorts in the study are open-label and designed to evaluate potential effects of the drug on clinical signs and symptoms of Netherton syndrome, as well as safety and drug exposure. There are 2 patient cohorts, a short-term administration cohort in Part 3 with 4 weeks of dosing and a longer-term cohort in Part 4 with 12 weeks of dosing. Some sites were activated for Part 3 after short-term nonclinical safety studies were completed, and subsequently, were activated for Part 4, once we had longer-term nonclinical safety studies done. We are prioritizing recruitment into Part 4 as this will give us a longer dosing experience, and we anticipate that no more than 3 patients will be entered into Part 3. Our clinical investigators are excited about the potential for this drug in Netherton syndrome and have identified patients who could be eligible. So, we expect to recruit up to 12 patients in Part 4 and generate results by the end of this year. For efficacy, the primary efficacy endpoint is change from baseline in the Ichtheosis Area and Severity Index, otherwise known as the IASI score, and key secondary endpoints include the Investigator Global Assessment score and the worst itch numerical rating scale score. We will also evaluate quality of life metrics. We intend to select doses and endpoints for a pivotal trial based on what we see in this Phase I trial. I'll now turn the call to Babar for the financial review. Babar Ghias: Thanks, Bill. Last year was a defining year for our company. We delivered strong top-line growth, record profitability, and reinforced our strong balance sheet position. Those results weren't just numbers. They were proof that our strategy is working and our operating model is built for scale. Before I turn to financials, I want to highlight that we are providing more clarity in our financials to enable a better understanding of the strength of our core business. Please refer to today's press release for our GAAP financial metrics. In my remarks, I will be referring to non-GAAP figures, which are adjusted for the sale of the European ORLADEYO business, stock-based comp, workforce reduction costs, and transaction-related costs. We believe that non-GAAP figures provide a clearer view of the business on a forward-looking basis. Our non-GAAP 2025 total revenue increased 45% year-on-year. Since other revenues include contributions from Rapivab, which is non-core to our business, I would draw your attention to the non-GAAP ORLADEYO revenues, which increased by approximately $169 million or 43% year-on-year. This was a result of phenomenal day-to-day execution by our commercial team over the course of 2025. By leveraging our superior real-world evidence generation capabilities, we successfully drove higher patient volume and made significant progress on paid shipments. We have already started to see the impact of the European divestiture on our operating performance in Q4. Our non-GAAP operating profit jumped to $214 million, an increase of 198% year-on-year, the highest ever in BioCryst's history. R&D costs came down slightly in 2025 as we progress key programs while winding down some others and realigning the team structure. We anticipate that 2026 R&D costs will increase over 2025 as we complete the ongoing Phase III trial and BLA-enabling CMC activities for Novenibart. These activities, once complete, will naturally bring down development costs beyond 2026. We will remain razor-focused on maintaining R&D spending discipline and allocating capital to high ROI opportunities. In the same spirit, we will quickly terminate programs that do not have a compelling path forward. Our sales and marketing expenses for the year were $144 million on a non-GAAP basis, which were primarily up due to some reallocation methodology, prelaunch costs for pediatrics, and higher specialty distribution fees and incentive comps naturally owing to the strong top-line growth. More importantly, as you can calculate, for every dollar invested in our sales and marketing engine, we generated an approximately 4x return on ORLADEYO net sales. While we do anticipate some small incremental annual expense tied to top-line growth, the ROI on ORLADEYO will continue to expand as we drive the business toward its blockbuster potential. Looking further ahead to potential approval of Navenibart, the sales and marketing expense supporting our HAE franchise as a whole will be very stable, predictable, and carry an even greater ROI upside. We have built one of the best rare disease commercial organizations in the industry, a highly scalable infrastructure that will enable us to deliver multiple successful launches in the years to come in HAE and beyond, whether it's another candidate from our pipeline or something that we acquire in-license. Driven by our strong operational results, we finished the year with a formidable liquidity position of $337.5 million in cash and investments on hand. Concurrent with the closing of the Astria acquisition, we entered into a highly attractive $400 million financing facility with Blackstone Life Sciences, a financial partner that is aligned with our vision of growth. With the sustained momentum, coupled with the added benefit that now, for the next 2 years, we will be able to utilize our prior period tax NOLs, we will be in a very strong cash flow-generating position. This will afford us optionality to evaluate a wide array of capital allocation strategies that reinforce durable value creation, be it M&A, debt paydown, or buybacks. Moving on to guidance. We are maintaining expectations for full year 2026 ORLADEYO revenues to be between $625 million and $645 million, which at the midpoint represents approximately 13% growth over 2025 revenues adjusted for Europe. We expect full-year 2026 non-GAAP OpEx to be between $450 million and $470 million, which now includes expenses on Astria as previously guided. As Charlie emphasized, we remain very confident that ORLADEYO is on a solid footing to achieve blockbuster potential. We continue to see patient growth driven by the trends that we explained earlier, coupled with the recent pediatric approval, which will be an important component of the growth. After turning over this profitability card in 2025, we are very committed to staying profitable and continuing to drive cash flow generation going forward. To summarize, as we reflect on 2025, it is clear that the strength we delivered this past year is more than a financial milestone. It's a springboard for what comes next. We are entering 2026 with momentum, a sharpened competitive edge, and a discipline that ensures every investment we make is working towards value creation. Our goal is to keep advancing our pipeline through both organic innovation and selective, disciplined BD that can expand our capabilities and accelerate our impact in the rare disease space. We are very excited to keep building the next growth phase of BioCryst, a company that not only performs quarter-to-quarter, but compounds value over the long term as we execute on that vision. Operator, we are now ready for your questions. Operator: [Operator Instructions] Our first question comes from Laura Chico with Wedbush Securities. Laura Chico: I guess I wanted to start off on Navenibart. Could you talk a little bit more about the timing for the regulatory submission by year-end '27? Does that assume Phase III data still arriving by early '27? And I guess I just wanted to understand the steps that have to occur between top-line data and submission. And then, related to that, you mentioned the Quad AI late breaker. How should we think about this, I guess, in relation to ALPHA-STAR? It seems quite consistent in terms of the attack rate reductions. I'm wondering if there's incremental learning here, around maybe an attack-free period. Charles Gayer: Thanks, Laura. Yes, we're clearly super excited about Navenibart. And yes, everything is on track for filing, such that we would be on track for filing by the end of next year. And so on track for approval by late 2028. Bill, do you want to answer the question just about the regulatory process? William Sheridan: Sure. Like for other prophylactic therapies in HAE, 12 months is a chronic condition. You need 12 months of safety that will be delivered in mid-'27. And that's really what's driving the timing of the BLA submission. And what was the final question? Charles Gayer: And then the final question, just the data, yes, we're really excited about the data, the 92% reduction mean reduction for the 3-month dose, the 90% for the 6-month dose, just shows incredible consistency. I think what's also really important is the mean attack rate of 0.16 across the population from their baseline. That's fewer than two attacks per year for patients plus the severity of the attacks went down as well. So, for most of the year, patients are functionally attack-free, and that's what patients are looking for. Operator: Our next question comes from Brian Abrahams with RBC Capital Markets. Brian Abrahams: Congrats on the continued strong progress. You talked a little bit about the ORLADEYO super responders staying on with good persistence for long periods of time. I guess, do you have any sense of how to predict who would be a super responder? And then just maybe along those lines, I'm curious how you envision positioning Navenibart in that context in terms of whether you push patients to switch to ORLADEYO? And then if they don't respond, Navenibart could be an option for them? Or would you be primarily positioning Navenibart for those 5,000 patients doing well on injectables who could use something that's less frequently dosed? Then, just maybe remind us of some of the aspects of the profile for Navenibart in terms of the number of injections, anti-drug antibodies, refrigeration requirements, just anything else that needs to be done with regards to formulation ahead of commercialization. Charles Gayer: Great. Thanks, Brian. I'll start, and then I'll have Bill answer some of those questions as well. As far as the predictability of the super responders in ORLADEYO, there really is no way to predict other than for patients to try. So, first of all, patients have to want to be on an oral, and we know that the majority of patients actually would prefer an oral. But as we've looked at all of our clinical data, all the different factors, age, sex, prior prophy history, weight, everything else, there is nothing that can predict who is going to respond. As we know, HAE attacks are often driven by stress and other life factors. And so, I think our strategy is to try to get patients who are interested in oral to try. Most of them do great. We want them to do a 3- to 6-month trial to really figure out if it's the right drug for them. And as we see, by a year, about 60% of them realize that it is the right drug for them. As far as the Navenibart positioning versus ORLADEYO, we see the primary opportunity for Navenibart to be those 5,000 patients on injectables. Like I said in my remarks, those patients are on injectables because they're doing well, but some of them are injecting 100-plus times a year. And so, to be able to do just 2 to 4 injections, we think, is going to be really compelling, and that's what we see in our patient research. So ORLADEYO then is going to be for patients who want to start prophy on oral, it's going to be the known, the trusted option with many years of data and experience. So ORLADEYO is for anyone who wants oral. Navenibart is for people who want an even better injectable positioning. And then for those patients who try ORLADEYO and it's not the drug for them, that also is an opportunity for Navenibart, all within the same BioCryst portfolio. For Navenibart, the number of injections is really going to be very simple. So, it's going to be launched with an auto-injector and the 3-month dose after a 600-milligram loading dose, which will be 2 injections, 2 milliliter injections. The 3-month dose is then 1 injection. The 6-month dose is 2 injections. So very simple. And then, Bill, there was also a question just around ADAs and other things. William Sheridan: Yes. Before I get into that, with regard to predictability, I'll just reinforce what Charlie said. You have to try ORLADEYO to find out whether you're going to be a super responder. And so, it benefits people in every category with HAE. So, in addition to age, sex, race, weight, prophy exposure, you can also add to that whether you have a high attack rate or a low attack rate, whether it's less or more predictable, whether you have type 1 or type 2 HAE or C1 inhibitor normal HAE, all of those categories benefit. And we've shown that very definitively from both our clinical trials and our real-world evidence studies. So, you also asked about the maturity of the formulation development program for Navenibart. It's all done. It's very mature. CMC is in a great spot. Brian Abrahams: And then just a question about ADA? William Sheridan: With regard to ADA, there's no evidence of ADA impacting efficacy in the Phase II experience. And of course, with every biologic, it's part of the development program that you develop assays and look for ADAs; you always find them. What matters is whether people continue to benefit from the drug. And so far, that is exactly the case. There's no evidence of ADA impacting either safety or efficacy. Charles Gayer: And just to remind folks, the data being presented this weekend, these are patients on Navenibart who out to as far as 24 months with a mean of about 12 months. William Sheridan: So, one last thing about the injections, they don't hurt. Operator: The next question comes from Steve Seedhouse with Cantor Fitzgerald. Unknown Analyst: This is Timurvaniov on for Steve. For Neethererton, we just wanted to clarify, are you guys going to be releasing Part 3 and 4 data at the same time? And then also, could you talk about disease severity, the variability at baseline? Do you anticipate how difficult it would be to enroll more uniform patients? And then what background treatments are allowed, and how patients proceed based on their disease phenotype? Charles Gayer: Okay. I'll start with just the Part 3 and 4, and then Bill can talk about the disease severity and the patient types. Our plan is to release all the data together. We're only going to have maybe 2 or 3 patients in Part 3. And as Bill said, we're now prepared across our sites to go into Part 4, and that 3-month dosing is what we think is really going to be meaningful. So we don't plan to do one patient at a time. We want to release a complete data set. And then Bill, just talk about the patients. William Sheridan: With regard to the spectrum of severity, there is one for sure, in Netherton syndrome. What we're finding from our research on the prevalence of disease, for example, is that, as Charlie said, it's underdiagnosed, and that's mostly because there are no approved treatments, but also because of the differences in severity from one patient to the next. The patients we've met with this illness have obvious, really obvious disease, and they have adapted coping strategies. And that their lives have been dramatically impacted. That part of it, I'm not worried about in terms of recruiting subjects. So the investigators that we have that are lining up their subjects are more worried about getting spots for their subjects in the trial rather than not having enough patients to put in the trial. With regard to the eligibility, yes, we need to have evidence of illness so that we can identify whether there's a benefit from the drug. So we're doing that. We're selecting patients who have an obvious illness. And I think it will be fine. I'm not worried about that. Operator: The next question comes from Maury Raycroft with Jeffries. Unknown Analyst: This is Amy on for Maury. Congratulations on the quarter. Just a follow-up on a previous question. Can you provide more specifics on how you would provide updates and disclosure around the Navenibart program? And can you talk about your strategy to potentially get the FDA to accelerate the timelines? Charles Gayer: Sure. So for Navenibart, as Bill mentioned, the enrollment is going well. And so we would probably update once we have the pivotal study fully enrolled. And then, sorry, what was the second part? William Sheridan: The second part is about doing our best to pull that forward as this program matures; that's obviously something we'll be focused on. So, for example, elements of the BLA that we can start writing, we'll start to write. We won't have a crystal clear understanding of the timing of the BLA until two things happen. And one is the last patient's first visit, so that we can predict when the last visit is for 12 months later, obviously. The next step is getting clarity with the division at a pre-BLA meeting on the total content of the BLA. And obviously, that comes later. So I think we'll be able to provide more clarity in due course. Operator: The next question comes from Jon Wolleben with Citizens. Unknown Analyst: This is Catherine on for Jon. I just have a quick question about whether you guys are seeing any impact from the recent new entrants, including the oral acute therapies, and whether any patients are switching to ORLADEYO? Are you seeing differences in the reasons for patients switching? I know there's not really been much of an impact on revenues, but if you expect any impact or if you're starting to see it at all? Any color on that? Charles Gayer: Sure, Catherine. As we've said, particularly a lot last year leading up to new entrants coming in, we did not expect there to be an impact on ORLADEYO from new prophy entrants because there's a real difference between patients who want oral prophy and then patients who are more comfortable with injectables. So we expected the injectables to be competing more with existing injectables, and that's what we're seeing. So it's not changing ORLADEYO prescribing patterns or patient patterns in general. As far as oral on-demand, oral acute therapy, that's something we're certainly not seeing affect ORLADEYO negatively in any way. We think over time, there is a potential for a tailwind of just patients who want to be in an all oral combination, so one pill once a day to prevent attacks and then for the occasional breakthrough attacks, treat with another oral, that's a great opportunity for many patients. But it's too early to say whether that tailwind is going to occur. Operator: The next question comes from Serge Belanger with Needham & Company. John Todaro: This is John on for Serge today. First, just on ORLADEYO. You guys took a 9% price increase in January. Beyond that, curious which levers you'll be looking at most closely in '26, whether it be maintaining trends of new patient adds or making slight improvements on paid prescription rates, either in Medicare or commercial channels. And then on the pellet formulation for pediatrics, curious how we should think about the pacing of patient identification and conversion throughout '26. And does your current guidance assume any material contribution from this segment this year? Charles Gayer: Great. Thanks, John. Yes, we did take up a 9% price increase in early January, which is higher than we've done in the past. We'll net about half of that, so about 4.5%. So that is something more because ORLADEYO was a lot lower priced than most of the other products in the market. And so this was just a little bit of a catch-up, but not something that we need that kind of pricing going forward to get to our long-term peak of $1 billion. For this year, the KPI that is most important to us is net patient growth. And as we've said, and it's in our slides today, what we need is 150 patients net patient growth average per year for this year and 3 more years to hit $1 billion in 2029. So we are very much within sight of getting to that $1 billion. And so that's the #1 thing. Of course, we're always working to improve the paid rate incrementally. We made a big jump in the last year. And now it's just about making incremental improvements, and we're using our real-world evidence. So, for example, in patients with normal C1 inhibitor, we're starting to see more plans adopt favorable coverage policies for this based on the real-world evidence that we're providing. So that's a constant process. Then, for the pellets, one of the things I mentioned in my remarks is that HAE is underdiagnosed in kids. We found about 500 patients in claims data for kids under age 12. But statistically, based on the epidemiology, there should be 1,200. And one of the reasons is parents are sometimes reluctant to get their kids tested because they're frankly hoping their kids don't have HAE. But the availability of an oral therapy, we think, and we've seen this in the early days of the HAE market, having a therapy encourages diagnosis. So there's a market growth opportunity. And then kids are only treated with prophy at about a 40% rate, which is half that of adults. And so there's a potential to up to double the number of kids diagnosed and up to double the treatment rate. And we think that an oral prophy is the thing to do. Then, as far as guidance, yes, the peads launch is in our guidance for this year, but it's a really small part. We are very bullish long-term on what this indication is going to mean for kids and for revenue. But what we don't know is how quickly that transformation is going to happen. And so we've been conservative in our thinking for this year. And then we'll see how it goes. But if it goes faster than we expect, it could be a tailwind. Operator: [Operator Instructions] Our next question comes from Stacy Ku with TD Cowen. Vishwesh Shah: This is Vish on for Stacy. Congratulations on a great year, and I really appreciate your comments on the competitive dynamics. We have a couple. So first, for ORLADEYO, expectations for Q1. Can you give us an idea of how the reauthorization process is progressing this year? We know you made some improvements in the process last year, which resulted in faster-than-expected reauthorizations. So just walk us through what you're seeing and what we, and investors, should expect for Q1? Then, second and final for us, given the EU business sale, are you willing to split your 2026 guidance for U.S. and ex-U.S. contributions? How should we be thinking about that? Charles Gayer: Great. Thanks, Vish. I'll take the first question and pass it over to Babar for the second question. Every Q1 is the big reauthorization season. It's a ton of work. Our team prepares for it. They're right in the midst of that process, and our team has gotten really good at it. What you should expect for Q1, because this year, we don't have any huge tailwind like we did last year with the Medicare patients and the IRA, making it more affordable for patients. The Medicare patients are in great shape. So we won't have that tailwind. So this year, you should expect revenue probably to be slightly down versus Q4 as we go through the reaff. We have to give away more free product. We have to pay a higher percentage of co-pays for the commercial patients. And so that drops revenue even as our patient base continues to grow. So down a bit in Q1 and then it pops up again in Q2. And Babar, do you want to just talk about the U.S. versus global? Babar Ghias: With respect to your question on the costs and contributions from Europe, if you look at our press release in the financial tables, we actually attempted to break out all that European business. I think, as we have previously stated, that European business, while growing, was also loss-making. So you can actually see that our base business margins were incredibly strong compared to the U.S. The U.S. business margins are incredibly strong compared to Europe. So when you look at that profitability metric that I quoted, the $214 million, that strips out all of Europe. And from the exhibits, you can glean that the base business costs are $380 million for the U.S. in 2025. To give you a perspective on what it looks like in 2026, and this goes back to the same cost discipline, we shut off Europe, but we added a very, very highly derisked late-stage program in Navenibart. So our total costs are in the $450 million to $470 million range, of which the base business is actually not growing by much. The cost additions are primarily coming from adding Astria. So that's the discipline that I talked about that we will continue to make sure that our base business costs remain low, and we continue to drive growth. I hope that answers your question. Vishwesh Shah: Yes. My question was relating to the 2026 guidance, the $625 million to $645 million that we're expecting for this year. How should we think about the U.S. and ex-U.S. split there? Babar Ghias: Yes. So a majority of that is going to be from the U.S. We have retained some markets. And as you can see, after Europe, the split is now it's a little bit over 90%. So, while we're not breaking out, the majority of that is coming from the U.S. business. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Charlie Dyer for any closing remarks. Charles Gayer: Thanks very much. 2026, as we've been describing, is a really big year for BioCryst. We've got continued ORLADEYO patient growth. We're super excited about the launch of ORLADEYO for kids. A lot of important clinical trial execution for Novenibart and 17725 is going well. And I'd really like to thank all the hard-working owners at BioCryst for what they did to make 2025 a great year and what they're doing this year to deliver another year of great results. So thanks, everyone. Have a great day. 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 Q4 2025 Universal Health Services Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Darren Lehrich, Vice President of Investor Relations. Please go ahead. Darren Lehrich: Good morning, and welcome to Universal Health Services Fourth Quarter 2025 Earnings Conference Call. I'm Darren Lehrich, Vice President of Investor Relations. With me this morning are our President and CEO, Marc Miller; and our Chief Financial Officer, Steve Filton. Marc and Steve will provide some prepared remarks, and then we'll open it up to Q&A. During today's conference call, we will be using words such as believes, expects, anticipates, estimates and similar words that represent forecasts, projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, we recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31, 2025. In addition, we may reference during today's call measures such as EBITDA, adjusted EBITDA, adjusted EBITDA net of NCI and adjusted net income attributable to UHS, which are non-GAAP financial measures. Information and reconciliations of these non-GAAP financial measures to net income attributable to UHS can be found in today's press release. With that, let me now turn it over to Marc Miller for some introductory remarks. Marc Miller: Thank you, Darren. Good morning, everybody, joining our call. Thank you for your interest in UHS. We closed out 2025 with strong results. Revenue growth for the fourth quarter was 9%. Adjusted EBITDA net of NCI increased 10% and adjusted EPS increased 20% as compared to the fourth quarter of 2024. For the full year 2025, revenue growth was 10%, adjusted EBITDA net of NCI increased 15% and adjusted EPS increased 31%. Our fourth quarter and full year performance were highlighted, in particular, by continued strong expense management in acute care, sequential volume improvements in behavioral health, solid pricing across both segments and significant share repurchase activity. Looking back on 2025, I am very proud of the progress we've made across the organization in several critical areas. We strengthened our growth agenda with the addition of new inpatient capacity while also intensifying our focus in the outpatient arena through the addition of new service locations across both segments. We demonstrated financial discipline by managing expenses well in the face of a dynamic operating environment. And we accelerated the pace of technology adoption to improve clinical outcomes and drive greater operating efficiency. Speaking first to our growth agenda. Over the past 2 years, we've opened 2 new acute care hospitals and laid the groundwork for significant new acute care capacity to come online during 2026 with 3 inpatient expansions totaling 178 licensed beds in Florida, California and Nevada and a state-of-the-art 156-bed de novo hospital in Palm Beach Gardens, Florida that will open in the second quarter. In our Behavioral segment, we've taken a disciplined approach to new bed capacity during 2025 as we devoted more resources to accelerate our outpatient behavioral strategy. For 2026, we have 2 behavioral de novo projects totaling 264 beds, including a joint venture project with the Jefferson Health System in Pennsylvania. On the outpatient side, we operate 119 outpatient behavioral locations, including 10 new freestanding centers opened under our 1,000 branches Wellness brand during 2025. We are on track to open at least 10 more branches locations during 2026 and our team continues to pursue opportunities to accelerate our outpatient behavioral growth rate and diversify our segment, payer mix and service offerings to sustain our leadership position as a provider of choice. In terms of expense management, our acute care margins improved in 2025 due to reduced contract labor costs and strong supply chain management performance. Labor productivity also improved through a 2% reduction in same-facility acute care length of stay, and this remains an area of opportunity for us in 2026. In our Behavioral segment, margins were stable in 2025 as compared to 2024, even as we made investments in staffing capacity to relieve some of our labor constraints that have held back our volume growth in certain markets. These investments position us more strongly for volume improvements during 2026. Finally, from a technology perspective, we've deployed AI and advanced technologies in two primary domains within our business, in our operations to impact quality and patient experience and in our administrative operations to increase efficiency. We have a strong team in place with demonstrated success in evaluating and deploying technology at scale across both acute care and behavioral health divisions. On the operational side, we fully rolled out Agentic AI to improve post-discharge care and reduce readmissions. In 2026, we are focused on rolling out new patient safety technologies in behavioral health. And in acute care, we are deploying AI across several departments and functions [Technical Difficulty] and outcomes. On the administrative side, we enhanced our acute care revenue cycle operations by deploying AI-based solutions to improve documentation and streamline our claims appeals process. Over the next several quarters, we will be rolling out process improvements and new technologies in our behavioral health revenue cycle operations. In behavioral health, we are also leveraging AI features in an existing digital tool to streamline the referral and intake process to improve response times to new referrals and improve volumes. In closing, we are optimistic about the future because we continue to invest in our people, our facilities and in technology that will improve quality, patient experience and operating efficiency. With that, I'll now turn the call over to Steve Filton for more details on the quarter and our financial outlook for 2026. Steve Filton: Thanks, Marc. I will highlight a few financial and operational trends and outline our 2026 financial guidance before opening the call up to questions. The company reported net income attributable to UHS per diluted share of $7.06 for the fourth quarter of 2025. After adjusting for the impact of the items reflected on the supplemental schedule, as included with the press release, our adjusted net income attributable to UHS per diluted share was $5.88 for the quarter ended December 31, 2025. During the fourth quarter of 2025, on a same-facility basis, adjusted admissions at our acute care hospitals were flat as compared to the fourth quarter of the prior year. Acute care volumes were impacted in part by softness in the Las Vegas market due to factors that we consider somewhat transitory in nature, including lower respiratory case levels on a year-over-year basis. Excluding the Las Vegas market, our facility acute care volumes would have increased by 1% during the fourth quarter. Same-facility net revenues in our Acute Care Hospital segment increased by 6.9% during the fourth quarter of 2025 on a reported basis as compared to last year's fourth quarter and increased 5.2% after excluding the impact of our insurance subsidiary. Acute care same-facility revenue per adjusted admission increased by 5.4% during the fourth quarter of 2025. Operating expenses continue to be well managed across labor, supplies and other expense categories. Excluding the impact of our insurance subsidiary, same-facility acute care salaries, wages and benefits increased 4.4% and supply expense increased 1.8% over last year's fourth quarter. Same facility contract labor was 2.4% of Acute Care segment revenue or 20 basis points lower year-over-year. For the fourth quarter of 2025, our solid acute care performance resulted in 10.4% growth in Same Facility segment EBITDA and a 50 basis point improvement in Same Facility segment EBITDA margin to 14.8%. For the full year, Same Facility segment EBITDA margin improved 150 basis points to 15.8%. Turning to our Behavioral Health segment results. During the fourth quarter of 2025, same-facility net revenues increased 7.2%, supported by a 5.6% increase in same-facility revenue per adjusted patient day and a 1.5% increase in same-facility adjusted patient days as compared to the fourth quarter of 2024. Expenses in our Behavioral Health segment increased at a slightly higher pace than revenue due to growth in headcount in certain markets where volumes have been impacted by staffing constraints. For the fourth quarter of 2025, Behavioral segment headcount growth was 3.1%. Total same-facility labor expense growth, including the increase in headcount, was 7.3% per adjusted day in the U.S. Overall, we believe expenses were well managed during 2025, leading to total Behavioral Health segment EBITDA growth of 6.9% in the fourth quarter and 7.8% for the full year 2025. Cash generated from operating activities was $1.9 billion for the 12 months ended December 31, 2025, as compared to $2.1 billion during 2024. Cash flows during 2025 were impacted by $50 million related to an increase in receivables at our two most recent de novo hospitals and $145 million related to the timing of payments for certain Medicaid supplemental programs. During 2025, we spent $1 billion on capital expenditures, approximately 35% of which related to the de novo hospital in Florida and major expansions in Florida and California. During 2025, we also acquired 4.65 million of our shares at a total cost of $899 million, including 1.46 million shares purchased during the fourth quarter of 2025. At December 31, 2025, we had $1.425 billion of repurchase authorization available pursuant to our stock buyback program and we had approximately $900 million in aggregate available borrowing capacity pursuant to our $1.3 billion revolving credit facility. Turning to our outlook for 2026. We expect revenue to range between $18.4 billion and $18.8 billion, representing growth of 6% to 8%. We expect adjusted EBITDA net of NCI to range between $2.64 billion and $2.79 billion, representing growth of 2% to 8%. We expect adjusted net income attributable to UHS per diluted share to range between $22.64 and $24.52, representing growth of 4% to 13%. Our guidance assumes same-facility volume growth to be in a range of 2% to 3% for both segments for the full year 2026, although it's likely we'll be below this range during the first quarter due primarily to the winter storms, which we are currently assessing in our Behavioral Health segment and the Washington, D.C. operations of our Acute Care segment. We expect capital expenditures in 2026 to range between $950 million and $1.1 billion, reflecting the culmination of spending for several large inpatient projects that will come online during the first half of 2026. Our guidance includes several assumptions unique to the 2026 operating environment as follows: we assume an adverse pretax earnings impact of approximately $75 million related to reductions in the health insurance exchanges. We assume that exchange volumes will decline by 25% to 30% and approximately 10% to 20% of this volume will shift to other forms of coverage with the vast majority shifting to self-pay or uninsured. The exchange headwind is concentrated in our Acute Care segment based on historical utilization patterns. For the full year 2025, exchanges represented approximately 6% of Acute Care segment adjusted admissions and slightly less than 5% of the segment's revenue. We expect a negative pretax earnings impact of approximately $35 million in our Behavioral segment associated with the recently enacted California inpatient psychiatric hospital staffing regulations that will go into effect on June 1, 2026. The regulation is expected to increase labor costs due to the need to adjust the mix of licensed nursing staff at our facility. Our 2026 estimate includes a higher burden of recruiting and training costs and some short-term census disruption as our California operations ramp up to comply with the regulations. Beyond 2026, the ongoing costs are expected to be approximately $30 million after considering a full year of higher labor costs. Our 2026 outlook assumes a total net benefit from Medicaid supplemental payments of $1.36 billion and includes a new Nevada supplemental program that was approved this month, but does not include any other new programs pending approval. As compared to 2025, we expect the net benefit from Medicaid supplemental payments to increase by approximately $23 million. Our 2026 outlook assumes approximately $50 million of favorability related to improvements at Cedar Hill. We assume that incremental improvements we expect to make at Cedar Hill beyond the breakeven level will be offset by start-up costs associated with our de novo hospital in Palm Beach Gardens. Finally, we expect a favorable pretax earnings impact of approximately $50 million comprised of 3 smaller and discrete items, including a onetime legal settlement recognized in 2025 that we do not expect to reoccur, operational improvements in our Nevada health plan with revenue growth at similar levels as in 2025 and modest contributions from Behavioral segment M&A completed in 2025, primarily in the U.K. In conclusion, we're pleased to share our positive growth outlook for 2026, which assumes core growth from our consolidated operations of approximately 5%, underpinned by the strength of our markets, continued expense management and ongoing efficiency opportunities. Operator, that concludes our prepared remarks, and we're pleased to answer questions at this time. Operator: [Operator Instructions] The first question for today will be coming from the line of A.J. Rice of UBS. Albert Rice: Yes. Two things. First of all, just to drill down a little bit more on the guidance for '26. I know you mentioned 2% to 3% volume growth across both the segments. Give us any flavor on what's embedded in pricing? Is it more of the same what you saw this year across the 2 segments? Are you assuming any change in managed care rates or whatever? Steve Filton: Sure. So A.J., I mean, I think on the acute side, our guidance implies a 3% to 4% pricing increase. That's in line. If you look at sort of the 10-year average of pricing increase in Acute Care, I think it's averaged right around 4%. And I think that continues to be -- or that pricing is supported by a steady increase in acuity over that period that we expect will continue. On the Behavioral side, we're expecting pricing in the sort of 2% to 3% range. And we acknowledge that, somewhat lower than we've been running for the last several years. As you know, we've been expecting that price -- really strong pricing over the last several years to begin to moderate at some point as these increased contract prices have begun to anniversary, et cetera. And I think we're starting to see that evidence. So slightly lower pricing expected in behavioral compared to the last several years, but I think also, again, in line with historical rates. Albert Rice: Okay. And I appreciate all the comments that Marc offered on the AI applications, and it does seem like hospitals and health systems are AI-rich environment for opportunities. The question I get asked is not an easy one, but how do you think about how that translates into operating performance in terms of financial impact of those applications? And over what time frame might we start to see that have an impact on revenues or margins, those type of things that you're calling out? Steve Filton: Yes. So I think as Marc described in his comments, A.J., we have focused and I certainly believe we, like most are in the early innings of this AI game. I think our initial efforts have really focused on administrative sort of efforts like within our revenue cycle management. I think Marc alluded to claims appeals and coding. And we've used that, I think, to great effectiveness. I think really, what we're doing and otherwise, I think you also referred to post-discharge activity. So historically, a nurse would make a post-discharge follow-up phone call with a patient to ensure they're being compliant with their medications and their diet and follow-up appointment or physicians. And now we're using an AI agent to make those calls in many cases. And so in both cases, I think we're driving efficiencies. It allows us to reduce headcount. It improves the outcomes as measured by revenue cycle metrics or reduction in readmissions, which I think Marc alluded to. So again, I think it's impossible to precisely quantify -- even precisely quantify what we've been able to achieve, but certainly precisely difficult to precisely quantify what the opportunities may be, but we think they're significant. Operator: And our next question coming from the line of Ann Hynes of Mizuho Securities. Ann Hynes: Within your Acute Care volumes of 2% to 3%, can you let us know what you're assuming surgical volume versus medical volume? And then with the Nevada market, how does that market do in 2025? And how do you expect it to grow in 2026? Steve Filton: Yes. And so I think surgical volume in 2025 lagged our overall by a slight amount. It was positive. Our surgical volume growth in Q4 was positive over last year's fourth quarter. So we're encouraged by that. I think that our expectations for next year are somewhat similar that surgical volumes probably don't grow quite as fast as our overall volumes, but I think sync up pretty closely. As far as Nevada goes, I think Nevada in 2025 has grown in line with the rest of the acute division. I think historically, that market has tended to grow faster. It was a little bit challenged in 2025. There's been much reporting of tourist volumes and tourist activity in Las Vegas being down in 2025. And that's impacted us, I think, to a small degree. We don't get a lot of patient activity directly from the tourist population, but obviously, it has a cascading effect. We're encouraged by the fact, however, that employment trends have remained quite stable in Las Vegas. And that historically has been the leading indicator of sort of how we're going to do and how the economy is going to do there. And so -- and the casino or gaming industry reports, I think, pretty bullish prospects for their 2026 convention and conference bookings. So we're assuming that the Vegas market experiences a bit of an uptick in 2026. Operator: And our next question is coming from the line of Justin Lake of Wolfe Research. Unknown Analyst: This is Anna on for Justin. Can you share what you're seeing on exchange volumes so far given there are a significant number of members that haven't paid their premiums yet? And I know that in Feb and March, the plans don't have to pay the provider on members that don't pay premiums. Are you able to see this information from plans? And what's your level of visibility on the potential bad debt here? Steve Filton: Yes, Anna. So as I said in our prepared remarks, we're assuming a 25% to 30% decline in exchange volumes. That's largely based on CBO and other sort of public projections. We've seen -- we've already seen a decline in exchange volumes in the first couple of months of the year. I don't think quite to that extent. But I think as your question alludes to, we believe that some of the early reporting on how much exchange volume has been lost is understated because the insurance companies won't report exchange volumes down until people start to miss premiums, et cetera. So yes, I mean, that's a challenge for us because we are in the position sometimes of verifying a patient's insurance with the payer and the payer verifying their insurance. And then when we bill the payer, the payer comes back to us and says the premiums haven't been paid and they don't pay -- they won't reimburse the charges at that point. That has always been a risk for us. Obviously, it will be an increased risk in this period where there's a dramatic decline in exchange volumes. But we believe that we've accounted for that in our assumptions. But I think one of the things we -- all of us, meaning all the hospital companies have made estimates about what's going to happen with the exchanges, et cetera. But the truth is we're going to need a few more months to really see how this sorts out what the real loss in volume is, how many of these people who lose their exchange coverage can get other coverage, et cetera. So we've made our best estimates. We feel comfortable with the estimates we've made. But I think we're all going to become -- be able to be more precise over the next few months as we get more and more accurate data. Operator: And the next question will be coming from the line of Andrew Mok of Barclays. Andrew Mok: Steve, you mentioned a $35 million headwind from the new California behavioral staffing requirement for 2026, but also noted a $30 million annual ongoing impact. Can you give us a bit more detail on the nature of the headwind and help us understand why the headwind from the midyear implementation wouldn't annualize into a larger run rate headwind? Steve Filton: Sure. So Andrew, the task before us is that the new California staffing requirements don't necessarily require us to increase our headcount overall. I think actually, we have in excess of the headcount that they're requiring. But it is a different mix of staff and is more heavily skewed to licensed professionals, particularly RNs. So we're going to have to change our staffing models in a number of our facilities. We will hire more RNs. We think that there is some sort of upfront investment in doing that, potentially start-up costs, increased recruiting costs, et cetera. There might be, I think, as I indicated in my prepared remarks, in the first couple of months, we may not have all the slots filled, and therefore, we're anticipating potential short-term volume disruption. But once we are fully staffed, which we think we will be at some point in 2026, then I think the ongoing costs are reduced, and we won't have those start-up and sort of, I'll call, investment and infrastructure investment costs duplicated in 2027 and beyond, which is why the annual impact in 2027 and beyond or the expected annual impact is actually a little bit less than what we're expecting for a partial year of the regulations in 2026. Operator: The next question will be coming from the line of Ben Hendrix of RBC Capital Markets. Benjamin Hendrix: We've heard carriers talk a lot about accelerated behavioral trend for a while now, and it sounds like your outpatient development is addressing that. Can you talk a little bit more about where the demand is on the outpatient behavioral side in terms of the types of services and the types of services that are being offered in the development you completed in 2025 and what you expect for 2026? And then how should we think about the optimal behavioral business mix over the long term between the inpatient and outpatient? Marc Miller: Yes, Ben, let me answer that. This is Marc. So our outpatient strategy continues to progress. Right now, outpatient services represent about 10% of our Behavioral segment revenue. We expect that to continue to grow. As I said in the prepared remarks, we already operate close to 120 outpatient locations where we offer either step-down services or step-in services. So for the step-down location, we have transitional services such as partial hospitalization, intensive outpatient, following an acute care, an acute psychiatric stay. And we typically operate these locations and their satellite clinics under our local brand of our inpatient facilities, and they're often close to those facility campuses. The step-in services are for patients entering behavioral system on an outpatient basis. So people that we've not even had yet as inpatient. The payers continue to look for in-network providers with scale to offer these types of step-in services as an alternative to inpatient care. So we think our step-in model offers comprehensive outpatient services, which would include things like IOP, counseling, virtual care. And we think the demand for that is going to only continue to grow in 2026. In a number of markets, we've now branded this under what we're calling 1,000 branches wellness. Thus far, we're in development and we expect to open at least 10 of these branches locations in '26. So I think that we have a good ramp-up already planned, and we expect that there's going to be many more opportunities to expand in all of these areas going forward. Operator: Our next question is coming from the line of Stephen Baxter of Wells Fargo. Stephen Baxter: Just wanted to follow up on California for a couple of points there. I guess as you're kind of building up to that long-term $30 million run rate impact, does that really just reflect the kind of the changes directly on the incremental staffing side? Are you thinking that there could be any spillover impact to your base wage structure potentially related to maybe your consumer or your competitors trying to maybe hire in the same way that you are? And then as you think about potential reimbursement in California, I know California budgets are not exactly flush at the moment, but is there any prospect for potentially seeing any offset on the reimbursement side anywhere in the near future? Steve Filton: Yes. So Stephen, I think our, again, assumptions were the cost of replacing current staff with staff with a higher license. And we acknowledge certainly as we went through this exercise that all acute behavioral facilities in California would have to be going through the same exercise. So we did our best to project what wage inflation might be and what might be required in terms of recruitment incentives and that sort of thing. Obviously, this is new to all of us. And so we're making certain guesses and estimates. But we think we've been reasonably conservative in our approach. Again, acknowledging that others will be going through the same process as us. As far as reimbursement goes, your point is well taken. We will certainly make every effort to work with all of our payers, whether they be government payers, the Medi-Cal program in California or our private commercial payers to get them to acknowledge this increased cost on our part. How that will sort out ultimately, I don't know. We certainly have not forecast or budgeted anything for that, but we will certainly focus our efforts on that. Operator: The next question is coming from the line of Jason Cassorla of Guggenheim Partners. Jason Cassorla: Maybe just stepping back for behavioral. You're expecting accelerating volumes, but a bit of deceleration in pricing growth. I guess if you look at that 2% to 3% volume and 2% to 3% rate growth as the go-forward status quo, would you still expect that to translate into organic margin expansion? Or has that equation changed in terms of how you think about margin expansion for that business? Steve Filton: Yes. So obviously, those assumptions, 2% to 3% patient day or adjusted patient day growth, 2% to 3% pricing growth result in a 4% to 6% revenue growth projection. We think generally that, that revenue growth level will exceed the level of the increase in operating costs. I mean we made the point in our operating -- excuse me, in our prepared remarks that in 2025, our operating costs were a little bit elevated by kind of an investment in headcount and hiring and filling vacant positions in markets where that has been a headwind or an obstacle to reaching our targeted volume growth. I think that headcount increase will clearly moderate in 2026 and leave us at a point where I think wage inflation and other operating cost inflation should not necessarily exceed the growth in revenue, which will allow for margin expansion. And then I would just also add, following on to Marc's comments about the growth in outpatient, generally, outpatient margins are better than inpatient margins. So to the degree that we're successful in growing the outpatient business faster than inpatient, that should also help margin expansion in behavioral. Jason Cassorla: Great. And if I could follow up just quickly, I wanted to ask about the acute length of stay opportunity. You flagged it a little bit in the prepared remarks. It looks like length of stay has been coming down a little bit, still slightly above pre-pandemic levels. Case mix has been rising, that probably offsets a little bit. But maybe can you just help a little bit more unpack in terms of AI, technology or other efficiencies that could bring that stat lower and drive better throughput? Just anything more on the length of stay would be helpful. Steve Filton: Yes. So a couple of observations, Jason. I mean one is, I think on an acuity-adjusted basis, and I think that's the appropriate way to look at length of stay because the thicker a patient is, the longer they're going to have to be in the hospital. But on an acuity-adjusted basis, LOS is actually below pre-pandemic levels, and I think reflects improvements that we've made. And you make the point. I mean, there's all kinds of, I think, reporting opportunities, there are technology opportunities, better communication with our physicians. But honestly, I think probably the single biggest obstacle we faced in not reducing length of stay further is the supply of subacute capacity, whether that's in skilled nursing facilities, nursing homes, long-term rehab facilities, et cetera. There's been, I think, a lack or dearth of capacity in many markets in those areas. And sometimes we're just holding patients waiting for an available bed or an available spot. We think that will improve over time and will continue to improve. So along with our own internal initiatives, we think the marketplace for subacute capacity will also expand. Operator: The next question is coming from the line of Matthew Gillmor of KeyBanc. Matthew Gillmor: I wanted to ask about the Medicaid supplementals. We appreciate the transparency you all provide. For the programs that are not yet approved like Florida and I think maybe California, do you have any sense for where those approval processes stand with CMS? And we were also curious if you had any visibility on the rural health transformation funding and what that opportunity could be? Steve Filton: Sure, Matthew. So our commentary on the Florida program has been pretty consistent, and I think it's been pretty consistent because the commentary from the state of Florida has been pretty consistent. They submitted a program or kind of a program refinement. They're expecting it to be approved. I think it would be fair to say that it's taken longer to get approved than they expected or maybe than we expected. But they've not changed their view that ultimately the approval will be forthcoming. We've quantified the benefit to us as best as we could to be in that sort of $45 million to $50 million range once approval is obtained. And we haven't recognized it. We haven't included in our guidance but would do so once that approval is forthcoming. As far as California is concerned, we've been also reasonably consistent in our comments there. We think that the California program faces more hurdles is not nearly as certain and its likelihood to be approved. It may need to be modified in significant ways. And as a consequence, while we think if it is ultimately approved, it could be measurably beneficial to us, we've in no way tried to quantify that or predict how successful California will be in working with CMS to get their program modified in a way that ultimately would lend itself to CMS approval. As far as the rural program goes, we've lobbied hard and worked hard and the structure of this program is largely up to the states, and we have worked with the states in which we operate. We think that there could be a potential benefit to us. We acknowledge that it's a relatively small percentage of our facilities carry either the rural or rural referral center designation. So we don't think that the benefit ultimately would be material. But obviously, to the degree that we could obtain any additional reimbursement, it would be positive, but not expecting it to be materially positive. Operator: Our next question is coming from the line of Pito Chickering of Deutsche Bank. Pito Chickering: Excluding the cash received during COVID, your leverage ratio is the lowest that I've seen for well over a decade. Is there any leverage ratio where you say enough is enough and you maintain the leverage and put the rest into repo? Or do we end the year with leverage down another 0.10x or more? Steve Filton: So Pito, I mean, I think our ideal leverage is in the 2x to 3x range. And to your point, we've been at the low end of that for a while. We've done so with the idea that we wanted to keep ourselves sort of maximum flexibility to respond to any opportunities that might arise. We still think that's kind of a prudent position. We've been, as you know, a pretty active acquirer of our own shares and we'll continue, I think, to be so. We think that investing in the repurchase of our own shares is a pretty compelling investment in the current environment. But don't necessarily expect to lever up dramatically in the absence of real compelling M&A opportunities. Don't expect our leverage to go any lower either. I would certainly make that point. Pito Chickering: Okay. Fair enough. If I sort of stay on that point, leverage keeps sort of coming down, except for sort of one large behavioral asset out there, you guys can buy almost anything out there in the marketplace without needing to keep leverage low. I guess, sort of follow-up on the question, I guess, why keep it this low unless there's some large deals that you're looking at? Steve Filton: Yes. I mean part of the issue in terms of being prepared or having the capacity to do M&A is you don't know when those opportunities are going to arise. You don't know how big they're going to be, et cetera. So I'm not suggesting to you that we're keeping our leverage at a current level because of a one specific anticipated potential deal. But I think there are a lot of interesting assets in the marketplace. And as we think about how those assets could fit into our strategy, again, we'd like to keep that flexibility available to us. Pito Chickering: Great. And then sort of a follow-up here on just AI. Look, this has been a huge focus for investors, obviously, in the last 90 days. A lot of people talk about rev cycle management and you talked about streamlining your flow process. Can you give us like real examples about actual efficiencies in terms of timing in cash collections and efficiencies from cost savings that this stuff can actually achieve for you guys? Marc Miller: Let me jump in here. I mean I think it's hard to pinpoint exact numbers for you on this. I would tell you that over the past several years, we've done a lot to accelerate our pace of technology adoption. We were an early investor with Hippocratic AI. And we think that they are doing some terrific things in this space. We're one of the primary health systems that they're working with. And so what we get is we get a look at everything they're rolling out. We get an opportunity to pilot different things and give feedback for those different things [Technical Difficulty] will start to pay off in the coming quarters and years. Some examples, Steve already talked about post-discharge calls and the need ultimately for less staff to do some of these things. And that's certainly already paying off in decreased expenses for us. But I think that as they roll out their various AI solutions, we're going to have a front seat to a lot of those things. And we've just been very impressed with where they're going and what they're doing. But other things that we're looking at right now, I mean, our entire rounding process that we -- is so important to improving quality, maintaining quality, maintaining safety. We're looking to revamp that with different types of technology that we're testing right now. That could have a significant impact on us going into the future, not just on cost savings, but on our increases in quality. Hopefully, honestly, we would be able to impact positively our issues with malpractice and some things like that. So patient safety technology is a big part of what we're looking at. And then just other things like post-discharge, bringing people into the facilities versus with our intake process, especially in the behavioral division, so we think a lot of these things have great promise. It's just hard to pinpoint exact dollars at this point. Operator: And our next question is coming from the line of Craig Hettenbach of Morgan Stanley. Craig Hettenbach: Going back to the Behavioral business, as pricing starts to normalize, I know you've done a lot of work on the hiring front, as you've outlined, can you just talk about the confidence in terms of getting back into more of a steady cadence on the volume side of things? Steve Filton: Sure, Craig. So I mean, I think if you look at the cadence in 2025, we find it encouraging. We've seen sequential incremental improvement in behavioral patient or adjusted patient day volume growth in each quarter of 2025. We exit 2025 within what we consider to be shouting distance of this 2% to 3% target growth range that we've set for ourselves for quite some time and have struggled to get there. But feeling confident, particularly when combined with the investments in staff and headcount that we've made in 2025, and I alluded to earlier, I think that's what gives us the confidence that, that 2% to 3% target in 2026 is definitely achievable. Craig Hettenbach: Got it. And then just as a follow-up, from a capital investment perspective, any key highlights or areas for this year? Steve Filton: Yes. I don't think it's anything extraordinary or extraordinarily different, I guess I should say, in the sense that as we said in our prepared remarks, we've got several big new projects opening this year, a brand-new de novo hospital in -- on the East Coast of Florida, a big tower on one of our Florida West Coast hospitals, a replacement facility in Southern California that will open in the next couple of months, a couple of new behavioral joint venture hospitals opening during the year. And then I think otherwise, we're invested, I think, as Marc indicated in his remarks, in building our outpatient footprint in both businesses, but also expanding the things that are very core and central to our acute inpatient business, which is emergency room capacity, surgical capacity, surgical equipment. None of that, I think, is terribly new or different, but it just continues to be a focus of ours. Operator: Our next question is coming from the line of Scott Fidel of Goldman Sachs. Samuel Becker: This is Sam on for Scott. Just curious, could you give us an update on your overall assessment of the health care policy risk, including the Medicaid work requirements and funding cuts, just your latest overall view. Steve Filton: Yes, Sam, I don't think any of the hospital companies have made an effort to -- I shouldn't say they haven't made an effort, but they haven't produced any estimates on what the impact of the Medicaid work requirements will be beginning in 2027 because I think it's difficult to do. We don't exactly know what the specific work requirements are going to wind up in every state. We have a sense that it's likely that the people who are eliminated from the Medicaid roles as a consequence of those requirements are likely to be less heavy utilizers of the system. But all those variables, I think, kind of remain unsolved at this point. My guess is as the year goes on, the picture will get clarified and we'll all be able to make a better estimate. But at this point, I think it's not an accident that none of the hospital companies have really attempted to quantify with any precision what the impact of the Medicaid work requirements will be. Operator: Our next question is coming from the line of Benjamin Rossi of JPMorgan. Benjamin Rossi: Just following up on your 2026 outlook. How are you thinking about cash flow from operations this year? I know you mentioned some of the drag last year from the increase in AR related to the Medicaid supplemental payment programs. Is that just largely timing related with new programs? Or is this baseline simply becoming larger as you're receiving more from these programs? I guess just curious if there's anything more discrete we should be considering regarding cash flow generation this year? Steve Filton: Yes, Ben, I mean, I think that if you go back and take a historic approach to this, historically, our cash flow from operations is equal to about 75% to 80% of our operating income less NCI. That, I think, would be our view for 2026. I don't think -- again, there are always sort of timing issues with receivable collection, et cetera. But I think using that measure consistent with the historical outcomes, I think, is a safe way to look at it. Benjamin Rossi: Great. And just as a follow-up on supply trends. You have a nice percentage across supply spend as a percentage of revenue during 4Q. How would you characterize your current supply dynamics during the quarter? And then for 2026, I know you have a sizable degree of that supply spend under multiyear fixed contracts, but do you see any additional room this year for any cost offsets across supply spend? Steve Filton: Yes. I mean I think as we indicated in our prepared remarks, supply costs were probably the most effectively controlled of all the expense categories in 2025. We're not necessarily anticipating significant pressure points. I think it turned out that tariffs, which were a concern potentially maybe a year ago have not really impacted our industry in a measurable way, and I don't think we anticipate that they will. There's always opportunities for us to continue to be more efficient there. Most of those opportunities, I would describe as opportunities to work with our clinicians in their supply preference, particularly for the high-cost items. And so we remain focused in the area. But certainly, as we think about any potential areas of cost exposure in 2026, supplies are not high on that list. Operator: And the next question will be coming from the line of Michael Ha of Baird. Hua Ha: On behavioral health, over the past couple of years, you've been very vocal about the benefit of DPPs, how they've made Medicaid volumes and behavioral health much more profitable. And because of that, there's been a strong emphasis on driving more of these volumes. We've seen it materialize through your stellar behavioral health pricing performance. I know today, you mentioned expectations of that to slightly normalize in '26. But that said, these DPP tailwinds are still here. They don't come down until starting '28. So no immediate shift. So looking forward as we enter '28, can you talk about your thoughts on the durability of long-term pricing? Should we think about '28 as sort of that starting year of more incremental changes lower? Also, how might you plan to potentially shift your Medicaid volume strategy over that time? Could that impact your long-term 2 to 3 volume target? And would any of those declines maybe be met with and offset by your outpatient business, maybe more commercial mix through that end? Sorry, a lot of questions. Overall, how are you thinking about all these different pieces? Steve Filton: Yes. So it's a very comprehensive question, Michael. And I think in some respects, you answered some of the questions you asked. I will say, as you noted, that while DPP reimbursement is scheduled to begin to be reduced in 2028, we still have several -- a couple of years ahead of us where the reimbursement remains intact. And as you know, those who follow our disclosures know, it's actually been increasing over the last couple of years as either new programs are being approved or existing programs are expanding or Medicaid utilization is expanding. And so we intend to largely try and take advantage of that benefit while it's out there, while at the same time, thinking about and planning for a scenario in which that Medicaid business is not as profitable as it might be today. And as you suggested, one of the major ways we will do that is on the outpatient side. I mentioned earlier in response to a different question that outpatient margins tend to be better than inpatient margins. And one of the reasons for that is the outpatient payer mix tends to be much more weighted to commercial than it is to Medicaid. So yes, as we continue to grow and focus on our outpatient initiatives, which both Marc and I have spent some time on describing, I think that will be a natural hedge to some degree against the DPP reduction risk that faces us in a few years. Operator: And our last question will be coming from the line of Ryan Langston of TD Cowen. Ryan Langston: Behavioral FTEs grew, I believe, 3.5% to 4% in 2025. You talked in the past about particular job classes being more difficult to fill. I guess how should we think about that 3.5% to 4% growth in some of those more difficult categories of the growth rate and how that translates into the 2% to 3% outlook for behavioral health growth? Steve Filton: Yes. We've made the point in the past, Ryan, that the behavioral staffing challenges are really different in every market. And in some markets, we're challenged with hiring sufficient nurses. In other markets, it could be therapists. And in other markets, it could be the non-licensed professionals, the people that we call mental health technicians. It really varies. And frankly, in many markets, we're fully staffed and don't face those challenges. So I don't necessarily have a breakdown in front of me at the moment in terms of the headcount increase in 2025, exactly which staffing categories that involved. My guess is it's sort of across the board because we hired where we needed to in each individual market. But I think the important thing from our perspective is we made a conscious decision in 2025 to really ramp up the hiring in those markets where staffing vacancies were an obstacle to further volume growth. And now having hired and filled not all, but many of those positions, I think it gives us greater confidence in meeting that 2% to 3% patient day volume growth target in 2026. Operator: Thank you. And I would like to turn the call back over to Darren for closing remarks. Please go ahead. Darren Lehrich: Thanks, Lisa. Thank you, everyone, for participating in today's call and for your interest in UHS. Have a great rest of your day. Operator: This does conclude today's conference call. Thank you so much for joining. You may now disconnect.
