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Operator: Good day, and welcome to the AvePoint, Inc. Fourth Quarter and Full Year 2025 Earnings Call. All participants will be in listen-only mode. To ask a question, please press star then 0 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to James Arestia, Vice President, Investor Relations. Please go ahead. James Arestia: Thank you, operator. Good afternoon, and welcome to AvePoint, Inc.'s fourth quarter and full year 2025 earnings call. With me on the call this afternoon are Tianyi Jiang, Chief Executive Officer, and James Caci, Chief Financial Officer. After preliminary remarks, we will open the call for a question-and-answer session. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statements contained in our press release for a more complete description. All material in the webcast is the sole property and copyright of AvePoint, Inc., with all rights reserved. Please note this presentation describes certain non-GAAP measures, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, and non-GAAP operating margin, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented in this presentation, as we believe they provide investors with a means of understanding how management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to, financial measures prepared in accordance with U.S. GAAP. A reconciliation of these measures to the most directly comparable GAAP financial measures is available in our fourth quarter and full year 2025 earnings press release as well as our updated investor presentation and financial tables, all of which are available on our Investor Relations website. With that, let me turn the call over to Tianyi. Tianyi Jiang: Thank you, James. And thank you to everyone joining us on the call today. Our fourth quarter results are a strong conclusion to an outstanding year. Our leading position in mission-critical data management, coupled with market demand for data protection in the AI era, enabled us to accelerate revenue growth, deliver our eleventh straight quarter of double-digit growth in net new ARR, and achieve double-digit GAAP operating margins. Very few software companies can point to comparable levels of organic growth, GAAP profitability, and strong cash flow generation. And even fewer sit at a critical intersection of data protection and security. And, importantly, we see healthy demand from companies spanning every size, vertical, and region of the world, validating our conviction in a large and growing market for secure, automated, and AI-ready data governance and resilience solutions. This broad-based customer demand is not surprising, as it is clear that AI has transformed the speed, scale, and stakes of data security and governance for companies everywhere. Organizations no longer view data governance as simple back-office hygiene; it has become the prerequisite for AI and agentic AI adoption. And our customers and partners continue to tell us the same thing: before they can deploy AI at scale, they need one company that can secure, govern, and operationalize their data with confidence. In fact, I just met with one of our financial services customers who in Q4 replaced patchwork tools and a vendor they had for over 20 years with AvePoint, Inc. Our platform now secures, governs, and guarantees data recovery for nearly 100,000 employees who drive $25,000,000,000 in annual revenue. That is not a workflow that gets agented away. It is the trust layer that makes enterprise AI possible in the first place. With stories like these, I will focus today on the durability of our value, and share why, despite speculation about the future of enterprise software in the context of agentic AI, AvePoint, Inc. will capitalize on the AI data protection opportunity in 2026 and the years ahead. But first, I want to remind you of three long-standing trends that you have heard us discuss for years: the relentless growth of data, the complexity of systems, and the severe consequences of poor data management. These challenges existed long before AI, but have only accelerated in recent years as data now spans cloud platforms, on-premise systems, third-party tools, and AI-driven workflows. AvePoint, Inc. brings order to this chaos. We ensure that data is reliable, governed, and secure, and we have done this for more than two decades for thousands of customers. While AI is a powerful tool, enterprise-grade software remains essential for managing complex environments and ensuring regulatory compliance. And if your AI relies on inconsistent or poorly governed data, it becomes a liability rather than an asset. The AvePoint, Inc. Confidence Platform is the solution to this challenge. Specifically, it is our platform architecture, which determines how effectively organizations can discover, govern, protect, and recover data across distributed multi-cloud environments. That not only makes us unique today, but provides a durable competitive moat. To start, our platform serves as a foundational layer within any data protection framework, acting as the control plane for policy management and real-time remediation, and the connectivity tissue for enterprise security operations. By maintaining a robust API framework and interoperability across hybrid cloud environments, we enforce strict identity verification and least-privileged access at the data layer, and immediately remediate any potential breach or policy violation. This approach was crucial for one of our largest consumer packaged goods customers, who faced significant challenges around ransomware threats, intellectual property protection, and data access compliance before launching Copilot. Using our platform as the core of their data protection strategy, we cleaned up their ROT data, deployed data resiliency across their 13,000 global employees, and implemented granular access controls. By starting at the data layer and utilizing our policy management and real-time remediation capabilities, they now have safe, secure, and compliant data they can trust to power their business. Our solutions also ensured that proper, provable access controls are in place for Copilot and other agents. We can solve challenges like this for thousands of companies because of our platform's ability to define all of their unstructured data and then visualize how its attributes, including sensitivity, intent, and lineage, evolve in real time. This contextual data, which is housed with us and which you heard Anthropic discuss on Tuesday as a critical input to their goal of transforming knowledge work, provides AvePoint, Inc. an enormous competitive advantage because our customers rely on us to govern the data in real time. Customers today know that proper data governance requires more than logs or snapshots; it requires a live context that our platform provides, that AI cannot deliver on its own, and that traditional static databases miss. And it was this technological differentiation that led a large construction company to become a new AvePoint, Inc. customer in Q4. They were recovering from a major cyber incident and preparing for broader AI adoption, but their core issue was not simply storage or cleanup; it was a lack of real-time context into how sensitive data was evolving and being accessed across their environment. By deploying our unified platform, with live visibility and control across unstructured data, they were able to reduce access sprawl and saved up to $1,300,000, improve data quality, and, most importantly, govern risk as they emerged. With AvePoint, Inc. as their strategic partner and restored confidence in their data foundation, they are now positioned to safely expand protection across their cloud and Azure workloads. Our platform is the result of decades of innovation and refinement, and today features a layered, interoperable architecture built for scale. It also functions as a governance and control layer for agentic AI, providing the trusted data foundation that agents need to act safely and effectively in the AI era. This includes a business logic layer, which defines the security and operational rules required by the customer; an elastic, scaling data abstraction layer, which allows the platform to meet massive data surges without performance degradation; and AI-specific remediation, which leverages proprietary algorithms to identify threats designed to bypass AI guardrails. We have always aimed for our innovation to keep up with the larger technological changes taking place. Today, as agents proliferate, the missing layer is not more AI. It is governance and operational oversight for AI. That is exactly why we built our sixth command center, AgentPulse, which provides unified visibility, governance, and operational oversight for agentic AI. AvePoint, Inc. customers can now inventory agents across their digital estate, surface usage, risk, and cost signals, monitor performance drift, and ultimately take action when needed. As companies scale their agentic AI deployments, AgentPulse becomes the operational cockpit that ensures safety, compliance, and measurable value. And lastly, building on AgentPulse, our new agentic AI governance and data protection features that we announced earlier this month provide customers with better insights about agent security posture and the ability to correct security problems directly in the Confidence Platform, helping them use agentic AI tools safely and efficiently. In short, no other platform combines modularity with tailored functionality to manage critical data in real time across cloud vendors. This was also validated by Gartner, which referenced AvePoint, Inc. in their latest research on how to build a strategy for M365 Copilot and agentic AI in 2026. And as we continue to introduce extensions to existing cloud services and to new applications, the Confidence Platform will further consolidate point solutions to drive a faster ROI, which in turn only deepens our competitive advantage. Our conviction in our platform differentiation is not to suggest that every enterprise software company is immune to disruption from AI. In fact, it is quite the opposite. We believe every company, regardless of industry, will be impacted by AI. But those that use AI to drive innovation as their core competency will be successful in delivering durable growth in the years ahead. And, specific to software, we believe the winners will offer the market two things: a true platform offering that provides pricing flexibility and ultimately leans on consumption-based and cost-saving-focused licenses, and end-to-end vertical organic integration ranging from development to go-to-market to best-in-class cloud ops and security to continuous enhancements and improvements. We are mindful of this with every strategic decision we make, and we will further differentiate ourselves by leveraging our domain expertise, our extensive partnerships, and our global scale and distribution to solidify our leadership position in the responsible and effective deployment of AI across all enterprises. As technology evolves, we are enhancing our go-to-market strategy to prioritize bundle offerings, building on last year's successful launch of our Control and Resilience packages. These bundles deliver comprehensive, outcome-based solutions addressing data cleanup, lifecycle management, governance, storage optimization, and protection, which customers and partners prefer over fragmented tools. And while we have historically licensed by seat count, we anticipate moving towards a hybrid model that incorporates capacity-based and data volume pricing, especially as AI enhances productivity but retains user-driven workflows. In Q4 and throughout 2025, we proved that AvePoint, Inc. is built for this moment, and our belief in the long-term market opportunity has only strengthened. As organizations modernize their processes and workflows, the need for a secure, governed, and resilient data foundation that transforms enterprise data into a secure, high-quality signal for AI only becomes structurally more important. That is what our platform delivers, making us the trusted long-term partner for our customers. We have said before that our ambition is big, reaching $1,000,000,000 ARR by 2029. But it is grounded in operational discipline, durable market demand, and a platform strategy that is only becoming more relevant as AI adoption grows. And while questions about market cycles or technological disruption will come and go, our conviction in the durability of the market opportunity and our ability to capture it has never been stronger. I want to thank the entire AvePoint, Inc. team for their tireless efforts in making 2025 an exceptional year of execution and continued growth. And we are excited for an even stronger 2026. Thank you again for joining us today. I will now turn it over to James. James Caci: Thanks, Tianyi, and good afternoon, everyone. Thanks for joining us today. Coming into 2025, our outlook reflected two central themes: first, the growing customer demand to prepare, secure, and optimize their critical data, and second, the ongoing improvement in our ability to efficiently deliver on that demand. These themes gave us the confidence to continue investing in support of our strategic priorities and our 2029 goal of $1,000,000,000 in ARR while remaining committed to delivering ongoing top-line growth and margin expansion. As we recap our fourth quarter and full-year results today, we are proud that they validate and demonstrate our ability to execute on our commitments to shareholders. Q4 had a number of highlights, including acceleration of our revenue growth, our eleventh straight quarter of double-digit growth in net new ARR, substantial expansion of both GAAP and non-GAAP operating margins, and our continued success selling the AvePoint, Inc. Confidence Platform to large enterprises, reflected in the record number of $100,000 and $250,000 ARR customers added. We are particularly proud of these accomplishments in light of the two goals we set at our first Investor Day three years ago. Namely, that by 2025, we would deliver GAAP operating profitability, and we would be a Rule of 40 company. And while we delivered GAAP profitability in 2024, a year ahead of schedule, we delivered on both of these commitments in 2025, with a Rule of 46 and a GAAP operating margin of 7.9% for the year. These accomplishments have only strengthened our conviction in the market opportunity and our ability to execute, and we have even better visibility into the growth vectors that will propel us toward our $1,000,000,000 ARR target for 2029. As Tianyi mentioned, there are very few software companies that have our organic growth profile, scaling operating margins and GAAP profitability, material cash flow generation, and healthy SaaS KPIs. And this exceptional financial position, coupled with the competitive differentiation that Tianyi discussed, are why we will continue to balance strategic growth investments in our go-to-market capacity and innovation pipeline with a continued commitment to driving operating leverage across the business. So, let us turn to our results. Total revenues for the fourth quarter were $114,700,000, up 29% year over year and comfortably above the high end of our guidance. On a constant currency basis, total revenues grew 25% year over year, a meaningful acceleration from Q3. SaaS continues to drive our business, with Q4 revenue of $88,900,000 growing 37% year over year. The strong customer demand for SaaS is also reflected in our revenue mix, as it represents 78% of total Q4 revenues, surpassing last quarter's record, and on a constant currency basis, Q4 SaaS revenues grew 33% year over year. Services revenue of $14,600,000 represented 13% of total revenues and grew 20% year over year, while term license and support revenues grew 7% year over year and represented 9% of Q4 revenues compared to 11% a year ago. And lastly, maintenance revenue of approximately $981,000 represented 1% of total revenues and continued its expected decline. As a result, 87% of our Q4 revenues were recurring. Looking at our geographical performance, we were pleased that each region delivered a strong close to the year. In North America, total revenue growth accelerated to 25% year over year, driven by SaaS revenue growth of 34%. In EMEA, total revenue growth accelerated to 39% year over year, driven by SaaS revenue growth of 44%, and in APAC, total revenues grew 23% year over year, driven by SaaS revenue growth of 32% and service revenue growth of 25%. On a constant currency basis, EMEA SaaS revenues increased 33% while total revenues increased 28%, and for APAC, SaaS revenues increased 31% on a constant currency basis while total revenues increased 22%. We were pleased to see the same strength and balance when looking at ARR. In Q4, North America ARR grew 20%, EMEA ARR grew 32%, and APAC ARR grew 34%. Taken together, we ended the year with total ARR of $416,800,000, representing year-over-year growth of 27%, or 26% after adjusting for FX. As a result, net new ARR in Q4 was $26,800,000, once again surpassing last quarter's record and representing growth of 48% year over year. Lastly, as of the end of Q4, 57% of our total ARR came through the channel, compared to 55% a year ago. Our success at the enterprise level has been consistent for many years, but it was especially notable across our large customer cohorts in Q4. We ended the year with 820 customers with ARR of over $100,000, a year-over-year increase of 24%. This record growth also represented the addition of 64 such customers in Q4, easily surpassing last quarter's record of 41. In addition, we ended the quarter with 298 customers with ARR of over $250,000. As we added 28 such customers in Q4 and 73 for the year, both of which were records. Lastly, we now have more than 100 customers with ARR of over $500,000, as well as 31 customers with ARR of more than $1,000,000. Taken together, these results demonstrate that we are meeting the demands of organizations looking for single-platform vendors that can address multiple strategic use cases. Turning now to our customer retention rates. Adjusted for the impact of FX, our Q4 gross retention rate was 88% and our Q4 net retention rate was 110%, both of which were in line with Q3. I want to remind you that GRR factors in account-level churn, customer downsell, and our migration products, which have naturally lower renewal rates. This quarter, migration served as a two-point headwind to GRR. So, excluding it, GRR would have been 90%. I also want to point out that in Q3 and Q4, we did see a higher migration contribution than in prior years due to increased customer modernization efforts around AI deployment. While we believe this positions us to potentially cater to additional use cases outside of migration for these customers, this dynamic could put modest pressure on GRR in 2026. On a reported basis, Q4 GRR was 88% and Q4 NRR was 111%, with GRR in line with the prior year and NRR representing a one-point improvement. Turning back to the income statement, gross profit for Q4 was $85,100,000, representing a gross margin of 74.2% compared to 75.5% a year ago. The year-over-year gross margin decline is primarily the result of a higher mix of services revenue this year and the lower relative gross margins on those revenues. Moving down the income statement, Q4 operating expenses totaled $62,200,000, or 54% of revenues, compared to $52,800,000, or 59% of revenues, a year ago. As a result, Q4 non-GAAP operating income was $22,900,000, with our 20% operating margin, representing year-over-year expansion of more than 370 basis points. Sales productivity was a key driver of the increase, as this metric improved every quarter over the course of 2025 and was our highest ever in Q4. These improvements, along with our growing channel contribution, continue to drive down our sales and marketing expense as a percentage of revenues, which was 31% for Q4 and 32% for the year. To remind you, our long-term target for this is 30%. Turning to the balance sheet and cash flow statement, we ended the year with $481,000,000 in cash, cash equivalents, and short-term investments. And for the year, cash generated from operations was $85,300,000, or a 20% margin, while free cash flow was $81,600,000, or a 19% margin. I also want to call out our remaining performance obligation growing 36% year over year, which crossed the half-billion-dollar mark in Q4, to $508,100,000. The ongoing strength of this metric reflects the longer-term commitments that customers are making, and they are investing in our platform as a foundational layer for governing, protecting, and operationalizing data as they scale AI across the business. Lastly, we repurchased 1,700,000 shares in the fourth quarter for approximately $22,400,000. Before I turn to our guidance, I will briefly recap our full year 2025 results. Total revenues of $419,500,000 represented 27% reported growth and 25% constant currency growth, both of which were an acceleration from 2024. SaaS revenues grew 38% year over year to $319,200,000 and represented 76% of total revenues, compared to 70% in 2024 and 59% in 2023. As mentioned, total ARR as of December 31 was $416,800,000, representing growth of 27% or 26% when adjusted for FX. As a result, net new ARR for the full year was a record $89,800,000, representing record growth of 44%. This compares to net new ARR in 2024 of $62,500,000, which grew 25% over 2023. Full-year non-GAAP operating income was $79,200,000, or an operating margin of 18.9%, compared to $47,600,000 in 2024, or a margin of 14.4%. GAAP operating income for the year was $33,000,000, with GAAP operating margins expanding 570 basis points year over year to 7.9%. This expansion was driven by the improvements I discussed earlier, as well as our management of stock-based compensation expense, which is now less than 10% of our revenues, and which we expect will further decrease as a percentage of revenue in 2026. During 2025, we repurchased 3,400,000 shares for approximately $50,000,000, and through the close of trading last week, we have repurchased another 2,800,000 shares year to date, for another $33,500,000. Share buybacks remain a key pillar of our capital allocation philosophy, and we intend to remain active and opportunistic in the open market, reflecting our belief in the underlying strength of our business and commitment to driving shareholder value. And lastly, on a Rule of 40 basis, which for AvePoint, Inc. is the sum of ARR growth and non-GAAP operating margin, as I mentioned earlier, we finished 2025 at a Rule of 46. This compares to a Rule of 38 for 2024 and a Rule of 31 for 2023. Turning now to our guidance. For the first quarter, we expect total revenues of $115,000,000 to $117,000,000, or growth of 25% at the midpoint. And on a constant currency basis, we expect revenue growth of 20% at the midpoint. We expect non-GAAP operating income of $19,500,000 to $20,500,000. And for the full year, we expect total ARR of $525,100,000 to $531,100,000, or growth of 27% at the midpoint. On an FX-adjusted basis, we expect total ARR growth of 26% at the midpoint. We expect total revenues of $509,400,000 to $517,400,000, or growth of 22% at the midpoint, and on a constant currency basis, we expect revenue growth of 20% at the midpoint. And lastly, we expect full-year non-GAAP operating income of $92,600,000 to $96,600,000. Finally, on a Rule of 40 basis, the midpoint of our initial full-year guidance is a 45. Before we open it up for Q&A, I want to provide some additional color into our guidance and how we are thinking about Q1 and the year. First, our guidance philosophy remains unchanged. We want to responsibly set expectations that are consistent with the demand trends we are currently seeing. Second, our FX-adjusted ARR guidance for the year is 26% growth, in line with 2025. I also want to remind you that our 2025 ARR included $2,800,000 in Q1 from our acquisition of Identik. Adjusting for this, our guidance for FX-adjusted ARR growth represents an acceleration over 2025. Third, the delta between our guidance for ARR and revenue growth is driven by two factors: our services business, which is excluded from ARR and which we expect to grow at a slower rate than in 2025, and our term license revenue, where we expect growth to be roughly flat versus 2025 and thus we will realize less upfront revenue in 2026. Lastly, with regard to margins, we expect that 2026 will be an investment year, specifically focused on strengthening our go-to-market strategy through meaningful increases in marketing spend. I want to reiterate that there is no change to our long-term target of 25% to 30% non-GAAP operating margins, while reminding you of our prior commentary that the margin trajectory between now and 2029 will not be perfectly linear. And, importantly, as I mentioned, we expect that stock-based compensation will further decline as a percentage of revenues in 2026 and thus GAAP operating margins will, in fact, expand this year. In summary, we are proud of our fourth quarter and full year 2025 results, which are a testament to the execution of our teams and the growing demand for our platform offering. As we look ahead, our conviction in the market opportunity and our ability to capitalize on it has only grown, and we are excited for another strong year. Thanks for joining us today. And with that, we would be happy to take your questions. Operator? Operator: We will now open for questions. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. To assemble our roster, the first question comes from Joseph Gallo with Jefferies. Please go ahead. Joseph Gallo: Hey, guys. Thanks for the question. James, I want to follow up with something you said at the very end. It was a really, really impressive constant currency ARR guide, and constant currency always makes my head spin a little bit, but I believe it is an acceleration of new constant currency dollar growth versus what you saw this year. So just if you could unpack a little bit more of the visibility, confidence, and any specific product drivers into that guide? James Caci: Yeah. Thanks, Joe. And you are spot on. I mean, sometimes it does get a little confusing with FX, so definitely appreciate that complexity when we talk about that. But you are right. We are looking at an acceleration in terms of our guidance compared to last year, and so we are excited about that. We are seeing that really across the board. I think one of the things you have probably noticed is that we have this consistent kind of growth across all three regions, and that has been very helpful in terms of really that balance—our approach—whether it is our regions, or even our customer segments and even our verticals. And so we see that same demand moving forward, we see nice pipeline building across all of those metrics, and so that kind of gives us that confidence to see into the future and look at that ARR guidance and feel good that we are going to be able to deliver on that acceleration. Joseph Gallo: Awesome. No, that is really clear and helpful. And then maybe, as a follow-up, Tianyi, you spent a lot of time talking about AI on the call, and it has certainly been a buzz for the past few years, but you have not necessarily seen that excitement materialize into revenue for cybersecurity vendors. Are you seeing that now, or is that still more of a longer-term gradual driver? Tianyi Jiang: Yeah. We are seeing enterprises actually all have AI projects and realizations around efficiency, especially easier workloads like coding, customer support, marketing content generation. On the Microsoft side, a lot of folks are conflating the Copilot adoption as synonymous with AI adoption. That is not the case. We actually see companies deploying AI in various forms, whereas the broader Copilot usage tends to lag behind, even for firms that are fully licensed. We see that this is due to more of the lack of enterprise data readiness, which tends to yield suboptimal experience for rolling out Copilot. And also, this is part of change management. It is tough for a business user to try several times and have some suboptimal output due to lack of high-quality data and some of the inaccuracies. So this led to some trust issues. But these are the exact kinds of problems we address for our customers and partners. So we do see tremendous demand in that regard. Joseph Gallo: Awesome. Nice job, guys. Thank you. James Caci: Thanks, Joe. Operator: The next question comes from S. Kirk Materne with Evercore ISI. Please go ahead. Chirag Ved: Hey. This is Chirag on for S. Kirk Materne. Congrats on the quarter, and thanks for taking my question. Tianyi, in your prepared remarks, you touched on developing a hybrid pricing strategy over time that balances seats and usage. Can you speak to where in the platform you might see the opportunity for this over time and any early feedback from partners and customers? Tianyi Jiang: Thank you. Yeah, thank you for that question. So today, we already have capacity-based licensing across products like migration, and also IaaS and PaaS data protection and governance. So we have extended very much into the compute infrastructure, not only just productivity workloads—that is, Office Cloud and Google Workspace—but the compute side, which is Azure, GCP, and AWS. So there, it is actually natural for customers to think about consumption-based licensing, and this is also how hyperscalers think about it as well. It is a blend of seat versus consumption-based. We also see in the age of agentic AI, where there are more sophisticated agents being deployed, these agents are actually fully licensed. From a software perspective, from a licensing perspective, it looks like a virtual employee. So you have agents that have an email account, that have a CRM login, that also have access to cloud storage access and accounts. So from that perspective, there is also that seat count conversation. But overall, we are very much focused on working with customers regardless of the structure to ensure that they are able to maximize their investment to drive customer value. So, so far, we have not seen overall seat count reduction in a major way because there is a combination of consumption and also this virtual AI licensing—agent licensing. So we will continue to evaluate and look at work to be done, not just the people doing it. So this is where the IaaS and PaaS expansion, with that consumption meaning, will be a bigger piece of our business going forward. Chirag Ved: Sounds good. And if I could just squeeze in one more on that line of thought. AI governance clearly remains a strategic focus. So as we look into 2026, how early are we in terms of customers meaningfully monetizing agent governance, and what are some of the leading indicators that you are seeing that signal that AI-driven use cases are becoming a more material ARR driver rather than AI-readiness spending? Tianyi Jiang: That is a great question. I think the buzzword of the year is AI, agentic, governance. So you have seen—Microsoft released their agent governance capabilities. We actually announced our capabilities at the same time, AgentPulse, which covers multi-cloud, and particularly we are looking at agentic not only governance from a risk exposure perspective, access control, but also the cost. We hear a lot of customers talking about, “Hey, we have got an agent running 24 by 7, and all of a sudden it is racking up, you know, a $100,000 bill.” So that cost thing is real. And we are actively working with our partners and customers to monitor and rein in that agent aspect of it. So we already see the beginning of revenue generation from that type of need, but that is definitely something that is very much in demand. There is a ton of experimentation with agentic AI, as you would expect. So the risk and control and cost are very much top of mind for our customers. Chirag Ved: Perfect. Thanks so much. Operator: The next question comes from Rudy Kessinger with D.A. Davidson. Please go ahead. Rudy Kessinger: Hey, thanks for taking my questions. Congrats on the quarter and the strong guide here. James, I appreciate the callout of the inorganic contribution to net new ARR in Q1 last year. I guess, are there any further parameters you could give us to help kind of think about the sequential pacing of net new ARR throughout the year and specifically in Q1? James Caci: Yes. Thanks, Rudy. Good question. So, you know, I would say we are probably going to be fairly consistent with what we said in the past on this topic. As you know, we do not guide today to quarterly ARR. But what we have historically seen is that Q1 is generally a step down, and it is usually our lowest quarter in terms of ARR, sequentially from Q4. And then we would see a pickup in Q2, and then the second half of the year is generally stronger than that first half of the year. And so I think we are going to see that same kind of play out—exactly similar to what we have seen in the past. So I would not expect any change there. And then you are right that we do have that little bit of callout from last year; we added that $2,800,000 in Q1 last year. So as we think about this year, obviously, we are not going to have that incremental. But, again, we feel really good about where we are going to land for Q1 and really the year, and feel good about that overall guidance. Rudy Kessinger: Got it. And then I know you called out you saw higher migration contribution in 2025, and we can see the modernization ARR growth really accelerate—it was close to 40% year over year. Your 2026 ARR guide—does that assume that you continue to see growth in that modernization ARR? Does it moderate a bit, or what does it assume? Because that reacceleration growth in that modernization suite is quite the acceleration from the past few years. So I am curious just what your guide assumes on that front. Tianyi Jiang: Sure. We do see higher demand for migration. So we want to articulate