Operator: Good morning. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]. At this time, I'd like to turn the floor over to Lucas Sullivan, Director, Financial Planning and Analysis. Mr. Sullivan, you may begin. Lucas Sullivan: Thanks, Jamie. Good morning, everyone, and welcome to EMCOR's fourth quarter and full year 2025 earnings conference call. For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our remarks today. This presentation will be archived in the Investor Relations section of our website at emcorgroup.com. With me today are Tony Guzzi, our Chairman, President and Chief Executive Officer; Jason Nalbandian, Senior Vice President and EMCOR's Chief Financial Officer; and Maxine Mauricio, Executive Vice President, Chief Administrative Officer and General Counsel. For today's call, Tony will provide comments on our fourth quarter and full year and discuss our RPOs. Jason will then review the fourth quarter and full year numbers, then turn it back to Tony to discuss our guidance before we open it up for Q&A. Before we begin, a quick reminder that this presentation and discussion contains certain forward-looking statements and may contain certain non-GAAP financial information. Slide 2 of our presentation describes in detail these forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both the disclosures in conjunction with our discussion and accompanying slides. And finally, as a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release issued this morning and in our Form 10-K filed with the Securities and Exchange Commission. And with that, let me turn the call over to Tony. Tony? Anthony Guzzi: Yes. Thanks, Lucas. Good morning, and welcome to our fourth quarter 2025 earnings call. I'm going to speak briefly to the fourth quarter in my opening comments, but we'll focus my introductory remarks on what drove our continued success in 2025. So I'm going to start on Pages 4 through 5 of our earnings presentation. We had an excellent close to the year with our fourth quarter results. In the fourth quarter, we generated revenues of $4.5 billion, which represents 19.7% growth. We earned adjusted earnings per share of $7.19 per diluted share, a 13.8% increase from 2024 and delivered adjusted operating income of $440 million, a 13.1% increase from 2024. We did this while achieving strong adjusted operating margins of 9.7%. Our adjusted results for the fourth quarter exclude the gain on the sale of our U.K. business and the transaction costs related to such sale. For the full year, our adjusted results include these items as well as the transaction costs incurred in the first quarter due to the acquisition of the Miller Electric company. By any measure, 2025 was a tremendous year for us. We had record revenues of nearly $17 billion and record adjusted full year operating margin of 9.4% and at the high end of our guidance range. We also had record adjusted diluted earnings per share of $25.87 per share, an increase of 20% from 2024. With operating cash flow of $1.3 billion, we continued our exceptional record of cash conversion. Our success once again demonstrates our ability to execute with discipline across our business as we drive innovation and efficiency to achieve exceptional outcomes for our customers. We have delivered sustained strong results despite the fact that we are working on the most technically sophisticated fast-paced and demanding projects in our history. We had a great year, and we enjoyed delivering for our customers and our shareholders. Notably, we earned full year mechanical and electrical construction operating margins of 12.8% and 12.1%, respectively, demonstrating excellent execution across a diverse range of projects by size, end market and geography. We did this while growing revenues of these segments by 10.1% and 51.8%, respectively. We achieved a 6% operating margin in our Building Services segment, driven by the underlying strength of our Mechanical Services business, which achieved high single-digit operating margins and 6% growth. Virtually all that growth was organic. Demand for this business remains strong with a primary focus on aftermarket projects and retrofits. HVAC service and repair, building automation and controls upgrades and services and indoor air quality and energy efficiency projects. We remain well positioned with our Industrial Services segment to serve a rebounding oil and gas industry. We divested our U.K. business to focus on our U.S. operations. We found EMCOR U.K. a great strategic home achieved a very strong result for our sale in the sale for our shareholders. We acquired Miller Electric, which is the largest acquisition in EMCOR history. The integration is on track, our leadership and values are aligned, and Miller will serve as a great platform for growth in the Southeast and Texas. In addition to Miller, we acquired 9 other companies across our Mechanical Construction and Building Services segments. Collectively, these platform-enhancing acquisitions will help us to better serve our customers. We repurchased almost $600 million in shares and increased our quarterly dividend to $0.40 per share. This return of cash to shareholders, coupled with our organic investment and acquisitions, affirms our successful balanced capital allocation strategy. We maintained our sterling balance sheet that allows for continued organic and acquisition growth. We maintained our industry-leading safety record in this demanding and complex environment with a TRIR under 1 for the second year in a row, we earned inclusion into the S&P 500, and we were recognized by Fortune as the #1 most admired company in the engineering and construction industry. And we built our RPOs to $13.25 billion from $10.1 billion despite our record revenues. That's quite a year, right? Congratulations to our team, and thank you for a great 2025. I'm now going to go to Page 6. These are RPOs, which I will now highlight, [Technical Difficulty] year-over-year and 17.6% organically. On a sequential basis, RPOs have increased 5.1% since September or 3.6% organically, driven by demand in our data center business, RPOs within the network and communications totaled a record $4.46 billion, at the end of December, an increase of $1.65 billion or normally nearly 60% year-over-year. We see no change in the momentum of the CapEx plans from our customers in this sector, and we have good visibility for the next 2 to 3 years as we work to support their build-out. Institutional RPOs have increased by just under $440 million or 40% to $1.55 billion, largely as we continue to see demand for our services within the education sector, including from a number of colleges and universities. Manufacturing and industrial RPOs have increased by $201 million or 23% to $1.1 billion. As I mentioned last quarter, in addition to project awards driven by customers onshoring or reshoring initiatives. Growth in this sector has also benefited from certain food processing projects within our Mechanical Construction segment as well as a renewable energy project in our Industrial Services segment. Led by our Mechanical Construction segment, water and wastewater RPOs have increased by $408.5 million or nearly 60% to $1.1 billion as we continue to win projects throughout Florida. And due to select project opportunities, RPOs within the hospitality and entertainment have more than doubled year-over-year. I'm now going to turn to Page 7 because I think it's important to look at some of the longer-term trends and what's really driving our growth over a sustained period of time and also to highlight our diversity of demand. So now go to Page 7, let's take a minute. I want you to focus your eyes on the middle of this page. And in this middle of this page, you'll see where we were on the left-hand bar at 12/31/19, right before COVID. We were about $4.036 billion in RPOs, and I want you to focus your eyes on that royal blue bar or dark blue bar, and that's our network and communications business. And I want you to look over at 12/31/25, those network and communications RPOs are about $4.4 billion today, which is greater than our total RPOs at the end of 12/31/19. But let me look at the total number of $13.254 billion. And realize that we have grown everything else by over $8.5 billion. And now I want you to come over to the left side of the page, and I want you to look at some of these long-term growth trends. I'm going to spend a little bit of time, and we've already done that with the near-term commentary. High-Tech Manufacturing on a compound annual growth rate that's an in and out of a major project. But from where we started in 12/31/19, which had some semiconductor work in it and pharma work in it, to where we are today has grown by a compound annual growth rate of 48%, and we remain very bullish on this market with the demand for semiconductor chips, the reshoring of pharma, the growth in GLP-1 drugs and what's going to happen there. And just in general, what has been reshored in High-Tech and what's going to continue to grow, 48% compound annual growth. Right above that is network and communications. We thought we had a great data center business in 2019. We went from having a very strong data center business to a terrific data center business. Now I'm not going to say we're the only ones that can do data center work at scale. We're the only ones that can operate in about 17 markets electrically. And we're doing about 7 markets now mechanically and we're one of the only ones that could cover the whole country on fire life safety projects in the data center business. Look at health care, 23%. That is a stable market for EMCOR. It's been one of our long-term markets, and it is complex to build a high-rise hospital as it is a data center, and that's why our electricians and our pipe fitters can move between those sectors so easily between high-tech manufacturing, network and communication and really industrial work, they can move between those, and we do that. Institutional is up 20%. That was actually a surprise to us. When we went back and looked at the compound annual growth rate in institutional across that sector. Water and wastewater is a great market for us, mainly in Florida, 24% compound annually driven by consent decrees from the EPA, driven by just growth in Florida and driven by updating technology in these large wastewater plants. Transportation, as you talk about mix management, we have decided to deemphasize the transportation market, especially the electrical roadway market. It takes a while to get out, but that will continue to drop unless a big airport or a project like that comes in, and that would be then balancing against these other markets. I love the bottom. And commercial was a GDP grower. It's pretty good considering the ins and outs that's happened over this period. But look at the short duration projects. To me, that's a sign of what's going on across all the markets, especially in the built space. And that contains some commercial work, that contains some institutional work, that contains some manufacturing work. And these are projects that are going to last less than 5 months and typically have a ticket size of somewhere between $50,000 and $500,000. And that's -- and then you put on top of that, the big service space we have in EMCOR across our fire-life safety projects across our mechanical service business and across even our day 2 electrical work. So what allows you to have that kind of compound annual growth across that sustained period of time. And these are in no particular order. First of all, you got to be where your customers are. You have to be able to meet them where they are. You have to have national reach. You have to have the geographic footprint, but that's not enough. You can have a geographic footprint that can execute. You have to have opportunistically travel. You don't just travel to travel. We're not going to be the contractor that uses a labor broker and places labor around the country. For the most part, when we travel, we're traveling in our construction business with very strong union journeymen and commercial wireman and others that can move around the country and check into the union and we draw from that. And we're an employer of choice. And that is driven by the strong field leadership we have at the local level. We've got the technical expertise. We have great prefabrication capability, VDC capability that we use to work across these sectors. And really, the VDC we use today in our data center business and the VDC we use today in our high-tech manufacturing was really honed in the health care sector over 20 years ago. We have a great reputation and safety record. It's really a hallmark of who we are and why we continue to attract the best trade labor. Our customers want us to do the work for them. One of the benefits of scale to us is we can train, we can share means and methods and we can share best practices across our country. And that allows us to have very strong acquisition pipelines over a sustained period of time. And allows us to make the right smart growth organic investments. I think this page is something that really is a hallmark of our company. And I think this page is really what we have built together with that, our capital allocation strategy, which is on Page 14, and coupled with what is on Page 7 is what we get paid for to do to build a company that has great diversity of demand to take advantage of the end markets, in many cases, and then build a sustainable compounding record of success. With that, Jason, I'll turn it over to you. Jason Nalbandian: Thank you, Tony, and good morning, everyone. Before we dive into our results for the fourth quarter, I thought it made sense to step back and take a look at how we performed for the full year, which is summarized on Slide 8. In 2025, we earned revenues of $16.99 billion, operating income of $1.71 billion and operating margin of 10.1% and diluted earnings per share of $28.19. When excluding the transaction costs incurred in connection with both the acquisition of Miller Electric and the sale of EMCOR U.K. as well as the gain on sale of EMCOR U.K., we are non-GAAP operating income of $1.59 billion, operating margin of 9.4% and diluted earnings per share of $25.87. All of which were records for EMCOR. We performed extremely well in 2025, benefiting from some of the best execution in our history and a favorable mix of work, both of which allowed us to deliver a full year operating margin at the high end of the guidance we previously provided and in excess of our expectations when we began the year. If we turn to Slide 9, I will now review the operating performance for each of our segments during the quarter, starting with revenues. $4.5 billion represents a quarterly record for EMCOR, with revenues increasing 19.7% or 9.5% organically. Revenues of U.S. Electrical Construction were a quarterly record of $1.36 billion, increasing 45.8% due to a combination of strong organic growth and the acquisition of Miller. Similar to recent quarters, the most significant growth in this segment was generated from our data center projects within the network and communications market sector, where revenues increased nearly 50% year-over-year. While this represents the greatest increase during the quarter, almost all other sectors experienced growth. Health care, institutional and hospitality and entertainment represent the next 3 largest increases in addition to greater small project volumes. I think the best way to summarize this segment's performance in the quarter is that half of its growth came from data centers and half of its growth came from strength in the underlying or more traditional business. Once again, this highlights our diversity of demand. Moving to U.S. Mechanical Construction, revenues of $1.94 billion increased 17%, establishing a new quarterly record for this segment. Similar to electrical due to greater demand for data center construction projects, this segment saw the largest increase from the network and communications market sector, where quarterly revenues grew nearly 80% year-over-year. Sticking with my earlier comment regarding broad-based demand, mechanical construction experienced quarterly revenue increases in 8 out of the 11 sectors that we track with the only meaningful decrease coming from high-tech manufacturing. Notably, manufacturing and industrial, including food processing, was up just over 50%. Institutional was up 55% and commercial increased 17% as we are starting to see resumption in warehousing demand. As we've discussed throughout the year, although we are still executing off a higher base, the decrease in high-tech manufacturing is a result of the completion of certain semiconductor projects. On a combined basis, our construction segments generated revenues of $3.3 billion, an increase of 27.4%. Looking next at U.S. Building Services, revenues of $772.5 million reflect a 2.2% increase, all of which was organic. This marks the third quarter of revenue growth since the loss of the site-based contracts that we've previously referenced and this performance was driven by our Mechanical Services division, which increased revenues by nearly 5% due to strength across each of their service lines, including projects and retrofits, repair service, service maintenance and building automation and controls. Turning to our Industrial Services segment. Revenues of $341.1 million have increased 9.1%. In the quarter, we experienced a more robust turnaround schedule, including the execution of certain projects that were delayed from Q3 to Q4, which led to increased revenues from both our field and shop services operations. In addition, this segment benefited from progress made on a large solar project, which is currently in process. And lastly, for the 2 months prior to the sale on December 1, U.K. Building Services generated fourth quarter revenues of $95.3 million. Let's turn to Slide 10 for operating income. For the fourth quarter, we generated operating income of $573.8 million or 12.7% of revenues. When adjusting for the transaction expenses and the gain on sale of EMCOR U.K., we are a non-GAAP operating income of $439.6 million, a quarterly record for EMCOR. This performance resulted in an exceptional 9.7% non-GAAP operating margin the highest we achieved in any quarter this year. Looking at each of our segments, Electrical Construction had operating income of $173.1 million, a 17% increase. As a result of its revenue growth, the segment experienced greater gross profit across the majority of the market sectors in which we operate, resulting in an increase in operating income to a record level. While down from the record 15.8% earned in last year's fourth quarter, this segment's operating margin of 12.7% remained well above its historical average and was in line with our expectations particularly when compared against a rolling 12- to 24-month average, which would imply a range of 12% to 12.6% for the segment. When adjusting for the impact of incremental intangible asset amortization, gross profit margin of the segment remained relatively consistent year-over-year, reflecting the overall strength of our execution and project portfolio. Contributing to the unfavorable comparison in operating margin was an unusually low SG&A margin in last year's fourth quarter due to the timing of recognition of certain expenses in the prior year. Operating income for U.S. mechanical construction increased by 13.6% to a quarterly record of $250.5 million, while slightly below that of the prior year's quarter, operating margin of 12.9% was equivalent to the third quarter of this year as we continue to execute well. From an end market standpoint, we saw greater gross profit across many of the sectors in which we operate with the largest increases generally tracking in line with the revenue fluctuations I previously mentioned. Together, our construction segments grew operating income by nearly 15% and earned a combined operating margin of 12.8%. U.S. Building Services generated operating income of $41.3 million, a modest increase over the prior year, and operating margin was a consistent 5.4%. Moving to Industrial Services. This segment's revenue growth coupled with 30 basis points of operating margin expansion due to better absorption resulted in a 21.1% increase in operating income. And lastly, U.K. Building Services delivered breakeven performance during the quarter as $3.7 million of underlying operating income was entirely offset by transaction-related costs, which were expensed within the U.K. Let's move to Slide 11, and I'll cover a few quarterly highlights that were not included on the previous pages. Gross profit of $891.2 million has increased by 17.7% and our gross profit margin for the quarter was an outstanding 19.7%. SG&A was $462.3 million or 10.2% of revenues. Included in SG&A for the quarter were $10.7 million of transaction expenses related to the sale of EMCOR U.K., which impacted SG&A margin by 20 basis points. Accounting for half of the remaining increase in SG&A was $35.2 million of incremental expenses from acquired companies and $6.2 million of additional amortization expense. Excluding these items, SG&A grew by $41.8 million, almost entirely due to employment costs, given both greater headcount to support our organic growth as well as increased incentive compensation expense in certain of our segments given the higher annual operating results. And finally, on this page, diluted earnings per share were $9.68 or $7.19 on an adjusted basis, which represents an increase of 13.8% year-over-year. If we quickly turn to Slide 12. With $1.1 billion of cash on hand, our balance sheet positions us well to continue to deliver on our philosophy of balanced capital allocation which includes organic investment, strategic acquisitions and returning cash to shareholders. Our commitment to this model is further demonstrated by the recent increase in our dividend of 60% and the incremental $500 million of authorization under our share repurchase program. During the quarter, we repurchased approximately $155 million worth of our shares bringing our year-to-date repurchases to roughly $580 million. And we executed against our M&A pipeline, utilizing over $1 billion on acquisitions during the year, including an additional $122 million in Q4. And finally, on this page, we had operating cash flow of $524.4 million during the quarter or $1.3 billion for the full year, representing conversion in excess of 80% of operating income when adjusting for the gain on sale of EMCOR U.K. With that, I'll turn the call back over to Tony. Anthony Guzzi: Thanks, Jason. And I'm going to close on Pages 13 and 14. As discussed, we are well positioned to continue to deliver excellent results in 2026. We expect to earn revenues of $17.75 billion to $18.5 billion and achieve diluted earnings per share from $27.25 to $29.25 with a full year operating margin between 9% and 9.4%. As we set guidance, and I have stated this many times over the years, we have always thought about it the following way. From the low end to the midpoint, we have a high degree of confidence that we will deliver that outcome absent a major economic event. From the midpoint to the high end of our range, we need to execute very well from a margin standpoint, and we need to book 40% to 45% of new work to allow us to hit the mid to high point of our revenue range. Easily said, the better our margins, the higher revenue, the more we move to the higher end of our range. As we look at the composition of our RPOs, we began the year with a strong mix of work, with estimated gross margins in line with those experienced over the last few years. We have a strong foundation across diverse geographies and sectors. At this time, we see no slowing of demand for most of our end markets and continue to see exceptional prospects in our data center markets. As we move into 2026, we need to keep leveraging our training, BDC, fabrication and project planning and delivery capabilities. We must not only continue to incrementally improve, but also innovate in our internal processes and delivery. We must also continue to protect ourselves through careful contract negotiation, execution and compliance. We deliver for our customers, and we will continue to do so, but we also strive to protect our rights as we deliver these complex projects. We will always face some macroeconomic challenge of some kind and some headwinds, but our team has excelled over these challenge -- overcoming these challenges over a very long period of time. I do believe that we are an employer of choice because of our excellence in field leadership. From our frontline foremen, superintendents, project managers and executives to our subsidiary and segment leadership. We will continue to execute a balanced capital allocation strategy, focused on organic investment, strategic acquisitions and returning cash to shareholders through share repurchases and dividends, which we show on Page 14. Our balanced capital allocation strategy has provided the foundation for our compounding record of success over the last 10 to 15 years. As I close, I want to thank my teammates. I appreciate all you do for EMCOR every day and for our customers and appreciate the safe and productive way you execute our work. With that, Jamie, I'll turn the call over to you for questions. Operator: [Operator Instructions]. And our first question today comes from Brent Thielman from D.A. Davidson. Brent Thielman: Tony or Jason, if you could comment just on some of the initiatives that compressed margins a bit last quarter, 3Q. I think you moved into some new territories that caused a little pressure there. Like what lingering impact that had in the fourth quarter, if any? And are you sort of beyond that at this stage here in 2026? Anthony Guzzi: You always have to be careful to say we're beyond that because we're starting projects all the time and we execute really well, and we write projects up. We write them down. But on balance, I think the headwinds we've experienced in that particular market are behind us now. And we had a little bit of that spillover into the fourth quarter. Some of it also is just mix of work. We didn't finish as much fixed price work in our Electrical segment as we did the year before. And we started some work that was more target price or GMP. And hopefully, we'll convert some of that to fixed price, but we don't know that. But the underlying margins in the business, which you can see from our gross margins is pretty strong. Jason Nalbandian: Yes. And I would echo what Tony said. The only thing I would add to that, right, is I tried to say this in my prepared remarks. If you look at the gross profit margin for electrical and you adjust for the amortization impact, it performed relatively consistent year-over-year. So any impacts that we did have from those project start-ups was offset by just execution within the segment. Anthony Guzzi: Yes. Brent, and you could see it in our numbers, right? Are we a little disappointed we coughed up 50 or 60 basis points this year in electrical operationally? Sure, we are. Some of the headwind was from amortization. That's not a cash expense. But when you look over a 12- to 24-month period, that's a pretty good snapshot of our margins. We expect to operate somewhere mid- to low 12s to 14-or-so percent electrically. And mid- to low 12s. So 13.5% or so mechanically, and it's going to bounce around there. But if we can operate this business between 12.5% and 13.5% on a sustained basis across our construction segments, I think we'd be pretty pleased with that. Brent Thielman: Tony, maybe just to follow up, I mean, an interesting chart there on Slide 7. So on the network communications, data center side, you talked about good visibility here for the next 2 to 3 years. I think it would be hard to dispute that. Maybe one of the questions that oftentimes comes up is just like your regional exposure. Do you see yourself having to move into different regions to get more of this work? Or maybe you could just talk about what's happening, where you're already at, where you -- where you're positioned today that is going to continue to spend... Anthony Guzzi: I don't have [indiscernible] markets electrically. But the way I look at it is we have a strong -- we have a solid position in the Midwest. We'd like to make that a little bit stronger in some of the markets. We think we can do that either through acquisition investment or organic growth. Arizona, we continue to build that out. We've just built a better position mechanically in Arizona that we look to take advantage of it. And electrically, we moved into that market 2 years ago, and we're starting to hit full ramp right now. Texas, we're pretty strong. Mechanically, we'll take some of our first significant jobs in Texas. And there's a mixed management decision, right? We had that capability there doing semiconductor work. We'll continue to do some of that. But quite frankly, we think some of the rural data center work is better for us to do and it allows us to sort of get more productivity in our prefab shops also by doing that. And we've invested ahead of that. The semiconductor work we did there in a lot of ways with the beachhead to participate more broadly in the market and especially in the data center market mechanically. Electrically, we have a very good position in the Dallas-Fort Worth area. We'll look to expand out of that. Atlanta, we have a very strong position mechanically and we have a secondary position electrically, and we'll look to continue to strengthen that. The Carolinas were pretty strong, both mechanically and electrically, more so mechanically, but still pretty strong electrically. Northern Virginia, quite frankly, were terrific, both mechanically and electrically. And then as you get to Oregon, we're very strong electrically, and Iowa very strong electrically. We will continue to round that capability. You can tell we're in more markets electrically than mechanically. Some of that is -- we found it advantageous to be able to take our electricians that were very skilled in our management teams and doing something that still don't work at one time, and they've proven to be very good data center builders also. And we've been able to take that scale from our -- some of our companies and move it to others. And it takes about 18 months to ramp them up to get to full production where they can hit the kind of margins, our traditional data center company mechanically. And there's no real reason that we haven't expanded as much. It's just the footprint of where we are and what it takes mechanically to build the capability because of the prefab and all the other things are a little more extensive. And in fire life safety, we can cover the entire market, and we do. Brent Thielman: Got it. I appreciate that, Tony. And just last one. I mean, your balance sheet, you sort of have a war chest here. How do you think about like total excess liquidity here, assuming you want to keep some level of cash on the balance sheet, also understand your revolvers untapped. Just thoughts there. It seems like you can do a lot. Anthony Guzzi: I'll hit a macro level on that, and then Jason will get into some specifics about what cash we'd probably like to have on hand. I think in general, we're never going to have a highly leveraged balance sheet on a sustained basis to think of who we're working for. One of our competitive differentiators, especially on this large project work is we're not a leverage company. And think about the hyperscalers, they're not looking to do business with leverage companies. And it's also when you look to the bonding line, it's a nice ability to be able to have a surety bond without question when you need it, and we've had that luxury. But we also would be willing to lever up for the right acquisitions or series of acquisitions to go to 1 to 1.5x, maybe 2x and then leverage back down to 1x. What I wouldn't do is borrow a bunch of money to buy back stock. We like to do the buyback through excess liquidity. And if we're going to borrow money, it's because we're building a -- we're buying into an asset that's going to return cash to us over an extended period of time. That sort of macro level, Jason, maybe get to the specifics. Jason Nalbandian: I would say if you go to that Slide 14 that Tony referenced earlier and you look at what we've done this year, last year and even over the last 10 years, I think that's what our playbook looks like going forward, right? It continues to be a balanced approach towards capital allocation. We think we have a strong M&A pipeline as we move into next year. We'll continue to return capital to shareholders, and you saw that in the repurchases this year, and you saw that in the increase in dividend. In terms of minimal cash balance for our balance sheet, it's probably somewhere in the neighborhood of $300 million to $400 million. So obviously, our balance sheet positions us to continue to deploy cash strategically as we move into 2026. Anthony Guzzi: Yes. I think if you ask any of our management team down through the segment level, we would love to replicate 2025 here in '26 and '27. However, you've heard me say many times, deals happen when they happen. And what we are going to do is maintain discipline. We're not going to -- I think people on the line know me well enough and know this management team well enough that we don't buy into hype and we don't buy into frenzy. We have to believe there's a long sustained business case for why we would do something and we have to believe that we can add value. And our acquisition record is pretty darn good. I always say I never give anybody an A, but that give us a strong B+ over an extended period of time. And we're going to continue to do that. We're not private equity guys. We're not averaging multiples down. We're looking to buy and build for the long term and build sustainable positions. And how we got from some of these places to serve 17 electrical data center markets is we bought companies who were in the business, we're able to strengthen it through peer learning, transferring people for short periods of time to help it and really doing a great job of taking our best practices and means and methods and sharing it across the company, especially as it comes to virtual design construct, VDC, BIM and prefabrication. Operator: Our next question comes from Adam Thalhimer from Thompson, Davis. Adam Thalhimer: Congrats on the strong quarter and the year. Tony, I wanted to ask you first about RPO. The 33% in network and communications, obviously, some others in your space are even higher than that. And I'm just curious if that was a conscious decision on your part to stay more diversified? Or if that reflects something else like geographic mix? Anthony Guzzi: It's funny. I'll go to the second thing. You said it's geographic and sector mix. We're not passing up great data center opportunities because we're doing the other work. However, we're not going to go away from our existing customers. We have very strong companies in markets that have limited and no data center exposure. We have one of the best electrical contractors in the country in San Diego that generates great returns, serves our customers well, does it through a mix of pharma and high-tech manufacturing work, some defense work and health care work. There's not a data center opportunity there for them to do, but they earn returns that are as good or better than our segment averages. And we have a chunk of our business that exists just like that in places like California, some of the Intermountain states, some of the Midwestern towns. And as you go to like something as specific as water and wastewater, we're not walking away from opportunities in Florida to do data centers, although the first ones are going to get built, and we will participate in that. But the teams that do that water and wastewater work are very specialized. Could they do chiller plant work and things like that? Sure. But they're very specialized on that customer base and in that product offering. So yes, some of it is intentional. It's been intentional, Adam, beyond the last 4 or 5 years. It's been intentional over a very long period of time to build diversity of demand. But that being said, I'll give you a great example. We had a very good industrial electrical contractor in the Midwest that are in middling returns for years, but very technically capable. When the opportunity presented itself in Northwest Indiana to do data center work, we were able to take some of our skill base on the supervision side and our estimating side, train the people there to do the work, estimate the work, and now they're one of the best data center builders we have. And so we have the ability to do that when the opportunity and we create the opportunity presents ourselves and our customers need us to do that. So I'd say, yes, part of it has been intentional as a long-term strategy. But are we shooting to say we're only going to do 33% data center work in RPOs, could be 40% for a part of a period of time, could be 45%, could go down to 30%. It's just the overall demand and the mix of work and margin we have out there. Jason Nalbandian: Yes. The only other thing I would add, too, is just remember that for us, what we show as RPOs are the funded phases of a contract. So we're working on a data center campus where there's multiple buildings and we have even a verbal for the Phase II. We're only showing that first phase in our RPO. So others may be doing it differently, which could skew percentages. But for us, this is funded, contracted work that we have in hand and 82% of this will burn over the next 12 months. Anthony Guzzi: Yes. Adam Thalhimer: Got it. Okay. So -- but you're saying if the outlook for data centers is strong, -- don't be surprised if it goes to 40%, 45%. Anthony Guzzi: Yes, it could. If you look at our Electrical segment, where we've been able to get into 17 markets, it's 40% to 50% on a -- I think it will stay there for a while. It may even go up a little bit because we have found that, that scale is the most -- we have the most ability to take that electrical skill and translate that into other markets from other work that they have done. Adam Thalhimer: Okay. Last one for me. I was curious on semiconductors when the next wave of awards might be in that space? Anthony Guzzi: We're seeing some of it now. They're just getting awarded in smaller chunks. We're very ingrained in for one of the customers, 2 of the customers in Arizona. And we're also there in Arizona and the Mountain States fire life safety. I don't know if -- because you're already on site, I'm not sure you'll see the magnitude of the awards that we saw initially because they can leave it out to us some pieces. And I think that's an important delineation with us. We have a pretty good idea of the work we're going to be doing there, which is some of that 40% to 45% we have to book a year. But Jason made a really important point, right? Everything we do goes back to GAAP, right? So our RPOs are funded contracts, signed purchase orders, non-cancelable portion of a service agreement. I mean that is different than some of our peers do things. I mean we know that we may be at a data center site for 2 or 3 years. We're pretty sure the buildings we're going to get. But a, the work isn't contracted to us yet. And so therefore, we'll plan for it. But we certainly -- and on a semiconductor site, we know that maybe 2 years ago, we might have got $150 million award and it's going to look like that $150 million award again, but they're letting it out to us to $30 million, $50 million at a time because they know that that's how their funding is going to work, and that's how they did the actual contract for that piece of the work. So we've been that way forever. It's a little different when you have these huge projects. And we just have chosen to stay very consistent and not guess on what the future holds and keep it to that kind of dimension. And I'd to say the same thing about our operating margin performance. The only thing to get added back here are hard things like transaction costs, like the sale of the U.K. or a significant impairment. We have restructuring going on in the business all the time where we're restructuring subsidiaries. We don't do that. We don't try to add back amortization. We figure our investors are smart enough to do that themselves. It's a noncash expense. We figure once we go down that rabbit hole, we become adjusted on adjusted, on adjusted, and we just chose to stay pure to the GAAP numbers, both for RPOs and operating income and revenue recognition, Jason. Jason Nalbandian: Agreed. Anthony Guzzi: Yes, I think it's just easier. Adam Thalhimer: The numbers are very clean. We appreciate that. Anthony Guzzi: Appreciate it sometimes because you salivate over other people that have 5%... Adam Thalhimer: I can't speak for everybody else. I appreciate it. Operator: Our next question comes from Brian Brophy from Stifel. Brian Brophy: So your data center work has been growing a bit faster on the mechanical side than on the electrical side for a few quarters now. Can you talk about what are the drivers behind that? And do you expect that to sustain itself in the next or this year? Anthony Guzzi: It could. It could because we -- first with the basis, right, in comparison to the segment. And so we've opened up a couple of new markets on the data center side. And also, I think one of the growth areas in that is it's a little different on the scope. We're benefiting more from the AI data center, even though we're building the AI data centers electrically, but the scope doesn't increase as much going from a 100-megawatt cloud storage data center to a 200-megawatt AI data center on the electrical side. But on the mechanical side, it can be a 1.5 to 2x multiplier on the mechanical systems that will go in. And what's interesting about that, that in either cases that usually include the major end equipment. Jason Nalbandian: Yes. I think Tony's point on the base is very important as well, right? Mechanical is up more on a percentage basis. But on a dollars basis Electrical grew $1 billion this year Mechanical grew $850 million. So Electrical is still growing more in terms of dollars. It's just off a larger base gives you a smaller perceptive. Anthony Guzzi: I think one way to look at it, too, electrically, we, about 2 years ago, established ourselves as more of a national player in data centers. Mechanically, I would still would say we're still a super regional player in data centers. So you may see that growth because of the base and how we're continuing to penetrate new markets mechanically. And it takes a little longer to penetrate mechanically, and we're starting to see some of the investments return to us now from what we made 2 or 3 years ago mechanically. Brian Brophy: That's helpful. And then related, I think you mentioned 17 electrical markets on the data center side, you're up to now 7 mechanical and it's grown nicely over time. Where can that go over time? Anthony Guzzi: I actually don't know. I think we'll stop counting soon because they're now becoming -- you start counting the state of Ohio versus the 4 submarkets in Ohio and things like that, do you take the state of Indiana versus the 2 or 3 submarkets. I think the way I think about it is we are now starting to build scale in some critical infrastructure places. So if you think about how this has happened and why it's happened, it's because it's been this quest for power, right, quest for stranded power. And that's how we -- that's how our great industrial electrical got into the data center business in Indiana because they went and chase the stranded power from the steel mills and auto plants that had been there before. And so you think about that over time, there's still stranded power out there, and that should keep -- that's why we say 2- to 3-year pretty good outlook because our customers are telling us that, and they may even be a little bit beyond that, they feel pretty good, maybe a little longer, but we're contractors, we always discount that back a little bit. And -- but I will say this, the markets are now dependent on where they can get power in place. My gut is there'll be a couple more markets added and then in the markets they're in, they're going to start to build even more density, just like they did in Northern Virginia right outside of Columbus, Ohio, what they've done in Chicago, what they've done in Arizona. They built in Atlanta, they're building density in those markets. And they do that for a reason in Dallas. They do that for a reason because they think there's a good view on power in the long term and also the connections there are really, really good. And the latency becomes important in some of those major metro areas for the knowledge workers long time. Now do I understand how the latency works everything? Not really, but that's how it all works when you put it all together. So it will go up, it's not going to grow like it did because now they're starting to build critical mass in those markets. Operator: Our next question comes from Justin Hauke from Baird. Justin Hauke: Yes. Great. I guess, first one, I mean, you've talked about the fire life safety projects being strong for a while. I think you made some comments here about kind of the uniqueness of what you're doing on the data center specifically. But can you just elaborate a little bit more on your capabilities there? And how you're different in that market? Anthony Guzzi: Yes. Are we different? Yes, because I think we have some of the best fire -- we have critical mass on design, and we have a very strong position with the road local in the UA for sprinkler fitters. So if you take the business first and you take a step back and those that have been with us for, I'll be patient for a second, as I answer this question, it's one of the few trades that we do, that the actual implementation of that part of the specification is a design build product. The way the specification is written, it says provide a fire-life safety system in accordance with the code at both the national standard and then their state and local standards. And our guys are experts at that. And what they do then is we design it. And then fire life safety has a fairly significant prefabrication component. And we have some pretty at-scale fabrication shops to support our fire life safety business. And then it's -- for union other than 16 closed locals, it's a road local that will travel. And so our people can travel across the country. And it also tends to get connected to think of in other word, like LEGOs or tinkers -- it's a connected system, and we prefab most of it in the shops. And then finally, it has a nice aftermarket component, and we have a nice aftermarket business. And that is one of the places where if we build it, we have a pretty good shot at getting the long-term service agreement post building. So it's a national business and scope. It's a design build business and scope on that specific trade. We have a great workforce, and we're at scale in that business and probably as good as anybody else in that business. I'll never say we're the only ones, but we're one of the few that can operate on a national basis. Justin Hauke: Okay. I appreciate more of the history lesson on that. I guess my second one is, I guess, for Jason here, and it's just more of a model question. But the Danforth acquisition, obviously much smaller than the Miller was, but I know it's going to have an intangible component with it as well. Now that it's closed, I think Miller, that was like $40 million for the year, that was kind of a drag. What's kind of the similar magnitude for Danforth, just so we can kind of think about what's running through? Jason Nalbandian: So I'll hit a couple of things on amortization first. So if we look just at Danforth, in 2025, round numbers, it's about $2.7 million of amortization. In 2026, it's going to be around $14.2 million. So you got about $11.5 million of incremental amortization from Danforth in '26. Just a refresher on Miller, we said in year 1, so 2025, it'd be about $40.5 million of amortization. In 2026, it's going to be about $33 million. So you should see about $7.5 million drop off. So if you just look across EMCOR, while we may have a little bit of amortization benefit in electrical, it's going to be offset in mechanical. So if you really net the 2, it's near neutral. Operator: And our next question comes from Avi Jaroslawicz from UBS. Avinatan Jaroslawicz: So you've noted in the past that how much more of your revenue has grown than your headcount. Is that something that you expect is going to be able to continue this year? Or are some of those productivity gains maybe slowing down and requiring some more headcount to support the revenue? Anthony Guzzi: I think we'll keep the trend going. Jason Nalbandian: Yes. I think over time, we've said revenue is growing 2 to 3x faster than the headcount. We saw that again for the full year of '25. Our revenue outpaced headcount by 2x, and I think that model holds for the future. Anthony Guzzi: Yes. And we'll continue to get the productivity gains, and we'll continue to do the means and method sharing across the country to allow even more productivity gains. Avinatan Jaroslawicz: Okay. That is helpful. And then just as we think about the margin guidance for this year, I appreciate that you give that color on the intangible amortization. But just without the U.K. business and with large projects continuing to grow and productivity continuing to grow, would have expected maybe a starting point of around flat for the year for operating margins. So maybe if you could just help us think through that... Anthony Guzzi: Yes, at the high end of our range, it is flat. And so then it becomes a revenue. If we do come in flat. So on the size business we have with 12,000 projects, we're giving you a 40 basis point range. It's pretty tight. And could we come in at the high end of that range? Sure. But if we don't hit the midpoint of the guidance, that allow us -- it's a revenue margin thing, and it's really contract mix is probably the biggest thing in there. We think we'll maybe pick up a little better on project write-downs year-over-year. And so all that comes together, that's how we get to the range. It's a pretty tight range. And I think the bottom is pretty safe. Could there be upside on the top? A lot of things would go right? Sure. But we gave you the 9.4%, we think we have a probability of hitting the 9.4%. Jason Nalbandian: Yes. The way I view the range is at the high end, we're essentially saying we could replicate the record margins that we achieved in 2024. That midpoint of that range somewhere around our rolling 12- to 24-month average, more or less, that is equivalent to that midpoint. And at the low end, we're saying, this is what margins could look like if we have a different mix. So we talked about the water and wastewater work that we have ahead of us. It's great work. We're not turning down data center work to do it. It's a different margin profile. We're acting as a prime contractor. There's more subcontract component. There's more material and equipment component, so lower margins. So what we're saying is as we do some of that work and potentially revenue skews upward, it could have an impact on margins, but we still think in a fairly high band and a band that is at record levels for EMCOR over the last 2 years. Operator: Our next question comes from Tim Mulrooney from William Blair. Timothy Mulrooney: I'm looking at the time here, I'm just going to ask one question. And I really just want to build on that last question, you guys because maybe though, Tony, from like a more -- a higher level, a more conceptual standpoint. So bear with me. Because as I step back and I think about the situation that we're in, like this really is a renaissance for blue collar trade labor, American unionized labor in this country. So as I look at your guide for '26, I wonder what is the fair value? What is a fair burden for the critical services that you provide? Is it 12% to 13% margin in the Construction business? Like why can't that go higher? Anthony Guzzi: I think it's a mixed question. And I think this whole thing is about risk and return for us, too, Tim. Clearly, where we make our most margin is where we take the most risk on a contracting basis, which is where we take fixed price risk. And the more our mix skews to that, especially on these large projects, and we do well, the more money we can make. However, there are certain operating conditions on the ground that doesn't allow us to do that. And a classic example would have been the job that happened last year, we went a new market. We felt pretty sure of ourselves on the fixed price. We reevaluate that now today. We probably should have went into that market on that project with that design and with the schedule they gave us. We probably should have pushed harder for a GMP contract, which would have maybe not taken some of the upside away from us. If we've executed the way we thought we could, but would have protected us on the downside. I think the other thing that -- I think you're right. But remember, part of that renaissance actually goes back to labor, too. I think they've been very good with us on labor increases. But the packages you put together on a job here puts pressure on the budgets of our end customers, and that's how you get into some of these target price GMP type projects because they're saying, okay, we're not exactly how you're going to put this labor force together in this remote market in this section of Iowa or this section of Texas. So there's some underlying things going on here. But generally, I agree with you. I don't think our customers pay us enough for what we do, and we're going to continue to ask us to pay more. I don't disagree. We have the best skilled labor in the country, I don't disagree with you. Operator: Our next question comes from Adam Bubes from Goldman Sachs. Adam Bubes: One more on the outlook, and sorry if I missed this, but can you help us break out the revenue growth outlook between organic and acquisition? I know there's a few moving pieces with divestitures, and the acquisitions you did last year? Jason Nalbandian: Yes. I guess my first comment there, right, is you have to remember, the U.K. basically gives us a 3% headwind on the revenue growth. So if you look at our guidance, and let's say, at the low end, it's 4.5% and at the high end, it's 9%. It's really equivalent to 7.5% and 12%. When you consider the 1 month of incremental contribution we have from Miller and the 10 months from Danforth, you put that together, it really offsets the U.K. impact, the lost revenues from the U.K. So if you look at it and you say, what's the guidance? How much of that is organic? How much of that is acquisition. I would say really all of it is organic because the lost revenue from the U.K. is just offset by the acquisitions. Adam Bubes: Got it. Understood. Helpful. And then can you update us on the M&A pipeline today? I know it's hard to predict timing of M&A. But can you talk about how active your M&A pipeline is maybe compared to this time last year? And any way to characterize the pipeline of opportunities in terms of size of businesses, region or technical exposure? Anthony Guzzi: Sure. First of all, we have as good or better pipeline sitting here today than we did at the end of 2020 -- because we knew we were already going to do Miller, right? We were in negotiation. So if you look at the pipeline beyond Miller, our pipeline today is broader and more diverse than it was at the end '24. And the universe of them is where we like to buy, right? Mechanical and Electrical segments, building service, focus on mechanical service and building controls companies. That's where we're going to buy for the most part. And there's some spattering around mill right work and maybe some of the handling work we do in our mechanical business to supplement what else we do there. But that's what we'll do. Deals happen when they happen. I know we're landing -- here's who are a landing site. We're landing site for someone that's selling their life's work or their family's life work. That's proven very good for us. There typically it might be a broker, but it's not a brokered sale. Very much like Miller, very much like Quebe, very much like Batchelor & Kimball, very much a years ago, these are sort of landmark businesses that we're going to hopefully get to a deal. In other places, ESOP, that was Danforth. We're a great place for ESOPs long term, and part of Miller was a ESOP. Why? Because we have an operational culture that's focused on the trades. And that's really how that ESOP started at one time when that family moved that business into an ESOP. What we don't do particularly well in is auctions against private equity. We're not -- I don't have enough on my team with the vest that can go in and rip a company apart and tell me what it's worth. So we're not as good there, and we're not playing the average multiple game down. We're actually buying companies for the long term. And our deal size could be everything from $2 million, where we by some HVAC technicians, and it augments a smaller branch we have, all the way up to Miller at $865 million. We'll do anything along those lines. Could we do a couple, $500 million acquisitions this year, $300 million to $500 million? Sure, we could. And we could do $400 million, $500 -- I mean, $100 million acquisitions. Just don't know sitting here today, but I feel as good about our pipeline today at this point in the year as I have at any time in the last 3 or 4 years. Operator: And with that, everyone, we will be ending today's question-and-answer session. I would like to turn the floor back over to Tony for any closing remarks. Anthony Guzzi: Thanks, Jamie. And thanks to all the analysts. I thought this was a great question-and-answer session today. I think you got to the heart of what we wrestle with every day. I want to thank my colleagues from EMCOR and my teammates for what was a great '25. Reality is most of us already forgot about '25. We're here in the third week of February. We've all been focused on '26 really since probably the fourth quarter of '25. We have a great outlook. We're in all the right sectors. We're playing with the right team, and we have a terrific capital allocation strategy. Thanks for your interest in EMCOR. And thank you to all my teammates. Operator: And with that, everyone, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good morning. My name is Julianne, and I will be your conference operator. At this time, I would like to welcome everyone to ADTRAN Holdings Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] Thank you. Mr. Peter Schuman, Vice President, Investor Relations, you may begin your conference. Peter Schuman: Thank you, Julianne. Welcome, and thank you for joining us today, and welcome to all those joining by webcast. During the conference call, ADTRAN representatives will make forward-looking statements that reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties, including those detailed in our earnings release, our annual report on Form 10-K as amended and our other filings with the SEC. These risks and uncertainties could cause actual results to differ materially from those in our forward-looking statements, which may be made during the call. We undertake no obligation to update any statements to reflect events that occur after this call. During today's call, we will refer to certain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP measures and certain additional information are also included in our investor presentation and our earnings release. We have not provided reconciliations of our first quarter 2026 outlook with regard to non-GAAP operating margin because we cannot predict and quantify without unreasonable effort, all of the adjustments that may occur during the period. The investor presentation has been updated and is available for download on the ADTRAN Investor Relations website. Turning to the agenda. Tom Stanton, ADTRAN Holdings' CEO and Chairman of the Board, will provide key highlights for the fourth quarter and full year 2025. Tim Santo, our Senior Vice President and CFO, will review the quarterly and full year financial performance in detail and provide our first quarter 2026 outlook, and then we will take questions that you may have. I would now like to turn the call over to Tom Stanton. Timothy Santo: Operator, we are receiving notification that the line is bad and that recipients are not hearing us correctly. Is there a way to improve the line before we proceed? Peter Schuman: Thank you very much. Thomas Stanton: Thank you Peter, and good morning, everyone. ADTRAN delivered a strong fourth quarter and finished 2025 with solid momentum. Our quarterly results reflected higher demand and strong execution with revenue above the high end of our original outlook, overcoming typical year-end seasonality. Operating leverage continued to improve and earnings came in above expectations, with all 3 business categories achieving sequential and year-over-year growth. In the fourth quarter, ADTRAN generated revenue of $291.6 million, reflecting a strong year-over-year growth of 20% and sequential growth of over 4%. This marks the sixth consecutive quarter of sequential growth and the fifth consecutive quarter of year-over-year improvement, reinforcing the strength of our company and our key markets. Our U.S. business led the quarterly growth, with revenue up 31% year-over-year and 14% sequentially. Non-U.S. revenue grew 12% year-over-year and declined 3% sequentially as expected and consistent with recent ordering patterns among some of our larger European customers. Optical Networking Solutions grew 33% year-over-year, driven by strong sales to cloud providers and enterprise customers. This increase also drove the contribution of enterprise and cloud providers to 25% of our revenue in Q4 and 21% for the full year of 2025. These results reinforce a trend we are seeing: cloud providers expanding data center capacity and large enterprises upgrading their optical networks. During the quarter, we continued to broaden our optical customer base. We saw solid activity across service providers, cloud providers, enterprises and public networks, reflecting the flexibility of our optical platforms across different use cases. Access & Aggregation revenue grew 9% year-over-year and 6% sequentially, supported by continued fiber access investment across U.S. and European operators. During the quarter, customer activity reflected a mix of expansion projects and network upgrades as operators advanced deployments. In Subscriber Solutions, revenue grew 17% year-over-year and 3% sequentially, driven by demand for our residential fiber CPE as customers continue to connect more subscribers. The revenue in this category continues to be generated by a diverse mix of residential, enterprise and wholesale service offerings. Today, our software solutions serve over 1,000 carrier customers across 3 of our product categories, automating everything from optical networks to in-home subscribers' experiences. These customers include nearly 500 service providers adopting our Mosaic One platform and more than 100 service providers deploying our recently introduced Intellifi cloud-managed Wi-Fi solutions. We are also advancing our Agentic AI platform with numerous Mosaic One Clarity customer trials underway before an official launch later this year. As demand for AI-driven automation grows, we see this application suite as an important addition to our software capabilities. Looking at the broader environment, we continue to see sustained fiber investment across our core markets, and the U.S. broadband programs and ongoing investments in data centers are supporting ongoing network expansion. In Europe, increased focus on network security and vendor diversification away from higher-risk suppliers is reinforcing upgrade activity across the region. These trends are supporting continued demand for upgrades across all 3 product categories. At the same time, network requirements continue to evolve. Across data centers, between the data center and out to the customer edge, capacity demands are increasing. Service providers, cloud providers and enterprises are pairing high-capacity fiber networks with automation and software to streamline operations. While this is still an emergency contributor to our revenue, it reinforces the market's longer-term direction towards more intelligence and more automation. With our broadband fiber network portfolio, software assets and regional strength, we are well positioned to support both the current infrastructure cycle and the longer-term evolution towards these more intelligent fiber networks. We delivered a strong Q4 with solid financial results and execution and healthy core -- and healthy cash flows. For the full year 2025, we delivered double-digit revenue growth, with each of our 3 revenue categories also growing at double-digit rates. We achieved this while expanding gross margins and returning to positive non-GAAP operating margin and EPS. Also during the year, we strengthened our balance sheet by issuing approximately $200 million of convertible notes at an interest rate meaningfully lower than our revolving credit facility. We were able to purchase $27.2 million of ADTRAN Networks shares during Q4 and $46.6 million worth of shares during the calendar 2025, reducing the minority interest to less than 30% as we closed the year. As we move into 2026, our priorities remain continued improvement in our leverage model, expanding operating margin, cash generation and converting the customer momentum that we have been seeing. We continue to operate in a dynamic cost environment, including variability in components such as memory. We are managing that variability through disciplined procurement and price mechanisms that are already embedded in our model. At this time, we are not seeing conditions that change our demand outlook or execution priorities. In summary, we entered 2026 with a positive outlook. Customer trends are favorable in the U.S. and Europe, customer acceptance of products has been strong, and our product offerings and competitive position has never been better. We have several multiyear tailwinds in our key market segments. With that, I'll turn the call over for Tim to review the financial results in more detail. Tim? Timothy Santo: Thank you, Tom, and thank you all for joining us this morning. We delivered strong results for the fourth quarter and full year 2025, driven by solid execution and healthy revenue growth. As scale improved, we delivered higher margins, and operating efficiency increased across the business. We remain focused on disciplined cost management as we continue to grow. Over the quarter, we continued to operate with tight financial processes and consistent execution. These remain embedded in how we run the business, improving visibility and planning rigors and supporting structured capital allocation. While the mix between gross margin and operating expenses can shift from quarter-to-quarter as revenue moves, our objective remains focused on steady margin expansion as the business scales. As we noted on our previous earnings call, the capital actions we took last year improved our financial flexibility and added optionality. Broadly, our focus remains on simplifying the capital structure and maintaining flexibility to support the business and create value. We will continue to deploy cash thoughtfully to reduce the minority interest over time while maintaining balance sheet strength and evaluating noncore asset monetization opportunities as appropriate. Turning to the financial results for the fourth quarter of 2025. Revenue was $291.6 million, up 20% year-over-year and 4% sequentially, above the high end of our original guidance. Year-over-year growth was driven by all 3 product categories with Optical Networking the largest and fastest contributor, with revenue increasing by $26.9 million or 33% from the prior year. Geographically, non-U.S. revenue accounted for 53% of total revenue, while U.S. revenue accounted for 47%. Non-GAAP gross margin increased to 42.5%, up 44 basis points sequentially and 122 basis points year-over-year, driven by scale efficiencies, product mix and cost discipline. We remain focused on sustaining gross margin in the 42% to 43% range over the long term. Non-GAAP operating profits rose to $18.8 million or 6.4% of revenue, exceeding the midpoint of our original outlook, and up 103 basis points sequentially and 406 basis points year-over-year. Non-GAAP tax expense in Q4 2025 was $3.8 million or an effective rate of 22.6%. Non-GAAP EPS was $0.16 compared to $0.05 in Q3 2025 and a loss of $0.02 a year ago. EPS benefited by $0.03 from the acquisition of shares from minority holders in the fourth quarter. We continued to strengthen our financial position during the year. Year-over-year, net working capital improved by $8.7 million due to meaningful inventory reductions, largely offset by increases in accounts receivable due to increased sales. During the year, inventory declined by almost $50 million, including $8 million during the fourth quarter. Days inventory outstanding improved by 47 days year-over-year and 10 days in the fourth quarter to 114. DSO increased to 66 days, down by 1 day year-over-year and up 7 days sequentially due to increased sales and the timing of Q4 invoicing. As revenue scales, our focus remains on improving working capital efficiency. Operating cash flow was $42.2 million for the quarter, and free cash flow was $22.5 million. For the full year, we generated $129.8 million in operating cash flow and $60.5 million in free cash flow, representing healthy increases of 25% and 58%, respectively, compared to 2024. We ended Q4 with $95.7 million in cash and cash equivalents after purchasing $27.2 million or 1.2 million shares of ADTRAN Networks stock. For calendar year 2025, we purchased $46.6 million or 2 million shares of ADTRAN Networks stock and now own just over 70% and meaningfully reduced the interest rate on our outstanding debt as a result of the convertible note offering. Turning to our operational performance for the year. We made meaningful progress across key financial metrics during 2025. Revenue increased 17.5% year-over-year, totaling $1.084 billion. We expanded full year non-GAAP gross margin by approximately 90 basis points to 42.1%, reflecting increased scale, higher efficiency and favorable product mix. Non-GAAP operating margin increased to 4.8% in 2025 from negative 0.3% in 2024. And non-GAAP diluted EPS returned to a positive $0.23 per share. We delivered a strong year of cash flow generation, with net cash provided by operating activities increasing by $26.2 million to $129.8 million. We remain disciplined on cost structure while positioning the company to convert revenue into sustained earnings growth. Looking ahead at our outlook for the first quarter of '26, we expect revenue to be between $275 million and $295 million and non-GAAP operating margin of 4% to 8%, reflecting traditional seasonality and current supply chain dynamics. I will now turn the call back over to Tom. Thomas Stanton: All right. Thanks very much, Tim. Julianne, I think at this point, we're ready to open it up for any questions people may have. Operator: [Operator Instructions] Our first question comes from Michael Genovese from Rosenblatt Securities. Michael Genovese: Great conference call, clearly upbeat messaging. Tom, can you just talk a little bit more, I guess, specifically about the demand picture in U.S. and Europe and sort of what you're seeing from your clients on the optical side and on the fiber-to-the-home side? And just talk a little bit more about the drivers of the revenue growth. And I guess related to that, like do you think -- obviously, you're not giving full year revenue guidance, but coming off a year where you grew 20%, do you think double-digit growth is -- top line growth is in the cards for '26? Thomas Stanton: Yes. So let me start on a little down, which is we don't give full year guidance for a reason, and that's because our outlook is -- typically are still our book-to-ship period is relatively small. So it's a little difficult. Let me speak a little bit more about the kind of the environment that we're in right now. I would say it's kind of the same tone and kind of building momentum that we saw throughout last year. And we expected that to continue on, and that's exactly what's happening. So we -- on the fiber-to-the-prem side, nothing has slowed down. Programs are still going well. We're still adding new customers to those product areas, and we're continuing to operationalize carriers in Europe. So all of that is just a continuation of the same type of activity we saw last year. On the fiber front, the dynamic is a little bit different because we were still at the very beginning of the year, kind of crawling out of the revenue inventory uptick that we had seen in our customer base. That cleared itself up last year. We started seeing that real progress in the second half of the year. We also -- as you may be aware that we had won some additional customers, both here in the U.S. with wider scale kind of Tier 2 deployments as well as in Europe, where we won some Tier 1s, and that momentum is just continuing on. I would say that is driven not just by the Huawei replacement which is going on in Europe, but just in general, I just think activity, we just saw customers starting to unleash capital, and they're trying to increase their bandwidth for obvious reasons. I mean, I think all of them are trying to figure out how they're going to play in a new AI-driven world. I think MoFi is a driver. We definitely -- I mentioned it on the call, we saw some real positive momentum on the enterprise side, which includes ICP carriers, right? So yes, it's just generally a good environment. Michael Genovese: Great. And then my second and last question will just be on pretty wide operating margin outlook of 4% to 8% for the quarter. So is that because of things like memory prices, that the range is that wide? Or is that kind of maybe more of a normal range and I'm just reading it as being wide? Thomas Stanton: To us, I don't think there's any difference in the range that we get than what we typically do. There is tightening supply, as everybody is aware of, on memory. There's some tightening supply in optics. But I would say that that's not overly impacting the guidance range. Our kind of operating model is still what we fully expect it to be, what we've communicated, which is operating expenses in the low 100 range and gross margins in the 42%, 43% range. I don't see we see a deviation from that. Tim, any comments? Timothy Santo: No, I would reiterate, as Tom said, the guidance range is about 4 points, which if you look historically is where we've been. And it's actually up a little bit from last quarter. But the leverage model would remain up from what we guided last quarter. Thomas Stanton: You mean midpoint, yes. Operator: Our next question comes from Ryan Koontz from Needham & Company. Ryan Koontz: I want to ask about optical, maybe if you can unpack a little bit. You talked about enterprise ICPs, I assume that's a big driver of optical. Do you have any ideas, like how much of that is really hyperscale and AI data center cloud-related versus what I would call like traditional SP and enterprise networking? Can you maybe help us understand some of those dynamics there within the optical strength? Thomas Stanton: Sure. So there was actually a good contribution on both of those fronts in the quarter. And I'm trying to think if it was -- I would say -- and this is not having the note in front of me -- that the mix on traditional enterprise, including the banking sector and all of the larger enterprise that we play into is a portion of that. And then ICP did come in stronger in the quarter than what we had historically seen, and we expect that momentum to continue on through this year. Ryan Koontz: Great. And I recall a conversation from OFC last year about this opportunity in MOFN where the hyperscalers are contracting with traditional SPs or maybe some of the Tier 2s like Colt, et cetera, to build for them. Are you seeing some benefit there as well? And would that show up in your SP business as opposed to your enterprise business if it was a MOFN-type deal? Thomas Stanton: No, that would show up in our carrier. We would consider that to be a carrier customer. And we're definitely seeing that. We talked about that in the last maybe couple of conference calls, how we were starting to see some of the carriers position themselves to be able to do MOFN. That's just a continuing ongoing kind of upgrade cyclical thing that's adding positive momentum to that business. So -- but that is separate and apart from the enterprise piece that we're talking about. Ryan Koontz: Great. And maybe just one last, if I could, on the fiber-to-the-home side. Relative to new footprint, it seems like the U.S. has been a little bit hit-and-miss where some segments do better than others. Any update there on how Q4 turned out in terms of new greenfield footprint and how you're thinking about '26 going forward for U.S. fiber-to-the-home greenfield builds? Thomas Stanton: Yes. I think it was -- I'd call it a solid quarter, kind of consistent with what we had seen in the year. I mentioned that the -- in general, the U.S. business was definitely stronger on a sequential and year-over-year basis. I think we're expecting good things this year. We finally -- I probably shouldn't say the word, but BEAD dollars are actually starting to flow. We got a customer in Louisiana that is expecting BEAD dollars hopefully next week. So -- and I don't want to over-rotate on that guide because the build-out is going to consistently be driven for most carriers by kind of fiber deployment for this year and then equipment next year. But the fact that, that's actually flowing is real positive. I think there's 6 other states that are -- expect money any day now. So the fact that those dollars are starting to flow, I think, is a positive thing. And it's just as positive, not just the BEAD dollars, but from a planning perspective and knowing that it's going to happen and giving carriers surety as to how they plan their capital budgets is very important. Ryan Koontz: Right. So the planning, engineering and maybe the fiber optic cable spending this year from BEAD sees an earlier uptick, you're saying than your equipment would see this year that would follow within quarter 2 behind... Thomas Stanton: Yes, you've got to be able to deploy that fiber. But I think the positive thing for us, which we don't know how that will impact, and it may just be just a kind of positive influence is the fact that you get surety in your budget planning cycle. But not just your BEAD funding, but your normal capital spend as well. And I think that, that's been missing for some time. Operator: Our next question comes from Christian Schwab from Craig-Hallum. Christian Schwab: Great execution in the quarter, guys. Tom, I know -- so we're sitting here at the end of February, noncore asset sales and potential building sales and leaseback activity. Would you be disappointed if we didn't have resolution on both by the end of calendar 2026? Thomas Stanton: Well, leaseback activity, more than likely, that is not going to happen with the North Tower -- excuse me, the East Tower. So let me be clear on where we are with that. I think we've been trying to talk about this now for a couple of quarters. We did get several lease offers on the building. Financially, it didn't make sense for us because of where we are with our cash position right now and what we use for the cash and what that lease would ultimately cost us. So we have put that on hold. We can always revisit that if we want to. Then on the North/South Tower, which is the thing that's up for sale, I'm going to let Tim jump in here and give you an update on that. Timothy Santo: A lot of activity in the Huntsville market. We're not currently under contract, but we have activity. So we continue to work that, and when the right deal comes along, we will close that. As we had hoped it would happen in 2025, we are very optimistic it will happen in 2026, but the market will dictate. Christian Schwab: Great. And then on the noncore asset side, Tom, do you think that can get resolved this year? Or is that a fluid situation? Thomas Stanton: Yes. So we -- let me try and do this in a proper way. We have taken a look at the noncore assets. We've gotten values on what we think the noncore assets that we think are not strategic, right, to our business. We have -- we are doing things right now that we think will increase the value of those assets, and we'll reevaluate that in the second half of this year. Christian Schwab: Perfect. And then my last question, as we go throughout calendar 2026, is there one area -- we spoke positively, obviously, about finally loosening up after many years of seeing some progress as speed is concerned. But as we look at equipment replacement in Europe, the strength in optical, geographical strength in Europe, et cetera, is there one thing more than another that you're most excited about as we go through 2026 that we can monitor? Thomas Stanton: Yes. So I think -- let me just hit on a couple. One is I think enterprise is doing really well. And as I mentioned earlier on the Q&A, there are multiple drivers for that. We expect that to be strong this year. And so that strength is above whatever the company is doing on a corporate average perspective. So that's really good to see. The other is there is some legislation going on. I don't know how much success it's going to have. It's good that it's going on, but in the EU right now to accelerate the Huawei replacement piece. It's not so much whether or not that actually happens, which there is a high likelihood it happens. But just the focus on that is positive for our business. And I'll remind people, we think that's a near $1 billion a year type opportunity that Huawei is selling into the European market that we think we have a very good chance of being able to capitalize on. So as that pressure continues on, and it is -- there was legislation that was sent out in the EU in early of last year that is positive, right? So that addresses this issue. So yes, so I think both of those things are real positive catalysts. Operator: Our next question comes from George Notter from Wolfe Research. George Notter: I guess I just want to keep going on the question of Huawei replacement in the EU. I think the regulatory stance currently basically has it not compulsory to replace Huawei, but I guess, suggested would be kind of the idea in terms of the current regulatory environment. And I know the stuff that's coming down the pike is going to mandate Huawei replacement, and it sounds like it could be a few years away until that legislation actually requires companies to -- or carriers to replace Huawei. But I guess I'm just curious, like what has the inflection happening right now? Is there something you're seeing with your customers that allows them to move more quickly? Is it funding? Is it more pressure from a political perspective? I guess I'm just trying to understand what's driving this. Thomas Stanton: Yes, sure. Yes, I agree. Well, let me just make one caveat to that. Although the EU's directive is more of a recommendation, the country-by-country and carrier-by-carrier requirements or legislative actions are different, right? So we do have some countries in the EU that have explicitly been stronger on that. And it's not so much that -- I think that legislation and the talk about legislation and the fact that we're even talking about it here is exactly the point, which is if you're a carrier and you're doing a new award, you're kind of crazy to be deploying Huawei at this point. Or if there's a new region, a new footprint that has to be built out, even if they're an approved vendor, you know you're going to have a problem. So what that's doing is putting on -- increasing the braking pressure on continuing to deploy them on an ongoing basis. I would agree that pulling them out is a different thing, and that will take years. And we've characterized that north of -- and it's an easy math, George, for you to do, right? It's a north of $10 billion opportunity for the pull out. But what we're talking about is just on the annual spend, where they're going in and filling in new [ cars ], building out new footprint. That kind of activity is going to continue to slow down. George Notter: If I look at that $1 billion annual spend, how well positioned do you think you are on that? I mean, obviously, that's across a number of product categories. It's across a large number of specific operators, maybe some you're in, some you're not. I mean, is there a way to kind of pin down that $1 billion in annual spend in terms of what's like reasonable for you? Thomas Stanton: Yes, please. Let me not be so sloppy on that number. The last time we looked at it -- and we do have another -- we have an outside firm trying to take a look at exactly what that number is at this point. But that number is derived from about an $800 million, I think it was $850 million or $860 million number for EMEA in our target product areas, and that was in '24. We think that, that number is going to continue to slow down. It was north of $1 billion not that long ago. So that number will continue to slow down as we actually pick up that market share. Now that's for products that are specifically in our product sweet spot, which is kind of mid-mile, regional network optical, access and aggregation. It is those products that we're actually talking about. So it's really what we believe the TAM is for our products. But like I'm trying to say, it's a rough number right now, and it's just based off of the earnings results of Huawei. Operator: Our last question comes from Dave Kang from B. Riley. Dave Kang: First, regarding European telcos, you talked about them being front-loaded. Just wondering if you can kind of quantify whether it's 55:45 or is it more exaggerated? Thomas Stanton: I'm sorry, your question broke up for me. Can you rephrase it or restate it? Dave Kang: Yes. Regarding your European telcos, Tier 1s. In the previous calls, you said they tend to be front-loaded. Just wondering if they're like 55:45 or more like 60:40. Any color? Thomas Stanton: As far as in the year, is that what you're talking about? Dave Kang: Yes. Thomas Stanton: I don't know if I've seen that actual breakout. I would say it's definitely -- last year, it was probably 60-ish, 40-ish, and this is just off the cuff. And this is predominantly in the access and agg product category. So you'll see that -- last year -- you could see that last year in our Access & Agg number. You actually saw that kind of big bump in the first half of the year, and then it kind of tailed down. It's not as prominent in the rest of the product areas. They kind of -- they're just not on the same cycle. Dave Kang: And are you kind of expecting similar dynamics this year or any changes from last year? Thomas Stanton: Really good question. I will tell you, we weren't happy with that bump because of what that does operationally. Bumpy is never as good as smooth. So we have been talking to them about that and trying to get that to be more even flowed this year. So I don't know how successful we've been with it at this point. So hopefully, you won't see that same type of kind of waterfall. Dave Kang: And my second question is regarding the same European telcos. Just where are we in terms of their broadband deployment cycle? Are we still early stages or mid or getting towards the late innings? Thomas Stanton: Good -- well, if you take Europe as a whole, there's no way to characterize it other than early. We've brought just recently, some new carriers on that haven't been deploying with us, and then they all kind of have this Huawei issue as well. If you take specific areas, there are countries that are farther along. The U.K. is, I would say, kind of more towards the middle. Germany is probably -- definitely within the first half. So it depends on the carrier. Some of them are -- haven't started yet. Dave Kang: Got it. Thank you. Thomas Stanton: Okay. At this point, I think we are -- no more questions in the queue. So I'd like to thank everybody for their participation today, and we look forward to talking to you next quarter. Operator: Ladies and gentlemen, that concludes today's call. Thank you for your participation. You may now log off.
Operator: Good day, and thank you for standing by. Welcome to the Playtika Holding Corp. Q4 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tae Lee, SVP, Corporate Finance and Investor Relations. Please go ahead. Tae Lee: Welcome, everyone, and thank you for joining us today for the fourth quarter of 2025 earnings call for Playtika Holding Corp. Joining me on the call today are Robert Antokol, Co-founder and CEO of Playtika Holding Corp., and Craig Abrahams, Playtika Holding Corp.'s President and Chief Financial Officer. I would like to remind you that today's discussion may contain forward-looking statements, including, but not limited to, the company's anticipated future revenue and operating performance. These statements and other comments are not a guarantee of future performance, but rather are subject to risks and uncertainties, 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. We have posted an accompanying slide deck to our investor relations website, which contains information on forward-looking statements and non-GAAP measures. We will also post our prepared remarks immediately following the call. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC. With that, I will now turn the call over to Robert Antokol. Robert Antokol: Good morning, and thank you for joining us. We finished 2025 with a strong fourth quarter that shows our plan is working and the business continues to show bright spots. In Q4, we delivered $678.8 million of revenue and $201.4 million of Adjusted EBITDA, driven by D2C growth, our pivot to casual, and SuperPlay results. Here is the main point: We are building a balanced set of assets. Every year, more revenue comes from long-life casual games with broad reach, and D2C is now core to how we run the business. At the same time, our legacy game still matters. These are still meaningful sources of cash flow, and we are managing them with the focus and care as part of a portfolio, not as a one-game company. This mix is more balanced, less dependent on any single category, and better positioned to deliver durable free cash flow. First, D2C. D2C keeps growing and adds more value for Playtika Holding Corp. In Q4, D2C was 36.8% of our revenue, and we ended the year at about $1 billion in annual D2C revenue. This marks a clear shift in how we engage with players and process transactions. We are building a multi-channel D2C strategy, and we are consistently optimizing those channels to improve unit economics and strengthen our business over time. Second, our casual games. In Q4, casual revenue was about 74% of total revenue. We have evolved our portfolio over the last five years. This broadens the business and supports a steadier path. Third, SuperPlay. SuperPlay delivered record revenue in Q4, with Disney Solitaire up 21.4% quarter-over-quarter, and now our second largest game in the portfolio. We see improvements in Dice Dreams and continuous growth in Domino Dreams. SuperPlay's growth this year is nothing short of amazing. It makes them one of the fastest growing studios in the mobile gaming industry at their scale. We acquired SuperPlay to add top casual games, bring a new growth engine, and widen our base with long-life assets. The performance supports this decision and raises our confidence in SuperPlay. This acquisition highlights a core strength at Playtika Holding Corp., recognizing amazing teams and backing them with the capital and operating discipline. With SuperPlay, we invested behind a talented team with great potential and provided the financial flexibility to scale games. This reflects our disciplined approach to allocating capital when talent, product, and returns align, and the same playbook guides how we run the entire company. We act from a position of strength. We focus on returns, reallocating spend, and generating cash. With that, I will turn the call over to Craig to review our financials, outlook, and capital allocation framework. Craig Abrahams: Thank you, Robert, and good morning. Q4 reflects the strength of our model and a mix shift that is now clear in the results. We came in ahead of our revenue and Adjusted EBITDA guidance, set another D2C record, and saw outstanding momentum from SuperPlay. This is now the third straight year we have met or exceeded our Adjusted EBITDA guidance, reflecting the strength and consistency of our operating model. I also want to reinforce how we run the company. We manage Playtika Holding Corp. as a portfolio. We protect and strengthen leadership positions in our key casual franchises. We scale capabilities like D2C that improve our unit economics across the business, and we maximize the lifetime value of our social casino-themed titles while staying disciplined on returns and costs. On social casino-themed games specifically, these games operate in a tough, crowded market, and the mobile industry has evolved since our IPO. That is not a reason to be defensive; it is a reason to be decisive. Our goal is clear: slow the decline and get full value from these assets. We fund where returns make sense, extend the life of older titles, and step back where the bar is not met. We were pleased to see early signs of stabilization in Slotomania in the quarter. To be clear, we remain focused on stability and value while we build the next phase. To keep resources concentrated on our more attractive opportunities, we streamlined parts of the organization and plan to redeploy investment behind the areas with the strongest returns. The mix is improving, our growth engines are working, and we are building a more resilient Playtika Holding Corp. Turning to the financial results for the year. Revenue was $2.755 billion, up 8.1% year-over-year. We generated a net loss of $206.4 million, adjusted net income of $197.5 million, and Adjusted EBITDA of $753.2 million, down 0.6% year-over-year. Our net loss margin was -7.5%, our adjusted net income margin was 7.2%, and our Adjusted EBITDA margin was 27.3%. We generated record free cash flow of $481.6 million, an increase of 21.4% year-over-year. We are managing CapEx and working capital tightly. We remain focused on delivering strong free cash flow generation over time. Now to the quarter. Revenue was $678.0 million, up 0.6% sequentially and up 4.4% year-over-year. Net loss was $309.3 million, compared to net income of $39.1 million in Q3, and a $16.7 million loss in Q4 of 2024. The net loss was primarily driven by the non-cash impact of remeasuring contingent consideration related to the SuperPlay earn-out, which flows through GAAP results but is excluded from our adjusted net income and Adjusted EBITDA. Adjusted net income was $89 million, compared to adjusted net income of $65.8 million in Q3 and $27 million in Q4 of 2024. Adjusted EBITDA was $201.4 million, down 7.4% sequentially and up 9.5% year-over-year. Our Adjusted EBITDA margin was 29.7%, compared to 32.2% in Q3 and 28.3% in Q4 of 2024. Direct-to-consumer was a key driver of both performance and mix. D2C revenue reached $250.1 million, growing 19.5% sequentially and 43.2% year-over-year, reflecting broad-based contributions across our games. Turning now to our business results for the quarter for our top three revenue games. Bingo Blitz revenue was $158.5 million, down 2.5% sequentially and essentially flat year-over-year. We drove engagement with focused in-game and out-of-game campaigns around the Bingo Blitz and Garfield collaboration, including a new themed bingo room featuring a cooperative mini-game, where players work together to progress through Garfield content. We also introduced a new gameplay mechanic that has players find Garfield within bingo cards, and we closed the quarter with an innovative experience that offers eight bingo cards per session instead of the usual four. Disney Solitaire revenue was $71.6 million, up 21.4% sequentially. By Q4, the title had scaled rapidly and was approaching a $300 million annualized run rate, reflecting its strong momentum since its global launch in April 2025. Results have been driven by product execution and steady tuning, including new feature launches, game economy updates, and continued improvement in unit economics through direct-to-consumer. We have also seen traction internationally, including Japan, which further validates the global appeal of the franchise. For the full year, SuperPlay generated about $573 million of revenue, a 67.5% increase from the $342 million baseline tied to the earn-out. The studio is doing this while staying focused on long-term fundamentals, engagement, retention, and live operations. As we shared previously, we have expanded our collaboration with Disney and Pixar Games and are developing a new title in the SuperPlay pipeline. June's Journey revenue was $70 million, up 2.5% sequentially and down 2% year-over-year. June's Journey continues to maintain its position as the highest-grossing hidden object game worldwide. In Q4, engagement benefited from a strong content cadence and seasonal programming, including the Wicked IP collaboration. Direct-to-consumer is relatively new for June's Journey. We have scaled it quickly across both iOS and Android. We continue to see it as a durable lever to deepen player relationships and improve unit economics over time. Turning now to specific line items in our P&L for the fourth quarter. Cost of revenue increased 4.5% year-over-year, driven by revenue growth, offset by platform mix. Operating expenses increased 100.3% year-over-year, driven primarily by the GAAP impact of contingent consideration related to the SuperPlay earn-out. Excluding the change in contingent consideration, as well as expenses associated with our long-term cash compensation program that expired in 2024, operating expenses increased by 5.4%. R&D expenses increased 13.8% year-over-year, driven primarily by higher headcount following the SuperPlay acquisition and continued investment to support the growth of the SuperPlay studio. Sales and marketing increased 9.6% year-over-year, reflecting higher user acquisition spend due to the full quarter impact of SuperPlay, as well as the sequential step-up in marketing investments that we previewed on last quarter's earnings call. G&A increased 383.5% year-over-year, driven primarily by the $394.1 million contingent consideration expense recorded in the quarter related to the SuperPlay earn-out. Excluding the impact of contingent consideration and expenses associated with our long-term cash compensation program, G&A would have declined by 22% year-over-year. To provide more clarity, a brief word on the earn-out mechanics. The SuperPlay earn-out this year is tied to revenue growth versus a $342 million revenue baseline, with a step-up in multiple above certain thresholds. Changes in fair value of the contingent consideration run through GAAP G&A, but they are excluded from adjusted net income and Adjusted EBITDA and do not change the underlying cash terms of the earn-out. We ended the year with $820.2 million in cash equivalents and short-term bank deposits, and we expect to fund the SuperPlay earn-out from cash on hand. Looking at our operational metrics, average DPU increased 0.8% sequentially and 5.3% year-over-year to 357,000. Average DAU decreased 3.7% sequentially and 1.3% year-over-year to 7.9 million. ARPDAU was $0.93 in the quarter, up 4.5% both sequentially and year-over-year. On to our outlook for 2026. Our guidance reflects a business that has been undergoing a strategic shift. Growth titles led by SuperPlay are driving material revenue. Our industry-leading casual franchises, Bingo Blitz, June's Journey, and Solitaire Grand Harvest, continue to benefit from live ops and rising direct-to-consumer contribution. In social casino, revenue is declining, and our focus is on protecting the economics of those franchises and maximizing cash flow through disciplined management and operating efficiency. We also want to be clear that direct-to-consumer is a core and growing part of our business, and we are executing to expand it. At the same time, we are taking a measured view of any incremental benefit tied to the evolving platform policy landscape, and our guidance does not assume any single policy outcome. With that context, our guidance for full year 2026 is as follows: Revenue of $2.7 billion–$2.8 billion, Adjusted EBITDA of $730 million–$770 million, capital expenditures of $80 million, and an effective tax rate of 30%. We also expect our marketing spend to be weighted toward the first half of the year, particularly the first quarter, which we expect to result in lower Adjusted EBITDA in the first quarter and higher Adjusted EBITDA in subsequent quarters. Finally, capital allocation. When we initiated our dividend, the intent was to provide an attractive return to shareholders while we executed on our strategic priorities, including restarting M&A and repositioning the portfolio. We have made real progress against those priorities. We have scaled D2C to record levels. We have successfully ramped up SuperPlay, and it is performing in line with and in certain areas ahead of the expectations we had at the time of the acquisition. We have also sharpened our operating model and reset our cost basis. At this stage, our capital allocation framework needs to reflect both the opportunities in front of us and the performance-based nature and potential size of the SuperPlay earn-out. To preserve flexibility and direct capital to the highest return uses, we are suspending our quarterly dividend. With respect to share repurchases, we intend to keep buybacks available within our capital allocation framework. We will continue to evaluate our capital structure over time, including opportunities to reduce debt where it makes sense, while maintaining balance sheet capacity to fund potential obligations and invest behind growth. As we take these steps to focus capital on the highest return opportunities, we remain fully committed to enhancing long-term shareholder value. With that, we would be happy to take your questions. Operator: Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while I compile the Q&A roster. Our first question comes from Aaron Lee from Macquarie. Please go ahead. Aaron Lee: Hey, guys. Good morning. Thanks for taking the question. Congrats on the quarter. I just wanted to talk on a general level about AI. I know you mentioned this in the letter around workforce reduction. Could you expand on how you view the role of AI within your business? How are you using it today, and what have been the early learnings? Looking forward, where do you see the greatest opportunities? Thanks. Gotcha. Thank you. On capital allocation, I appreciate all the comments there. How should we be thinking about your appetite for M&A at this point? Does that fall under the category of investing behind high-return growth? Thanks. Robert Antokol: Thanks for the question. As we spoke in the last few years, we started investing in AI, I think six to seven years ago. We opened a few labs in Playtika Holding Corp., and we always understood that this will be part of the future growth. Right now, what we see is a revolution happening. For us, this is an amazing opportunity, because when you look at Playtika Holding Corp. today, our asset is the community and the content. This is our asset. We see the AI opportunity as a new platform. We see something that can grow our business. We are very excited. We are following every trend that is happening in the market. I am sure that for us, it is going to be one of our growth engines in the future. Craig Abrahams: Thanks for the question, Aaron. M&A has always been a core part of our growth strategy. SuperPlay has been a tremendous transaction for us, and given the growth and strong growth that we have seen through the year, we plan to continue to invest aggressively in growing that within the constraints of the earn-out. As we look at overall capital allocation, we want to continue to invest in the best ROI opportunities possible, and investing in the SuperPlay earn-out and the SuperPlay platform is definitely the highest priority capital use for us. As we look at other M&A opportunities, we are always going to try to be opportunistic, but we are cognizant of the fact that we want to maximize liquidity and balance sheet flexibility as we move forward. Aaron Lee: Got it. Appreciate the color. Great job with SuperPlay. Craig Abrahams: Thank you. Operator: Thank you. Our next question comes from Eric Handler from Roth Capital. Please go ahead. Eric Handler: Good morning. Thanks for the question. As you look to transition more people to the D2C platform, what type of incentives are you giving people to move off of iOS or the Google or Android platform? I assume some percentage higher of incremental virtual currency or items. I am just trying to get a sense of how that is working. Robert Antokol: Thanks for the question. First, to say again that D2C has become one of our biggest parts of cash flow growth in the last few years. We are on a run rate of $1 billion. I think we are leading the industry; I do not think anyone is even close to us. At the end of the day, we are giving a better experience to the users. We are closer to them; we can provide more support to them. I think the advantage of having such a huge D2C platform is the right connection to the players. It will help with retention; it will help with long-time gameplay. For us, this is one of the most important things. As we started D2C, we always knew that it was going to be one of Playtika Holding Corp.'s strengths and one of Playtika Holding Corp.'s engine growth drivers for cash. This is what we are doing. Eric Handler: Thank you, Robert. Operator: Thank you. Our next question comes from Chris Shull from UBS. Please go ahead. Chris Shull: Great, thank you. Just to follow up on the 2026 guidance, can you frame or quantify what this assumes for Slotomania and the social casino performance as you seek to ramp newer IP in that category? As you think about performance coming in at the higher or lower end of those ranges, what are some of the biggest variables in your mind? Okay, great. Thank you. If I can fit in one more. The D2C mix was clearly well ahead at 37% versus the 40% mix I think you previously talked about reaching in two years. Any updated thoughts on that longer-term target? Where is the natural limit as we try to gauge how high this could ultimately reach? Thank you. Craig Abrahams: Sure. Thanks for the question. As you have seen, we have been undergoing a mix shift. I am proud to say that our business is now 74% casual, and that continues to be the fastest growth part of the business, driven by SuperPlay. As we look and give forward guidance, continued overperformance from the SuperPlay titles is definitely there on the upside case. On the downside case, you would see continued declines in the social casino portfolio. That mix shift obviously impacts margins, but as we look at the guidance and our consistency over the past three years, either meeting or beating expectations on the Adjusted EBITDA side, we have confidence in our ability to execute there and continue to focus on that transition toward a more casual, healthier mix going forward. Sure. Good question. Our previous long-term target was 40% of revenue. We will continue to keep that, given all the various policy changes in the background. Our target does not assume one outcome or the other as it relates to things outside of our control. It is really focused on what we can control and our own execution. Operator: Thank you. Our next question comes from Matthew Cost from Morgan Stanley. Please go ahead. Matthew Cost: Good morning. Thanks for taking the questions. Just first on Disney Solitaire, obviously, that game is on a really great trajectory. Just looking at some of the third-party data out there, it looks like it has shifted upward again year-to-date in 2026. Is that a function of live services in the game? Is it because you have hit a seasonal bump in marketing, which you typically see in the first quarter, and you are allocating a lot of it towards that game? How should we think about the trajectory as you move through 2026 from here? That is question one. Question two for Craig. There was a lot of shift toward D2C in the quarter. It seemed to impact gross margins a little bit less than I would have expected, given the magnitude of impact to revenue mix on D2C. Are there any crosscurrents in gross margins that we should be cognizant of that prevent a sudden increase in gross margin as you see the dollars flowing through D2C? Thank you. Craig Abrahams: Thanks, Matt. I will take the first one on Disney Solitaire; Tae will take the second piece on gross margins. Disney Solitaire is off to a great start to 2026. As we referenced in the prepared materials, there is a meaningful investment in marketing dollars in the first quarter. We anticipate EBITDA will be impacted in Q1 and moderate throughout the year. I think you are going to see that larger investment drive real growth. It is one of the best ROIs we have within the portfolio in terms of deploying marketing dollars. Tae Lee: Matt, on the gross margin point, you are right to call out some of the crosscurrents that you are seeing. You are seeing the benefit in lower platform fees, in terms of revenue from an increased D2C mix, but that is offset by increased amortization coming from past acquisitions that are flowing through our P&L. Matthew Cost: Great. Thank you. Operator: Thank you. Our next question comes from Jason Bazinet from Citi. Please go ahead. Jason Bazinet: Thanks so much. I was just wondering, Craig, if you could unpack that approximately $400 million change in the contingent consideration. Is that composed of, like, $225 million on the 2025 payout that has not gone out the door, plus approximately $180 million on the 2026 payout? If that is true, what, if anything, can you share about the EBITDA margins at SuperPlay to trigger that approximately $180 million on the 2026 payout? There is nothing prospective in those earn-outs for 2026. You are not positing what the earn-out will be in 2026. These are all just earn-outs, backward-looking, if that makes sense? Yep. Okay. Is the trigger—am I right—that the trigger is greater than 5% EBITDA margins? Is that confirmed? Yep. Yep. Is it fair to assume, based on the $400 million, that you are between that 5% and 10% margin on SuperPlay, or is that the wrong implication? Okay. Thank you. Thank you. Craig Abrahams: If you look at the contingent consideration that we have payable, due at the start of Q2, you will see in short-term payables an estimate of the earn-out amount. We have the year one earn-out payable at the start of Q2. Obviously, each year thereafter, years two and three, we will have earn-out payable before. Given the strength of the performance there, you see a higher earn-out payment and therefore higher contingent consideration. The EBITDA is in line with—in order to pay the earn-out in year one, it was less than $10 million. While we cannot say the specific amount, they obviously are eligible for the earn-out and had an EBITDA loss better than -$10 million. No. The contingent consideration amount in total takes into consideration future earn-out payments as part of the Monte Carlo simulation, coming up with the present value of that payment. In terms of what is actually payable, it is in our payables in the balance sheet. In year—year two, which is 2026, it is greater than 5% margin. There is a 0.25x multiple premium on revenue if they get to a 10% margin. No, that is for 2026. For 2025, which is the first year of the performance earn-out, it is just doing better than -$10 million in Adjusted EBITDA. You can assume that. You got it. Operator: Thank you. Our next question comes from Clark Lampen from BTIG. Please go ahead. Clark Lampen: Thanks for taking the question. Craig, I have two on D2C, if I may. You mentioned that you are relatively earlier on with the transition for June's Journey. Could you remind us if there are titles across the portfolio that do not have a meaningful D2C presence or, similar to June's, maybe a more nascent one at this stage? Maybe a naive question on D2C. When we think about that sort of revenue stream for you right now, is that spend solely captured from your players in a browser environment, or have you also set up link-outs for the App Store version or app version of your games for players that might prefer to engage with the titles in that format? Thank you. Okay, if I may, very quickly, a quick follow-up on marketing. Relative to the approximately $761 million that we saw called out in the 10-K, is it possible to give us a sense of what is budgeted for 2026 or maybe even a more directional indicator? Within this question, I am curious if you see in Q1 that the returns are really healthy for Disney Solitaire, do you have the flexibility over the balance of the year to invest behind that title or new ones, if you believe that the returns justify it? Thanks. Craig Abrahams: Thanks, Clark. At this point, we have broad penetration of D2C across the portfolio. Those casual titles that we had flagged previously years ago are now well penetrated in terms of their D2C base and growing. We had broad growth across the portfolio. Based on platform changes, we have seen increases across the platforms, on mobile, with link-outs as a new means of growing D2C. There is a variety of channels that we deploy, and each game has its own roadmap and is out there executing. Unfortunately, we do not break out the guidance on marketing dollars for next year. What I can say is that there are constraints around SuperPlay in that they are under an earn-out, and so, given the previous question, they are targeting a 5% or greater margin. While the foot is on the gas from a marketing perspective there and driving growth, at some point, that will have to moderate to ensure that they are able to drive margins into that 5% or 10% or greater from an EBITDA perspective. That is really the only commentary there. Operator: Thank you. Our next question comes from Doug Creutz from TD Cowen. Please go ahead. Doug Creutz: Thank you. Could you give an update on the status of Jackpot Tour? Is that a game you intend to be putting significant marketing dollars behind in Q1 and the first half? How does that game factor into your guidance? Thank you. Robert Antokol: Thanks for the question. As we said, we launched the game. We are still checking the KPIs. I can say that we are not 100% sure we are going to open it strongly in the coming few weeks. We still need to see the numbers that we are used to, so it is in progress, and it is part of our strategy around the slots game. I want to take this opportunity to say that Slotomania, after many quarters, is going to grow quarter over quarter this quarter. This is big news for us, and this is big news for the social casino industry. As I said in the beginning, the Jackpot Tour is part of our strategy there. Thanks. Doug Creutz: Thank you. Operator: I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome, and thank you for joining the Piraeus Bank conference call and live webcast to present and discuss Piraeus' Full Year 2025 Financial Results. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Piraeus Bank's CEO, Mr. Christos Megalou. Mr. Megalou, you may now proceed. Christos Megalou: Good afternoon, ladies and gentlemen, and good morning to those joining us from the U.S. This is Christos Megalou, Chief Executive Officer, and I am joined today by Theo Gnardellis, Chryssanthi Berbati and Xenofon Damalas to present and discuss Piraeus' fourth quarter and full year 2025 results. Today, I will take you through the first 2 sections of the presentation, covering the main financial and business achievements for the full year period and demonstrating our standing in the European banking landscape. This will be followed by a Q&A session. Let's begin with our presentation on Slide 4. Piraeus is a leading bank in Greece, ranking first across all major business lines. We serve 4.5 million clients with a workforce of 8,100 employees in Greece. Our total assets stand at EUR 91 billion with EUR 37 billion in client loans and EUR 66 billion in client deposits, representing 28% market share in deposits. We operate an omnichannel distribution platform with 370 branches, 1,500 ATMs and serving 3.2 million digital clients. Our mobile app is top ranked, reflecting our commitment to digital excellence and customer satisfaction. We are a leader in sustainable banking with EUR 5 billion in sustainable financing, EUR 2.2 billion in green bonds outstanding and a strong focus on supporting small businesses and farmers. All these outstanding results have been delivered thanks to our people and our clients. Let's move on to Slide 5 for the key highlights of our full year 2025 performance. We generated normalized return on average tangible book value of 16% or 14% on a reported basis. Our earnings per share reached EUR 0.82 post the AT1 1 coupon, fully absorbing the fast decumulation of base rates. On the back of our strong performance, we increased our payout ratio to 55%. We intend to distribute EUR 0.40 per share cash dividend in Q2 2026 on top of the EUR 100 million share buyback that was completed in the fourth quarter of 2025. In total, we are on track to a total distribution of EUR 592 million out of the 2025 profit, which corresponds to a 7% yield. We have expanded our loan book by a Europe leading growth rate of 11% year-on-year and achieved EUR 4 billion net credit expansion, maintaining pricing discipline at the same time. Importantly, net credit expansion reached EUR 300 million in the retail segment after 15 years of contraction. Our cost-to-core income ratio stands at 33%, among the best in the European banking market, confirming our strong cost discipline. Revenues from services reached EUR 700 million in 2025, up 7% year-on-year. Our revenue diversifying efforts are reflected in our services revenues over total revenues of 26% and fees over assets that exceed 80 basis points. Both metrics are best-in-class in Greece and close to or above average in Europe. We delivered EUR 2.7 billion net revenues in 2025 with net interest income arising in Q4 quarter-on-quarter, and we consider that we are now well past the trough in net interest income. Asset quality dynamics remain solid with the NPE ratio at 2%, while organic cost of risk shaped at 52 basis points. NPE coverage increased to 73% from 65% a year ago, solidifying our balance sheet. Our assets under management increased to EUR 14.5 billion in 2025, up 27% year-on-year with EUR 1.5 billion net inflows. Furthermore, client deposits rose by EUR 3.2 billion annually and are now at EUR 66 billion, practically our deposits almost fully funded our credit expansion in 2025. Our total capital ratio reached 18.7%, absorbing the Ethniki Insurance acquisition, 55% distribution accrual, the strong low growth and DTC amortization. We maintain a buffer of 275 basis points above Pillar 2 guidance with a CET1 ratio standing at 12.7%. Slide 6 presents the details of our fourth quarter and full year operating results. The reported pre-provision income was up 7% quarter-on-quarter. Below pre-provision income, the quarter has some one-offs aimed at further strengthening our balance sheet in the areas of nonperforming assets and non-core participations to lay out a clean backdrop for the new strategy. We sustainably grow our tangible book value per share now at EUR 5.9 per share, which is net of the EUR 0.30 per share cash dividend paid in June '25, the EUR 0.08 per share of share buyback in November '25 and the impact of the Ethniki Insurance acquisition. On Slide 7, we present our strong loan origination dynamics. Performing loans increased by 11% in 2025, driven not only by all business lending segments, but also by an increase in household lending. Importantly, Q4 marked a new cycle record of EUR 250 million for mortgage disbursements. On Slide 8, we present a detailed sector breakdown of our CIB net credit expansion of EUR 3.6 billion in 2025. As you can see, our corporate platform outreach is very granular, reaching all sectors of the Greek economy. Among other initiatives, we are increasing our presence in syndicated deals, and we are offering greenhouse technology financing solution. At the same time, we keep focusing on SME clients in Greece, as shown by the top performance in disbursements. Slide 9 demonstrates that we have achieved Europe's strongest corporate loan growth while maintaining pricing discipline, which is a testament to the commercially rigorous approach of all of our teams. We have been able to compete and win business while pricing at par with the market average and keeping risk-adjusted returns at the core of our business credit underwriting. Turning to Slide 10. The key milestone to note is that 2025 is the first year that mortgage loan growth, net of repayments has turned positive with net credit expansion of EUR 110 million. This follows net consumer loan growth, which already turned positive in 2024. Consumer disbursements have been growing since 2021 by 10%, but this growth was previously outweighted by heavy repayments. We now have reached an inflection point that bodes well for future expansion of our loan book and revenue streams. Slide 11 outlines the impressive evolution of our services revenues, which is being supported by loan originations, asset management and bancassurance. Ethniki Insurance contributed for circa 1 month with the growth of the new operating model still to come and expected to elevate services revenues with expansion across all segments of the market, namely life and health protection and P&C protection. More on this during our Capital Markets Day next week. Slide 12 demonstrates the growing trend of assets under management that reached EUR 14.5 billion in December, backed by strong net inflows of EUR 1.5 billion. We have upscaled our investment solutions offering to private banking and retail clients, incorporating robo advisors while our open architecture strategy, combining Piraeus asset management expertise with a wide suite of best-of-breed third-party products is paying off. Slide 13 presents detailed information regarding net interest income intrinsics. In a nutshell, our growing CIB loan book drove NII improvement, along with the stabilization of base rates. Spread erosion was milder in Q4 versus the previous quarter, while deposit costs stabilized. As a result, NII rose by 1% in a quarterly basis indicating that the trough of the cycle is behind us, given current yield curves. Turning to Slide 14. Our cost control efforts kept G&A costs under control while still making extensive IT investments. Overall, we remain cost conscious, maintaining cost-to-core income ratio below 35%. Slide 15 provides a summary of our asset quality indicators. Our NPE ratio stands at 2%, while the organic cost of risk shaped at 51 basis points in the fourth quarter. Our NPE coverage strengthened, reaching 73%, while our Stage 1, Stage 2 and Stage 3 coverage ratios are increasing, standing higher than EU average. Piraeus enjoys a superior liquidity profile presented on Slide 16. Our liquidity ratios remain strong as evidenced by the high balance of deposits at EUR 66 billion and 216% liquidity coverage ratio. Turning to our capital base on Slide 17. Our CET1 ratio stood at 12.7% at the end of December, post the Ethniki Insurance acquisition, absorbing loan growth, 55% distribution accrual and accelerated DTC amortization. Slide 18 depicts Ethniki Insurance performance in 2025. Profitability was significantly improved to EUR 45 million before tax at a recurring level from EUR 26 million in the previous year. With a leading 14% market share and 1.9 million customers, gross written premium posted growth in health and P&C. On Slide 19, we present an update on Snappi, our neobank with its own portable pan-European banking license. Snappi launched commercially in September, it is already gaining significant traction with its fully digital, app-based, branchless, low CapEx model, as it currently has 60,000 app users. Turning to the second section of our presentation for our positioning within the competitive landscape. I want to point out that Piraeus is in a leading position in Greece in terms of performing loans, deposits, equity brokerage and network as highlighted on Slide 21. In addition, Piraeus ranks at par or above average on all major KPIs in the European banking space. In Slides 22 to 27, we present the key metrics for Piraeus versus European bank averages. On Slide 22, Piraeus delivers best-in-class loan growth in Europe, outpacing EU peers by wide margin. On Slide 23, our net interest margin is far above the European average, reflecting our pricing power and effective balance sheet management. Slide 24, net fee and commission income over assets is well above the European average and the best in Greece. Slide 25, our cost-to-core income ratio is best-in-class in Europe, demonstrating our ongoing focus on operational efficiency and cost discipline. On Slide 26, Piraeus' return on tangible book value is well above the EU average, highlighting our ability to generate superior returns for our shareholders. Concluding with Slide 27, despite our strong fundamentals in absolute and relative terms in relation to our European peers, Piraeus trade below EU banks with similar earnings implying significant upside for our shareholders. And with that, let's now open the floor to your questions. Operator: [Operator Instructions] The first question is from the line of Sevim, Mehmet with JPMorgan. Mehmet Sevim: I have just a couple of questions, please. One on the fee income this quarter, which you renamed to revenues for service -- from services. It seems like a very good strong print. I was just wondering if there are any one-offs or anything else to highlight in that print? Or is this a good run rate for us to consider for 2026? And maybe related to that also, it seems like a strong initial contribution from the business in just 1 month. I was wondering how we should think about 2026 when it comes to revenue contribution and integration costs here and maybe anything else that we should be aware of when it comes to modeling the business? And finally, just wanted to ask on the payout ratio, which came in higher than expected with the EUR 0.40 per share dividend payment. But at the same time, your CET1 fell slightly below the target of 13%. So how do you balance this? And going forward, should we think about this level of payout ratio as the base? Or is there anything that you'd like to highlight here as well? Christos Megalou: Sevim, and thank you for the question. I'll start with the fee income. We had indeed a very strong fourth quarter, and this is highlighting the franchise value of Piraeus. We have always maintained that we are a strong earner in fees over assets and particular areas like asset management, the banking business, the bancassurance are areas of growth for us, and they will continue to be. For the fourth quarter, there were a few, let's call it, highlights, especially on the investment banking side. So I wouldn't extrapolate this number for the whole of the year. But I would just say, and of course, we will come with guidance on next week on our Capital Markets Day in London. I would just say that this is an indication of the strong franchise value that results in fees from services for Piraeus Bank. Now, on the payout ratio and the level of capital, first of all, we thought that we felt very comfortable with the level of capital that we were in, given the balance sheet and given the way the bank has derisked over the years. And therefore, to give an extra return to our shareholders from 50% to 55%, we thought it was more than appropriate given the fact that with the level of CET1 that we are currently at, we are at a total capital level of above 270 basis points above P2G. And of course, this whole exercise was facilitated by the fact that the P2G went down to 1%. So as you can imagine, given the strong fundamentals of the bank, we thought that this reduction on the P2G should be passed to our shareholders. And this is what we did right now rewarding our shareholders with an extra 5% on the payout ratio. Theodore Gnardellis: On your question, Mehmet about Ethniki, I mean this is really 1 month plus a few days that you're seeing here. Let's just wait for the 5th of March, where we're going to be giving you guys a detailed guidance. We're giving a preview of the solo result. I mean, it's still an audit, and it's going to be published by the end of March, but we're giving you kind of a preview on Page 18. But we'll discuss much more about Ethniki and the accounting effect and the value effect on the group consolidation on March 5. Let's just wait for that. Operator: The next question is from the line of Caven-Roberts, Benjamin with Goldman Sachs International. Benjamin Caven-Roberts: Just 2, please. Firstly, could you please provide some further color on the one-offs that were recorded this quarter? And if we should expect any further one-offs going into 2026, for instance, relating to the recent Katseli ruling? And then secondly, on the net credit expansion, just looking through the different categories, as you mentioned, a very positive pickup in mortgages, but large corporate net credit expansion was a little lower in Q4. Could you elaborate on how we should think about that mix and run rate going forward? Theodore Gnardellis: Ben, indeed, quarter 4, we found the opportunity, and we recorded some one-off expenses, I would say, below the normalized line. What primarily we did was on the cost side, there were some adjustments that we did on VES and some transaction-related costs with the Ethniki trade, valuation adjustments that was done on the equity and the NPA line. And of course, on loans, we're all aware of the Swiss franc legislative actions that happened throughout the quarter. And as a result, there was an additional adjustment there. Given the nature of these adjustments, I would not say that these are to be repeated in the future. We will not have, again, one-offs of that kind going forward. Overall, the guidance and the profitability communication that we will be giving and we have given in the past regarding '25 is on the reported side. So our objective is always to be meeting that, both on a returns ratio perspective and on a nominal perspective. This is what we did. So kind of nothing to write home about there that produces the future. Christos Megalou: Robert, also on the loan growth, as we were going into the fourth quarter, we were well above our target of EUR 3.5 billion by some margin. And therefore, there was no real urgency on pushing forward. So naturally, we have been slowing down a little bit in the fourth quarter so that we will be in a position to have a very strong Q1. So nothing to think about the Q4 credit expansion, especially on the CIB other than that the trend is very strong. We have a very strong pipeline. And as we will come up with a new guidance on the 5th of March on our Capital Markets Day, you will see this coming through. Operator: The next question is from the line of Kemeny, Gabor with Autonomous Research. Gabor Kemeny: I have a question on your capital distribution. If you could comment on how you think about the mix of cash dividends and buybacks going forward in light of the strong performance of the shares recently? That's the first one. And the second question on the net interest margin. Do you see the NIM stabilizing going forward? Is this -- is Q4 a good run rate for the coming quarters? Or do you see any additional headwinds coming through? Christos Megalou: Gabor, I mean, on capital distribution, the way we are right now, we think cash. So that's what we were planning for, for '26, and this is how we strategically look to conduct ourselves in the future. Theodore Gnardellis: And on the NIM, Gabor, indeed, I think we're reaching a point given the interest rate status and what we're seeing on spreads where NIM is finding its lows. There are some tailwinds actually on the ratio that we'll be discussing next week. But I'll refer you to the 5th of March for those. Gabor Kemeny: Right. Just a quick -- another quick one on your capital ratio. I think you had a valid case for increasing your payout, the CET1 ratio, slightly dropped below 13%. How would you think about steering your capital going forward? Are you looking to built it up to 13% or above? Or is there now a possibility that you stay maybe a little bit below that? Christos Megalou: Gabor, look, I think this is a franchise that generates earnings. It's a high-yielding one, high distribution one and generates capital as well. We have been talking about our strategic direction and philosophy on distributions and rewarding our shareholders. In the future, as we generate more capital, we will be following the same strategic direction. We will come with specific guidance on the Capital Markets Day. But our philosophy is this is capital accretive franchise, and we have to be delivering back capital to our shareholders. Operator: The next question is from the line of Nellis, Simon with Citibank. Simon Nellis: First question would be on the losses from participations or impairments. Can you just elaborate on what the nature of those one-offs are? Second question would be on the increase in bancassurance fees. I guess that's with existing insurance partners. How do you see that transition from existing insurance partners to Ethniki occurring and the impact it might have on that line? Those will be my 2 questions. Theodore Gnardellis: Simon, yes, the one-off part of the adjustments on associates had to do with one of a particular case that exists in our book. We saw some market intrinsic, some market information that led us to do a one-off valuation adjustment on the particular exposure. As I said, this is a very one-off situation. This does not prelude to any further such one-offs. It was something that we found an opportunity to do now so that we can have a kind of clean horizon ahead with no kind of gray areas or question marks. Simon Nellis: And how much was that, if I could ask? Theodore Gnardellis: EUR 35 million was the one-off adjustment that we have done on the equity side. You can find it on Page, I believe, 52. So on the banca fees, yes, it was a strong quarter. I mean, generally, banca as a franchise, we know that Piraeus is running the strongest banca sales. Quarter 4 was particularly strong. It is with the existing partners that we've got. The arrangements that we've got with the 2 bancassurance partners are, of course, active, and it's a testament of how the network continues to produce insurance regardless of other things that might be happening on the side. The particular line, I think, we will see it next week in conjunction with a lot of other things that are affecting the future overall of the group when it comes to insurance sales and insurance revenue. So let's just hold on for another week. Operator: The next question is from the line of Novosselsky, Ilija with Bank of America. Ilija Novosselsky: So one question on your interest expense paid on deposits. So I can see that it's constant in the quarter. So as far as I know, that relates to both the actual expenses on deposits and also the hedge impact, and both of them seem to be constant. I would kind of expect both of them to have a positive impact. So maybe if you can tell us how we should see interest expenses on customer deposits developing from here, maybe split between the 2 impacts? And then again, if I stay on the hedges, if I look into the Excel data set on the NII section, I see big changes in the non-maturing deposit hedging cost, which is kind of offset by a similar change in the IRS liability side. So maybe if you can tell us what has caused that because the change is around EUR 90 million in each of the lines. And maybe finally, one more on the hedges. So you started with EUR 10 billion. You have about EUR 9 billion now. So how can we expect the portfolio to develop throughout this year? Theodore Gnardellis: Ilija, overall, the deposit cost, as you saw, we have netted out and well pointed out with the NMDs. It's on 29 basis points right now. It is a flat situation. There's multiple, I would say, minor movements there. But for the future -- I know we're trying to keep the line, but you guys keep coming back on guidance for the future. But for the future right now, what we can tell you is that it's a stable outlook. So if you want to make an assumption, I think that's a fair one. My answer to your hedging question from a strategy perspective, it depends a little bit on our outlook on interest rates. So we will be discussing that next week. I've said many times when one believes that when one believes that you have reached a terminal level of interest rates and those positions stop having value or you can -- you're free to kind of materialize and monetize the value that these carry. But again, let's discuss this more next week. Operator: The next question is from the line of Souvleros, Andreas with Eurobank Equities. Andreas Souvleros: And congratulations for the results. I have 1 quick question, which is regarding the calendar provisioning that is around EUR 300 million, if I'm not wrong. And you mentioned a meaningful drag on the common equity Tier 1 ratio. So could you please clarify under what timeline or condition this is expected to be reversed? Theodore Gnardellis: Andreas, thank you for the question. Indeed, it is, of course, part of the capital reduction that you use for -- following the calendar provisioning guidance. It will reduce over time. The expectation is that -- I would say with growth rapidly, probably around the 50% mark over the next 5 years. Part of the recovery strategy, that's the way calendar works, you front load, and then, eventually, as recovery, hopefully, you release. Operator: The next question is from Gil Santivanes, Fernando with Intesa Sanpaolo. Fernando Gil Santivanes: This is a very general one regarding the latest Supreme Court ruling the last period of February on interest payments. Can you give us some color or some views on the balances the bank has? What potential impact might we see? And if this ruling is to be adhered by banks or not? Any color would be very helpful. Christos Megalou: Let me start on the Katseli Law by saying that the Katseli Law served its purpose, I would say, when it was legislated in 2010. If you look at the exposures that we have in our book right now and feel we will follow up with the numbers. All the Katseli Law exposures that we have in our balance sheet are Stage 1 paying loans and performing, which means that there was some good work done out of this law. And we are monitoring this decision. And also, we have to wait, I'm afraid, for the final script because details matter, but we can give you an outlook of what we have in our books and what that could potentially mean. So, Theo? Theodore Gnardellis: So Fernando, the overall book that we've got right now on the balance sheet of such loans is about EUR 50 million. Obviously, depending on how the decision will be scripted, there might have to be adjustments there, which is a percentage of that. We have hypothesis, obviously, which is being budgeted within 2026. That will be included in any guidance -- in the guidance we give out next week, but you understand it's a percentage of EUR 50 million, so actually excluding the margin of error of any cost of risk estimation for the future. Operator: [Operator Instructions] The next question is from Potgieter, Stephan with UBS. Stephan Potgieter: You've answered most of my questions. So just on follow-up on the Katseli loans, the ruling there. Obviously, you're outlining your own exposure, but do you have any views of what this could mean for the industry? I suppose most of these loans are sitting in the securitization structures, the regular scheme, if you have any views on that? Theodore Gnardellis: Stephan, again, we need to wait for the actual detailing because the impact might range a lot, obviously. It's a cash recovery question of the securitizations. It doesn't concern Piraeus Bank or the banks overall given the fact that these loans are derecognized. But in terms of the overall recovery, the outlook of HAPS and what that means, this is to be seen as we see the details. Overall, the outfits are producing cash reserves. We've -- the overall recoveries that come out of these loans are a percentage. I would say a small percentage of the expected recoveries. We'll see that -- what that means for this phase for the future. But overall, I think, for the bank's balance sheet, no effect. Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Megalou for any closing comments. Christos Megalou: Thank you all for participating in our full year 2025 results conference call. We now want to welcome you to our Piraeus Capital Markets Day, which will be held in London on Thursday, the 5th of March, where we will be presenting our strategic plan from 2026 to 2030. As already communicated, before the strategic presentation, we will hold an analyst-only session to discuss any questions and any technical aspects of the new business plan. We look forward to seeing you all next week in London. Thank you. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Catalyst Pharmaceuticals Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Mike Kalb, Chief Financial Officer. Michael Kalb: Thank you. Good morning, everyone, and thank you for joining our conference call to discuss Catalyst's fourth quarter and full year 2025 financial results and business highlights. Rich Daly, President and CEO, will lead the call today; and Jeff Del Carmen, our Chief Commercial Officer and I will also present. Additionally, other members of our management team will be available for the Q&A. Before we begin, I would like to remind you that in our remarks this morning and in the Q&A session, we will make statements about expected future results, which may be forward-looking statements for purposes of federal securities laws. These statements reflect our current expectations, estimates and projections and do not guarantee future performance. They involve risks, uncertainties and assumptions that are difficult to predict and may not prove to be accurate. Actual results may vary from the expectations stated in our forward-looking statements. These forward-looking statements should be considered only in conjunction with the detailed information contained in our SEC filings, including the risk factors described in our 2025 annual report on Form 10-K filed yesterday, February 25, 2026, with the SEC. At this time, I'll turn the call over to Rich. Rich? Richard John Daly: Thanks, Mike. Good morning, everyone, and thank you for joining us today. I'd like to begin with a review of 2025, which was another fantastic year for Catalyst before moving on to the plans we have set for 2026. 2025 was defined by notable growth as evidenced by another year of record revenues, execution of our strategy to maximize the value of our best-in-class commercial portfolio and at the center of all we do, personalized support for patients living with rare diseases. For the full year 2025, total revenues grew by 19.8% year-over-year to $589 million, exceeding our previous guidance, which was the upper end of our range of $565 million to $585 million and highlighting our ability to capitalize on market opportunities while maintaining operational excellence. Full year net product revenue for 2025 reached $588.8 million, an exceptional 20.3% increase over 2024. This is driven by a number of factors, most notably continued patient identification and market penetration. And as demonstrated by our 2026 guidance of total revenue between $615 million and $645 million, we are confident in the continued growth trajectory of our differentiated products. Let's begin with the 2026 forecast down by product, starting with our promoted products, FIRDAPSE and AGAMREE. FIRDAPSE guidance for 2026 is $435 million to $450 million, reflecting an increase of 21.4% to 25.6%. AGAMREE guidance of $140 million to $150 million, forecasting a 19.6% to 28.1% growth. And finally, FYCOMPA, $40 million to $45 million, which effective at the beginning of 2026 is no longer promoted as a result of generic competition that entered the market in 2025. Now let's take a closer look at our 2025 performance. Revenue for our flagship product, FIRDAPSE, was $358.4 million, an increase of 17% for the full year and 18% when comparing quarter 4 2025 to quarter 4 2024. FIRDAPSE remains the only evidence-based FDA-approved therapy for Lambert-Eaton myasthenic syndrome, or LEMS, a debilitating nerve muscle communication disorder that results in progressive weakness and fatigue. We are making significant headway in the 2 distinct markets for the product, idiopathic LEMS and cancer-associated LEMS, and we believe there is still significant opportunity for growth in both of these submarkets. Combined, we view the LEMS addressable market opportunity to be in excess of $1 billion. Jeff will cover the brand performance, driven by exciting initiatives that we believe will help our team deliver continued growth for FIRDAPSE. As you know, in 2025, we finalized settlement with 2 of the 3 first filers. One suit remains against Hetero USA, and a trial has been set to start on March 23, 2026, which is prior to the expiration of the automatic 30-month stay on May 26, 2026. We remain confident in our ability to protect our IP. Moving to AGAMREE. Our differentiated corticosteroid medication approved for use in the treatment of Duchenne Muscular Dystrophy, or DMD, a rare and life-threatening neuromuscular disorder. AGAMREE delivered 154.3% year-over-year growth with 2025 revenues of $117.1 million. Our launch strategy targeting centers of excellence penetration delivered outstanding results. With this success, we have now pivoted our efforts to going deeper in each of these core institutions. Our goal is to ensure the greatest possible use of AGAMREE an effective and differentiated steroid in what we believe has a greater than $1 billion addressable market. We plan to tap into the full potential of AGAMREE through our ongoing SUMMIT study, a 5-year follow-up study evaluating approximately 250 DMD patients once enrollment is completed. By increasing the full body of data that assesses the potential long-term benefit over current standard of care, we believe AGAMREE can be further differentiated, allowing us to build more awareness and drive further growth. With regard to maximizing the full value of AGAMREE, we are presently conducting a Phase I study to evaluate dose equivalence between AGAMREE and other steroids and potential immunosuppressive activity as well. We are also currently assessing potential indications beyond DMD, where AGAMREE may serve a broader array of patients with rare diseases. We look forward to updating you further on our expansion initiatives with AGAMREE as the year unfolds. Lastly, FYCOMPA. Despite its loss of exclusivity in May of 2025, the product delivered net revenue of $113.3 million in the year, outperforming our expectations. Due to generic competition, we are forecasting sales of FYCOMPA in 2026 of between $40 million and $45 million, which reflects our expectation that FYCOMPA will remain a solid revenue producer for us. Beyond our portfolio optimization initiatives, we are pursuing our evolved and focused business development strategy aimed at identifying the right opportunities to supplement our strong organic growth. Our business development engine conducted over 100 assessments in 2025. Notably, about 90% of those were inbound, underscoring our reputation in the industry as a proven leader that delivers value through launching, supporting and growing our promoted assets. With our industry-leading rare disease expertise, best-in-class commercial capabilities, established plug-and-play infrastructure and trusted status within the rare disease community, we are confident in our ability to drive continued long-term repeatable success through business development. As we assess the broader landscape and levers at our disposal to create value, we are focused on remaining nimble and acting opportunistically to ensure we are well-positioned to identify, assess and onboard rare disease products that will grow our portfolio and positively impact the rare disease community. To be clear, we will maintain the same guiding principles that have enabled our prior success, remaining disease and modality agnostic while prioritizing on-market and near-market differentiated rare disease products. In addition, as we reported during our JPMorgan presentation earlier this year, we have now expanded our search to include therapies in late-stage development with positive proof of concept, a differentiated profile and a well-characterized regulatory path. We will also continue to focus on assets with peak sales of up to $500 million, which is where we believe we can be most competitive and best suited to integrate with our existing infrastructure. With that, I'll turn the call over to Jeff, who will provide additional insights into our commercial performance. Jeff? Jeffrey Del Carmen: Thanks, Rich. We are very pleased with our exceptional performance in 2025, marked by full year combined total revenues of $589 million, surpassing the upper end of our updated guidance of $565 million to $585 million. This outstanding achievement was driven by FIRDAPSE reaching a record high of $358.4 million, the continued successful commercialization of AGAMREE and the strong contribution from FYCOMPA despite the entry of generic competition. Let's start by reviewing our advancements with FIRDAPSE, the only evidence-based FDA-approved treatment for Lambert-Eaton in myasthenic syndrome. In the fourth quarter of 2025, net revenues amounted to $97.6 million, showcasing a remarkable Q4 2025 versus Q4 2024 growth of 18.3%. Furthermore, FIRDAPSE's full year 2025 net revenues showed strong 17.1% growth year-over-year. FIRDAPSE's performance this year reflects deliberate disciplined commercial execution across the patient journey. First, by expanding and optimizing our lead-generating channels, we increased our data leads of identified LEMS patients in active diagnostic stages by 40% in the fourth quarter. These patients consistently represent approximately 50% of new starts each quarter, reinforcing the importance of our sustained investment in early patient identification. Second, we significantly improved our conversion efficiency through tighter coordination across field teams, commercial analytics and marketing, we increased the rate at which qualified leads transition to treatment. As a result, new patient enrollments for FIRDAPSE exceeded our 2025 forecast, demonstrating the impact of more focused execution. In the second half of 2025, we also saw increased VGCC testing by more than 1/3 versus the first half of 2025, reflecting targeted initiatives to accelerate diagnosis among LEMS patients. By shortening time to diagnosis, our awareness activities are expanding the treated population and improving the overall patient journey. Finally, in June, we launched a pharmacy outreach program designed to support newly enrolled patients in achieving their optimal therapeutic dose. This initiative contributed to a significant reduction in new patient discontinuations, strengthening early persistence and reinforcing long-term value. Overall, FIRDAPSE's performance underscores the effectiveness of our end-to-end commercial strategy, expanding the top of the funnel, improving conversion, accelerating diagnosis and enhancing patient retention to drive sustainable growth. Our next phase of growth for FIRDAPSE will come from both idiopathic LEMS and cancer-associated LEMS. We will continue to leverage the increased data leads to accelerate new patient acquisition while continuing to deploy initiatives to accelerate the diagnostic journey for LEMS patients. As for cancer-associated LEMS, our primary focus in the first half of 2026 is and will continue to be pursuing relationships with leading oncology networks to integrate the updated NCCN guidelines into their care pathways, which we believe will lead to more addressable patients in the second half of 2026. It's important to note that we have already seen significant uptake in the number of new positive VGCC tests ordered by oncologists in the second half of 2025. Turning to AGAMREE. AGAMREE continues to build strong commercial momentum as a differentiated therapy for the treatment of patients living with DMD. For full year 2025, the first full year of AGAMREE being on the market in the U.S., we delivered net product revenue of $117.1 million, representing 154.3% year-over-year growth. In the fourth quarter alone, net product revenue reached $35.3 million, up 67.5% compared to the fourth quarter of 2024, clear evidence of accelerating demand and effective execution. Adoption across top DMD centers of excellence continues to expand. To date, 100% of the top DMD centers of excellence, which represent about 80% of all DMD patients have enrolled at least 1 patient on AGAMREE and 270 unique health care providers have submitted enrollment forms. This reflects broad and deepening engagement across the treatment community as well as growing confidence in AGAMRE's differentiated clinical profile. Importantly, we saw a meaningful reduction in discontinuations and cancellations in the second half of 2025. This improvement was driven primarily by increased provider familiarity and experience with AGAMREE as well as fewer disruptions from DMD market events. We believe that this trend reinforces the durability of demand as the market matures. Since launch, approximately 45% of patients have transitioned from prednisone and 42% from EMFLAZA, underscoring AGAMREE's relevance across established treatment paradigms and its ability to compete effectively within multiple segments of care. In addition, the median age of new enrollees has dropped 1 year in the most recent quarters compared to when we launched in 2024. Reimbursement performance remains strong with success rates above 85%, consistent with our expectations. Our commercial organization continues to execute with precision, prioritizing targeted provider education, optimizing field force impact and deepening payer engagement to support sustained uptake and long-term market expansion. FYCOMPA delivered full year 2025 net product revenue of $113.3 million, exceeding the upper end of our guidance. As previously noted, we expect continued revenue erosion from increased generic competition to impact FYCOMPA performance moving forward. As of December 31, we discontinued personal promotion and assistance programs for FYCOMPA. However, we forecast that 2026 net product revenues from this product will continue to be meaningful. In closing, our commercial organization continues to operate with rigor and accountability, translating strategy into consistent portfolio performance while laying the groundwork for our next wave of growth for FIRDAPSE and AGAMREE. Our diversified portfolio, combined with differentiated commercial capabilities and disciplined execution gives us confidence that we will be able to achieve our 2026 revenue guidance. Our focus is unwavering, elevating commercial excellence across markets, expanding and accelerating patient access and unlocking the full value of our portfolio to drive durable growth and sustained shareholder returns. I want to recognize and thank our entire commercial team for their commitment to execution, performance and most importantly, the patients we serve. Their dedication is fundamental to our continued success. At this time, I would like to turn the call back over to Mike. Michael Kalb: Thank you, Jeff. Our fourth quarter and full year 2025 financial results demonstrated another strong year, driven by our solid financial performance, financial discipline and strong execution. Our total revenues for 2025 were $589.0 million, an approximate 19.8% increase when compared to total revenues of $491.7 million for 2024. 2024 included approximately $2.4 million of license and other revenue, which consisted principally of a milestone payment earned from our sublicensee in Japan, receiving regulatory approval to commercialize FIRDAPSE for the treatment of patients with LEMS in Japan compared to license and other revenue in 2025 of approximately $182,000. For the fourth quarter of 2025, total revenues were $152.6 million, representing a 7.6% year-over-year increase. FIRDAPSE's fourth quarter of 2025 net product revenue increased 18.3% over the fourth quarter of 2024 and 5.9% compared to Q3 2025. AGAMREE's fourth quarter 2025 product revenue net increased 67.5% over the fourth quarter of 2024 and approximately 9% over Q3 2025. For 2026, we are forecasting FIRDAPSE net product revenue to be between $435 million and $450 million, which takes into account an increase in gross to net driven by the IRA impact on our Medicare Part D net product revenue. We expect that the IRA impact will continue to increase annually. We are forecasting AGAMREE 2026 net product revenue to be between $140 million and $150 million. We are forecasting FYCOMPA 2026 net product revenue to still remain meaningful at between $40 million and $45 million. The expected decrease is a result of the entry of generic versions of FYCOMPA during 2025. Net income before income taxes for 2025 was $283.5 million, a 31.1% increase compared to $216.3 million for 2024. We reported GAAP net income for 2025 of $214.3 million or $1.68 per diluted share. GAAP net income increased by 30.8% compared to GAAP net income for 2024 of $163.9 million or $1.31 per diluted share. Non-GAAP net income for 2025 was $346.2 million or $2.72 per diluted share, which excludes from GAAP net income, amortization of intangible assets related to our acquisitions of FYCOMPA, AGAMRE and Ruzurgi of $37.5 million stock-based compensation expense of $24.8 million, income tax provision of $69.2 million and depreciation of $0.4 million. Non-GAAP net income for 2025 was $346.2 million or $2.72 per diluted share, which excludes from GAAP net income, amortization of intangible assets related to our acquisitions of FYCOMPA, AGAMRE and Ruzurgi of $37.4 million stock-based compensation expense of $22.8 million, income tax provision of $52.4 million and depreciation of $0.4 million. Our effective tax rate for 2025 was 24.4% compared to 24.2% for 2024. The effective tax rate is affected by many factors, including the number of stock options exercised in any given period which we expect will be relatively consistent for 2026, but will likely fluctuate from quarter-to-quarter. Cost of sales expense was approximately $87.3 million in 2025 compared to $68.8 million in 2024 and consisted principally of royalties. As a reminder, AGAMRE royalties paid to the ultimate product licensor equals 7% of net sales up to $250 million with additional increases as net sales increase. Additionally, through December 31, 2025, we were also required to pay 5% on net sales up to $100 million to our direct licensor. Further, we are also required to pay our direct licensor royalties of 7% of net sales in excess of $100 million and up to $200 million with additional increases as net sales increase. The company is also required to make a $12.5 million milestone payment when AGAMREE's net product revenue reached $100 million, which was achieved during the fourth quarter of 2025. This milestone payment obligation was capitalized during the fourth quarter of 2025 and is being amortized over the estimated remaining useful life of the asset. Further details of our royalty obligations for AGAMRE as well as FIRDAPSE and FYCOMPA are disclosed in our 2025 Form 10-K. Beginning in July 2026, as per our contractual arrangement with Eisai, we will be required to pay FYCOMPA royalties equal to 6% of net product revenue to the product licensor for FYCOMPA. Research and development expenses were $12.7 million in 2025 compared to $12.6 million in 2024. Our R&D spending during 2025 was comprised mainly of costs to support our ongoing AGAMRE studies. Relative to the normal course of business, absent another acquisition, we are forecasting research and development costs in 2026 to be between $17.5 million and $22.5 million. Selling, general and administrative or SG&A expenses for 2025 totaled $193.8 million as compared to $177.7 million for 2024, primarily attributable to an increase in employee compensation related to annual merit increases and an increase in headcount. Further, general and administrative expenses increased due to consulting fees related to multiple business initiatives, including business development activities, which were offset due to decreases in contributions to 501(c)(3) organizations supporting patient assistance programs. While we are no longer actively marketing FYCOMPA, we anticipate that 2026 SG&A expenses will increase slightly compared to 2025 due to the costs associated with our continued efforts focused on increasing the awareness of FIRDAPSE for the potential treatment of cancer-associated LEMS. As reported, we ended 2025 with cash and cash equivalents of $709.2 million compared to $517.6 million at December 31, 2024. The increase in cash of $191.6 million was largely driven by $208.7 million in cash generated from operating activities, partially offset by $17 million of cash used in financing activities, which includes the repurchase of $25.3 million of common stock during the fourth quarter of 2025. We believe that our life cycle management and our business development activities will not be adversely affected by our share repurchases under our share repurchase plan. We believe our current funds, along with our expected continued generation of cash from operations, continue to provide us the financial flexibility to fund our existing R&D programs, meet our potential contractual obligations and support our strategic initiatives, business development and portfolio expansion efforts, leading to long-term growth and value creation. More detailed information and analysis of our 2025 financial performance may be found in our annual report on Form 10-K, which was filed with the Securities and Exchange Commission yesterday, February 25, and can be found on the Investor Relations page of our website. At this time, I will turn the call back over to Rich. Rich? Richard John Daly: Thanks, Mike. As you heard on today's call, Catalyst is entering 2026 from a position of strength and with significant momentum. Our strategic priorities remain clear, and we are primed to drive continued growth. On FIRDAPSE we'll focus on executing our dual market expansion strategies, prioritizing patient identification efforts for idiopathic LEMS and ongoing education to promote the updated NCCN guidelines for cancer-associated LEMS. For AGAMRE, we plan to progress the multiple initiatives underway to maximize the potential of this differentiated asset, including facilitating earlier disease detection and deepening our market penetration to drive commercial expansion as well as advance the ongoing SUMMIT study and other life cycle management activities. Lastly, we will continue to pursue strategic and thoughtful business development with an eye toward exciting and low-risk opportunities where we believe we can unlock meaningful value. We are proud of our progress in 2025 and plan to deliver continued success in the year ahead. I want to end by thanking our employees, partners and shareholders for their support and dedication. I'll now turn the call back over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Samantha Semenkow with Citi. Unknown Analyst: This is Ben on for Sam. To start, can you speak to the drivers that underpin the growth implied within your 2026 guidance for FIRDAPSE and AGAMREE? Richard John Daly: Thanks for the question. I'll turn it over to Jeff to start the answer. Jeffrey Del Carmen: Absolutely. So, Ben, when we look at FIRDAPSE first, we are extremely excited about the opportunity that still remains. You look at both sides of FIRDAPSE that we've specified and that's idiopathic LEMS, where we feel we're only about 30% penetrated at this point. And then you have the cancer-associated LEMS where we're well under 10% penetrated. So again, significant opportunity there. As I mentioned on the call, we have a pool of patients there that we've stated 500 in the past and that we've seen significant growth from specifically our data leads in the fourth quarter. And so now that number is greater than 600. So based on those identified patients that are somewhere in their LEMS diagnostic journey, we believe that there's plenty of opportunity here in the short term to help those patients convert on to FIRDAPSE treatment. We've also identified some pharmacy intervention programs that have helped us reduce the discontinuations of patients in the first 4 months of treatment where we saw some higher-than-expected discontinuations. So based on those intervention programs, we've seen these patients able to reach their optimal therapeutic dose within the first 4 months. And at that point, we've seen a reduction in the discontinuation of those patients by 12%. So that's very significant, too. So, from the cancer associated side, we've seen a 21% increase in all VGCC testing year-over-year in '25 versus '24. With that, patient identification also is critical. So, we know that number will, in the long term, turn into patients' potential leads for us to help. And then we also expect that screening to take place in the first half of the year. But then in the second half of the year, we expect more arrangements with group practices that will help us convert those leads into patients on therapy. So that's FIRDAPSE. Richard John Daly: Jeff, just on the FIRDAPSE side, you talked about the number of leads that we have. Can you talk a little bit about the improvement in quality of those leads? Jeffrey Del Carmen: Absolutely. So, we've become much more efficient in helping these patients go from a diagnosis of LEMS on to treatment when appropriate. We use AI, we use machine learning, and we have 5 different data sources that we utilize to qualify the leads and ensure they are unique and identify which of these patient leads are the highest priority and have the most urgency to get on treatment. So, we point our sales force into that direction where to go. So, we score these leads for them. And that's been extremely helpful in helping these patients convert on to treatment sooner. For AGAMREE, we're very pleased with the performance last year. And based on the low side of our guidance, the 20% growth this year. We expect in at least a 20% growth in 2026. I mentioned broad adoption and across the top 45 or the top COEs that make up 80% of all DMD patients. So, we expect to not only continue that, but to deepen that penetration within those sites. We've seen many physicians now. The -- with the experience that they have, we've seen discontinuations and cancellations that have also decreased over the last 2 to 3 quarters. So that's also a positive sign of greater experience and strong adoption and acceptance of AGAMREE. Operator: Our next question comes from the line of Joon Lee with Truist Securities. Asim Rana: Congrats on the quarter. This is Asim on for Joon. So just kind of on the last one, I mean, your FIRDAPSE guide for '26 is above the historical 15% to 20% that we've typically seen. So, I just want to understand of all the factors that you mentioned in the answer to the previous question, what's the biggest driver of that increase? And is that how we should be thinking of FIRDAPSE growth beyond '26 in 2027? And then just on BD, I mean, would it be fair to assume we'll see a deal this year? Richard John Daly: Jeff, do you want to build on the previous answer to that? Jeffrey Del Carmen: Sure. Asim, the thing that really gives us the most confidence is really in the short term, the greater than 600 pool of patients, the patients that are somewhere in their diagnostic journey to LEMS, but we know they're LEMS patients not yet on treatment. So over 50% of our new enrollments comes from that pool of patients. So that gives us significant confidence. The other big reason for confidence is the 21% growth in VGCC test year-on-year. We're actually seeing a 9% growth quarter-on-quarter of VGCC test. So that volume, the velocity of new tests that are being done also will help us identify and help these patients sooner and shorten their diagnostic journey. So that's one of the big things. And our ability to be more efficient, like I mentioned, helping these patients that are diagnosed get on to treatment faster. And then on the second half of the year, that's when we talked about incremental patients coming from the cancer-associated LEMS opportunity. So that's when we truly expect both idiopathic and CA-LEMS patients to increase here in the second half of this year. Richard John Daly: Before I take the BD question, Asim, just to build on Jeff's answer, too, think about the timing of some of the things we put in place. So, this will be a full year of the dedicated sales forces. We changed that in April of last year. So we expect there to be some dedication provide some value. But also, Jeff, can you speak to the timing of the pharmacy program because that, again, was not a full year program either, and we're seeing the nice results there, too. Jeffrey Del Carmen: Thanks, Rich. We initiated the pharmacy intervention program in June of last year. And we saw a significant decrease in patients that were not able to get to the -- their optimal therapeutic dose. We saw a reduction in that. And like I mentioned, we saw a 12% decrease in discontinuations of those patients after we initiated that program. So again, like Rich mentioned, we only have basically half a year of that program in place. And we feel that in the long-term, that will help patients get to their optimal therapeutic dose and when appropriate, stay on treatment. Richard John Daly: I'll take question -- thanks for the questions here today. So we're going to continue along the line that we've pursued, which is a diligent and thoughtful approach to looking at opportunities and as I think we've talked about before, we really look at a couple of elements in this. We're obviously looking for a differentiated product profile rather and something that really can improve patient care. The second element for us is we have to be aligned on the vision with our potential partner or licensor on not only how the product will launch, but what might be life cycle management opportunities. So we think that's really important. And then, again, focusing on that near-term accretive opportunity is really important to us as well. Our BD team has done a phenomenal job of exercising these elements and looking for the ideal opportunity. The one other thing we have to take into account as we assess opportunity is especially as we go deeper into the pipeline, working our way back into post proof-of-concept opportunities with a relatively clear regulatory path is the regulatory environment today. And so we are, again, diligent and thoughtful in our approach. As to whether or not we can say we'll do a deal in the year, obviously, we want to improve the portfolio that we have to improve care for patients. And so we'll continue our diligent efforts here and bring in products that we believe we can add true value to and the products that will also add value to the lives of the patients we serve. Operator: Our next question comes from the line of Pavan Patel with Bank of America. Pavan Patel: Congrats on the commercial execution this quarter. I thought it was pretty strong. So I will focus on AGAMREE commercial. And my two questions. So the first is on the detail on the median age of new AGAMREE enrollees dropping by a year. I thought that was interesting. So maybe if you can speak to whether you're seeing a meaningful shift where physicians are using AGAMREE as a first-line steroid for newly diagnosed boys rather than just switching older patients who are already experiencing toxicities from either prednisone or EMFLAZA? And how does that capturing that younger demographic impact assumptions around longer-term patient durability? And then the second question is with regards to the reimbursement. I know you mentioned that it's tracking above 85%. So maybe if you can just speak to what's the pushback that you're seeing in the remaining 15%. Is that just largely a step edit requirement of try prednisone first? And do you expect that 85% rate to pick up as we move through the quarters in 2026? Jeffrey Del Carmen: Sure. Great questions, and I'll take the latter first. And when we think about the AGAMREE reimbursement landscape, we're very pleased with that greater than 85% approval rates. And to your point, yes, absolutely, there are some step edits. But over time, those steps, those patients are able to get on to treatment. What we do is we provide bridge treatment or free drug for patients while they're going through those steps. And until they're able to get approved, then we convert those patients under reimbursed patients over time. So we believe that's very, very strong. And in fact, we're closer to 90% as far as reimbursement rates go. When we look at the average age, the decrease by 1 year, so the average age in the last 6 months has come down to closer to 11-ish versus the 12 that was before. So that's very significant. And you had mentioned it, why it's significant is because younger patients, they have greater adherence to therapy. And really, they're more likely to experience the positive tangible benefits for longer. So it's a great thing for patients but we're seeing that play out. And you asked what does that mean that patients are coming over without doing a step or going to prednisone or generic EMFLAZA or EMFLAZA. And about 10% of our patients actually come directly without ever having experienced a steroid before. So it is the first steroid for the DMD treatment. So we are seeing that. Richard John Daly: Jeff, to build on Pavan's question, when we think about the change in age, obviously, the dosing is start at the top end of the dose and work down. So these patients are coming in, they're younger. One would anticipate maybe a different dose? Are we experiencing that? Jeffrey Del Carmen: No, actually, we're seeing the same dose. Richard John Daly: So I think it's really positive for longevity, persistency on the drug and then obviously, for the dosing for the patient to get the benefit. Jeffrey Del Carmen: Absolutely. Operator: Our next question comes from the line of Leland Gershell with Oppenheimer. Unknown Analyst: Congrats on the quarter. And this is Jason on here for Leland Gershell. Question on AGAMREE. One and how does the SUMMIT open-label expansion affect the forecast for AGAMREE going forward? And to what degree are the assumptions built into the 2026 guidance? And maybe one more point. How should we think about additional indications to support AGAMREE growth going forward? Richard John Daly: So before -- I have Will join in, I just want to touch on the fact that the focus here for SUMMIT is enrolling patients, getting the patients into the trial. And with that, I'll just turn it over to Will to talk about what some of the expectations are. Will? William Andrews: Yes. Thank you, Rich. Thank you, Jason, for the question. We are -- continue to be excited about the SUMMIT trial. We continue to bring in new sites and to enroll additional patients towards our goal of getting this to a trial where we have a significant enough patients where we can really pull out some robust data analysis from this trial. We're also excited about it because of Santhera's announcement from last November as well as their upcoming MDA conference poster presentations and abstract presentations on their Guardian trial as well as evaluation of other open-label data that they have that look at really the same -- many of the same parameters that we're looking at in SUMMIT, where they actually show some important positive top line data, including comparisons to large natural history data sets that show normal growth in the AGAMREE-treated patients compared to stunted growth in the corticosteroid treated population, a decreased rate of vertebral fractures, decreased rate of cataracts, no cases of glaucoma, and these are all important endpoints in our SUMMIT trial. We are also additionally looking at progression of cardiac effect, et cetera. So this is a trial that we are purposely driving to evaluate long-term potential benefit in these really important glucocorticoid side effects. And for, I think, the latter part of your question, Jason, I'll pass it back to Rich in regard to how we look at it as a potential impact on performance of the medication. Richard John Daly: Thanks, Will. This is a great question, Jason. So thank you. When we look at these data that we see for Santhera, again, it's very encouraging for SUMMIT. But we have to keep in mind that none of the endpoints that we see in the data from Santhera are in our label at this point in time. So presently, we don't have a great impact built in. I don't think we have any impact because we can't promote it. So -- but again, we're highly encouraged by these data. We're really excited to continue the SUMMIT trial to see if we can build on the data set. And obviously, physicians can use the product as they deem appropriate, but we need a robust data set, and the Santhera data is a great start for us. Operator: Our next question comes from the line of Luke Herrmann with Baird. Luke Herrmann: Looks like a nice FIRDAPSE guide. Can you just help provide any additional color on the extent to which you expect the growth for FIRDAPSE to be sort of backloaded? Or does the traction you're seeing with idiopathic sort of smooth things out in the first half? And I have a follow-up. Jeffrey Del Carmen: So yes, we do expect strong enrollments from the idiopathic LEMS here in the first half to help as we build the screening for cancer-associated LEMS. Like I mentioned, we do expect incremental patients for cancer-associated LEMS in the second half of the year. Richard John Daly: I think when you build on this, when you think about how this is -- the patients are diagnosed in the journey they go through, Jeff did a really nice job of explaining how we're accelerating that when it's appropriate. And we'll continue to see that. But there is a cadence to this that we've -- I think we've seen over the last 6 or 7 years. And on the cancer side, we're working to advance that, but we would expect there to be an incremental opportunity in the second half, especially when we see the VGCC tests increasing, I think that's a really good sign, but it does take time to get those patients into the treatment queue. Luke Herrmann: Great. And then just a follow-up on business development. I guess, in light of the favorable trajectory for XBI recently, do you think this could make BD activities more challenging? Or have you not seen much of a change to the breadth or quality of inbounds at this point? Richard John Daly: We're seeing no change to the quality of the inbounds. We like the opportunities we're currently evaluating. And it comes down to the 3 or 4 points I looked at before when we get into due diligence, making sure that we have good alignment opportunity to offer differentiated and improved care and then obviously return -- get a return as quickly as possible, as reasonably possible. Operator: Our next question comes from the line of Sudan Loganathan from Stephens Inc. Kesav Chandrasekhar: This is Kesav on for Sudan. Congrats on wrapping up 2025. So I understand that VGCC testing initiatives are primarily expected to materialize during the second half of this year. But could you all provide some color on the magnitude testing volume has possibly already had on FIRDAPSE sales? And then my second question is, could you talk about how the Phase 1a readout in this quarter on establishing translational dosing is expected to impact your plans for AGAMREE going forward? Richard John Daly: Jeff, why don't you take the first one and then Will shall take the second. Jeffrey Del Carmen: Like I had mentioned, there is significant growth year-on-year, 21% in the year-on-year for the VGCC test. So that's always a positive sign. We know it's tough to tease out what -- how much of that is the cancer-associated LEMS or test ordered by an oncologist versus a neurologist. So I would say primarily, a lot of that increase is still stemming from the idiopathic LEMS side. So there's plenty of opportunity still remaining to continue to increase the VGCC testing within oncologists. So that presents a significant opportunity still for us moving forward. Richard John Daly: Jeff, as you look at the VGCC testing and that is an indicator of conversion to therapy, where would that rank as an indicator of conversion? Jeffrey Del Carmen: It's of our patients coming in each month, it's about 50% to 60% of our new enrollments come from these new leads. Richard John Daly: So that's increasing? Jeffrey Del Carmen: Absolutely. Richard John Daly: Will, do you want to take the next question? And I'm sorry, could you just repeat the question so we have clarity on it? Sudan Loganathan: Yes, for sure. So like for the Phase 1a readout in this quarter, first quarter of 2026 on establishing that translational dose for AGRAMEE, -- could you kind of just provide some color on like how that readout might impact your plans going forward for AGRAMEE or if there was going to be any substantial impact? William Andrews: Yes. And happy to answer that question. Thank you for the question. One quick point of clarification is that we've announced that we will have analyses of that data within the first half of 2026, so not this quarter, just for that clarification. And effectively, what you're referring to is our evaluation in this study of biomarkers of inflammation as well as immunosuppressive biomarkers on multiple doses of AGAMREE. As to how that might impact business development or I should say, life cycle management opportunities for AGAMREE is essentially if we see, say, strong immunosuppressive effects, it might direct us towards certain life cycle management opportunities. And if we see minimal immunosuppressive effects, again, that might direct us to other life cycle management opportunities. The life cycle management evaluations broadly for AGAMREE are important for us and active, and we're excited about a number of the potential additional target indications that we're evaluating currently. Richard John Daly: And to build on that from a business impact, when Jeff mentioned on the call that we're seeing high retention rates, so there could be a potential business impact to getting the right patient on, but we are seeing a reduction in patients who are not staying on therapy, so a higher retention rate. And remember, about 45% of the patients switch from prednisone, 45% switch from an EMFLAZA, whether it's branded or generic. And so, the physicians are getting more and more comfortable over time. And this could just improve that with a little bit more direction should we be able to get it into the label, but that's yet to be seen. But just to build on that, we're happy with the progress we're making on retention as well. Operator: And at this time, we have no further questions. That concludes our question-and-answer session and today's conference call. We would like to thank you for your participation. You may now disconnect your lines. Have a pleasant day.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the GoodRx Holdings, Inc. fourth quarter and full year 2025 earnings call. As a reminder, today's conference is being recorded. I would like now to introduce your host for today's call, Aubrey Reynolds, Director of Investor Relations. Ms. Reynolds, you may begin. Aubrey Reynolds: Thank you, Operator. Good morning, everyone, and welcome to GoodRx Holdings, Inc.'s earnings conference call for the fourth quarter and full year 2025. Joining me today are Wendy Barnes, our Chief Executive Officer, and Chris McGinnis, our Chief Financial Officer. Before we begin, I would like to remind everyone that this call will contain forward-looking statements. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including, without limitation, statements regarding management's plans, strategies, goals and objectives, our market opportunity, our anticipated financial performance, underlying trends in our business and industry, including ongoing changes in the pharmacy ecosystem, our value proposition, our long-term growth prospects, our direct and hybrid contracting approach, collaborations and partnerships with third parties, including our point-of-sale cash programs and our Integrated Savings Program, our e-commerce strategy, and our capital allocation priorities. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors. These factors, including the factors discussed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2025, and our other filings with the Securities and Exchange Commission, could cause actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call, and we disclaim any obligation to update these statements, even if subsequent events cause our views to change. In addition, we will be referencing certain non-GAAP metrics in today's remarks. We have reconciled each non-GAAP metric to the nearest GAAP metric in the company's earnings press release, which can be found on the overview page of our investor relations website at investors.goodrx.com. I would also like to remind everyone that a replay of this call will become available there shortly as well. With that, I will turn it over to Wendy. Wendy Barnes: Thank you, Aubrey, and thank you to everyone for joining us today. The fourth quarter marked a strong finish to the year and reflected disciplined execution across our strategic priorities. We expanded direct-to-consumer affordability programs with pharmaceutical manufacturers, scaled differentiated subscription offerings, and deepened relationships with retail pharmacies. Those results were shaped by a year of meaningful change across the healthcare landscape. In 2025, affordability pressures intensified, policy dynamics reshaped access and pricing, and consumers increasingly expected healthcare to be more transparent, accessible, and direct. Together, these shifts pushed affordability and access to the center of healthcare decision-making, an environment that plays directly to GoodRx Holdings, Inc.'s strengths. Against that backdrop, we moved quickly to translate market change into clear execution across our platform. We expanded access to high-impact therapies like GLP-1 and supported manufacturers as they leaned further into direct-to-consumer strategies. We launched condition-specific subscriptions that bring pricing, care, and access together in a single seamless experience. We partnered with pharmaceutical manufacturers to integrate pricing into TrumpRx, helping them operationalize self-pay pricing at scale. Taken together, these actions demonstrate how we are evolving GoodRx Holdings, Inc. to meet the needs of consumers, pharmacies, manufacturers, and policymakers in a rapidly changing healthcare environment. While our core marketplace remains foundational, we are increasingly orienting the business around Pharma Manufacturer Solutions as a key growth driver. This reflects the evolving dynamics of prescription access and pharmacy economics, where brands are playing a more significant role in retail performance. Importantly, this strategic evolution builds on a position of strength. With the number one prescription app and nearly 300 million site visits annually, we continue to lead in prescription savings. That scale and consumer reach uniquely position us to deliver value in an environment where affordability and direct-to-consumer access are becoming central to how medications are brought to market. As Pharma Manufacturer Solutions scales, it enhances our core platform by accelerating subscriptions, deepening retail relations, and expanding our ability to engage with employers, all while creating differentiation competitors cannot easily replicate. We believe this positions GoodRx Holdings, Inc. for stronger, more resilient long-term growth, even as we navigate near-term financial impacts from this transition. Diving into key business updates. Starting with Pharma Manufacturer Solutions, which has become a key growth engine for our business, with full-year revenue up more than 40% in 2025 year-over-year. The industry dynamics I just discussed, combined with tighter insurance coverage, are fundamentally changing how prescriptions are accessed. Affordability decisions are moving earlier in the journey, forcing patients to play a more active role in how medications are selected, paid for, and filled. At the same time, the rapid growth of GLP-1 through obesity has accelerated direct-to-consumer models and heightened expectations around transparency and convenience. As a result, consumers increasingly want the prescription experience to reflect the standard set elsewhere in their lives, with digital-first tools, transparent pricing upfront, and a seamless path from decision to fulfillment. The prescription journey has not kept pace at scale, and that gap becomes most visible at the moment consumers are ready to act. This makes direct-to-consumer engagement essential. Pharmaceutical manufacturers are investing more in patient-facing strategies to meet consumers earlier and need partners that can execute those strategies at scale. That is where GoodRx Holdings, Inc. stands apart. With nearly 25 million consumers and more than 1 million healthcare professionals using our platform each year, we operate directly in the flow of patient decision-making, enabling manufacturers to turn pricing strategies into real access and adherence. That momentum sets the stage for the next evolution of Pharma Manufacturer Solutions, which we are now calling GoodRx Pharma Direct. This evolution reflects a clear vision for the role GoodRx Holdings, Inc. plays in modern pharmaceutical commercialization, serving as a proven digital storefront for self-pay and direct-to-consumer strategies that are becoming increasingly central to prescription access. For pharmaceutical manufacturers, Pharma Direct provides the infrastructure to bring affordability programs to market at scale, applying modern e-commerce principles to prescription access. This creates a streamlined, repeatable way to launch self-pay strategies without building new consumer platforms or point solutions. This capability matters because self-pay is increasingly shaping how drugs are brought to market, with manufacturers launching with discounted cash prices as a core access strategy. Earlier this year, Novo Nordisk launched the Wegovy pill, with select doses available for $149 per month. As one of the launch collaborators, GoodRx Holdings, Inc. offered this lowest available self-pay price from day one, giving consumers immediate clarity on cost and access. When paired with a GoodRx Holdings, Inc. for weight loss experience, consumers are able to evaluate their treatment options and, if eligible, move forward without delay. Based on data Novo Nordisk released during the recent earnings call, paired with our own internal data, we believe GoodRx Holdings, Inc. accounted for nearly 20% of all Wegovy pill self-pay fills during a single week in January, demonstrating the scale and reach of our platform. More broadly, this model has the potential to scale across the GoodRx Holdings, Inc. platform. The same self-pay strategies that support launches also strengthen subscriptions and drive savings at the retail counter. Today, we have more than 100 brand self-pay programs live, many of which are integrated into TrumpRx to further expand their reach and visibility. This foundation also enables us to serve as a key integration partner for pharmaceutical companies offering discounted cash prices on TrumpRx. Manufacturers are partnering with us to host their self-pay prices on GoodRx Holdings, Inc. We then integrate those prices into the TrumpRx platform. Our nationwide pharmacy network and home delivery capabilities, when available, mean the programs we are hosting can scale quickly and consumers can access the savings wherever they choose to fill their prescriptions. We are proud to be the integrated pricing source for Pfizer and other leading manufacturers at launch, including over 30 of Pfizer's essential brand medications, spanning women's health, migraine, arthritis, rare disease, and more. This integration underscores GoodRx Holdings, Inc.'s role as critical infrastructure for delivering manufacturer affordability programs at national scale. Pharma Direct reflects how pharmaceutical commercialization is evolving, with self-pay and direct-to-consumer strategies playing a central role, and how GoodRx Holdings, Inc. is enabling that shift. Laura Jensen, our Chief Commercial Officer and President of Pharma Direct, is here with us today and will be available to address questions about Pharma Direct following our prepared remarks. Laura joined GoodRx Holdings, Inc. from Amazon Pharmacy in August to lead our work with pharmaceutical manufacturers, and has been instrumental in shaping and accelerating this strategic evolution. Turning to Rx Marketplace. The fourth quarter marked important progress in stabilizing our prescription marketplace and deepening our partnerships with retail pharmacies, even as the broader retail pharmacy environment remains challenged. We significantly expanded our e-commerce ecosystem, tripling our retail footprint through an accelerated rollout of new partners during the quarter. This expansion allowed us to exit the year with 6 of our top 10 retail pharmacies live on our platform and drove a clear inflection in consumer adoption, with order volume up 83% quarter-over-quarter. At the same time, we strengthened the underlying economics of the marketplace. We now have direct contracts in place with 9 of our top 10 retail pharmacies nationwide, providing a strong foundation for attractive retail margins. We also drove strong RxSmartSaver momentum and continued to scale Community Link, implementing direct contracting at an expanding number of independent pharmacies nationwide. Turning to subscriptions. We continue to execute against our condition-based strategy, focusing on high-intent areas where affordability and access are the primary barriers. In 2025, that included erectile dysfunction, hair loss, and weight loss. While still early, the initial launch and subscriber activations have exceeded our expectations, reinforcing our confidence in this approach. Weight loss, in particular, highlights the unique role GoodRx Holdings, Inc. can play in direct-to-consumer healthcare. GLP-1 treatments for weight management are often not covered by insurance, leaving most consumers paying out of pocket. With GoodRx Holdings, Inc. for weight loss, we simplify the entire journey, from virtual consultation to prescription to fulfillment, at nearly every pharmacy nationwide, using only FDA-approved therapies and pairing them with transparent, industry-leading, discounted cash prices, powered through our direct relationships with pharmaceutical manufacturers. Given the scale of unmet demand in this category, weight loss represents a meaningful long-term opportunity and a clear example of how GoodRx Holdings, Inc. serves as a connective layer across care, pricing, and access. Another important driver of subscription growth is the continued strength of our brand. Consumers recognize and trust GoodRx Holdings, Inc. as a reliable entry point for prescription savings. That brand equity is translating into efficient customer acquisition. We have attracted high-intent users and converted them at customer acquisition costs below industry benchmarks. Given those returns, we plan to continue investing in brand and performance marketing and will increase spend to drive subscription growth where we see strong unit economics. We also just introduced Employer Direct, a new offering designed to help employers address gaps in traditional insurance coverage by pairing their existing benefits with integrated cash pricing. The program is built to work alongside, rather than replace, employer health plans and gives employers practical ways to expand affordability and access without taking on additional plan complexity. There are two ways to engage with Employer Direct. First, employers can work with us to create medication-specific programs to contribute directly to the cost of individual brand medications that are not covered or are inconsistently covered under their health plans. These contributions are applied at the pharmacy counter, effectively buying down the employee's out-of-pocket costs for a specific drug. We launched this approach with our first employers at the start of this year, with an initial focus on GLP-1 medications. Second, employers can partner with us to offer an employer-specific version of GoodRx Holdings, Inc.'s condition-specific telemedicine solutions, including weight loss, erectile dysfunction, and hair loss. We see Employer Direct as a natural extension of the GoodRx Holdings, Inc. platform and a meaningful growth opportunity within our portfolio. I will now turn the call over to Chris to discuss fourth quarter and full year results, as well as 2026 guidance. Chris McGinnis: Thank you, Wendy, and good morning, everyone. For the fourth quarter, revenue came in at $194.8 million, and Adjusted EBITDA was $65 million. This resulted in full-year 2025 revenue of $796.9 million, which was up 1% year-over-year. Full-year Adjusted EBITDA was $270.5 million, which constitutes 4% growth over 2024. Our 2025 financial performance was in line with the company's latest guidance, with Adjusted EBITDA just above the midpoint of our guidance range. Drilling down on full-year revenue, prescription transactions revenue declined 6% year-over-year to $544 million. As we previously discussed, the impact of the Rite Aid bankruptcy and lower volume through one of our Integrated Savings Program partners was approximately $35 million-$40 million for the year and therefore impacted our year-over-year growth rates. Subscription revenue decreased 3% year-over-year to $83.8 million. We have seen strong early adoption related to our condition-specific subscriptions, particularly around weight loss, which started late in 2025. We expect it will contribute more meaningfully to overall subscription revenue in 2026. Revenue from Pharma Direct, previously Pharma Manufacturer Solutions, increased to $151.4 million, up 41% year-over-year, driven by deepening our sell-through at manufacturers and ongoing growth in our consumer direct pricing. Our balance sheet remains strong, ending the year with $261.8 million of cash on hand, with approximately $80 million of unused capacity available under our revolving credit facility. During the year, we repurchased approximately 48.9 million shares of our stock at an average price of $4.45 per share, totaling $217.4 million. We continue to believe that share repurchases are a signal of management's confidence in the company's future and are the most efficient method of returning capital to shareholders. For the full year 2026, we expect revenue to be in the range of $750 million-$780 million and Adjusted EBITDA to be at least $230 million. Our outlook reflects the decisions we are making to ensure the long-term durability of our business. We are making trade-offs to invest more heavily in our Pharma Direct and subscription offerings, which strengthen our ability to deliver value to pharma, improve the economics of our retail relationships, and continue to simplify how consumers engage with prescriptions on our platform. Furthermore, we have made deliberate choices to favor long-term durability and certainty that will negatively impact our near-term unit economics. As a result, and in combination with the lapping impacts from 2025, we expect pressure on prescription transactions revenue in 2026, which is reflected in our guidance. We expect Pharma Direct revenue to grow at least 30% in 2026 year-over-year. While our newly launched condition-specific subscription programs are not material today, the programs accelerated significantly in the fourth quarter of 2025, and we expect that to continue throughout 2026. As Wendy noted, our prescription transaction offering is foundational and enhancing performance remains a top priority. While monthly active consumers fell 14% in 2025 versus the prior year, we expect monthly active consumers to be flattening sequentially from Q4 2025 through Q4 2026. We are encouraged by the continued growth profile of Pharma Direct and subscriptions offering and the robust interest in our Employer Direct offering. We strongly believe the strategy we are executing on will build momentum throughout the year and put us in a position to grow beyond 2026. With that, I will turn the call back over to Wendy. Wendy Barnes: Thanks, Chris. Looking ahead, what stands out to me is how closely our strategy aligns with the realities of today's healthcare environment. The work we have done over the past year positions us squarely against the shifts reshaping access and affordability and strengthens both the relevance and long-term resilience of our platform. Healthcare is becoming more consumer-driven. Manufacturers are playing a more active role in pricing and access. Retail economics continue to evolve. Those dynamics require new models. We have been intentional about building the capabilities and partnerships that allow GoodRx Holdings, Inc. to meet that moment. We have made clear choices about where to focus and how to compete. As Chris mentioned, these choices will impact prescription transaction revenue in the near term as we transition to improve the durability of the offering and bolster the growth of Pharma Direct and subscription revenue in the long term. As we move into 2026, our priority is executing against those choices with discipline and consistency, while continuing to strengthen the foundation of our platform. I am confident in the direction we have set and in our team's ability to deliver. I will now turn the call over to the operator for questions. Operator: Thank you. To ask a question, please press star one one on your telephone and wait for your name to be announced, and to withdraw your question, please press star one one again. We ask you to please limit to one question and one follow-up. Our first question is going to come from Michael Cherny with Leerink Partners. Your line is open. Michael Cherny: Good morning. Thanks for taking the questions. Maybe, Chris, if I can dive in a little bit more on the revenue guidance. You talked about the pressure in PTR, yet a stabilizing of the MAC rate. Can you talk a little bit about the unit economics in terms of what it physically looks like? What are some of the recontracting efforts you are taking, and how will it change, or will it not change, your positioning and relationship across pharmacies, PBMs, and members? Chris McGinnis: Thanks, Michael. I appreciate the question. Let me unpack the decline on the PTR side a little bit. I think there are three primary factors that are really driving the decline. First, as I noted in my prepared remarks and as we have talked about previously, we had significant revenue coming from Rite Aid and some of our other partner programs during 2025 that will not recur in 2026. Secondly, we are seeing a shift of claims, particularly around high-cost branded medications, from our core business to Pharma Direct, and that is reflected in the growth profile of our point-of-sale programs within that offering. Finally, as you are calling out, I think the largest contributor is a decline from unit economics. This is a negotiation of lower fees across multiple partners in our ecosystem. We are doing this in exchange for longer-term durability and predictability, as I mentioned in my prepared remarks. That is a significant reset of our unit economics. We factored this into the guidance. I think it is a headwind of, as a percentage of consolidated revenue, an impact in the mid-single digits. We believe this positions us to steady the core over the long term, and I think, as you point out, it reflects our MAC trends. We have modeled MAC. Our exit rate of 2025 was 5.3. We have that number basically flat to slightly declining. Maybe we end the year at about 5.2 and think about it as relatively flat to just a slight decline. We are trying to stabilize the core. There is a simple math question: it is the rates we get times the volume we get. The first order of business is stabilizing the volume. We think working with partners in the ecosystem to ensure that we are limiting getting disintermediated at the counter, and that we are pushing consumers to the right program—whether it be Pharma Direct or the retail counter—optimizes our overall solution. It optimizes our overall relationship with retail partners. We view the overall retail relationship as a two-way street. Brands used to be a loser at retail, and we are ensuring that it no longer is. When we look at that relationship in aggregate, we are trying to mitigate the disintermediation and the competition at the admin fee level. When we can trade off and exchange longer-term predictability on a rate side for near-term pressure, but stabilize the volume, we think that is the first step in a longer-term, more durable, value-add profile. Michael Cherny: It is on the same lines, and I apologize for interrupting, but as you think about that, obviously lower revenue on a high-margin base drives lower drop-down. Is there any way alongside that to bifurcate relative to EBITDA guidance, some of the investments you are making? If we think about the baseline EBITDA bridge from 2025, how much of the reduction year-over-year is, call it, offensive—making investments—versus defensive, absorbing these new economics? Chris McGinnis: We have not guided to any specific line item, but if you think about what we are trying to let you back into, it is the lapping impacts. You can see it last year. We had Rite Aid in for a little bit better than half the year. We talked about the other programs during Q2. You can understand that was a meaningful lap. Then I would say, roughly, the other half is related to some elective decisions to be aggressive to stabilize over the long term. Operator: Thank you. Our next question will come from Jailendra Singh with Truist. Your line is open. Peyton Engdahl: Hi, this is Peyton Engdahl in for Jailendra Singh. I wanted to talk about the pharma budget spending environment. There have been some pharma services and HCIT companies that have talked about their pharma clients' budget deployment increasingly being released in smaller, more phased increments. Have you seen any impact on the size, duration, or ramp time of the new Pharma Direct programs? Is that influencing your visibility? Wendy Barnes: Laura and I will take that one in tandem, Peyton, and good morning. I would start with a broader observation. One notable observation this year has been to the contrary of what you pointed out, which is more of the spending has been pulled forward in our sales cycle, which was a different experience for us historically. Beyond that, let me let Laura jump in with more specific observations, given she has the ongoing relationships with our pharma partners. Laura Jensen: Thank you for the question. We are seeing some of that budget being pulled forward this year, whereas last year there were a few key partners who were booking quarterly. Now they are booking earlier in the year, in fact, 2026. Broadly, I would say pharmaceutical manufacturer budgets, especially on the direct-to-consumer side, are continuing to invest in these types of programs where they are going direct to patients, they are going through partners like us, as well as building their own solutions. We are seeing some trends on the HCP side, where those budgets were a little bit soft earlier in the year, but those are opening up as well. I would say it is a little bit different than the comment that you made, but we are certainly seeing those budgets pretty healthy this year. Peyton Engdahl: Great. Thank you. Wendy Barnes: One other note for you, Peyton, that may be helpful. Our bookings in Pharma Direct as a percentage of our overall plan are up relative to the same point in time last year, again pointing to more being pulled forward. If that gives any more confidence, it certainly has bolstered our confidence in why we continue to lean so heavily into Pharma Direct. Peyton Engdahl: Great. Thank you. Operator: Thank you. Our next question will come from Lisa Gill with JPMorgan. Your line is open. Lisa Gill: Thanks very much. Good morning, Wendy and Chris. Wendy, I want to understand a few things better when I think about the business right now. A lot of your comments today were talking about the manufacturing direct. Are we talking about a specific business model change here? What do you think about the future of your legacy business? At our conference, you talked about the relationship with Surescripts and the opportunity to really capture that patient when they are with the provider. Are you not seeing the benefit that you anticipated? You are talking a lot about direct-to-consumer. I want to think about how you are thinking about the future of this business. I heard you talk about 2026 as a transition year, but how do we think about it longer term and the key elements of what GoodRx Holdings, Inc. will look like? Wendy Barnes: Good morning, Lisa. Thank you for the question. Let me start by saying the core, what we largely refer to as Rx Marketplace, will always be foundational to our business. The manner in which consumers transact at pharmacies I do not see going away. Since this company's inception, that model has evolved vastly from the manner in which we largely contracted with pharmacies through PBM relationships. While many of those still exist, we have had to pivot to direct relationships with pharmacies to ensure that margins were fair for our pharmacy partners and to return a greater degree of control to us. We are also being as intellectually honest as we can about what we see in the broader market. There is no question that as the cash space has become more competitive, that space has become more pressured. I stand behind the notion that we are and will continue to be the number one drug affordability marketplace for consumers. The reality of where we are at this point in time, with consumers wanting more direct experiences, pharma leaning into it, payers supporting that model, and the regulatory environment pointing more toward consumer-direct programs, is that we would be remiss to not take advantage of that opportunity. That margin is also more durable and more appreciated by the public market. We see our ability to be successful there as an inflection point for us as a business. That is why you are hearing me say that, over the longer term, Pharma Direct, coupled with Employer Direct, will continue to feed those retail relationships. Will that core legacy business continue to be part of the flywheel that powers that? Absolutely. We know that the basket of drugs that historically are filled in the U.S. tends to be primarily generic. However, those drugs that tend to hurt your out-of-pocket the most are brands. That is why we have to focus on the smaller subset of drugs, and that does point to an evolution in our model, and that is what you heard us speak of here. That is why we are shifting where we are investing and leaning in more heavily to where we see the market going. Lisa Gill: Thank you. Wendy Barnes: Good to hear from you, Lisa. Operator: Our next question will come from John Ransom with Raymond James. Your line is open. John Ransom: Good morning. Maybe this is for Chris. The way PTR used to work was it was about a $5 take rate on 100 million scripts. You mentioned it is down low, missing a digit on total revenue. Is the difference between the $500 million and what is coming mostly a lower take rate, or is there also some script degradation embedded in that as well? Chris McGinnis: Thanks, John. We are trying to stabilize the underlying volume of scripts, and that is reflected in how we are thinking about the flattening of that curve versus 14% down last year. Sequentially, quarter-over-quarter, relatively flat. If you look back, the PTR per MAC was going up throughout the year, which reflects the power of what we were trying to accomplish. What we are trying to now say over the long term is that could and will continue going into the future. For today, we are trying to renegotiate across our entire supply chain, up to pharma and everywhere, a longer-term, durable approach to economics. We sit in a unique position between pharma's direct-to-consumer strategy. We have a platform where it is paramount that we have a retail footprint that is 70,000 stores, where pharma can deliver its direct-to-consumer strategy across all of those retailers in a powerful way, in ways that brands make sense to be dispensed there. Similarly, the fact that we have Pharma Direct growing as it is and becoming a much more meaningful part of our revenue profile allows us to share brand economics with retailers. There is a much more holistic approach than simply talking about take rate for us. It is a bidirectional flow of funds now that we think about across our ecosystem. John Ransom: Thank you. My follow-up for Wendy is, the company has been publicly saying, "We would love to get to the finish line with Lilly." It looks like this is a perfect model for Lilly, but are they still, do they just like the LillyDirect, and they do not want to have any third-party intermediary, or is there still some hope that maybe that can happen? Wendy Barnes: I will start by saying we probably will not comment on any specific deal, John Ransom, but I would love for Laura Jensen to take that, who joined us with a strong resume filled with relationships with pharma at the top, which we were missing in many instances. It is one of the things that Laura Jensen and her team have done an exemplary job building out. Laura Jensen, please take it. Laura Jensen: Thank you for the question. Broadly, pharmaceutical manufacturers are looking at building their own direct-to-consumer experiences, whether that is through programs like a LillyDirect, AstraZeneca has one as well, Pfizer has one. Very much also looking at where to meet patients where they are on other platforms. I just came over from the Amazon Pharmacy team, and now here at GoodRx Holdings, Inc., where we are building those types of solutions as well, where patients are already shopping for other pharmaceuticals. The idea is that pharmaceutical manufacturers do not have to choose. They can deploy these resources to patients wherever that patient chooses to fill their prescription, and wherever they search for information about that prescription once a treatment decision has been made. They are working with us to get to those patients in a way that is comfortable for those patients, but also to learn about how to go direct. Manufacturers historically are not set up well, from a corporate and strategic perspective, to go direct as a consumer-facing organization. That is not historically how they have gone to market. We are at the early stages of how these companies will move through these direct-to-consumer models, and we are taking our cues from patients, but also investing in this area to be able to grow alongside our pharmaceutical manufacturer partners. John Ransom: Thank you. Wendy Barnes: John, I would also add, part of the dialogue that we continue to have with our pharma partners is one of, "We understand if you have interest in your own direct program, but let us show you the data that we have proven out over and over on what it looks like for the average consumer to come looking for a brand price in our environment versus a broken-out brand.com experience." I do not want to suggest that those direct programs are not effective. They are and can be. The ability for a consumer to look for their entire basket of drugs inside an environment like GoodRx Holdings, Inc. versus four or five different manufacturer programs with a different user experience, the data is irrefutable as to what that delta looks like, and it is meaningful. We share that information with our pharma partners to say, "If you want to have your own direct program, we can support that, too. We can also do that inside of our environment, so the consumer does not have to click out, or in some instances, you might consider loading your brand opportunity just in our environment, and we see a much better outcome as a result." That is what we continue to share with our pharma partners. Slowly but surely, that approach is starting to make more sense for our pharma partners. There is no question that— Chris McGinnis: Even a launch with cash approach is new and novel, and it is something that, historically, pharmaceutical manufacturers had not done much of. John Ransom: Thank you. Operator: Thank you. Our next question will come from Steven Valiquette with Mizuho. Your line is open. Steven Valiquette: Thanks. Good morning. Thinking about the guidance and potential margin pressure year-over-year, back of the envelope, maybe it is 400 basis points year-over-year. Could be higher, could be a little bit lower, but I am trying to get a better sense of how much of that margin pressure may show up in gross margins versus higher SG&A as a percent of revenue or perhaps higher R&D as well. Just trying to think about it from a modeling standpoint. Thanks. Chris McGinnis: Thanks for the question, Steve. The cost of revenue is a little higher when you think about the mix of our business from our condition-specific subscriptions offering. That has an operating cost associated with it, such as clinical visits. Historically, the core business of the PTR line had a higher margin. Pharma Direct is a high grower with a healthy margin profile, but that has diluted the higher core business margins over time. These new offerings have the same impact. They still have healthy margins, but are a little bit dilutive to the historical margins on the core. From an expense profile perspective, the rationale of putting a floor on, versus a range that would tie a margin percentage to the top-line revenue, is that we did not want to be handcuffed to that, so we put a floor on it. There are some elective decisions we want to make. Wendy noted that our subscription offerings are exceeding our expectations. We are rethinking subscriptions overall. We have things we are investing in on the Pharma Direct side. We really wanted the ability to invest further if it makes sense. Wendy also mentioned in her prepared remarks that our CAC is below industry standards. Until we see a diminishing return, we may want to continue to invest there. We raised our EBITDA margin profile throughout last year. If you look at our expense profile, it will be down in absolute dollars. I think it will be relatively consistent, if not down a bit, on a percentage of revenue basis, to your question. We have proven that we will be good stewards of shareholder money and drive efficiency. We will continue to do that, but we will make elective decisions to spend where appropriate. Steven Valiquette: Thank you. Chris McGinnis: Yes. Operator: Thank you. Our next question will come from Stan Berenshteyn with Wells Fargo. Your line is open. Stan Berenshteyn: Good morning. Thanks for taking my questions. Wendy, first on PTR, historically, 50% of MACs have been sourced by the top 10 HCP relationships you have had. Is there still a focus on that to drive the MAC volume, or has your approach evolved? Chris McGinnis: Stan, can you clarify your question again? I am not quite following. Stan Berenshteyn: Historically, I believe 50% of the MACs on your platform have been sourced by the top 10 HCP relationships you have had. Is there still a focus to drive MAC volume through HCPs, or have you changed the strategy? Chris McGinnis: I am going to claim a little ignorance as it pertains to top 10 HCPs. I am not sure what you are referencing there. We have 1.2 or 1.3 million HCPs that typically engage with us in any given fiscal year. We are focused on a broad swath of HCPs, and those are largely driven by our manufacturer relationships and the NPI/prescribers that they have interest in driving volume through. Of course, generics is a much broader swath of HCPs, and we know that HCP recognition of GoodRx Holdings, Inc.—I think we have 85% to 90% HCP recognition of our brand. HCPs will continue to be an area of focus for us, largely, again, in partnership with pharma. Some of our marketing efforts point toward HCPs, but it is more driven by our partnerships with pharma to drive that recognition and utilization. Stan Berenshteyn: Okay, great. Chris, how should we think about your sales and marketing efforts in 2026? You have some pivots in your revenue strategy. Are there any changes in how your sales and marketing is getting deployed? Given the top-line pressures this year, are you able to absorb some of that impact through continued reduction in sales and marketing intensity? Thanks. Chris McGinnis: I appreciate the question. In terms of sales and marketing efforts, as I said on one of the previous questions, we will continue to redirect some of our overall marketing spend toward specific programs. There is a brand halo effect there, but we have a great marketing team led by Ryan Sullivan. We spend a lot of time together talking about key metrics and what we are seeing and how it is driving our overall business. We did bring down spend overall last year. In terms of absolute spend, with the revenue drop, we brought down the dollars, but as a percentage of revenue, it is essentially in line with what we spent last year. Will we raise that? That is one of the reasons we put a floor under EBITDA as opposed to a specific range. We want the ability to spend more as we see that opportunistically. Largely, you will continue to see us push more into the campaigns around our specific offerings. Hopefully, that answers your question. Wendy Barnes: I might add, we do considerable review and discussion on a monthly basis as we examine the optimal ROAS profile of anywhere we are spending marketing dollars. We make shifts accordingly to ensure that we are sending dollars to the highest-ROAS opportunities. Ryan is one of the few CMOs I have worked with over the years who is a truly data-analytically driven individual. That is his background, and he is strong at taking the data to make sure that, objectively, we are making the best decisions and trade-offs. We made decisions to shift dollars, and decrease dollars in certain buckets, to point them towards our highest and most important strategic initiatives coming out of 2025 and into 2026. Strategically, the biggest decision shifts we made were largely coming out of Q4 2025 when we launched our weight loss subscription offering and started seeing the early results, and we have made decisions in early 2026 to keep pushing that vector. Chris McGinnis: Great. Thanks so much. Wendy Barnes: Mm-hmm. Operator: Thank you. The next question is going to come from George Hill with Deutsche Bank. Your line is open. George Hill: Good morning, and thanks for taking the question. Wendy, is there anything that you can do increasingly on the generic side to monetize that opportunity? That is where the vast majority of prescriptions come. Then I will pause before a follow-up. Wendy Barnes: We are never going to abandon the generic focus because, from a volume perspective, that is the overwhelming number of fills that all of us as consumers look to fill, and oftentimes, that margin profile for retailers is favorable. We know that is an important group of drugs for our retail partners. It really comes down to engaging the consumer, because most consumers have a mix of drugs. With that comes a handful of brands and typically more generics. It is less a question of how we optimize the generic component in the mix. It is more about how we engage more consumers, and how we continue to work directly with retailers, such that whoever is standing at their counter is utilizing our program over somebody else's when they have an opportunity to access discounted cash pricing. I do not think about it in terms of how we optimize generics. It is more about how we engage the consumer, and then their basket of drugs follows behind that. George Hill: That is helpful. As a follow-up, it seems like you have made an investment in price or price concessions this year to support volume. How do we get comfortable thinking about the business longer term, that this is not a perpetual downward discussion every year? How do you think about price stability in the business in the medium term? Chris McGinnis: It is the right question. The two primary businesses today are interrelated and support each other. If you look at the history of this company, since its inception, the flow of dollars has been one way. There is a transaction at retail, where they collected an admin fee, and they passed that back to us. The flow of dollars was one directional from retail to us. In the new environment, especially as Pharma Direct becomes a more meaningful part of our business, it allows us to have brand economics to share with retailers to ensure that they are making appropriate profits on the branded side, which they historically have not been able to do. Absent that business, one of the value propositions we have over our competitors is that you would continue to see pressure on generics at the counter. You would continue to see an erosion of admin fee. We are taking a longer-term approach of a total relationship, and a bidirectional flow of dollars between us, so that the counter tools, the disintermediation, and some of the race to the bottom on the admin fees that we have been experiencing—we are putting a floor under it, and we are using total economics from a relationship perspective. The growth of pharma, and the reason we are highlighting and emphasizing it, is because it is the vehicle through which we put the floor under the retail side. Operator: Thank you. The next question is going to come from Brian Tanquilut with Jefferies. Your line is open. Cameron (for Brian Tanquilut): Hi, this is Cameron on for Brian. Thank you for taking the question. This is the second quarter you have called out a volume reduction in Integrated Savings Programs. Can you unpack what is structural versus fixable there? What activity are you seeing from the PBMs that is causing this? Is this a conscious shift away or not, and what behaviors are causing this? Chris McGinnis: Thanks, Cameron. To clarify, we are not calling out a new volume reduction. We were referencing the headwind we faced in 2025 relative to our initial projections, so everyone can understand the lapping impact of that as it relates to 2026. There is no new volume reduction. If you look at the MACs, we said they will be sequentially relatively flat. From a 14% decline year-over-year from 2024 to 2025, this year it is relatively stable. There is a mild decline, going from 5.3 down to 5.2-ish, give or take, which is how we have modeled it throughout the year. Relatively flat from a volume perspective. We are seeing some early signs of positive volumes that are too early to call. We talked a lot last year about the things that were impacting volume. It was not just volume from partner programs, but we were also seeing macroeconomic factors. The cost-plus pricing was raising prices on the consumer. Benefits were really good last year when you looked at the utilization rates the payers were disclosing. People were going on benefit. This year, we are watching very closely. We are seeing unemployment increasing. We are seeing regulatory changes impacting Medicaid eligibility. ACA enrollment looks light by about 1 million lives, and we suspect we will watch closely when those premiums come due without the subsidies whether that results in more people not having insurance. With the benefit profile this year, again, too early to call, I think our volumes are going to look relatively stable to slightly down, and we are going to watch for positive trends. Wendy Barnes: If I could add, specifically as it relates to ISP, while ISP is always going to be a metered product opportunity for us, given the economic drivers inside of any PBM, I still contend that access to more commercial lives opens up additional volume possibilities for us as a discount card cash partner. The more the regulatory environment is pressing on payers to mandate integration of cash pricing, we contend that we are in a great position to take advantage of that, not the least of which is some recent notable comments from larger PBMs that GoodRx Holdings, Inc. is their option to integrate cash pricing. We do not do back handsprings around ISP. It is what it is, but we will continue to add partnerships there and add commercial lives that have an opportunity to avail themselves of an integrated price offer when and if the payer wants to completely open up that pipe. Operator: Thank you. The next question will come from Allen Lutz with Bank of America. Your line is open. Allen Lutz: Good morning, and thanks for taking the questions. One for Wendy. There have been a lot of changes going on in the business. Can you talk about how the web traffic and app usage is evolving as some of the areas you are focusing on are evolving? You talked about getting 20% of Wegovy scripts through GoodRx Holdings, Inc. Maybe talk about what is driving the strong adoption there. More broadly, you are shifting towards adding subscriptions for ED and hair loss. Can you talk about how the composition of your traffic is changing, if it is at all? Thank you. Wendy Barnes: Let me start with GLP-1s in general and specifically the goodness we noted around the Wegovy pill. GLP-1s are a bit unique. I do not think any of us who have been in and around pharmacy benefit for a good portion of our careers have seen trends that follow what is happening with GLP-1s. Given they have low coverage for the indication of weight loss—different scenario as it pertains to diabetes—there is a low coverage threshold. You have a motivated population seeking competitive price points, which lends itself to our marketplace. In the same class, drugs that were largely injectable suddenly have an oral formulation. Those things created an environment in which not only did you have a price point at $149 for that first dose that felt more achievable for the average American, but you also have a bolus of consumers who had been on a compounded alternative, given a more attractive price point, who had a desire to be on an FDA-approved formulation. Our best guess is all of those vectors fed monumental uptake in the use of the Wegovy pill. Even previous to that, before we had that type of price point available on our platform, those drugs have long been some of the top-searched brand price points as consumers were looking for value. Overall, our brand price page views are up year-over-year. A lot of that is driven by GLP-1 interest. I would also give the regulatory environment some credit. The conversation on drug pricing in the news is schooling consumers to spend more time searching and looking for competitive price points in general. Laura, is there anything you would add, given we talk about this a lot with our pharma partners because it is one of the reasons they work with us. Laura Jensen: Absolutely. The power of the launch of the Wegovy pill signaled that manufacturers going forward—specifically GLP-1 manufacturers, of course, but all manufacturers—are considering what an actual direct-to-patient cash offer is. Traditionally, manufacturers would think of this as a bridge to insurance. They were temporary as part of a launch strategy, but not a core part of their ongoing offering. Because, as Wendy said, we have never seen anything like this with the degree of cash mix versus insurance, it is paving the way for how manufacturers will be thinking about their brand strategies going forward. It is also the backbone of how we might be thinking about an employer strategy, where for patients who have gaps in their insurance or for products that may never make their way to a formulary, we can use a manufacturer net price, where an employer can help that patient buy down even more of those dollars. There is more utility for these offerings than just what it means from a cash perspective. Operator: Thank you. Our next question is going to come from Craig Hettenbach with Morgan Stanley. Your line is open. Jay Jin: Hi, this is Jay on for Craig Hettenbach. Thanks for taking my question. On Pharma Direct, how would you describe GoodRx Holdings, Inc.'s penetration of active brands with your current partners? How concentrated is that revenue across top brands, and how would you describe those budgets being durable through the cycle post the initial affordability push? Thank you. Laura Jensen: Thank you for the question. Right now, we have approximately 200 manufacturer partnerships. For the point-of-sale cash programs, we have about 100 of them. A lot of that volume right now, from a dollar perspective, is concentrated on the GLP-1s, but we are seeing growth in other brands as well. For context, about 100 brands in the pharmaceutical industry make up the top 80% or so of most dispensed, highest volume, and the largest spend. We see a pretty typical distribution from that perspective, from a spend perspective as well, both on the media side and on the point-of-sale cash side. Operator: Thank you. Our next question is going to come from Daniel Grosslight with Citi. Your line is open. Daniel Grosslight: Thanks for taking the question. Can you comment more on the uptake you are seeing in your new subscription offerings and how we should think about growth in those offerings in 2026, particularly around weight loss and the introduction of more competition on the weight loss side? Coupled with that, how does this inform your marketing spend, particularly around these new subscription offerings? Thanks. Chris McGinnis: Daniel, thanks for the question. As you know, we launched our condition-specific subscriptions in the back half of last year, with weight loss not launching until late November. I do not think we pushed marketing dollars until late December on that offering. A lot of that was organic. With 285 million-300 million hits on our pages, we get a lot of organic adoption from people naturally visiting. The oral solids that are coming out on the weight loss side are attracting a lot of the previous compounders, because now they can take an FDA-approved drug in pill form. We are seeing great adoption. It is not a material number. If you look at the exit rate, we had less than $1 million of revenue because it launched a month prior. I can see that growing 4x-5x as a run rate by December of 2026. It starts to become, while small today, an increasingly meaningful part of run-rate revenue by the end of 2026. There is some seasonality in weight loss and other things, but there are a lot of new drugs coming to market in this space and a lot of different uses and indications that will increase adoption. There are a lot of tailwinds on that weight loss offering. In terms of marketing dollars, we pushed a lot more of our marketing dollars to the condition-specific subscriptions. It continues to drive a halo effect on our brand generally. As long as we keep monitoring those things, we will continue to support those programs. When you launch a new revenue stream like this and you have invested as we have around some of these offerings, we will continue to support the growth. Wendy Barnes: A big component that will influence what happens with our subscriptions going forward, particularly related to weight loss, is where the pharma price points move. Throughout this year, not only are there competitive molecules coming out, but as prices naturally come down, this particular class of drugs resets itself about every 4-6 weeks as something else comes out, a new formulation, and/or price point change. We have high confidence that as pharma thinks about the average consumer and how they want to access these medications, home delivery is not the only way in which consumers want to get these drugs. What we are offering pharma partners is a broad swath of retail partnerships, which makes it an attractive channel, particularly if you are looking to get it same day. Most people are motivated to go get these drugs. Once they are prescribed a GLP-1, they are anxious to get started. We are seeing high uptake given the natural retail partnerships that we have. Lastly, subscriptions for us goes beyond the condition subscriptions. It also envelops our Gold offering. We are spending considerable time rethinking what that should be in 2026. We look forward to talking more about the reinvention of that aspect of our product offering in subsequent earnings calls. Operator: Thank you. This does conclude the Q&A session and today's conference call. Thank you for participating, and you may now disconnect.