that migration is effectively data movement. Data will never stop moving between different cloud providers, between on-prem legacy to modern workloads in the cloud. You have acquisitions, so that will continue to happen. That is a very important aspect of our tip-of-the-spear approach to engage partners and customers early. And you have seen since we have gone public, we have actually given much of the service revenue opportunities on modernization, data integration, migration to our partners, but that also leaves tremendous value for us to engage our partners and customers to buy our product. And after that, we have the day-two solutions around governance, around data protection, ransomware detection, and recovery—of course, now with license control, cost control. So we will continue to see this modernization to be a core part of our platform as a way to engage and expand our footprint. It does—James will talk a bit about the GRR headwind. There are two factors. When the migration project is over, what we have in day-two solutions—if the ARR is less than a migration project license piece, it will lead to a perceived GRR decline. And that is the vast majority of the cases. Very few cases where, after migration projects are over, we do not have a day-two solution running in the customer environment. James Caci: Yeah. The only thing I would add to that, because I think you did a good job, Tianyi, of summarizing that, would be maybe to come back to your question, Rudy, about our expectations for next year. I think we would expect to see the similar kind of growth next year where, again, we would expect this to be—as Tianyi kind of alluded to—continue to be top of mind for our customers and be part of their strategy. So, again, we would expect this to continue to grow. I think, as a percentage of our overall ARR, it steps up a little bit. And so we are mindful of that when we think about our GRR, which is why you have probably heard us talking about all the GRR initiatives we have had over the past year or so. And we are continuing to work on those. So we believe that with some of those initiatives, we are naturally seeing some pickup in terms of GRR, which will offset any headwind coming from migration in GRR. We did want to point it out as just to—that is what we are seeing, and, obviously, those are the dynamics. Rudy Kessinger: Great. Thank you, guys. James Caci: Thanks, Rudy. Operator: The next question comes from Jason Ader with William Blair. Please go ahead. Jason Ader: Yes. Good afternoon, guys. For James, just wanted to talk briefly about free cash flow. Looks like it was down a little bit on a dollars basis this year. I think you had initially expected it to be up a bit. Maybe just talk about what is happening there, and then maybe just give us some guidelines for 2026 on free cash flow. James Caci: Sure. Yeah. I am glad you brought it up, Jason. So, you know, I think maybe two things to call out. One is that in 2025, we did have, at the beginning of the year, some what I would call one-time tax payments that needed to be made, and so that definitely brought down some of the free cash flow that we would have otherwise anticipated. And that was to the tune of about $7,000,000. I think we talked about that in Q1. So that is one factor. The second factor is we did have a very strong Q4, and we did have a number of opportunities that were actually invoiced in Q4 of this year, and last year they were actually invoiced in Q3 and collected in Q4. And so those opportunities remained outstanding at the end of this year, and a couple of those had to do with our public sector customers. And so we understand the challenges there. So that also had an impact on our free cash flow because in 2024 those would have been collected, and in 2025 they were still receivables at the end of the year. So that had a little bit of a timing issue. And so, again, I do not think there is a challenge or a problem or a concern. And, again, when we think about 2026, I think our free cash flow is still going to be above what we would consider our non-GAAP operating income. So I think that trend would continue, and we would expect to see that in 2026. Jason Ader: Okay. But also fair to say that the term biz being a little bit lighter in 2026 in the mix impacts your free cash flow because you do not get the cash upfront—I mean, I am sorry—because you get the cash upfront on the term license, and if that is going to be a little bit smaller in the mix, then that will have a headwind to free cash flow. Correct? James Caci: Well, let me just dive into that a little bit because it is worthwhile. So when we think about that term license, remember, that is only the revenue recognition. That customer is the same as a SaaS customer where we are billing upfront. So it is the same dynamic. It is the same ARR. It is the same billing structure. It is just the revenue recognition on the term is more upfront as opposed to ratably over the course of the contract. So cash flow is unchanged, but the revenue is different. And so as we see that our term license becomes less and less a percentage of total, then that does impact the revenue recognized in that year, and it becomes more ratable like SaaS. Jason Ader: Okay. I guess what I was referring to is if you do a three-year term deal, you do not collect all the cash upfront. You just collect it annually. Is that the right way to think about it? James Caci: That is the right way to think about it, as our multiyear contracts are still paid annually. And then the revenue would be different, obviously, for SaaS versus term. Jason Ader: Okay. Helpful. And then one for Tianyi. Tianyi, can you elaborate on the investments you are making in 2026? You talked about it as an investment year, and particularly around your hiring plans. I know there is just a ton of fear out there about jobs and how many jobs are going to be around in five years for knowledge workers and engineers, etc. Maybe just talk to that, in addition to just the specific investments you are making in 2026. Tianyi Jiang: Thank you, Jason. That is a great question. So we are not slowing down on the tech side. We have seen productivity improvements with, like, other tech companies leveraging AI-driven IDEs to get high productivity improvement. In our case, we use GitHub Copilot. So there, we also continue to invest into tech, but at the same time, you are seeing in James’ prepared remarks we have actually controlled the cost of that very well. So we continue to have the efficiency. So not only do we have tech productivity improvements, but we still monitor the efficiency very carefully because profit growth is the mantra. So on the tech side, we are not slowing down in terms of or reducing headcount. On the non-tech side, we are very actively looking at productivity—continued productivity improvement—leveraging AI. There are a number of initiatives internally leveraging AI so that we can really continue to accelerate our strong business presence and global go-to-market flywheel that we have going, both for the enterprise segment as well as the channel and partner investment in the mid-market/SMB segment. And, lastly, it is not related to headcount, but from a product perspective, you hear us talk about the scaling of the data fabric layer. So that is something we are super excited about. You will hear more in the coming month. We actually have close to a zettabyte of unstructured data that we are now surfacing out to our customers to what we call a new data intelligence offering that, combined with AI and UX enhancements, will allow more real-time unstructured data governance intelligence at scale to better service more user personas. So this will massively broaden our data protection and management platform’s consumption base and lead to, we believe, much further stickiness and realization value of our offerings, which is the core of infrastructure—base-level infrastructure—for all AI projects and deployments across companies. So all these things you hear me talking about are really focused on growth. We think the pie is getting bigger. Jason Ader: Thanks, guys. Good luck. James Caci: Thank you. Operator: The next question comes from Erik Suppiger with B. Riley Securities. Please go ahead. Erik Suppiger: Yes. Thanks for taking the question. First off, on the operating margin guidance, looks like it is going to be relatively flat in fiscal 2026. What will you change as you get past fiscal 2026 so that you can start to expand those margins to get to your target for fiscal 2029? And what gives you confidence that you are not going to have a slowdown in ARR as you invest less? James Caci: Yeah. Great question, Erik. And so I think one of the things that gives us confidence is our history now over the past three years of this profitable growth strategy and driving significant ARR growth. There are a bunch of sirens outside, so hopefully you guys are not hearing that, but all kinds of police activity outside. So I think that gives us confidence, right? That we have executed now over the past three years on this growth strategy and delivering both profitability and ARR growth. And what we have decided to do for 2026 is continue to do that, but look at making some outsized investments, particularly, as I called out in the prepared remarks, in marketing in particular, to really take advantage of this dynamic in this environment we are in right now and look to really spend more than we have in the past on marketing and really kind of lean into our go-to-market positioning. So that is different. Some of the investments that Tianyi alluded to, both technically for our development teams but even operationally, we are making investments both in 2025 that just passed but also in 2026. And those investments will not really pay significant dividends in 2026, but we are talking about operational efficiency from a technology point of view, AI adoption, and those will have benefits going forward. So some of our scalability moving forward should be much more efficient. So that gives me the confidence that 2026, although the operating margins are relatively flat, we will be set up to deliver expanded margins moving forward. Erik Suppiger: Okay. Very good. And then your growth in your larger customers was very good. Can you comment as to whether or not that is coming more from seat expansion at those customers, or is that layering on new services, or is it the combination of the two? James Caci: Yeah. So, historically, if you look at our NRR, it is mostly coming from cross-selling activities of customers consuming additional products more so than seats. Now, the only exception to that is our MSP channel. So, generally, our MSPs—or more successful MSPs—obviously, they are expanding. They are adding seats that they are managing for their customers, and so we see seat expansion there. But, generally, the driver has always been and continues to be adoption of additional components in our platform. And that has been the key driver, and we expect that to continue. Erik Suppiger: Very good. Thank you. James Caci: Thanks, Erik. Operator: The next question comes from Derrick Wood with TD Cowen. Please go ahead. Derrick Wood: Thank you, guys. Congrats on a strong quarter. First one for Tianyi. Obviously, a lot of concern of software disruption from the LLM vendors as they move up stack and into more of the workflow orchestration layer. Obviously, you do not seem to be seeing it at all, but how do you think about the potential risk of these vendors encroaching on your part of the market? And how should we think about your defensibility in these core areas? Tianyi Jiang: Yeah. That is a great question. So we always say that we continue to see robust growth. We have multiple vector growth. So we have continued to accelerate our new logo acquisition. There are still tons of greenfield opportunities, both in existing regions and newer ones. Our existing customers—we have a massive upsell opportunity, as clearly demonstrated through the new customer acquisitions and the cohort increase in ARR—and, of course, our channel, focused on MSPs, still our fastest-growing segment unlocking SMB and mid-market. We have not seen slowdown in SMB as some other vendors have seen, and also from a geography perspective. We attribute this much to our platform expansion, of our enhanced products and our capability around the fundamental underbelly of the data curation, data governance, and the context of data for which AI grounds on. We even called out Anthropic’s identification of that specific critical moat in their Tuesday conversations, and that, we believe, is something that is very, very strong in our perspective as a defensible moat. And, of course, software—we think—is not dead. It is really that there is going to be far more software to be written. The ability to write software and costs have come down and become easier. So there are a lot more niche areas that can now be served by software. We think there is an infinite amount of software to be written. So AI can definitely lower the barrier to entry. But for critical enterprise-scale data management, you actually need more rigorous approach to this infrastructure for AI, and that is the layer we play in. So we enable high-quality data to give you better AI-driven outcomes. And this is not going to change. So we are seeing tremendous demand and no sign of slowing. Derrick Wood: Probabilistic technology—probably not that great in enterprise security needs and compliance needs—but good to hear. James, real quick for you. Could you just comment on how the U.S. Fed business performed relative to expectations and what you are seeing in terms of pipeline and demand? James Caci: Yeah. So, great question. What we saw in Q4 was, I would say, similar to what we had seen in Q3 in that the public sector and particularly Fed space growth rate was lower than North America in general. So that is why, I think I said in the remarks, we are really pleased that North America still grew 20% despite that. Now, having said that, we still are very, very keen on the public sector. It is a big part of our global strategy, still part of our North America strategy. And for us, there are really multiple components within public sector. We have all been talking about the federal, and that is really the federal civilian piece of the public sector, but there is obviously state and local, and there is also Department of Defense. So those areas of the business—the weakness that we saw this year and kind of anticipated—was in that civilian piece. But the other parts of the business are very strong. Obviously, globally, it is still a very key component to our growth strategy in the future. So we are not backing down on public sector. We know it was a tough year, but we are really proud of the team that, even in this difficult time, executed as well as they did. James Caci: Thank you. Operator: And the final question will come from Joe Andre with Scotiabank. Please go ahead. Joe Andre: Thanks. So I will keep it to one question. So if I look at the breakdown of ARR, it looks like the Control suite came down from 28% of the total last year in Q4 to now 26% of total ARR. So can you talk about why the Control suite net new ARR was maybe a bit weaker than we would have expected, given the AI tailwinds we were expecting to accrue in this segment, and why modernization and Resilience came in a bit stronger? James Caci: So I can start that one, and Tianyi maybe can jump on. But, yeah, I think it is twofold. Right? First is that Tianyi touched on the improvement in migration and kind of the step up of customers in their journey of trying to take advantage of AI, really making sure that their data is in one place or as few places as possible. And so this idea of migrating your data to be able to accomplish that seems to have resonated, and we saw really a step up of that in Q4 in particular, but really in the second half of the year. So I think that, in general, had an impact on the overall Control kind of step down as a percentage. But we do not see that as a real long-term challenge. We think that still governance is key, and we would expect to see continued improvement in that area going forward. So, again, we do not look at this as any kind of indication of what the future holds. Tianyi Jiang: Yeah. From my side, we continue to see very robust demand on the Control side for AI governance. As James mentioned, because there were more data movement—data migration—projects ongoing. And, secondly, the average deal size of a Control license sale is actually lower than the other modules, but it is our highest margin product due to the type of compute and the type of proprietary algorithm that we have to essentially make sure agentic AI data access monitoring is all taken care of on remediation. So, from that perspective, it may look a bit—from quarter to quarter—varied, but overall, it is very much what makes our platform very robust and strong to replace the point solution providers. It is that combination of data analytics, integration and migration, data resiliency and recoverability, and as well as governance and control. So I would not read too much into the percentages. It is part of our platform. And we also have seen tremendous success in the way we actually start to bundle the platform as a service for our customers and partners. James Caci: And then the only thing I would add, Joe, is that, overall, year over year, it is still growing at roughly 20%. So we are still very, very proud of that growth rate as well. Joe Andre: Alright. Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tianyi Jiang, CEO, for any closing remarks. Tianyi Jiang: Thank you. Thank you for spending time with us today. Our results in 2025 were very, very successful, and we are very proud of our achievement as a team. And, also, you have heard our growth in 2026. Our strong outlook demonstrates our confidence in our ability to continue to deliver profitable growth at even greater scale. As we lean into today’s highly disruptive macro environment and meet the existing and emerging needs of our customers and partners, we see no signs of our momentum slowing down. The value of our platform in enabling AI-driven transformation for companies around the world ensures a durable competitive moat and a vast market opportunity that is ours to capture. I know I speak for the entire AvePoint, Inc. team when I say how energized I am for 2026 and the many years ahead of us. So, thank you for joining us today, and we look forward to speaking with you more this quarter. Operator: The conference has now concluded. Thank you for attending today’s presentation. 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: Hello, and welcome, everyone, joining today's Maravai LifeSciences Q4 2025 Results Earnings Call. [Operator Instructions]. Please note, this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Deb Hart. Please go ahead. Debra Hart: Good afternoon, everyone. Thanks for joining us on our fourth quarter and year-end 2025 earnings call. The press release and slides accompany today's call are posted on our website and available at investors.maravai.com. As you can see from the agenda on Slide 2, our CEO, Bernd Brust, will provide a business update and our CFO, Raj Asarpota, will review our financial results. Dr. Chanfeng Zhao, our Chief Scientific Officer, will join us for our Q&A session. Turning to Slide 3. I'd like to note that we have renamed our 2 reportable segments from nucleic acid production and biologic safety testing to TriLink and Cygnus respectively. This change is to better align with our brands and internal operating terminology. There have been no changes to the composition of our reportable segments, the nature of the products and services offered or the manner in which we evaluate the company's operating performance or allocate resources. This change is nomenclature only and does not impact our segment composition, financial results or historical comparability. Throughout today's call, we will be referring to our 2 segments by this updated terminology. Management will make forward-looking statements and refer to GAAP and non-GAAP financial measures during today's call. It is possible that actual results could differ from expectations. We refer you to Slide 4 for details on forward-looking statements and our use of non-GAAP financial measures. The press release provides reconciliations to the most directly comparable GAAP measures, and we also post reconciling schedules to our Investor website. Please also refer to Maravai's SEC filings for additional information on the risks and uncertainties that may impact our operating results, performance and financial condition. Now I'll turn the call over to Bernd. Bernd Brust: Good afternoon, and thank you for joining us. After assuming the CEO role last June and implementing the restructuring actions we announced last August, the management team and I were clear on our priorities: simplify the business, improve operational execution, increase customer interaction and deliver better financial results. We are doing exactly that. Let's turn to our financial results on Slide 5. Today, we reported full year revenue of $185.7 million, exceeding guidance by about $700,000. Total Q4 revenue was $49.9 million excluding the $14.3 million comparison from high-volume CleanCap sales in Q4 2024, revenue grew 18%. Growth was driven by strong performance in GMP consumables and CDMO services at TriLink and by core customer demand for wholesale protein kits at Cygnus with all of our top 5 customers increasing their HCP kit purchases during the quarter. Raj will walk through the full year and fourth quarter results in more detail, but I would like to highlight a key milestone this quarter. We demonstrated the leverage of our new operating model by delivering positive adjusted EBITDA of just over $500,000 in Q4. This represents an improvement of approximately $11 million sequentially from Q3. This marks the company's first return to positive adjusted EBITDA in 4 quarters. We achieved this well ahead of our internal expectations. The improvement was driven by disciplined execution across the organization, including exceeding the $50 million in cost saving targets we set as part of the restructuring, coupled with stronger revenue and more favorable product mix. I want to thank our entire team for their efforts over the second half of 2025. Because of their work, we believe the company is now positioned to return to full year revenue growth, deliver positive adjusted EBITDA and positive cash flow in 2026. Let me briefly highlight what we are doing differently and how our operational changes are delivering improved results. First, our commercial execution. We have materially increased our direct engagement with customers at TriLink positioning CleanCap as the product of choice and as part of a broader portfolio that includes our enzymes, oligos and our newly released ModTail products. This reflects our strategy to expand TriLink beyond capping reagents and deepen our role across the full mRNA and gene-based therapeutic workflow from early discovery through clinical development and into commercialization. By engaging earlier and across more components of the workflow, we increased our opportunity per program and strengthen our position as a long-term strategic supplier. A good example is our upcoming launch of GMP enzymes next quarter. Based on the commercial team's improved customer engagement, we are already seeing strong demand with more than $1.2 million of GMP enzymes orders in hand for 2026. This illustrates the model. We support customers in discovery with research-grade consumables. And services and as their programs advance into clinical trials, we are positioned to transition with them to GMP-grade supply. In discovery, mRNAbuilder is enabling earlier, higher value engagement with our research customers. MRNAbuilder is TriLink's AI and computer-aided design and ordering platform that simplifies designing optimized mRNA. Customers upload their gene of interest and the platform guides them through the design of a high-performance mRNA construct. This platform is increasingly becoming embedded in customer workflows, as evidenced by direct customer feedback and repeat usage. And as these discovery programs advance, this naturally supports pull-through of our GMP portfolio. Few competitors can offer this continuity from discovery through commercialization and that continuity is a meaningful differentiator for us. Operationally, we have reduced fixed costs centralized operations and made the business far less sensitive to volume fluctuations. We now have clear ownership and accountability, remove functional silos and improve the speed of decision-making. We have implemented additional automation to improve efficiency and consistency across the organization. And our new automated EU site allows us to quickly supply screening for the European market. These are structural, sustainable and scalable improvements. Combined with our technical rigor, regulatory capability and reputation for high-quality supply, these changes further reinforce TriLink's position as a partner of choice. From an R&D perspective, we are prioritizing investments in the highest return opportunities across mRNA, cell and gene therapy and the biologic safety testing business. Products introduced in the second half of 2025 are already showing strong traction and our development road map is focused on areas where we can most clearly differentiate our capabilities and best serve our customers' needs. We have a robust pipeline of NPIs planned for 2026. Our recently launched ModTail technology continues to see strong early adoption, generating over $0.5 million in 2025, an unusually strong start for our newly introduced consumable in our market. We have already surpassed that level in 2026 year-to-date bookings with engagement across several large pharma companies. Importantly, early customer data and our own internal studies demonstrate improved protein expression and extended duration of expression both critical attributes for the next-generation RNA therapeutics. We are also investing in additional capabilities at Cygnus. During the quarter, we expanded our mass spec infrastructure to increase capacity and broaden our analytical service offerings. This positions us to offer services that provide drug developers with a full understanding of the host cell protein in drug substances, ultimately leading to increased patient safety and product stability. We view analytical services as a strategic growth lever for Cygnus, complementing our existing HCP and ELISA kit business. We also continue to invest in our MockV product line for viral clearance prediction. As we see quarter-on-quarter year-on-year growth driven by increased market penetration and encouraging regulatory feedback. Taken together, our commercial execution operational discipline and focused R&D enable faster decision-making, improved responsiveness and altogether, a strong foundation for long-term durable growth and profitability. In addition to our improved internal execution, let me share some of what frames my optimism for 2026 on Slide 8. The broader tools and biotech environment appear to be stabilizing. Biopharma funding is showing signs of recovery, particularly in the private markets. Large pharma remains active and well-funded biotechs are advancing programs, while smaller players remain cautious. While academic and government funding remains muted, we have low exposure to those markets. Overall, we're seeing strong order volume and increased visibility. We are also seeing continued expansion in the number of companies pursuing mRNA and guide RNA programs globally, which according to the Beacon RNA database is now 809 companies compared to 643 a year ago. That growth reflects sustained scientific and commercial interest in RNA-based approaches. As delivery technologies advance and pipelines broaden, both emerging biotech and established biopharma continues to invest in RNA platforms. At the same time, companies continue to prioritize capital and rationalize early-stage programs. Importantly, this has not resulted in a meaningful decline in overall clinical trial activity. Trial activity by phase remains stable, and we continue to see solid engagements across discovery, preclinical and clinical developments. TriLink currently works with about 250 to 300 companies on a regular basis or roughly 1/3 of the company's pursuing mRNA and guide RNA programs. We believe with our newly released ModTail technology, we have an opportunity to penetrate additional customers and programs regardless of capping method. Finally, customer feedback suggests the FDA remains constructive in areas such as cell and gene therapy, particularly in rare disease and oncology, where expedited pathways continue to be utilized. While infectious disease vaccine development may face a more measured approach in the current U.S. environment, our exposure in vaccines is low and therapeutic programs continue to progress. What I'd like to leave you with is how confident I am that the fundamentals of this business are solid. We have leading technologies. We have long-standing customer relationships where we continue to build greater transparency and intimacy. We have deep scientific credibility. Now all that coupled with the right team and appropriate sized operations to execute. Now I'll turn the call over to Raj for more details on the quarter and year-end results and our 2026 financial guidance. Rajesh Asarpota: Thank you, Bernd. Let's turn to the Q4 financial results on Slide 10. Revenue for the quarter was $49.9 million compared to $56.6 million in Q4 2024. As Bernd noted, excluding $14.3 million of high-volume COVID GMP CleanCap sales in the prior year quarter revenue increased 18% year-over-year. As Deb mentioned at the start of the call, we have renamed our 2 reportable segments from nucleic acid production and biologics safety testing to TriLink and Cygnus, respectively. TriLink generated $34.6 million of revenue, down 17% year-over-year. Excluding the $14.3 million COVID CleanCap comp in Q4 2024, TriLink base revenue grew 25% year-over-year, driven by GMP consumables and CDMO services. Cygnus revenue was $15.3 million, up 4% versus last year. I will discuss segment results and profitability a little later in the call. Revenues by customer type in Q4 were 31% biopharma; 29% life sciences and diagnostics; 4% academia; 11% CRO, CMO, CDMO; and 25% distributors. Revenue by geography in Q4 was 55% North America 15% EMEA; 21% Asia Pacific, excluding China; 8% in China and 1% Latin and Central America. Turning to Slide 11. Our GAAP net loss before noncontrolling interest was $63 million for the fourth quarter of 2025. This included a $25.8 million noncash intangible asset impairment charge related to TriLink and $12.1 million of noncash restructuring charges, including lease unwind costs. This compares to a GAAP net loss before noncontrolling interest of $46.1 million in Q4 2024. For the full year, GAAP net loss was $230.8 million compared to a loss of $259.6 million for 2024. Adjusted EBITDA, a non-GAAP measure, was positive $536,000 for Q4 above our expectations, driven by efficiency of initiating our cost restructuring actions and stronger revenue. This compares to negative $1.1 million in Q4 2024. For the full year, adjusted EBITDA was negative $31.2 million versus $35.9 million for 2024. Moving to Slide 12 and EPS. Basic and diluted loss per share in Q4 was $0.24 compared to a loss of $0.18 per share in Q4 2024. Adjusted EPS was a loss of $0.04 compared to a loss of $0.06 last year. For the year, basic and diluted loss per share was $0.90 versus a loss of $1.05 in 2024. Adjusted fully diluted EPS, a non-GAAP measure, was a loss of $0.29 per share versus a loss of $0.10 in the prior year. Advancing to the balance sheet, cash flow and other financial metrics on Slide 13. We ended the year with $216.9 million in cash and $294.2 million in long-term debt. Cash used in operations in Q4 was $22.8 million, including $3.6 million related to restructuring. Depreciation and amortization was $12.4 million Net interest expense was $4.2 million. Stock-based compensation, a noncash charge was $3.9 million for the quarter. During Q1 2026, we made a voluntary $50 million debt repayment using cash on hand. As a result, both cash and total debt reduced by $50 million from these year-end numbers. We believe this was a prudent step to reduce ongoing interest expense. Next to Slide 14 and the discussion of segment performance. TriLink revenue was $34.6 million in Q4, representing 69% of total revenue. Excluding the $14.3 million COVID CleanCap comp in the prior year quarter base revenue grew 25%, driven by GMP consumables and CDMO services. TriLink generated $936,000 of adjusted EBITDA in Q4 returning to positive adjusted EBITDA for the first time since Q4 2024. For the full year, TriLink revenue was $119.8 million or 64% of total revenue with adjusted EBITDA of negative $23.1 million. Excluding high-volume CleanCap revenue, driving revenue declined 8% for the year. Cygnus revenue was $15.3 million in Q4, up 4% year-over-year and representing 31% of total revenue. Growth was driven by continued demand for HCP kits particularly from our core customers. Cygnus delivered $10.2 million of adjusted EBITDA in Q4 for a 66.7% margin. For the full year, Cygnus revenue increased 5% to $66 million with adjusted EBITDA of $44.2 million and a 67% margin. Corporate shared services expense impacting adjusted EBITDA was $10.6 million in Q4, down $2.8 million sequentially. These expenses include HR, finance, legal, IT and public company costs. Please turn to Slide 15. As Bernd mentioned, we are ahead of our previously announced target of greater than $50 million annualized reduction in expenses and are now estimating savings of greater than $65 million. We continue to identify additional opportunities to streamline operations and improve profitability. Now let's discuss our financial expectations for 2026 on Slide 16. We expect total revenue of $200 million to $210 million, representing growth of 8% to 13% over 2025. We expect TriLink to grow low double digits at the midpoint driven by double-digit growth in GMP consumables and stabilization in discovery. Cygnus is expected to grow low to mid-single digits year-over-year. We expect full year adjusted EBITDA of $18 million to $20 million, representing an improvement of $50 million to $52 million over 2025, primarily from improvements in our TriLink segment. We expect gross margin expansion of approximately 1,200 basis points year-over-year, driven by our restructuring actions, cost initiatives and product mix as we expect greater revenue contributions from TriLink GMP consumables. Total operating expenses are expected to decline approximately 13%. And G&A expenses are expected to decline approximately 18% and sales and marketing should decline approximately 13%. R&D is expected to be modestly up as we continue to fund new product innovation. To help you with your modeling, here are a few additional expectations behind the guide. Interest expense, net of interest income, $15 million to $17 million; depreciation and amortization of $50 million to $52 million; stock-based compensation of $26 million to $28 million as is fully converted share count of approximately 261 million shares net capital expenditures of $4 million to $6 million. Finally, I'd like to provide an update on internal controls and the securities class action litigation. As you'll see when we file our 10-K this week, we have completed the implementation of our remediation plan and enhanced the design and operation of our controls to address the previously identified material weaknesses. Those weaknesses related to controls over our revenue process as well as controls around key inputs and assumptions used in determining the fair value of our reporting units in the quantitative goodwill impairment assessment. To remediate these matters, we strengthened controls over period-end revenue recognition and pricing approvals, enhanced the review and documentation of key inputs and assumptions used in the goodwill impairment analysis and provided additional training to control owners. In addition, I'm pleased to report that the United States District Court for the Southern District of California dismissed in full the securities class action lawsuits against Maravai and certain of our former executives. I want to thank the team for their focused work in resolving these matters. In closing, our fourth quarter reflects the benefits of the actions we have taken, sequential revenue growth positive adjusted EBITDA and continued cost discipline. We are entering 2026 with a leaner cost structure, improved operating leverage and clear priorities. We remain focused on execution driving revenue and continued margin expansion. I'll now turn the call back to the operator for Q&A. Operator: [Operator Instructions]. We'll take our first question from Matt Stanton with Jefferies. Matthew Stanton: Maybe on the commentary on visibility improving in the color on Slide 8, you talked about strong order volume. Is it fair to say orders are tracking kind of ahead of what you're guiding on revenues for '26 on year-on-year growth. So maybe just derisking a bit or leaving a bit of upside. Is there any more color you can give in terms of order and funnel growth type of a strong order volume? And if yes, maybe pipe out some of the opportunity where you see the most areas of upside as you move through '26 here? Bernd Brust: Thanks, Matt. This is Bernd. We shared in our last earnings call that there's a little lumpiness of course, in this business, right, in a business that's a couple of hundred million bucks in revenue and our average order volume is fairly high, average order cycle is about 6 months. So it's hard to get a true outlook on what happens for the full year. And so we're certainly I think trying to be somewhat conservative as to how we set ourselves up for the future here. But specific to your question, order volumes are materially higher so far than they were last year at this period of time. So that's a good sign, obviously. What we see specifically is in the TriLink world in our GMP consumables as well as our larger order sizes in discovery. When we look at our business in discovery, there are sort of 2 categories: orders under average 15 [indiscernible], where we assume those salespeople are involved in orders over 15 that does require usually some kind of sales involvement where we're seeing material growth in is in these larger orders in discovery alongside with GMP. But order volumes are great, and we feel very, very confident about where we are with our forecast for the year. Matthew Stanton: And maybe just on the GMP consumables, you talked about the strength in 4Q, the strength in orders. Can you talk a little bit more about it? Is that tied to a few programs moving further through the clinic? Is it selling more products into the GMP consumable ecosystem? Just talk about maybe some of the underlying demand factors underpinning the GMP consumable strength you've seen? Bernd Brust: Yes. It's really a broad set of customers. There's really not one customer that stands out that says this is where we're seeing all of our growth. So I think that's the beauty actually about the business at the moment where certainly in the COVID years great revenues, but from a very small number of programs, the number of programs is quite significant at the moment. And so yes, we feel good about the depth of our customers that we are currently interacting with. Operator: We'll take our next question from Subbu Nambi with Guggenheim. Subhalaxmi Nambi: First one is on the gross margin expansion of 1,200 bps from restructuring cost initiatives and product mix. Can you break out each of these buckets, if possible? Rajesh Asarpota: Yes, sure. We can -- I can give you the details on the cost savings that we've outlined before. So we talked about the $55 million that we previously mentioned. And now the actual gross margin expansion is going to be coming from the $65 million annualized savings. And again, I'd like to remind you that we captured about $3 million of that in Q3 and another $8 million in Q4. So the $65 million in annualized cost savings basically resets the fixed cost base to create that margin lift on gross margin, which is independent of volume growth. And then there's additional expansion on gross margin that's going to come from mix, made from GMP consumables contribution and the operating leverage as we continue to expand revenue. Subhalaxmi Nambi: And then one high-level. AI role in drug discovery, development and manufacturing is the investor focus of late. How is Maravai using AI either at the sender side in R&D or otherwise to generate efficiency? Bernd Brust: I'm sure the question was how is AI driving efficiencies in the business? Subhalaxmi Nambi: Yes. Bernd Brust: Yes. I think we're implementing this in various areas of the organization. And you heard us talk about mRNAbuilder that we went live with, I think it was the third quarter of last year. It's really an automated platform that we acquired through the efficient acquisition early last year that allows customers without really any human intervention to upload their DNA construct and then create an optimized RNA construct from there. I think so far, since we have been live, something like 70-or-so orders have been going through that system. It's gradually picking up. But that's probably the biggest involvement of AI that we have at the moment. I can't speak to whether we use that in the CDMO world, I don't believe so. Operator: We'll take our next question from Matt Larew with William Blair. Matthew Larew: Congrats on the update. It seems like you've turned a corner here. I wanted to ask about the guide for the year. Just given Q3 and Q4 you had some lumpiness with some of the CDMO builds. And so a number of larger peers have characterized perhaps a softer first quarter, though they're optimistic about the build for the year. So just curious if there's anything you would call out either from a prior year comp or an expected order conversion that might affect casing in the first quarter in particular? Bernd Brust: Listen, we're optimistic on Q1. As we shared, we're optimistic on the year as well. On the top line, it's really not any serious negative comps. So obviously, we comped out all of the COVID hits that we comped against '24 and '25, but when you look at the orders that we are currently seeing in the business, it's really quite a diverse set of customers across the portfolio of TriLink. And obviously, Cygnus continues to run at the sort of mid-single-digit revenue levels as well. So we really don't look at it as a negative or positive comp in Q1. I think if you look at this year, probably Q3 last year was pretty tough on the GMP world. So we'll see what that means this year on Q3. But certainly, as we look at the first half of the year here, we shared with I think the group here in September that we were expecting somewhere between $10 million and $20 million worth of COVID caps in 2026, specifically in the first half. We still expect that to happen in the first half. So that is the one positive comp that you'll see in the first half. But other than that, I think it's true strength of customer spending. Rajesh Asarpota: I think we spoke about this on the previous call in terms of our commercial engagement and how that's giving us better visibility into the GMP consumables world. So that continues to happen. So on the strength of that, we've seen Q1 coming in relatively strong, and we -- and that's going to kind of continue through the balance of the year. Matthew Larew: Okay. And then cost reduction program came in ahead of schedule. And I think the way you guided OpEx is good to see in terms of R&D getting dollars but finding efficiencies at our places. Prior to COVID, Maravai operated with EBITDA margins above 40%, though that was maybe largely as a private company, and I understand it's maybe not a perfect comp. But if you think about the midpoint of the guide this year, EBITDA margins being roughly 9% and where you expect to be in the future, obviously, now you have a services portfolio, you've adding new products, which we don't fully know the margins of. But where do you think margins can go long term? And understanding that long term is maybe undefinable in terms of time line at this point, but just terms of the structure of the business and get the kind of products and services you're offering, but where do you think you can get over time? Bernd Brust: I think you're going to get your margins up truly through higher product sales, right? When you look at the organization today, you have a fairly complex GMP operating model here that you did, God knows how much volume during COVID that sits in the same infrastructure we still have. So we can absorb a large number of other GMP orders without really increasing our cost structure with the exception of raw materials and maybe a little bit of labor. So the natural margin increases, I think, are going to come purely from revenue growth over the outlying years here. Operator: We'll take our next question from Matt Hewitt with Craig-Hallum. Matthew Hewitt: Maybe first up, regarding the restructuring, you got through that earlier than expected. So should we anticipate that the expense lines kind of have reset at this point, maybe a little bit below the Q4 numbers for sales in general and all that and kind of show some normalized growth -- CA growth, if you will, over the course of the year or is there still yet one more step down after Q1? Rajesh Asarpota: So again, going back to the macro level, the $65 million in expense reductions that we've outlined those expense categories haven't changed. Some have moved a little bit towards being more favorable. Our labor expense profile is going to remain the same. Our facilities is going to essentially remain the same. Our controllables expense is going to be down a lot more than we anticipated. And then just by the account types. If you look at our COGS profile, that's going to materially essentially remain the same. But on the OpEx side, we're going to get a lot more out of G&A. And like we said we're going to invest a little bit on R&D and then sales and marketing is going to essentially remain the same. There will be another modest drop in Q1 though I think to get your question directly. Matthew Hewitt: Got it. And then maybe a separate question. The FDA recently provided some new draft guidance regarding some of your markets. And I'm just curious what your thoughts were on that draft guidance? And more importantly, when do you think that you could maybe start to see some benefit from that? Bernd Brust: Yes. I don't think we have internally looked at that very closely. We don't have a ton of exposure on where that dialogue sits at the moment. And so I don't think we have a clear view on that at this... Operator: Our next question comes from Catherine Schulte with Baird. Unknown Analyst: This is Josh on for Catherine. You mentioned that you're working with around 250 to 300 customers within the mRNA ecosystem. I was just wondering where kind of market shares show out between clinical and preclinical customers and how you kind of characterize the recent market share dynamics there? And then just lastly, how do you kind of feel about current mRNA pipeline trends heading into 2026? Bernd Brust: Yes. I think we assume about 1/3 market share, right, of mRNA customers out there. It's not always that easy to talk about programs because we don't always know how many programs a customer is running at a given point in time. But I think if you look at our GMP revenues, which Raj, which are this year forecasted at what number, do you remember? Rajesh Asarpota: GMP consumables. Bernd Brust: It's somewhere around $44 million, $45 million, right, something like that. And so that suggests that your discovery business is still larger than our GMP business. So I would say that today, the GMP world, I know it's 1/3 of our revenue, something like that. And we're seeing the fastest growth happening there. So that certainly to us indicates that you're going to continue to see either more programs coming into the GMP world or programs progressing in higher volumes. Unknown Analyst: Great. And then throughout 2025, we saw a lot of policy headwinds around areas like mRNA, cell gene therapy and MFN. You're heading into 2026, how are you feeling about the broader policy backdrop here? How does this inform the improved visibility that you're seeing across the business? Bernd Brust: Yes. I think a lot of the policy has been driven around vaccines, right? And so we really don't have a ton of exposure in that area any longer now that we've washed through the COVID comps from 2024. But when you look at just customer behavior, we're a consumables provider and we're directly dependent, of course, on customers doing either mRNA research or trials. We're starting to see more and more traction coming from our broader customer base, not just in GMP, but also in the discovery world. And that tends to be the best sign, of course, in that you have to assume when you have larger discovery orders coming in that some of those will move into a GMP clinical trial world at some point. So the fact that, again, discovery orders and larger size are becoming more and more, I think, prominent at the moment is a very good sign where we think the GMP world will lead into. Operator: We'll go next to Justin Bowers with Deutsche Bank. Justin Bowers: So sticking with GMP, can you give us a sense of what that -- how much revenue that generated in 2025? And then as we think about 2026, excluding the COVID revenue, is there any seasonality that we should take into consideration for TriLink? Bernd Brust: I don't know there's seasonality necessarily. That's kind of the interesting part about this business. The lumpiness exists based on these order sizes and really until you get some of these programs becoming commercial you have changes from certainly discovery into GMP, you have certainly movement from Phase I to II to III. Some programs don't make it out of certain trial levels. And so the lumpiness that we see in the business is really not seasonal, it's purely tied to really how successful these clinical trials are. But yes, the nature of our business is such that because these orders are fairly large, as they shift between programs they will likely shift between time as well. Justin Bowers: Understood. And just a quick follow-up. What was GMP consumables in 2025? And then part 2 of that would be, I think last year, you talked about maybe some maybe sharing space or thinking about some alternative revenue generation activities in Flanders and just curious if