Gerardo Lapati: Good morning, everyone, and thank you for joining Alsea's Fourth Quarter and Full Year 2025 Earnings Video Conference. Today, you will hear from Christian Gurría, our Chief Financial Officer; and Federico Rodríguez, our Chief Financial Officer. Christian will walk us through our operating performance and strategic progress, while Federico will provide a detailed review of our financial results and capital allocation. Before we begin, I would like to remind you that some of our comments today contain forward-looking statements based on our current expectations. Actual results may differ materially. Today's discussion should be considered alongside the disclaimers included in our earnings release and our most recent filings with the Bolsa Mexicana de Valores. The company undertakes no obligation to update these statements. Unless otherwise specified, all figures discussed today are presented on a pre-IFRS 16 basis. With that, I will now turn the call over to Christian for his opening remarks. Christian Gurría: Thank you, everyone, and good morning, and thank you very much for joining us today. I will begin with an overview of our performance for the fourth quarter and full year 2025, highlighting key operating trends across regions and brands as well as our progress in digital transformation, expansion and ESG initiatives. Federico will then walk you through the financial results in more detail. Before going into the quarterly figures, I would like to briefly step back and reflect on how our strategic priorities throughout 2025 are shaping our business today. Despite a challenging start of the year, we responded with targeted operational and portfolio initiatives that led to a gradual improvement in performance as the year progressed. Throughout 2025, we focused on strengthening traffic and innovation to keep our brands remaining relevant and top of mind for our consumers. At the same time, we adopted a more selective and disciplined approach to growth, directing capital towards formats and initiatives with consistently strong returns. This included strengthening our portfolio through the incorporation of brands such as Chipotle and Raising Canes into the Alsea family, fully aligned with our long-term objectives, the right brands in the right geographies and the right stores, prioritizing quality over quantity. In parallel, we simplify our portfolio through the divestment of noncore assets in South America and Europe. This is part of our core strategy going forward as we will continue with this simplification as we are aiming to have a healthier and more profitable portfolio. The aforementioned is enabling us to concentrate resources on markets and brands with a stronger growth potential, translating into meaningful improvements in efficiency and profitability. Finally, we sharpened our approach to capital allocation and cash generation, optimizing CapEx and reinforcing our financial structure. With that context, let me now turn to our fourth quarter performance. In the fourth quarter, total sales increased by 0.5% year-over-year. reaching MXN 21.7 billion or 12%, excluding foreign exchange effects. Same-store sales grew 3.3% during the quarter, reflecting improving trends across several markets. EBITDA increased 2.9% year-over-year to MXN 3.7 billion with a margin of 16.8%, representing a 40 basis point expansion versus last year. Same-store sales grew 3.3% during the quarter, reflecting improving trends across several markets. The results reflected disciplined execution, improving operating leverage and the benefits of portfolio optimization efforts. Turning on brand performance. At Starbucks Alsea, same-store sales increased 2.9% in the quarter. In Mexico, same-store sales grew 2.6% with prior quarters and reflecting a stable demand and consistent performance. In Europe, same-store sales declined 0.3%, primarily due to continued pressure in France, partially offset by solid performance in Spain. In South America, same-store sales increased 8.8%, driven by Argentina. Excluding Argentina, same-store sales grew 1.1%, supported by strength in Colombia and gradual recovery in Chile. Domino's Pizza Alsea delivered a 5.2% increase in same-store sales. In Mexico, same-store sales grew 6.3%, supported by innovation such as 'croissant' Pizza, driving value and innovation. Also, we launched and expanded delivery capabilities through a strategic aggregator in Mexico. In Spain, same-store sales increased 3.3%, reflecting effective promotional execution. And in Colombia, same-store sales rose 9.6%, demonstrating a strong and consistent performance through the year. At Burger King, same-store sales, excluding Argentina declined 3.9%. In Mexico, same-store sales decreased 4.8%, reflecting continued pressure on the brand despite gradual operational improvements during the year. The full-service restaurant segment delivered same-store sales growth of 3% in the quarter. In Mexico, same-store sales increased by 3.8% supported by value propositions such as Menu del Dia, Tres Para Mi in Chili's and Paradiso Italiano in Italiannis. In Spain, same-store sales grew 1.9% alongside the continued portfolio optimization, including the sale of TGI Fridays. In South America, same-store sales increased 2.8% alongside the sale of Chili's and P.F. Chang's restaurants in Chile. Our expansion strategy continues to be guided by a clear focus on quality, returns and capital efficiency. During the fourth quarter, we opened 55 new stores, bringing total openings in 2025 to 169 units, 127 of them being corporate and 42 franchises, below our initial expectations. This reflects a deliberate shift towards fewer higher-quality investments, prioritizing locations and formats with a stronger return profiles. Remodeling and the renovation of our existing portfolio remain as a key priority across regions as store refreshes continue to deliver attractive returns through improved customer experience, higher productivity and faster payback periods. Overall, our expansion approach in 2025 reflects disciplined capital allocation and a clear focus on long-term value creation. Our digital platforms remain a key growth driver for Alsea. By the end of the quarter, loyalty sales increased 13.4% to MXN 8.2 billion, representing 30.6% of total sales and 36.6 million orders. We surpassed 8.2 million loyalty active customers and users across our brands, confirming the strength of our digital engagement. In addition, during the quarter, Domino's implemented full service through an agreement with a known aggregator. This initiative significantly expanded delivery coverage by more than doubling the number of available drivers per store, improving service levels during peak hours without incremental costs. During the quarter, we continue advancing on our ESG agenda as a core pillar of our long-term strategy, fully aligned with capital allocation and risk management. In Europe, we completed our first round of sustainable financing for EUR 273 million, linked to targets for emission reductions, strengthening supplier assessment base on ESG criteria and improving food waste management. This progress enabled a second ESG-linked financing tranche up to MXN 550 million through 2029. Additionally, in Mexico, we further aligned our strategy by securing a sustainability-linked loan of MXN 10.5 billion tied to KPIs focused on emissions intensity and waste reduction. In Mexico, during the months of October and November, [Indiscernible] movement raised more than MXN 50 million as part of its annual fundraising initiative. These efforts were reflected in our continued inclusion in the Dow Jones Sustainability Index in 2025, scoring 18 percentage points above the global sector average and ranking within the top 10% of the industry. For Alsea, ESG is embedded in how we allocate capital, manage risk and create long-term value. With that, I will now turn the call to Federico to review our financial performance. Thank you. Federico Rodríguez Rovira: Thank you, Christian. Good morning, everyone. In the fourth quarter, sales increased 0.5% year-over-year, supported by sustained consumer preference for our brands and effective commercial strategies. Excluding foreign exchange effects, sales increased 12%. In Mexico, the sales increased 7.9% to MXN 12.5 billion. In Europe, sales declined 1.2% in peso terms, while increasing 5% in euros and in South America, the sales declined largely due to currency effects. The EBITDA increased 2.9% year-over-year with a 40 basis points margin expansion, driven by stable food cost, disciplined execution and improved labor efficiencies. In Mexico, the adjusted EBITDA increased 17.1% year-over-year, primarily due to an increase in same-store sales of 3.1%, following a strong recovery in November and December, while the portfolio optimization and improved labor efficiencies helped offset higher wage cost. In Europe, adjusted EBITDA was 18.7% higher year-over-year, driven by a 1.7% increase in same-store sales, lower food cost and disciplined labor cost management. In South America, the adjusted EBITDA declined by 22.9%, largely due to the depreciation of the Argentine peso relative to the Mexican peso. This impact was partially mitigated by robust consumer demand in Colombia and stable market conditions in Chile, although Argentina continued to experience a more challenging operating environment. The net income for the quarter increased 32% year-over-year to MXN 812 million, reflecting a continued though less pronounced positive noncash foreign exchange effect related to U.S. dollar-denominated debt. As we have mentioned previous quarters, this impact is nonrecurring. Following the refinancing of the obligations, we have now achieved a natural hedge, and this revaluation will no longer affect the P&L going forward. CapEx for the full year totaled MXN 5.1 billion. Of this amount, 75% was allocated to store development, including the opening of 127 new corporate units, remodelings and equipment replacement, while 25% was directed to strategic projects, including the Guadalajara distribution center, technology upgrades and process improvements. As of December 31, 2025, the pre-IFRS 16 gross debt increased by MXN 0.9 billion year-over-year, reaching MXN 34 billion. The company's net debt, not counting the impact of IFRS 16 was MXN 28.3 billion, which is MXN 1.7 billion more than it was at the same time last year. The bank loans are allocated towards selling the minority stake in the European operations as well as addressing short-term debt requirements for working capital and capital expenditure needs. Consolidated net debt reached MXN 45.2 billion, including lease liabilities. At the end of the quarter, 58% of the debt was long term with 77% denominated in Mexican pesos and 22% in euros. We remain focused on maintaining a healthy capital structure supported by prudent financial management. At the end of the quarter, the cash position stood at MXN 5.7 billion. Turning to financial ratios. The total debt to post-IFRS 16 EBITDA ratio closed the quarter at 2.8x and the net debt-to-EBITDA ratio stood at 2.5x. Our full year results were broadly in line with the guidance we provided and subsequently updated during 2025. Same-store sales revenue growth, EBITDA and leverage all finished within expected ranges. We will provide more detail regarding the guidance for 2026 during Alsea Day on March 18 in New York City. This will be a great opportunity to invite everyone to our event and connect with you. With that, we will now open the call for questions. Please, operator. Operator: [Operator Instructions] The first question is from Mr. Thiago Bortoluci from Goldman Sachs. Thiago Bortoluci: I have 2 questions somehow related to free cash flow, right? When I try to see what you delivered in 2025 versus what is implied in your managerial guidance, right, what I see was that your EBITDA grew at the high end of your low single-digit expectations. CapEx came below the $6 billion you were initially expecting, but your pre-IFRS leverage was a touch ahead of the 2.8x that you were guiding, right, which makes me think that somehow your free cash flow generation was a little bit softer than initially expected. If this is true, I just like to understand where the mess is coming from? And what is the plan to attack this going forward? I guess the refinancing is part of the story, but also want to hear on the operating level, right? And then the second part of the question that is related to CapEx. I appreciate the focus, and I'm pretty sure everyone in this call appreciate your focus on portfolio and a more rational growth going forward. It would be great if you could share how you're seeing the incremental ROIC of the new cohort of stores under this new balance between growth and profitability on the capital allocation. Federico Rodríguez Rovira: Well, I will start with the first question regarding the cash burn. Yes, it's correct what you just said, Thiago. The main driver for the cash burn was worse working capital than expected at the beginning of 2025, mainly driven by a reduction in the expected EBITDA. As you know, we had to change the initial guidance we announced at March. But that was offset with a diminished CapEx. In 2026, the story will be completely different. You will have the expectations in the Alsea Day by mid-March. But the management is totally focused on the free cash flow generation with some initiatives you have just mentioned one, the refinancing, you know what is going to be the annual savings regarding this in the line of $25 million and additionally, the operating leverage from same-store sales. As you know, we will have a low to mid-single digit regarding same-store sales guidance for each one of the brands and will be to the consolidated figures and a more rationalized CapEx. This is one of the key drivers, Thiago. Obviously, we knew that we were failing at free cash flow generation. We have heard around the pushback you have launched to the management, to the administration during the last years. So we are totally focused there. So we'll rationalize the CapEx with less openings. Obviously, we had one one-off because of the distribution center of Guadalajara, but we do not have any kind of pressure to open more stores. As I have said a lot of times in the past, 95% of Alsea is in the same-store sales in the comparable stores. So that is the place where we have to put all the efforts because it is more relevant to have 1% increase in the traffic in the different brands because that is the key part where you have all the operating leverage. And in some of the cases, maybe have a reduction of around 30 new stores from the initial guidance, that does not make any kind of hurt. And it is not only for this year, but maybe for the future. We do not want to conquer the world regarding openings. We want to have a more rationalized CapEx for the future. And this is aligned with what you have just asked regarding free cash flow generation. I don't know, Christian, if you want to deep dive regarding the openings and the closure that we had in 2025? Christian Gurría: Yes. As Federico mentioned and we have mentioned in previous calls, our strategy is more about quality than quantity. As Federico mentioned, really our focus right now is on capitalizing on our existing assets. We have almost 5,000 stores in our portfolio between franchisee and company-owned stores. And we have a clear strategy on how we can improve the profitability of those stores. There are 3 levers that we are working on. The first is the remodeling and investing on our existing portfolio, which has the best returns and the customer responds in a very positive way to that and keeps our brands at the right level to deliver the right experience. And the second one is to make sure we have the best operators in the market. So we are -- we have always focused in Alsea in having the best operators, but we are having now a very intentional drive into elevating our operators in the stores. And the third level is, I would say, innovation. Innovation is clearly driving our -- the traffic to our stores. We have a very good example is what we are doing with 'croissant' Pizza, in Domino's Pizza in Mexico. This was originally born in Spain with extraordinary results. We brought it to Mexico and more than double the expectations that we had, and that's why you see a very strong quarter in 2025, particularly with Domino's. So these are the levers that we are moving. Of course, we will continue with our commitment to open the right stores. But it's important to mention the right stores in the right geographies and with the right brands which, as I always say, sometimes we have to close stores to have a healthier portfolio as we have done. Nevertheless, most of the stores that we closed, either in this number, you can see divestments as we did with TGI Friday's and Chili's and P.F. Chang's in Chile. But likewise, most of the stores that we closed were -- had an aging of average 15 years. So the market has changed, the neighborhoods, the trade areas have changed. So it's part of this healthier portfolio optimization. Operator: Our next question is from Mr. Antonio Hernandez from Actinver. Antonio Hernandez: Congrats on your results. Just a quick one regarding South America. I mean you already mentioned Argentina is struggling a little bit there and different countries overall. Just wanted to get a sense on how you're seeing performance so far this year and expectations for the year. Christian Gurría: Well, we are seeing very similar trends to November and December. with a positive trend on same-store sales. And one of the best news is the tailwinds we are having in terms of our dollarized raw materials. We have seen FX is helping us with the dollarized raw materials. And we have also positive news in terms of the price of beef and the price of chicken, which is having a positive trend to what we were seeing in the previous year. And also another positive effect is that we expect a reduction of coffee prices in the second half of 2026. So on wine side, we are seeing a very similar trend to the last months of the year, which we see a shift on what we were seeing in previous months. And on the other hand, different strategies around raw materials on one side, the FX and on the other side, some of the different synergies we have worked on the previous months are paying off now. So in these terms, we should see better margins in the following -- across the year and a steady recovery on same-store sales. Federico Rodríguez Rovira: And I would say, Antonio, if I may add a little bit more color on -- particularly, I would say on the 3 big markets of South America. We've been doing a great job in Colombia. It's been kind of consistent. That's something that continues, I would say, towards the beginning of the year. The same, I would say, it's happening with Argentina and Chile. If I would say, '25 was a tough year for those 2 markets for 2 particular, let's say, reasons and different reasons, both. I think we are seeing also at the end of last year, a bit of a recovery. And that is, I would say, also transitioning towards the beginning of the year. So I would say we're more kind of cautiously optimistic. And I would say, together to what Christian mentioned about kind of some of the tailwinds should be a better year for this market. Operator: Our next question is from Ms. Renata Cabral from Citi. Renata Fonseca Cabral Sturani: My first one is regarding Starbucks in Mexico. So what is the current approach for same-store sales improvement during the year? We are seeing a very good improvement over the operations of in Mexico, it seems more towards Dominos so far and it's understandable considering the economic situation. But it seems there's an opportunity also for improvement in the. So if you can shed some light in the strategies for the year ahead, it would be really helpful. The second one is a follow-up regarding margins and a more long-term perspective. Of course, you have mentioned about the rationalization of the portfolio. And my question is related also if you see other important levers that can improve margins in the regions for instance, supply chain or optimization of, let's say, it would be really helpful to know a little bit more about that. Christian Gurría: Thank you, Renata. Regarding Starbucks in Mexico, we had -- in 2025, we struggle at the beginning of the year as with many other brands. But starting the second half of the year, we were able to read and what was going on with the market and the different trends from -- and what the customer was looking forward. So we adjusted our strategies to -- first of all, we've clearly seen that Starbucks in Mexico is a loved brand. And clearly, innovation is driving a lot of traffic to our stores, both innovation in terms of product, but also innovation in terms of market. of merchandising. During Q4, we launched -- we brought to Mexico the Barista, the Crystal Barista, which was, as you may be aware, extraordinary success in Asia, then in the U.S. And then it came to Mexico and it was really driving a lot of transactions. So we also -- in this case, we also shifted the way we manage our promotional approach to the brand making sure we could elevate the customer -- the experience of the customer. So to give you a more concrete answer, we are focusing on renewing our stores in a very intentional way. Just to give you some data in 2026 in Mexico, we're going to have more store renovations than openings in the case of Starbucks. So we really understand what the customer is looking forward. And the second part is innovation in terms of product and understanding that we are a love brand in Mexico and people are looking forward. We just recently launched in '26 a bear that hugs the cup. And it's really -- they flew out of the shelves. So we have more and more surprises that I cannot share coming particularly for the World Cup. And also in terms of experience, we are introducing a strategy around elevating the experience in the stores by implementing wooden trays and stainless steel cutlery for here [serve ware]. Again, creating the right environment and the right and the best experience for the customer. And in terms of operational impact, as I mentioned before, we are very much focused on our -- on having the best operators and making sure they can impact positively their business during -- as we move forward. But this is more or less regarding the strategy that we are focusing. Federico Rodríguez Rovira: And regarding the second question around margins for the future, is too soon. Obviously, we are seeing positive impact. But I would say that we're expecting a positive trend regarding EBITDA margin expansion for 2026 as long as we are facing, as Christian has just mentioned, and you know it, some macro tailwinds like a stronger peso. Remember that each peso appreciation or devaluation is around 30 basis points in the total EBITDA margin. And additionally, this is supporting the raw materials, the gross margin. We can move the mix in a positive way in the different business units. But remember, we want to attract more traffic to our stores. We are not in the rush to increase on an artificial way the margin. We want to have a strong customer base into the same-store sales. And obviously, we have a lot of levers. You were asking around this. Obviously, the stronger peso is some macro reason, but we have some internal indulgent reasons such as the optimization of the portfolio. We have not finished. You know that we are analyzing some of the units, mainly in Americas to see what we are doing with them. We cannot disclose any more facts around this. I know there are a lot of news into the press, but that's all that we can say. We need to respect and being really disciplined around that we have a bunch of collaborators into the different business units that we are analyzing. And we are doing this in an everyday basis because obviously, while we are selling some of the business units, such as the 2 casual dining brands that we sold in Chile in the third quarter, we are looking for new Tier 1 brands such as Raising Canes and Chipotle. That would be one of the first lever. The second one, we have a bunch of opportunities regarding productivity, I would say, in America, not only in Mexico, but in South America, too, especially because not this year, but in the future, we are facing a journey reduction of 8 towers in 4 years in Mexico. So we need to move forward and be in advance of the rest of the competitors. And I think that with 5,000 stores all around the world with a stronger environment such as the European one, we have a lot of ideas to increase productivity and have expansion margins into the total EBITDA while we offset these impacts. And additionally, we have ideas regarding simplifying the support center in Europe, in Mexico, in Colombia. I think that we need to consolidate a lot of things that we have not executed in the last 10 years, and we'll be doing that during 2026. But as I always say, it is more relevant to have a strong same-store sales because in the bottom, you can have a lot of savings. It's a bunch of money. But in the long term, we are more worried around comparable stores, around new openings instead of only executing saving costs in the bottom. Renata Fonseca Cabral Sturani: And if I may, a follow-up maybe for Christian about potential impacts from the situation we are seeing happening in Jalisco since Sunday. It would be great to have some color. Christian Gurría: Of course. Renata, as a precautionary measure, we had to close some of our stores in the region during Monday -- Sunday and Monday, obviously, prioritizing the safety and security of our partners, our collaborators, our team members and also our customers. But by Tuesday morning, 100% of our stores were reopened. We are back to business as usual. Obviously, we are seeing in particular cities kind of a steady return of consumption, people being confident to get out there and going back to their lives. And delivery was clearly one of the channels highly and positively impacted by this as people were staying home. But we are clearly seeing across the week, people going back to their routines and our business recovering in a steady way. It's also important to mention that we have -- none of our stores were damaged -- none of our stores in the region were damaged or targeted and our supply chain was never disrupted. We have some blockades, but our supply chain was fully operational and never disrupted. Operator: Our next question is from Mr. Ulises Argote from Santander. Ulises Argote Bolio: So the question that I had was kind of a follow-up on those earlier comments that you were making on the quality over quantity approach to the portfolio. You mentioned there in the remarks, and I think this has been kind of an ongoing discussion of focusing on store remodelings across regions as a part of the strategy. So I was wondering maybe if you could provide there some color on how this will be broken down in 2026 across the regions? Maybe if we can get some color on format. But I think more importantly, if you could comment on the sales lift and the improvements you are seeing from the remodel locations. And then I have another one, but I'll do it afterwards. Christian Gurría: Thank you for your question. Let me start by answering we have -- in the case of the foodservice restaurant segment or casual dining or in the case of Starbucks, what we've seen is that you have -- when we remodel the stores, our same-store sales in the case of Starbucks grow from 6% to 13%. This is where we are -- what we've seen and experienced in a very consistent way. And in the case of the casual dining segment, clearly because the customer spends more time in our stores, in our restaurants, the uplift we've seen in same-store sales can go from 10% even we have cases where we are around 25% to 30% increase in same-store sales. This is driven, first of all, not only because of the look and feel of the store improves, but in many cases, as we know how the store and the customer uses the store, these renovations normally are adapted to the reality of how our customers use the store. So -- and in any other cases, we add additional seating or we add a terrace or we do some optimization in terms of the type of the mix of furniture we have in the stores. So the reality is that that's why we are prioritizing these remodelings. Also, it's important that when we choose to remodel a store, there are different reasons, either because the store has the look and feel of the store and the conditions of the store are not up to the expectations, our expectations and the guest expectations or different strategies around market penetration, in some case, the competitive landscape. So there are different reasons why we go and decide which stores to remodel. And to your first part of the question on if we have -- what is the breakdown? In the case -- the information I can share with you is, for example, in casual dining is 3:1, 1 opening, 3 remodelings Starbucks is around 1.4. And in Domino's Pizza, the impact is less important when you remodel a store due to the way the business model works. But when the stores that we have an important dine-in traffic, those are the stores where we put the resources, just to give you some examples. Federico Rodríguez Rovira: Yes. And additionally, to Christian's answer, when we are performing a remodeling in the full service or the Starbucks stores. Usually, we tend to see an incremental traffic of around 5% to 10%. Obviously, this depends in some of the cases of casual dining, you have to increase the terrace, for example, to have more capacity. But each time you are changing the look and feel of the store, you are increasing the traffic, and that is completely linked to the same-store sales increase that we are highlighting as a target, not only for this year, but in the long term. And regarding the... Christian Gurría: If I may also one important component is how our team members feel. Honestly, every time we remodel the store, they are always super proud. They are happy to see the store being in the best shape, and I'm proud to be part of that store. Federico Rodríguez Rovira: And for the long-term CapEx allocation regarding the 3 main pillars that we have into the portfolio, I would say that 60% is completely linked to Starbucks Coffee, 20% to Domino's Pizza and 20% to the full-service restaurants units, Ulises. Ulises Argote Bolio: Perfect. Very clear. So if I understood correctly, these initiatives are a bit more focused on Mexico, but also kind of cross region more selective. Is that a correct assumption to make? Christian Gurría: It's across all our geographies, Ulises. Same is happening and going on in Spain, in South America, Portugal, France, et cetera. Everywhere. Ulises Argote Bolio: Okay. Super clear. And the other question that I had was maybe if we could get some thoughts there or some -- or you share some insights of how you're positioning, let's say, to capitalize from the World Cup? Maybe any type of initiatives that you're taking? Any color that we could get there, that would be very much appreciated. Federico Rodríguez Rovira: For sure. We have no doubt that the 3 brands that will be most benefited by the World Cup incremental traffic are Domino's Pizza, Starbucks and Chili's. As you know, Chili's has been the preferred concept and brand for people to go and watch sports, all types of sports for many, many years. So in the case of Chili's, we are doing very important investments in technology in terms of screens, sound and also a very, very fun campaign. As you know, there will be 3 stadiums in Mexico, Monterrey, Guadalajara and Mexico City. And we are having a campaign Chili's is your -- is the fourth stadium. So we are already out there with the campaign. We have -- we have a strong partnership with some strategic partners as Heineken, and we are doing a lot of things together with them. So we have important expectations of what -- how Chili's is going to be benefited by this. As you know, only you can fit all 85,000 to 100,000 people in the stadium, the rest, well, Chili's for sure is an extraordinary option to watch the games and with a great happening. In the case of Starbucks, obviously, the traffic, the incremental traffic that we're going to have in different airports in hotels, and we have a very good market share of stores and penetration in Mexico and Guadalajara and Monterrey and some adjacent cities and airports that are going to be activated for the World Cup, so for sure. And we have fun initiatives coming also for the customers to drive this traffic. And obviously, Domino's Pizza watching games at home. It's going to be super powerful and Domino's Pizza and the games and the World Cup have always been linked and be together as football. So those for sure are going to be the 3 brands that are most benefit. We have a lot of surprises. We are already planning additional initiatives that we are reviewing as we speak. So for sure, we are going to be able to capitalize this very special event. Christian Gurría: But remember, Ulises, this is a one-off. Operator: Our next question is from Mr. Froy Mendez from JPMorgan. Fernando Froylan Mendez Solther: Can you hear me well? Christian Gurría: Yes, we can. Fernando Froylan Mendez Solther: Federico, if we were to assume that the FX didn't move from current levels, would your comments regarding the better margins into 2026 would still hold? And in that sense, what is your expectation? I know you'll have your guidance in the Alsea Day, but how much of the margin expansion that you're seeing depends on having better pricing or, let's say, less promotional activity in the key brands? And I will have a second question, if I may. Federico Rodríguez Rovira: Sorry for being so repetitive. But obviously, this is a tailwind. Each peso should be around 30 basis points. Remember, that maybe that implies that around 60 basis points during the first quarter year-over-year. In the remaining months, the weight and the comparison is not that much. But as I said before, obviously, we have closed January, I have the figures. They are positive. We are expanding margins. But I want to be cautious because, obviously, the events from Guadalajara, even while we only shut down 300 stores during 1 day, obviously, I'm not having the total performance regarding traffic in those stores. So as all the years, we have some different events, positive negatives, and I want to be really cautious at this point, with January completed, we have expanded the margin. But I don't know what is happening in the rest of the year. Obviously, we have positive events such as the World Cup. We'll tell you the expansion of margins that we're thinking. But again, we want to increase the traffic in each one of the stores, each one of the brands. That is the main objective. I prefer to sacrifice some of the margin if I'm increasing -- I'm going to make stories, but 3 points in same-store sales in Chili's, Domino's Pizza, that is more money, and that is a more strong customer base for the future. Sorry for the ambiguous answer, Froy, but I don't want to take in advance with only 1 month closed at this point. Fernando Froylan Mendez Solther: Excellent. And my second question, maybe more for Christian. We hear about this CapEx rationalization, the effort to diverse some of the probably nonperforming brands. But at the same time, we see new brands coming into the portfolio, Cane's, Chipotle with obviously not needle-moving CapEx, but I'm sure it will take time away from management. I'm not sure also how much synergies there are in their supply chain and their sourcing of raw materials with the rest of the brands. So how should we think about when we see a lot of the long-term CapEx that you mentioned focused on Starbucks, Domino's and full service with also these like small opportunities that you still are trying to tap? And isn't that a little bit distracted at some point for management? Christian Gurría: Thank you, Froy. Several answers to different views, different points. First of all, fortunately, as you know, in Alsea, 36 years around, we are able to really develop our team members and to have a lot of internal talent that allows us to really being able to bring these brands and do not distract the rest of the organization. As you know, we -- the way we are organized now is via -- before we have these country managers, which were managing the different brands that we had in each region. And then in the past months, we have moved into a brand manager that manages -- we have a brand manager for Domino's Pizza or a Managing Director, a Managing Director for Starbucks Alsea for Domino's Pizza Alsea for BK Alsea, a Managing Director for Food Service in Mexico and a Managing Director for Food Service in Europe. That allows us to really focus first of all, make sure all best practices, learnings, one single direction and strategy to keep the brand directors or managing directors focusing on their own brands. And likewise, we have created a new brand division, let's call it like that, where we have a team solely and fully and only dedicated to these 2 new brands. So there is really no distraction of the management. We were able to have a very strong Managing Director, which was part of our C-suite team for many, many years, Pablo de Brito, which now he is running -- he was the Commercial Director for Alsea and now he's the Head of with a very clear and independent structure for both brands. In terms of synergies, obviously, there are synergies. We clearly have synergies. We have been working in the past 6 months to make sure we have -- we are ready to -- around all the product sourcing, protein produce. There are things that are proprietary to the brands that we will import as we do with the rest of our brands coming from the U.S. But the reality is that there are a lot of synergies. It's -- our Alsea muscle allows us to do this kind of plug-and-play approach when we bring these new brands. So clearly, there are important synergies in these terms. So in the case of supply chain and management, really, there is no -- actually, it adds on to what we already have. Then another point you made is about the CapEx. The reality is that the way we -- the obligations we have with both brands intensive non-CapEx-intensive approach. We are going to open 2 new -- 2 Raising Cane's stores this year at the end of the fourth quarter and 3 to 4 Chipotle stores also during 2020 -- in the second half of 2026. So -- and once we see how we do, which we are very, very optimistic and positive of how these brands are going to add value and being accretive to the Alsea portfolio, we will sit down and define -- we know more or less what's the white space or the market holding capacity for both brands. We're going to share a little bit more about that during our Alsea Day. But the reality is that we are very optimistic that by first divesting and at the same time, bringing the right brands and the brands of the future in the portfolio, we have a very strong portfolio of brands in the future. Operator: Our next question is from Mr. Bob Ford from Bank of America. Robert Ford: I'm inspired by your Raising Cane's cups, so I'll bite. Can you guys discuss the magnitude of the opportunity you see for the brand in Mexico? And how do you think about replicating the authenticity of the celebrity and influencer engagement that Cane's enjoys in the U.S.? And when you think about the unit economics, how would you compare that with your best practice or properties in Mexico? Christian Gurría: As you can see, we are excited to bringing Raising Cane's into the family. In Mexico, we see a huge opportunity in Mexico for Raising Cane's. And let me tell you why. First of all, chicken is the #1 protein consumed and the fastest-growing protein in Mexico. This is clearly a fact. The second one is for decades, there has been only one player in the chicken market in Mexico in the organized segment for decades. So the white space and what we are seeing is huge. It's super important. The other -- the roasted chicken industry is hold by the moms and pops. And then you have this organized chain that has been there for decades. So the reality is that we see a lot of white space. And also Raising Cane's is not only an amazing and Tier 1 brand, it also aligns to our full Alsea strategy. So on that -- and we will give you more light in terms of the market holding capacity that we see and our development plan during the Alsea Day in March 18. The second question you answered, which I love this question because I truly believe that the way Raising Cane's communicates and resonates between the community for us, clearly, community is going to be a key success factor for the success of the brand and bringing this you know exactly what I'm talking about when I mentioned local teams, but at the same time, important celebrities, but at the same time, the college basketball team or the community schools team. We are already working with Raising Cane's to bring this same effect to Mexico. We are planning to have even the same agency. So the reality is that we are working very close together holding hands. Of course, we are going to take advantage of these assets in terms of influencers, celebrities that they have, but also the local influencers, the local community, the local celebrities are going to play a very important role for us to be successful. So I believe I have answered your 2 questions. Robert Ford: And the last one was about unit economics. Federico Rodríguez Rovira: Regarding the economics, I can take that question, Bob. Obviously, we cannot disclose the terms of the agreement we have signed with Raising Cane's. But the EBITDA margins at a 4-wall level are pretty similar with Starbucks or Domino's Pizza and the same for the royalty fee and opening fee that we will be paying. It is relevant to consider that even while we are really excited about the opening of Raising Cane's and Chipotle for 2026, we will be opening, as we have commented in the past, only 5 stores. We do not want to have a terrific contribution. We need to open the first store, and let's see what is happening if we are achieving the EBITDA margins, the profitability that we model in the months before. Robert Ford: Great. And then just one other question, and that is France. I mean it's -- what are the next steps for you in France? And do you see any opportunities to either reduce some of the expenses or drive revenue? Christian Gurría: Of course. Well, France, we have not seen the expected recovery that we had. There has been some recovery. We are at 85% of our sales, pre-boycott sales in October 2023. There was additional pressure, a slight pressure in the summer. So our objective remains to fully restore the transactions that we had pre-boycott. We have a very strong strategy around how to turn this around in terms of resources, in terms of store renovations, additional things that are part of this plan that we are working on. To your point around efficiencies, yes, we have done already the restructuring that we needed to do in terms of management, in terms of synergies with our operations in Europe. So we will see, for sure, better margins and better EBITDA as we move through the year. But our priority and our focus is to recover this 15% of traffic that we have not recovered yet. So we have a clear strong focus on this, and it's one of our priorities for 2026. Operator: Our next question is from Mr. Pedro Perrone from UPS Unknown Analyst: We have a quick question from our side based on same-store sales trends in the first quarter, especially for Mexico and for Europe. If you could give us some color about these trends and especially connecting to top line, that would be very helpful. Federico Rodríguez Rovira: I would say, to be clear, Mexico, Europe and South America, the trend is pretty similar to the one we have in the months of December and November. So no news, good news. As I said before, it is in the target that we have set for 2026 from low to mid-single digit depending on the maturity of the brand and the region. So that's the answer, Pedro. Operator: Our next question is from Mr. Ben Theurer from Barclays. Rahi Parikh: This is Rahi on for Ben. Just the first one, I know Bob mentioned a bit on -- with the EU. But is there any other challenges we should be aware of for the EU that would impede recovery? And then another one I thought would be interesting is to look at GLP-1. Have you seen any impact on consumption from GLP-1 in Europe? And when do you think you would see some impact in Mexico, if any? And have you have any formulation changes in the EU in regards to GLP-1? That's it for us. Christian Gurría: Let me get your second question first, we have not -- really, we have not seen any particular effect on GLP-1. Nevertheless, as you have seen in previous months, protein is becoming a very important element in the market. So in the case of Starbucks, we are fully in the game with different protein being an important priority in terms of beverage and our food program is moving towards that. And so what I would answer to that, we are observing. We are observing it. We are acting around that. We are trying to be ahead of the curve. But we don't see -- it's too early. I would say it's too early. But so far, we have not seen anything relevant. Obviously, the U.S. is the one kind of driving this trend. And we are watching, we are talking with our franchisors, what are they seeing -- but the reality is that we were already ahead of the curve with protein drinks in Starbucks and our food program is moving in a way towards that, not fully, but it's part of the strategy. So more or less that. And the rest of the brands, really not really. We are watching, but -- and that's it. We are observing what's going on. Rahi Parikh: I just want to follow up for that answer. It was for the EU as well, right? So no impact as well. Christian Gurría: Exactly. Neither in the European Union or in Mexico or Latin America, we are seeing these types of effects. What we -- I can tell you to add a little bit of color to that is that it's more now protein, it's more like trendy and innovation more than linked to GLP-1 or any of its effects, I would say, positive or negative. Federico Rodríguez Rovira: Yes. I'm complementing the answer. France is less than 2% of the total revenues contribution for Alsea. In Europe, we are present in Iberia, Spain and Portugal. I would say that is the most relevant contribution for Europe. The trend is positive. We are expanding margin, increasing the same-store sales coming from traffic in the main brands such as Domino's, Starbucks and the full-service formats that we hold in there. And even while in France, we're still at around 85% of the traffic that we had in 2023 is less relevant, but we still see the opportunity in there to open more stores. We will be struggling during 2026 to see if in 2027, we can return to the path of growth. Operator: That was the last question. I will now hand over to Mr. Christian Gurría for final comments. Christian Gurría: First of all, thank you all very much for your questions and for your interest in Alsea. And really thank you very much. 2025 reinforced the resilience of our business and the strength of our portfolio. We entered 2026 with a clear focus, a stronger financial position and a disciplined approach to profitable growth. We look forward to continue the dialogue with you in the coming months. But most of all, we're really looking forward to see you all in New York. We are preparing a very -- the team is doing an amazing job to prepare a very good event there, and we are really looking forward to see you there. And thank you again. Operator: Alsea would like to thank you for participating in today's video conference. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I'm Vassilios, your Chorus Call operator. Welcome, and thank you for joining the HELLENiQ ENERGY Holdings Conference Call and live webcast to present and discuss the fourth quarter and full year 2025 financial results. [Operator Instructions] The conference is being recorded. At this time, I would like to turn the conference over to HELLENiQ ENERGY Holdings management team. Gentlemen, you may now proceed. Andreas Shiamishis: Good afternoon. Thank you very much for the introduction, and welcome to the financial year '25 results presentation. We'll be going through the fourth quarter, but also through the full year numbers and key issues that we believe we need to communicate. So group financial highlights, Page 4, for a fourth year in a row, we've got very good performance. I won't go through the numbers in detail. They will be dealt with later on, but it's a clean EBITDA of EUR 1.1 billion, which effectively puts the company for a fourth year in a different league. And if I was to take a view on the future, I would probably say that this is something that is expected to continue. Now whether it's going to be 0.8, 0.9 or 1.2 or 1.3. I don't know because I don't know what the market is going to look like. But given that a lot of the new investments is actually more predictable as cash flows, I think we've managed to move up into a different league. On the net income base, we've bridged the EUR 0.5 billion, which is good news. And on that basis and given the balance sheet, which is very healthy, we are proposing a EUR 0.60 final dividend, which effectively means EUR 0.40 -- sorry, EUR 0.60 per share total dividend, which means EUR 0.40 per share as final dividend. That's EUR 0.15 up from last year, which covers partly the exceptional dividend that we -- distribution rather than dividend, which had to do with the sale of DEPA Commercial. Moving on to the next page on the key points. A relatively good market, especially towards the end of the year with respect to the refining environment. Europe has been benefiting from relatively low prices and low dollar compared to euro, which means that palm prices have been kept at a relatively lower level. That always helps the consumption and demand, which is still growing, not only because of the price levels, but also because we see the economic activity growing as well. On the electricity side and the nat gas, we've seen some normalization, which is beneficial for the consumption, but still, Europe is suffering from relatively high cost of energy compared to non-EU markets. As a company, we've had a good run. If one takes into consideration the fact that we had Elefsina down for 4 months in the year and that as probably was a refinery was at the end of its run before the shutdown. The achievement of a record high production is actually very good news. From a margin point of view, we had healthy international benchmarks. But on top of that, we managed to improve on that as a result of better supply chain management, procurement and of course, the fact that the Geneva team is now up and running, which helps increase the overperformance of the system. Moving into more controllable areas, which have to do with marketing. I'm very happy to say that both domestic and international businesses have done very well. We have the best performance from marketing for a number of years. And that's a result of a very holistic and diligent work done by all the teams, be it market shares, new products, NFR, network expansion, service delivery, all of these things have done very well, and we are pleased to see that actually being capitalized in the form of improved numbers. On the power, clearly, the inclusion of Enerwave in the system for the last part of the year for the half, July, December is reflected in the consolidation. We've tried to give you a view of the performance -- full year performance so that we get a better idea of the run rate. It's a business which we believe we can improve upon. The performance of the business was effectively held back by the process of acquisition from 1 of the 2 shareholders. But I think now it is in good hands. And combined with the renewables portfolio, it would be able to grow even more. On the financials, you can see the performance, and I've talked about the numbers. As key milestones, I would refer to probably a few things that are part of the operating review, but they are also the result of our strategy over the last few years. So starting from the most important thing for us, which is safety. The completion of the Elefsina turnaround earlier in '25 is something that we're very happy about because it was done safely within time and within budget. And that's always our #1 priority, and that goes for the Aspropyrgos refinery shutdown as well. We managed after a lot of back and forth and a lot of years to establish the trading platform in Geneva with a team that combines external expertise and talent with our own people who have relocated there or work from Athens in the refineries. And that is something that has already started demonstrating some tangible results with respect to how good we can do there. Marketing, as I said, has been doing very well. And as a result of that, we were able to maintain and extend the BP trademark use for another 10 years, probably one of the very few countries in Europe that BP has that sort of arrangement. And on the development point of view, right at the last day of the year, actually on the eve of -- on the 30th rather of December, we started pumping diesel from Thessaloniki-Skopje. So that is a process that we are very happy about because it took us almost 10 years to get this pipeline back in operation. On power, we've done a lot over the last 4 years. We have even more ambitions going forward. The plan is to develop a second pillar, and we are well on our way to doing that. So on top of the downstream capabilities, the power, which is effectively Enerwave Gas and Power and Renewables is expected, is planned to deliver up to EUR 0.3 billion of EBITDA by 2030. Clearly, totally different economics from the current downstream business. And even in between that, we have different economics between power generation, supply business, gas and renewables. Even within renewables, we have different profiles, but it's there. And the good thing is we have a very specific 1.5 gigawatt of portfolio, which means another gigawatt of projects that we fully control in terms of delivery. And the FID is entirely up to us based on specific returns and timing. We beefed up our delivery capacity through the acquisition of a small team in Greece. George will talk a little bit more about it going forward, but we feel more comfortable about that part of the business. On upstream, I don't think I need to tell you a lot of things because it's been well publicized. We've signed the agreement with Chevron for the exploration and the Farm-In agreement with ExxonMobil in Block 2 has already been signed and announced. Effectively there, what we are saying is we have been consistent and deliver on the strategy envisaged 5 years ago to convert the E&P business into a portfolio business, whereby we maintain a smaller stake, but a much more diversified stake into various assets. And in the meantime, we have our national champion head, if you will, agenda, which helps this process. Finally, positioning in businesses and running businesses requires good governance and operational excellence. And on that basis, the main drivers, which are effectively how we run our HR, how we run our systems, digitalization, procurement efforts are very high on the agenda. So a business is as good as you make it to be. And at the same time, we don't forget that we need to be part -- an active part of this community of the society we work in and proactively participate in CSR initiatives and at the same time, manage our ESG footprint. Even though the discussion has shifted a little bit on the ESG and especially on the CO2 agenda, it is not something that we take lightly. And in fact, the recent changes are more in line with our original Vision 2025 strategy of transitioning on a realistic path towards a better environmental footprint. With that, I'll pass you on to Kostas. Kostas Karachalios is our new Head of Supply and Trading. Kostas has been with us for a number of years in different positions in the past. His latest position was in International as Head of International. A lot of the achievements as he's doing, but even before that, he spent a lot of time in refineries and in business development. Kostas, welcome to the team in this role. You've been part of the team. And over to you for the industry environment. Kostas Karachalios: Thank you for the intro. Good afternoon to everybody. The industry environment was mixed during this year. The 2025 started off with declining crude prices, particularly sharp during Q2, and it also continued well into Q4, ending the year with an average of $64 per barrel, significantly lower than the start of the year. However, there was a robust demand for products and cracks remained relatively healthy, particularly in Q4, reaching near record levels for middle distillates, which provided a margin to the system of approximately $10 to the barrel on benchmark margins, double what it was in 2024. And as previously mentioned, record production during the last quarter with the margins boosted results significantly. Moving on to Slide 9. Natural gas prices were started off relatively high in the year and tailed off to 30. Similarly, with electricity prices ending the year overall at the same levels in 2025 on average that we had in 2024. Carbon emission credit, EUAs had a soft start to the year, but then rallied in Q3 and Q4, reaching at some point close to $100 per ton. They've eased off since those levels recently. In terms of fuel demand, the domestic market grew modestly in 2025, although Q4 was almost flat. There was a 2% increase overall. Aviation sales and bunkering sales -- aviation sales increased 6% during the year and bunkering sales 1% overall. With those key market developments, I hand over to Vasileios. Thank you. Vasilis Tsaitas: Thank you, Kostas. Good afternoon, and many thanks for attending our earnings call today. So moving on to discuss our numbers. As we mentioned before, both fourth quarter and the full year exhibited very strong refining production and volumes despite the turnaround at Thessaloniki refinery earlier in the year. Same with marketing, both domestic and international. In power gen, you have the addition of Enerwave during the second half that we started consolidating. In terms of EBITDA, more than EUR 1.1 billion of adjusted EBITDA, driven by a very strong fourth quarter. In refining, it's the second best quarterly performance ever recorded on the back of the strong refining margins that Kostas mentioned before, but also a very good profitability in marketing, both domestic and international, setting up a very -- a much higher baseline going forward. Finance costs lower, and we'll discuss a little bit further. And if you look at the reported results, those have been affected largely by the inventory losses on the back of 20% to 25% decline in euro terms, oil and commodity prices. Adjusted EBITDA just over EUR 0.5 billion, that enables a very good distribution that Andreas mentioned before. Now on Page 13, so a 10% increase in adjusted EBITDA. If you look at the Downstream business, this is mainly driven by the very good environment, strong refining margins in the second half, partially offset by the weaker dollar for most of the year and improved operations in both SNP refining and marketing despite the impact of the turnaround that we have seen now in the second quarter. On the Power business, you have the addition of Enerwave and the renewables investments at the end of '24 that's giving a good EUR 30 million for the second half. The annualized impact of that is double, which we'll see from '26 with the adverse impact of curtailments mostly and the lower load factors due to weather conditions for both PV and wind. Now moving on a bit on the cash flows on Page 14. 2025 was a year of record investments, if you look at the total. So we have the usual run rate of stay-in-business CapEx of EUR 250 million, which during '25 was augmented by the turnaround of Elefsina had a full turnaround in the second quarter as well as some long-term maintenance in tanks, jetties and pipelines. In Downstream, we invested into mainly some energy efficiency projects at Aspropyrgos refinery that will be tied in during the turnaround and will yield additional EBITDA benefits of around EUR 15 million from the second quarter on an annualized rate as well as targeted investments in our marketing business in Greece and internationally. The bulk of the expansion CapEx will goes to power. It includes the 50% of Enerwave acquisition as well as investments in renewables, mostly outside of Greece during 2025. So on a cash flow basis, we start from what we call normalized cash flow, which includes the EBITDA of the year that required, let's call it, same business CapEx of EUR 250 million and any other working capital movements, lease liabilities, so the operating stuff that you need to run your business. We take out the remuneration of our capital providers, and that yields more than EUR 300 million of cash flows. We've invested in Downstream and mostly in our Power business. That was funded partially by the acceleration of DEPA Commercial sale proceeds that we were able to collect during the year. And certainly, these investments are yielding additional EBITDA as we discussed before. And think that wouldn't move much the total net debt position. However, we had the Solidarity contribution that was paid in February '25, as you may recall, a net impact of just over EUR 170 million as well as the impact of the disruption on the Red Sea routes of the cargoes that are coming from Iraq. That is increasing the working capital temporarily. We don't know for how long, obviously, because this is very much geopolitics driven, but it's not something to be repeated in '26. So we're ending up with a net debt of -- for the group level of EUR 2.1 million, flat leverage levels versus last year. Moving on to Page 15, looking at the capital structure of our 2 businesses. So just under EUR 4 billion of capital employed in our Downstream business. We don't see significant movement in the gearing of this business. It oscillates anywhere -- the net debt oscillates anywhere between 35% to 45%, depending on the working capital needs of the year. It's well funded by committed facilities, termed out no maturity in '26. We're certainly going to continue working during the year -- during this year at improving this even further. If you look at our Power business now with the addition of Enerwave, it's just over EUR 1 billion of capital employed. 20% of that is development capital projects that are under construction, especially the 100-megawatt wind farm at Northeast Romania, which will complete in '26 and start operating in beginning of '27, with almost 50-50 funded between debt and equity. More than half of the debt is project finance, non-recourse project finance at the project level with maturities of around 15 years on average for the projects that are already operating. And you can see the maturity profile on the bottom right. Now looking at the capitalization, again, of our 2 businesses. So the leverage of Downstream is 1.5x. We're looking at an absolute net debt levels of around EUR 1.5 billion, a little bit higher, a little bit lower depending, as I mentioned before, on the working capital financing of the business. Those levels are lower than they used to be 10 or 15 years ago with EBITDA being 2.5x higher. And I think it's important to mention that around half of the EBITDA is coming from going to the markets from our commercial logistics business, which includes supply and trading as well as marketing, which have established a baseline on which we can further grow with the rest coming from refining. So a much more resilient and stable earnings and cash flow profile versus 10 or 8 years ago. And for Power business, despite the fact that it's a business that it carries a higher level of gearing because of higher upfront investment. Still at the end of '25, the credit metrics have improved a lot. And again, let me remind you that this is mostly non-recourse project finance at the project level without spillover to either the rest of the Power business or the group as a whole. The interest cost courtesy, both of rates reduction as well as spread improvement has reduced even further for the second year in a row to EUR 110 million. And important to look how the market perceives the credit. So if we're looking at our outstanding notes maturing in 3.5 years, more or less, it's more than 100 basis points of reduction. More than half of that is actually implied spreads that I think it's an important message. In terms of distributions, we -- I mean, we have -- over the last few years, we've been returning significant capital to shareholders, driven by the profitability of the business as well as one-off events that have to do with the sale of our DEPA participation back in '22 as well as in '24. This is totally in line with our dividend policy. And if you look at the normal recurring dividend, it's 20% higher than it used to be last year at EUR 0.60 per share. Again, very competitive both at the Greek Stock Exchange as well as the European peer group. Moving on to discuss the performance of our business, starting from Refining, Supply and Trading. As we mentioned before, one of the best performance or the best quarterly performance, both in terms of production and sales despite the fact that Aspropyrgos was at the end of run with the shutdown currently ongoing. We're halfway through this process, in line with the table, safely execution and aiming to complete by the end of the current quarter with overall EBITDA 12% higher year-on-year. In terms of operations, important to note the domestic market sales increasing with market share gains, if you look versus last year and very strong exports. It's the highest quarterly -- it's the highest fourth quarter performance in terms of both percentage and absolute export sales we've ever recorded. Very strong -- moving on to Page 22, very strong realized margins, $11 per barrel of benchmark margin with overperformance at almost at $10. We -- I mean, we had very good opportunities in the market during the fourth quarter, both on the crude supply side as well as export netbacks. And now our Geneva desk with the better market outreach as well as a much more solid risk framework that we've established was able to capitalize on those opportunities and take advantage and this is flowing well into the first quarter of this year. In Petrochemicals business, we're certainly in a downside. We had a lot of capacity additions globally over the last 3 years, which combined with the slow demand growth that we've seen, it's resulting at negative margins for most of the quarter. It's improving a bit in the first quarter, but certainly, we're not looking at getting back to what used to be normal anytime soon in petrochemicals. Still, however, it's important to note that the integration with refining provides a resilience for this business. And it's cyclical. It will certainly -- the current overcapacity will certainly prompt capacity rationalization. It is taking a bit more, but the business will find a way to rebalance itself. In marketing, we discussed before or even in previous quarters, the very strong performance, which is consistent and improving on the back of the strength of our EKO brand, structural market share gains in both diesel and gasoline mostly, high penetration of differentiated fuels, high-margin differentiated fuels as well as increasing NFR contribution and the best EBITDA performance for several years at EUR 71 million. Similarly, international marketing, another record-breaking year, similar story more or less with domestic in the sense that NFR contribution has increased notably. The positioning of the group in the regional markets has improved. We're able to take advantage of the geopolitical developments to a large extent. And from '26, we'll also have the additional contribution from the reopening of the start of the Thessaloniki-Skopje pipeline that will reduce the operating cost of transporting fuels to South Balkans as well as open up market opportunities. So we're expecting an additional EBITDA contribution of anywhere between EUR 5 million to EUR 10 million from '26 from this event. On this note, I'll pass you over to George Alexopoulos to discuss our Power business. George? Georgios Alexopoulos: Thank you, Vasileios. Good afternoon, everybody. This is the first quarter in which we have fully consolidated for the whole quarter Enerwave. On Page 29, you can see -- you can look at the entire business taking Enerwave on a pro-forma basis to give you a better picture of the unit, about 1.4 gigawatts of operating capacity, EUR 100 million EBITDA, 3.7 terawatt hours of generation and about EUR 1 billion of capital employed. If we turn to Page 30 and zooming to the renewables business, it was a quarter with unfavorable weather conditions in both wind and PV and also continuing curtailments. So the profitability was somewhat lower than last year. And the year is just about at the same level as last year. You can see the load factors. Of course, the load factors reflect curtailment as well as weather conditions and the generation and EBITDA mix. As you can see, the work-in-progress, the projects under development have increased as our growth plan is being rolled out. And that also has an effect -- a short-term effect on profitability as we haven't adjusted figures for these expenses. Going to Page 31. You can see what Andreas mentioned before. We have a secure path to getting to 1.5 gigawatts installed by 2027, starting from our current operating capacity of 0.5 gigawatt. We expect the 300 or so megawatts under construction to be delivered in the course of this year and possibly an additional 50 megawatts for our batteries towards the end of the year. Together with a number of RTB projects in Greece and Bulgaria and Romania, that makes up the composition of the mature pipeline, which can bring us to the 1.5 gigawatt. We have focused on delivery, and we have improved considerably our delivery capabilities through the acquisition of ABO Energy Hellas and the development and construction team. And we are diversifying both technologically and in terms of geography as well as gradually hybridizing our projects to adjust to the market conditions. If we go to Page 32. Enerwave, again, shown on a pro-forma basis, both for -- well, the quarter, it's really the same, whether it is pro-forma or not because we consolidated it fully, but the year is on a pro-forma basis. Improved performance as a result of the improved performance in supply following the acquisition of the company and the re-branding in November of last year and also better energy management account for a 27% increase of the adjusted EBITDA to EUR 54 million. In addition to the new identity, it's worth noting that since we took over the remaining 50% of Enerwave, we reviewed and redesigned the commercial policy and launched new products and solutions and improved customer experience, reducing also the customer churn and all that translated already and will translate in the following quarters into improved performance. Regarding energy management, we are running now as an integrated portfolio. Our conventional units, our renewables units, soon our battery portfolio and managing the significant store positions we have in retail and in our own consumption. So this is very much part of the strategy of our integrated power business, which includes renewables, but also conventional assets and energy management position. And I think with this, we've come to the end of the presentation. So we will turn it over for Q&A. Operator: [Operator Instructions] The first question comes from the line of Villari Giuseppe with Morgan Stanley. Giuseppe Villari: We have 2, if we may. The first one is regarding the one-off items you recorded for the fourth quarter. I think you mentioned during the presentation, but could you tell us -- we can see EUR 29 million in adjustments. Could you give us more color on that? And then secondly, your domestic performance in retail has been very strong. So you're clearly benefiting from the lift of the fuel retail caps in Greece. Could you quantify what the benefit is? Is performance driven by other factors as well? And also, thirdly, if you could like quickly run through sort of an outlook for 2026 in terms of volumes, especially for refining, that would be great, if possible. Andreas Shiamishis: Okay. I'll ask Vasileios to take the part on the financials, then I'll talk a little bit about the marketing. And on the volumes, maybe Kostas can give us an update on the '26 projection. Vasileios? Vasilis Tsaitas: Thank you, Giuseppe. I mean out of the EUR 25 million, you have, I mean, a number of small items. The main ones have to do one with the legal case at EKO, a very old, 30-year-old case that was finally resolved against the company which is EUR 12 million. And the other has to do with decontamination expenses at some products of the refinery at Aspropyrgos. The other are small items of around EUR 5 million here and there. Andreas Shiamishis: On domestic marketing, the performance is much better in the fourth quarter. Clearly, given the size of the numbers, it's not a totally different ball game, but it's a big improvement. A very small part of this improvement is due to the price cap lifting simply because we refrained from increasing prices. What did happen, however, is that the increase in profitability came from 4 main drivers. The first one has to do with the crackdown, which the Greek state has affected on petrol stations, which were operating not exactly within the boundaries of legislation and tax provisions. We've had a couple of campaigns, which led to closure of a number of petrol stations. And the change of practices that were destroying the market. That has boosted our quality and reliability message and has given us an advantage in terms of sales volumes. It also reduced the pressure on some areas where margin was depressed as a result of inappropriate behavior on the part of certain petrol stations. The second has to do with the continuous effort on premiumizing our products. So we've increased the penetration of premium products in our total sales portfolio, and that is something which is leading to improved margins. The third has to do with NFR, and that is something which is continuously improving. We have a long way to go, but it is something which is now beginning to show that we're doing very well. I'm just talking about the retail business now. I'm not talking about aviation and bunkering. And the final part has to do with the network configuration. So new petrol stations, locations and also the conversion of petrol stations into commercial stations, which effectively increases margins. So those are the key drivers of increased profitability on the petrol stations. Kostas, do you want to tell us a little bit about the '26 volume expectations given we have the shutdown of Aspropyrgos and Thessaloniki. Kostas Karachalios: Exactly. Thank you, Andreas. The volume expectations for 2026 in terms of refinery production would probably look slightly less than the 2025 numbers. There's the major shutdown of Aspropyrgos, which is expected to last less than last year's Elefsina shutdown, but there's also a maintenance schedule for Thessaloniki as well that would influence. Operator: The next question comes from the line of Grigoriou George with Wood & Co. George Grigoriou: I've got a couple of questions. Going back to what you just mentioned about the shutdowns. Can you give us a timetable when Aspropyrgos and Thessaloniki will be down for the year? That's my first question. Andreas Shiamishis: George, Aspropyrgos is already done for the fourth week now running. We expect it to be completed by the end of March, give or take, a few days. So, so far, so good, progressing well. Thessaloniki is expected to go into a maintenance shutdown sometime in Q3 this year. We have to run our full diagnostics and go through the process to define when exactly and for how long. George Grigoriou: Okay. If I can ask as well. You mentioned Vasileios, that there was -- if I got it right, there was a EUR 12 million hit to marketing in the fourth quarter from some legal arbitration that actually was settled in the fourth quarter, if I got it right. And Vasileios, you also mentioned some improvements in downstream that you expect to add some euro million to profitability in 2026, but I didn't catch the number you mentioned. Vasilis Tsaitas: Correct. Grigoriou, there are a couple of items here. So one has to do with the energy efficiency projects at Aspropyrgos and some debottlenecking at units that will be completed and tied in unit shut down. We expect a run rate of around EUR 10 million to EUR 15 million at refining at Aspropyrgos. And the reopening of the VARDAX pipeline, the Thessaloniki-Skopje pipeline will yield another EUR 5 million to EUR 10 million in '26 onwards annualized. George Grigoriou: Okay. And if I just -- one last question, sorry. I don't want to take up your time. Given that there's been talk now about the EU's CO2 emission allowances and what will happen to the EUAs and everything like that, you can see where the prices have gone for CO2 allowances. Can you quantify, for an example, if you can give us -- I don't want to mention any specific examples. But let's say that if you -- I think you've got still free allowances in 2025, you had free allowances. If that was to be sustained until, let's say, the end of this decade, what would be the benefit to your EBITDA? Vasilis Tsaitas: If there's no change in the free allowances from '25 at current rates, we would be looking at around EUR 25 million of EBITDA. Operator: [Operator Instructions] There are no further audio questions. I will now pass the floor to Mr. Katsenos to accommodate any written questions from the webcast participants. Mr. Katsenos, please proceed. Nikos Katsenos: Thank you, operator. We have 2 questions from PKO BP Securities and specifically from Adam Milewicz. The first question is whether we expect to pay special dividends also in 2026. And the second question relates to the current level of refining margins. Andreas Shiamishis: Okay. With the special dividends were linked to special transactions like the sale of DEPA, the sale of DEPA Infrastructure, sale of DEPA Commercial. We don't have something up for sale at this point in time. I have to say that. Never say never, but there is no projection for that. So any special dividend will be replaced by what I would call an exceptional performance dividend if we're blessed with decent refining margins. Sorry, current level of refining margin -- yes, sorry, I didn't see that. Kostas, do you want to comment on that? Kostas Karachalios: Yes. Thank you. The current levels of refining margin and benchmark margins have rebounded quite strongly. So from a weak start of the year, in the last week or so, they're between $9 and $11 to the barrel, which is very attractive numbers. Nikos Katsenos: Operator, we don't have any other questions from the webcast. Back to you. Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing statements. Thank you. Andreas Shiamishis: Okay. Thank you very much for your time. I hope that we've been able to convey the message for the performance of the group. It has been a good year. The performance -- the financial performance is one indicator of how well the company is doing, clearly affected by the environment. So it is clear that we have been blessed with the good environment in the last part of the year, and that added a little bit of profits to the bottom line. However, what we need to take away is the fact that this company over the last 5 or 6 years has transformed itself, we've managed to establish a baseline, which is EUR 1 billion, something that we've been talking about for a number of years. A lot of new businesses have come into play on the renewables part more than anything and the conversion of investments into cash flows. I've always maintained that investments should be converted into cash or cash flows. So we've converted the Enerwave, the ELPEDISON investment into cash flows by acquiring the additional 50% and we converted the DEPA investment into cash by divesting by selling the 35% that we had. So that actually brings about a much better governance and operability of that business. So we have been adding new businesses to the group, which are more predictable, maybe not as predictable as we would like on the renewables, but still they are not driven by refining margins. They are establishing a cash flow baseline, clearly, a totally different model from the refining baseline, but it is adding to the group stability. The Enerwave business is something which will provide additional profitability with a diversified profile, the gas and power and the utility profile is different to the refining profile. So I think we've been doing a good job at diversifying the portfolio and also making it more future compatible with a lower environmental footprint as a group. However, we should not ignore the improvements made on our up until now core business of downstream, which has to do with the refining, the supply and trading and the marketing. In fact, I probably feel more proud of the turnaround in the domestic marketing than the investment in growing our portfolio of renewables because that involves a lot of people, changing of cultures, being more aggressive in the market and fixing long-standing issues of management in the group. The expansion in markets outside of Greece, whether it's exports and whether it's trading through the new company or whether it's acquiring petrol stations or expanding into existing or new markets, again, it is something which has been done very, very successfully. And Kostas has handed over a portfolio, which is in a much better shape than the one he took responsibility for almost 7 or 8 years ago. That is a signal of strength for the group because I don't know when, but I have no doubt in my mind that refining margins will change again. Maybe they will go down, maybe they will go up. Chances are that from where we are, we will see lower margins in the next 3 or 4 years. But what provides comfort is the fact that the group has built some sustainability, some strength, some endurance to manage those volatile trends and we'll continue to deliver very healthy profitability. Over the next few weeks, we will be aiming to address the market with our new strategy. We have a number of events planned for the next 3 months, the opening up of the VARDAX pipeline ceremony, and things which have to do with other parts of the business. So I think we will have the opportunity to expand more on our strategy in the coming months. Up until then, you have to take away with you a very good performance, a more robust and sustainable performance going forward, a much improved operation and governance structure in the group, a healthy balance sheet even with EUR 0.5 billion of investment in renewables, which were funded entirely out of debt, project finance or our own reserves. And even after that, we are still at a very healthy leverage and credit metrics. So I believe that is good news for the group going forward. Thank you very much once again, and we'll renew this appointment in 3 months' time. Thank you. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.