there's an update on those initiatives? Bernd Brust: Well, on the facility front, we have -- one of our Flanders sites is our CDMO business, and that's fully occupied by that. And the other Flanders site, currently, we don't occupy. We have closed that facility. If we find somebody to take that over, we will deal with that at that point, but we're not looking for incremental revenues necessarily coming from that piece. And so that has been all addressed, I think, in our accounting world as well. We don't take those into our EBITDA lines any longer. On the question around GMP consumables, maybe Raj, do you have those numbers? Rajesh Asarpota: Yes. We kind of don't break that out completely. But if you look at the GMP and CDMO business combined, that's in the mid-30s last year. Bernd Brust: And by the way, for clarification, the $43 million I mentioned a minute ago for GMP consumables that excludes CDMO. Operator: Our next question comes from Doug Schenkel with Wolfe Research. Douglas Schenkel: The first on APAC, the second on MockV. So starting on APAC. As a percentage of revenue, APAC increased pretty meaningfully in the fourth quarter compared to the third quarter. I think you said China was stable. So it does seem to imply that there was a pretty big pickup in Asia, ex China. Am I thinking about that right? And if so, what drove that change? And is this a trend that you expect to continue into 2026? And then on MockV, you called out demand as a driver of growth in the quarter. How has that been trending? And how do you expect that to contribute in 2026? And I'm just wondering if over time, that could be a contributor to driving overall Cygnus growth above the mid-single-digit construct? Rajesh Asarpota: I'll take the -- I'll start with the GMP and like in Asia Pacific in Q4 was driven by 2 large GMP orders, but they were kind of tied to our ongoing programs and partnerships and not kind of the onetime events. And then -- so we view this as a sustainable kind of event and reflective of the ongoing improving program momentum we have, and it's not a one-off event. So that was what drove the APAC growth. And then what was your second question again, I'm sorry? Yes, we did see MockV growth, and we think that product has shown tremendous kind of runway from last year to this year and in -- sorry, from '24 to '25 and we see continued kind of growth on that product line within Cygnus. Chanfeng Zhao: If I also may add MockV. So Cygnus has supported several customers with the including MockV data in customers' clinical trial application. So the initial approach has been positively received by a regulatory agency. So the idea of MockV could potentially replace expensive lengthy viral clearance study, which can really broaden our potential customer base. Bernd Brust: And we think MockV has great potential runway here, and I think it's a good indication of that. I would also say, don't expect that to happen in 3 months. It's a longer-cycle business. Ad short-term growth, I think the question was, how do we potentially look at Cygnus growing faster than sort of mid-single digits? I think certainly, long-term MockV could be a player there. We've invested some more in services. We bought another mass spec into the organization. So I think you'll see some opportunity coming from there. And I think you're right, Asia does have some opportunities. that are potentially there for us to capitalize on. Operator: We'll take our last question from Matthew Parisi with KeyBanc Capital Markets. Matthew Parisi: This is Matthew Parisi on for Paul Knight at KeyBanc Capital Markets. Congrats on the great quarter. So a quick question about the CleanCap revenue. You mentioned $10 million to $20 million will come in the first half. Can we assume that there will be additional COVID CleanCap revenue in the second half? Bernd Brust: No. I think we shared with all of you in Q4 that we expect $10 million to $20 million will be the total number for 2026. So we kind of look at that as the ongoing run rate in the following years as well. And you should keep that number as a guidance for the business. We expect this year that all to come in the first half of the year. Matthew Parisi: All right. And then next would be kind of -- you talked to the significant traction you're seeing in ModTail. I was wondering if you could talk to the traction you're seeing in the new IVT kits. And then you previously mentioned that you intend to launch new kits in '26? And when could we potentially expect to see the launch of those kits? Bernd Brust: Chan, do you want to answer that or would you like me to? Chanfeng Zhao: Yes. Yes. So we've -- the ModTail we launched nRNA service and catalog mRNA. And so the data coming back from customers that they are very positive. And so they are starting asking -- as Bernd mentioned, that we have large pharma companies using this technology. And as the positive data coming back, they are asking sort of GMP-related question. Obviously, we'll be ready for GMP to meet the customer demand. And for the IVT kits, as you know, [indiscernible] has been doing mRNA for many years. So we have deep knowledge IVT CleanCaps. So the kit is really well received in the field. We have over 100 kits ordered first few weeks -- first 4 weeks, and we see sequential growth from Q3 to Q4, and we also see more adoption in the field. We also converted one major customer from a competitor to use our kit. So it's all good, and we are going to launch more kits and a different version of kit to meet customer demand this year. Bernd Brust: So ModTail is an interesting product. I mean it's still early days, obviously, but the fact that we officially launched this in September through the commercial organization, well over $1 million in orders already. And that's through Chanfeng's comments, service and some catalog mRNA feedback that's come back from customers have been quite impressive. And so we have a lot of confidence of this product becoming a big driver of revenue growth for our business in the years to come. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to our presenters for any additional or closing remarks. Bernd Brust: Thank you. Thanks again, everybody, for dialing in, sticking with us. We know that we're still new in this organization. I think we are bringing it around very quickly. We are highly confident about the progress that we're making. You look at TriLink, certainly that's been stabilizing and positioned for growth in 2026. The fact that Cygnus now has hit its positive growth quarter, 3 in a row, is a great story, and we are confident that's going to have a great 2026 as well. Our cost savings are materially higher than we had initially planned really without impacting the business, I think, is an incredible sign for the organization. We're going to see EBITDA growth. We're going to see cash positive direction in 2026, again. We're leaner, we move faster, great interaction with our customers and highly confident that we're going to have a great 2026 here. So thanks, again, for your time and interest in the company, and we'll speak to you again in about a quarter. Thanks. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Welcome to the Northland Power conference call to discuss the fourth quarter and year-end 2025 results. As a reminder, this conference is being recorded on Thursday, February 26, 2026, at 10:00 a.m. Eastern. Present for this call are Christine Healy, President and CEO; Jeff Hart, Chief Financial Officer; and Adam Beaumont, Senior Vice President of Capital Markets. Before we begin, Northland's management has asked me to remind listeners that all figures presented during today's call are in Canadian dollars and to caution that certain information presented and responses to questions may contain forward-looking statements that include assumptions and are subject to various risks. Actual results may differ materially from management's expected or forecasted results. Please read the forward-looking statements section in yesterday's news release announcing Northland Power's results and be guided by its contents when making investment decisions or recommendations. The release is available at www.northlandpower.com. I will now turn the call over to Ms. Christine Healy. Please go ahead. Christine Healy: Good morning, everyone. Thank you for joining us. I'll begin with an overview of our strategic priorities and an update on our 2 large construction projects. Jeff will then provide a review of our fourth quarter and full year financial results as well as our 2026 guidance. Following our prepared remarks, we will open the line for your questions. In 2025, we made progress across our operational, financial, and organizational priorities. We expanded and reinforced our leadership team with the addition of new executive members. We introduced a new global strategy outlining our growth priorities, a 5-year funding plan and how we will create long-term value for shareholders. We advanced our construction projects, completing key milestones at our 2 offshore wind projects, Hai Long in Taiwan and Baltic Power in Poland. And following the successful completion of Oneida last year, we are advancing our second battery storage project in Alberta, Canada, called Jurassic BESS. Executing these projects is our primary focus through 2026. And together, they will add 2.2 gigawatts of capacity by 2027. And we delivered on our financial commitments, achieving our adjusted EBITDA guidance and outperforming on free cash flow per share. Our performance in the fourth quarter was supported by 96% operating availability and record high generation from our German offshore wind assets. Before we move into the strategy, I want to take a moment and emphasize that our performance is underpinned by our commitment to our people. As I've talked about before, health and safety are core values for Northland. In 2025, we reinforced this commitment with the launch of our 12 Golden safety rules. These rules are nonnegotiable and ensure that our standards are consistently understood, respected, and applied across all work environments. A safe workplace is the prerequisite for the work we do. Building on that foundation, we are advancing a strategy focused on disciplined growth and long-term value creation. We're at an inflection point in electricity markets. After decades of flat electricity demand, we're entering a period of rising demand that some call a power super cycle. It's driven by electrification, industrial growth, population growth, urbanization, and a rise in AI demand. As power generators, our strategy plans to capture this momentum and double our gross operating capacity to 7 gigawatts by 2030. This is not just about scale, it's about focus and finding the right high-quality projects that add real value to our business. Our focus on achieving specific free cash flow targets by 2030 is more than a goal. It is the lens through which we evaluate every capital allocation decision we make. To strengthen our 2030 goals, we're focused on 3 pillars: Deliver, strengthen, and grow. The deliver pillar of our strategy is focused on operational performance and successfully bringing 2.2 gigawatts of projects under construction into operation. Our track record of executing and delivering large-scale projects is one of the things that sets Northland apart. The strengthen pillar is about building a foundation for scale, including our target of $50 million in annual cost savings by 2028. To support this, we have already transitioned to a regionally focused operating model, split into the Americas and international business units, designed to build scalable platforms in our core markets and capture operational leverage by clustering assets in those core markets. This structure streamlines how we operate, enhances local accountability, and maintains global standards. At the same time, we have centralized all of our development activities into one global organization. This ensures that every project, regardless of technology or geography, competes for capital on a consistent basis, so only the most value-accretive projects move forward. Finally, under the grow pillar, we continue to high-grade our pipeline, advancing new capacity to supplement our current construction. An example of this is the 2 recently acquired late-stage battery storage projects in Poland. This acquisition alongside Baltic Power demonstrates our strategy of clustering high-value assets in a core European market. Our approach is technology agnostic, focusing on our core markets where fundamentals are strongest. Our plans for Europe are driven by an ongoing and increasing need for energy security. I recently attended the North Sea Summit, which took place in January, where 9 European governments reaffirmed their commitment to expand offshore wind in the North Sea through a coordinated regional approach, including up to 100 gigawatts of projects by 2050 with an interim target of 20 gigawatts for the 2030s. This North Sea Summit outturn is a consistent theme we see across Europe, a commitment to build-out of renewables for decades to come, offshore, onshore, and battery storage. For developers like Northland, this provides important long-term demand visibility. Greater policy alignment and infrastructure coordination should help reduce development friction, improve permitting timelines, support enhancements to the supply chain, and ultimately enhance capital efficiency. Europe continues to show conviction that offshore wind will play a critical role in meeting the region's energy demand and advancing the clean energy transition, strengthening energy security, improving affordability, and supporting industrial competitiveness. And in Canada, electrification and industrial growth are accelerating the need for new supply. Canada continues to be a growth market for us with every province forecasting power demand growth. We see opportunities in several of our technologies, including gas-fired generation and battery storage. To capitalize on this opportunity, our 5-year growth and funding plan has been set with the right foundation, supported by an investment-grade balance sheet. We've increased our project return thresholds to a minimum of 12%, demonstrating that we will invest only in the most value-accretive opportunities. We are focused on advancing the opportunities where we can apply our global expertise to local execution. I'll turn now to more specific details on construction progress. At Hai Long, we've reached several major milestones, including the installation of all 73 foundations, all 4 export cables, and both offshore substations. To date, we have successfully installed 37 turbines, 20 of those turbines are now actively generating power. The project team has been working hard over the winter to optimize our schedule and have had a crew on standby to continue commissioning when weather permits. As we've discussed in previous calls, offshore Taiwan, we work with a weather window, so full in-water activities will resume in earnest later in April when that weather window reopens. The project is on track for commercial operation in 2027. At the Baltic Power offshore wind project in Poland, we achieved 2 key milestones this quarter with the completion of all monopile foundations and the completion of grid interconnection works by the local utility. We also completed the installation of both offshore substations, 2 of 4 export cables, and 30 of the project's 76 wind turbines. The project is on track for commercial operation in the second half of 2026. We're also making strides in our battery storage portfolio. At Jurassic BESS in Alberta, foundations have been installed and the battery packs have arrived in Canada. The project is on track for commercial operation in 2026. Looking ahead, our priorities are clear: Deliver our construction projects, optimize the value of our operating portfolio, and advance and high-grade our development pipeline. The recent acquisition of 2 late-stage battery storage projects in Poland adds scale to our European platform. We continue to advance both projects, having signed their battery supply agreements, and we're currently finalizing other procurement activities ahead of financing and the start of construction expected later this year. Building on our expertise and experience from the Oneida project in Ontario, we continue to see opportunities to expand our battery storage portfolio, and we are actively evaluating several projects. In November, we completed the required performance test for a 23-megawatt capacity upgrade at our Thorold natural gas-fired facility in Ontario and officially secured a 5-year contract extension through 2035. These are all examples which underscore the progress underway across Northland. Our disciplined approach to capital deployment, project execution, and excellence in operations delivers energy for our markets and value for our shareholders. I'll now turn it over to Jeff to walk us through the financial results. Jeffrey