Operator: Good morning, ladies and gentlemen. We're starting our earnings call for 2025 and the new strategy plan for the period 2026 -2029. We welcome to all attendance via telephone and our web page. With us are Beatriz Corredor, Chair of the Board of Directors; Roberto Garcia Merino, Chief Executive Officer; and Emilio Cerezo, Chief Financial Officer. I now give the floor to our Chairwoman, Beatriz Corredor. Beatriz Sierra: Thank you very much, and good morning, everyone. First, I will start by highlighting the most notable events of 2025, and then our CEO, Roberto, will go deeper into the year's figures and discuss the close of the financial year. I will later refer to the environment in which the Board of Redeia brings this strategy plan. And once more, Roberto will go into deeper detail on it. And as usual, we will conclude with a question-and-answer period to address any of your queries or concerns. So. as I said, let's get started with the 2025 highlights. From an operational viewpoint, we can say we've made great progress with a record of investments in TSO, exceeding EUR 1.5 billion or 40% more than in 2024, a record figure in our 41-year history. And it's almost a fourfold increase in the investment rate in nearly 4 years. This effort includes the EUR 1.4 billion invested in the transmission network with 486 extra kilometers of circuit and 217 new positions to strengthen the network and facilitate the country's industrial and productive development. Moreover, the availability index of the national transmission network operated by Red Electrica sits at 98.39%, exceeding 98.06% achieved during 2024. It is therefore clear that 2025 was a key year also from the regulatory point of view as the CNMC published the remuneration letters for the new regulatory period going from 2026 to 2031. Also, the regulator approved the remuneration for the system operator for the '26, '28 period. This -- or with this, this financial year 2026 is expected to be better than the previous year as the current methodology takes the actual costs for 2024 and foresees a regularization based on actual data from 2025, which already has an impact on the 2026 bottom line. As for the transmission network, we believe it should be adequately remunerated during a time when the relevant role played by its reinforcement and its maintenance account for. Certainly, we were expecting further signals considering the effort being made in our infrastructure and we'll have to continue, as you will see during the presentation. In the field of income and revenues in parallel, we've made progress on high-impact corporate milestones, including the completion of the Hispasat sale with a payment of EUR 725 million for 89.68% stake that we had in the satellite company. As we have said before, this strengthens our financial position to continue enabling the energy transition in Spain. The European Investment Bank has become a key partner in this regard as they support us in funding strategic projects like the pumping station in Santa de Chira and the interconnection with France. In addition, we signed an extra EUR 1.1 billion in loans with several entities, including a EUR 300 million contract with the ICO and issued a EUR 0.5 billion green bond. But if there is a relevant event in 2025, we're talking about the big blackout on April 24, an unprecedented, unpredictable multi-factoral incident as acknowledged by all official reports, both from the European experts panel and from the Government Analysis Committee. These technical analyses confirm the sequence of events as described in the systems operators' report. All reports agree that it was a serious unforeseen event, oscillations, generation disconnections in some cases through shared evacuation structures with healthy voltages within the limits of the transmission grid and inadequate voltage control service. All this led the incident to an unprecedented, as I said, incident, both at a national and international level. This comes from the technical rigorous analysis of data. There is no guesswork here and no generalization. For this reason, Red Electrica confirms that it operated the system correctly in strict compliance with the regulations before, during and the blackout on April 28 because if there is a highly regulated industry in our country, that is the electricity sector, meaning that both the system operator and other parties involved must comply with the present regulation, which is obviously not approved by Red Electrica, but by the executive, legislative or regulatory authorities after due procedure, guaranteeing that all parties concerned are heard. And this is the case for the new control operating procedure, 7.4 on voltage control, which was requested in 2020 by Red Electrica and approved in June '25 now in the process of implementation or the measures proposed by the systems operator for a sudden voltage variations control or the new functions recently assigned to the operator, which we take on with huge responsibility as a sign of recognition to the work and professionalism of our team. I will now give the floor to Roberto García Merino, our CEO, who will give you more detail on the financial results for financial year 2025. Roberto GarcÃa Merino: And this has grown 4.2%, launched mainly by the increase of EUR 71 million of this regulated in Spain. This is due to the new financial contribution that was approved by the CNMC and the new types of help that has been given have been adjusted by the lower maintenance units that we need to spend. And internationally speaking, we have gone down a little bit because of businesses in Chile and because of the exchange rate between the dollar and the euro that was compensated in other countries like Peru and Brazil. So, the fiber optic business and the positive effect of the inflation of CPI-linked contracts is offset by the renegotiation of some contracts in our context of market concentration. With regards to operating expenses and without considering those that are offset by other operating incomes, including Salto de Chira, we see that the expenses grew 5.6% in an environment of increased activity and operational demand in line with the business growth and the network requirements. Personnel expenses went up due to a larger average workforce, which was necessary to be able to meet the challenges arising from the strong growth of the group's regulated assets and also higher salary costs. Other operating expenses grew basically due to higher maintenance costs in Spain, which have contributed to have a high availability rate for the transmission network. The EBITDA grew 4%, driven mainly by higher contribution from the TSO. Also, it's noteworthy that there is an improvement in international business, aided by lower operating expenses as well as the strong performance of fiber optic business, which combines higher revenues with more contained costs. The profit has reached EUR 506 million, which is 37.2% higher than 2024 due to the impairment recorded in 2024 following the agreement to sell Hispasat, while profit from continuing operations grew by 1.6%. We should say that the financial result worsened by EUR 20 million due to lower financial income in 2025 compared to 2024, mainly due to the lower placement of cash surpluses. Corporate income tax increased with an effect rate above 25% due to the fiscal impact and dividends that we received from group companies that are not part of the tax base. From the financial perspective, the net group's debt is EUR 5.4 billion at the end of the year, which represents an increase of EUR 100 million compared to December 2024. The cash generation, together with the EUR 725 million received from the sale of Hispasat and dividends from the group, especially from Brazil, have helped us to contain the growth of that debt and continue to have solid financial structure with an EBITDA rate of 4.4x and an FFO of net debt of 18.9%. With the results of 2025 and what we've already seen from the period of '21, '24, we can say that we have exceeded all the objectives set out in our strategic plan for the period of 2021, 2025, placing the company in a very solid position to tackle the challenges of the new strategic plan. The TSO investments have reached EUR 4.4 billion, exceeding the initial target of EUR 3.3 billion, ending with a historic figure, as was said before, of more than EUR 1.5 billion of TSO in 2025. The EBITDA margin stood at a solid 75.8%, which also has complied with what was foreseen. We have a balanced financial structure with a net debt-EBITDA rate of 4.4% and an FFO over debt of 18.9%, and we have preserved an A- credit rating with both Fitch and Standard & Poor's. Finally, we have ensured a stable shareholder return throughout the whole period, and we've improved even the initial dividend distribution target. In short, we're closing this plan in 2025 with an excellent level of execution and a very solid position in order to face the next stage. Now I'd like to give the floor back to our Chairwoman. Beatriz Sierra: In truth, it great to hear how we met our strategy plan exceeding expectations. So, allow me to congratulate the whole team for it. In recent years, the energy industry has undergone a radical transformation. We're witnessing a new scenario driven by 3 large dynamics: the acceleration of electrification, the growing demand for network infrastructures to connect a more dispersed and fragmented generation structure and the need to ensure a secure, sustainable and competitive supply always. Electrification moves on at an unstoppable pace and the demand for electricity grows faster than global energy consumption. This change is driven by new needs, starting with the expansion of electric vehicles and data centers, and continuing to the electrification of industry, the installation of electrolyzers, heat pumps and battery factories. All these elements are redefining consumption patterns and demand more robust, smarter and more resilient networks. Spain specifically faces an enormous opportunity. The growth of electricity demand associated to new industrial and digital consumption places our country in a strategic position within Europe. This scenario is not safe from significant challenges as it offers enormous potential to lead the energy transition and consolidate a cleaner, more efficient model in which Spain will take a leading position due to its high and secure penetration of renewable energies, reaching nearly 57% of our energy mix, including 8 gigawatts of photovoltaic self-consumption. In this context, electricity networks are the strategic enabler of the transformation. Without well-dimensioned robust grids, no transition is possible. Therefore, this is a strategic priority for upcoming years. Globally, and according to the World Energy Outlook 2025, global investment in networks will strongly grow until 2035, driven by the electrification of end consumption. For an electricity transmission operator such as Redeia, this scenario is a sustained opportunity for growth backed by a stable regulatory framework, increasing investment requirements, a clear road map for expanding and modernizing the grid and with agile administrative and environmental processing of projects, which is one of the major areas for improvement at present. Moreover, the decisive push also comes from European institutions to make decarbonization into the real driver for growth, security and energy autonomy, which are vital for the continent. In this regard, tools such as the networks package recently presented by the European Commission seeks to boost investment in electricity infrastructure, speed up permits and improve the coordination of network planning at the European Union level. And the same can be said of the Energy Highways project, identifying up to 8 large bottlenecks in Europe that need to be resolved urgently to complete the Energy Union. These include 2 new trans-Pyrenees interconnections, which are absolutely a must to meet EU targets and enable the degree of interconnection required by the Iberian Peninsula, which, as I usually say, is more of an electricity island than Ireland itself. This institutional commitment is fund much more complex environment. not only due to the massive integration of renewables, but also because of the emergence of new consumption modes and technologies. The electricity system is evolving towards a more dispersed structure with decentralized energy resources and increasingly active consumers. This requires new tools, new services and a much more dynamic operation of the system. To this end, digitalization will play a key role, smart grids, sensors, real-time control systems and technology platforms that will allow us to anticipate and manage events in a much more variable environment. In this context, storage will also play a fundamental role in maintaining system stability. And to face all these challenges, Redeia as system operator will have to develop new capabilities, ensuring the resilience of the system and guaranteeing the quality and security of supply at all times. In summary, we face a more demanding situation filled with opportunities to move towards a more efficient, secure and fully decarbonized system. Thus, the national integrated plan for our country sets a clear path to advance in decarbonization and electrification of the country, setting up very ambitious targets. Amongst these, reducing emissions by 55%, increasing energy efficiency, cutting in half our dependence from the outside and achieving more than 80% savings in renewable generation in the electricity mix. Of course, the vision requires infrastructure to support it, and this is where electricity planning comes into play for the period 25-30. This process mobilizes over EUR 13 billion in investment in the transmission grid to integrate new renewable generation, facilitate electricity consumption and strengthen security and supply. There is a '25 to '30 plan currently in the phase of analysis for the comments submitted by public consultation launched by the ministry is structured around 2 main principles. On the one hand, maximizing the use of the existing grid to make it more flexible and resilient and on the other side, deploying new infrastructures wherever necessary to integrate renewable generation, meet new consumption needs and reinforce the security and stability of supply. It also integrates new fundamental elements such as international interconnections and the connection between island and Peninsula systems. Beyond moving ahead on these projects from the new plant, I would also like to stop here for a moment to discuss the present state of the transmission network, which can be by no means be described as collapsed. The current grid enables the circulation of electricity produced by generation facilities for a total installed capacity of 150 gigawatts, a record for the national electricity system. 70% of this installed capacity comes from renewable sources, and it's much more dispersed and fragmented into smaller plants throughout the country. But not only that, with the current network built and planned, permits have already been granted for access and connection in projects totaling another 164 gigawatts, out of which 129 belong to wind and PV facilities, 16 gigawatts for storage facilities and 19 gigawatts for demand facilities. Out of the latter, 19 gigawatts, nearly 12 gigawatts of capacity granted since 2022, which is when the present plan was launched. And those 12 gigawatts are not in service yet, not connected to the grid and therefore, not generating demand because the developers have a minimum of 5 years to develop their projects and then connect to the grid. And even in those conditions, 25% of Red Electrica's nodes still have available capacity for new applications. Therefore, we cannot talk about lack of anticipation, considering another piece of the context. The present planning '21 to '26 contemplated proposals to deal with 2 gigawatts of new demand and 12 were granted. When these 12 gigawatts come into service, they will entail an increase of 25% of the present demand in the Spanish system. The capacity of the transmission network that distribution operators plan to reserve for facilities connected to their own networks also doubles the historical peak of the system, which is 45 gigawatts. Even so, we need to further reinforce our networks, both distribution and transmission. The energy transition is a historic opportunity for competitiveness, industrialization and the strategic sovereignty of Europe and the Iberian Peninsula and of course, specifically for Spain. The main projects for the future plan '25 to '30 includes major access running across the Peninsula, reinforcement of rings around large cities and new links between Islands and with the Peninsula, which will enable quick deployment of renewables and new electricity consumption connected to the electrification of our economy. We will continue to work on interconnections with France, Portugal and in the near future with Morocco to increase the security of our system. In addition to all this, we're implementing storage projects such as Salto de Chira in the Canary Islands or the Balearic Islands. And we're also integrating new voltage control elements in the Peninsula and new synchronous compensators are being installed to reinforce the voltage regulation capacity and will guarantee operational stability in scenarios with high renewable penetration and lower system inertia. In sum, it's a full nation program based on projects that structure and connect the entire national territory and will drive a visible transformation in each and every region, as you can see on this image, which is by no means exhaustive as it reflects only the scope throughout the country. Investment in infrastructure is necessary, but it is also necessary in technology, digitalization and new capabilities in a complex system where the priority remains secure supply. To achieve this, we have the best possible organizational framework, the TSO model created in Spain precisely with Red Electrica 41 years ago and then adopted by all European countries as it is the most effective system in terms of management, the safest in terms of operation and the most efficient in investment terms. Therefore, the new plan sets out an unprecedented level of investment and this plan will be translated into new infrastructure. Between the years '25 and '30, we estimate that we will commission EUR 8.4 billion, which actually might reach EUR 9 billion if the processing procedures are streamlined as proposed by the EU and the Spanish government. Looking ahead into 2031, virtually all the plan will have been implemented or underway with a potential of up to EUR 11 billion in commissioning and execution. In sum, we're going from ambitious planning to solid execution capacity with enough room to accelerate even further if the regulatory framework allows it. Going on to the international context, Brazil, Chile and Peru are 3 of the most attractive electricity transmission markets in Latin America, not only because they offer stable and predictable regulation framework, which is fundamental to guarantee legal certainty and long-term visibility for investments, but also because these countries have consolidated transmission models with centralized planning and transparent awarding processes, creating a favorable context for us to develop our transmission activity. As for telecommunications in Spain, which is the third fundamental pillar for Redeia, the industry has been undergoing a deep transformation process for years now. The consolidation of large operators and local operators continues in a context in which efficiency and scale play key roles in competitiveness. And certainly, cybersecurity has become an absolute priority. Networks require increasingly advanced measures to protect critical infrastructures and safeguard user data, a trend that will continue to intensify in the coming years. Another fundamental element is the rise of AI and automation, enabling networks in real time and significantly improving customer service, thus opening the door to new operating models. At the same time, the industry advances towards more sustainable networks with clear focus on energy efficiency and the reduction of carbon footprint, which is particularly relevant for operators with vast infrastructures over the territory. There's also a strong pains maintained in infrastructure development and sharing, which promotes efficiency and accelerates the offers significant opportunities for Rentel, the leading provider for dark fiber in the country from data centers and submarine cables to hyperscalers and the growing cloud ecosystem. The drive for technological innovation and digitalization will also be the focus of the group's technology platform, ELEWIT, which will emphasize on operational efficiency, security and the maximization in the use of assets. And to round up the framework that will surround the company in the coming years, it is it is important to convey the meaning behind this whole strategy plan, which determines each of our actions. I'm talking about our unshakable commitment for 2029. This commitment is a direct response to our context, a clear road map to drive energy transition based on neutrality, technical rigor and innovation, a transition always guided by a deep sense of public service to add value to individuals, territories, nature and biodiversity. This is a responsibility we take on to lead this change with vision, but also with facts and data. Our new sustainability plan that we're presenting to you today defines 2 major ambitions organized into 7 strategy vectors and supported by 5 management levers that guide our actions. The framework will guide not only our decisions, it will also make sure that each project, investment and step forward will contribute to a more sustainable energy model and generate a positive impact on the environment. In short, we are presenting today the way to turn our commitment into results and the way networks will become the true engine of sustainable transformation. For this purpose, we have set ambitious measurable goals that cover the entire group from promoting electrification and significantly reducing our emissions to ensuring a positive impact on nature and promoting regional development, including extending sustainability criteria to our entire supply chain. We're also reinforcing innovation and digitalization, consolidating our ethical governance model and moving towards increasingly sustainable funding. Together, these objectives enable us to tackle the energy transition with rigor, responsibility and clear foresight to ensure our growth that will always be accompanied by social and environmental value. For this purpose, we have our comprehensive impact strategy and a new social innovation plan. At Redeia, we understand the importance of dialogue and sustainable positioning as a key driver for management. And that's how we understand this dialogue, not just as a mere matter of transparency, but also as a strategic tool to build trust, anticipate expectations and position ourselves as a benchmark in sustainability, both nationally and internationally. And this is proven by our bottom line that shows our continued engagement because each of the assessments we go through from Standard & Poor's Global to MSCI measures not only our environmental, social and governance performance, but also allows us to benchmark our practices against the best standards in the industry. And thanks to this active listening approach to our stakeholders, and thanks to our alignment with international best practices and our commitment to sustainability, Redeia is now ranked at the top 1% of the world's most sustainable companies according to S&P and has once again obtained top ratings in key indicators such as the CDP's A list, among others. In sum, these results are not an end in themselves, but the natural consequence of a model based on transparency, rigor and the conviction that sustainability is central to our value proposition. We will continue to reinforce this position through open, constructive and constant dialogue with all of our shareholders so that we can continue to move forward in credibility and leadership. I will now give the floor back to Roberto Garcia Merino, our CEO, for a deeper explanation on our strategy for the period. Roberto GarcÃa Merino: Thank you very much. Now that we've analyzed this economic and sectorial context, I'm going to talk to you now about the new strategic plan for Redeia to the period 2029. This plan seeks to promote the energy model and connectivity of the future, generating a positive impact on climate change, nature, territory and people. The strategy '26-'29 that we're showing you here is a decisive step to consolidate our leadership and make sure that we have a robust electric system that is prepared for decarbonization, reinforcing the essential role that energy transmission plays in the energy transition as well as offering a reliable and technically advanced fiber optic network that will contribute to bridge the digital divide. In this regard, the plan focuses on a strong development of regulated activity in Spain. And therefore, it is our fundamental commitment for our company that more than 90% of our investments are allocated to transport and operation. This reflects our top priority for developing electricity planning, optimizing system operation and ensuring supply quality in a rapidly changing environment. At the same time, Redeia will continue to consolidate its international and telecommunications activities, which provides stability and long-term value. The strategy also focuses on operational efficiency, innovation, digitalization. These are key elements for a more demanding and decarbonized system. Similarly, attracting and retaining diverse talent becomes an essential pillar for successfully addressing the challenges facing the electric sector. Overall, this plan reinforces Redeia's mission to promote a sustainable and reliable and future-proof electricity system, providing shared value to society. Today, we present an ambitious investment horizon totaled EUR 6.5 billion, of which EUR 6 billion will be allocated to domestic transport activity. This brings us to a historic level of investment of TSO with an average annual investment of EUR 1.5 billion, which is 70% higher than the average annual investment from the previous strategic plans from '21-'25. If we consider the EUR 6 billion an investment that will be executed in the period '26, '29 as well the investment that took place in the year '25 and what will be taking place after this plan throughout the years of 2030 and 2031, the total amount of investment will reach levels close to those considered in the draft from '25 to 2030. Likewise, our firm alignment with the European Union's climate and sustainability objectives also reflects the fact that 100% of the TSO investments are eligible under European taxonomy. Therefore, we expect the transport part of Spain should interconnection in the Bay of Biscay as well as the deployment of another 400 kilowatts that will connect different regions or various regions along with installation of synchronous compensators in the Peninsula, Balearic and Canary Island systems as well as the Salto de Chira project. Together, these actions will enable the company's RAP to be EUR 12 billion in 2029, and it should grow more than 35% throughout this period, reaching EUR 14.4 billion if we bear or take into account the more than EUR 2 billion of work in process that will put up to service in the subsequent years. From another perspective, it's clear that we are facing the challenge of developing the necessary infrastructure to be able to achieve decarbonization in a highly competitive and saturated market environment. It is therefore essential to ensure the availability of the supplies and services that are needed to address the development of the TSO at a reasonable cost. However, the visibility that we have on investments for the upcoming years allows us to anticipate and take measures that significantly reduce the execution risks. Actions such as conducting comprehensive risk assessment, which has enabled us to design new purchasing strategies adapted to a more demanding industrial context and also entering into medium- and long-term framework agreements, which provides stability in prices, terms and volumes as well as executing commodity hedges to stabilize the cost of the more sensitive equipments are becoming fundamental to our business. Thanks to all of this, we already have more than 70% of our strategic supplies guaranteed up to 2029. All of this -- however, all of this investment would not make any sense unless we had a stable regulation behind it. And we believe that we now have good visibility and stability for the company in the next 6 years. I think they are already well known, the new methodology guarantees a return of investment of 6.58%. In addition, unit values have been updated both for CapEx with an average increase of 6.4% as well as operation and maintenance. In this case, an adjustment of 13.4% for maintenance income compared to the previous period. It is worthy to note that we've taken our first steps towards recognizing work in progress for unique facilities with amounts invested prior to the year and the commissions being recognized and capitalized for up to 5 years at the cost of debt, and that includes the calculation of the financial remuneration rate. In our continuous effort to generate value for our shareholders, we can say that the pursuit of operational efficiency and managing leverage and financial costs will enable us to achieve a return on equity of at least 9%. Although our activity will be focused on the transport business in Spain in 2026, we will also -- '26 to '29, we will also maintain an investment plan of EUR 150 million internationally focused on strengthening and expanding transport networks in Brazil, Chile and Peru. In this way, we consolidate our presence in these regions and increase our future options. We will also continue to invest in our dark fiber business, a market in which we are a leader, thanks to having a stable, predictable model and a long-term focus. Throughout the period '26, '29, we will invest about EUR 110 million, mainly aimed at strengthening our network, expanding capacities and meeting the demanding growth for high-quality connectivity. Our objectives for this period are focused on 4 main areas: maintaining our position as a leading provider, strengthening relationships with strategic customers, capturing new business opportunities and develop emerging business associated to the cloud and the high-performance computing. Also, we will continue to explore alliances with strategic partners that will allow us to expand our reach and reinforce our role as an essential part of the country's digital infrastructure. Another significant aspect is the technical innovation and digitalization, which are essential for driving the group's efficiency, especially in TSO. From at ELEWIT, we are developing solutions that optimize processes, strengthen security of supply and increase the use of our assets. Between '26 and 2029, we will allocate EUR 40 million to projects that support the investment plan and prepare our networks for the energy transition. For us, innovation is a key lever to ensure a safer, more efficient and future-proof system. Now let's focus on the evolution of our economic indicators looking ahead up to 2029. These are the direct reflection of a company that is prepared to face an unprecedented investment cycle, capable of maintaining sustained growth with a greater focus on might, which is above 5% per annum. And as far as the net benefit is concerned, that growth will be about 3%. The significant growth of the net debt is directly linked to the investment rollout that is contemplated in the plan, even so we continue to have a robust financial profile with ratios that will allow us to preserve a solid credit rating and continue to access financing in a competitive form and terms. As far as shareholder remuneration, we've established a dividend policy that assumes an annual growth of 2% until it reaches EUR 0.87 per share in 2029, ensuring sustainable and consistent growth in a context of historical investments for the group. The regulated business continues to be one of our most important cornerstones of results. 90% of the group's EBITDA comes from this activity, which gives us stability, predictability and a solid foundation for our future growth. The weight of the TSO will increase in the next coming years, driving the EBITDA growth, which will grow at a rate above 5% per annum throughout that period, reflecting our capacity to execute strategic investment, maintain operational efficiency and advance in the energy transition of the electric system. And now that we have presented the fundamental plans of our strategic plan, we will take a closer look at our financial objectives and the road map to be able to achieve them. So now I'd like to give the floor to Emilio Cerezo. Thank you. Emilio Cerezo Díez: Thank you, Roberto. As we all understand, in coming years, we will see a decisive boost in the development of electricity transmission network with an average annual investment of EUR 1.5 billion in the TSO. In other words, about EUR 6 billion over the entire period. This investment will mean that by the end of 2029, the RAB plus work in progress will be located at EUR 14.4 billion or a 30% increase compared to the end of 2025. At the end of 2025, the TSO RAB will exceed EUR 12 billion. EUR 11.4 billion from transport and EUR 600 million from Salto de Chira or an increase of EUR 3.1 billion compared to 2025. Focusing on the transmission grid, those EUR 11.4 billion in RAB will represent an average annual increase of 6.4%. Likewise, at the end of '29, Red Electrica will have a significant volume of work in progress for projects that will be commissioned in subsequent years. On the left-hand side of this slide, we break down the evolution of the transmission RAB from EUR 8.9 billion at the end of '25 to EUR 11.4 billion at the end of '29. The transmission network RAB will grow by EUR 2.5 billion as a result of the significant volume of commissioning of EUR 4.4 billion already net of subsidies, partially offset by the amortization of EUR 1.6 billion of RAB derived from the operation of the remuneration model. And on the right side of the slide, we show the evolution of work in progress expected to grow by EUR 600 million as transport investments will exceed the aforementioned commissioning operations of EUR 4.4 billion. To run this plan with maximum solvency, we've designed a solid diversified financial structure, allowing us to run the investment plan without increasing capital. Over the course of the next few years in our strategy plan, we will have funding requirements of approximately EUR 9.4 billion, mostly derived from the significant volume of investments that we've been mentioning along with the payout of dividends to our shareholders. As you can observe on the left-hand side of the slide, the EUR 9.4 billion will be funded through the FFO we will generate, the collection of subsidies and new financial debt contracts. First of all, there is the solid generation of operating cash flow, which continues to be one of the group's trademarks. Likewise, the collection of subsidies in connection with strategy projects will account for 14%, 14% of the sources of financing. The amount to be received will be approximately EUR 1.3 billion, and most of it will be collected between 2026 and 2027. Finally, using our solid credit rating, we will finance over EUR 3.8 billion via debt, which represent 41% of these EUR 9.4 billion in funding requirements. New financial debt will be raised by diversified and competitive access to financing markets. In this context, and during the term of the strategic plan, we plan to issue EUR 1.5 billion in hybrid bonds or 16% of our new sources of financing. Our financing structure evolves towards an even more diversified competitive model with greater weight of hybrid instruments, which at the end of the strategy plan will amount to EUR 2 billion. In 2029, the average maturity of debt will be 4 years, and the cost of debt will be 3%. Our competitive average cost of funding during the term of the strategic plan, which we estimate to be around 2.8%, along with the group's leverage capacity are vectors for creating value for our shareholders in the future. Moreover, we have a strong liquidity position at the end of 2025, reaching EUR 3.3 billion. As for currencies, we will continue to maintain a very significant weight of our funding in euros. At the same time, we would like to stress that we're taking decisive steps towards reaching 100% sustainable financing by 2030, thereby reinforcing our commitment to the energy transition and best practices in the market. The financial ratios we have set as targets for the period ensure a financial profile compatible with robust credit rating. These ratio commitments are head and shoulders above some of our European peers. FFO to net debt will be above 14%. Net debt to EBITDA will remain below 5.5x and net debt to RAB will remain below 60%. Together, these ratios confirm the sustainability of our growth and our financial discipline. I will now give the floor to our Chief Executive Officer to continue with the main conclusions. Roberto GarcÃa Merino: Thank you very much, Emilio. And to conclude this presentation, I'd like to summarize the key messages that define our strategic plan 2026, 2029 and the path for growth that we have built for the upcoming years. In this period, 2025, 2029, Redeia is undertaking the most ambitious investment cycle in its history with a total of EUR 6.5 billion, which is a figure that reflects our firm commitment to energy transition. A large part of these investments are aimed at expanding and modernizing the transmission network to meet the growing needs of electricity system, the massive integration of renewable energies, electrification of the economy and structural improvement and resilience of our infrastructure. All of this results in a significant increase of RAB of 35%, reflecting the expansion of the network and new commissioning reaching EUR 12 billion at the end of 2029, rising to EUR 14.5 billion if we consider estimated work in progress at the end of the plan. This investment effort is accompanied by a solid and responsible financial policy, highlighting that this plan will be financed using international financing alternatives without the need to increase capital, thus preserving stability for our shareholders and reinforcing the financial discipline that characterizes us. In addition, we maintain a policy of increasing sustainable dividends with an annual growth of 2% throughout the year, which will take it to EUR 0.87 per share in 2029. This reflects an appropriate balance between investment, financial strength and attractive shareholder results. And last but not least, I would like to highlight that the growth of our regulated assets will be the cornerstone of the group's value creation, reflecting an increase of EBITDA and the group profit for that period of time. Furthermore, we look beyond this period covering our strategic plan, we will consolidate the growth initiated this investment in this period as the RAB will exceed EUR 15 billion at the end of 2031, and we will also have work in progress worth around EUR 2 billion in projects that will become on stream in the future, which we'll be able to confirm once the new planning has been approved. We are on a solid growth trajectory, which ensures long-term visibility, representing a quantum leap for Redeia in terms of RAB with greater remuneration capacity and a structural contribution to the development of the Spanish electricity system. Thank you very much for your attention. And now we have questions and answers. Operator: [Operator Instructions] First question from Flora Trindade from CaixaBank. Flora Trindade: I have 2 of those. I imagine there will be many questions, so I don't want to take up much of your time. I wanted to understand the CapEx you have reserved for the plan because in '25, you had a CapEx of EUR 1.55 billion and then the average drops throughout the rest of the plan. I wanted to understand why this average goes down and whether you see any upside in these investment levels beyond 2026? That's the first question. The second one, in terms of your funding, you're not including any type of asset turnover or rotation. Is this part of the plan if things don't go exactly according to plan, what you intend to do and which countries might become a priority for you, if that's the case? Unknown Executive: Well, thank you very much, Flora, for your questions. First of all, I believe we have a very clear investment horizon for the -- for oncoming years, at least within the scope of our strategic plan. This year, we finished 2025 with a record number of approximately EUR 1.5 billion, which is the order of magnitude we expect as an average for the whole period of the future plan. Our engagement is EUR 6 billion during the period '26 to '29. That's 4 years. Therefore, our expectations, and we're pretty certain of those is that execution capability in terms of investment will remain around those EUR 1.5 billion per year during the length of the plan. And I believe we're making a significant effort to that endeavor. If we compare our present plan to the last one, that's an increase of 70%, 70, and the level of certainty in our investment is very high, even under strict standards since we have already secured practically all the critical supplies to run the plan and most plants are in a well-advanced stage of permits or commissioning. So that's a very solid calculation. About your question about assets. Well, fortunately, our starting point in financial terms is very robust despite the level of investments we're contemplating. We assume we can fund this strategy plan with our own capital without going to the market. Well, obviously, we will have to increase our hybrid debt. And certainly, we also have European funding and other types of subsidies. And our investment horizon will probably, after a rating review will remain robust in terms of financial solvency. So, we will not -- we will not need any disinvestments as we did in our '21 to '25 plan. Certainly, this yields for opportunities. In case the investment pace were to be accelerated, we have additional drivers like deconsolidation or the partial disinvestment of some non-TSO-related assets. But according to the initial plan, that will not be necessary, and we can finance our operations without any capital increases and just use the regular channels for funding in our plan. Operator: Next question comes from Javier Suarez from Mediobanca. Javier Suarez Hernandez: I had 3 questions. The first one has to do with the blackout that you mentioned recently throughout your presentation, like the origins and causes and effects of the blackout. So, I wanted to ask you, from your point of view, what -- actually, like what should we learn in Spain and the rest of Europe? What should we have learned from this blackout? And what measures have been included in your business plan to make sure that this situation does not happen again? And in that sense, I also wanted to ask about the documents that we'll be waiting for about the responsibilities that are connected to the blackout and what documents are these? And I understand there's one from the Spanish regulator. And is there any other type of fine? Or should we assume that the attitude of the management of not having money ready for this, would that change if we have some kind of fine because of the blackout? That's the first question. Second one has to do with the extending the business plan up to 2029. So why has the company not extended it beyond 2029? That really has to do with the new plan and the infrastructure plan has not been approved. But I do believe that there's a lot more visibility after 2029 and perhaps bearing in mind that the company will have new services above and beyond the last date of the business plan you've showed us perhaps the growth of the company has not been valued properly, valued too low, infra valued because of this. So, I would like to try and understand why have you decided to have a cutoff time for 2029 and not a date further on? Third question, financing for the plan. Have you included getting to the end of the plan? You decided to get there with EUR 2 billion with hybrid debt. And we're talking about the EPS now because that should discount the financial cost that is connected to this hybrid debt. So, it's fair to say that, that EPS growth will be lower than the -- what you've been pointing out? And to what extent could that be lower? Beatriz Sierra: Well, very well. How about if we divide up these questions? With regards to the blackout on the 28th of April and the reports that are pending, I think the most relevant one have already been printed, and we got one from the government committee and an article had to do with national security. Another was the report that the operating sister made, and they were obliged to do this because of the norms that we have, the laws that we have when something like this happens in Spain. And then also the -- we named -- the European Union named an expert panel for this, and that's the third one. So chronologically explains everything without any doubt of the data and the rigor, what were the various or different incidents that happened throughout this whole process, starting by what happened at 2 in the morning or at 12:03, rather. So very well. So, the transmission network never failed. We had more than 7,000 maneuvers without having any kind of failure. So, the maintenance of the part that has to do with Red Electrica was actually complied with at all times. And we'll see this in these reports and in forms. But we see that some of the laws were not complied with -- this is by the transport company. And in our annual accounts, we have not included this because we don't believe that we're going to be responsible for any matter, bearing in mind that we complied with the laws in a very strict manner. What we cannot ensure is that all of the agents of the sector actually did the same. Now in the strategic plan, there is -- well, it reflects many things, although it's not totally concrete, but it's the planning for 2025, 2030 that has not yet been approved. We hope it will be approved at the end of this year. But as we said before, here, we gather like a whole series of infrastructures that so far were not operative in Spain, such as synchronous compensations and also through changes in the planning in 2024 and especially in 2025, we have included tools for start comes and fast and other matters. So, our plan, Salto de has decided to make all of this infrastructure that will give us an operating system that is resilient and safe with greater guarantees so long as that we can always guarantee that the other agents of the sector comply. And as our CEO just said, we have taken some decisions to be able to have material and special material, especially the more critical ones to be able to be in the right condition to deploy this infrastructure as soon as possible because actually, the laws that we have now does not let us change this infrastructure at this point until such time that the planning has been approved completely. So, we have 70% of all of this material for this plan 2026, 2029. Therefore, we're in the right conditions to incorporate all of these new tools that the planning establishes for this electric network. With regards to the reports that are pending, we foresee that the main report at the end of March should be ready with the measures and recommendations will be incorporated into that report. And with regards to the regulator, as far as we know, files have been open and research is being done. They've asked information from the sector. And as it was recognized by the ministry from 67 companies that were asked for information, we have been the only one that has been totally transparent with the data and the origins, we at Red Electrica. And therefore, so that's a question that the regulator should answer. Like what is the period that this file is going to be ready? And what step will be taken once we know its content. Your turn. Roberto GarcÃa Merino: Thank you, Javier. Thank you for your questions. With regards to the plan and the period and how long it lasts, we've decided -- well, it has to do with the visibility that we have and the commitments that we have to assume with the market. As we were saying before, we are very clear and we are certain that our period of 2026, '29 is very clear. And we do have a certain sort of visibility or -- but not so much commitment for executing between 2030 and 2031 because as you said, that investment that will be taking place between 2030 and 2031, it depends also on the final approval of the new planning. But what is true is that we have moved forward with significant projects that will be up and running around about 2029. And right now, we don't know if it's going to be in 2030 or if it might be delayed until 2031. That's why we have not wanted to have a firm commitment with the market beyond 2029. What is true is that the visibility that we have of putting in service or the up and running that we can get by the end of 2031 is quite clear actually. Once we have reflected the level of the RAB of EUR 15 billion is also an objective that is something that we can attain. But of course, we have assumed this financial commitments is more complicated to do it in such long term. So, we wanted to give a reliable information and things that we know that we'll be able to comply for right now and then wait until we have proper approval of the necessary matters to be able to commit to things after 2031 for like 2030 and 2031. But what is true is that the visibility that we have now, and we're talking about the years '30, '31, we're talking about volumes that are above EUR 4 billion in those 2 years. So, we'll have to wait to see that we do have a proper plan to be able to be much more concrete on this matter. But in any case, the visibility that we're giving now as far as the evolution of the RAB is truthful, and we wanted to assume financial commitments up to 2029, where we have greater certitude. Emilio, would you like to answer the next question? Emilio Cerezo Díez: Thank you, Javier. With regards to what you said about hybrid debt, we want to have EUR 2 billion of hybrid bonds at the end of our plan, which bring us close to the maximum capacity that we have for that instrument so that we will be able to be qualified as equity content as far as our rating agencies are concerned. And it's true that the accounting treatment that we're giving to the hybrid, as you know, is to consider within our equity, the EUR 2 billion and payment for the interest is also registered within all of our equity and the profit and loss. And also, the increase of -- well, the interest rates of the hybrids, if we were to account for them within our results, the average result that we would have is would be less than 1% of these emissions throughout the next few years. Operator: Next question comes from Ignacio Domenech from JD Capital. Ignacio Doménech: Mine is about your rating. In 2029, you're setting up a guideline for a net debt exceeding 14%. And I understand that unless the S&P rating changes, that would not be compatible with maintaining BBB+. So, considering your talks with the rating agencies, do you expect them to soften these targets, this guidance or perhaps it's not a priority for you to hold on to that BBB+? Unknown Executive: Well, thank you for that question, Ignacio. About financial solvency, well, historically, and obviously, as part of this plan, Redeia's priority is maintaining a solid credit rating without committing to a different rating. Certainly, our investment volume will bring us close to financial ratios that might maintain the company in BBB+ just as will happen to other peers in the same field. Based on the analysis we have conducted on financial ratios, we're confident that we will remain there without making a firm commitment to any rating whatsoever. Our priority is remaining financially solid to tackle our strategic plan and maybe future developments, too. But consistently with other recent reviews from other agencies, we do expect to maintain that BBB+ credit solvency. That's what we expect from the outcome of rating agencies reports. They will have to assess a different Redeia without Hispasat in the group, and with a vision -- a different vision on the April 28 incident that differs from the view when the incident had just happened. So, in financial terms and in terms of debt, I am convinced that we will still have a good credit rating, and we expect a revision that will keep us at BBB+. Operator: Next question from Gonzalo Sanchez from UBS. Gonzalo Sánchez-Bordona: So, I have a couple of questions. The first one has to do -- well, first of all, I'd like to understand the possible leveraging that we have because of the risk of these figures going up and down that you presented today. Regarding investments and let me explain myself. If there is an additional delay from, we're waiting as far as like the approval of the investment plans, then I assume this could generate 2 situations and one would be that the investments are more expensive than what we foresee due to inflation. And then in the second place, the part that's not insured, that 30% that is not insured would be open to these fluctuations. So, I'd like to understand how are you considering this with regards to possible risks to going up or going down because as far as I understand, according to new regulation, there is a certain pass-through. But still, I wonder how would you consider this at a mathematical -- from a mathematical standpoint. So that's it going up, going down, but especially if it's going down. But as far as going up is concerned, you have given a delivery throughout 2026, very interesting as far as the EBITDA margin, which is much higher than what was considered in the plan. So now I understand that you're taking a much more conservative point of view as far as the increase of these margins. So, I'd like to understand what type of leverage the company has to be able to improve that result. And then generally speaking, any kind of upside or downside in this sense would be interesting. And then the second question has to do with what was mentioned about the rating. Due to the conversations, we had before, I understand that, that 14% would be within the ranges of BBB+, of 2 of these rating agencies. So, I'd like to understand what is the type of conversation that's happening with this on that subject matter, are you expecting a change? And if there is going to be a change, what kind of impact could that have in the plan with greater flexibility? I mean, what would the impact be in the plan? Unknown Executive: Thank you very much, Gonzalo. Very well. With regards to the commitment for investment, '26 to '31, this is actually quite -- you're right in what you say. There is a potential for delay in the planning. And if it were significant, it could affect it a bit. But I want to remind you that there is a volume for investment, which is a volume that is really quite important. These monies, they come from the planning that we have now and then we're putting it in the other plan that is being analyzed. So '26, '27 and all the way to part of '29 corresponds to that monies that we have at least for the next 3.5 years. And it's real and true. And of course, there will be something pending for the approval, for the planning, but we have this intuition and due to the interest, that is needed for the deployment of these infrastructures that it can be a quick approval in this very year. And we also have mechanisms that might be taking place throughout the strategic plan period in order to accelerate these periods and to be able to compensate a potential delay. So as far as investment is concerned, I think it's really quite -- the certitude level is quite high. So, we haven't wanted to commit beyond 2029 because then between 2030, 2031 will need to be approved later on. But as far as the plan period, these objectives are really quite firm. With regards to possible price evolution, I don't think we are -- we're in the situation we lived through 2 or 3 years ago. We do see that most of the supplies and the equipment have stabilized the prices. And in those critical supplies with a greater demand, we have acted or jumped the gun as it were, and that is much more concrete. And so, we don't see any difficulties or potential changes. And also, Gonzalo, the new framework that we have for regulations and distributions also gives us -- well, it permits us to assume various deviations as far as the cost of this is concerned. So, we're really quite comfortable in our objectives and the evolution of investments. With regards to what we can add to operating profit from a strategic plan and the ups and downs, the company has to have enough means to be able to face this growth, and it is a process that we have already started, and that will continue throughout this year and part of 2027. And that, in fact, does affect the rates of the EBITDA and its efficiency. And remember that we're starting with a volume that was quite relevant at the end of 2029. And of course, those ratios are going to affect -- have an effect. And of course, will be much more efficient in the future. But we have decided to be conservative as far as exploitation expenses are concerned to be able to maintain the growth that we're talking about. And just another thing, let's talk a little bit more about that the efficiencies that we see as far as financial structure is concerned for the cost of the equity and also some thoughts about the rating, but I also want to tell you what I was saying before with regards to the rating agencies and the [indiscernible] that Redeia has to them. As we said before, the context of the company has changed radically from the last few revisions, reviews and the focus on regulated activity is much clearer. And really, what we expect to see is a treatment similar to other companies within Europe that have these same types of ratios that are going to be better than what have been applied to us in other years and in Spain and in other years. But I believe that the relationship we have with these agencies is quite close. We do believe that this horizon of BBB+ is the horizon that we think that we can reach. However, in a hypothetic case that there's much more investment or a much more restrictive position from the agencies. I'd like to remind you that we still have leveraging or hedging within the company to be able to reinforce this financial structure of the group if it is needed. Thank you. And continuing with what you said, first of all, talking about ratios. I think it's really important to highlight that these ratios of our credit ratios are very solid. In fact, much better than many others within Europe. And it's important to highlight that. Quite sincerely, we think they are clearly compatible with a BBB+ as far as our agencies are concerned and even a AAA+. And we think that, that will be the qualification that we will achieve from now on a AAA+. And we're looking at a solid investment grade. But in any case, this is a decision that has to be taken by both agencies according to what they want to do and Standard & Poor's and the others. And as far as upsides are concerned and adding something and some aspects that Roberto was saying, I also think it's important to say that from a financial point of view, we see upsides quite clearly by improving our cost of the debt compared to what we have in the pretax 658. And in any case, we're going to have average financial cost that's going to be better than what we've already shown. So also, what improves this 46%. Bearing in mind how solid we are in our balance sheet and our projections and all of these things, we believe that we're going to have higher leverage than 46%, keeping that solid investment grade. And by combining these 2 factors, better hedging and better cost of our debt, which is highly competitive, will permit us to create value. And as you heard not too long ago, to be able to get a return on investment above 9% and one of the important leverages that we have to have that ROI that is so attractive to create value for our shareholders has to do with our capacity for hedging and to be able to get into debt at a very competitive cost. Operator: Next question from Fernando Garcia from RBC Capital Markets. Fernando Garcia: I only have one question after everything you've said, and it's about the incentives you're using for your net guidance for 2029. Emilio, you just talked about financial performance. So, are you also considering operational outperformance and are you using any of that for your 2029 guideline? Or are you considering any incentives to generate some upside for your 2029 guidance? Emilio Cerezo Díez: Excellent. Thank you very much, Fernando, for your question. Well, about the level of incentives we have integrated into the plan. As you know, our approach is usually very conservative. So, we prefer not to include any kind of incentives into the base case scenario we presented today. There might be an upside, but we don't want to make any comments on that. At an operational level, we're also being conservative in the hypothesis we have included into the plan. Certainly, by integrating new asset management policies and new elements related to innovation, we might -- just might achieve some operational efficiencies within the model. Unknown Executive: Perhaps just to give you a flavor on it, well, there is a remuneration for works in progress, and that affects the investment portfolio we have planned within the plan. Another part of the portfolio is not affected, but the way it is conceived it might represent a loss of return in terms of the financial remuneration rate. But that deficit generated by not applying work in progress to the whole asset base can be offset. And as Emilio was saying, by financial management with medium and final cost of debt under the regulation threshold established in the FRR, we can generate value above that 9% return on equity we're considering. Operator: There are no further questions in Spanish. We will now take questions. [Operator Instructions] Our first question comes from Arturo Murua of Jefferies. We are not receiving any audio questions from line. [Operator Instructions] Unknown Executive: Well, it doesn't seem like there were any further questions. So, we go on to the questions we have received online. Most of them have already been answered. Daniel Rodriguez asks us the estimated cost of hybrid bonds and whether or not it is contemplated into the 3.3% contemplated in the estimated cost of debt. And Mafalda Pombeiro has 2 quick questions. The EUR 6 billion CapEx target, is it gross or net of subsidies as year-on-year? Or does it follow a growing progression? Well, thank you. The cost of the hybrid instruments we're contemplating is approximately 4% to 5%. Certainly, as you know, the market is looking very attractive now. And if we were to invest, we would come very close to that 4%. That 3.3% we set up as average financial cost for 2029 does not integrate hybrid instruments, but it does integrate the cost of funding of our telecom business and our international business, which are funded mostly in U.S. dollars. As I said before during the presentation, our average funding cost in the plan is 2.8%. If we were to integrate 50% of the cost of hybrids, that would take us to 3%. And if we consider the entire cost of hybrids, that would bring us to approximately 3.2%. And perhaps to answer Mafalda, just to clarify the numbers, those EUR 6 billion in investment are a gross number. We can consider an average annual investment of EUR 1.5 billion, going slightly up or down 1 year or the next, but we consider EUR 1.5 billion as an annual average. It is important to remember. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to the Chemed Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Holley Schmidt, Assistant Controller. Please go ahead. Holley Schmidt: Good morning. Our conference call this morning will review the financial results for the fourth quarter of 2025 ended December 31, 2025. Before we begin, let me remind you of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call, the company will make various remarks concerning management's expectations, predictions, plans and prospects that constitute forward-looking statements. Actual results may differ materially from these -- from those projected by these forward-looking statements as a result of a variety of factors, including those identified in the company's news release of February 25 and in various other filings with the SEC. You are cautioned that any forward-looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future. In addition, management may also discuss non-GAAP operating performance results during today's call, including earnings before interest, taxes, depreciation and amortization or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release dated February 25, which is available on the company's website at chemed.com. I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation; Mike Witzeman, Chief Financial Officer of Chemed; and Joel Wherley, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara. Kevin McNamara: Thank you, Holley. Good morning. Welcome to Chemed Corporation's Fourth Quarter 2025 Conference Call. I will begin with highlights for the quarter, then Mike and Joel will follow up with additional details. I will then open the call for questions. The fourth quarter of 2025 fell short of our expectations for both subsidiaries. We will touch on the circumstances that led to these results, but more importantly, we will discuss what's being done to improve these results for 2026 and beyond. VITAS continues to execute the strategies required to fully mitigate potential Florida Medicare Cap billing limitations for the government's fiscal 2026. Admissions at VITAS during the quarter totaled 17,419, which equates to a 6% improvement from the same period of 2024. An important metric that we've been tracking related to Florida admissions is the percentage of total admissions that come from hospitals. Our analysis indicates that an appropriate balance for sustained long-term stability in the Florida patient base, given the current mix of referral sources is that between 42% and 45% of total admissions come from hospitals. During our Community Access program, this ratio dipped below the preferred range for a sustained period. In the fourth quarter of 2025, this ratio was 44.8%, which represents a high watermark during the post-pandemic period. The continued emphasis on short-term hospital-based admissions had 2 main impacts on the results for the fourth quarter of 2025. The first impact is that the Florida Medicare Cap position in the fourth quarter improved by almost $25 million in 2025 -- compared to 2025. It is important to remember that our fourth quarter is the first quarter of the government fiscal year. The year-over-year improvement gives management even more confidence that the Florida Medicare Cap problem of 2025 is behind us. The second impact is that due to the overwhelming success of garnering elevated short-stay patient admissions, our revenue growth and EBITDA margin were lower than anticipated. Ultimately, the percentage of total admissions that come from hospitals was higher than we originally budgeted in both the third and fourth quarters of 2025, resulting in this muted revenue growth and EBITDA margin. In mid-January 2026, VITAS management responded to the improved Florida Medicare Cap position by instructing operating personnel to begin the process of refocusing admissions to a more balanced approach between hospital admissions and preadmission -- other preadmission locations. That process is underway. In the guidance that Mike will discuss further, we have anticipated that the more balanced approach will start being reflected in the financial results mainly in the second half of the year. All patients are short-term patients for the first 30 days after admission regardless of their pre-admission location. As a result, refocusing the admission patterns will result in revenue growth and EBITDA margin building over the course of 2026. Finally, in December, we were granted a certificate of need to begin operating in Manatee County, Florida. Manatee County is in Western Florida between Hillsborough and Sarasota. Approximately 3,000 Medicare patients received hospice care in Manatee County during the government's fiscal 2024, which is the most recently published government information. Manatee represents another significant opportunity for VITAS in 2026 and beyond. Now let's turn to Roto-Rooter. Roto-Rooter revenue declined 3.7% in the fourth quarter of 2025 compared to the same period of 2024. Branch commercial revenue increased 1.6% compared to the fourth quarter of 2024. We continue to add commercial business managers to select branches during the quarter. Branches with commercial business managers had percentage revenue increases, 10% more than those without them. Roto-Rooter management intends to continue and expand this program in 2026. branch residential revenue declined 3.1%. Total leads were flat in the fourth quarter of 2025 compared to the same period of 2024. As discussed in the past few quarters, the trend of increasing paid leads offset by declining natural leads continues. During the fourth quarter, paid leads increased 9.4% compared to the same quarter of 2024. The decline in natural leads essentially offset the increase in paid leads. Roto-Rooter management has contracted with a new third-party search engine optimization provider in late December. The new provider does not provide services to any of our private equity competitors. Additionally, they focus on understanding and responding to the underlying code used by internet search engines to develop their search algorithms. We believe that these 2 factors will give us the ability to more positively impact our natural search results in 2026. Write-offs related mainly to our water restoration business increasingly became an issue over the course of 2025. In the fourth quarter of 2025, implicit price concessions and credit memos increased at Roto-Rooter by $4 million or 57% compared to the fourth quarter of 2024. A similar increase in write-offs was seen in the third quarter of 2025. The company has put into place modifications to the billing and collection support functions. Collection experience began to improve in early 2026, and we anticipate improvement to accelerate through the course of the year. Our guidance reflects management's belief that 2026 is expected to be a transition year for both VITAS and Roto-Rooter. VITAS's financial results are expected to build over the course of the year as we rebalance our patient mix. We are very confident that Florida Medicare Cap limitations in 2025 is fully behind us. The demographic makeup of the U.S. population, along with the addition of new territories in Florida, provides VITAS with significant growth opportunities over the next several years. Roto-Rooter continues to deal with a difficult operating environment. However, we have initiatives in place that I believe can lead to modest growth, mainly coming in the back half of 2026. We anticipate continued improvement in overall leads based on the past few quarters of paid lead generation improvement plus the impact of the new search engine optimization company. Improved overall leads should lead to modest organic growth in 2026. The addition of more commercial sales resources is anticipated to further improve organic growth. As Mike will discuss further, improvements we are working out with respect to water restoration billing and collections should provide $4 million to $6 million tailwind in 2026. We believe these improvements, along with an aggressive program to find and reacquire franchises in desirable territories, gives us confidence that we can meet or exceed our 2026 guidance. We believe that the difficult operating environment is temporary, and there has not been any impairment in their underlying long-term growth outlook for Roto-Rooter. With that, I would like to turn this teleconference over to Mike. Michael Witzeman: Thanks, Kevin. VITAS' net revenue was $418.8 million in the fourth quarter of 2025, which is an increase of 1.9% when compared to the prior year period. This revenue increase is comprised primarily of a 1.3% increase in days of care, and a geographically weighted average Medicare reimbursement rate increase of approximately 2.2%. The acuity mix shift negatively impacted revenue growth, 143 basis points in the quarter when compared to the prior year revenue and level of care mix. The combination of Medicare Cap and other contra revenue changes negatively impacted revenue growth by approximately 20 basis points. A $2.4 million Medicare Cap billing limitation was accrued in the fourth quarter of 2025. There was no Medicare Cap billing limitation accrued for our Florida program in the fourth quarter of 2025. Average revenue per patient day in the fourth quarter of 2025 was $208.01, which is 86 basis points above the prior year period. During the quarter, high acuity days of care were 2.2% of total days of care, a decline of 32 basis points when compared to the prior year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $91.6 million in the quarter, which is a decline of 1.7% when compared to the prior year period. Adjusted EBITDA on -- the adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 21.7%, which is 79 basis points below the prior year period. The lower EBITDA margin in the quarter reflects the impact of admitting more hospital-based short-stay patients. Now let's turn to Roto-Rooter. Roto-Rooter branch residential revenue in the quarter totaled $155.6 million, a decrease of 3.1% from the prior year period. This aggregate residential revenue change consisted of plumbing increasing 6.3%, excavation essentially flat offset by water restoration declining 10.3% and drain cleaning declining 3.2%. As Kevin mentioned, water restoration write-offs also referred to as implicit price concessions and credit memos have been increasing over the course of 2025. Historically, total write-offs have been slightly below 3% of gross revenue. There was an uptick to the mid-3% range in the first half of '25. We then experienced a significant jump in the second half of 2025 to over 4.5%. As a result of those increases, total write-offs increased $11 million in fiscal 2025 compared to 2024. Primarily through the use of artificial intelligence, many insurance companies have increased their scrutiny of every line item on every job we bill. This has led to the higher write-off percentage. Roto-Rooter management also believes that it has led to a reluctance to bill for certain water restoration services at the branch level. As the scrutiny on collections has increased over the year, billing employees in some branches have reduced their billings per job to help ensure a higher collection rate. This was the biggest factor that led to the 10.3% decline in residential water restoration revenue in the fourth quarter of '25. In response to this issue, Roto-Rooter is taking steps to improve its documentation through better use of technology. They have also undertaken a project to centralize water restoration billing and collections. Billing and collections were historically performed at each branch. This led to some inconsistent practices across the company. Centralizing these processes is expected to create more concentrated expertise and result in better billing and collection results. The financial impact is expected to be seen mostly in the second half of the year as these improvements take hold. Additionally, during the transition period, we expect some duplication of costs and investment in technology which will cause some marginal headwinds in the first half of the year. Roto-Rooter branch commercial revenue in the quarter totaled $55.2 million, an increase of 1.6% from the prior year period. This aggregate commercial revenue change consisted of excavation increasing 10.9%, drain cleaning increasing 2%, plumbing essentially flat between years, offset by a 20% decline in water restoration. The water restoration decline is a symptom mainly of the increased insurance scrutiny previously discussed. Roto-Rooter management believes that our commercial business continues to represent a significant opportunity for growth in 2026 and beyond. Commercial customers generally use our services more often than residential customers, they also have direct access to our local managers and thus generally do not search for us over the internet. In response to the commercial business opportunity, Roto-Rooter management hired commercial business managers at select branches during 2025. The preliminary results in the branches with commercial business managers are encouraging. As a result, Roto-Rooter continues to add commercial business managers in early 2026. It is a roughly 45-day process to get these positions trained and productive, which also may cause some marginal drag in the first half of '26. Adjusted EBITDA at Roto-Rooter in the fourth quarter of 2025 totaled $47.5 million, a decrease of 21.1% compared to the prior year quarter. The adjusted EBITDA margin in the quarter was 21.5%. The fourth quarter adjusted EBITDA margin represents a 477 basis point decline in the fourth quarter from the fourth quarter of 2024. The decline in EBITDA margin was caused by higher marketing costs and higher water restoration write-offs. During the quarter, we repurchased 400,000 shares of Chemed stock at an average price of $436.39. These purchases were funded by the free cash flow generated by both VITAS and Roto-Rooter since the beginning of the program, we returned over $2.9 billion to shareholders through repurchases at an average cost of approximately $167 per share. Now let's turn to the 2026 guidance. VITAS revenue prior to Medicare Cap is estimated to increase 5.5% to 6.5% when compared to 2025. Average daily census is estimated to increase 3.5% to 4%. Full year EBITDA margin prior to Medicare Cap is estimated to be 17.5% to 18%. Medicare Cap billing limitations are estimated to be $9.5 million in calendar 2026 compared to $27.2 million in calendar 2025. The estimate for 2026 is in line with our historical run rate prior to 2025 and includes no limitations related to our Florida combined program. Roto-Rooter is forecasted to achieve full year 2026 revenue growth of 3% to 3.5%. Roto-Rooter's adjusted EBITDA margin for 2026 is expected to be 22.5% to 23%. We believe this forecast is achievable based on anticipated improved lead volume in 2026, improved billing and collections in our water restoration service line and a lift in our commercial business through a commercial focused sales force. Based on the above full year 2026 earnings per diluted share, excluding noncash expense for stock options, tax benefit from stock option exercises, costs related to litigation and other discrete items, is estimated to be in the range of $23.25 to $24.25. This compares to full year 2025 adjusted earnings per diluted share of $21.55. The 2026 guidance assumes an effective corporate tax rate on adjusted earnings of 24.5% and a diluted share count of 13.9 million shares. It's important to note that the 2026 earnings trajectory is weighted towards the second half of the year. We estimate 55% of the consolidated adjusted net income and consolidated adjusted EBITDA prior to Medicare Cap is projected to be generated in the second half of the year. I will now turn the call over to Joel. Joel Wherley: Thanks, Mike. In the fourth quarter of 2025, our average daily census was 22,462 patients, an increase of 1.3%. In the quarter, hospital directed admissions increased 9.9%, home-based patient admissions increased 4.1%, assisted living facility admissions increased 5.6% and nursing home admissions declined 8.7% when compared to the prior year period. Our average length of stay in the quarter was 115.1 days. This compares to 105.5 days in the fourth quarter of 2024. Our median length of stay was 17 days in the fourth quarter of 2025, 1 day less than the median in the fourth quarter of 2024. As Kevin discussed above, we have very successfully transitioned our admission pattern towards more hospital directed admissions in our Florida combined program. To add some context to that success, at the end of the fourth quarter of 2025, that Medicare cap billing limitation was less than $2 million. As of the end of January '26, we have no billing limitation in our Florida combined program. This success has allowed us to begin the process of balancing the admission patterns to a better mix of hospital-based admissions and other preadmission locations. It's important to remember that hospital-based admissions generally provide for shorter-stay patients than other preadmission locations, admitting more short-stay patients results in ADC pressure in lower margins, as previously mentioned. However, in the first roughly 30 days of any patients stay with us, the economics are the same for us regardless of their pre-admission location. Only when a patient exceeds that 30 days do we see the more positive financial impacts. Balancing the mix of admissions will lead to accelerated revenue growth and improved EBITDA margins as the year progresses. In December 2025, we were notified that we received the new CON to operate in Manatee County, Florida. As Kevin mentioned, this represents another opportunity for significant growth over the next few years. This is the fourth CON awarded to VITAS over the past 2 years. The previous awards in Pinellas, Marion and Pasco Counties have met or exceeded our expectations. Currently, Marion and Pasco are admitting between 40 and 50 first-time Medicare patients per month. In just its second full month of operation, Pinellas admitted 28 first-time Medicare patients. We will continue to aggressively pursue CON opportunities in Florida in the territories in which we do not currently operate. Now that we believe the Florida Medicare cap issue is behind us, we are focused on returning VITAS to a more normal, sustainable organic growth pattern. We will look to achieve higher overall growth through the pursuit of new starts, not only in Florida but other CON states as well. We also continue to evaluate strategic acquisitions to add to VITAS' overall growth. With that, I'll turn it back to Kevin. Kevin McNamara: Thank you, Joel. I will now open this teleconference to questions. Operator: [Operator Instructions] Our first question comes from the line of Joanna Gajuk of Bank of America. Joanna Gajuk: So I guess, first, a couple of questions on the Roto business. So thanks for the details around, I guess, different issues, I guess, happening at the Roto-Rooter. But I guess just to summarize because I think you tried to address a couple of these things. What gives you confidence you can actually grow revenues 3% or so in '26 after revenues were pretty much flat in '25. Kevin McNamara: Well, let me start, Joanna. And this is -- I'll start with from 20,000 feet. We revised guidance in -- at the end of the second quarter of last year. And we talked at that time -- there were struggles at Roto-Rooter. The problem at VITAS was we were on our way to running a Medicare cap liability of Florida, we announced that we were going to have to make changes to push our mix of hospital-based admissions and community access to a different level, okay? So we make those adjustments to that point. And actually, from our perspective, from our calculations at the end of the third quarter, we were basically right at our guidance. I mean it might have been a little below what analysts were predicting. But that's -- the difference was only seasonality. We were at our level. The fourth quarter was $0.70 per share miss, okay? Massive, big problem. And raises questions like, okay, you've given guidance. How are you going to -- how are you going to reach those numbers, okay? Now to answer your question, let's start with Roto-Rooter, okay? Roto-Rooter, as we've said, has been going through a transition, okay? The transition -- the most significant transition is going from a majority of free leads that is from natural search to paid leads, okay? And Google is a smart company. They say, why should we give paying customers free leads? And they've been very successful in engineering their algorithms to yield that, that has a negative effect on us as far as number one -- answer your question on sales, has an effect of reducing our natural search leads, okay? As we mentioned at the end of the fourth quarter, we look back in the quarter, and we said, okay, we have an improvement there. Our paid leads have increased almost 10%. Unfortunately, natural leads are down almost the equivalent number. So our -- so our total leads were flat. If you look at our sales, we would expect sales to be relatively flat in that case and then making improvements growing to the following year. Well, we had a problem, as we said, with water restoration. And it was an overhang from the first half of the year. Again, we were -- we had various decentralized billing practices, insurance companies kind of sharpen their pencil, and basically, during the course of the year, increasingly, we weren't collecting at the same rate we were expecting that dramatically goes right to profitability and sales, okay? We believe that has normalized, as Mike said, not to the 2024 level or 2023 level, but certainly better than the 2025 level. So when we talk about growth, to the extent that we -- the way I look at the Roto-Rooter numbers, I look at, okay, what's going on with paid search and natural. The paid search is growing nicely. Last 3 quarters, almost 10% per quarter, okay? It comes at a cost. We're paying $94 lead compared to previously 0 on a lot of those leads, but that's still a good business as long as it's stable and growing, that's fine. We look at our natural leads, okay? Why are the natural leads -- why were they so negatively affected last year? As we've said in the past, the most -- the place that most people get their natural leads from is what's known as the map section of Google, okay. In October of 2024, Roto-Rooter was showing up on the maps nationwide 72% of the time, okay? Within a few months, that fell to a low of 24% of the time, okay? Massive change in visibility as known in the industry. And accordingly, leads were falling -- leads were falling, sales are falling. Tough time for Roto-Rooter. Looking ahead to 2026, what do we see? Well, we see a business that, on the paid lead side, continues to improve. We see on the -- let's focus on the visibility, okay? Our visibility, both through some of the internal changes we made and the use of our -- basically AI-centric natural search for our visibility up to about 35%, up from 24%. So that -- to answer your question, that gives me some confidence in saying, yes, as long as those -- we don't have to -- just have to continue those improved rates for growth in Roto-Rooter on the revenue side. I mean there's nothing that has changed in the nature of and quality of the service mark of Roto-Rooter. And then you add one thing Mike mentioned -- again, it's not that surprising given the difficulty of home services, it seems like the availability of repurchases of other franchises is speeding up, which has given Mike enough confidence that included that in his remarks. Again, those issues give me a lot of confidence that Roto-Rooter sales are going to be higher this year than the previous year. Now I was just going to say the other point is, you got to remember that I think it's an important one. When you talk about overall strength of the business. As we've talked about the VITAS with the, call it, preloading of Medicare Cap cushion in Florida, that's so significant. Just order of magnitude, we're at about a $28 million better position in cap cushion sitting right now. But right now, I'd say it's probably higher, that's probably more like $35 million. Okay. So the question is, can we -- will VITAS be able to grow census to take advantage of that cushion. And as we said during the prepared remarks, they're doing that, probably beyond our expectations. So in sort of a sense that lower margin and lower sales we saw in the fourth quarter was basically just lending, it was -- we were borrowing from last quarter to see profits and revenue that we're going to see in this year. So all of -- those are some of the basic points of what I see happening to what looks like on paper, a very bad miss in the fourth quarter. And just let me -- just in terms of dollars and cents, the $0.70 miss, probably about 33% was that -- was associated with VITAS's getting more a higher percentage of their admits being short stay rather than long stay. So -- and that's not something I see as a good thing. That was something ultimately they were trying to do and just we're a little more successful at it than initially anticipated. With regard to -- on the Roto-Rooter side, the lion's share of the miss was associated with the water restoration situation, which we've talked about and there's every indication that's being ameliorated somewhat. And the rest of Roto-Rooter, it's largely the marketing costs, the increased marketing costs that comes from getting that 10% increase in paid leads. So it's not a good situation. Again, it shows -- it's one where we went a long period of time with always exceeding analyst estimates. And we can't kid ourselves, a $0.70 per share miss is not to be trifled with. It's big and it's causing a lot of change, a lot of renewed emphasis on important matters here at the company and both subsidiaries. Mike, anything to add? Michael Witzeman: Just to summarize, particularly for Roto-Rooter, Joanna, I would characterize our confidence in the 3% to 3.5% revenue growth in '26 based on 3 specific things. As Kevin mentioned, some things we've done to change the lead trajectory, hopefully, to provide some organic growth, but modest organic growth is built in. The increase in commercial sales force will also lead to some more modest organic growth. And then as we've talked about, the water restoration write-offs, we've estimated that of the $11 million that the increase of write-offs of $11 million, we're going to recover maybe half of that this year. So that's a $5.5 million tailwind. So I would say those are the 3 very key components of how we get to the 3% to 3.5%. Joanna Gajuk: Great. And if I may, on the margin, so for the segment, obviously, things impact the margins and you gave us the guidance for '26. But on the last call, when you kind of were talking about targeting longer term, I guess you were talking about '26, maybe the margins should be closer to 24%, but clearly, they will not be there, but then you also said like longer term, this business should get 25%, 26% margin. So are those still -- those targets -- are those targets still on the table? Or sort of like we have to think about the business differently. Michael Witzeman: I think that -- the answer to that question depends on how quickly Roto-Rooter gets back to a more normalized top line growth path. If they get to somewhere 5% or north revenue growth, I think the 24% to 25% is still achievable. We -- I don't anticipate the marketing costs to improve dramatically. And so we need to really to drive top line and get some leverage based on that revenue growth to offset the marketing costs. So yes, I believe it's achievable. But the path isn't as clear maybe as it had been in the past because of the marketing, the additional marketing spend. The other thing I would just mention, and I think it's obvious, Joanna, to you, you followed us long enough. We are not too far away from where our margins were pre-pandemic. So the 24% to 25% that we've talked about is higher than in the historical Roto-Rooter margins. So we're right now pretty close to what the pre-pandemic margin is. It's just we need to drive some top line and get some leverage from that. Operator: Our next question comes from the line of Brian Tanquilut of Jefferies. Brian Tanquilut: As I think about VITAS first, right? So I know on the -- in previous calls, you've given some insight into what you thought growth would be in the top line. And obviously, in the guidance that you formally gave last night, it's below that range that you previously provided. So just curious -- what is the delta there? And then how do we think about the progression of VITAS's revenues and EBITDA over the course of the year? Michael Witzeman: Yes, sure. So the -- from a top line perspective, and this also will, I guess, dovetail into your second question about the time line. We're sitting right now with a patient mix that for the second half of the year, we -- of '25. We really emphasized the short-stay preadmission locations, mainly hospitals. As you well know, long-stay patients are the ones that generally provide for more revenue growth and EBITDA margin growth. And so we're sitting today with a patient mix that has let us moderate, not moderate, eliminate the Florida Medicare Cap issue. So now we need to refocus the admission pattern. By doing that, we will get back to the normalized growth rate that we think is somewhere in the 7% to 9% top line area. We'll get there. It's just going to take -- it's going to build during the year because every patient, essentially, when you first admit them in the first 30 to 45 days or short-stay patients, they are negative margin for us for a period of time. They'll become long-stay patients over time. But in the first quarter, we're going to continue to have a very elevated number of short-stay patients regardless of the preadmission location. So it builds over the course of the year. That's why in '26, the revenue is a little bit below our targeted range. And the cadence of how it goes quarter-to-quarter, the first quarter is going to be muted from a revenue and perspective and then start to grow and normalize in the second through fourth quarter. Kevin McNamara: And let me just add one thing. When you're talking about revenue at VITAS, you're talking about ADC. If VITAS is able to grow ADC, they will grow their revenue. And to the extent that they have the ability -- a much larger ability in Florida to go out and seek longer-stay patients. That's -- longer stay patients is how you grow ADC essentially. It takes 10 short-stay patients to have the same contribution as 1 medium stay patient as far as going to your ADC number. But I think what you'll find is that VITAS is already well on its way. This isn't speculation with VITAS. They're well on their way to growing that average daily census in Florida and beyond. Brian Tanquilut: That makes sense. And then maybe, Kevin, since I have you, shifting gears to Roto-Rooter. This is a business that used to be very stable and predictable. One question we're getting asked a lot by investors is, is there a structural change or structural impairment that has happened, whether it's VITAS or Roto as an asset or the plumbing industry as a whole. So I'm just curious how you're thinking about the cleanliness or the smoothness of the trajectory for Roto going forward because it feels like every quarter, we're bumping up against some speed bumps that are of different nature. So just curious how you're thinking about how ... Kevin McNamara: Certainly in the last seven quarters, that's the case what you're describing. We can't get away with it. Yes, certainly, that's the case. Now what has been going on during this period? I mean I would say that the 2 major issues, let's start with private equity, introduction of private equity money and practices into the -- into our sector, okay, had an immediate effect on us. We hired our branch managers with a promise of great riches, that has stopped. And they -- several of them have seen trees don't grow to heaven and they've come back to our employee. The biggest impact aside from just existing and offering services at below cost on the plumbing side. They have disrupted the paid search model. We are paying more per lead than we did 2 years ago. But it is -- keep in mind, we paid the same amount in the last 3 quarters. So it is not -- it hasn't continued to go up. And we're winning that battle. Last 3 quarters, we've gotten a 10% increase in each of the last 3 quarters. So I consider the threat of private equity largely diminished at this point, okay? And I'm speaking to the overall -- saying has there been something changed in the plumbing industry? I think private equity came in and they said, look, they have a different investment horizon. We're in a marathon, they're in a sprint. They want to build the top line and flip it. That's a tough competitor, okay? And also, as I said, I'm going back, I'm repeating myself, but they're basically HVAC companies that said, we're very happy with paying $124 per lead, okay? And a lead on a job that they'll say they'll clean any drain for $90, okay? And the reason they're happy doing that is they view as that becomes a long-term customer for their HVAC services. I mean that's a tough competitor, if you're in the plumbing side. Roto-Rooter has dealt with that. I mean I just -- I'm kind of spinning off here into a different discussion, but I think that of the 2 major things that Roto-Rooter has been dealing with the last 7 quarters, private equity, definitely one of them. I don't see that as a long-term problem for Roto-Rooter at this point, okay? One that is a problem. We're still going on in the transition. We are going through a transition where Google -- we used to get in excess of 55% of our leads on the natural search. Somebody just finds Roto-Rooter in the Google, ignoring the sponsored ads. That has totally flipped. We're out of way to almost -- just over 40% of our leads come on the natural side. And I think there's a firming up in that market -- in that percentage, just again by some of the things that Roto-Rooter is doing, having to do with fighting back on visibility. But to answer your question, is that a significant -- is Google going away? No. That is a change in the business. But as Mike says, it's a change that kind of leads us more back to pre-pandemic numbers as far as sales growth and margin, which wasn't at the worst of all worlds, okay? So what I would say to your clients that say what has happened to the plumbing industry? I would say private equity has come in, disrupted everything, but they're seeing that it's tough to give away the service -- to provide the service at a loss. They're not growing. Companies have stopped buying our competitors. It's just -- the problem is diminishing rather than increasing. Google, we can't kid ourselves. Google is -- we're dependent on Google. We deal with them. we hope we can keep just having slight improvements in it. But the thing that has changed is we've gone from a business where the leads were predominantly free, and now they're predominantly we're paying them out. Now let me go back and say, there's nothing wrong with the leads, they're very profitable. The business is a good business paying -- getting leads to paid ads. It just has a negative comparison to getting them for free. So no, I would say that we got to Roto-Rooter, good cash flow, strong growth on the excavation and water restoration side. The water restoration has been a real black eye for us for the last 3 quarters, but it's something we've looked to put behind us. Not by wishful thinking, by the way, by centralizing billing and using our technology to make sure that the support for every bill is almost redundant. I mean just -- that's how you get past the AI sensors as it were and ultimately get paid. So no, I don't have any long-term concerns on Roto-Rooter at this point, to be honest with you. Michael Witzeman: Brian, the only thing I would add is from an industry perspective, there's been a lot of talk and a lot of things published that the trade, including the plumbing industry are pretty resistant to the changes that are coming from artificial intelligence and those sorts of things. So we definitely believe that plumbing the industry itself has not -- it has not and is not going to have major changes in the viability of the industry as a whole. I think, I mean, honestly, just to the point of your question, 2026 is the year that Chemed management and Roto-Rooter management show or don't show, but we believe will show the ability to manage that and get back to a more profitable, more sustainable level of growth for Roto-Rooter itself. Kevin McNamara: Well, let's put this way. It comes down to leads. This past quarter -- as bad as this past quarter was, our total leads were flat, okay, total leads were flat. Unfortunately, I say just -- there was a shift between paid and unpaid. But leads were flat, okay? And from those leads, we're increasingly improving our ancillary services, that is excavation and water restoration. So if you say, how does Roto-Rooter continue to grow? It's by having the leads be a little better than flat, continue to grow the ancillary services. And our goal for Roto-Rooter historically has not been double digit growth, okay? It's not been 30% margins. It's been growth on the top line of 7% to 8% with 24%, 25% margins depending on the seasonality in the quarter. And from that, with that cash flow, that has achieved over, let's say, prior to this year, over the previous 21 years, that is with the years in which we owned both VITAS and Roto-Rooter. They grew their net income at 11% per annum compounded. I mean that -- and they did that with just the basic blocking and tackling and benefit of good cash flow. So we get a lot of questions. I mean I can talk about this all day because we're going to talk about it all day. People are going to say, "Is there something significantly wrong with Roto-Rooter?" No, they're going through a difficult period. They're paying for leads that they used to get for free if you want like a one-sentence capsule commentary. Operator: Our next question comes from the line of Ben Hendrix of RBC Capital Markets. Benjamin Hendrix: Just starting with VITAS. I appreciate all the commentary about Florida Cap and the dynamics in the fourth quarter. I appreciate that you have a little bit more visibility on the -- not having a capital liability in that state, but we're getting a lot of questions on how we square that with some of the -- with the broader higher level cap stat that we're seeing, specifically the greater than 10% cushion coming down over the last couple of years and also an increase in the 0 to 10% cushion bucket and the liability buckets. Can you kind of help us think about the cap more broadly, how we think those stats might evolve kind of given the dynamics that we're seeing in Florida? And then also just a little detail on are we at cap risk in other markets. Kevin McNamara: I'm going to turn it over to Joel. And let me start by saying, keep in mind, in Florida where we have a down position, I want to end the year with a small percentage. I want to monetize as much of that cap room that we created as possible. We don't want to cut it -- we don't want to cut it too close. We want to be -- but I just feel in Florida, we have more control over our destiny than any other state. So I would -- whenever we talk about cap buckets and whatnot, I personally look at it, Florida and everywhere else. But Joel, why don't you give..? Michael Witzeman: Let me start with just sort of the specific metrics you were talking about then, and then we'll let Joel talk about the color commentary around it. But in '26, we see again, $9.5 million, which is pretty consistent with where we've been for the 5 or so years before 2025. That's comprised of California, mainly, California is by far the largest. But because of some of the things we learned in Florida -- the cap liability in California, actually, Joel and his team did some of the same things to help improve California. So California has actually gotten a little bit better. I don't think we're in a position or we don't think it's going to ever go to 0, but in a very manageable position right now, but there's always -- there always has been and there probably always will be some of our smaller programs that bounce in and out of cap based on they're so small and the cap calculation is so sensitive that if in a smaller program, if we lose IPU relationship in 1 hospital, it can have a temporary impact that, that particular program jumps into cap for a short period of time. And that's what you're seeing is the capital liability in total has not changed. But it's a couple of short -- small programs that we think are currently projected to be in cap, but it's 50-50 and they're very small liabilities. But that's why you see -- the number of programs look like it's going up, but the dollar amount isn't because it's just small programs that from time to time do this, and they always have for the entire time that we've owned VITAS. Kevin McNamara: Joel, to give your opinion. I don't want to color it. Are you that concerned with non-California or Florida cap? Joel Wherley: I am not and primarily for this reason. We are utilizing all of the very effective strategies that we have lifted up within the Florida CCN in every single potential cap market we have out there. Now if you look at fourth quarter specifically, that's the first quarter of the Medicare Cap year. So you have full revenue, but you -- the fleet is wiped clean on admissions, so you are starting over on a new year. We always see some of the small programs dip into cap in that first quarter of the Medicare Cap year. We have no additional concerns about major programs out there that will we expect a Medicare Cap billing limitation for '26 that we have not seen previously. And to Mike's point, we've made very good progress in the state of California with our historical programs that have been in Medicare Cap. And we've talked previously about why that happens in California. But the short answer to that, Ben, is that no, we have no additional concerns specific to cap and in fact, we're very happy with the progress we're making and our ability to minimize that billing limitation in CCNs outside of Florida. And as we indicated, with no billing limitation within the Florida CCN. Benjamin Hendrix: I appreciate the color. Just a quick one on Roto-Rooter. We also have a lot of questions on kind of how we model this, the marginal -- the margin impact on the paid search mix versus the natural search mix specifically that $90-some-odd per lead number that you've thrown out there, kind of how does that look on like on a conversion adjusted basis? Assuming some of those leads don't quite convert or there's no follow-through, is there a set that we can think of in terms of the conversion adjusted dollars per lead on a paid search? Kevin McNamara: Sure. So as you mentioned, we paid roughly $90 per lead, and that hasn't changed over the last few quarters historically and then continuing today, it takes between 1.5 to 2 leads to convert to a paying job. So you're looking at $150 to $180 customer acquisition cost for a paying job on the jobs we do from a pay-the-lead standpoint. And that's, I think, roughly 60% to 65% of our leads are paid at the moment. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Kevin McNamara for closing remarks. Kevin McNamara: Well, my remarks are limited to the fact that we had a tough quarter, but there is, at least on this side of the line, abundant confidence that the guidance we make is guidance we can -- is we want to hit. We know that it's bad enough to have bad results, but it's even worse to miss guidance. And so to the extent that the guidance that's out there, we are very confident. But based on our results in the most recent quarters, I can see why reasonable investors might say, okay, forget last year, but how are they even going to make this year? I was going to say that when you combine some of the trends we've talked about and insight, again, we're more confident now than we are on the normal guidance to be honest with you. But with that, I would just like to thank everyone for your attention, and we'll be back 3 months from today. Thank you. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Oleg Vornik: Welcome to those joining the DroneShield investor call covering our 2025 annual results. I'm Oleg Vornik, the CEO and Managing Director of DroneShield. And joining me today are Carla Balanco, our Chief Financial Officer, on my right; and Josh Bolot, our Head of Investor Relations, on my left. Angus Bean, our Chief Product Officer, is unfortunately unable to join us today due to customer travel commitments overseas. We will aim to speak for approximately 15, 20 minutes presenting the results, followed by questions. Please submit your questions well in advance so we can start immediately with the questions following completion of the presentation. 2025 has seen a record revenue of about $260 million, about a 4x increase on the previous year. Importantly, it has been a profitable year for us of about $3.5 million profit being also $33 million of underlying profit before tax. And importantly, having $15.9 million of net cash from operations. This reinforces our aim to have rapid growth as well as being profitable and operating cash flow positive moving forward. The pipeline has slightly increased from $2.1 billion to $2.3 billion in the last month since we presented the 4Q results, and a lot of it was due to our increase in the Asia Pacific pipeline specifically. The pipeline corresponds to about 295 deals. Great diversity of deals is how we have certainty of ongoing business where there's diversification across the stages of maturity, geography, products, customers and other factors. Some of those deals are significant. There is about 18 deals over $30 million each and our largest deal being about $750 million. Previously, we advertised this deal is about $800 million, but with being European deal and the Australian dollar continuing to strengthen, the Australian dollar value of the deal has slightly reduced. DroneShield continues to be significantly well positioned to win in the exploding counter-drone market. We have 460 employees in about 7 countries around the world, and that includes over 350 engineers. We continue to invest significantly in R&D in this rapidly evolving landscape, and it's about $70 million plus of R&D that we spend every year. And we continue to have significant cash balance of over $200 million to support our growth. To recap on top of what I was saying earlier about the record revenues, the SaaS is continuing to grow, and our goal is to continue to ramp it up to the eventual aim of over 30% a year over the next 5 years. And the growth in SaaS will be reached through having multiple streams of SaaS over increasing amount of hardware in our space. We're familiar with some of the recent market commentary about some of the software companies that have been sold off. And the big difference in the DroneShield case is we have an integrated hardware and software solution, where a lot of our IP is really deeply inside the hardware as well as software. And the data we use for our software is not something you can easily just scrub off the Internet. So when you're looking at the drone signal data, you have to collect it in a number of countries, often very sensitive situations. So very high IP that cannot be easily disrupted by the likes of ChatGPT. Along with the record revenue growth, we're seeing significant matching growth in customer cash receipts and big increase also in the committed and also recognized year-to-date revenues and cash receipts already going in, into 2026. So a very strong start of the year. We talked briefly about the profit where the underlying profit before tax for 2025 has been about $33 million and then showing the significant operating leverage going forward. What I mean by that is with the roughly 65% gross profit margin as the revenues grow, that is going to outpace the growth in costs, resulting in what we're aiming to be increasingly profitable position. And the bottom right-hand chart is the NPAT to EBITDA bridge. I'll leave it as read, essentially $36 million in underlying EBITDA with $3.5 million statutory NPAT. If there are any questions on that, happy to answer that. The sales pipeline, this has largely been covered when we presented about a month ago. So one change, as I mentioned, is the increase in our Asia Pacific position where a number of countries bordering China are significantly concerned about the Chinese drone threat, and we're continuing to see increase in demand there. But overall, to recap on the key themes, U.S., we believe, will have a number of growth factors. So in addition to the military, where there is a $1 trillion record defense budget for '26 and $1.5 trillion defense budget proposed for '27, we're expecting to see significant public safety market, not just with the Safer Skies legislation enabling police to take down drones, but also significant funding applied ahead of the FIFA World Cup in June, July, and we expect to see meaningful sales between now and that time and also going forward. Importantly, we believe that police will be a bridge towards the counter-drone being seen less so strictly military type of solutions and more into the civilian solution. So then increasingly deployed by critical infrastructure operators, airports and corporates. In Europe and U.K., we have opened our sales office in Amsterdam, managing our local distributors around Europe. And both Europe and U.K. are driving our momentum significantly at the moment, underpinned by everything you read in the news about Ukraine and the general instability there. Europeans realizing they cannot rely on U.S. for their security. And being Australian is a great neutral position in terms of appealing for sales for both the European and the U.S. markets. In Australia, DroneShield has been selected on the panel for LAND 156, which is the rollout across defense spaces nationally and we anticipate for there to be a significant amount of business for us even starting from this year in this $1.3 billion program. We have approximately $79 million in inventory as of 31st of December. That combines $26 million in finished goods as well as $53 million in raw inventory, which is largely the long lead items to ensure that we can deliver to our customers in a short amount of time. We have moved to an enterprise ERP system, which enables us to really push out on our goal of moving production from $500 million a year to $2.4 billion by the end of the year, which is underpinned by the new 3,000 square meter facility in Sydney as well as our manufacturing hubs in the U.S. and Europe, which are being finalized as we speak. 2025 has seen inventory impairment of about $10.3 million, constituting 2 factors, the $8.5 million in finished goods, which substantively relates to DroneGun Mk4 out selling DroneGun Tactical. We believe it's a one-off situation because we essentially introduced 2 product lines with the Mk4 being the success to tactical within a couple of years of each other. And we do not intend to introduce successor versions to the DroneGun Mk4 and RF controllers, we believe that at the hardware level, those are essentially as best as the technology can get within those form factors and the future versions of those technologies will look entirely different. And therefore, we do not believe that similar sort of impairment is likely going forward. And the $1.8 million in raw materials, so a lot of it was linked to us moving to the new ERP, and it's in line with FY '24 impairment of $0.6 million. On the manufacturing, as I mentioned earlier, we are expanding from $500 million a year to $2.4 billion, and that includes the European and the U.S. assemblies. For those relatively new to our story, we have essentially 2 streams of products. You have the dismounted being the RfPatrol, body-worn drone detector. It's a hardware that has AI on the edge. So SaaS software that lives inside of it that we do quarterly software updates on. And then there's DroneGun, which is what we've historically been most well known for. In fact, those observing our news probably would have seen with electronic arts major game adopting DroneGun as one of its key weapons. But in fact, DroneGun has only been just under 20%, 19% of our revenues in FY '25. And in fact, the business is fundamentally moving towards being a diversified company with our on the move and fixed site DroneSentry system constituting just under 40% and RfPatrol being just over 40% of our revenues. And SentryCiv, the civilians specific subscription-based product that we launched last year, I think will start ramping up as the civilian sector grows as well. Our SaaS strategy is separated into 3 streams. You have the device level SaaS. So today, when you buy RfPatrol, DroneSentry-X that comes with RFAI detection software. And then we're currently trialing the RFAI attack, which is AI-enabled defeat software that will be a paid product from about middle of the year. Then we do AI that sits inside the cameras and then also utilize third-party AI for radars and of course, SentryCiv, which is our own SaaS as well. And then the site SaaS, so when you have a base or generally maybe critical infrastructure facility, you'll be having a number of sensors, DroneShield and third parties stitched together by our DroneSentry-C2, or perhaps commanders with tablets with our Sentry-C2 Tactical. And then our latest product that we introduced at the end of last year being our DroneSentry-C2 Enterprise when you have entire region or a country looking for patterns of drone incursions, drone attacks. So the idea when I was saying earlier about the SaaS getting to 30% of the revenues over the next 5 years being our goal. For example, you might be buying DroneSentry-X and on that, you might have our RFAI detection software and then RFAI defeat, you'll probably be pairing DroneSentry-X with a camera that will come with our DroneOptID SaaS, probably a radar as well, which will have its own SaaS. It will probably sit on a base underpinned by DroneSentry-C2 and potentially even in the region overseen by DroneSentry-C2 Enterprise. So this is an example of how multiple SaaS packages can apply to a single piece of hardware. Sometimes we get asked what's a small company at the end of the world in Sydney able to do to compete against large defense players. And historically, when you think about defense, you think about perhaps U.S., Europe, Israel, maybe South Korea, you don't think about Australia. And we have been lucky to an extent of being in this game right from the start and deploying significant engineering force on this. And also being in Australia, we knew that we cannot sustain ourselves just for the Australian market. So we became an export business from day 1. In fact, today, about 95% of our revenues are export, and I'm expecting the trend to be similar going forward. And so as a result of this truly global threat being the drone attacks, we developed distributors in about 70 countries around the world and now we have active customers in dozens of countries around the world. And with that, over time, Australia also being very good base for engineering, we developed solutions which are smaller, lighter, more effective for both detection and defeat and also those relationships with end users around the world, Australia being a great country again in terms of the relationships with these Western and Western allied countries that feed us honestly, probably more information that we can do with in terms of rapidly changing our technology roadmap to adapt to the latest drone threat. So a number of commercial and technical differentiators. In terms of specific competitors, what we generally say is that within the niches of counter-drone that we choose to compete in, we are the dominant player. So if you think about body-worn drone detection, our RfPatrol is, we believe, the leading product by number of units sold around the world. There are a couple of others. So MyDefence has a product and DZYNE has a product, but we believe that we significantly outsell them based on what we're seeing. And similarly, for handheld defeat, we believe DroneGun is the best-selling product of its nature around the world. In the on-the-move detection and defeat, the closest product to DroneSentry-X will be a product that AeroVironment has, but it's a pretty small part of their business. And if anything, in the long term, this potentially be a cooperative relationship. In terms of the C2 solutions, there are a couple of competitors. So we're listing Dedrone and Anduril, but I think we have a number of unique differentiators on both of them, and we don't necessarily compete with Anduril being a much higher cost and strictly military solution compared to DroneSentry-C2. Last thing to add here is that the traditional defense primes are not competitors and really more customers because they are not really moving at the speed and the cost base that is required to be successful in this cost asymmetric market. Cost asymmetric, meaning if you've got a $500 drone, you can't really be fielding a $10 million solution. So with that, we see the traditional primes as customers. On the corporate governance, many of you will be familiar with a lot of the media scrutiny we had at the end of last year. We have engaged Freehills, a Tier 1 legal advisor, to give us essentially gold standard in corporate governance. And with that, we have yesterday revealed a number of updates of our policies, the trading policy, disclosure policy, the minimum shareholding policy, and others. And in my view, what has actually happened is the business has been growing incredibly quickly. So on the indices front, for example, we joined the All Ords in March '24, ASX 300 in September '24, ASX 200 in September '25, and now, depending on how fast we grow, we might be knocking on the door of ASX 100. So as a result, when you grow so quickly, policies, procedures can sometimes fall behind, and this was an opportunity for us to establish gold standard for this particular area, much like we are running really quickly, recapping our -- changing our policies for a much larger business right across the company. We made a number of hires, so Head of People & Performance at the end of last year. Josh joined us in January this year, and also Chief Operating Officer, who joined us from a similar position from Thales, where he brings a wealth of that high-end operational experience. The last slide, then we'll turn to questions, and I encourage everybody again to please be asking us questions. So as we stand today, we are excited to be starting to launch the next generation of hardware across our product family, so this will be towards the second half of the year and into '27. The counter-drone market continues to have very low saturation because you think about drones, they only really came into people's minds about 10 years ago, really started having negative that sort of nefarious impact from the start of the Ukraine war. So thinking about only 5 years ago, and counter-drone is a derivative of the drone market, so military started to buy or looking to buy in any meaningful quantities only in the last 5 years, and when you're selling to the government market, the wheels can grind slowly, right? And so as a result, I would say militaries have probably sub 5% market saturation, civilian market has close to zero, and therefore, we have significant opportunity in front of us. The SaaS revenue we talked about are going from about 5% current to about 30% and continuing to expand our market share. So in addition to selling hardware and software, we'll be looking to expand into training solutions, support, counter-drone as a service, and other related initiatives to maximize, I guess, that ownership of the customer and providing the services to them. We talked about establishing of the European manufacturing facility, and also in the U.S., and we believe that the next 12 to 18 months, we'll start seeing additional -- initial material sales in the civilian space, such as data centers, potentially airports, and other key customers. We're continuing to work on our processes and systems due to our rapid growth and in a very disciplined manner, looking at the opportunistic M&A. Now, there are no competitors that we would like to buy, but we're always interested to look at emerging counter-drone technologies, in addition to what we may be doing in-house, and we're really well-positioned to assess what makes sense due to our understanding of the sector. And as we look over the next 5 years, we're looking to get to the target revenue of over $1 billion a year. This may sound like a lot, but then we quadrupled our revenues last year alone, so that will hopefully give you some sense of our ambition. And also, just the fact that the maturity of the market is still so early, and the customers are going to be putting increasing orders, hopefully. Most of our revenues are from repeat customers, right? So people placing increasing orders as they get more comfortable with the idea of having counter-drone solutions and more budgets to go with it. And continuing to have that global focus is probably the last point to say. So with that, we'll conclude the presentation part of that session and turn to any questions. Oleg Vornik: The first question is: How likely do we think is it to sign a $750 million deal with Europe, and do we have production to deliver on the deal timely? So it's not going to be trivial, we think that we're well-positioned, and it's the same customer who gave us a $62 million order in the middle of last year, and smaller orders in addition to that. So we have an existing, really good relationship with that customer. And the production capacity, so depending on how fast the customer wants to execute on the deal, if they say to us, "Go as fast as you can", I believe we should be able to deliver it in batches over perhaps under 9 months. If the customer wants to stagger it, which is entirely possible, in stages, it might be, say, over 2 years or so. So that's my best estimate at this stage. I think the next question, I'm trying to rephrase it. What is our announcement level for deals? So we continue our approach as of the past, where approximately 10% of last year's revenue has been our announcement threshold. For '26, it'll be $20 million, unless there is a strategic element to announce a smaller deal. So there's a question about $18 million of the $30 million deals. When are we going to be announcing them? Well, hopefully, once we win them, we will be announcing them. The next question is about, does DroneShield have plans to expand its drone technology into different domains, such as naval drones, used in Ukraine conflict? And do we see it as an area we could pivot to? Absolutely. So when you see us talking in our announcements about counter-drone, we actually refer to it often as C-UxS, not C-UAS, A being aerial. We consider drones being all domains, whether it's ground, naval, or flying machines. And the good news is that the technology that we use is equally valid for flying machines, swimming machines, and crawling machines, and we can be effective on all of those. The only time when the technology stops working is for the underwater drones, so UUVs, where our command and control is still effective, but for the detection, for example, you'll be most likely looking to use a sonar. If we see more of that being where the market is heading, we would simply focus on integration of most sonars and lead with our C2. But the vast majority, we believe, for the foreseeable future, will be aerial, ground, and what we see in Ukraine, as you said, being the swimming drones. So I think the next question I might pass to Carla, our CFO. The January update referenced gross margin of 65%. The statutory FY '25 number was 61% after the inventory impairment. Should we think of 65% as the normalized run rate? Carla Balanco: Thanks, Oleg. Yes, our average normalized run rate for the gross profit margin should be seen as 65%. There's obviously items that will affect this margin. And those items will be the percentage of system sales versus dismounted sales. Our systems carry a lower gross profit margin. And the reason for that is because of the external third-party componentry that is incorporated in the system, such as the cameras and the radars. Those items carry gross profit margins between 15% and 30%. Therefore, we do think a 65% average moving forward for our gross profit margin is our aim. Thanks, Oleg. Oleg Vornik: Thanks, Carla. The next question is about Bundeswehr, the German army. Are they a customer of our products, and do we have plans to supply the Bundeswehr? Yes, Bundeswehr is a key focus for us, and in fact, if you follow the German defense market, there's a high-profile defense exhibition in Germany that is just concluding now that we were at. So yes, it's very much focus for us. Germany is a key European market. The next question is, what is our current penetration of Ukraine and neighboring NATO markets? So we have hundreds of detection and defeat systems deployed in Ukraine and continuing to add more. We have systems deployed in Poland and a number of other areas. So yes, absolutely, we are deployed, I want to say probably with about 10 or 12 European NATO countries, plus obviously U.S. and Canada, as far as NATO is concerned. The next question is: Is there a goal for the stock price? I mean, as high as possible, but unfortunately, I only get to influence it so much. How much revenue do we estimate currently comes from civilian buyers? Do we estimate a shift? So today, almost all of the revenue comes from military, border security and intelligence community with a bit of public safety being police. I think the question was referring more to customers like airports and data centers. So today, those are minimal, but we're starting to see green shoots of demand. And if you looked at our total addressable market, we're estimating about $30 billion TAM, total addressable market for the military and another roughly $30 billion for the civilian market. And we think over the next 5 years, our revenues will truly become more 50-50. And once the civilian market gets going, I think it can evolve potentially much faster than the military market has. Next question, given the continuous innovation in the industry, what gives us confidence that the inventory is sound? And are we able to reduce the inventory risk in terms of moving to just-in-time manufacturing? So as I briefly mentioned, the inventory write-down this year was a bit of a unique situation, where we introduced 2 DroneGuns within several years of each other and essentially, our newer DroneGun ended up cannibalizing some of the older DroneGun sales. And by the way, we continue to sell DroneGun Tacticals, we just decided together with our Board to take a prudent approach and do the inventory write-down. Going forward, we don't expect to launch superseding versions of any of our product lines today, but rather really different product form factors. So I don't expect for there to be cannibalization, meaning if you want to have a jammer in a shape of a gun that you hold in your hand, I believe DroneGun Mk4 is kind of as good as it will get. So there will be better jammers, but there'll be backpacks, they'll need more space and so on. I don't believe that just-in-time manufacturing really works for this industry because some of our longest lead circuitry has a 25-week lead time. And I don't believe it will change much because, again, of just complexity of the technologies that we're dealing with and our buyers want to be able to fulfill small orders quickly, right? So our goal, which is largely in consultation with our sales force and customer expectations is to be able to deliver orders in single digits of millions instantly. So you probably would have seen, we did an announcement at the end of last year. We received an order about $5 million on the 30th of December, delivered it by the 31st of December, which was pretty incredible. Then the $62 million order we had in the middle of last year, we delivered within 2 months and then the $750 million order I talked about fulfillment in under 9 months. So for that, you need to hold inventory. But we're pretty happy with the raw and finished inventory we're holding. And please remember that raw, as I was saying, is largely long lead time items as well. They're not finished goods. And also keep in mind that, for example, RfPatrol and DroneGun and some other products we have, have interchangeable parts that you can use in between the products. And we're trying to have as many interchangeable parts between product families as possible. What are our plans for increasing effective range and distance of our products? I guess it's the same thing, range and distance. So my first comment somewhat flippantly is that more is not always better. So for example, for the detection, more range you get often more false alarms you get. And our customers don't necessarily want to be able to see 20, 30 kilometers out. And at some point, physics kicks in as well, right? So a lot of our work with customers if they're very new to counter-drone is saying, okay, well, if you come with an expectation of detecting a proper missile 200 kilometers away, there's nothing that will detect a small drone 200 kilometers away. So explaining that there is natural physics limitation to range. But a lot of it is just pushing the envelope of physics, right? So you're saying, okay, there's noise floor in radio frequency, how do you see through the noise floor, how do you reduce the false alarms. There are quite a lot of parameters that you want to optimize how you detect never seen before drones, how do you deal with the Chinese drones, which are hiding behind other bits of noise, which are running away from you when you're trying to disrupt it. So there are a number of challenges in addition to distance, but that is ultimately why you have 350-plus engineers working on that problem with a lot of drone signal data and just continue to get information from their customers. The next question is about, can we provide some more detail about the types of drone deployments by China, which are behind the concerns that our Asia Pacific customers have? So a well-publicized example, this is a bit dated about 2 years ago, has been of a Chinese drone landing on the deck of a Japanese naval ship. Now you imagine massive embarrassment, loss of faith -- loss of face. And so that's an example, right? So small drones are buzzing over military facilities and just generally harassing both the civilian and the military targets. So this is what our Asia Pacific customers are looking to protect against. Has DroneShield considered underwater drones and drone capabilities -- anti-drone capabilities and detection? Yes. So we actually first came upon the concept of underwater drones and what to do about them about 5 years ago. Those who have been following us for a while would have seen we introduced a partnership with a sonar company. And our job there is our command and control. So DroneSentry-C2. Again, remember, we're not a drone gun company. We are much more than that. So we make a command and control solution that various modalities of sensors plug into. And so we had a sonar compatible with our command and control system, started marketing it those 5 years ago, not a single person bought one. Now the conclusion we reached is that the market just wasn't ready for it. And my view is that the market is still not ready for underwater drones, but the threat is there. And underwater is significantly different, as I was just saying 5 minutes ago, to every other types of drones. So drones that crawl on the ground or the surface of the water that fly in the air because traditional physics of radio frequency in the air doesn't propagate well under water. So you need sonar for the detection and something else, be it nets, torpedoes, it depends really on the customer in there, the ability to deploy countermeasures for the defeat. But our role in all of this will be providing a command/control solution, which also will protect against drones from the air and the ground and so on. Can we quantify the current order backlog and how much of the revenue is expected to be awarded in this financial year? So if you look at the chart, we are sitting at a bit over $100 million in committed revenue this year, and we recognize roughly about 20-ish or so. So that means the backlog of about 80 and virtually all orders for this year, plus obviously, the revenue that we will actually secure. Now my controversial view is that I don't like backlog, backlog means a customer has placed an order and is patiently waiting or sometimes impatiently waiting on delivery from us. My goal is to deliver goods under order as soon as possible to customers. So you find that big defense primes often advertise their backlog. So they say, "Hey, I've got a 5-year contract, I'm going to deliver this and that over the next 5 years, and that is seen as a positive, great. But in our industry, it's actually negative in a sense that you want to be rapidly delivering to customers and not making them wait. So vast majority of the revenue I anticipate for '26 is not inside of that $80 or so million current backlog, but the new revenue that we will earn and deliver and recognize from now before the end of the year. What likely drone threats exist or may exist that DroneShield does not have solutions for, for example, cable drones? So I think the person is referring to the fiber optic drones. So there's a slide in our presentation, which talks specifically about why fiber optic drones are not a threat. So for example, we are effective against fiber optic drones because we offer a command and control solution that integrates with radars, which can detect anything that flies, including fiber optic drones and also depending on the customer solutions like HPM that can take down those drones. But my view is, I think I said to many of you before is that radio frequency is the backbone of drones. And fiber optics exists very much around the edges with significant limitations. You think about flying a drone with 10 kilometers of fishing line attached to it, wrapping around trees, buildings, you fly a bit too quickly, you snag the cable. It's really very much an edge case. And RF to drones, I believe, will be a bit like wheels and cars, like whatever cars will look like in 50 years, they'll probably have wheels on them because we're flat in our world and built a lot of roads. So similarly, for how much was invested in the radio frequency. Now that's not to say there will be new types of RF, which is like I was saying, the Chinese are now putting what was 5 years ago, sensitive electronic warfare techniques into $5,000 drones designed to avoid detection and defeat. We're starting to see slow rise of cellular control drones. But tethered drones, I don't believe, have that much future and our existing on-to-move and fixed site solutions already have a way of dealing with them. The next question is $28 million of our FY '26 committed revenue is the SaaS pipeline tracking 2x of '25. So about 7% of SaaS for FY '26, how are we going to get an uplift to get to 30% by 2030? Great question. So I talked before about the 3 strands of SaaS, the device level SaaS, which has a bunch of elements to it, like the detection, defeat for the radio frequency to separate SaaS, our RFAI, RFAI attack, talked about DroneOptID SaaS, the radar SaaS, the SentryCiv SaaS and then the DroneSentry-C2 and the C2 Enterprise. So today, out of the roughly 4,500 pieces of hardware deployed around the world, maybe only half actually receive SaaS, the other half being DroneGuns, which don't require SaaS by design. Going forward, as the technology continues to rapidly iterate, so hardware probably has a 3-, 4-year cycle, I would expect over the next 5 years for us to have tens of thousands of pieces of hardware, almost all of them receiving SaaS. And not just one piece of SaaS on every piece of hardware, but having like an example I was giving with DroneSentry-X, you have one piece of hardware, but then you might have RFAI, RFAI attack. It's part of the system. So it has a radar SaaS, camera SaaS and the C2 SaaS. So having multiple pieces of SaaS maximizing that SaaS element as part of the total revenue. But then also on top of that, I talked about the wallet share, right? So talking about the training and counter-drone as a service. So there's quite a lot of elements that we are actively exploring with customers at the moment. The next question is about how do we see ourselves in terms of the World Cup this year in the U.S.? So we talked about the Safer Skies Act, which enables police and public safety officers more generally to use jammers take drones down going forward. This, we believe, will really drive adoption of counter-drone technologies within public safety system that will protect those stadium venues. So we have a public safety team inside of our U.S. office run by Tom Adams, an ex-FBI guy. And we are actively engaging with a number of police agencies around the world -- sorry, around the U.S. at the moment and believe we'll have meaningful sales from that between now and the World Cup. What countries or theaters of war are considered no go for DroneShield? So pretty common sense, right? We would not work with Russia, China, North Korea, Iran. I mean, essentially, any country which is either prohibited or gray zone list by the Australian government because we do need export licenses to sell. And well clear what those are. We've been working with Department of Export Controls now since the beginning, and we have a very close relationship with them. We basically would never ship to those countries. And the processes are very strict, right? I mean, even though our products are entirely safe for humans, so none of our products can hurt human being or even the drone for that matter, the strictness of export controls is comparable to a proper weapon. So for example, a guy who runs our shipping department is an Italian guy who used to be shipping torpedoes around the world on behalf of a Italian defense prime. And so it's the same strictness of the process in terms of end users entering into paperwork not to share our equipment with anybody else. And ultimately, this is not just between us and them, but also involving Australian government. So exceptionally strict control processes. What are some of the drone-related verticals that look interesting to us from an M&A perspective? So we'll always stick with counter-drone as we want to continue playing in what we know. There are technologies like high-power microwave, which I find really interesting, and it fits in our nonlethal but complementary to drones, for example. I think there will be new methods of detection potentially relating to shock and vibration coming from drones. So essentially, the way I see this is the equipment needs to be cost effective. It's hard to justify having a $10 million piece of equipment against $200 drones. It needs to ideally protect an area, not just 200 sort of meter range around it, unless it's super cheap, so you can have mass volume of these things. And ideally non-ITAR because we want to have the market of all of the NATO and NATO allied countries. And the current AUKUS process in terms of Pillar 2 is streamlining a lot of that ITAR stuff between Australia, U.K. and the U.S. But ideally, we want to be continuing to focus on non-ITAR technologies. The next question talks about how was our exhibition at Enforce Tac in Nuremberg. So I wasn't there myself, Angus, our Chief Product Officer, was leading our delegation. We have a number of European team members who were in Enforce Tac and the download I had so far is that it's been an exceptionally positive meeting and helpful for our folks on Germany with Bundeswehr as well as the rest of the European market. So the next question is, why has DroneShield not introduced Phantom shares to attract and retain talent and not put pressure on the share price? So the Board regularly revisits what are the most appropriate structures. In my opinion, phantom shares are not an optimal structure. And so we haven't been introducing it, but the -- this is something the Board does review regularly what makes most sense. There are increasing reports of hybrid attacks at airports throughout Europe, what are our plans in that space? So we have had equipment deployed at the airports. For example, you might have seen news articles with the DroneSentry-X at Copenhagen Airport a few months ago. I think airports more generally struggle bureaucratically. So in some countries like in Germany, actually, Bundeswehr has technically a lot of influence over what gets deployed at the airport. So it just becomes of kind of too many cooks problem where you have airport, you have the military, you have government more generally kind of all coming up with what's the most appropriate solution. But I think you're right in that the pressure continues to escalate on airports to deploy counter-drone measures. As today, you imagine you stop all flights for 15 minutes, 30 minutes, an hour, and that's a significant disruption. And the alternative is even worse, plane taking off and a drone blowing out an engine, right? So we are talking to some of regulators. We're talking to airports directly. We're talking to military. So the idea is that you just keep pushing, chipping away of the stakeholders until eventually you kind of break through and start deploying gear. The next question about viewers saying they watched a terrifying video on Chinese robot advancement moving to RF control. So I mean, robots can be seen as UGVs and ground vehicles, and this is very much part of our market. So UGVs, ground vehicles, UAVs, aerial vehicles or fly drones and USVs, so unmanned surface vehicles, both essentially on the surface of the water. And the physics is exactly the same in terms of how radio frequency radars. Radars work a bit not so well close to the ground because you get a lot of ground clutter coming up, but radio frequency is generally pretty good. Have any shipping companies expressed interest in DroneShield to protect ships through conflict areas in Red Sea and Iran? Yes, we have some shipping companies using our kit already. This normally needs to be a bit of a layered arrangement of government forces being on those ships and them having our kit, which ultimately links to if you -- who can own -- possess jammers. So the law of the high seas essentially says, well, anybody can do anything. But then, of course, those ships need to come to harbor eventually. So usually, the arrangement that we're seeing at the moment is if the ship has government security on it, they'll be able to use our kit and some of them do. I'll pass the next question to Carla as it deals with the net profit margin. So I'll read out the question. I understand we're investing heavily to scale, which is importing reported net profit, but net margin is low. When do we expect net profit margin to materially improve? And what level of margin do we believe -- what level of margin do we believe is achievable in FY '26 as we continue to scale? Carla Balanco: Thank you, Oleg. So right now, our focus is, obviously, we want to grow the business and we want to increase our revenues. We know that profitability is important as well. And we are focusing on trying to improve our profitability position, taking into account that we were in an operating loss, a net loss a couple of years ago, and we've only now really started to focus on improving our net profit position. However, as you mentioned, we are scaling really rapidly. So balancing that rapid scale in terms of implementing a new enterprise risk system that we'll be doing this year, also our ERP system, opening a European office, focusing on U.S. manufacturing, European manufacturing, all of these items add costs to the P&L. And so we are focusing on trying to control costs, but focusing on increasing those revenues. And by doing those 2 things, naturally, our net profit will increase. I cannot provide any details at this stage in terms of what I forecast our net profit margin to be. But what I can say is our fixed cash costs for this year is looking at around $150 million. We have capitalized R&D and so we're looking to capitalize between $25 million and $30 million on R&D. Our gross profit margin, we spoke about already, which is 65% in terms of normalized average gross profit margin. And that is about as much as I can provide at this time. Thank you. Oleg Vornik: Thanks, Carla. Does DroneShield see Asia, excluding China and Central South America as big potential markets than European Union as they quickly adopt drones, as seen in the Thai-Cambodian conflict? And are there any difficulty selling into those regions, countries not seen as Australian allies? So I'm not sure about these becoming bigger than EU. EU is a huge driver for us, but becoming big, yes. So the key countries in Asia we're focusing on is Japan, Singapore, Thailand, Vietnam, Taiwan, and there are a couple of others as well. None of those markets have an issue with export permits with the Australian government. So we've been working there. And in Central and South America, so Mexico and Colombia both have issues with drug cartels and past that, there's Brazil, Argentina and others. So again, growing markets, especially Mexico and Colombia. And we haven't had issues in terms of export permits working with Department of Export Controls. The next question talks about competitive landscape across product lines. We're seeing new entrants and are we increasingly having to compete on price? No, we don't compete on price. It's interesting. So when we started 10, 11 years ago, there was really maybe us and 1 or 2 other companies. And then roughly maybe 5 years ago, the amount of competition really blew out. You go to defense show and every single stand is suddenly a counter-drone company, all kinds of stuff. Now we're seeing the market consolidate significantly. So some get merged or acquired, for example, DZYNE, which is a compilation of 3 or 4 companies or BlueHalo that got absorbed into AeroVironment and some go out of business just because customers basically don't buy from them because the products don't make sense. So we don't really see new entrants just because the industry is so high barrier now. We talk, for example, about drone signal data, right? Like you try to go around dozens of countries collecting drone signals in various environments. Some of these drones are very sophisticated restricted government drones, very, very difficult to build up and maintain that database, deal with relationships with military, government and customers, looking at radio frequency at the edge of physics, like, say, maybe 5, 7 years ago, the aim is to take an existing technology that has been successfully deployed in electronic warfare and cost effectively adapt it to counter-drone. Today, you are truly at the edge of like stuff that we are using is often a lot more sophisticated than any electronic warfare solution just again because we've been at it for so long and you just keep getting better and better. So it's very hard for new entrants. If anything, I would say our products will become more expensive, but also with more capability. So some of our new product lines will be launching from end of the year will be triple the cost of the existing products, but roughly keeping the same gross margin. But then the capability will be significantly higher as well. So if anything, I see our pricing trending higher rather than lower. How do we keep captured equipment from being used by the enemy? So it depends on the equipment. Most of our equipment and increasingly more and more are software-enabled. So obviously, we have ability to deny any changes in software. And then if you don't do changes in software, then the software quickly becomes obsolete. Can it be linked with laser beam technology? Can be in terms of our command and control DroneSentry-C2. But I actually have a pretty dim view on the laser. It makes for cool news headlines. But remember, right? So lasers have their place, right? So you always see militaries deploying some laser solutions. But think about mass deployments. You have systems that often cost $10 million plus that have obviously kinetic impact. You don't want to be blinding people if you're using it for stadiums. So I would consider laser in the same bucket as say, high-power microwave; an exquisite, very useful but very specific use case rather than what we are targeting most of our technologies being mass deployment to as much of the customer base around the world as possible, which has to be no collateral impact. But then if a customer comes to us and says, can you provide a laser solution? We have our great friends in AIM Defence based in Melbourne. They do amazing laser solutions. So that's what we'll be putting forward, assuming it works from an export compliance point of view. Have we considered drone protection with the making of other drones? I think anti-jamming, I'm trying to rephrase the question. So no, we don't really do things on the drones that stop other counter-drone systems being able to detect or defeat them. It's very different technology. I mean it's a bit like saying Boeing doesn't do anti-aircraft missiles, even though Boeing is great at planes, like you kind of have to stick to what you're good at. So drones and counter-drone are actually very different technologies, even though they are obviously on the opposite ends of the same battle. Are we prepared for threats to the business such as cyber attacks, theft for facilities or threats to executives or employees? So this is something we take very seriously. And also, there are government standards across physical cyber and other classes of security that we follow. So we have a team led by an experienced executive that deals specifically with cyber threats. And thankfully, knock wood, we haven't had a single successful cyber attempt, but we're continuing to see a ton, and this is something we take extremely seriously. In terms of insider threat, there is a very thorough employee vetting and also employee vetting program. We use a dedicated defense software in terms of monitoring employee actions, for example, ensuring the person doesn't download a whole bunch of stuff they're not supposed to. There is natural segregation on a need-to-know basis. So for example, I don't actually write code, so I don't have access to the code database because why should I? And a number of other kind of standard defense industry things. We don't need to reinvent the wheel here. So similar things to what the likes of Lockheed Martin or Thales or Raytheon doing, I mean, we do largely all the same stuff, gold standard and continuing to revise that as the technology evolves. In terms of threats to the executives, so yes, look, I mean, it's something that we looked at a lot. So for example, about a week or 2 ago, to give you a recent one, there was a case of somebody, I believe it was a Ukrainian guy, who got deported from Dubai, where he was based, forcefully to Russia as he was accused by Russia of killing a Russian general involved in Ukraine war. So for example, my directive internally was if you happen to be on the Russian sanctions list, which I personally am, for example, then you don't transit through Dubai. You don't stop in Dubai. And so this is something that we take very seriously. Do we have a capability to detect and neutralize drones swarms? Yes. So our detection and defeat is what you call volumetric, meaning you're scanning not just a little area at a time, but a whole wide area and you're basically staring at the sky and you can detect multiple drones at the same time, essentially, I don't want to say limited, but exceptionally large number of drones. And similar for the defeat, jamming and its advantage of jamming versus some other technologies like cyber can affect multiple drones at the same time. Next one. What do we see as the main threats to our growth and profitability going forward? Is it emerging competitors, for example? It's a great question. So I don't believe there are major blocks, right? But generally, you want to be on top of technology. So you always live in fear that our friends in China will invent something that's entirely immune to anything that we do, detection and defeat wise. But the reality is that physics are physics and as smart as engineers in China are, they still have to follow the laws of physics. So that nature limits to what parts of the bands you use and how you hide behind noise and so on. So we think we're pretty well positioned. And again, we've been in this space for 11 years. We understand the industry, and we continue to be on the bleeding edge of it. But you need to keep at it, right? Like you can't rest on your laurels. That's why you have 350 engineers out of the 460 people because you just have to keep innovating on a weekly, monthly, quarterly basis. I'm super excited about the next gen of hardware that we're releasing, the next gen of software, our RFAI version 3 that will go on top of the new gen of hardware when we release it at the end of the year. So this is all part of -- all part of that. And also, there is just general growth, right? So the organizational theory is that as you get past 30, 50, 100, 300, 500 employees, you almost have to break and remake organization. So how you follow your processes, how you communicate, all of that needs to be entirely changed so the organization doesn't sort of collapse onto itself. So that's what a lot of our focus is on at the moment. Do we need to work with CASA to certify our solutions to use in the Australian airports? So there is no such thing really I wish there was as a certification to be deployed at Australian airports. So first of all, it's not CASA. CASA used to be in charge of counter-drone security, and then it was transitioned to Airservices Australia several years ago. And Airservices ran a limited trial, we were involved in it. And since then, nothing really happened, unfortunately. And I mean, I get it. I don't want to blame Australian government. To be honest, U.S. government and all the other Western governments are doing exactly the same, meaning not doing much. But I think as drones continue to pose a threat to airports, this will just continue to become more and more a pressing issue. And I think once a few airports start deploying it, you'll be seeing more and more continue to do it because today, it's kind of easy to say, well, nobody else is deploying, no other airports are deploying counter-drones. So I just won't do anything. But I think that excuse will start going away. And so we're really excited about that eventually starting to snowball, but we're continuing to push. So in Australia, this ultimately sits with the transport minister. So we're continuing to push at the government level to have counter-drone deployed at airports. Next one. Are we seeing increasing pricing pressure with Anduril and other primes pushing into the space? So I think if anything, anything to do with primes will probably mean we're increasing our margins, not reducing given the cost structure of the primes and Anduril would be in the same bucket. I wouldn't call them the cheapest by any measure. So no, as I was saying, Anduril is really only overlapping with us on Lattice, the C2. And I don't want to say it's a competitor to DroneSentry-C2 Enterprise. It's just a different product. So there will be customers like the U.S. military where Lattice will be competing with Northrop Grumman and their environment and other dedicated C2s. And for example, the countries where we are deployed, they for various reasons, wouldn't be using Anduril C2. So I'd say -- and also, by the way, in the civilian space, Anduril doesn't really go into that space either. So I think -- or public safety, for that matter. So I think it's not really competitors, but if anything, our customers. Anduril is our customer, too, by the way, as they are the SIP, administrator essentially on the U.S. SOCOM program. We -- next question is we just released the $21 million contract. Can we elaborate? So we've been working with this Western customer for a number of years. If you read the announcement, the details are all there, had a number of contracts with them, and now they're just ramping up in terms of the deployment. And we're really excited in that particular country, we are the only counter-drone system of any significance. And it's actually a very large Western country in terms of defense budget. So now it's just a matter of continuing to sell more. We talked about low market situation to really kind of assist the customer into high situation with our equipment. Okay. Last question I'm seeing here. If there are any more, please ask or otherwise, you can e-mail your questions to us later. Are there any plans to integrate counter-drone tools directly into drones or other mobile platforms? What are the challenges of this? So not drones, but if you look at programs like AIR6500, which is Australia's mission -- sorry, missile protection system operated by Lockheed Martin. So those likes of programs where you have complete airspace awareness, so you are protecting against missile threats, but also you want to be able to protect your lower airspace against drone threats. So for example, attacks locally from drones taking out your jet fighters at Amberley or Williamtown airbases. So it's the likes of those, so call it like the larger air defense programs that we'll be looking to integrate with over time. And our DroneSentry-C2 has pretty standard APIs. So that makes the integration pretty streamlined. But ultimately, the government and customers will be driving a lot of this. The next one I'll leave to Carla. Can we talk to income tax benefit in the second half versus tax expense in the first half, what to expect going forward? Carla Balanco: Thanks, Oleg. So with regards to our taxes, you would have seen in the annual report that we have a complicated tax structure. We are tax residents in the U.S. as well as in Australia. What that means is that obviously, our tax profit and accounting profit are very different and there's items that were deductible in the second half of the year versus the first half, resulting in a tax benefit versus the tax expense for the first half of the year. Currently, we have about AUD 11 million in carryforward losses to be used against future tax profits. Oleg Vornik: Thanks, Carla. How does selling through resales impact margins? So our margins are already after the use of resellers. So essentially, the way you should think about the customer cash flow is our revenue is what we get from the reseller and the reseller would have their own margin on top. Now what we do is in the U.S. and Australia, we would influence the customer directly. But in the U.S., when you sell, you often sell through vehicles like DLA, TLS, it's just how you do defense procurement there. So there is a degree of clipping the ticket. And when you say, sell in many European countries or Asia Pacific, you have to go through distributors because these are people that have local relationships, obviously, understand the customers, the language and it saves us from trying to hire people in 70 countries around the world. So even despite the resellers, we're able to achieve very attractive 65% gross margins, but then we don't have to employ people in every country. And to be honest, some of the best guys who are resellers in terms of their relationships with the end customers, you can't employ them. They'll have their own little shops where they would sell maybe a dozen different product lines, we would often be their only counter-drone brand, but then they will be, for example, selling radars, electronic warfare, maybe drones themselves to the customers, and we tap into those unique relationships. A lot of the recent contracts are with existing customers, how we're going with converting prospects into customers, what's been experienced like bringing in new customers into DroneShield? So this is the whole art of selling to governments, right? So we lean on our distributors, but also we try to own as much of the customer relationship as possible. So you're not entirely dependent on the distributor. There is this complex web of the government budgets, which are often competing with different priorities and counter-drone is a priority. But for example, sometimes the customer may choose to buy drones rather than counter-drone equipment as that happens to get the priority. I mean, usually, customer gets a bit of both. Then you often have -- is it us or is it going to be another competitor, you normally try and ensure that the tenders are written with advantage to DroneShield in mind. Often if you see tender for the first time when it comes out, that means that it's been shaped by a competitor. So you want to be involved in the earlier stage. But generally speaking, you really want to ensure you're servicing the customer, right? You're providing that quarterly software updates is an important touch points. If there is an issue, you attend to that. And that's also expanding our fee wallet as well, as I was saying, in terms of having those support fees that we plan going forward. In terms of the new customers, so we continue to gradually expand to new customers. And so every once in a while, we -- like, for example, there was a new customer in South Africa about a year ago that we got and there are smaller customers in Asia Pacific that we would get in the last couple of months. But the goal really is to say there are -- in terms of what moves the dial, right? So there are probably 20 government customers around the world like U.S. Army that move the needle. And so the best bet for us is to focus on programmatic levels, so large-scale deployments while opportunistically going at the tactical level, so unit level to get those purchases. So it's less about kind of scrubbing and ensuring you get all the little fish. I mean you do that kind of in your spare time as best as you can of going around the elephant opportunities. And also once you have product deployed with customer, often they'll come back to you anyways for the top-up. So it's a pretty sticky position. I think that's all the questions we had, and we are over an hour. So we'll stop here. Thank you for your time. And if there are any questions, please e-mail them to us at investors@droneshield.com. Thanks for your time.
Operator: Good morning, and welcome to WEG's Earnings Conference Call for the results of the fourth quarter of 2025. I would like to highlight that interpretation is available on the platform through the Interpretation button accessed via the globe icon at the bottom of the screen. Please note that this conference call is being recorded and broadcast live. After its conclusion, the audio will be available on our Investor Relations website. [Operator Instructions] If we are unable to answer all questions live, please do present your question to our e-mail address at ri@weg.net and we will respond after the conclusion of this conference. We'd also like to emphasize that any forecast contained in this document or any statements that may be made during this conference call regarding future event,s, business outlook, operational and financial projections and targets and WEG's future growth, potential growth, constitute merely the beliefs and expectations of WEG's management based on currently available information. Such statements involve risks and uncertainties and depend on circumstances that may or not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect WEG's future performance and mainly to results that differ materially from those expressed in such forward-looking statements. Joining with us today, we have our CFO, Andre Luis Rodrigues; Andre Menegueti Salgueiro, our Finance and Investor Relations Officer; and Felipe Scopel Hoffmann, Investor Relations Manager. André Rodrigues: Good morning, everyone. It is a pleasure to be with you once again for WEG's earnings conference call. In Slide 3, we have the operating revenue, which decreased by 5.3% compared to 4Q '24. In Brazil, industrial activity remained positive, supported by sustained demand for short-cycle products and deliveries of long-cycle projects. The decline in revenue compared to the same period last year was motivated by the absence of centralized wind and solar generation products. In external market, we continue to see a strong level of deliveries in the power generation, transmission and distribution business. Especially in the transmission and distribution segment in North America, combined with a solid demand in industrial, electrical and electronic equipment business across the main regions where we operate. Although revenue in Brazilian BRLs was impacted by exchange rate fluctuation. We closed the quarter with an EBITDA margin increase compared to the same period last year, and it was 22.4%. EBITDA reached BRL 2.3 billion, representing a 4% decrease compared to the fourth quarter of '24. Throughout -- and then our main financial indicators remained at a high level of 32.5% as we will see in more detail on the next slide. ROIC remained at a healthy level, driven by the maintenance of high operating margins. However, we observed a reduction in the quarter compared to the same period last year, mainly due to increase in invested capital related to investments in fixed assets and acquisitions during the period. I now hand it over to Andre Salgueiro. André Salgueiro: Good morning, everyone, and thank you, Andre. On Slide 5, I will show you the revenue performance across our business areas. Starting with Brazil, industrial activity was positive for short-cycle equipment with diversified demand across several segments in addition to strong demand for new traction systems and batteries for electric buses. Despite a still restrictive environment for new investments, long-cyle equipment also delivered solid results. In GTD, the decline in revenue was mainly due to lower deliveries in the generation business, especially because of the absence of centralized wind and solar generation projects. In addition, the T&D business also experienced fluctuations in deliveries, which is natural for this type of product. In Commercial and Appliance Motors, demand remained stable compared to the same period last year with solid performance in the construction and compressor segments. In coating and varnishes, demand remained positive, diversified across different segments with emphasis on the sale volume of liquid paints in the construction segment. In the external market, although revenue in Brazilian real was impacted by the exchange rate fluctuations, industry activity remained healthy in several markets, especially in the ventilation and refrigeration segments. We recorded a strong volume of long-cycle equipment deliveries, particularly high-voltage motors despite reduced new investments due to ongoing geopolitical uncertainties. In GTD, we continue to see strong delivery volumes in T&D business in the United States, although at a slower pace in other operations, particularly in South Africa. In the generation business, we saw a solid performance in North America and fluctuations in project deliveries in India. In Commercial and Appliance Motors, we observed sales growth in key regions, especially in China and North America, in addition to the contribution of both businesses to revenue in the quarter. In Coatings and Varnishes, we recorded revenue growth driven mainly by strong performance in Mexico and the contribution from the recently acquired Heresite site business in the United States. On Slide 6, we can see the EBITDA performance. The EBITDA margin closed the quarter at 22.4%, increasing compared to the same period last year, reflecting a better product mix and efforts to mitigate the impact of recent changes in international tariff legislation. EBITDA decreased by 4% compared to the fourth quarter of '24, mainly due to lower revenue in the quarter. On Slide 7, we show the evolution of investments, which totaled BRL 814 million with 50% allocated to Brazil and 50% to operations abroad. In Brazil, we continue the modernization and expansion of production capacity in T&D in addition to capacity increases and productivity gains in Jaragua do Sul and Linhares. Abroad, highlights include the progress of transformer investments in Mexico, the United States and Colombia as well as investments in expansion production capacity in China. With this, I conclude my remarks and hand it back to Andre. André Rodrigues: On Slide 8, before moving to the Q&A session, I would like to highlight the following. In December '25, we announced the acquisition of Sanelec, an Indian company specialized in the manufacture of ultra regulation and excitation system. With this acquisition, we expanded our international footprint, strengthened the solutions offered to existing customers and increased our participation in power generation control market. More recently, we announced the construction of a new plant dedicated to the production of battery energy storage systems in Itajai with conclusion expected for the second half of '27. And finally, I would like to address our outlook for this year. We continue to see strong revenue opportunities in our main businesses, both in Brazil and abroad. However, exchange rate impacts and the absence of centralized solar generation projects may weigh on growth, particularly in the first half of the year. We maintain a healthy operating dynamic with an ongoing focus on operational efficiency and productivity gains, which should continue to support solid operating margins and returns on invested capital. As part of our continued investment program, we approved a robust capital expenditure plan for '26 totaling BRL 3.6 billion, supporting the company's strategy of continuous and sustainable growth. It's always important to remain attentive to the global macroeconomic environment and potential risks and volatility. Even so, we maintain our expectation for business growth, strengthening our presence in Brazil and globally while pursuing opportunities in new markets. This concludes our presentation. We can now move on to the Q&A session. Operator: [Operator Instructions] And to kick off with the first question from Lucas, BTG Pactual. Lucas Marquiori: Well, thank you very much. I have 2 comments to make. First, on tariffs. And I would like to hear from you the announce -- your understanding. We know that the basis is 30%. And I would like to know how it works now since there -- is there a negotiation to accommodate prices? Would that affect any request? So the first topic is U.S. tariffs. And then number two, the auction with a lot of comments on Chinese participation. And so I would like to hear from you what would WEG's competitive differential be regarding this auction? André Rodrigues: Lucas, thank you for your question. I will talk a little bit about tariffs, and Salgueiro can update that as well. I would like to review what was mentioned before. Our understanding is that the tariffs that have been determined and announced for '25 in Brazil, which added up to 50%, lose their power, and initially, it was announced as stand, but it may be that it will increase to 15,%, 232 continues. It is the section of the law on commercial expansion applied above all to iron, aluminum, copper and imported products from the U.S. But it is too early, I would say. We do not know whether we're going to have new tariffs announced in the upcoming weeks. And therefore, it's a bit premature to discuss commercial strategies right now. It's important to highlight that the current situation gives us a better competitive approach. We will continue discussing it, evaluating the impacts and taking the necessary measures to mitigate all of these effects. But we have to wait a little bit longer so that we know -- so that we have a better idea of what is going on. André Salgueiro: Good morning. This is Salgueiro. And regarding the auction, it's important to highlight that it might happen now in the first quarter, and the expectation is for early June. But in practice, it has not been officially announced and published. We are monitoring it and tracking the development market estimates and what has been informed the auction would be for 2 gigs of installed capacity, but other information is being considered. We have been prepared for this for a while now. Since the purchase of the technology in 2019 of the NPS in the United States, we've been developing some small and midsized projects, both in the U.S. and here in Brazil. And now more recently, we were preparing ourselves for this more structured demand for large products in Brazil with a more recent announcement made in Itajai, and that will increase our productive capacity in Brazil so that we can meet the demands of this market. Regarding competition, it's only natural to imagine a competitive environment for this segment just as we have it for others such as wind and solar. So it's only natural that this will happen, and we are preparing ourselves the best way possible to address this market. And then, there are some other aspects that we like to reinforce. So we have a long-standing relationship with the operators of this project, which could be a differential for us, engineering support, aftersales support and the presence here in Brazil for many years. And of course, the competition aspect with the new plant, we have to be prepared for that. So we are following all of the regulatory aspects. They are not 100% defined, but we are monitoring, and we have to make the best use of opportunities that will come, not only this year, but in future years when we will have a lot of opportunities. Operator: Our next question is from Joao Frizo, Goldman Sachs. João Francisco Frizo: I have three. First, I would like to hear a little bit about [indiscernible], the area of electric and industrial motors here in Brazil, and worldwide will have uncertainties, which have had an impact on orders. Could we expect a weaker growth for '26 because of this? And regarding capital, you mentioned relevant figures for '26, but could you expand that? Regarding CapEx, we've been running for some years at 3% above revenue. And if you look at '27 -- in 2029, should we expect the same? Or should we expect a normalization? André Salgueiro: This is Salgueiro. I will start with the long industrial demand cycle, and then, we'll talk about CapEx. As you mentioned, we've had some quarters in industrial area, both in Brazil and in the external market with some volatility. The scenario is not poor, but there is some volatility. Here in Brazil, we do have the impact of interest rates. We also have the investment cycles of the main segments that demand these projects. We have oil and gas, mining, paper and cellulose and pulp actually. And we're going to have an increase this year. So we have these 2 factors. And abroad, what we've seen are some delays, especially because of the geopolitical aspects and lack of definition of tariffs, there is some volatility. It's not something that is reason because when we look at our orders, we do see some oscillation, which is only natural for this type of project. Revenue was good, both in Brazil and abroad for the projects and the deliveries made throughout the quarter, but we have to analyze on a quarter-by-quarter basis. And now I will talk a little bit about capital, which was disseminated yesterday with robust growth of BRL 3.6 million for '26, the greatest we've had this far to support our levels of growth. And then how can we break it down, 46% will be for the domestic market and 54% abroad. In Itajai, we have an expansion of the plant, looking at verticalization, increase of production capacity. And I think that the most relevant investment in is what we recently announced. The construction of the new plant in the second half of next year, it will be concluded, and we also have the auction, as mentioned during our presentation. It will be -- it will represent good opportunity. And then, we also announced growth in other areas, and the relevant growth will be the new plant to be concluded in '28 of electric large machines, where we will have a greater capacity of production of compensators and machines, where we developed in Jaragua do Sul in addition to increasing our capacity of larger motors high -- voltage motors. Part of this investment, I would like to remind you is related to the expansion of transformers that we announced in the past years and here in Brazil. Basically, we end the year with the expansion in the team, increasing the baton capacity, and we continue the expansion of transformers in Gravatai, and that will end in '27 end. And to conclude, in Linhares, we have the increase in our capacity. When we discuss what is happening abroad, we have the transformers and different investments. We also have a new liquid paint plan so that we can take this business to North America. And we also have verticalization in China, we have the high-voltage motors. In Turkey, we have a new plant with -- a new bearing plant. And then finally, the last investment package would be the modernization of one of the plants of special transformers in Missouri. And this is the last package, the last part of the package that we announced for transformers. Undoubtedly, last year, we were above 6.6% above our revenue. And this was necessary for us to conclude the expansion cycle and the transformer business. And then to consolidate that, we have the other opportunities. But looking ahead, what we are lacking in our investment package, which will continue after '27, the increase in the capacity of verticalization. It will go on in a more relevant manner after '27. But in the long run, we do not think that we will be operating outside the range of 26% of our revenue. But as I mentioned before, in '23 and '24, we had 4.9%, 5.1% in the upper limit. And therefore, it is likely that perhaps 2 -- 1 to 2 years later, we will operate at a higher level, and then, go back to normal. Operator: Next question from Andressa Varotto, UBS. Andressa Varotto: I have 2 right now. The first one would be regarding the margin we saw, a margin expansion that was a bit unexpected. Here in the market, we expected a stronger impact of tariffs on costs in this quarter, and we were positively surprised. I would like to know if there was any initiative or anything else that turned out to be better than expected? And a follow-up on the transformer capacity, what should we expect for the second half of this year? Would it be in the third or fourth quarter? And also what is the total to be expected? André Rodrigues: Andressa, thank you for your question. Let's talk a little bit about the margins and the market expectations, and then, we have the expectations of fluctuations for 2024. I think that this work is constant work that we do here at WEG. And of course, there are times when you faces challenges such as the tariffs that were imposed throughout '25 and where we anticipated a higher impact on the margins. And it's important to highlight that -- regarding the attempt to compensate tariffs, we were successful in our attempt. We reviewed our business strategy among other factors, but we are going through a very positive moment globally. So basically, this was positively impacted regarding our expectation. André Salgueiro: This is Salgueiro, Andressa. Regarding the T&D capacity I would like to remind you that we made some announcements from the end of '23, with the intention to double the capacity we had until the end of this year and early next year, these products have been happening. And I would say that part of it has already come in, and we do have a first and more relevant project coming early this year, and the new bidding capacity this year. And then, if you look at the figures and if you look at [ Betim ], we're probably close to 25% of the intention to double this capacity. And then, we would have about 55% of this capacity to add at the end of this year and then early next year because we're talking about Gravatai here in Brazil and the new plants in Colombia and Mexico in the external market. But I would also like to highlight when we talk about capacity that we are talking about the concluded plant, and we will not necessarily start operating at full capacity. It's only natural in this business, and we have a gradual occupation. From the point of view of revenue and contribution for the result, we will start strongly next year. And then, we will gradually have a contribution throughout '27, but it will be more significant after '28. Andressa Varotto: I understood. But Salgueiro, regarding the figures you mentioned, '25, are you talking about Mexico alone or to the total? And also a follow-up because I would like to know if you have started any efforts regarding the capacity that is coming in? André Salgueiro: Well, actually, this is the total number. We announced investments, both in Brazil and in the external market, but the idea was to double the global capacity of WEG in T&D. And so this is for anywhere. And we also have some projects that are moving forward. And when we have a better idea of the availability of the plant, we offer it to the market. We've also been communicating the demand is very needed and will remain so. So from a point of view of orders and portfolio, we do not see any risks. It's only a matter of being able to make the investments and have the plants available. Operator: Next question from Andre Mazini, Citi. André Mazini: I have two. The first one has to do with the back day regarding the solutions and services, so what is the impact in our -- what is the percentage of the revenue that you're allocating? And how far do you intend to go? And then number two, regarding growth of revenue for '26, based on the exchange rate of BRL 5.14, for the rest of the year, would it be more likely for the revenue to grow single digits? Or can we still consider 2 digits even if the exchange rate is not very good right now? André Salgueiro: I will answer your first question regarding solution and services, and then, Andre will talk about investments. In fact, we tried to show changes that have been taking place at the company, a company that until recently was more focused on products and has now become a solution provider. We have product sales. We more and more incorporate services. So in fact, this has gained some representation. We have the creation of a new department for large machines to meet the demands of this market, the service markets. We do see increasing demand, but there are services related to the other units as well, both in terms of wind generation, solar generation, operation, contracts, maintenance contracts and which is our thermal generation company. There is a very representative component in the area of services, especially in the alcohol sector in Tupi, electric mobility related to the areas of software services, drivers. So there are different areas being opened up in the company, and the trend is for the revenue to evolve and continue growing, including in the industrial area. The softer solutions for clients, monitoring industrial processes. So it's only natural to expect such a growth, but we do not have a specific target, and there are a lot of opportunities, not only looking at services, but also looking at the solutions, which include equipment sales, service offer. So now, let's talk a little bit about perspective of revenue for '26. The company will undoubtedly try to grow even in a geopolitical scenario, which will remain challenging. But it's always important to take into account that we're moving smoothly with a good demand for transmission and distribution areas in Brazil and abroad. But of course, this year, we're limited because of capacity. We showed you our expectation of increased capacity, but we can see good opportunities in businesses such as electric mobility in BESS as mentioned in WEG's preparation to capture opportunities not only this year, but later ahead. Synchronous alternators, the demand, increasing demand for data center solutions. And when I talk about data centers, we always think about transformers, but WEG has complete solutions, full solutions to guarantee back up with alternators and BESS and automation solutions. So this is something where we have been receiving a good demand. But Andre, where we have some expectation is to undoubtedly try to have 2-digit growth, but this would be with a more stable exchange rates of the BRL compared to the U.S. dollar. The situation is different now. Our currency is valuing. And we have a greater challenge to make this happen. But if the exchange rate remains as it is, it will be harder for us to deliver 2-digit results. It's important to highlight that what prevented a growth in the revenue, which actually went down in the last quarter and that will have an impact, maybe not the same as in the last quarter, but a little bit of the first and second quarters are the same factors. The lack of a renewable portfolio, which we had in the first half of last year and then better exchange rates. I would like to remind you that the exchange rate in the first quarter of '25 was in the order of BRL 5.84 and our situation now is that it is below BRL 5.20. And what is likely to happen is that we will have different growth profiles, lower in the first quarter because of the factors that I mentioned and a recovery in the second half with closer averages and also a little bit about -- related to the capacity announced by Salgueiro, and also, the comparison basis, which is more stable in the second half. Operator: Next question from Lucas Laghi, XP Investment. Lucas Laghi: Thinking about '26, but also talking about profitability. If we look at '25, as you commented, it was in the range of 23%, 24% in terms of the margin, as you commented. And it's always very good to have clearer visibility for margins for WEG. But I'm trying to understand this panorama for '26. And because exchange rate plays against us, T&D is high, but maybe because of a mix effect. It won't be as favorable, increasing price of raw materials and strong demand. So I would like to better understand the combination of all of these factors. And comparing it to 23%, 24%, does this range make any sense for '26? Or what should we consider now? I would like to know what the combination of all of these factors would result for WEG in '26? And then a second question regarding wind energy because we've been talking a little bit less about this, our perception is that the market will be looking ahead. We have the new 7 mega platform. We have to understand what the perspective is. And then, 4.2, which was well accepted domestically, but I would like to know what will happen in the foreign market. I would like you to talk a little bit more about this project and what we can expect for the future? André Rodrigues: Lucas, thank you for your questions. Let's talk a little bit about margins now. We are -- the management is very happy with the margins we've been delivering in the past years. It's very close to '22, and therefore, we're very happy with that. And we will start '26 with an expectation to deliver margins that are close to the average of the past years. It's very difficult to always have a margin projection. We can have some variations regarding the delivery of long-cycle products, special products that could change that. And of course, the mix could have an impact on that. But in the first quarter, I will tell you that we have a more favorable mix than we had in the first half of last year, and that is very positive. And then, part of this good performance, and I commented it already, has to do with the transformer business, which has had a positive impact in the past year. So it's also important to monitor whether that will change this dynamic or not with exchange rate variations. But in the short run, we always say that the correlation margin and exchange rate is not very good for us. But we also have the benefit of having stock, which was purchased with a different exchange rate, leading to benefits. And then -- but the other way around also happens with a valuation of the BRL that also has an impact, but in the midterm that will be compensated. But that will lead or might lead to changes between one quarter and the other. We also can expect some changes in tariffs. We continue monitoring relevant changes in commodities and that could also have an impact, especially copper, which is a very important raw material. But what I can tell you today is that for the year, we expect to have healthy margins aligned with what we've been practicing in the past years. Regarding wind energy, we have Brazil situation, and we have not seen significant investments in Brazil in the past years. But also, we have the regulated market, which is not very active. And then, we also have competition related factors, and basically, investments in wind energy have stalled. And there are eventual risks that for the future, we will have to consider new generation sources, and it's only natural to imagine that looking ahead, we will have new investments, and we should resume investments. We do have a sales profile that makes a lot of sense. But looking at the midterm, we do believe in the development of this market. And we have field tests and new developments in Brazil would take into account this new machine. We also have a market in India that you commented, and that would be with the 4.2 platform. It's already certified. The developments have been basically concluded, and we are now working around our first order. We also have the U.S. market that would be with the machine 7. We do not have a contract, but we are working with our business area, and we want to have everything prepared. And when we look at this year and probably next year, we will not have a contribution of in general, but what we will see is that this segment being more representative in the mid and long term. Operator: The next question comes from Pedro. Pedro Fontana: I would like to explore the capacity of transformers once again for '27, and I just wanted to understand because the margin expectation should be close to what has been practiced. But for '27, do you believe that we will have increased margins because of the changes in the mix with more transformers? And I also wanted to ask for '26 because you commented about the exchange rate and expectations of growth. But for '27, with increased capacity, do you expect that we will have an impact more towards the end of the year? Or could we expect resuming 2-digit levels earlier in '27 without exchange rate factors? André Rodrigues: Well, thank you for your question. I think it is too early for us to talk about the margin for '27. There is a very important slide in our investor presentation, which shows the dynamics of short and long cycles. And of course, if we consider that only the transformer business will go, we can think of better consolidated margins than we've had. But in reality at WEG, all of the other businesses are pursuing investment opportunities. And therefore, it will depend a lot on the mix, and we will have to wait a little bit so that we have better visibility. And the second aspect, more for the end of '27, we need to have variety for these plants. And just to give you a better idea, when we talk about increased capacity, just so you know, the training of a technician to work with transformer, it takes about 2 years for a person to be trained to manufacture a transformer with the quality demanded for this type of product. And of course, we will increase our capacity. We will observe what happens, but we will see these changes more towards the end of '27 and after that. Operator: Well, next question from [indiscernible]. Unknown Analyst: I have 2 questions here. First, you talk about T&D in Brazil. Could you give us an idea of how much the Brazil reduction was when compared to solar? And how many -- or what was the decrease in the T&D deliveries? We always make mistakes when we try to define what WEG's margins are going to be. But now we have a very strong component in the U.S. tariffs, the U.S. tariffs, and if you consider tariffs are 15% or not, we come to an estimate of -- margins of 1.1%, 1.2%. This will be more constant and relevant for WEG. So I wanted to better understand if there are any specific factors involved in terms of time, payment of tariffs, and when they will no longer be charged because I understand that you will wait for us to have a final decision, but in the meantime, will there be an impact? I wanted to understand if this makes sense, and when will this stop having an impact? André Rodrigues: Regarding T&D or else regarding Brazil, we had a significant decrease in the quarter. Unfortunately, we do not break down according to the different businesses, but I would like to share that most of it was in fact the impact of solar energy, where we had a very significant concentration in the end of '24, '25 in the deliveries of projects. And these projects are no longer present in our portfolio, so we can say that an important part of this decrease resulted from GC. And we also had a less relevant impact, but even more important than T&D, which was wind energy because we still had something happening in the end of '24. And we had basically nothing. The maintenance contract remains. But when we talk about new machines, we had an impact from wind energy in this comparison quarter-over-quarter. And then, we had T&D. And the new thing is that we didn't grow this quarter. There was a small decrease, but that was part of the issues we had in the development. This is related to solar energy. And this is something natural that happens with this type of project depending on the deliveries and on how we organize our projects. André Salgueiro: Well, I will talk a little bit about tariffs. We have to keep in mind that we're talking