Hart: Thank you, and good morning, everyone. As Christine noted, we achieved our 2025 adjusted EBITDA guidance and exceeded free cash flow guidance. Strong winds at our offshore assets in Q4 and lower curtailment from grid outages resulted in higher-than-budgeted production and a 21% overage from the same quarter of last year. Our high operating availability of 96% allowed us to capture that benefit. The quarter also benefited from contributions from the Oneida energy storage facility, that commenced operations in May of last year as well as increased market demand for dispatchable power at our natural gas facilities as a result of cold weather and third-party facility outages in Ontario. Adjusted EBITDA in the quarter was $390 million, a 25% increase compared to the fourth quarter of 2024. This increase was primarily due to higher production from offshore wind, contributions from Oneida, and increased market demand at our natural gas facilities. Net income for the quarter was $290 million compared to $150 million in 2024. And free cash flow per share for the fourth quarter was $0.46 compared with $0.31 in 2024. Turning to the full year. Adjusted EBITDA for the full year was $1.25 billion, in line with 2024 as lower offshore wind resource in the first half of this year offset contributions from Oneida and strong performance at our Americas onshore wind assets. Free cash flow per share for the full year decreased to $1.46 from $1.53 in 2024. The year-over-year decrease was mainly due to higher scheduled debt repayments, lower offshore wind resource, and the nonrecurrence of certain onetime items, partially offset by contributions from new assets and lower current taxes. For the full year, Northland recorded a net loss of $108 million compared to net income of $371 million for the full year of 2024. This reduction is primarily due to a noncash impairment for Nordsee One recorded in the third quarter of 2025. And we continue to advance our major construction projects. As at December 31, Hai Long and Baltic Power have less than $4 billion of capital expenditures remaining to be incurred. Overall, both construction projects are continuing on track for commercial operations with overall costs aligned with original expectations. As reported last quarter, Hai Long turbine commissioning has been slower than expected, and it could impact pre-completion revenues and equity injections in the amount of $150 million to $200 million Northland share. The shortfall in pre-completion revenues outlined above can be funded by several sources, including liquidity, corporate liquidity. However, we and our project partners are actively looking at optimizations at the project level to provide funding, and we'll provide an update on this by midyear. Turning to our 2026 financial guidance. We expect 2026 adjusted EBITDA to be in the range of $1.45 billion to $1.65 billion, an increase of approximately 25% from the $1.25 billion delivered in 2025. The key drivers of this increase will be contributions from Hai Long and Baltic Power as well as full year contributions from Oneida and the commencement of operations at the Jurassic BESS project in Alberta. These increases will be partially offset by lower contributions from Nordsee One following a scheduled step down in the feed-in tariff mechanism. We expect 2026 free cash flow to be in the range of $1.05 to $1.25 per share compared to the $1.46 per share in 2025. The year-over-year decrease is due to several onetime items totaling $0.22, which benefited 2025, including a German tax refund, deferral of Spanish debt repayments, and other items. This decrease is also attributable to ongoing foreign exchange hedging costs, higher debt service for the natural gas assets, and the cessation of capitalized interest on our hybrid debt as we enter operations in Baltic Power. Partially offsetting this decrease is the additional contribution from Baltic Power, representing approximately $0.20 per share. For 2026, we assume development expenditures of approximately $50 million, and this will be focused on selective opportunities in our core markets of Europe and Canada. Now turning to our balance sheet. With more than $900 million of available liquidity and our investment-grade credit rating, we are well positioned to execute on a disciplined capital allocation plan. With that, I'll hand it back to Christine. Christine Healy: Thank you, Jeff. We are focused on delivering the strategy we set out in the fall and advancing the new projects that will add value and double our capacity by 2030, and we look forward to updating you on our progress. That concludes our prepared remarks. So operator, can you please open the line for questions? Operator: [Operator Instructions] And our first question comes from Baltej Sidhu of National Bank of Canada. Baltej Sidhu: So your 2026 guidance is comfortably above consensus. And just reflecting on last year's weak wind resource in the first half, acknowledging the incremental diversification from projects like Hai Long and Baltic. Could you shed any light on the downside protection that's embedded in your outlook and how you approach risk in your assumptions to the P50 production forecast? Jeffrey Hart: Yes. So I can take that and then Christine can add on. I think, look, we've been consistent with how we outlook on the wind resource. It's consistent with long-term averages. And so we continue to forecast based on that off of our operated -- our current operated facilities. And so I think you can see this year is Q1 and Q4, as we've always talked about, are always the heavy wind periods. And so we did have lower wind in 2025 in the first half and particularly kind of through Q1 and we captured much -- a good chunk of that back in Q4 with record pace. I think -- look, I think where we look at this is the long-term average in the P50 is the right spot to be. We'll have some variability and volatility in that, but we continue to not deviate from that, and I think we're comfortable with where we sit on that. And then the other piece when you look at on guidance is, obviously, there's a big piece on execution on the construction projects and the EBITDA contribution between Hai Long and Baltic. And I think, for us, as you can see and where we've been in Hai Long, we did have the weather window here. And as we talked about, I think, at Investor Day in the quarter, we had a cut last quarter, only about 2 turbines running at the start of that weather window. We felt it wasn't prudent to assume that we could get out there depending on weather, and we're currently in and around 20, which I think is better than what we expected coming out of the weather window. But we're still managing. And you can see with the assumption around our equity injection or potential equity injection, we're evaluating things at the project level. I think we're being prudent on our cash resources to make sure we've got funding mechanisms for it. And then as far as Baltic Power goes is I think we've seen good execution, but we -- I never say comfortable. The big thing I want to leave with you is execution on these construction projects, and that's the biggest thing that we've got to be on top of this year. The wind will blow on the operating assets, and we'll leave it at a P50. Christine Healy: I guess, I can add a bit more color to that, and thanks for your question, Baltej. I think maybe not showing up so much in the numbers is the fact that this winter has actually been a very tough weather window at Hai Long and getting offshore has been challenging. So I think we were right to be conservative in our approach to that. The weather window should reopen in April, and we're ready to go with that. But then we still have a lot to go in the project. So I think it's wise to be prudent in how we approach what we expect to happen through the rest of the year. At Baltic Power, we've seen that there's actually been very good in-weather performance in the last -- in water performance in the last few weeks. But probably not everybody is staying up to date on weather trends in the Baltic Sea, but it's also been very, very cold, which does affect the operational tempo. So I think we've been prudent in our approach this year to understand what could happen with the projects and our guidance reflects that. Baltej Sidhu: Thanks. That's great color. And just to leverage some of the elements that you both alluded to, you have a bit more than half of the turbines you initially had expected to be energized at Hai Long. And there's been a good amount of progress since the Capital Markets Day, as you alluded to in your prepared remarks. Could you provide any details on how the recovery plan is progressing from here? And what feedback or visibility are you receiving from Siemens regarding execution and full path to completion? Christine Healy: So obviously, it's very much on our minds, and we're extremely focused on it, both at the project level and also here at Northland. I'm in regular contact with Siemens, and so we have a regular dialogue sort of zippered up in both organizations. I think all of this is, Siemens is very committed to getting the work done and getting the work done as efficiently and effectively as possible. And so now it's all about preparation because we -- with the weather window currently closed, it actually gives us a bit of time to make sure that the planning is right and that we've got the people and the expertise and the vessels to be able to launch when the weather window reopens. So very high focus on that. And I would say the dialogue continues on a pretty regular basis with Siemens. Baltej Sidhu: Excellent. And just switching gears to the Polish BESS. As these projects are already contracted, what key milestones or execution risks need to be mitigated to get these across the line to reach FID? Christine Healy: So there's a few things going on right now, Baltej, and that's, we have local teams on the ground in Poland. So while the projects are in -- we're really happy with the projects. We've -- as I mentioned in my comments, we've secured the supply for the batteries. At the same time, we do have to make sure that we have all the local permits that the local authorities are getting -- that we have a good relationship there, that they know what we're doing, that there's clear understanding of that. Normal, I would say, regulatory process, which the team is working through. So the intent would be that that would come forward internally for our final investment decision midyear. And so then execute on that project and to sound like a Newfoundlander, get her done. Jeffrey Hart: Yes. So and just further, like as Christine talked to, is we secured, obviously, battery supply. And the big thing outside of the permitting and those pieces in the midyear is obviously working through the funding arrangement and project financing levers, and we're working that. And I think we'll be progressed and there's no roadblocks right now, and we'd expect to be through that by kind of around midyear, as Christine talked about. So those are the avenues that we're working. Operator: And our next question comes from Mark Jarvi of CIBC. Mark Jarvi: I just wanted to follow-up on a few things on Hai Long. One would be, can you continue to commission energized turbines before the weather window opens? Like can you get past the 20 that are currently selling into the grid now? Christine Healy: So basically, Mark, the way it works right now is we do the look-ahead forecast. And if there's a window of a couple of days that we can get people out there safely to do the work, then we do it. So there is a team on standby all the time, and we make the plan based on the weather forecast, and that's updated daily. Well, certainly, the main update is weekly, but we also then adjust that daily. So if there is an opportunity to get out there, then the teams get out there. Mark Jarvi: Got it. And then, Jeff, you mentioned that getting to 20 at this point is a little bit ahead of expectations, yet you still have the foregone PCRs at $150 million to $200 million. What has to happen for you to guys to hit the $150 million to $200 million now? Like are you tracking below that at this point? Jeffrey Hart: Well, I think there's a number of factors embedded in here. So if you don't mind, I'll kind of go through broadly the whole pre-completion revenue and then corresponding funding requirements because I think there's a bunch of factors in there. It's not only revenue generation, it's cash collection and then how that times with our construction progress. So you're absolutely right. Like obviously, and you asked the question on the weather window here for the next month or so. Look, we don't really plan that we'll get a big amount of work because the weather will be what it will be, but we did get 20 done or 18 done from the 2 to 20, and that number will vary a little bit as we work through the issues with the turbines. So that was good performance. I think where we look to longer term to hit where we need to be is we need materially on the next weather window in early October, effectively all the turbines spinning at that point in time. And that's where, as we've always talked about, Q1 and Q4 pretty much is the heavy weather window. And so that's where you see a significant amount of generation. And I'll say generation because that's obviously more at the back end of the year and there's cash collection time frame, let's call it, 60 days or so or whatever it is, that would put the cash collection more into the cash receipt more into the new year that we would have generated. And the reason that's important is when we look at this is, obviously, when we come out of the weather window on construction, we'll be heavy into execution here on the actual project itself again. And so clearly, when you look at the back-end weighted nature of the PCR generation, the execution being more, I'll call it, front-end loaded or kind of through Q2 and Q3, we have some funding requirements because that revenue will come in after and be collected more into the new year. And so we're still looking at is, is making -- we'd have to potentially fund with the change in shape here, a potential equity injection of that kind of $150 million to $200 million that we've talked about. But as I said, we're looking for different avenues to maybe fund that within the project with partners and look at different avenues with that. And I'd expect an update by midyear on that number. Mark Jarvi: Okay. So just to get that clear, PCR is kind of more like cash flows that you're just not catching up because there's a bit of a lag in payment versus the EBITDA. Yes. Jeffrey Hart: A 100%. So there's 2 things. The EBITDA is more back-end weighted, #1. #2, that back-end weighted EBITDA, there is -- in any business, there's always a lag between revenue generated and cash collection and payment terms. And so we have to work through that. And so because it's back-end weighted and you've got -- you have collection thereafter in normal course, we have execution here before Q4. And so there is some construction pieces that we do have to fund. And then we're looking at different avenues in that funding. Is there something we can do at the project level. So we maybe don't have to equity inject corporately here around midyear. And that's one of the big pieces we're working through. But think of it this way, back-ended earnings in generation and then you've got time frame on collection. Mark Jarvi: Got it. And then, Christine, you brought up the North Sea Summit and there's the investment pack that's come out of that. Outside of Poland, are there any other areas you guys are increasingly focused on in Europe and the North Sea? Is there anything in terms of partnerships that are starting to sort of pick up steam? Christine Healy: Thanks for the question, Mark. And I would say, to be clear, Poland is not -- they're in the Baltic as opposed to the North Sea. So we see both areas as being of interest. Poland continues to be of high interest for us. We're really -- I mean, we're happy with our partnership with ORLEN. We're happy with the Baltic Power project. And so we continue to have a high interest in doing more in Poland. In the North Sea, we've been there for quite a long time. So I would consider it a very -- sort of it's a home for Northland in many ways that with our work that's been ongoing for more than a decade in Germany and the Netherlands. We do have a project in -- we have a project in development in the U.K. We're having lots of dialogue with other companies and with governments about opportunities. And we see an opportunity-rich environment for Northland. But now it's a question of making sure that we're disciplined and we pick only the very best opportunities that we want to deploy our people on to. So that I would say we're pretty selective, but we see some good opportunities in front of us there. Mark Jarvi: And have those -- the range of opportunities, the