about 232, which doesn't change. And in the past, WEG focused more on Mexico because Brazil already had 50% tariffs. But now Brazil, as the rest of the world, will go into 232, which has to do with taxes on copper, aluminum and iron. But then, it will expire, from 40%, it will go to 10%, maybe 15%. But the impact of that will be seen later on. We have to keep in mind what the new orders are right now. So getting out of Brazil, we have the transit time, and so this impact on cost of imports going to the U.S. is something that will be seen in the second or third quarters. Now, we will have to monitor the impact this may have on business aspects that should be evaluated later on. Operator: I will continue with our next question from Marcelo Motta, JPMorgan. Marcelo Motta: Could you give us some light on the minorities because if you look at the volume related to profit, we can see that it's been growing, and is this a trend that we should expect from now on? And the other question has to do with the effective tariff rates and whether it would grow or not, but it is still at very low levels. You're trying to obtain new forms of tax efficiency. But should we expect that it will be below 20%? I wanted to better understand what range we can expect. André Rodrigues: Regarding the minority line, basically, what we have there are the results for the areas where WEG does not have 100% participation. So we do have some operations here in Brazil, and perhaps, we have a highlight to our joint venture in the reducers area, but the most relevant thing is the T&D operation in Mexico and the United States, where we have a partner. And then, it has to do with that. So what has happened is that the T&D business has grown at a very interesting result, both in terms of revenue, but also profitability. And this leads to better results. And then, if we look at this quarter, WEG's revenue went down on the consolidated results, but it increased significantly. And therefore, the debt line has reduced. But what will be the growth range of the other businesses, if we follow it quarter by partner, we know that it will keep on growing. And if we look at this alone, the expectation is for this line to grow a little bit, but we also have other businesses in the company that may evolve depending on the mix, and there will be some differences. And regarding the tariffs, the normalized one will be in the order of 20% as it was the average for '24. But what happened in '25 was that it ran below that, and this had to do with improved profits. And we also had a positive contribution of tax incentives, especially related to the technological innovation law. But our expectations didn't change. Operator: Our next question is from Lucas Melotti, Banco Safra. Lucas Melotti: We've seen an acceleration of announcements of new data centers in the U.S., including increased energy demand, which has grown exponentially, which will be significant in the U.S. and even taking into account the capacity of the industry, which will grow in the upcoming years, do you see any room for relevant price increases? André Rodrigues: Lucas, thank you. We've been tracking the development of the data center market, not only data centers, but energy consumption and demand, especially for our equipment. So this has been the main driver in T&D, especially in the foreign market. And this trend tends to continue. When we look at the market itself, the portfolio is robust. But we also see other players in the industry announcing an increase in the capacity. And what we've seen from a commercial point of view, at least for the past quarters is that we have good profitability without significant expansions, as we saw last year and in the past couple of years. And if the demand proves to be more heated for in the future, then we can eventually start a new price cycle that will help us grow. But this is not our basic scenario for right now. Right now, we will be at a good level with good profitability for the company. Operator: We now conclude our Q&A session. And as a reminder, if you have any further questions, please feel free to send them to our e-mail address at ir@weg.net. I would now like to turn over to Andre Rodrigues for his closing remarks. Andre, please go ahead. André Rodrigues: Well, once again, I would like to thank you all for your presence and participation. And we will talk to you again when we have our conference for the second quarter of '26. Operator: WEG's teleconference is now over. We thank you all for your participation, and wish you a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Green Brick Partners Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jeff Cox, Chief Financial Officer. Jeff, the floor is yours. Jeffery Cox: Good afternoon, and welcome to Green Brick Partners Earnings Call for the Fourth Quarter ended December 31, 2025. Following today's remarks, we will hold a Q&A session. As a reminder, this call is being recorded and will be available for playback. In addition, a presentation will accompany today's webcast, which is available on the company's Investor Relations website at investors.greenbrickpartners.com. On the call today is Jim Brickman, Co-Founder and Chief Executive Officer; Jed Dolson, President and Chief Operating Officer; and myself, Jeff Cox, Chief Financial Officer. Some of the information discussed on this call is forward-looking, including a discussion of the company's financial and operational expectations for 2026 and beyond. In yesterday's press release and SEC filings, the company detailed material risks that may cause its future results to differ from its expectations. The company's statements are as of today, February 26, 2026, and the company has no obligation to update any forward-looking statements it may make. The comments also include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by Regulation G can be found in the earnings release that the company issued yesterday and in the aforementioned presentation. With that, I'll turn the call over to Jim. James Brickman: Thank you, Jeff. I am pleased to announce our fourth quarter results, particularly given that we achieved these results against the backdrop of ongoing and persistent affordability challenges faced by many consumers in this housing market. Our performance remained resilient despite eroding consumer confidence and an increasing supply of housing inventory. Our builders adapted quickly to a volatile housing market as we continue to balance price and pace to maximize returns in each of our communities. Net income attributable to Green Brick for the fourth quarter was $78 million or $1.78 per diluted share. We delivered 1,038 homes in the quarter, a 1.9% increase year-over-year and a record for any fourth quarter in company history. We also achieved 883 net orders, also a record for any fourth quarter. As Jed will discuss in more detail, driving our sales volume in Q4 required additional price concessions and other incentives, which caused our homebuilding gross margin to decline 490 basis points year-over-year and 170 basis points sequentially to 29.4%. The decline was due to higher incentives and changes in product mix. Still, our gross margins remain the highest public homebuilders. While the macroeconomic landscape presents headwinds for the entire industry in the short term, we believe the core strengths that have driven Green Brick's success over the past decade will enable us to continue to navigate any challenges with confidence and flexibility. As always, we will focus on maintaining operational excellence centered on our disciplined approach to land acquisition and development to position us for future growth. We are laser-focused on maintaining an investment-grade balance sheet to support our targeted expansion in high-volume markets. In 2026, we believe that our financial services platform will generate more pretax income than the interest cost on all of our debt. As Jed will discuss in more detail, we also continue to reduce construction cycle times. We believe we are well positioned to sustain our return metrics over the long term that rank among the very best in the industry, providing long-term value to our shareholders. We remain focused on growing our business, particularly in our Trophy brand. Trophy's growth in DFW in Austin, combined with our first open community in Houston during the spring of 2026 selling season, we believe presents significant opportunities for sustained growth over the next few years. This expansion allows us to continue to serve the critical first-time and move-up buyer segments while further diversifying our revenue base and strengthening our presence in key Texas markets. While the overall market conditions remain challenging due to macroeconomic and political uncertainty, we remain vigilant in monitoring and responding to shifts in buyer preferences. We believe that our experienced team and robust land pipeline and desirable infill and infill adjacent locations will continue to drive our success in the quarters to come. With that, I'll now turn it over to Jeff to provide more detail regarding our financial results. Jeffery Cox: Thank you, Jim. Given the challenging economic conditions and increased supply of housing inventory in our markets, discounts and incentives increased year-over-year as a percentage of residential unit revenue to 9.2% from 5.2%. Our average sales price of $530,000 was up 1.1% sequentially and down 3.1% year-over-year. Home closings revenue of $550 million declined 1.3% compared to the same period last year, and our homebuilding gross margins decreased 490 basis points year-over-year and 170 basis points sequentially to 29.4%. SG&A as a percentage of residential unit revenue for the fourth quarter was 10.6%, a decrease of 30 basis points year-over-year, driven primarily by lower personnel costs. Excluding SG&A from our wholly owned mortgage and title companies, our homebuilding SG&A for the fourth quarter was 10.1%. Net income attributable to Green Brick for the fourth quarter decreased 24.5% year-over-year to $78 million, and diluted earnings per share decreased 23% year-over-year to $1.78 per share. For the full year, deliveries increased 4.2% year-over-year to 3,943 homes, a record for any full year in company history. Our average sales price declined 3.1% to $530,000. We generated home closings revenue of $2.1 billion, an increase of 1% from 2024. Homebuilding gross margin for the year decreased 330 basis points to 30.5% Net income attributable to Green Brick decreased 18% to $313 million, and diluted earnings per share declined 16.3% to $7.07. Excluding the impact of the sale of Challenger, which occurred in the first quarter last year, the diluted earnings per share declined 14.2%. Net new home orders during the fourth quarter were up slightly year-over-year to 883 and down sequentially only 1.7%. For the full year, net new home orders increased 3.1% year-over-year to 3,795. Average active selling communities of 101 was down 5% year-over-year. Our sales pace for the fourth quarter increased marginally to 2.9 per month compared to 2.8 per month in the previous year. We started 884 new homes, which was down 14% year-over-year and 7% sequentially. Units under construction at the end of the quarter were approximately 2,048, down 12.5% year-over-year. We reduced starts in Q4 to better align with our sales pace to focus on balancing margin and pace. We will continue to monitor market conditions and seasonal trends and align our starts to our sales pace to appropriately manage our investment in spec inventory. Our backlog value at the end of the fourth quarter was $354 million, a decrease of 28.5% year-over-year due primarily to a higher proportion of quick move-in sales, including greater percentage of our sales being generated by Trophy that as a spec builder, typically has shorter times between contract execution and closing. Backlog ASP decreased 8.2% to $681,000 due to elevated discounts and incentives across all of our brands in addition to product mix. Trophy, our spec homebuilder, represented only 14% of our overall backlog value, but they accounted for nearly half of our closing volume. In Q4, we repurchased 359,000 shares of our common stock for approximately $23 million. And for the full year 2025, we repurchased 1.4 million shares for approximately $83 million. In December, the Board of Directors authorized a repurchase of up to $150 million of the company's outstanding common stock. This new authorization provides us with the ability to opportunistically return capital to our shareholders when we believe our stock is undervalued while continuing to invest in the long-term growth of the business. We recognize the heightened importance of liquidity in the current period of economic uncertainty and market volatility. We believe our investment-grade balance sheet and low financial leverage provide us with flexibility to navigate and adapt to evolving market conditions, ensuring we have capital available for strategic opportunities as they arise. At the end of the year, our net debt to total capital ratio decreased to 8.2% and our debt to total capital ratio decreased to 14.7%, among the best of our small and mid-cap public homebuilding peers. Excluding cash and debt from Green Brick Mortgage, our homebuilding debt and net homebuilding debt to total capital ratio at the end of the quarter was 12.8% and 6.3%, respectively. During Q4, we renewed our unsecured revolving credit facility, which extended the facility to December 2028 and provided a meaningful reduction in the interest rate. At the end of the quarter, we maintained a robust cash position of $155 million and total liquidity of $520 million. With $365 million undrawn on our homebuilding credit facilities, we believe we are well positioned to weather the challenging market conditions to opportunistically deploy capital to maximize shareholder returns and to accelerate growth as the housing market improves. With that, I'll now turn it over to Jed. Jed Dolson: Thank you, Jeff. We continue to see a challenging sales environment within all our consumer segments, which have been impacted by affordability challenges and a weakening job market. Our team responded well to the challenging market conditions as evidenced by our record fourth quarter sales volume and our low cancellation rate of 7.6% in Q4, which was an improvement from 7.8% in Q4 2024. We continue to have one of the lowest cancellation rates in the public homebuilding industry, and we believe it demonstrates the creditworthiness of our buyers, quality of our product and desirability of our communities. We continue to address the affordability challenges faced by consumers by providing our homebuyers with price concessions, interest rate buydowns and closing cost incentives. Incentives for net new orders during the fourth quarter increased to 10.2%, an increase of 380 bps year-over-year and 130 bps sequentially. Rate buydowns remain a necessary tool to drive traffic and sales especially with our quick move-in homes. With our superior infill and infill adjacent communities and industry-leading gross margins, we believe we are strategically positioned to adjust pricing as needed to meet market demand and maintain our sales pace. While we recognize the importance of preserving our margins, we also recognize that our industry-leading margins provide us with significant pricing flexibility to compete effectively in a volatile market. Green Brick Mortgage, our wholly owned mortgage company, closed and funded over 380 loans in the fourth quarter. The average FICO score was 746, and the average debt-to-income ratio was 40%, consistent with previous quarters. Green Brick Mortgage began serving our Austin communities in Q1 of this year. We expect to complete the rollout of Green Brick Mortgage to all DFW communities by the end of the first quarter of 2026. To Houston when our first community there opens for sale during the spring 2026 selling season and to Atlanta by the middle part of this year. As Green Brick Mortgage continues to expand its service to most of our communities, we anticipate by year-end, this capture rate will range from 75% to 85%, typical of captive mortgage companies. We continue to reduce our construction cycle times, which were down 20 days from a year ago to 130 days. Trophy's average cycle time in DFW was under 90 days, the lowest in their history. Labor availability remains relatively stable across all of our markets. We recognize the concerns surrounding tariffs and continue to work closely with our vendors and suppliers to mitigate any potential impact. While we believe tariffs will have a minimal impact on earnings next year, we are still assessing the Supreme Court's ruling against the Trump administration's tariffs and the administration's potential response to the ruling. As we navigate through various macro challenges, we are carefully recalibrating our capital allocation plan to align both our long-term growth objectives and to respond to changing market conditions. During the quarter, we spent $36 million on land and lot acquisition and excluding cost share reimbursements, $90 million on land development. This brings spend for 2025 to $267 million for land acquisition and $323 million for land development, respectively. Many of our land development projects involve special financing districts that provide reimbursement for public infrastructure costs. As work is completed, we are able to recoup a portion of these costs, which reduces our net development spend. We believe our superior land position provides a competitive advantage that will be the foundation for strong growth in subsequent years. Given the strength of our existing land and lot pipeline, we remain patient and selective with future land opportunities without compromising the ability to grow our business in the near and intermediate term. As noted in our earnings release and 10-K, we changed the definition of lots controlled to lots under contract, which includes all land or lot parcels that we have a contractual right to acquire pursuant to a fully executed option contract or purchase and sale agreement. We previously referred to lots controlled, which included only lots past feasibility studies for which we did not hold title but had contractual rights to acquire. Under the new definition, our total lots owned and under contract at the end of the year increased by 10% year-over-year to approximately 48,800, of which 37,000 lots were owned on our balance sheet and approximately 11,800 lots were under contract. Trophy comprises approximately 70% of our total lots owned and under contract. Excluding approximately 25,000 lots in long-term master planned communities, our lot supply is approximately 6 years. With that, I'll turn it over to Jim for closing remarks. James Brickman: Thank you, Jed. In short, we remain optimistic about our long-term prospects, and we believe we are well positioned to continue to produce strong results. We believe our strategic land position, high-quality and diverse product offerings that appeal to multiple segments of the homebuyer market and our investment-grade balance sheet will lay the path to future growth and industry-leading returns for our shareholders. Being consistent matters, we are very pleased that we had no turnover at the divisional president level in 2025. So we entered 2026 with experienced, hard-working managers that have worked for us a very long time. I also want to thank the entire Green Brick team for their passion and dedication to delivering exceptional results in the face of a challenging market. This concludes our prepared remarks, and we will now open the line for questions. Operator: [Operator Instructions] Your first question comes from Rohit Seth with B. Riley Securities. Rohit Seth: Jeff, just on Q2, can you -- last quarter, you broke out the gross margin decline between buydowns and mix. Can you give us a sense of the puts and takes on the gross margin and the drivers there? Jeffery Cox: Yes. We looked at the mix ratio. And I would say that while there's certainly some mix components there, most of it is really just driven through higher incentives and discounts. We're seeing compression really kind of across the board and in all of our regions. In some cases, we've got a couple of anomalies within some of our smaller builders, but that's mostly due to community mix more so than anything else. Rohit Seth: Okay. Where are you guys buying down rates to at this point? Jeffery Cox: So we're buying... Jed Dolson: 4.99% with 321s on our entry level. Rohit Seth: Okay. So it's about the same where you were in the prior quarter? You said just in the 5%. James Brickman: Yes. This is Jim Brickman. So rates ran down, I guess, just a little bit today. The went sub-6% for the first time in a long time. And basically, every 0.25 point is about in the buy down 1 point in incentive cost to us. So it will be interesting to see if rates go down, whether we'll be able to harvest any more margin from having less incentives or not. Rohit Seth: Okay. Just on your costs, it looks like sequentially, the cost per home went up a few points. Can you just give us a sense of is that coming in direct costs, land costs? James Brickman: Jed, why don't you talking about direct costs? Jed Dolson: Yes. We're seeing direct costs continue to go down. We are -- as we cycle out of older legacy communities, our new lot prices are higher. Jeff may have a percentage he can share on that. But as far as direct go, they continue to go down. Jeffery Cox: Yes. On the lot costs they are relatively stable, looking year-over-year, whether for the full year or quarter-over-quarter, but maybe $1,000 or $2,000 a lot. No big movement there. The biggest thing that you're seeing, Rohit, is the increase in our selling and closing costs, which still ran through cost of sales at the end of last year. That's really the biggest driver showing the increase in that number. We've touched on this a little bit in previous calls, but starting later this year, we'll start doing segment reporting as the mortgage company becomes a more material part of our business. And as we do that, those selling and closing costs will become contra revenue as opposed to cost of sales. James Brickman: Yes. Let me add to that. We have very low debt. So our debt is capitalized into all of our inventory and our land is very low because our debt is very low. one of the other differentiators for us versus many peers is that because we don't lot bank, our lots are not increasing in cost based upon the lot banking cost of capital. And we think that's going to be an advantage year after year. Rohit Seth: Interesting. Okay. And if I could squeeze one in. Do you mind commenting on how the spring selling season has been going on traffic or orders? Any color would be helpful. James Brickman: Yes, I can give you a little color. We usually don't talk month-to-month. Anybody that was in Texas in January knows that we had one of the worst weather events really in our history. So it's really hard to bench sales January to February because January, we were basically out of business for what, 10 days, Jed? Jed Dolson: Yes, 7 to 10 days. James Brickman: Which was almost 1/3 of the month. That said, February looks to be off to a good start for us, and we're really quite encouraged. Operator: Your next question comes from the line of Alex Rygiel with Texas Capital. Alexander Rygiel: Can you talk a little bit about your inventory level as well as the broader inventory level across your markets? Jed Dolson: Yes. This is Jed. I can answer that, Alex. We are seeing across all of our brands a really a very high desire for finished specs. So we are carrying higher inventory levels, especially on the spec and finished spec side that we did. And that goes all the way from our $250,000 price point to our $1.2 million price point. Jeffery Cox: And Alex, this is Jeff. I'll just add on to that, that at the end of the year, we were carrying roughly 5 finished specs per community. Half of those belong to Trophy. But when you look at their sales pace, in particular based on what Jim just referred to with February sales, it only equates about a month to maybe 1.5 months supply. Jed Dolson: Of finished inventory. Jeffery Cox: Correct. Jed Dolson: Yes. Alexander Rygiel: And then as it relates to sort of broader inventory in your geographies across your competitors? Jed Dolson: We think we're keeping pace or maybe -- I'd say we're middle of the pack. There's some of our competitors that are carrying more finished inventory than us. There's some that are carrying a little bit less. But typically, as Jeff mentioned, everybody is carrying at least 1 month of finished specs on the ground, 1 month of sales of finished specs. Alexander Rygiel: That's helpful. And then any directional guidance on community count growth in 2026? Jeffery Cox: Yes. This is Jeff. We ticked down a little bit this year in 2025 versus where we were in 2024, and we've been aggressively adding to our lot pipeline, as you know. We don't usually give guidance on community count because it can take us somewhere between 18 to 24 months to bring new deals to market. But certainly, our goal is to continue to increase our community count by the end of this year. James Brickman: Yes. One of the things that's a little difficult for analysts or really investors to get a grip on with Green Brick is that as Trophy becomes a bigger part of the business as it does quarter-to-quarter to quarter, Trophy sales pace is double, at least Southgate's, which is our high-end builders sales pace. So we really don't need community count to grow to have a significant growth in either top line or unit growth. Jed Dolson: I would just add that it's -- as Jeff mentioned, it's a little hard to predict what our community count will be at the end of the year, but we can see 2 to 3 years out that we will have meaningful acceleration in community count. James Brickman: Yes, we have a number of active couple of communities that will be coming on stream. Alexander Rygiel: And then lastly, it kind of sounded as if your commentary would suggest that your spend on land in 2026 will be down from 2025. Is that fair? Jeffery Cox: This is Jeff, Alex. We haven't disclosed specific spending amounts for this year yet. We wanted to get through the spring selling season before we gave any kind of guidance on that. But given the increase in lot supply that you've seen over the last couple of years, we do anticipate that land spend will be higher this year, but we're not ready to give a specific number yet. Jed Dolson: And Alex, this is Jed. I would mention that we are adding a lot of horizontal development dollars to previous year's land acquisition with the goal of getting our community count up much higher in the coming years. Operator: Your next question comes from the line of Ryan Gilbert with BTIG. Ryan Gilbert: First question is on deliveries, and I guess, the trajectory of deliveries in 2026. I've generally thought about delivery growth kind of tracking growth in starts or homes under construction, and we've seen certainly outperformance this quarter, but then also the past few quarters as well. I'm just wondering if that relationship between delivery growth and starts should -- we should think about that reasserting itself in 2026? Or if you think you could still have deliveries outpace starts and homes under construction here? Jeffery Cox: This is Jeff. I think that you've seen us pull back on starts here, in particular, in Q4 as we try to rightsize our inventory. And our goal is to make sure that we're starting roughly the same number of homes that we sell each period. But given kind of the prior comment on increasing community count here towards the end of the year, certainly, we would expect to see an increase in starts. We may not necessarily benefit from all the deliveries of those starts depending on when we get those in the ground this year. But certainly, in the future years, we're looking to grow community count and closings. Ryan Gilbert: Okay. Got it. And then I wanted to ask about spec strategy as well. It sounds like as Trophy Signature continues to grow, your spec mix should also continue to increase. We've heard from some of your competitors about shifting back to build-to-order sales. And I'm just wondering how you're thinking about specs versus build-to-order in 2026. James Brickman: To expand on this, but really, at Trophy, we're seeing really great success in that buyer profile that wants a house, they want the certainty of a mortgage rate. They have an immediate need, and we're finding really a great number of buyers that are out there that want that product at that price and can move in quickly. Jed? Jed Dolson: Yes. I think we, as an industry, are doing a very good job of putting the product on the ground that the consumer wants with the right packages. And we've seen that even go into our -- we've seen the spec desire even go into our $600,000, $700,000 even or $1 million price point. So we are going to continue to put a lot of specs on the ground because that's what we think the buyer is telling us that they desire. On paper, theoretically, it sounds great that some of our competitors are wanting to be more build job oriented. We have yet to see that in any of our marketplaces really play out other than, say, at the $1 million-plus price point. James Brickman: Yes. Let me chime on one other point that I think is important to understand, and that is that, first of all, we never want to give up any incentive that we don't have to give up. But when you're making a 29% or a 30% margin, demand is very elastic, meaning that an incentive, you can really harvest an incremental an incremental amount of buyers out there. So we can pull levers if we ever want to on specs that really -- they will impact our profitability. But when you're making 29% or 30% margins and you take a 2% or 3% hit, it's not the same as when you're making a 15% margin. We haven't had to do that, but we can view our spec inventory a lot differently than I think some of our low-margin peers do. Operator: Your next question comes from the line of Jay McCanless with Citizens. Jay McCanless: So the first one I had, could you talk about what type of pricing power you had during the quarter and maybe what you've seen into the spring? What percentage of your communities were you able to raise prices? Jed Dolson: Yes, sure. This is Jed. I can take that. Very few communities have we've been able to raise prices. So the good news is we're seeing that the quantity of buyers are a lot stronger in the spring so far. We have been able to raise prices in some communities. But by and large, we are still, as an industry, working through inventory. We're still competing with big publics and big privates that are still trying to make their business plan and not shrink units dramatically. So it's still a competitive landscape out there. James Brickman: Yes. I think one of the other differentiators in our company, particularly some of our peers is our quality of our backlog. And when we sell a spec -- when we sell a home is much better. We only had about a 7% cancellation rate. So people that buy our specs close. Jay McCanless: Great. So -- and thank you for the comments on traffic, Jed. Is that both foot traffic, web traffic, all the above? What are you seeing on those? Jed Dolson: Yes. We're seeing it on all of the above. So February weather has been good in the regions that we operate in. We're not in the Northeast. So we missed out on that big storm. But the -- yes, so February has been off to a record start. Jay McCanless: That's great. Okay. So the second question I had, -- and thank you for the commentary you gave around build-to-order. But I was just wondering, when you look at new deals that are coming to market and maybe some stuff that's being retraded, are you all seeing some better pricing on land in the markets you all want to acquire land? Or how is that trending for new deal activity from a pricing perspective? James Brickman: This is Jim. On land that we don't want or lots that we don't want, we're seeing weak demand and lower prices. on land that produces high margins that we do want. Prices have been very sticky. We expect them to remain very sticky because for the very reasons that those type of properties can produce high margins at much lower risk. So it's a tale of 2 cities right now. The inferior locations, there's lots of trading going on, but we really have no interest in those deals. Jay McCanless: Okay. And then just my last question, just asking on incentives, and thank you for the color on backlog where you talked about Trophy only being 14% of the backlog. If you look at that other 86%, I guess, how -- what is the incentive load on that now versus maybe where it was a year ago? And essentially, what I'm asking is for those higher priced maybe to-be-built, a little more customization homes, are you having to throw in more incentives on those right now? Or is the all-in incentive load pretty similar to where it was at this point last year? Jed Dolson: Yes. I -- this is Jed. I'll answer that, and then Jeff can add some numbers to it. So we are having to -- on, say, $1 million-plus build job, we're having to give higher design center monies than we were a year ago. On a $600,000, $700,000 house, we've mentioned that we're shifting the buyers are more interested in the finished specs than the build to orders for those. So we are having to do closing cost incentives, rate buydowns, things we weren't having to do a year ago. Jeffery Cox: Yes. This is Jeff. So I'll just add that when we looked at incentives on closings during the quarter, we were 9.2%, up from 5.2% a year ago. And looking at incentives on new orders during the quarter, they did tick up a little bit to 10.2%. But so far, we've, again, had a tremendous month of February here. If we can pull back on incentives and maintain momentum, we'll certainly take a look at doing that. Operator: That concludes our question-and-answer session. I will now turn the conference back over to Jim Brickman for closing comments. James Brickman: Thank you for participating in our call today. If anyone has any questions, we're available to enhance what we discussed today and just give us a call. We appreciate your interest in our company. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Thank you for standing by, and welcome to the Aurelia Metals Limited FY '26 Half-Year Financial Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Bryan Quinn, Managing Director and Chief Executive Officer. Please go ahead. Bryan Quinn: Thank you for joining us to hear about the Aurelia Metals FY '26 Half Year Results. I am joined by Chief Financial Officer, Martin Cummings, today. And obviously, I'll pass over to Martin in certain sections of the presentation. While I'm on to Slide 1, this has been another great half-year, both operationally and financially, for Aurelia Metals. Our strong delivery on metal production and project delivery, supported by obviously strong commodity prices, has delivered a robust balance sheet and strong operating cash flow for the period. We continue to deliver strong results against our strategy, and we can see the benefits of this strategy playing out already. We are delivering consistent metal results from more reliable operations, but we've also have our mills working at new capacity at the current nameplate capacity, which has been a clear strategic deliverable over the past couple of years. During this period, we've also rolled out our mine operating system, our MOS, to really ensure that we're focusing on delivering our plan with the commitments of the team on a daily, shiftly, weekly, monthly basis, which is important for our future sustainability of the business. This has been a deliberate approach to ramping up Federation Mine at the right mining rate and long-term value of getting our ore from Peak mine over this period of time that delivers our 40,000 copper equivalent tonnes in FY '28. And our focus on our strategy is really about delivering superior value to our shareholders through a combination of future copper at 50% and future lead zinc at 50% coming out of the Great Cobar mines and the Federation mine in the coming years. This is going to continue to position Aurelia really well as we utilize the gold prices of today to invest in our business to achieve much higher prices in the future, hopefully, from copper and other commodities. In the meantime, we'll also be focusing on exploration team on looking to build our strong pipeline of options organically for both copper, base metals, and precious metals while expanding our Peak facility in the future. In today's results, Martin and myself will share how we're setting up Aurelia to continue to deliver value for our shareholders through our operations performance, while we continue to derisk our balance sheet and create significant cash much quicker than our peers into the future. Just refer to Slide 2, which is our forward-looking statement. On Slide 3, our operations have continued to deliver strong financial returns against, again, raising the bar from previous halves and results with underlying EBITDA up 41% and our underlying NPAT up 60%. There's still a lot more to come as we ramp up our high-grade Federation mine and complete expanding our processing capacity from the 800,000 tonnes capacity to 1.1 million to 1.2 million tonnes in the near future. We'll talk about that in a few slides. The great news for Aurelia is at the current nameplate capacity prior to expansion, and we are actually really focusing on building stocks in front of the mill coming up in the several couple of months. And I'd like to call out we've achieved record recoveries for some of our commodities as we've been ramping up these tonnes from our processing plant, which is a great result. The Federation ore body and the mine has been ramping up in line with our plan, actually a bit ahead of our plan for the year, and has been providing very encouraging grades, and the high-quality ore remains well on track to improve month-on-month as we go forward. We have our Great Cobar project, which will be accessing the future high-grade copper and gold deposits for FY '28 and beyond. And that's on track and on schedule at the moment, with our development is progressing quite well. And many of the other aspects of the project are delivering in line with the infrastructure works, the pipelines, and also the surface facilities that are being set up, ready for execution over the coming 12 months. So the project is in really good shape, and we're really happy how it's progressing. In line with our other projects, we have -- and we'll talk in more detail soon, other growth projects around the expansion of our plant. They're all on schedule at the moment, and we'll see some results of those coming up in the coming quarter, quarter 4, and obviously, quarter 1 of FY '27, which is exciting. It will deliver some really strong cash flows going into FY '27 with this expansion of our plant and business. And importantly, we actually have been able to really maintain a robust balance sheet, which is funding all of our growth from our balance sheet, which is something we're really proud of and setting us up for success also. And lastly, from our results in the half, it's important to call out the MREL results. We achieved a significant uplift to resources by 12% and reserve by 17%. This continues to show our ability to really find, explore, and actually develop our businesses into the future with this strong organic pipeline we've actually developed and will continue to develop. Importantly, during the half, we had several of our workforce did suffer hand and slip trip injuries across the business. As a result, our leadership have introduced behavioral-based safety programs and tightened up our induction and training programs on-site to really ensure that our people, when they come to work, wherever they're working, they just really think about hazards, use the tools and process we have, and ensure that they go home safely at the end of every day. That's an improvement we're working on every day to ensure that people all go home safely, and that's for the benefit of everyone. I'm just going to pass on to Martin now to talk around the highlights and the balance sheet. Over to you, Martin. Martin Cummings: Thanks, Bryan. So just moving on to Slide 4, and I'll just take you through some of the highlights. But obviously, in the Appendix 2, you'll find more detail on the financial results. I'll just point out when we're comparing on this slide, we're comparing to the first half of financial year '25. So starting with revenue, which was up 27%, and that was driven both by our strong production performance in the first half, but undoubtedly also from strong commodity prices. We did have significantly more zinc production and revenue in this quarter as volumes from Federation ramping up, but gold revenue did remain our dominant source, with around 53% of revenue coming from gold, about another 2% from silver. Our underlying EBITDA also benefited from the strong revenue, and we expect this to improve in the periods to come with the ramp-up of Federation. So as you know, this half, we booked the first commercial production from Federation, so commencing 1 July. And that production did come at a lower EBITDA margin initially. And as volumes ramp up, that EBITDA margin will expand. So as we increase our volumes into the second half and beyond, we expect our EBITDA margin to trend up accordingly. Our NPAT has been consistently growing, and we did again this year, underlying NPAT up 60% on that comparison period. Just within the NPAT, just some comments on depreciation. So that was slightly higher for the period, and that's driven by the first depreciation recognized from Federation. The prior period did have a little bit of depreciation in it relating to the last production from Dargues. So that depreciation will ramp up with the majority of the Federation assets depreciated on a unit of use basis. As those volumes ramp up, we expect the depreciation to tick up a bit as well. I'll just -- obviously, we're calling out operating cash on that slide, but I'll flip over to Slide 5 with the balance sheet. And what we're showing here is our regular chart for the 6-month period. And that operating cash flow from the Cobar region really is the standout with $51.2 million. That was up 37% on the prior period. Importantly, though, that does include all of the sustaining capital for both Peak and Federation. So that is a real cash flow generation before growth capital. Federation, as I said, is in that number. And as those volumes ramp up, that number is expected to increase with a higher contribution from Federation. I talked a bit about growth capital in the December quarterly call. We spent $21.4 million on growth capital for the half, and I do expect to see that increase in the second half. Within that, the plant expansion capital was only $4.3 million. So as we move further towards commissioning in those projects, the spend will ramp up. The Great Cobar spend of $11.2 million for the first half is largely in line with the ranges that we gave for FY '26 for Great Cobar. And there was a bit of spend for decline investment at Federation. I also talked in December about the tax bill. So we finalized our tax return and made a final tax payment for FY '25 of $12.2 million, and that's shown in the waterfall. But I guess the change I'm showing on this slide relates to restricted cash. So I just want to give you an update on where we're at with the refinance. Progress is -- the process is progressing really well. We are on track to agree to terms in this quarter. And I am targeting a financial close either within this quarter or early in the next quarter. Just to recap on what I'm looking for in the refinance is primarily an upsized performance bond facility. As you've been following, we've been cash backing bonds over and above the existing facility that we have, and we have $27.8 million at December sitting in restricted cash. That number is a bit higher today, we've announced that we had due in February. And really, the key there is to refinance that facility and add that cash back to the balance sheet. So I'm just showing you on that chart what cash could have looked like or will look like once that refinance is complete. So all in all, I'll leave it there, but it's another great half delivered by our ops team and really has meant that our balance sheet remains strong and able to fund all of our growth comfortably. So I'd just like to call out our Aurelia and Ernst & Young teams; some are on the call today just for their efforts in getting these releases finalized. It's been another smooth process. So thank you from me. And I'll just hand it back to you now, Bryan. Bryan Quinn: Thanks, Martin. Yes, some excellent results financially, and the balance sheet really supporting the business going forward, which is exciting for the team, a lot of good efforts going into that. If I could just move on to Slide 6. We're very happy how Federation is contributing to the bottom line now. It's ramping up very much in line with our plan. In fact, we do see it continuing to ramp up into the second half of this year, very much ahead of the plan, actually. So very exciting. What's been pleasing is the grade reconciling in line with our plan. And in fact, gold has been slightly better. But if you can sort of see between quarter 1 and quarter 2, some of those uplifts in our grades have been pretty much in line with what we explained to shareholders in the past that we see as we get deeper into some of these more sort of substantial ore bodies, we will definitely get the upside on the ore body grades, and we're seeing that coming through now as we have committed to do so. So that's good news for the ore body. In terms of Federation itself, the mine, look, we are continuing to advance the decline as we discussed in the quarterly. We are continuing to infill drilling as we push the decline down to really build confidence and get high confidence in our stope designs and our execution of our plans. That's giving us obviously pretty much upside to our business in terms of we can potentially bring extra tonnes out from our existing plan when we need to. All the infrastructure is in place now, all of the -- basically the infrastructure around the workshops, the site is just now operating as a mine and bringing tonnes out safely, putting them in the trucks and trucking them to the peak processing facility. And that's going to continue to ramp up as we build the mine and as we continue to build the expansion of the processing plant. It's worthwhile calling out we are continuing to drill the Federation West deposit, which is actually from underground towards Federation West to understand that deposit more as well, and that will be work that we'll continue to provide the market updates as we get the results from those areas. But overall, it's a well-executed project and ramping up really nicely in line with the commitments we made to the market. And this deposit continues to be one of the highest grade base metal mines, and we will continue to unlock future value for shareholders as we continue to mine -- as we continue to push the decline down and unpack the resource. So moving on to Slide 7. I just want to talk about the expansion and how we're tracking against the expansion for the Peak processing facility. It's important to reinforce that Federation is ramping up, as we just talked about. And we're currently just about nameplate capacity at the Peak plant. So the expansion coming on at this point in time is always about the timing to have the Tailington process water management in place in Q4 for this financial year, and then have the tertiary ball mill in place and commission in Q1 FY '27. And that lines up very well with the Federation ore ramping up as well and also delivery of ore out of both the Peak new Cobar side and the South Mine. So we'll be basically targeting the 800,000 tonne nameplate capacity we have now moving to the 1.1 million to 1.2 million tonne capacity. All of this is being self-funded, and that's a really important call out for investors. We're not seeking funding to do this, and the capital is very reasonable considering the upside in the potential cash that's going to come from this business as we build this. So we're well and truly on track for these projects. As you can sort of see in the photo of the slide, that's the ball mill that's come from Dargues. We repurposed that mill, have dismantled it, pulled it apart and have put it on truck, and brought it up to the Peak site. And very much -- it's now waiting for the construction work to happen to be able to place the ball mill in place. But -- and the substation or the power station substation that's come with it from Dargues has actually already been placed in place on its steel trusses and obviously the electrical work will commence very soon for that particular part of the project. In terms of the tailings and water management, that project is progressing well. And like I said, we are well and truly on track for Q4 for the project going forward. I will just move on to Slide 8, which is the growth in mineral resources and ore reserves. Look, this is really about our future, where the business goes, what we're extracting now, what we're going to extract in the future. But if you look at our pipeline between the Cobar at the top left-hand side of the plan to the Federation Mine at the bottom, we have a large set of tenements in dark gray, which we are actively exploring. And if you look at the sort of the portfolio of opportunities -- pipeline of opportunities on the right-hand side from peak copper, peak zinc lead, the mingy copper and the Federation, we have a large set of opportunities that we are working on in our long process going forward, obviously, to build our portfolio and optionality for maximum value. But right now, the real callout for us is the AMI was done in this half of FY '26 and 29 million tonnes, up 12% and obviously, our ore reserves are up 17% which is a testament to our exploration teams really looking hard at where we're discovering, working on the resource and obviously, how we can convert that into a development opportunity for ourselves in the current mines. So some really nice grades, really good resources, some good reserves all in France's business, and really, it's a great opportunity for really to enterprise that going forward. If I just move on to the next slide, which is Great Cobar. So as you're aware, obviously, the project was approved last year, and we kicked it off in July 1. It's progressing very, very well. It's -- basically, the development is a key priority right now, as is doing infrastructure work on the surface, getting ready for the shaft sinking at the back end of this calendar year. At the moment, development is pretty much on schedule. All the infrastructure works are on schedule. And like I said, it's sort of moving down the right direction to get towards that deposit. What is a really important call out, this investment case is materially higher at the current prices than we obviously put to the market last year. It's well worth running those through your models to see this potential uplift in value of the company. And like I said, this is going to be in production to commence within the next 2 years, which is exciting for the company. There is significant value upside potential that we know is under the current study and the current project deliverables we have. So if you look at the plan where the yellow line is sort of around the bottom of the stopping area, that 31, 31C, 31D holes, we do know what's there. And obviously, it's in our prioritization process now to develop the mine and the declines down to the top of the ore body, put some drilling platforms in place and basically work on infill drilling and also to drill under the current ore body as we know it, under the ore resource we know it and actually unpack what the potential is because we know the ore body is open at depth and in all directions actually. So this is materially a significantly good investment with the current prices. And also, like I said earlier, it's got value upside just in the resource, as we know, based on what we put in the feasibility study and the project execution plan versus what we know from the drill holes that have been done in the past in 2021. So a very exciting project for the business, and this will obviously provide a large proportion of the copper future that A really actually has as a company going forward. I'll just move on to the next slide, which is on the Nymagee slide, Slide 10. What's the next catalyst that we've been working on in H1 FY '26 is really the Nymagee exploration opportunity for future organic copper growth for our business. We had a massive uplift in resources that we reported in the MR in H1 of this year. Drilling is continuing over this calendar year to really look at growing this resource and understand what the potential is. It's really a suitable ore body for both the Hera and the Peak plant. And it's really important to understand the proximity of where this plant -- where this is relative to the Hera plant. It's all within 5 kilometers of the Hera plant. It's within close proximity to the camp and infrastructure we have for the Hera Federation group. And basically, it's all on sealed roads in that area. So realistically, it's a very nice location to have a catalyst for future pipeline of opportunities, which is all within stone business of your infrastructure that Aurelia actually own. And so one of the key focus points for us is obviously to continue to drill this work at the current present work that's being done. This deposit is not very deep. It's a couple of hundred meters deep and open at depth beyond 700 meters, as well as far as the work the team have actually done. So a very exciting opportunity. And obviously, it will be work in progress over the coming period beyond into H2 and into FY '27. Look, I just want to wrap up in terms of where we are against half 1 and what does it mean for us. We are building all the elements to deliver the growth and heading towards our 40,000 copper equivalent tonnes, as we've said, as part of our strategy for FY '28. We are building profitability as our production grows. And as you've sort of seen through the presentation, our volumes have increased and will continue to increase. We're putting the infrastructure in place to enable that, and the mines will continue to ramp up to support that. So we expect some really good results. At current NPAT up 60% in EBITDA -- underlying EBITDA at 41%. We can expect some really good results as we continue to build our business and the growth that goes behind that. We have a strong cash balance, and we haven't drawn down debt, as Martin talked about. So we feel like we're in a really strong position, especially relative to our peers. And we have been self-funding all of our work and all of our growth, which is obviously a testament to the hard work of the team and the results we've been delivering. Importantly, our execution of that Great Cobar is well and truly underway on schedule. Like I said earlier, it's really taking up nice shape, and we are prioritizing our drilling program from that Great Cobar decline work to ensure we unpack the potential future of what could be an amazing, even better deposit than we have in our resource base now. Our processing capacity available to mine -- to take all the mine ore. Our expansion, as I talked about, our first part of the expansion will be finished in quarter 4 FY '26. And then we'll be basically completing the second part of the expansion, which is the ball mill and the power unit that will be in FY '27. And really, we'll be in the 1.1 million to 1.2 million tonne capacity, and then the mines will be challenged to basically ensure that we're filling the mill again. We also have the Hera plant available for future options as we unpack our resources in the region, as I've just discussed around some of these catalyst opportunities we have. Importantly, as I said, we have 29 million tonnes of group mineral resource, and that's -- obviously, we have a proven track record to discover and to develop these ore bodies at a very, very good cost per tonne. And we've actually got a new highly experienced Chair has been appointed and has been involved in the first Board meeting, and very excited that Graham Hunt has joined the team and is going to provide very good direction and guidance to the Board and obviously to management as well. So all in all, we're in good shape, and we're heading in the right direction in line with our strategy. So with that presentation, I'll hand it over to Rocco to maybe take any questions we may have from the group who's dialed in today. Operator: [Operator Instructions] And today's first question comes from Daniel Roden at Jefferies. Daniel Roden: Good set of clean numbers. I probably got a few ones for you, to be honest. But I just thought if you could quickly just clarify the difference between the $9.1 million financing cost in the P&L versus the $2.7 million expense. How should we think about the, I guess, the assumed noncash differentials there? Is that rehab amortization style costs that are being thrown into that? And how do we think about that going into future periods? Bryan Quinn: Yes, it's about rehab unwind and also about amortization of borrowing costs incurred in previous periods. So that's -- they're the main items that sit in the noncash portion of that. Daniel Roden: And another boring one. D&A, I know we've spoken about it in previous periods, but just trying to get a sense of where D&A is going to fall kind of in second half FY '26 and FY '27, acknowledging it's pretty difficult with the change in operations. But yes, it's probably the only material change to expectations, I think, in the period. So just trying to get a sense of how that's going to balance out. Bryan Quinn: Yes. No. So let me just split the $23 million up for the first half. So roughly that was $15 million of Peak and around $8 million for just under $8 million, and there's a bit of corporate. So the $15 million is pretty solid for Peak. But as we reinvest in the plant and then start operating at the higher throughput, I expect that number to tick up a little bit. For Federation, as I say, around $8 million for the first half. I've got it at around $20 million for this year. So that will be the tick up in the second half. So group depreciation should land around sort of $50 million to $55 million for the year, and then be a bit higher next year as we're getting into those higher volumes out of Federation, primarily, you see it sort of step up a bit again. Daniel Roden: And just confirming the tax shield is largely exhausted, so you're now going to be a taxpayer going forward? Bryan Quinn: Yes, we are a taxpayer. You might recall back during COVID, we were taking advantage of those loss carryback provisions. So we were getting cash back through those '22, '23 period. So we effectively exhausted our tax shield in that way. All of the Dargues closure from FY '24 has been pushed through the FY '25 tax return. So now we're pretty clean, yes. Daniel Roden: Yes. And I'm sure I know the answer here, but I'd be remiss if I didn't ask it anyway. But -- just going to ask about the, I guess, the Aleris transaction. How do you -- do you see yourselves playing a role inside of that, given that the -- some of the key assets obviously have quite strong synergies potentially with your portfolio. Is that something that you're looking at or just happy to look at it from the sidelines? Martin Cummings: Look, I'll take that one. I think at this point in time, we're always looking at where the best growth options are for ourselves to fill our mill or mills. And we always look for what the best value is for our business in terms of what our shareholders would expect us to do. So we will continue to look at that. As we sort of said, we have a really good catalyst already. We have a great Cobar deposit, which is still lots of potential that we can drill, potentially unpack, and grow our business from. We have Nymagee, and we have lots of other sort of greenfield opportunities we're looking at as also. They will always be assessed against what other options are in the region that makes sense to us. And whatever the most value accretive is for the business, we will look at. So we won't give a definitive answer on anything we're looking at, but it's always about value. So if we have it in our pipeline and we have -- and we've got a pretty strong portfolio of resources ahead of ourselves that we'd have to pay additional for. So realistically, our mills are currently full with a nameplate capacity of 800,000. We're going to fill them again with our Federation and our ore bodies coming out of the Peak South mine, new Cobar and Great Cobar. And obviously, we're looking at, well, what do we -- when do we look at Hera and how we use Hera. But if we have the resource ourselves and we have it at a good price ourselves, we'll continue to look at that. But it's always about value, what's the best value for us. And we look at both organic and inorganic at the right time or based on what's going to shareholder outcomes. Operator: And our next question today comes from Paul Kaner at Ord Minnett. Paul Kaner: Just a couple of questions, if I may. Just firstly, on your balance sheet and growth projects, I guess you've sort of got $86 million of cash. You're about to refinance that facility and get that restricted cash as well. I mean, taking all of this into account, along with your outlook for cash flows, is there any sort of potential to fast-track some of your growth projects at this time? Bryan Quinn: Look, in terms of our growth projects, Great Cobar is on schedule at the moment. And you got a bunch of declines heading down to the project. We also have sufficient copper gold ore in Chesney, New Cobar, and Jubilee. So in terms of the mill, our focus is on drilling the mill and keeping the mill full, and as it expands, giving the mill full again. And then really, the acceleration will come from drilling programs, and we are funding the drilling programs a lot more in FY '26 than we have in FY '25 and '24, et cetera. So to be honest, if you look at the growth and acceleration, it's really about getting Federation ramped up, and it's going well, and getting Great Cobar developed and getting it drilled for further information, Lim drill for further information. So they're all progressing quite well. But at the end of the day, it's about what mill we want to fill the mill, give it mill full, and that's our focus right now because that will generate the most value for shareholders in the short and medium term, both at the Peak mill and obviously, options for the Hera mill. So as we continue to deliver, obviously, good cash flow and a very strong balance sheet, we'll continue looking at options to accelerate, and the Board will continue to challenge us on those acceleration options as well. And that will happen generically as we go forward. Paul Kaner: And then just secondly, just following on from Dan's question and I guess, looking at the organic versus inorganic approach and taking into account Nymagee there on Slide 10, sorry. You talked about sort of potentially processing Nymagee through both Hera or Peak. I guess what comes into consideration for this decision? Do you need more material to justify Hera restart? And I guess, how much CapEx would be required to restart the Hera mill to turn that back into, I guess, a copper con -- bulk copper con type processing plant? Bryan Quinn: Yes. Look, that's a good question. So we are looking holistically at -- obviously, Hera Mill is available. It's off the grid plant. And we're looking at -- well, with the combination of what we already have with Great Cobar, the New Cobar, the South Mine and Federation, what's the right configuration to maximize value with obviously commodity prices as they are today and where they will be in the future, what is that right combination. So as we get more information, we do want more resource information out of Nymagee before we make any decision, obviously, that's what the drilling program is all about. Once we have that information, we'll look at the trade-off of, well, where is the best position to go versus where is the best position for Federation to go versus where is the best position for the ores out of South Mine and North Great Cobar to go using the infrastructure we actually have. It's important to understand that we send trucks from Federation, they drive past full of ore, they drive past Hera, and they had their 9500 to Peak plant. That truck then turns around and comes back empty back towards past Nymagee, past Hera, back to Federation. So we actually have like a logistics chain already in place that can actually optimize on sealed roads, the access to those ore deposits, both at Great Cobar, the Peak South mine, Nymagee exploration area, Hera plant, and also Federation. It's one direct road basically, which is all sealed, which is in excellent condition. So it's all about optionality for us, and just thinking once we get the extra information on the resource, Nymagee, we'll then look at what does that mean. We'll get extra information out of Great Cobar in the next couple of years as well to see what that means. And we'll be continuing to drill in Peak South and Chesy areas as well. So it's about getting the options and optimizing them all with what you have. That's the organic side. And during that period, you'll also be looking at what's the inorganic options as well, which one of the things with inorganic options is they do cost you more money. You really don't know what some of the wood so you have a look. So I guess you've got to weigh up those sort of options all the time and see where you best to put your money for shareholder value. Paul Kaner: Yes, that's clear, Bryan. So I guess down the track, it's first and foremost, keeping that mill full there at peak, but then, I guess, any excess material down there, you could put back on the truck to come back up to Federation should you wish to restart the Hera mill and maybe combine that with Nymagee. Bryan Quinn: And then yes, and then the cost of what you put into the Hera mill will all be dependent on what ore source you put through there. Effectively, it depends on the ore, it depends on the actual -- the feed type we decide, which is best to go through Hera. That will obviously decide what the cost of capital will be to do that mill. In the past, we've sort of said $20 million to $30 million to restart Hera. That will all depend on the ore type we put through. And I'd say that you have to do a reassessment of that again, and I wouldn't definitely use those numbers in that assessment. I would think about what that looks like when we come up with the ore source feed for that. In the meantime, it's really important we do keep the mill full with the expanded numbers, 1.1 to 1.2 is going to be very, very good value and good cash flows for our shareholders. Operator: [Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Quinn for closing remarks. Bryan Quinn: Yes. Thanks very much, Rocco. Look, just to start with, I want to obviously thank the shareholders for continuing to support us and follow our strategy execution. We've talked about definitely all of our management and our people who are working every day to deliver the results, and the associated content partners and the strategic partners we have to support us as well. I'm really excited for where Aurelia is going. We are building the business step by step to get to this sort of larger volume in a very sequential way, funding our way to get there through our delivery, putting the systems in place behind us. We've got some great talent involved in our organization that is supporting this business going forward. And like I said, we have a very clear path to get there. You will see the profitability at the current prices will only get better as our production grows, as we expand. That balance sheet, as a result, will get strong, and there's lots of upside to the business in terms of where we're going with both the copper growth and also with the resource base we're looking at using as well going into the future. So thanks, everyone, for joining us. Really appreciate it, and we look forward to speaking to you at the next quarterly update. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Hello, everyone, and welcome to the Ingevity Fourth Quarter and Full Year 2025 Earnings Call and Webcast. [Operator Instructions] I will now hand over to our host, Surabhi Varshney of Ingevity to begin. Surabhi, please go ahead. Surabhi Varshney: Thank you. Good morning, and welcome to Ingevity's Fourth Quarter 2025 Earnings Call. Last evening, we posted a presentation on our investor site that you can use to follow today's discussion. It can be found on ir.ingevity.com under Events and Presentations. Also throughout this call, we may refer to non-GAAP financial measures, which are intended to supplement, not substitute for comparable GAAP measures. Definitions of these non-GAAP financial measures and reconciliations to comparable GAAP measures are included in our earnings release and are also in our most recent Form 10-K. We may also make forward-looking statements regarding future events and future financial performance of the company during this call, and we caution you that these statements are projections, and actual results or events may differ materially from these projections as further described in our earnings release. Slide 3. Today, you will hear from Dave Li, our CEO and President; and Phil Platt, Senior Vice President, Finance and Incoming CFO. Mary Dean Hall, our outgoing CFO, will also be joining us for Q&A. Our prepared comments will focus on full year total company results and will include both continuing and discontinued operations, which refer to the divested Industrial Specialties product line. We will take any questions related to the quarter during the Q&A session right after the prepared remarks. Dave, over to you. David Li: Thank you, Suri, and good morning, everyone. Please turn to Slide 4. Before we discuss the financial results, I'd like to remind everyone that in early December, we shared the findings of our strategic portfolio review through a virtual event. During this presentation, we laid out our plans for growing adjusted earnings per share by 10% and free cash flow per share by 5% through 2027. We also announced the decision to initiate sales processes for our Advanced Polymer Technologies segment and Road Markings product line. If you've not had a chance to listen to the webcast, I would highly recommend reviewing the materials on our website under Events and Presentations. I'm also pleased to confirm that on January 1, 2026, we completed the sale of our North Charleston CTO refinery and the majority of the Industrial Specialties product line to mainstream pine products. With this transaction complete, we have reduced our portfolio volatility, strengthened our profitability and cash flow profile and enhanced our strategic flexibility. Looking at our 2025 results, we are incredibly proud of the strong execution by our teams globally that enabled us to grow total company adjusted EBITDA by almost 10% over 2024, along with delivering industry-leading margins of over 30%. These results generated $274 million of free cash flow, slightly exceeding our commitments. We used the cash to pay down debt and reduce leverage to 2.6x and to buy back over 1 million shares. Performance Materials continue to generate EBITDA margins above 50% and held revenue flat despite lower global auto production, which was impacted by tariff uncertainty and supply chain challenges, delivering another year of near record level sales. This strong performance is a testament to the differentiated value that our activated carbon technology delivers to customers globally. The momentum from continued adoption of hybrids and fuel-efficient ICE vehicles is encouraging and supports our view of a long runway for this business. We also continue to be encouraged by the optimization of our filtration business and see a bright future and good fit for the company in this application space. Within the Performance Chemicals segment, we meaningfully lowered CTO exposure ahead of the Industrial Specialties divestiture. Also, Pavement Technologies grew year-over-year as our innovative solutions facilitated the extension of the paving season into late fall to allow catch-up of projects delayed by adverse weather earlier in the year. Advanced Polymer Technologies continue to face tough market conditions due to tariff uncertainty and competitive pressure, which we are addressing with disciplined commercial actions and productivity initiatives. Overall, we start 2026 with confidence and optimism as we continue to drive performance in our core businesses. And with that, I'll turn it over to Phil. Phillip Platt: Thank you, Dave, and good morning, all. Please turn to Slide 5. Consistent with last quarter and with our November 2025 outlook for the full year, I'll focus my comments on total company results, which will include both continuing and discontinued operations. As previously noted, beginning in the third quarter of 2025, the results of Industrial Specialties product line have been reported within discontinued operations. As Dave has mentioned, we completed the sale of that product line earlier this year. Total company full year 2025 sales of $1.3 billion declined 8% compared to last year. Performance Materials sales remained flat versus 2024 despite lower auto production driven by industry volatility from tariffs and supply chain disruptions. Performance Chemicals sales declined by $86 million, primarily due to our repositioning actions within Industrial Specialties. We also continue to see weakness in demand from indirect tariffs and competitive pressures in Advanced Polymer Technologies. In 2025, we recorded a GAAP net loss of $167 million, which included $337 million of pretax special charges. These charges primarily consisted of a noncash goodwill impairment of $184 million in Advanced Polymer Technologies and a noncash asset impairment of $109 million in road markings. For the remainder of my remarks, I will focus on the non-GAAP results, which exclude these special charges. Reconciliations of our non-GAAP financial measures to the most comparable GAAP measures are included in the appendix to this presentation. Adjusted gross profit of $556 million increased 6.8% year-over-year, with gross margin expanding by 610 basis points. Total adjusted EBITDA increased 10% year-over-year to $398 million, with margins expanding 500 basis points to 30.8%. Total diluted adjusted EPS improved 30% to $4.55. This improvement in profitability reflects the successful execution of our PC repositioning actions, which has also resulted in lower overall raw materials, supply chain efficiencies and plant footprint optimization. SG&A increased primarily due to higher variable compensation expense, driven by improved business performance. We delivered industry-leading margins, and this performance is a clear testament to the resilience and strength of our business model. Moving on to Slide 6. In the top left chart, you'll see how our strong earnings performance and disciplined capital management translated into free cash flow of $274 million, the highest level that we have generated in the past 5 years and exceeded our updated guidance from November. The $220 million increase from 2024 was driven by the absence of approximately $180 million in cash outflows related to the Performance Chemicals repositioning, higher overall earnings and a working capital benefit in Industrial Specialties. With this free cash flow, we resumed share repurchases in 2025, deploying $56 million to repurchase approximately 1 million shares. At year-end, our remaining share repurchase authorization was just under $300 million. At the beginning of 2025, we committed to derisking our balance sheet and reducing net leverage from 3.5x to below 2.8x. Through our disciplined capital management, we exceeded that target, reducing net leverage to 2.6x, nearly a full turn improvement versus the prior year. Importantly, this reduction does not include any of the proceeds from the sale of our Industrial Specialties product line, which closed in early January. With that, let's dive into segment results, beginning with Performance Materials on Slide 7. Sales of $607 million were in line with the prior year, which is a strong result given that 2024 was a record year for that business. Throughout 2025, the automotive industry faced significant disruption from tariff uncertainties, fires and chip shortages. Against that backdrop, the resilience of our Performance Materials business becomes evident. While these dynamics led to slightly lower volumes, disciplined pricing actions helped to offset that impact, allowing us to hold year-over-year sales essentially flat. Segment EBITDA declined 2% year-over-year due to lower volume and higher SG&A. Despite this, EBITDA margin remained strong at 53.8%. Looking ahead, we remain confident that this business will maintain margins north of 50%, supported by its technology-leading position and proven high-quality solutions that provide a compelling value proposition for both automotive and filtration customers. Moving on to Performance Chemicals on Slide 8. The combined Performance Chemicals results presented here include both continuing and discontinued operations, which means results from the divested Industrial Specialties product line are in the numbers. A reconciliation of Performance Chemicals results on a continuing operations basis to the total segment results is provided on this slide. As you'll note, the sales of the previously reported Road Technologies product line have been split into, Pavement Technologies and Road Markings, which together represent Performance Chemicals continuing operations segment. Since we have initiated the sales process for Road Markings, we are now presenting its sales separately. Upon completion of that process, the segment will be renamed from Performance Chemicals to Pavement Technologies. Total segment sales declined primarily due to the execution of the repositioning actions of the Industrial Specialties product line. Pavement Technologies 2025 sales remained flat to 2024 as volume growth in NAFTA region was largely offset by lower infrastructure spend in South America. Pavement Technologies also benefited from pricing and favorable mix shift. While adverse wet weather impacted results in the first half of 2025, demand shifted into the second half and a combination of good weather and our season extending technology enabled many projects to be completed within the year. Road Markings continue to experience price pressure from competition, although volumes grew slightly. Total segment EBITDA increased by $45 million over prior year, driven by the successful execution of our PC repositioning actions, which have resulted in lower overall raw material costs, improved logistics costs and a more efficient manufacturing footprint. These actions helped to improve Industrial Specialties EBITDA by $40 million year-over-year. Performance Chemicals continuing EBITDA, which includes Pavement Technologies and Road Markings, increased by $7 million or 12%, supported by improved pricing, favorable mix and lower raw material costs, partially offset by volume declines and higher SG&A. As a result, combined segment EBITDA margin expanded to 13.5%, up from 4% last year. Please turn to Slide 9. During 2025, APT faced headwinds from the indirect impact of tariffs and continued weak end market demand, primarily in automotive, footwear and industrial end markets. In addition, competitive dynamics in China continue to pressure sales, most notably in the paint protective film markets. As a result, sales declined 15% and segment EBITDA was 18% lower year-over-year due to volume declines that more than offset improved operating efficiency. Despite these pressures, we held pricing and maintained a stable mix. The team remained focused on operational discipline, which drove more reliable plant production and reduced operating costs. These efforts, combined with favorable foreign exchange, enabled a strong EBITDA margin of 20%. Overall, 2025 was a great year. Our focus on execution generated solid earnings, driven by operational improvements and footprint optimization despite weak end market demand, tariff uncertainties and supply chain disruptions. We generated robust free cash flow, which enabled us to meaningfully reduce leverage and resume returning cash to investors via share buyback. Looking ahead, we expect to reach and maintain our target leverage ratio of 2 to 2.5x this year and complete $300 million of share repurchases through 2027. I will now turn the call back to Dave to share additional color on guidance for 2026. David Li: Thanks, Phil. Turning to Slide 10. Please note that the 2026 guidance includes a full year of APT and Road Markings. But excludes the divested Industrial Specialties product line. Sales processes for both APT and Road Markings are underway and we are encouraged by the interest shown in both. We will provide updates as they advance and revise our outlook accordingly. We expect 2026 adjusted EPS to be in the range of $4.08 and to $5.20 in a year where we do not expect meaningful recovery in the global economy. Sales are expected to be between $1.1 billion and $1.2 billion and adjusted EBITDA between $380 million and $400 million. Performance Materials sales are expected to grow low single digits supported by price increases in automotive, while delivering margins consistent with 2025. Sales in Performance Chemicals, including Road Markings, are expected to grow mid-single digits with EBITDA margins in the mid-teens, reflecting our strong industry leadership and strategic advocacy efforts. In APT, we expect flat to low single-digit growth with margins around 20% as recent commercial and productivity actions offset competitive pressures and weak end market demand. CapEx should be consistent with 2025 and be in the range of $40 million to $60 million. We expect to generate free cash flow of $225 million to $250 million. This amount does not include approximately $95 million in pretax litigation-related payments to BASF in the second quarter. We plan to use the free cash flow to continue buying back shares in line with our prior guidance of $300 million through 2027. So far in the first quarter, we've repurchased almost $20 million worth of shares. Additionally, we plan to reduce and maintain net leverage within our long-term target range of 2 to 2.5x in 2026. In 2025, we focused on stabilizing the business and optimizing our portfolio. That translated to total shareholder return of 45%, highest amongst our specialty chemicals peers and top quartile among the Russell 2000 materials companies. We entered 2026 with good momentum and we'll continue to execute the portfolio strategy, drive performance in our core businesses and build Ingevity into a premier specialty materials company. With that, I'll turn it over for questions. Operator: [Operator Instructions] Our first question comes from John McNulty of BMO. John McNulty: Maybe we can start out. Just can you give us an update as to the progress you may be seeing regarding the potential asset sales and I guess somewhat related to that on the $300 million of buybacks that you expect to do between now and the end of '27, does that come regardless of the asset sales? Is it dependent on the asset sales? I mean it looks like it generates really solid free cash anyway. But I guess if you could help us to put that into context, that would be helpful. David Li: Yes, thanks. I'll provide an update on the processes, and then I'll let Phil talk to sort of the cash flow. We're very encouraged, obviously, with the cash flow generation of the business. So for both processes for APT and Road Markings, they continue to progress. We're encouraged by the interest shown in both assets. Obviously, we're going to be focused on value, and we continue to expect that we'll announce something before the end of the year. And so things continue to progress, we'll obviously also update our guidance as things go along, but seeing good interest for both assets, and we'll be focused on value. Phillip Platt: Yes. And with respect to the share buybacks and the proceeds, John, as Dave mentioned during the prepared remarks, the outlook does not include any of the proceeds associated with the APT or the Road Markings potential sales. So we would expect to continue to execute those buybacks of $300 million over the next 2 years. And the way you could think about it is take a ratable cadence throughout the year is how we're thinking about it in our guide. John McNulty: Got it. Okay. Fair enough. And then maybe just as a follow-up, on the $15 million of stranded costs that you expect to exit by the end of the year. I guess, can you help us to think about how much of that's pretty much locked in stone at this point? And also maybe how to think about the cadence as that flows throughout the year? Is it pretty much even like each quarter? Or how does -- is it lumpier? I guess how should we be thinking about that? David Li: Phil, why don't you take that one? Phillip Platt: Yes. So as we said, we definitely have a clear line of sight to eliminate that $15 million by the end of the year. I think the way to look at it is it's going to be accumulating throughout the year. More so in the back end of the year than the front end of the year. Some of those costs are tied in the TSA that we expect to hopefully wrap up midyear. So that's how you can kind of think about the cadence throughout the year. Operator: [Operator Instructions] Our next question comes from John Tanwanteng of CJS. Lee Jagoda: It's actually Lee Jagoda for Jon. So I guess David, can we start on the Performance Materials business? And maybe talk through some of your assumptions on the auto production volume side. And if you can get into some geographic commentary, that would be helpful. And then also in terms of just the seasonal cadence, just given some of the headwinds we've seen in the U.S. coming out of Q4 into Q1, that would be helpful. David Li: Sure. So just as we think about the guidance that we just provided, what we sort of comprehended from an auto backdrop is stable, not predicting any very strong recovery. But if you pull back and think about what the auto industry has faced, it's -- in 2025, it's been remarkably resilient. So -- and Phil had some comments in the prepared remarks about the tariff uncertainty and supply chain challenges. But overall, we see it as a very resilient market. And then -- and if you also think about the recent trend, especially in North America, where you've seen the pace of EV adoption really slowed down. And I think there was just an announcement today by Stellantis of really leaning into some of their more ICE efficient hybrid product lines, and you've seen similar remarks by Ford. So especially in the key North American market where we have obviously the largest portion of our business, we see a positive trend there. But just to be clear, for 2026, what we've kind of baked in is a pretty stable environment. And then talking about the fourth quarter that we just reported, we did see some of those supply chain challenges, whether it was the aluminum fire affecting Ford F-150. I think they've been pretty public about how they think about that and that production delay, or Honda with the chip shortages. I think they're still working through those. And our assumption and understanding is that production and demand would be made up this year. Ford mentioned more second half based. But we think of it as a pretty stable environment with potentially some upside if those supply chain issues abate as well as in the backdrop of this reduced EV adoption trend that we're seeing in North America. Lee Jagoda: Great. And then I know at the investor event, you sort of talked about the ability or the want to grow outside of automotive in Performance Materials in a margin-accretive fashion. Is any of that -- any of those new products, new programs assumed in guidance? And just from a bigger picture standpoint, how long should we expect it to take to start to see some of the progress that you are making in the reported results? David Li: Yes. Thanks, Lee. So what I think you're referring to is our focus in the near term, or kind of nearing on filtration. And we're definitely encouraged by what we see there. Our focus is on the higher-value applications in filtration. So we are already participating in a pretty significant way. We sell millions of pounds of our activated carbon into the filtration markets and the opportunity is just to optimize that volume into the higher value applications. So those are -- we're definitely in the discovery process, thinking about where we have technical capabilities. Early on, we've identified, obviously, water as an area of focus, but also pharma and food and beverage. So if we think about where we have technical advantage over other activated carbons, it's about the speed of the separation that we're able to provide, the selectivity. So we're good at taking out large molecules. Good at taking out flavor and odor. There's also a mouth feel to some of our technical competence. So we're trying to -- we're definitely in the discovery process, but we're encouraged, and we've seen some good support from some of those end markets. So stay tuned. The filtration aspect is built into our guidance, but it's a pretty small base right now. We expect it to expand over the next couple of years. And then further out, we've talked about our interest to expand into energy solutions. So those are investments like Nexeon and CHASM. Those are not reflected in our next 2-year financial outlooks, but we're also encouraged by our participation in those areas. Operator: Our next question comes from Daniel Rizzo of Jefferies. Daniel Rizzo: So if we think about the 3 different segments as they are now, what -- how should we think about peak or mid-cycle margins for both the new Road Markings business or the new Pavement business and APT once a recovery occurs? And in Performance Materials, is this kind of are we at peak or maybe even -- I mean, a little bit below the peak of what we would expect, particularly given the moves you guys expect to make over the next couple of years? David Li: Yes. Dan, let me start and then maybe Phil can provide some more color. So for the 3 segments, Performance Materials, we're in the 50s. We've been in the 50s. That's a pretty heady space to be in, and we expect to maintain that. We will continue increasing prices in the automotive aspect area as we've done in the past. So there could be some upside as well as when we get traction in filtration. But obviously, 50%, it's a good place to be. So I'd assume somewhere north of 50% for Performance Materials. For Performance Chemicals, when and if we transact Road Markings, we would expect some uplift to the margins there. So -- and even in our investor update, we said sort of the higher teens or 18% that continues to be our expectation. APT has been in the 20s before. I think it's a very healthy profitable business for us and obviously, assuming we don't transact, we see some upside there as well as we go in some higher-value applications, but assume sort of kind of low to mid-20s for that business. But Phil, why don't you some more color. Phillip Platt: Dave, I think you pretty much covered it all. The only thing I would add is in the guide for Performance Chemicals for the full year, we're guiding mid-teens as Dave mentioned. That's a composition of both the businesses, Performance Technologies as well as Road Markings. Obviously, Road Marking is a lower-margin business and currently, diluting some of those margins. But also embedded in that is some of the stranded costs that are carried over into this year. So -- but as Dave just mentioned, looking further out in 2027, we would expect that segment Pavement Technologies by itself to put up around 18% margins. Daniel Rizzo: Okay. And then with the sale of Industrial Specialties and the new Pavement and Road Markings business, should we expect all the EBITDA for those 2 segments I say, almost all in the second and third quarters, just given the weather-related aspect of those businesses? Phillip Platt: Yes, Dan, that's actually a great question. We've always talked about the Performance Chemicals segment as being very seasonal Q2, Q3. It was muted in prior years by the Industrial Specialties business, which was pretty steady across all 4 quarters of the calendar year. Now that Industrial Specialties is gone from that portfolio, you'll be able to see the numbers in the 10-K when we release that later today. But about 90% of the annual EBITDA for that business is going to be recognized in Q2 and Q3 and 75% of the sales will be in Q2 and Q3. So it will become more prominent from a seasonality perspective. Operator: [Operator Instructions] Our next question comes from Mike Sison of Wells Fargo. Michael Sison: Nice quarter and outlook. Could you remind me for Performance Materials, I recall the fact that you use wood to create your activated carbon, gives you a pretty big edge in the auto side. Does that sort of technology or base help you in the other areas and maybe more chemistry-wise, why would that help you get a more premium area in other areas like water treatment and such? David Li: Thanks, Mike. We're definitely early in that process of identifying where we're actually adding value. Just to remind, this is a business that as an area of filtration that we've been participating in for many years. So the opportunity now is to spend more time with those end customers and understand exactly your question, where can -- where we actually differentiate in adding value. And we have, in many areas identified that this hardwood-based activated carbon, the way we engineer it has unique separation properties that are valued by our customers. So in certain application, we actually understand that our activated carbon is combined with a lower grade activated carbon because we're actually able to provide that key separation technology. So again, early on, but the sectors that we're going to be focused on are water pharma and food and beverage. Those we think we have a technical advantage on. And again, this is just also a benefit of having that simplified portfolio, having the ability to focus more resources in these high potential growth areas is something that we're excited to do and expect to hear more from us in the future. Michael Sison: Got it. And then could you remind us any major regulation over the next couple of years, to even decade that could sort of sort of generate some growth for Performance Materials. I think China may be going to a Tier 3 at some point? And maybe any other areas? And then just kind of the mix of the outlook when you talk to customers? I mean, hybrids have been good. Any thoughts on sort of more of that versus EVs or anything else? David Li: Sure. So I mentioned, I think, in the first question, North America, we feel really good about that, and that's obviously our core market, especially in the backdrop of this reduced EV adoption which we think will continue for the foreseeable future. You mentioned regulation. So the next most significant piece of regulation will likely be China 7. So that's China moving to essentially a Tier 3. Our teams are working closely with the folks in China. We continue to expect that to be adopted towards the end of the 2020. So 2028, 2029, you could see some buildup of inventory ahead of that. But that would be a pretty significant upgrade and more stringent emissions requirements that would require things like honeycombs, which obviously would be good for Ingevity. Another region, I think, to pay close attention to is India. So India is a growing and mobilizing population, and they also have a pretty significant pollution issue. They also have very hot summers there. And so they're going to need to do something from an emission standard perspective. We're also working closely with them in terms of the emissions, regulatory bodies there and would expect to see something there. They're obviously earlier on in their journey of emissions requirements. So I think that's been a positive. And then the last one, I mentioned North America. But recently, there's been some changes by the administration. Things like the Endangerment Act. We actually think that's going to be a positive for Ingevity because without getting into too much detail in the previous regulations that have now been taken away for an automaker to be in compliance, essentially a larger and larger portion of their mix would have to be EV. So now without those gone away, it really clears the runway for more ICE -- fuel-efficient ICE and hybrid parts of their portfolio, and you see them leading into that. So the North America backdrop also seems to be very promising for us as we look forward. Michael Sison: And one quick last one. For Pavement Technologies, are there opportunities for acquisitions? Your balance sheet is in pretty good shape. Maybe to add that as some growth over time? And maybe talk about some regions that could be a good area for you? Or are there other sort of technologies or product lines that would fit well? David Li: Yes. We love the technologies that we have. We see a lot of runway for growth, especially with Evotherm. So converting that hot mix asphalt to a warm mix with significant value and technology advantages for our customers. Never say never, but I think we've been pretty public about for the next at least a couple of years, acquisitions are not going to be a priority for us. Instead, we really want to focus on generating that cash flow and reducing the leverage on the balance sheet as well as buying back shares. Operator: We have no further questions registered on today's call. So I hand back over to Dave Li for any closing or final comments. David Li: Thanks. And as we wrap up, I would just like to remind our investors that new Ingevity is a simplified, more predictable and extremely profitable specialty materials company. The company is highly cash generative, and we are committed to returning cash to investors. Our focus in 2026 will be the continued execution of our commercial and operating strategies so that we can deliver growth year-over-year on every metric from sales to EPS. And lastly, as we close the call, I would like to again thank and congratulate Mary Hall, our outgoing CFO, on reaching this milestone in her career. This will be her last earnings call with us, and we are grateful for her years of service and contributions at Ingevity. Thanks everyone for their interest. And with that, Charlie, you can close the call. Operator: Thank you. Of course. Ladies and gentlemen, this does conclude today's call. Thank you so much for joining. You may now disconnect your lines.
Operator: Good morning, and welcome to the Viatris Inc. Q4 2025 earnings call. Today, all participants are in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key, followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2. Please note that today's event is being recorded. I would now like to turn the conference over to Mr. Bill Szablewski, Head of Capital Markets. Please go ahead. Bill Szablewski: Good morning, everyone. Welcome to our Q4 2025 earnings call. With us today is our CEO, Scott Smith, CFO, Doretta Mistras, Chief R&D Officer, Philippe Martin, and Chief Commercial Officer, Corinne Le Goff. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2026 and various strategic initiatives. Those statements are subject to risks and uncertainties. We will also be referring to certain actual and projected non-GAAP financial measures. Please refer to today's slide presentation and our SEC filings for more information, including reconciliations for those non-GAAP measures to the most directly comparable GAAP measures. When discussing 2025 actual or reported results, we will be making certain comparisons to 2024 actual or reported results on a divestiture-adjusted operational basis, which excludes the impact of foreign currency rates and also excludes the proportionate results from the divestitures that closed in 2024 from the 2024 period. We may refer to those as changes on an operational basis. When comparing our 2025 actual or reported results to our expectations, we are making comparisons to our 2025 financial guidance. When discussing our expectations for 2026, we will be making certain comparisons to 2025 actual or reported results on an operational basis, which excludes the impact of foreign currency rates. With that, I will hand the call over to our CEO, Scott Smith. Scott Smith: Good morning, everyone. 2025 was a strong year for Viatris Inc., and I am very proud of what we are able to accomplish across all our strategic priorities. The result of all that great work is that we have positioned the company to enter a period of long-term sustainable growth beginning in 2026. Specifically, for 2025, we drove strong commercial performance across our global portfolio, continued to stabilize and strengthen our base business, and delivered solid results, including $14.3 billion in total revenues, representing approximately 2% growth versus 2024, excluding the India pack, and adjusted EBITDA of $4.2 billion. We advanced our pipeline, including five positive phase 3 readouts, and made significant regulatory progress on multiple assets. Importantly, we also advanced both cenerimod and Soladragrom, their phase 3 trials, with full enrollment for both programs expected in 2026. We prioritized capital return with more than $1 billion in capital return to shareholders through dividends and share repurchases. We targeted accretive regional business development, completing 60 regional transactions, including our acquisition of Aculys Pharma in Japan. For our India facility, we met with the FDA in November to review our progress and discuss potential timing for reinspection. That timing remains at the agency's discretion, we will be ready for reinspection this year. In the meantime, we have built operational redundancies and alternative supply sources. We have just completed our enterprise-wide strategic review. As a result, we have identified opportunities from across our company to optimize our cost structure, improve our resource allocation, and strengthen our operational efficiency. We are expecting to deliver approximately $650 million in gross cost savings over a 3-year period. We plan to reinvest up to $250 million during that same period. We are creating this reinvestment capacity to invest in areas that enhance the growth profile and long-term competitiveness of the company, such as sharpening our commercial execution and go-to-market effectiveness, advancing our R&D and innovative assets, and continuing to build the capabilities we need to enable sustained success. In addition, we have identified three strategic imperatives that will shape our future. We will drive our base business by executing successful launches, focusing on supply chain continuity, evolving our generics portfolio over time towards more profitable, higher-margin products, and strengthening our established brand portfolio. We will fuel our innovative portfolio by advancing a pipeline of late-stage and in-market growth assets sourced both internally and externally. We will modernize for sustainable growth by strengthening our technology, data, and talent capabilities to enable sustained success in a rapidly evolving healthcare environment. Together, we expect these actions will accelerate the transformation of Viatris Inc. into a more focused, efficient, and future-ready organization and position the company to enter a period of sustained revenue and earnings growth beginning in 2026. There has been a lot of work over the last year, really over the last few years to get us to this point. A sincere thank you to the more than 30,000 employees of Viatris Inc. for your thoughtful and focused execution. Your contributions make a real difference for our company and for the approximately 1 billion patients we serve around the world every year. As we look to 2026, we expect another year of strong execution. Specifically, we will be very focused on delivering strong financial performance and driving commercial execution across our businesses, including the anticipated launches of our low-dose estrogen weekly patch in the U.S. and EFFEXOR for generalized anxiety disorder in Japan, while preparing for launch of fast-acting meloxicam. From a pipeline perspective, we are hoping for regulatory decisions for six product candidates, including EFFEXOR and pitolisant in Japan, fast-acting meloxicam, low-dose estrogen weekly patch, and Ryzumvi for presbyopia in the U.S. We are expecting regulatory decisions for Empexa in Australia and Canada. We are also expecting a number of meaningful phase 3 data readouts this year and to reach full enrollment in several priority phase 3 programs. From a capital perspective, we expect to generate robust cash flow in 2026, which will give us significant financial flexibility to continue with our balanced capital allocation approach. We have also reiterated our commitment to our dividend in 2026. At the same time, we are focused on building a portfolio of growth assets through business development and continued execution of our internal pipeline. From a business development perspective, we are targeting accretive high growth in market assets. Finally, with the completion of our enterprise-wide strategic review, we will focus on evolving and modernizing our organization to strengthen our operating model and ensure sustained growth. We look forward to sharing more details at our investor event on March 19th, including our long-term outlook for revenue and earnings growth and our portfolio strategy across generics, established and innovative brands. We will also provide a deep look at our R&D capabilities and key pipeline programs, as well as our commercial strategy and how we are building the capabilities needed to execute upcoming launches. To summarize, we believe 2026 is shaping up to be a pivotal year for Viatris Inc., one where strong execution, disciplined capital allocation, and the benefits of our strategic review will begin translating into sustained, profitable growth and long-term value creation. I will now turn it over to Philippe. Philippe Martin: Thank you, Scott. 2025 was an outstanding year from a research and development perspective. We achieved five positive phase 3 readouts, advanced trial enrollment, and delivered numerous regulatory milestones across multiple therapeutic areas, technologies, and regions. The strong momentum sets the foundation for what we aim to achieve this year. Our 2026 R&D priorities are to secure eight regulatory approvals for six product candidates to progress our innovative portfolio, advance six phase 3 development programs, and continue to drive our generic pipeline and established brands portfolio, which together accounts for more than 100 new product approvals expected globally in 2026. At our upcoming investor event, we will share a comprehensive update on our pipeline. Today, I will focus on high-level updates, beginning with regulatory submissions. In Japan, we expect a regulatory decision for EFFEXOR for the treatment of generalized anxiety disorder in March this year. If approved, this will be the first and only treatment for generalized anxiety disorder in Japan, which would represent an important medical milestone for approximately 8 million Japanese patients estimated to be affected by this condition. The Japanese health authority, the NDA, is also reviewing the 2 JNDAs for pitolisant that we submitted last year, one for excessive daytime sleepiness associated with obstructive sleep apnea and the other associated with narcolepsy type 1 and 2. We anticipate regulatory decisions for both indications in the second half of 2026. Pitolisant has the potential to be a first-line, non-controlled treatment option for these indications in Japan. In the U.S., FDA recently accepted our SNDA for phenylephrine ophthalmic solution for the treatment of presbyopia and assigned a PDUFA goal date of October 17th, 2026. Phenylephrine offers a physiological approach to treating presbyopia that relaxes the iris dilator muscle to improve near vision without engaging the ciliary muscle, which helps preserve distance vision. Data from our VEGA-3 pivotal trial will be presented at the American Society of Cataract and Refractive Surgery Conference in April and at the Association for Research in Vision and Ophthalmology conference in May. Regarding our low-dose estrogen weekly patch for contraception, the FDA accepted our NDA for review late last year, assigning a PDUFA goal date of July 30, 2026. This patch addresses an important need for women seeking a reversible transdermal birth control option with lower estrogen exposure and potential best-in-class adhesion. Results from our phase 3 study will be presented at the American College of Obstetricians and Gynecologists conference in May. We remain excited about our fast-acting meloxicam for the treatment of moderate to severe acute pain, including postoperative pain, which has demonstrated in clinical trial a reduced need for opioid analgesics. We recently had a positive pre-NDA meeting with the FDA. Based on the outcome of this meeting, we anticipate submitting our NDA by the end of this month. With regards to sotagliflozin, we successfully submitted multiple filings last year and anticipate regulatory decision from Australia and Canada later this year. Sotagliflozin is emerging as the best-in-class SGLT inhibitor, which we believe uniquely provides early benefit in reducing heart failure-related outcomes.... Consistent with this dual SGLT1 and SGLT2 inhibition, sotagliflozin is the first SGLT inhibitor to demonstrate a significant reduction in MI and stroke. Turning to brief updates on our phase 3 development programs, beginning with cenerimod in SLE. The OPUS-2 study was fully enrolled last year, and I am pleased to share that we recently closed the enrollment for the OPUS-1 study. This marks a significant milestone, reflecting the Viatris Inc. team's ability to execute on an ambitious recruitment strategy. Importantly, we enrolled a high proportion of patients with high Type I interferon signature. Recall that in our Phase 2 CARE study, this population demonstrated the greatest treatment effect. If successful, cenerimod has the potential to offer a differentiated oral treatment option for patients with SLE by targeting the S1P1 pathway, with the goal of improving disease control while maintaining a favorable safety profile when given in combination with standard of care treatment. We are also advancing our cenerimod phase 3 study in lupus nephritis, and are actively randomizing patients into the study. For selatogrel, a potential life-saving, self-administered medicine for patients with a history of acute myocardial infarction or heart attack, our enrollment rate in our phase 3 trial has accelerated to approximately 1,200 patients per month, and we expect full enrollment by the end of this year. Phase 3 enrollment for our norelgestromin-only weekly patch is ongoing and is expected to be completed in the first half of this year. This product candidate complements our U.S. portfolio and pipeline. It is a progestin-only contraceptive transdermal system designed for women with medical comorbidities, including those with a BMI of 30 or higher, and for those who prefer to avoid estrogen exposure with known safety risks. Moving to our phase 3 study of Nefecon for the treatment of IgA nephropathy in Japan. We expect a top-line readout in the first half of this year. If successful, Nefecon has the potential to become a first-line disease-modifying therapy in Japan for IgA nephropathy. It is the first targeted release formulation designed to reduce the production of galactose-deficient IgA1 at its source in the gut. IgA nephropathy remains a significant unmet medical need, particularly in Japan, where disease prevalence is high. Finally, we are advancing our Influvac High Dose phase 3 program, which will present a strategic life cycle extension of our current Influvac vaccine in Europe. Influvac High Dose has the potential to offer patients, particularly those aged 60 and older, an enhanced immune response compared to the standard dose. The consistent execution of our pipeline over the past year demonstrate the rigor we are bringing to our development programs. I look forward to sharing more on March 19th about our R&D strategy and how we plan to accelerate innovation and increase the value we deliver to the business and to patients worldwide. Now I will turn it over to Doretta. Doretta Mistras: Thank you, Philippe. Good morning, everyone. My remarks today will focus on the key highlights from our fourth quarter and full year 2025 results, and our growth outlook for 2026, which we believe will be powered by continued commercial momentum and the anticipated benefits from our strategic review. Building on Scott's comments, we are proud of our team's strong performance in 2025. Our fourth quarter and full year results reflect disciplined execution across our diversified global business and, importantly, strong momentum as we exited the year. We reported total revenues for the fourth quarter of $3.7 billion, up 1% versus the prior year, excluding the indoor impact. This result was driven by strong commercial performance across key regions. In Greater China, growth was supported by demand in our cardiovascular portfolio. In Europe and emerging markets, growth was driven by the breadth and competitive strength of our portfolio. Moving to full year 2025 results, we delivered total revenues of $14.3 billion, in line with our expectations, and up 2% versus the prior year, excluding the indoor impact. Adjusted EBITDA of $4.2 billion, reflecting solid operating performance, adjusted EPS of $2.35 per share, and free cash flow, excluding transaction-related costs of $2.2 billion. Importantly, we prioritized capital return with over $1 billion returned to shareholders, including share buybacks and dividends. Turning now to our outlook for 2026. We expect to build on our positive momentum exiting 2025 and establish a clear baseline for sustainable growth. We are guiding to approximately 2% total revenue and adjusted EBITDA growth versus 2025. A key enabler of this growth is the company's strategic review, which is expected to deliver approximately $650 million of gross cost savings or $400 million of net savings after reinvestment. These cost savings are expected to be evenly balanced between SG&A efficiencies and COGS optimization, and phased over a three-year period, with full run rate benefits realized in 2029. Importantly, we plan to reinvest up to $250 million of these cost savings into areas we anticipate will drive our future growth. This includes strengthening our commercial execution for near-term launches, advancing our innovative assets, and building the capabilities required for success. We believe these efforts will not only strengthen our competitiveness, but also support sustainable growth over the long term. Now, here is what we expect to accomplish in 2026. We are very excited about the anticipated launches of EFFEXOR, low-dose estrogen weekly patch, and sotagliflozin. These are important strategic launches for us. While they are not expected to be material top-line drivers in 2026, we do anticipate them to be significant financial contributors over the longer term. Let me now walk you through the building blocks for our 2026 total revenues outlook. We are anticipating new product revenues of $450 million–$550 million, which are expected to contribute to strong segment performance. We expect net sales in developed markets to grow 2% versus 2025. In Europe, we expect growth of 4% year-over-year, benefiting from several tailwinds. First, we expect increased contributions from new product revenues, led by apixaban and paliperidone. We anticipate continued growth in key markets such as France and Italy, including some supply recovery from India. Finally, we expect strong continued performance in some of our key brands, like Creon and Rufin. North America is expected to be flat year-over-year, as new product revenues, primarily from complex products and ongoing strength from existing products such as Brina, Estradiol TDS, and Xulane, are expected to offset certain competitive impacts, including the Isosulfan Blue LOE. Turning to emerging markets, we expect to grow 6% year-over-year. This is primarily driven by expansion in key growth markets, including Turkey, Mexico, India, and Brazil, new product revenue contributions, and some supply recovery in our ARV business. These benefits are expected to more than offset pricing headwinds in certain Asian markets. As it relates to JANZ, we remain focused on returning the segment to growth. Our outlook for this year reflects the expected impacts from government-driven price regulations in Japan and Australia, as well as the anticipated impact from the mid-year Amitiza LOE in Japan. At the same time, we expect to launch important strategic products in 2026, including EFFEXOR and pitolisant, to begin supporting future performance for this region. Lastly, in Greater China, we expect to deliver 3% year-over-year growth, driven primarily by our cardiovascular products that are sensitive to proactive patient choice. Our confidence in Greater China is the result of our ability to continue to maximize our well-established commercial presence across multiple channels. These include retail, private hospitals, and e-commerce, where we have invested strategically over the past few years and are seeing continued growth, in particular for certain retail-oriented products. As mentioned in our press release, in mid-February, a fire occurred in a service area at our oral solid dose manufacturing facility in Nashik, India. Manufacturing at the facility has been temporarily suspended. We expect to resume operations beginning in April. We have considered the potential impact of this incident and the facility shutdown in formulating our 2026 financial guidance. Moving to the drivers of adjusted gross margins, adjusted EBITDA, and adjusted EPS. We expect gross margins to be modestly lower year-over-year, primarily due to anticipated losses of exclusivity and mix shift as supply recovers in our lower-margin ARV business. These headwinds are partially offset by favorable segment mix and higher-margin new product launches. Over time, however, we expect gross margins to benefit from the realization of cost savings and the scaling of our higher-margin products. Adjusted SG&A is expected to decline year-over-year as a percentage of sales, reflecting the net benefits from our strategic review. Adjusted R&D is expected to be flat versus the prior year as we continue to advance our innovative programs while maintaining disciplined cost management. Finally, in 2025, we benefited from approximately $40 million in TSA income related to divestitures, which will not recur in 2026. Moving to free cash flow, we continue to expect significant and durable cash generation in 2026. Our cash flow this year will be impacted by transaction-related and restructuring costs from our strategic review, but the underlying cash-generating profile of the business remains robust. We expect to be in a strong financial position in 2026, with over $2.5 billion of cash available for deployment. That includes our excess cash on hand and the net proceeds received to date from the Biocon monetization. This position provides flexibility to deliver on our balanced capital allocation framework. Our priorities for 2026 include targeting end-market accretive business development while remaining committed to shareholder return. Our plans this year also include paying down a portion of our debt maturities to further strengthen our balance sheet and investment-grade financial profile, while reducing leverage back to our 2.8x–3.2x gross leverage range. A few comments regarding the pushes and pulls of our 2026 guidance. Total revenues are expected to be higher in the second half of the year, driven by normal product seasonality and the timing of anticipated new product launches. Operating expenses are expected to be more evenly phased between the first and second half of the year, reflecting the implementation of our strategic review and timing of investments. As a result, we expect adjusted EBITDA and adjusted EPS to be more heavily weighted towards the second half of the year. Free cash flow is expected to be lower in the first half of the year. The first quarter is expected to be the lowest quarter for total revenues and adjusted gross margin, driven by product seasonality and mix. Free cash flow is also anticipated to be the lowest in the first quarter, primarily due to the timing of working capital and one-time operating cash costs, as well as transaction-related and restructuring costs and taxes. In summary, our 2026 outlook reflects continued momentum in the business, disciplined financial execution, and a strengthened cost structure that supports both reinvestment and shareholder return. We are entering the year with a growing base, clear priorities, and the financial flexibility to execute. We look forward to hosting our investor event in New York City next month, where we plan to provide an update on the company's future outlook for growth. With that, I will hand it back to the operator to begin the Q&A. Operator: Thank you. We will now begin the question-and-answer session. As a reminder, to ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If your question has been addressed and you would like to withdraw it, please press star then 2. At this time, we will pause momentarily to assemble our roster. Today's first question will come from Glen Santangelo with Barclays. Please proceed. Glen Santangelo: Oh, yes, thanks and good morning, and thanks for taking my question. Yes, just two quick ones for me. You know, Scott, at a conference last month, you seemed to mention a path to mid-single-digit revenue growth, and I fully understand that is not where we are today, but maybe I was just hoping you could give us a little bit more color on those six potential approvals this year, your confidence level in those, which may be most meaningful, and then maybe how that was layered into the guidance, if at all? I will just ask my follow-up upfront. You know, Doretta, I did want to talk about the strategic review. You did mention release $650 million of savings with $250 million of reinvestment. If we call it net $400 million of savings over the next three years, maybe for modeling purposes, if you could just sort of help us, you know, think about the timing of those savings across the three years. Thanks. Scott Smith: Thank you, Glenn. Good morning. Thank you for the question. Doretta is going to address the enterprise-wide strategic review, cadence and timing, things like that. I just want to say that we are very pleased with the work that is done and very confident in our ability to deliver the results from the enterprise-wide strategic review. Relative to the mid-single digits path, which is a longer-term path that we have over the next few years. You know, the way that I think we get there when I think about it, this is the way that I look at it in my mind. We have got a base business, and Doretta pointed it out in her comments, is growing at 3% this year, grew last year. We have got a growing base business. On top of that, you layer in the launches that are coming in 2026, and those will be Effexor, Tolosens and Spydia in Japan, although we launched Spydia at the very end of last year. I consider it a launch product for Japan. Japan is a very important market for us, three very important launches in the CNS space there for us that can really help build on what we have there. In the U.S., we are hoping to launch Quinlo, our low-dose estrogen, weekly patch, Ryzumvi in presbyopia, and potentially even Milocam, which as Scott alluded to, we should be filing tomorrow. Depending on the cadence of that review, we may be launching that. On top of that, we have got a number of data readouts in 2026 that are going to be launching in 2027 and beyond. We have got selatogrel and cenerimod readouts, which, you know, we think are near-term launches, which can provide a lot of growth, you know, as we get into the 2028, 2029, 2030 timeframe. On top of all that, we have got capital to deploy to bring in accretive growth assets into the portfolio and pipeline. All those things together give me a lot of confidence that we can get to that mid-single digits in the coming years. Doretta Mistras: Glen, with respect to your question around the $400 million of savings, we do expect them to be phased over three years. The way to think about it is we anticipate roughly 30% in 2026, an additional 30% in 2027, and then the remaining approximately 40% in 2028. The sequencing really reflects the timing of how we think about workforce actions and other efficiencies as we fill them into the organization. Importantly, as those savings are phased in, they are expected to support our EBITDA growth and margin expansion over time. Operator: The next question is from Umer Raffat with Evercore. Please go ahead. Umer Raffat: Hi, guys. Thanks for taking my question. Maybe two here, if I may. First, on the cost cut announcement, the strategic review, could you break down for us the $650 million as it is broken down between COGS versus SG&A versus R&D, and if there is any CapEx associated to get to these, which is not sort of reflected in the $400 versus $650? Secondly, could you also remind us, what are you assuming for India bounce back in 2026? Is there any model in at all in the current EBITDA guidance or not? Because I know there was a $325 million headwind over the course of 2025. Scott Smith: Thank you. Good morning, Umer. Let me just make a couple comments, then I will pass it over to Doretta to give you some of the specifics. In terms of where the $650 comes from, about 50% of that is coming from headcount reductions at this point in time. The other 50% is coming from COGS, efficiencies, inventory management, support structures, not a lot from R&D. There were some medical affairs and some streamlining things, but that is not a major area of focus for us in terms of cost cutting, because we are moving forward to execute on a number of pipeline programs. That is an area I think that we are focused on, you know, bringing in more assets and growing. you know, there are some efficiencies there in the way we do it, but it is not an area of major cost savings. Again, 50% in headcount reductions and the rest in COGS efficiency, inventory, and support structures. I will pass it over to Doretta to give some more detail. Doretta Mistras: Right. I think you handled from a cost savings perspective. You mentioned roughly evenly split between operating efficiencies and SG&A. I would state the operating efficiencies and the COGS efficiencies are a little bit more back-end weighted as you think about the phasing, just given the timing of implementation, but that should give you a rough sense. Secondly, with respect to your India question, we assume a little less than 1% of India recovery baked into our top line. Just as a reminder, we had done a lot of work over the course of the year to remediate India, and there was a portion of India that was lenalidomide that was not expected to recur in 2026. When you take out lenalidomide and also all the work that we have done over the course of the year, kind of we have remediated and managed through the impact, so it would not have a material impact on our 2026 guidance. Scott Smith: Yeah. I think it is all baked in as we stand today. Again, we have requalified other plants, found alternate sources, so, you know, I do not expect any bounce up of, you know, when the plant comes back online or bounce down if there is a delay in reinspection. We have tried to remediate the full effects of anything that happened at India and affected us last year. Operator: The next question comes from Ashwani Verma with UBS. Please proceed. Ashwani Verma: Hi, thanks for taking our question. Congrats on all the progress. Just wanted to understand the level of the restructuring charges versus the net savings you are realizing. You are effectively spending $700–$850 pre-tax charges for a $400 million net savings. Is this within typical benchmark range for such cost-saving initiatives in the industry? Then secondly, on the fast-acting meloxicam. Yes, this can have pretty broad set of physician universe that you can go after, from primary care all the way to surgery settings, pain specialists, et cetera. What do you consider to be your initial focus and where can it go from there? Thanks. Scott Smith: Yes, thank you, Ash, for the question, and we will have Doretta answer the first part and Corinne will talk about fast-acting meloxicam segments. Doretta Mistras: Yes. Ash, let me break this up into two parts. The first piece are the one-time costs that are necessary to achieve the one-time savings. Our current estimate, you can think about a general ballpark of about over the lifetime of the program, about 1 times our gross savings in order to achieve them. We estimate that it will be about $250 million this year, and that is what is baked into that $700 million number you quoted. There are two other components to that number that it would be helpful to break out. Number one, we have talked about the fact that even though we realize that cash proceeds from both the divestitures as well as the Biocon proceeds as cash, when it comes to the taxes and other costs associated with those monetizations, they are recorded as operational outflows. Those are the two numbers. From the Biocon perspective, we received the $400 million of cash. We have included the $110 million of taxes associated with that in that $700 million, we still have about $320 million of divestiture-related cash and costs and taxes that are included in that number. It is really the three components you have to think about. Ashwani Verma: Gotcha. Thanks. Corinne Le Goff: Ash, regarding your question on fast-acting meloxicam, yes, you are right. There is a broad opportunity for acute pain, moderate to severe acute pain, and we are very excited about the potential of meloxicam, and the place that meloxicam will play in this market. Just to remind everyone about the size of the opportunity, we see every year in the U.S., 80 million cases of acute pain. Unfortunately, opioids, you know, are still prescribed broadly. About 50% of prescriptions are opioids. The way we look at how we are going to enter this market is for us to make sure that we can guarantee faster uptake for the asset. Therefore, we will focus on post-operative and operative acute pain management versus non-operative pain. We will build a specialty sales force that will target those physicians in their offices, and, you know, like surgeons, orthopedic surgeons, dental surgeries, podiatrists. I am giving you a range of the targets that we will focus on. Beyond those targets, because you are right, pain medication can be prescribed very broadly, including from PCP. Beyond those specialty targets, we will plan on looking for potential partnerships to extend our reach and as we progress with the launch of the product. Operator: Your next question will come from Leszek Sulewski with Truist. Please proceed. Leszek Sulewski: Thank you for taking my questions, congrats on the progress. A couple from me. First, on Japan, can you quantify the regulatory pricing challenges you are seeing across the region? You noted the Japanese was coming to an inflection point. Do the Oculis assets and Effexor provide net growth for the region, or more of an offset from erosion due to the LOE facing there? On the cost savings side, can you quantify if the remaining costs are tied to discontinued operations, or what percentage of the strategic review savings is essentially cleaning up the divestiture's tail versus actual efficiency gain in the core business? Then essentially, as you realize the net savings, ultimately, you know, do you have a kind of a long-term gross margin or EBITDA margin target for the business? Thank you. Scott Smith: Thanks for the question. Just a little bit on Japan. Japan is a very important market for us. Structurally, Japan is a difficult market traditionally for where we have been over the last few years as a company. There are mandatory price decreases every year on the LOE products. That is a good part of our portfolio. We have seen downward pressure. There is a lack of ability to modify your structure from a personnel perspective in Japan. Labor laws and things make it very expensive to make changes. You know, our decision was, we have got a well-functioning company. We have got good people there. We have just seen downward pressure on both revenue and EBITDA in Japan because of the structure of the Japanese market, the mandatory price decreases, et cetera. We decided to add assets in there, and I think those assets will turn us from revenue and EBITDA decline to growth as we get into 2028 and beyond. The long-term picture for Japan is much better with the internal development of Effexor GAD, the acquisition of Toluzent and Spidea and others, which are coming into the... There is also some other pipeline developments which should come in the next couple of years. We are very, very pleased about where we are with Japan now. Very good group of people. We are putting assets into their hands, and we should turn that to growth as we get into 2028 and beyond. In terms of the enterprise-wide review? Doretta Mistras: I was just going to add one more impact that is impacting our Japan business this year. We do anticipate the loss of Amitiza mid-year. In addition to the normal price decreases that we get in that region, that is another factor that is impacting, and you can see that in the trends. As Scott mentioned, longer term, we feel good about the trajectory of that business. With respect to the cost savings, we are not currently contemplating any significant divestitures or recuts of our business. As Scott mentioned, this is really about taking a look at our infrastructure, how we are organized, reevaluating the business makeup post the divestitures, and making sure that we are set up for success going forward. It is not a material change to how we do business today. Scott Smith: You asked also about a little bit of cleanup that we are doing maybe around the divestitures. I think people ask me, you know, “Why now? Why did you do this exercise now?” I think it was really important to do this exercise now. A merger of two companies five years ago, very different companies, different business dynamics, and then four major divestitures, biosimilars, women’s healthcare, OTC, API. You know, a lot of the people associated with those businesses went with the business, right, directly. Then there is a back-end support structure in place to support those business, and we want to make sure that those people are oriented as best as possible as we move the business dynamic forward. It was really important for us to take a holistic look at the company. Do we have the right people in the right places to move forward? As Doretta alluded to, this is not about divesting pieces of the company. This is about us getting more modern, leaner, and better able to execute on the base business today and the innovative portfolio as we move forward. Operator: The next question comes from Matthew Dellatorre with Goldman Sachs. Please proceed. Matthew Dellatorre: Hey, guys. Good morning. Thanks for the question. Maybe first on fast-acting meloxicam, could you share your latest expectations in terms of the label, in particular, how you expect opioid sparing to be reflected there? You know, for instance, will it be, you know, in section 14, kind of like clinical data? ... inclusion, or will it be, can we expect that to be up top in that kind of initial section? Also any feedback you have received from the FDA thus far ahead of the kind of pending submission? Maybe on BD, what are your latest thoughts in terms of bringing in, or in licensing, maybe a more substantial branded asset versus doing smaller deals? What would be your comfort level in doing earlier stage, for example, maybe phase two, where less of the value is baked in? Which verticals would that make the most sense in? Thank you. Scott Smith: Yes, let me maybe answer the second question first, and then I will throw it over to Philippe to talk about fast-acting naloxone. you know, we are not, you know, our, we are looking for in-market accretive growth assets. That is what we are really focusing on. We are not looking to acquire early pipeline. We want to support the business today. We have built an internal pipeline that is going to be producing over the next few years. Our focus is finding assets that can help us drive growth, you know, in the short term, and now in the next three, four years. We are not focused on pipeline assets. Happy to do bigger things as long as they fit, as long as we are, you know, good owners of them, and that we can swallow them. We had 60 regional deals last year, including the Aculys, to support the base business. Certainly, I would like to bring in some assets that can have an effect and have some real, add some real growth and more high margin revenue, particularly to the U.S., but also globally. We are not focused on pipeline, we are focused on things which can move the needle for us today. Philippe, relative to fast-acting naloxone? Philippe Martin: Yes, just to reiterate that, we have had a pre-PMDA meeting with the agency in January. We just received the minutes. We were waiting for those in order to be able to file. We will be filing tomorrow. The meeting was extremely positive. We were able to align on all points of discussion we had with the agency. That is why we are filing tomorrow. In terms of the label implications, I think this will remain a discussion with the agency. However, if you recall, we have very strong data when it comes to opioid sparing, and we anticipate that we will have that language included in the label. Whether it is in the indication section or as part of the clinical section of the label, I think it is premature for me to tell you that. I do not think it really matters at the end of the day, as long as it is captured in the label. Operator: Your next question comes from Chris Schott with J.P. Morgan. Please go ahead. Chris Schott: Great. Thanks so much for the questions. I just wanted to come back maybe first to the longer term growth algorithm. I guess when I look at the 3% top line growth this year, or I guess maybe 2% adjusting for India recovery, is that a good proxy to think about for underlying growth before we consider some of these bigger pipeline readouts in BD? I am just trying to get a sense of like, when you think about building up to that mid-singles, is that just kind of like a business that can do two or three kind of as stands, and then we can kind of enhance that as these readouts come through? My second question, which is maybe elaborating a bit on the BD side, sounds like from the comments you just made, a U.S.-branded asset could be a focus here. Can you just talk a little bit about the landscape for those? Like, how big of an opportunity set is there? Are you seeing assets that are interesting in the market, or is that more just kind of conceptual? I just want to get a sense of like how broad of an opportunity set do you see for those. Thanks. Scott Smith: Thanks, Chris, and good morning. First question, again, let me maybe do it a little bit backwards. The landscape of business development, I think there are lots of assets out there. Very lot of interesting things. We are looking at lots of things. It is a matter of making sure that it is the right price, the right asset that fits us. You know, but there are lots out there. It seems like 12 months ago, there was not much happening from a BD M&A perspective, and the pharma world seems to be heating up a little bit. There seems to be more activity and more action. Feels like a good time to start to really build the pipeline. You know, BD is not something that you can ever predict to get done at a certain time. It depends on the flow of things, depends on price, depends on availability of assets. This seems to be a time, from my perspective, where there is a significant number of assets out there that are interesting, that I believe we could be good owners of. In terms of the growth algorithm, you know, the way that I look at the base business right now is it is low single digits growth that we see right now. We have had, excluding the impact, one-time impact of India, you know, we have seen seven, eight, nine consecutive quarters of growth. Sometimes it is 1%, 2%. This is a little bit higher this year at 3%. You know, I see them at 1%, 2% growth. What we are trying to do is continue to invest in the space, sustain the space, do the things we need to keep the base healthy, and then add onto it things which can be higher growth, higher margin. That is our path to getting sustainable, higher margin, higher level, mid-single digit growth in the longer term. We will get into all of this at the Investor Day as we get into March and give more specifics around it. I do not want to get ahead of ourselves because we are going to be talking to everybody in a couple of weeks. That is sort of the algorithm on how we can potentially get there. Operator: The next question is from David Amsellem with Piper Sandler. Please go ahead. David Amsellem: Hey, thanks. I know you are going to be talking about R&D in a couple of weeks. I did want to get some more detailed thoughts on how you feel about your internal R&D capabilities. You say you do not want to acquire pipeline assets, you are looking more at commercial stage assets. Just talk generally about your innovative capabilities internally, and where you feel you are at, particularly as it relates to novel assets. That is number one. Number two is, can you just remind us where you are in your exclusivity runway or potential exclusivity runway for the meloxicam product? Then, third question is just on contribution from new revenues this year. Is there any one product in particular that has an outsized impact of the $450 million–$550 million, or is it spread around pretty evenly? Thanks. Scott Smith: Internal research and development capabilities, I feel very good at. From an innovative perspective, we have added some late development. Again, even though we are looking from a BD perspective, not necessarily to acquire pipeline right now, but in-market assets, we are developing a number of things on our own, internally. I think we have a very strong research and development. It is not really, it is not really R&D. There is not much research development. We have got a very strong late-stage development group led by Philippe, and maybe you want to talk a little bit about those capabilities. Philippe Martin: You know, I think we believe we have a strong group that can develop drugs from Phase 1 and IND filing type drugs, like the MR-146 we have for our gene therapy in eye care. All the way down to life cycle strategy for assets like EFFEXOR. We have the whole gamut of expertise from a development standpoint. We have shown that we know how to do it, and we will show you as part of the Investor Day, more details about all this and who we are. We also have a very strong medical affairs structure that we are reorganizing as part of the enterprise-wide strategic review to focus more on the innovative portfolio than on the legacy portfolio. I think all the required expertise is there for us from a development standpoint. Scott Smith: Relative to meloxicam exclusivity, we will get more into this as we get into the 19th and talk more specifically about meloxicam. It is being filed under 505(b)(2) route. There is exclusivity, which comes with that. In addition, there is some uniqueness in the data, which we think we can add significant other, more, intellectual property protection around that asset. The way that I look at it is I consider it to be a contributor into the 2030s from an exclusivity perspective in the market. We will get more into that as we go and get more. It becomes more granular, right, as we start to file some of this intellectual property and other things. We have a very strong strategy to extend that exclusivity as long as we can. Again, I think of it as a contributor into the early 2030s. Doretta Mistras: Just to answer your question around new product revenue, the $450 million–$550 million is really diversified, both in terms of products and geographies. I would call out some of the contributors that we are excited about include octreotide, iron ferric, iron sucrose. In Europe, we have talked about apixaban and polythiazide. I would also call out, it is also relatively balanced between products that we have already approved, like octreotide and iron sucrose, and products that we expect approval for this year. Corinne Le Goff: Maybe to add, that we are very excited also about the launch of our branded new products. We mentioned them already in Japan, Effexor SR, Spydia at the very end of the year for Japan. In the U.S., low-dose estrogen weekly contraceptive patch. Even though those products will be in their launch year and will not contribute greatly in 2026, they are important growth contributors in the following years. Operator: Your next question is from Jason Gerberry with Bank of America. Please go ahead. Jason Gerberry: Hey, guys. Thanks for taking my question. One for Doretta. I am struggling a little bit with the 2026 guidance relative to 2025, right? Your EBITDA goes up about $150 million or so. It looks like that is largely on the cost restructuring dynamics, but you have +$400 million in revenue versus prior year. It seems like none of that is dropping to the bottom line, but your gross margin degradation is only, like, 30 bps. I was just wondering what I am missing there. On the enterprise review, it looks like about half is on the cost of goods side, if I understand that. And maybe if you can unpack that a little bit, is that mainly like better procurement, reduced facility footprint type of cost? Just wondering what you guys are going to be doing differently versus, say, prior years to drive that cost of goods improvement. Thanks. Doretta Mistras: With respect to your question, Jason, on EBITDA, we have always talked about EBITDA stability. We feel good about the momentum and the inflection point that our business has gone, this year we are really proud of where we are. Just to give you a flavor of some of the components. We did see a marginal decline in our gross margins. We have talked about the drivers of that, just given the mix, some of these LOEs, and some of the recovery coming from our lower margin ARB product. Also call out the $40 million of TSA income that we do not expect to recover this year on the back of that. I would characterize 2026 really as a stabilization year, supported by the savings realization, with structural expansion really becoming more visible as the savings pop in and some of our new products come into account. Scott Smith: Good. Jason, on the enterprise-wide strategic review, 50% is coming from head cost reduction, not from COGS efficiency. A much more minor piece is coming from COGS efficiency. I think you asked the question the other way around, but it is 50% from headcount reduction across the board and only a much smaller piece in terms of COGS efficiency. Operator: The next question comes from Dennis Ding with Jefferies. Please proceed. Dennis Ding: Hi, good morning. Thanks for taking my questions. I had one on the enterprise review, the $400 million net savings. I am just wondering if there could be additional savings upside as you execute on this over the next 1–3 years. Basically, how realistic and or conservative is the $400 million net savings? Number two, specifically on meloxicam, what is your base case in terms of launching activity in the U.S. on net revenue? What does a good launch look like to you? If you internally view the Jordanavix launch as a good proxy for meloxicam? Thank you. Scott Smith: Just a couple comments, and then I will ask Corinne to talk a little bit about the comparative launches in the acute pain space. Yes, $400 million is a number we feel good about. We took our time in doing this and wanted to make sure that we could cement that within the organization. Could there be additional opportunities as time goes over the next few years? Sure. That is not something we are saying is going to happen. The other thing is, when we talk about the $250 million in reinvestments, up to $250 million, you know, depending on the progress of how things go, we could spend less than that. There could be more net savings than 400, but 400, I think, is the right number for you to think about and that we are very, very confident that we can deliver. In terms of meloxicam, very important product for us. We want to be able to show very strong launch. I believe in the team we are putting together to be able to launch it. We are looking at partner strategies. We are making sure that it is resourced properly to do well. It is important for us. In terms of launch metrics and what does a good launch look like in the U.S., it is a little hard these days with access concerns and other things. We will roll that out and talk more about that on the 19th for sure, but if, Corinne, you would like to make any general comments. Corinne Le Goff: Yes, thank you very much. Yes, and you mentioned one of the competitors in the field. What I would like to say is that we are going to launch meloxicam where we think we can have the greatest impact and fastest effect. Part of this is linked to our pricing strategy, the other part is linked to how we are going to focus on target physicians that have the most patients in terms of acute pain management. While Vertex has been launching, I think, have a different timeframe in mind, we have a different strategy. Again, our focus is on quick access, and we will put resources behind this product, as again, we will be successful with the launch. Operator: At this time, this concludes today’s question and answer session. I would now like to turn the conference back over to Mr. Scott Smith, CEO, for any closing remarks. Scott Smith: Thank you very much. Just let me close with this. I think 2025 is a very important or 2026, excuse me. 2025 is a great year. 2026 is a very important, pivotal year for us. Our base business is not only stable, but it is growing. We continue to generate strong cash flow, which gives us financial flexibility, and we are expecting multiple launches and pipeline milestones this year. With our strategic review complete, we are building a more focused, efficient, future re-ready company, and we are confident that we are at the beginning of a period of sustained revenue and earnings growth for the company. Thank you very much for your attention. Operator: This does conclude today’s conference. Thank you for attending today’s presentation, and you may now disconnect.
Operator: Ladies and gentlemen, welcome to Luckin Coffee's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Now I'd like to turn the call over to Ms. Nancy Song, Head of Investor Relations at Luckin Coffee. Nancy, please go ahead. Nancy Song: Thank you, and hello, everyone. Welcome to Luckin Coffee's Fourth Quarter and Full Year 2025 Earnings Conference Call. We announced our financial results earlier today before the U.S. market opened. The earnings release is now available on our IR website and via Newswire services. Today, you will hear from Dr. Guo Jinyi, Co-Founder and CEO of Luckin Coffee, who will share a strategic overview of our business. Following that, Ms. An Jing, our CFO, will discuss our financial results in greater detail. Afterwards, we will open up the call for questions. During today's call, we will be making some forward-looking statements regarding future events and expectations. Any statements that are not historical facts, including, but not limited to, statements about our beliefs and expectations are forward-looking statements. These statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in our filings with the SEC. In addition, for non-GAAP measures discussed today, the reconciliation information related to those measures can be found in our earnings press release. During today's call, Dr. Guo will speak in Chinese, and his comments will be translated into English. Now I'd like to turn the call over to Dr. Guo Jinyi, Co-Founder and CEO of Luckin Coffee. Dr. Guo, please go ahead. Jinyi Guo: [Interpreted] Hello, everyone. Welcome to today's earnings conference call. Thank you for your continued interest in and support of Luckin Coffee. 2025 marked a year of foundational progress and rapid growth for Luckin Coffee. As growth in China's coffee market continued to accelerate, we remained focused and agile, consistently executing our scale focused strategy centered on store expansion, customer growth and product innovation. This approach further reinforced our leadership across both our store footprint and customer base while steadily increasing our market share. Over the past year, we responded swiftly to market changes and fully capitalized on the expanding demand for coffee consumption, efficiently converting customer demand into meaningful growth. Since June 2025, Luckin's average monthly transacting customers have exceeded 100 million for 5 consecutive months. In addition, we added over 110 million new transacting customers during the year, bringing our cumulative customer base to over 450 million. At the same time, annual sales of freshly brewed beverages increased by 39% year-year to 4.1 billion cups with both our market share and average cups per customer continuing to rise. Supported by strong demand, we quickly adjusted our... Operator: Pardon interruption everybody. This is the conference operator. It appears we lost the speaker connection. I'm going to get that reconnected, in the meantime, we're going -- please put call on hold. Please standby for the quarter results. Pardon interruption everyone. This is the operator, I have reconnected the line. Jinyi Guo: [Interpreted] The continued expansion of our customer base and the store network drove our strong full year financial performance. In 2025, our total net revenues increased by 43% year-over-year to around RMB 49.3 billion. Same-store sales for our self-operated stores steadily improved, achieving annual growth of 7.5%. Our operating profit also demonstrated solid momentum, increasing by 42% year-over-year to around RMB 5.1 billion. We believe that Luckin's advanced digital business model, together with accelerated scale expansion across both our store network and customer base will create a more resilient foundation for our future development. These advantages position us well to navigate external changes while gradually translating our digital operational capabilities into long-term efficiency gains and continuing profitability. I will now provide some highlights of our fourth quarter results and our operational progress. Our CFO, An Jing, will share additional financial details later on this call. In the fourth quarter, we delivered solid growth with total net revenues increasing by 33% year-over-year to around RMB 12.8 billion. During the quarter, food delivery platforms significantly reduced subsidies during the industry's off-peak season. While the delivery order mix declined sequentially, it remained at a relatively high level. Against this backdrop, same-store sales growth for self-operated stores moderated to 1.2% in the fourth quarter, and operating profit amounted to around RMB 820 million. As mentioned in our previous earnings call, this short-term fluctuations reflect the industry's current stage of development and the phased execution of our strategy, fully in line with our earlier expectations. Operationally, centered on our 3 core pillars of people, products and places, we continue to scale our business while enhancing product feel and the customer experience. further reinforcing Luckin's leading advantages in China's coffee market. On the store front, we maintained a competitive pace of store openings, further strengthening our presence across high-quality locations in high-tier cities while expanding into lower-tier markets. These efforts strengthened our coverage across diverse consumption scenarios and further widened our scale advantage. By the fourth quarter, our total store count reached 31,048, marking another key milestone. We officially opened our 30,000th store, the Origin Flagship store in Shenzhen. The store is themed around global origins and features an Origin Lab, a coffee master space and the store exclusive selection of premium single origin beans and a curated specialty coffee product menu. This flagship store showcases Luckin's ability to lead beyond its scale by advancing coffee craftsmanship and elevating the customer experience. We warmly welcome everyone to visit and experience our Origin Flagship store. Looking at our store expansion progress in more detail, we added 1,792 net new stores in China, bringing our total domestic store count to 30,888, including 20,144 self-operated stores and 10,744 partnership stores. With this milestone, we officially became the first food and beverage chain in China to surpass 20,000 self-operated stores. This is another testament to Luckin's brand leadership, reflecting our stronger market responsiveness, operational discipline and scaled execution efficiency. It also reinforces the foundation for long-term win-win collaboration with our partners. Looking ahead, we firmly believe that China's coffee market has significant growth potential. We are confident in our ability to maintain an industry-leading pace of expansion and further broaden market coverage while focusing on market share and driving our long-term growth. Internationally, our disciplined and steady expansion continue to yield positive results. During the quarter, we added 42 net new stores, bringing our total overseas store count to 160, including 81 self-operated stores in Singapore, 9 self-operated stores in the U.S. and 70 franchise stores in Malaysia. As of year-end, our store count in Singapore ranked among the leading coffee brands in the local market with both our business model and the store unit economics largely validated. We have also built a constructive relationship with our partner in Malaysia. And by leveraging our successful experience in Singapore, we consistently support our partner in enhancing localized operations and improving store performance. In the U.S., we are still in the early stages of exploration and remain committed to our disciplined expansion strategy. With a focus on refining our underlying operational infrastructure and exploring locally tailored operating models, we will continue to accumulate operational experience and further deepen our local consumer insights. Supported by our great tasting products, seamless customer experience and compelling value for money proposition, we are confident in the long-term growth of our overseas business. On the product front, we launched 30 new freshly brewed beverages and around a dozen snack items in the fourth quarter, bringing the total number of new product launches for the year to over 140. During the quarter, we continue to lead in product innovation while further strengthening our positioning as a professional coffee brand. At the same time, we expanded our non-coffee portfolio to better address consumers' diverse taste and experience needs across different consumption scenarios. In December, we launched Luckin's Brazil season, introducing new products such as the Samba's Dark Roast Americano and the Samba's Dark Roast Latte. Featuring Arabica beans sourced from core origins in Brazil and roasted using our proprietary high-temperature low-roasting technique. These new launches further reinforced Luckin's origin-oriented flavor selection and strengthened our professional brand perception. In addition, we added dark roast bean options for 25 beverages, better meeting consumers' growing demand for professional quality and personalization. On the non-coffee side, we launched several new products, including [indiscernible] and daily vitamin D fruit and veggies tea, continuing to extend beverage offerings across a broader range of leisure occasions and day parts. With the continued enrichment of our product matrix, non-coffee beverages accounted for more than 20% of total cups sold for full year 2025. On the customer front, we continue to deliver great tasting products and emotionally relevant brand experiences, creating a consumption journey that combines quality and the connection. During the quarter, we partnered with popular IPs from a national blockbuster mobile game and several animated films. Through well-received co-branded campaigns and merchandise, we further enhanced customer engagement, strengthening consumers' recognition and loyalty to our brand while maintaining our high-quality, high affordability value proposition. In the fourth quarter, we added over 24 million new transacting customers. Our average monthly transacting customers grew 26% year-over-year to over 98 million, maintaining a level close to 100 million even during the industry's off-peak event. Powered by Luckin's digital operational capabilities, we integrated product innovation, IP collaborations and refined user operations to effectively expand our customer base, while steadily increasing the proportion of high-frequency users and overall purchase frequency. On the ESG front, we have been advancing the deep integration of corporate social responsibility and human-centered care, continuously embedding sustainable development principles into our daily operations. As one of the first companies to support the Moss Flower Compact by providing barrier-free environment for people with accessible ability needs, we opened Luckin Coffee's first accessible store in Hangzhou in December. In parallel, we are actively advancing standardized and scalable inclusive employment programs for people with disabilities nationwide, further fostering a more supportive workplace and consumption environment. In recognition of these sustainability initiatives, we were awarded 2025 China Best ESG Employer by Aon group in December, marking the third consecutive year we have received this distinction. Guided by our long-term perspective, we will continue to create value for customers, society and our partners. In summary, following a year of rapid growth in 2025, China's coffee market is experiencing accelerated demand along with an increasingly diverse competitive landscape. We have consistently believed that freshly brewed coffee as a business inherently centered on offline physical locations and comprehensive consumer experiences derives its core competitive moat, not from any single dimension, but from integrated end-to-end operational and systematic strength across the entire value chain. Leveraging our digital operational capabilities across people, products and places, we are confident that Luckin's comprehensive strength in brand perception, customer experience, supply chain depth, product innovation and store management form the key advantages that enable us to navigate evolving external environment and capture structural growth opportunities in the coffee market. Looking into 2026, we will remain focused on scale expansion while maintaining the flexibility to adapt to market changes. As we maintain healthy profitability levels, we remain committed to steadily growing our market share, strengthening our industry-leading position and unlocking long-term growth potential. Finally, we extend our sincere gratitude to our customers, partners and investors for their continued trust and support and to our 170,000 Luckin team members for their dedication and hard work. We will keep moving forward to build a world-class coffee brand, make Luckin Coffee a part of everyone's daily life and create long-term value for our customers, partners and shareholders. Now I will turn the call over to our CFO, An Jing, to go through our financial results in detail. Jing An: [Foreign Language] Thank you. Good day, everyone. Thank you for joining today's call. We closed 2025 on a strong note as our scale focused strategy drove robust full year revenue growth, along with solid profit performance, record customer additions strengthened the foundation for our long-term success. We accelerated store openings underscored our ongoing investments to capture rising customer demand. Let's now look at our financial performance in detail. In the fourth quarter, total net revenue increased by 33% year-over-year to RMB 12.8 billion, primarily driven by a 33% year-over-year increase in GMV to RMB 14.8 billion. This growth was mainly driven by higher cup volumes across our self-operated and partnership stores, reflecting ongoing store expansion and growth in transacting customers. Revenues from product to sales increased by 31% year-over-year to RMB 9.9 billion, primarily driven by enhanced sales performance in our self-operated stores. Breaking down our product sales into 3 streams. Net revenues from freshly brewed drinks were RMB 9.2 billion, representing about 72% of total net revenues. Net revenues from other products were RMB 605 million or about 5% of total net revenues. Net revenues from others were RMB 174 million or roughly 1% of total net revenues. Looking at product sales from the perspective of company-owned stores, revenues from self-operated stores increased by 32% year-over-year to RMB 9.5 billion. Same-store sales growth was 1.2% for this quarter, mainly driven by cup volume growth. Store level operating profit remained largely flat year-over-year at RMB 1.4 billion with self-operated store level operating margin of 15%. Revenues from partnership store increased by 39% year-over-year to RMB 2.8 billion, accounting for 22% of total net revenues. This growth mainly came from increased sales of materials, higher contribution from profitable partnership stores and increased delivery service fees driven by rising delivery volumes. Cost of materials as a percentage of total net revenues remained stable year-over-year at 40%. In absolute terms, cost of material increased by 33% year-over-year to RMB 5.1 billion, in line with our business expansion. Store rental and other operating costs as a percentage of total net revenue was 25% relatively flat compared with the same period of 2024. In absolute terms, sales expenses increased by 33% year-over-year to RMB 3.2 billion, driven by higher payroll costs associated with cup volume growth and increased rental expenses from continued store expansion. Delivery expenses increased by 94% year-over-year to RMB 1.6 billion, driven by a substantial increase in delivery orders through food delivery platforms. As a result, delivery expenses as a percentage of total net revenue increased to 13% from 9% in the same period of 2024. However, on a per order basis, delivery costs declined year-over-year, reflecting improved operational efficiency driven by our scale expansion. Sales and marketing expenses as a percentage of total net revenue was 86%, remaining stable from the same period of 2024. In absolute terms, sales and marketing expenses rose 32% year-over-year to RMB 756 million, largely due to higher commission fees paid to food delivery platforms as delivery volumes increased. General and administrative expenses as a percentage of total net revenue remained stable year-over-year at 7%. In absolute terms, G&A expenses rose 33% year-over-year to RMB 846 million, mainly driven by higher payroll costs and share-based compensation as well as increased investment in research and development. Our GAAP operating profit was RMB 821 million with an operating margin of 6.4% compared to RMB 1 billion and 10.5% in the prior year period, mainly reflecting higher delivery-related expenses as the delivery volume increased. On a non-GAAP basis, operating profit was RMB 946 million with a margin of 7.5% Net profit was at RMB 580 million with a net margin of 4.1% compared to RMB 851 million and 8.8% in the prior year period, mainly due to a higher effective tax rate on a non-GAAP basis, net profit was RMB 699 million with net margin at 5.5%. Finally, looking at our balance sheet and cash flow. We generated around RMB 565 million in net operating cash during the fourth quarter of 2024 -- 2025. As of year-end, our total cash position, which includes cash and cash equivalents, restricted cash, term deposits and short-term investments was about RMB 9 billion compared to RMB 5.9 billion at the end of 2024. Our strong cash position and continued cash generation provide us with a solid financial foundation, giving us the flexibility to pace our investment and expansion in line with market conditions. Before we begin the Q&A portion of the call, I will briefly touch on the full year of 2025 financial highlights. Compared to 2024, total net revenues increased by 43% to RMB 49.3 billion. GAAP operating profit increased by 42% to RMB 5.1 billion with operating margin at 10.3%. Non-GAAP operating profit increased by 43% to RMB 5.6 billion with non-GAAP operating margin at 11.5%. Net profit increased by 22% to RMB 3.6 billion with net margin at 7.3%. Non-GAAP net profit increased by 27% to RMB 4.2 billion with non-GAAP net margin at 8.5%. In closing, our full year results have placed us on a stronger footing. We remain well positioned to execute our long-term growth strategy with a continued focus on disciplined cost management and ongoing efforts to optimize our operating performance. With that, we will open the call for questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question today comes from Jessie Xu at JPMorgan. Jessie Xu: [Interpreted] Jesse Xu from JPMorgan. 2025 has been quite volatile with many more moving factors in the industry. Very excited to be in the fast-growing sector. It's very dynamic and very interesting. For the fourth quarter '25, store expansion is definitely a strong beat, a net opening of over 8,000 stores fully demonstrates the competitive edges and strong execution, which is very rare in the whole China retail market. But at the same time, we also noticed that same-store sales performance seems to be weaker than expected. So could you first maybe elaborate a little bit more to help us understand the rationale behind the numbers? And more importantly, how should we think about the outlook or trend for '26, including new store opening pace, same-store sales trend and margins on both store level and company level. What's your strategy to cope with the fluid situation this year? Any guidance or colors would be great. Jinyi Guo: [Interpreted] Thank you for your question. And this is also a question focused on by investors. As mentioned earlier, our fourth quarter same-store sales performance and profit performance were affected by a combination of factors, including seasonality, changes in food delivery platforms, their subsidy dynamics and also cup volume mix. So all of these factors are actually in line with our expectations. So looking into 2026 and our long-term development strategy. So as emphasized in our previous earnings calls, I'd like to reaffirm again that China's coffee market remains in a rapid growth phase with significant structural opportunities ahead. So in 2025, food delivery platform, their subsidy campaigns significantly accelerated coffee adoption among Chinese consumers. So accordingly, we saw strong demand and the fast-growing coffee consumption, which further validated our strategic view. So therefore, gaining market share remains our top strategic priority and focus. For 2026, in a complex and dynamic market environment, we will maintain a disciplined yet agile development approach, focusing on key areas, for example, stores, costs and price levels to drive healthy business performance. So in terms of store expansion, we will leverage our unique and also industry-leading digital site selection and planning system to implement a refined strategy, maintaining an efficient and competitive pace to capture the fast-growing market demand. And at the same time, we'll continue to closely track store performance to make sure that we have a healthy ramp-up and maturation cycle. So in terms of cup volume, on the supply side, centered around customer needs, we'll continue to drive product innovation and enrich our product portfolio to reach more customers as well as to cover more consumption scenarios. On the demand side, we will leverage our digital capabilities to implement more targeted and market relevant marketing strategies. All these efforts will allow us to strengthen emotional connection through brand innovation and improve customer reach and conversion efficiency ultimately contribute to retention and purchase frequency. And on pricing, we maintain competitive price levels while broadening our price range to optimize our overall pricing architecture and flexibly address diverse market needs. And at the same time, we'll continue to enhance the consumption experience to support our overall pricing and operating performance. For example, we will introduce more diversified color offerings, more customization options as well as professional coffee bean flavor selections. So in conclusion, overall, given the evolving food delivery platform, there are the subsidy dynamics and the time required for order mix to gradually shift back to pick up. And on top of that, also considering the high base created by large-scale subsidies in 2025, we may continue to see some near-term volatility and challenges in the same-store performance and the profitability in 2026, which is also consistent with such market dynamics. However, we believe these short-term fluctuations don't change the underlying drivers of our long-term growth. And with our digital infrastructure and our strengthened competitive advantages across both store scale and customer base, along with our operating infrastructure that continuously improves efficiency, we are confident in the long-term outlook for same-store performance and profitability. Operator: And our next question today comes from [ Becky Kai ] at Macquarie. Unknown Analyst: [Interpreted] My question is regarding the market competition. So the coffee market is getting way more diverse. So for example, like we see more cross-category competition between tea and coffee brands. So how do you see the current competition evolving? And what does it mean for Luckin. Jinyi Guo: [Interpreted] Thank you for your question. So we are also very closely monitoring the evolving competitive dynamics. And -- but first of all, we strongly believe that China's coffee industry remains at a relatively early stage of development. So there is still substantial headroom in both consumer penetration and per capita consumption compared with the mature markets. So the freshly brewed sector stands out as one of the few industries in China with significant long-term structural opportunities and also a long runway for growth. So when consumers' habits continue to develop, it's natural to see more players entering the market. But more importantly, increased participation also contributes to broader consumer education and a deeper market penetration. So we will further expand the overall market size. From a long-term perspective, the basis of accommodation in the industry is also evolving. So since Luckin's inception, both China's coffee industry and the consumers' behavior have transformed rapidly. So today, freshly brewed coffee brands can no longer rely solely on pricing individual hit product or single marketing campaigns to achieve lasting success. Instead, long-term -- this long-term competitiveness increasingly depends on an integrated set of capabilities, for example, brand perception, customer experience, emotional connection, product development capabilities and the store coverage. So ultimately, delivering a comprehensive experience across these dimensions is what will define our long-term success, which also requires the support of a very powerful digital operations and scale advantage. And after 5 years of development, we believe that Luckin has begun to build the systematic competitive advantages across all the mentioned dimensions. And coffee is a well-established category with strong consumer recognition. So as a dedicated coffee brand, Luckin has consistently positioned ourselves around professionalism, youthfulness, fashion and wellness while continuing to strengthen our brand concept, LuckinHand. We continuously reinforce our coffee identity through product innovation, customer experience, brand campaigns and IP collaborations. All these efforts have deepened consumers' brand recognition of Luckin Coffee. This deeply established brand perception forms a key competitive advantage for us. Building on all the foundation, Luckin has leveraged our digital capabilities to establish direct, frequent and efficient interactions with our customers. This enables us to gain deeper consumer insights, better understand evolving tastes and preferences and execute more targeted product launches, marketing campaigns and customer engagement initiatives. And as mentioned earlier, our average monthly transacting customers have exceeded 100 million for 5 consecutive months from June to October last year. This is also the most direct testament to this highly efficient interaction and our operational capabilities. And our data-driven approach to product innovation, brand building and user operations help us sustain our strong brand momentum and support our long-term growth. And in terms of products guided by customer needs, we continue to drive product innovation with a strong focus on elevating coffee expertise and flavor experience. Our frequent new product launches aren't simply an expansion of SKUs, but rather reflect the strength of our supply chain elasticity and product development capabilities, including the sourcing, roasting capabilities, recipe formulation, flavor expression and customization from expanding our global origin footprint to building China's largest in-housing roasting network all the way to assembling professional coffee master teams, we have built a robust infrastructure that supports our long-term competitiveness. This freshly brewed coffee is fundamentally a category that relies on convenient locations and efficient customer fulfillment. The breadth of consumption scenario coverage and the store proximity to customers are key to converting this demand into actual sales. So with our 30,000 stores nationwide, we have broad coverage across cities and townships from high-tier to lower-tier markets. Our clear scale advantage better positions us to capture the sustained demand growth. And finally, our end-to-end digital capabilities across all businesses are a key competitive differentiator for us. As the era of AI arrives, we continue to increase our technology investment, exploring ways to adopt new technologies and advance our intelligent upgrade. On the customer side, we leverage AI-driven algorithms to unlock more opportunities across both private and public channels. And on the product side, we are building a more efficient and cost-effective product and supply chain infrastructure across consumer insights, product development and supply chain management. On the store side, we apply AI across site selection, store construction and AIoT-enabled store operations to continuously enhance efficiency. All these initiatives will support our long-term operational efficiency and reinforce our competitive edge. Yes. So overall, as more players enter the market, competition is becoming increasingly multifaced. We firmly believe that the scale and structural advantages we have built across these key areas will allow us to further expand, consolidate and strengthen our market-leading position as China's coffee industry continues to grow rapidly. So over the long term, this will also translate into sustained growth momentum and long-term profitability. Thank you. Operator: And our next question today comes from Sijie Lin with CICC. Sijie Lin: [Interpreted] Guo, An, and Nancy, I'm Sijie from CICC. I have a question on globalization. Our globalization -- our global expansion has been underway for some time now. So how should we evaluate the current progress of overseas expansion? And what's the strategy and plan for the future? Jinyi Guo: [Foreign Language] Operator: Pardon me everyone, this is the operator. Looks like we're having a connection issue again with the main speaker line here. Please let me reconnect them and we will continue the answer in just one moment. Please standby. Pardon me, everyone, I've reconnected the speaker line. Please proceed with your answer. Thank you. Jinyi Guo: [Interpreted] Apologies, we were experiencing some interruptions. Now we are back online. And I will translate this question from the beginning. So thank you for your question. Luckin Coffee's vision is to build a world-class coffee brand. So international expansion is a key part of Luckin's long-term strategy and the necessary steps in fulfilling our vision. Therefore, we will continue to evaluate and steadily advance our overseas expansion. Compared with the overseas markets where coffee consumption is very mature and stable, Mainland China's coffee market remains the most attractive globally in terms of growth and upside potential, and it continues to be the core foundation of our business. And Luckin has built our comprehensive advantages and proven business model on digitalization and scale in China's complex and intense competitive dynamics, which we believe will also form the core advantages for Luckin's overseas expansion. Therefore, we are advancing our international expansion with a long-term perspective and a merit approach as we remain committed to building a sustainable and replicable operating model. Overall, Luckin's overseas development has delivered encouraging early results. In Singapore, which is our first international market with a self-operated model, after 3 years of exploration and operational build-out, we had over 80 stores there by the fourth quarter, making us Singapore's second largest coffee chain by store count. With our innovative product offerings, convenient digital services and strong value for money proposition, we've been expanding our customer base while achieving growth in both top volume and ASP. Since the second half of last year, we've achieved stable store level profitability with business model largely validated. Also, this demonstrates the viability of Luckin's model in the overseas market. So building on the brand influence established in Singapore, we entered Malaysia in 2025 through a master franchise model. By year-end, we had opened 70 stores there, achieving our first year store opening target as we planned. Leveraging our proven experience in Singapore, we guide and help our local partner to build a highly localized operating infrastructure covering customer operations, product selection and marketing methodology, which has steadily strengthened market performance. As our Malaysia business enters a phase of accelerated expansion, both us and our local partner remain fully confident in our future development. This also provided a strong reference case for future franchise opportunities in more international markets. In mid-2025, we began exploring the U.S. market, and now we had opened 9 stores by year-end. As one of the world's largest and most mature coffee market, the U.S. represents one of our important long-term opportunities. So we are expanding our U.S. business with great patience and discipline, focusing on building strong foundations across our product, supply chain, consumer insights, customer experience and organizational capabilities for the long run. So at this very early stage, our priority remains on validating our business model and building operational experience. We are focused on refining fundamental capabilities such as product R&D methodology, user experience and supply chain optimization to establish a solid foundation for our future scaled expansion. So overall, we have both confidence and patience in our international expansion. Going forward, we will continue to follow a disciplined approach to deepening localized operations. We remain committed to maximizing Luckin's core strength while adopting flexible locally tailored models to deliver differentiated and innovative product offerings as well as customer experiences and refine our store model. As we build overseas operational experience, we aim to expand into more international markets over time and dedicate ourselves to building Luckin into a world-class coffee brand. Operator: Thank you. Due to time constraints, no further questions will be taken at this time. This concludes the question-and-answer session. I'd like to turn the call back to the management team for any closing remarks. Nancy Song: Thank you, everyone, for joining our call today. If you have any further questions, please feel free to contact our IR team. This concludes today's call. We look forward to speaking with you again next quarter. Thank you. Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. We look forward to speaking with you again next quarter, and have a great day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Greetings, and welcome to the LSB Industries Fourth Quarter 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, Kristy Carver, Senior Vice President and Treasurer. Thank you. You may begin. Kristy Carver: Good morning, everyone. Joining me today are Mark Behrman, our Chairman and Chief Executive Officer; Cheryl Maguire, our Chief Financial Officer; and Damien Renwick, our Chief Commercial Officer. Please note that today's call includes forward-looking statements. These statements are based on the company's current intent, expectations and projections. They are not guarantees of future performance and a variety of factors could cause the actual results to differ materially. For more information about the risks and uncertainties that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in the company's most recent annual report on Form 10-K. On the call, we will reference non-GAAP results. Please see the press release in the Investors section of our website, lsbindustries.com, for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. At this time, I'd like to go ahead and turn the call over to Mark. Mark Behrman: Thank you, Kristy, and good morning, everyone. Turning to the 2025 Highlights. I first want to recognize our teams for their continued focus on safety and operational discipline, which drove further improvement in our safety performance during the year. Our 12-month rolling total reportable incident rate of 0.40 incidents per 200,000 work hours as of December 31, 2025, was a record low, and 3 of our 4 sites operated injury-free for the full year, quite an accomplishment. That represents a meaningful improvement over 2024, and we're proud of the progress our teams have made. We delivered significant year-over-year growth in net sales, adjusted EBITDA and EPS in both the fourth quarter and the full year of 2025. Our strategies to improve our operational performance, combined with disciplined commercial execution, yielded strong financial results. The operational progress we achieved during the year enabled us to fully capitalize on favorable pricing momentum across our key products. We delivered record nitric acid and ammonium nitrate solution production in 2025, reflecting the progress we've made in plant reliability, throughput and operational efficiency. We believe this positions us well going forward, and we are ready to take advantage of current favorable market conditions. While we have been able to capture value with the operational and commercial improvements we've made, there remains significant value to capture, and we have ongoing initiatives intended to do just that. Cheryl will provide more color on that later in the call. Lastly, we are making good progress on our CCS project at our El Dorado site, and we feel good about meeting our projected time line. I will provide an update later on the call. Now I'll turn the call over to Damien to provide more detail on the commercial environment. Damien Renwick: Thanks, Mark, and good morning, everyone. Turning to Page 5. Our Industrial business remains well positioned with demonstrated performance across the board. During the fourth quarter, we optimized our production balance by reducing UAN production volumes to maximize ammonium nitrate spot sales at above typical market prices. This was to support existing customers whose regular AN supply was constrained by some supplier issues. Demand for AN for explosives in mining is strong across all commodities, but particularly with copper and gold miners who are maximizing production volumes to take advantage of record prices. AN demand for explosives for quarrying and aggregate production for infrastructure also remains steady. Demand for coal production remains resilient as the U.S. continues to generate more power from coal. Preliminary antidumping duties on imported methylene diphenyl diisocyanate, or MDI, combined with tariffs has increased U.S. production, leading to increasing demand for nitric acid. Turning to Page 6. Pricing for UAN averaged $320 per ton on a NOLA basis in Q4, up 39% over Q4 2024. UAN prices dipped slightly in November and December, but have recently improved. This reflects continued low levels of domestic inventory, constrained supply and a strengthening in urea prices. We began the 2026 fertilizer year with the lowest carryout inventory of UAN in several years. Together with the late start to summer fill, this has created a tight domestic supply situation, and we expect this to continue through midyear. We saw strong full ammonia sales, supported by favorable weather conditions, and we continue to see strong demand domestically with ongoing favorable application weather and higher prices for upgrades supporting demand. The Tampa ammonia benchmark price remains above year ago levels. Ammonia prices currently reflect reduced supply from the Middle East and Trinidad, higher cost of production in Europe and delays in new production capacity coming online. This is constraining global supply availability. In terms of the outlook for global ammonia, we see prices trending back to mid-cycle levels as new production comes online during 2026. But like the last couple of years, the market remains finely balanced and sensitive to any production interruptions. Finally, we believe broader ag market dynamics remain supportive of nitrogen fertilizer demand. The USDA recently projected 94 million planted acres for corn for the 2027 season, and we anticipate nitrogen demand to track closely with recent years. Now I'll turn the call over to Cheryl to discuss our fourth quarter financial results and our outlook. Cheryl Maguire: Thanks, Damien, and good morning. On Page 7, you'll see a summary of our fourth quarter and full year 2025 financial performance. Our results reflect the impact of the reliability improvements we've implemented across our operations. These gains, combined with the absence of planned turnarounds, positioned us to capitalize on strong market conditions. As a result, full year 2025 adjusted EBITDA was $162 million compared to $130 million in 2024, representing a 25% year-over-year increase. As shown on Page 8, Q4 adjusted EBITDA grew 42% year-over-year from $38 million in Q4 last year to $54 million this year. This increase reflects higher pricing, coupled with stronger volumes and product mix, which were partially offset by higher natural gas and other operating costs. Operating costs were elevated this period due to timing of expenses, along with increased maintenance and contractor support as we advance towards our production targets. We expect contractor-related costs to decline toward the end of 2026 as this work is completed. On Page 9, you can see that our balance sheet remains solid with approximately $150 million in cash at year-end and net leverage of 1.8x for the period ending December 2025. Operating cash flow for the full year of 2025 was $96 million. After subtracting $53 million of sustaining capital, the capital required to maintain our operations, free cash flow was $44 million. The remaining $25 million of CapEx relates to investments made to support growth in our business, which is discretionary and not included in free cash flow. While free cash flow looks lower than EBITDA might suggest, the shortfall is largely timing related. Working capital grew by over $30 million during the period, driven by the rollover of certain 2024 payables that were paid early in '25 as well as strong end of the quarter sales falling into receivables at year-end. Adjusting for the timing of these items, free cash flow generation was consistent with our expectations. In addition to investing in our manufacturing assets in 2025, we also derisked our balance sheet by repurchasing approximately $40 million in principal amount of our senior secured notes while also repurchasing approximately 300,000 shares of stock during the same period. Page 10 outlines the key considerations behind our full year 2026 expectations with the table on the upper left showing our estimated ammonia production and sales volumes. These estimates reflect planned turnaround activity, including the previously communicated El Dorado turnaround, which we have scheduled for the second quarter. In addition, we are accelerating a turnaround at our Pryor location, originally scheduled for 2027, so we can proactively perform work needed to improve reliability at that site. We are targeting the third quarter for this turnaround. This proactive step reinforces our focus on improved plant reliability and positions the business for sustainable production performance. The impact of both turnarounds is expected to result in lost ammonia and UAN production tons in 2026 of approximately 60,000 and 50,000 tons, respectively. Despite these planned outages, we continue to expect strong underlying volume momentum, reflecting the operational improvements we've made across our facilities. The slide also covers our estimates of variable and fixed plant expenses as well as SG&A and other expenses for 2026. Our expectations for costs reflect investments we are making to achieve our production volume goals. We expect to see costs trend down towards the end of 2026. We expect our effective tax rate for the year to be approximately 25%. However, we do not expect to be a material cash taxpayer in 2026 as we continue to utilize our NOLs. In the table at the bottom right of the slide, you'll see that we expect to invest approximately $75 million of CapEx in our facilities during 2026. That includes $55 million for annual EH&S and reliability CapEx and $20 million earmarked for investments, including enhanced logistics and storage capabilities for our growing AN business. Turning to the first quarter, a few notables. We expect strong selling prices for our products, roughly in line with the fourth quarter of 2025. Winter storm burn drove short-term gas volatility in late January and into February settlements and resulted in elevated gas prices for February. However, gas prices have moderated back to around $3 per MMBtu, and therefore, we expect much lower realized pricing in the second quarter. As a result of the inflated February natural gas prices, our average gas cost for the first quarter is expected to be approximately $5.50 per MMBtu. From a Q1 sales volume standpoint, we may opportunistically shift some production towards ammonium nitrate solution where market conditions warrant. As a result, UAN sales volumes could be lower with a corresponding increase in AN volume. This reflects our ability to optimize product mix based on market conditions. Ahead of the scheduled turnaround at our El Dorado facility planned for the second quarter, we plan to build ammonia inventory to support continued operation of our downstream plants during the majority of the turnaround. As a result, first quarter ammonia sales volumes will be impacted by approximately 15,000 tons. Overall, we expect a meaningful uplift in our first quarter earnings compared to the first quarter of 2025 and expect the earnings power of the first quarter to mirror that of the fourth quarter of 2025, adjusted for the temporary run-up of gas costs I previously mentioned. We have discussed our focus on upgrading an increasing amount of ammonia to capture additional margins on previous calls. Page 11 illustrates the favorable sales volume trends we're driving in our major product group adjusted for the impact of turnarounds. The first chart shows the increase in AN and nitric acid sales volumes recognized in 2025 as a result of our reliability improvements to our downstream operations and the full year volume impact we expect in 2026. Similarly, the middle chart shows UAN sales volumes, which are on a steady trajectory upward after normalizing for turnaround activity in certain years. The chart on the far right shows a downward trend in ammonia sales as we continue to upgrade ammonia into higher-value products. In this case, a down and to the right trend is a good thing as it results in improved margins. Page 12 highlights the value creation we've delivered over the last 24 months. Since 2023, we've captured approximately $20 million of annual EBITDA uplift, driven primarily by higher downstream production as outlined on the previous slide. Additionally, we expect to achieve approximately $15 million of annual EBITDA improvement beginning in early 2027 related to our carbon capture and sequestration project at El Dorado. Mark will provide an update on that later in the call. As we continue our focus on best-in-class operations, we see an additional $35 million of incremental annual EBITDA uplift ahead of us, primarily from higher production rates, numerous efficiency gains and the continued cost optimization. In total, when complete, these efforts should yield a total of $70 million of annual EBITDA with $20 million already captured and a further $50 million that is planned and underway. We've demonstrated our ability to deliver on these initiatives, and we see a clear path to capturing the remaining value through continued execution of numerous initiatives. And now I'll turn it back over to Mark. Mark Behrman: Thank you, Cheryl. Page 13 is a time line for our low-carbon project at our El Dorado facility for the year. We and our partners met with senior officials from the EPA's Region 6 office in mid-December to discuss the status and timing of our Class 6 permit application. Based on that conversation and the EPA's stated support for our project, we remain on track to begin sequestering CO2 by the end of this year or at the latest early next year. The milestones we expect are first for the technical review of the permit to be completed in April of this year, followed by the permit to construct in August of this year. And lastly, the permit to inject CO2 by year-end. We're excited to get strong support for our project from the EPA and look forward to partnering with them to complete the milestones this year and getting into operation. Our commercial team continues to pursue low-carbon product supply opportunities where we can generate premiums for those products as well as the potential to sell environmental attributes that we generate. 2025 was a year of meaningful progress across several fronts. Improved production, strong commercial execution and solid financial performance drove strong results, while our continued shift towards industrial business has reduced the earnings volatility of our business. We also took important steps to strengthen our balance sheet, including reducing our debt, all while continuing to invest in our assets and the growth of our business and returning capital to shareholders through share repurchases. We ended the year with a healthy cash position and significant financial flexibility, allowing us optionality when thinking about how we allocate capital and how we grow our business. While we've captured meaningful margin uplift over the last several years, we are keenly focused on executing on specific initiatives that will generate an additional $50 million of annual EBITDA when complete, giving us clear line of sight to continued value creation. I am excited about the future of our business and the opportunity for value creation. I'm encouraged by a healthy market backdrop, and I am confident that we have the right team to continue executing and creating long-lasting shareholder value. Before we open it up for questions, I'd like to mention that Cheryl will be participating in the Gabelli Specialty Chemicals Conference on March 19 in New York City, and I will be participating in a virtual conference with Granite Research on March 16 and 17. We look forward to speaking with some of you at these events. That concludes our prepared remarks, and we will now be happy to take your questions. Operator: [Operator Instructions]. Our first question comes from Lucas Beaumont with UBS. Lucas Beaumont: I just wanted to talk about the gross ammonia production. I mean that's sort of -- it's been somewhat volatile just sort of with the turnaround timing. But when we look at it on a multiyear view, it's up kind of maybe 5% on a 2-year stack. So I just wanted to get your thoughts on how we should think about your ability to kind of continue to lift productivity from here going forward and just sort of how that flows through into the remaining kind of $35 million in production improvement initiatives that you called out? Mark Behrman: Good morning, Lucas. So I think we have a chart in our earnings presentation that is showing sales volumes, but we don't really put in a production volume chart. But having said that, I think if you look year-over-year and you normalize for any turnarounds and you think -- look at the outlook for this year that Cheryl presented, I think you can see that we're continuing to go up. So what we would really -- what we're really focused on is getting to about 875,000 to 880,000 tons of gross ammonia production without any turnaround. So we're confident that we're on the path to get there. We're seeing that year-over-year. And as far as how should we think about that and how much of the $35 million really represents that, I'd probably say maybe about 30% to 40% of that $35 million is by having higher ammonia production rates and getting to the targets that I've outlined. Lucas Beaumont: And I guess then just looking at your non-gas cost assumptions that you sort of put out today for 2026. I mean, in aggregate, it looks like you're sort of targeting to hold those basically flat year-on-year, maybe even slightly down, so which is a much more attractive outcome for you guys than the inflationary pressure that we've seen over the last couple of years. So I guess, is that sort of inflation abating? Is it work you're doing to kind of keep your costs down? And where you kind of see any swing factors there that could push you sort of higher or lower on those non-gas costs? Mark Behrman: Yes. So I think what you're seeing is just a lot more efficiency with the business. And also when we become more -- as we become more reliable, there's less maintenance costs, and so we're driving our maintenance costs down. that should continue. And there is a continued expense reduction in the $35 million that we expect to capture. Lucas Beaumont: Great. And then maybe just one last one on the AN market, I just wanted to get your thoughts on how, I guess, the market is responding to the supply disruption from CF at Yazoo City. What's kind of supply availability like? And is that sort of flowing through to pricing in your P&L? Or how would you expect that given the -- I mean, the market is more contracted. So I assume there's more of sort of a lag there, and it's not as quick a transmission but would be interested in your views. Mark Behrman: Damien, do you want to handle that? Damien Renwick: Good morning, Lucas. Look, I think it's really fair to say that the market is pretty tight at the moment. I mean that's a significant production capacity that's out. And I think the players in the market are flexing production where they can, including ourselves. So where it makes sense for us, we're optimizing our plants and reducing UAN production to make more AN available. And we're certainly doing that where it's financially viable as well. So pricing for those sales is definitely above typical contract rates. So how long will that go on for? Look, market intel sort of suggests that, that will go through to the end of the year and we'll continue to try and optimize our production and capture some of those sales. But also against that, you've got the backdrop of the market being pretty buoyant for AN. So as I said in the remarks, you've got gold and copper miners really trying to maximize their production as much as they can, and that is drawing on explosives demand, and we're seeing that in our day-to-day business. So the market is really well set up this year, and we're really well positioned to take advantage of it. Operator: Our next question comes from Laurence Alexander with Jefferies. Kevin Estok: This is Kevin Estok on for Laurence. So I have a few end market questions. Just curious to get your thoughts on basically how much of a potential tailwind in demand you could expect to receive from rising U.S. coal production? I guess, or more simply whether you expect U.S. coal production to basically drive a growing share of demand for the company? Damien Renwick: Yes, hi, Kevin. Look, I think coal is probably more holding steady than increasing. It's -- I mean, there are months where you are seeing some increases in production, but that's really just a power generation mix decision that's happening with potentially higher natural gas prices. So I think what we're seeing this year and what we saw through the end of last year is that there's a lot of support at the moment to keep coal-fired power stations running, and that's providing a pretty solid demand backdrop for coal producers and therefore, for AN. So I think it's pretty constructive the way it's set up at the moment. Kevin Estok: Okay. Understood. And then just on fertilizers, Obviously, supply continues to be broadly constrained, but I'm just curious to get more detail on maybe what you're hearing on the ground, like how you expect the demand to basically evolve in '27 and maybe if you're hearing demand being crimped by elevated pricing? Damien Renwick: Yes, great question. Certainly correct in the market is tight, and we're seeing that for our ammonia and UAN products and pricing is reflecting that. And we would expect that to continue through the season. upgrades, urea prices are getting high. Will that cause some demand destruction? Possibly around the edges. But I think with the corn acres being forecast for this year, I think demand is going to be pretty solid, and I would expect the supply and demand balance to be really tight through the end of the year. And also the global dynamics also support that. In ammonia at the moment, it's a very tight market. Urea, we've had sort of unseasonal unexpected Indian tender. Brazil demand is strong. You've got supply constraints in the Middle East and Trinidad. So I think the market from a nitrogen perspective is really constructive and tight, and we expect that to continue through the fertilizer season. Operator: [Operator Instructions]. Our next question comes from Andrew Wong with RBC Capital Markets. Andrew Wong: So just maybe just broader, in 2025, we saw some good progress on your main strategic priorities, better production, reliability, more upgrade capacity. There was a transition to industrial sales. So a lot was done in 2025. Like can you just talk about what your main strategic priorities are for 2026? Mark Behrman: Sure. Good morning. Andrew. So we have a real focus to continue that momentum on the manufacturing side. While we've made a lot of improvements, our real goal is to be an upper quartile manufacturer. So what does that mean? I mean we want to run our ammonia plants at 95% capacity utilization. And so that's the real goal. In order to do that, we've got to mature a lot of our maintenance practices and operating practices, but we've also got to continue to invest some selected capital within our capital plan. But a lot of the time, you really need extended downtime, and that really comes to turnaround. So we expect some real improvements in our operating rates down at our El Dorado facility after this extended turnaround that we have in April. And then again, as Cheryl mentioned, we pulled forward our prior turnaround to proactively make significant improvements there as well. So we should see some real reliability improvement coming out of that turnaround. And then at the Cherokee facility, of course, we have a turnaround next year where we'll do some work there. So that's always going to be a priority as we try and continuously improve. And then really, once we eventually get to the level of reliability that we're really looking for and that we think we can attain, then you're sort of continuing to look at efficiencies. In addition to the manufacturing side, we've still got some optimization that we'd like to do throughout our commercial operations. And we've got some opportunities that we need to look at with some customers. And so that's going to be a big focus this year as to how do we take advantage of those opportunities and where can we selectively invest capital in the future to really take advantage of some of that demand that we can't meet today. The last thing I would say is Cheryl talked about profit optimization. One thing that we've done is we've probably spent a little bit more. And so I think the question earlier by Lucas about expenses and seeing it sort of flatten out this year or slightly down. I think we've got to take more cost out of the business, and I think we've got some plans to do that. And we've spent to improve the reliability. But once you get that reliability, now you can pare back some of the expense, and that's what we'll look to do. So those probably would be the 3 main sort of operating priorities. And then from a strategic standpoint, I think we've -- I think I'm really proud of my team that they've really done a great job in turning around this business. And I think we're at a point now where it's time to grow. And whether that's organically through some debottlenecking opportunities or some just other growth initiatives or that's through some combination of assets or company, I think we're really focused on that. Andrew Wong: Okay. That's great. Then just on the blue ammonia front, as the Lapis project is kind of coming into focus and hopefully start production by the end of this year, I'm assuming you're having some discussions on blue ammonia with potential customers. What are you seeing from a willingness to pay standpoint for that blue ammonia? And are you seeing customers willing to pay a premium for low-carbon product? Mark Behrman: I'm going to start with an answer, and then I'm sure Damien is going to chime in on this. I think we're -- the market is really slow to pay a premium. So I think you got to work really hard to find the right customers that are willing -- that it becomes important too. If you're able to export like some of our competitors, you might be able to -- or you can send low-carbon ammonia to Europe. And then depending on what happens with CBAM, you might see a premium paid for that. And there's still an if on what's going to happen with CBAM as we sit here today. So domestically, the fact that we have a pretty large industrial business, I think, gives us an advantage when we're talking to customers that are using our products or upgraded products as a feedstock for some other product. And so they need to work through what's the ultimate cost increase for the value that they'll receive by having a lower carbon product. So a long-winded way of saying, I think that the market -- it's slower to develop -- to pay a premium for a low-carbon product, but there are niche opportunities that we're pursuing. And I think we do believe that over time, people -- and the market will develop and people will pay a premium, but I don't think it's going to happen as fast as everyone thought if the question was asked a couple of years ago. Damien Renwick: Yes, I would concur with that. I mean, certainly, domestically, it's been slower going, particularly as you've seen some uncertainty around decarbonization and the energy transition here in the U.S. But the story still is positive, I think, globally. And as Mark said, you've got opportunities if you can export to secure premiums, be it into Europe under the CBAM regulation or even into other emerging markets. But it is -- the market, I think, is still immature and has been slower to develop than we'd all want and expect. So yes, that's where we stand today. Andrew Wong: Given there's more opportunities in the export market, is it possible for you to do some sort of swapping maybe to access that export market? Damien Renwick: Yes. Look, we continue to evaluate all opportunities for us to be able to export our product, including swaps or some sort of physical transactions. So yes, it's all on the table. Operator: Our next question comes from Rob McGuire with Granite Research. Robert McGuire: Two questions. One is on AN. Can you give us an idea of how much your sales volume was under contract exiting in 2025? And if you do ship production towards AN this year, will you try to lock that up under contract? Damien Renwick: Good morning, Rob. Look, our stable, steady AN business, the base business is all under contract, and we work to make sure that that's the case. And only a small amount really is spot. But what we're doing at the moment is really tweaking the product balance to maximize and produce more AN, and we're doing that by reducing our UAN production and putting it into the AN market. So -- and that's all under spot. And there's a multitude of conversations going on with customers around whether they turn into longer-term arrangements or not. I mean it's a very fluid market. Robert McGuire: And then shifting to the turnarounds. Can you tell us when you expect Cherokee to take place in 2027? And then on El Dorado, will you be able to build inventory and continue downstream production during the April turnaround this year? Cheryl Maguire: Yes. So on the El Dorado turnaround, the plan is to build ammonia in the first quarter so that we are ramped up on ammonia in inventory heading into that turnaround, which, yes, should allow us, for the most part, to run all downstream plants through that turnaround. With respect to Cherokee, the Cherokee turnaround right now, I believe, is slated for the third quarter of 2027. Robert McGuire: And then on import volumes, have U.S. import volumes or buying patterns shifted since fertilizer tariffs were lifted in the fourth quarter? Damien Renwick: I think it's too early to tell, Rob. I mean, the market is short here, and you're going to see some import tons come into the market to try and correct for that. But I think that's more just a response to the U.S. market per se rather than tariffs. Mark Behrman: I would say that imports have never stopped coming in here, right? So there's the demand and people have different production points have found a home into the U.S. I think with the tariffs being lifted, I don't know that you're necessarily going to see more imports coming in. I think you could see different imports from different locations coming in. Robert McGuire: And then I'm not sure who can answer this question, but on farmer economics, there's been a lot of media focus on just the stress in the ag sector. And I'm just wondering how you view the current farmer economics? And do you anticipate that softer farm incomes impacting demand or ordering behavior this year? Mark Behrman: Yes. So good question. And there's no doubt that when you look at farm economics and you look at lots of folks that are smart than us that really understand the economics that the farmer is under some level of stress today. And therefore, you saw the U.S. government do a $12 billion sort of payment package. I think when you take a step back and we spend a lot of time really thinking about this and talking about it. And the industry really focuses on what do we -- what can we do to help the situation. But the reality is it's really a supply and demand for commodities. And so right now, we had a record corn crop that was planted and inventories are pretty high. And why did that happen? That happened because demand for soybeans, particularly soybeans that are exported, has gone down pretty dramatically. And so when you think about the demand for both of those crops, which are the 2 largest crops for nitrogen use and 2 largest crops that are planted here in the U.S. there needs to be more demand created, one for soy. And so the U.S. government needs to help probably with that to create more demand. But also demand is going to drive corn prices as well. And so there's a lot of talk about permanently going to E15. And if that were to happen, that obviously would increase ethanol demand for corn pretty dramatically. And so I think ultimately, we need to figure out a way to create more demand for our 2 largest commodities. And therefore, that will lift some of the pricing for those products and then put less stress on the farmer. Operator: We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Mark Behrman for closing comments. Mark Behrman: Thank you. I want to thank everyone for participating on the call. I'm really proud of the quarter and the year that we just posted. And we're really excited about 2026 and think we'll make a lot of great progress. So again, if there's any follow-up questions, feel free to call Cheryl or myself. Thanks so much. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.