quality opportunities improved or changed in the last couple of months? Christine Healy: I think we've seen now that some of the recent -- the recent auctions that have happened, we see better economics for projects. And so as a result, that makes for a better environment for us. For me, I do think it's a good reflection of capital discipline across the sector that we need to make sure that the projects that we do in the future deliver the rates of return that are going to lead to success for investors as well as success for the host markets. Operator: And our next question comes from Nelson Ng of RBC Capital Markets. Nelson Ng: My first question just relates to the Polish battery storage project. So regarding the 17-year capacity contract, roughly how much of your total expected revenue does that cover? Jeffrey Hart: Yes. No, and I think we'll provide further details as we go in with the economics here and when we come to final investment decision or financial close, however you want to word it. But what I would say is it's going to be a mix of merchant and capacity. And look, I'm not getting into specific percentage at this point, but it's not going to be disproportionate capacity. It will be far more balanced and between the merchant exposure and ancillary services and potential capacity payments, which is inflation indexed. Christine Healy: And Nelson, if it's helpful to you, it's a similar model to what we see applied in Oneida. Jeffrey Hart: What I would say is... Christine Healy: The percentages will be slightly different as they are jurisdiction to jurisdiction, but the sort of structure of it is similar to Oneida. Nelson Ng: Okay. Got it. And then, Jeff, a question for you. So for your 3 European offshore wind projects, you refinance those -- refinanced the debt or reduced the credit spread relatively quickly in terms of like when you're nearing construction completion. I presume discussions have started with Baltic Power and Hai Long with lenders? Or can you just comment on whether there's been discussions that have started in terms of whether it's refinancing or, yes, refinancing or having kind of discussions about the credit spread now that you see construction risk declining? I know you talked about looking at other options in terms of the capital injection for Hai Long, but can you just give a bit more color on the overall process? Jeffrey Hart: Yes. No, 100%. So you're right. And typically, as we're approaching COD and you could look maybe 2 is when is the right time, is it right at or a little bit after, but that's something that's on our mind, and it's on the deliverables for the team to look at how we drive optimization. So #1 with Hai Long, I think there's just some market factors there, we see that we can potentially get earlier than COD on some potential mechanisms, but we'll look at that, and I'll provide an update mid-year on it. And Baltic Power, yes, we're looking at different options and avenues as we approach COD, but we'll be a little bit flexible on that. It will be market dependent. And you're right, it will typically coincide as we get to COD, but we may see windows before or a little bit after that depending on the market. But it is something that we are looking at for sure. Nelson Ng: Got it. And then just one last question. So the Polish battery project that's EUR 200 million. I think that's roughly CAD 320 million. But if I do the math on Jurassic BESS versus the Polish project, I think Jurassic is about like 750,000 per megawatt hour. The Polish project is about 270,000 per megawatt hour. So that's roughly like over 60% lower cost. But like obviously, there's scale and there's probably geography in terms of labor. But can you just talk about the large price -- the cost difference between the Polish project versus the Alberta project? Christine Healy: Thanks, Nelson. I think it's a great question because it really shines a light on what happens when we're early in the curve on a technology. So for grid-scale battery storage like these BESS projects, we have seen a real shift in battery pricing, which is one of the big deltas on the overall cost of these projects. So you're right that probably that's the biggest moving piece is the cost of the batteries, which is coming -- continues to come down, and we've seen a drop in that over time. The other piece, though, I would be remiss if I didn't highlight is the permitting approach. So the permitting approach that we see applying in Poland is a quicker process than we see in most jurisdictions in Canada. So when we do our project planning, we build that in based on what the permitting process is going to be jurisdiction to jurisdiction. So as you've maybe heard me say too many times, the time it takes to get things permitted really matters. Time is money in projects. Operator: And our next question comes from Sean Steuart of TD Cowen. Sean Steuart: First question for Jeff. The 2026 free cash flow per share bridge, it shows Baltic and others contributing $0.20 year-over-year. I guess what is the other component of that? And I know Baltic is scheduled for second half COD, but any specifics on the exact contribution start point for Baltic in that number? Jeffrey Hart: Yes. No, there's not, I'd say, anything significantly within there, and we'll have the team follow-up with you on the details on it just because there's nothing that I'd say is particularly of interest, but I'll have the team follow-up with you on them -- on that. Sean Steuart: The majority is Baltic. Jeffrey Hart: Yes. Sean Steuart: Okay. Fair enough. And then just a follow-up question on the earlier-stage development focus. Christine, you touched on optimism around Baltic expansion. In terms of the development dollars you're putting to work in 2026, earlier-stage opportunities, can you give us a sense of between Canadian gas or renewables, other projects in Europe, where you see a more clear line of sight on advancing some earlier-stage opportunities? Christine Healy: Sure. Thanks for that, Sean. And it's a very timely question because it's something that we have been talking about sort of almost weekly, I would say, since the start of the year as we look at the different opportunities. So in terms of chase and looking at new opportunities, I would say we're sort of -- you've exactly identified we see some great opportunities for offshore wind in Europe, and we see some great opportunities for gas in Canada. And then we also have a number of projects that are in the queue that we are -- that we look at how much do we spend to mature them and at what time frame do we mature those projects. And I'll also just add to that, Sean, we also, as we talked about at Investor Day, have some, what we call value enhancement projects in the portfolio that have to compete for capital against these external new opportunities. And we have our existing opportunities in the funnel that we also want to mature. So all those things go into the mix. That's the entire concept about having a centralized development organization. So right now, I think we see that the development dollars, I'd say, would be the biggest chunks of them are oriented towards offshore -- finding the right next offshore wind project in Europe and finding or choosing the best next gas opportunity in Canada. Operator: And our next question comes from Benjamin Pham of BMO. Benjamin Pham: I just wanted to go to your 6% free cash flow per share CAGR guidance through the decade that you have a range that you put out there. How should you reframe the starting point of that calculation because it's a bit wonky using $1.45, also a bit wonky using $1.15 as a base? Like how do you frame that now? Jeffrey Hart: Well, I think -- thanks for the question. I think you stand back is we obviously exceeded our free cash flow guidance in 2025, and you start to stand back and obviously, there was a bunch of onetime items in there. I think to the tune of, I'll call it, $0.20 to $0.25, whether it was -- we had that German tax benefit and a few other items. And so I think that's something that factors in. And it's also on my mind, too, is how do we continually get better on making sure we call out onetime items and we can kind of clarify this for folks. But I think that's a critical piece for us because you take all those onetime items, they're about $0.20 a share, and that makes a substantive difference to the ongoing run rate of the business. Benjamin Pham: Okay. So you use $1.45 less, let's say, $0.25, use that as a starting point, you get to that 6% you've highlighted previously? Jeffrey Hart: Yes. And I don't have the numbers here in front of me, right? But I mean, I think you look at it and you say, okay, well, what happened in the back-end quarter. Clearly, we had higher wind and that was -- put us over guidance. But if you look at the full year, that $0.20 to $0.25 was one of the big factors in driving us to the $1.46. And so I don't have the CAGR in front of me, but that's something that we have to make sure that we're clear on is these onetime items or kind of nonrecurring items have to factor in. And so that you have to take that away, right? Benjamin Pham: Okay. I understand. And maybe switching to the early comments on the super cycle and volume demand being quite robust in all your key markets. Do you think your position -- I mean, you're clearly positioned well where you are now, but do you think you need to go elsewhere to position better or differently to benefit from this super cycle going forward? Christine Healy: So thanks for the question. We had a really deep dive on this as we were preparing for our strategy for the upcoming 5 years. And we see that we have opportunity -- it's an opportunity-rich environment for us in Canada and in Europe. And these are both very large markets. So I think we have ample space for us as a company to fill in and to deliver on what we've committed for the 5-year horizon in those markets. So we're very focused on deepening where we are instead of spreading out into new locations. Operator: And our next question comes from Heidi Hauch of BNP Paribas. Heidi Hauch: I just want to start with, in your annual report, it had mentioned deprioritizing the floating portion of the Scotland offshore wind project. So can you talk about what drove that decision and what that might mean for the types of projects or technologies you're more likely to pursue within the growth pipeline? Christine Healy: Super. Thanks for the question, Heidi. I appreciate it. So because we see so many fixed bottom opportunities for offshore wind, then we really had to look at do we need to move to floating right now. And I think the answer that we came to as we looked at the opportunity set is that we don't need to. And right now, we think that there are good existing technologies for offshore wind. I think that we're differentiated in our ability to deliver that and to deliver those projects well. And so maybe back to the previous question about deepening in geographies, it's also deepening in the things that we know. So we're very good at that. And so we're going to keep doing that, and we see an opportunity-rich environment for us right now. So yes, you're exactly right that we're deprioritizing the floating, and we're more focused on the fixed bottom offshore wind. Heidi Hauch: Great. Thank you. And then can you update us on the potential to contract the remaining portion of Nordsee One. We saw that positive update on contracting 1/3. But are you still kind of in conversations to contract the remaining part? Christine Healy: Thanks, Heidi. We keep a careful eye on that. So the 1/3 contracting leaves us -- we're happy with that in terms of having a stable cash flow from the asset as we look across the upcoming 5, 6 years. So that's very helpful. And then we see -- as you probably know, the spot price has been actually pretty robust recently. So when we see that robust spot price, how much of that are we willing to contract away in order in favor of stability. So right now, the 1/3, 2/3 split is okay for us. We continue to watch the market and look for different opportunities. And so then it gives us, in fact, optionality on that, which I really value in the portfolio, especially when you look at the new highly contracted generation coming in, it gives us a bit more room that we're not exposed to a huge amount of variability with that, and we can absorb that within the portfolio approach. Operator: Thank you. I'm showing no further questions at this time. I'd like to turn it back to Christine Healy for closing remarks. Christine Healy: I'll be brief and just say thank you, everyone, for joining us today, and thank you for your continued support. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Greetings, and welcome to the Redwire Corporation Full Year and Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Alex Curatolo, Senior Director of Investor Relations. Thank you. You may begin. Alex Curatolo: Thank you, Diego. Welcome to Redwire's Full Year and Fourth Quarter 2025 Earnings Call. We hope that you have seen our earnings release, which we issued yesterday afternoon. It has also been posted in the Investor Relations section of our website at rdw.com. Let me remind everyone that during the call, Redwire management may make forward-looking statements that reflect our beliefs, expectations, intentions, or predictions of the future. Our forward-looking statements are subject to risks and uncertainties that are described in more detail on Slides 2 and 3. Additionally, to the extent we discuss non-GAAP measures during the call, please see Slide 3 in the appendix, our earnings release, or the investor presentation on our website for the calculation of these measures and their reconciliation to US GAAP measures. I am Alex Curatolo, Redwire's Senior Director of Investor Relations. Joining me on today's call are Peter Cannito, Redwire's Chairman and Chief Executive Officer, and Chris Edmunds, Redwire's Chief Financial Officer. With that, I would like to turn the call over to Pete. Pete? Peter Cannito: Thank you, Alex. During today's call, I will outline our key accomplishments during the full year and fourth quarter of 2025, after which Chris will present the financial highlights for the same period and discuss our 2026 outlook. We will then open the call for Q&A. Please turn to Slide 6. In 2025, Redwire transformed from a pure-play Space provider to an agile, scaled multi-domain Space and Defense Tech company. We closed our transformational acquisition of Edge Autonomy in June 2025 and have been successfully executing on our integration plan to include the full assumption of Edge Autonomy into the Redwire brand. During 2025, Redwire moved up the value chain with 5 spacecraft platforms and multiple prime contracts in the US and Europe, and 2 mature, combat-proven airborne platforms. We expanded our customer base to more than 170 civil, national security, and commercial Space and Defense Tech customers, emphasizing our breadth and diversity. We added approximately 660 employees for an ending headcount of approximately 1,410 employees around the globe. We ended 2025 with a record contracted backlog of $411.2 million, supported by strong bookings and a 1.52 book-to-bill in the fourth quarter, providing confidence as we move into 2026. And finally, as Chris will talk about in additional detail, we strengthened our balance sheet and simplified our capital structure, ending with record year-end total liquidity of $130.2 million. Please turn to Slide 7. The result of this major transformation in 2025 is a more balanced portfolio of differentiated products that positions Redwire for considerable scaling in 2026 and beyond. At the core of this transformation is the maturation of our product portfolio from predominantly new development programs to a balanced portfolio that includes mature programs that are scaling into production. As you can see on the chart on Slide 7, in 2021, when Redwire first went public, the vast majority of our products, almost 75% in fact, were in the development phase with just a few products moving to limited production in small quantities. During this early phase of our growth, we were primarily focused on penetrating the Space market with new development programs, which we often refer to as planting seeds or gaining toeholds. This was deliberate as we were establishing ourselves in a nascent Space market that required new solutions and capabilities that hadn't been invented yet. At this point in our evolution, this new development often emphasized market share over gross margin and larger exposure to development risk. Moving forward in time to the present, however, through a number of organic and inorganic strategic investments, we have now matured our product mix to a balanced portfolio of development and production programs. The impact of this transformation to our future growth is often underappreciated and cannot be overstated. At the end of 2025, we now estimate that over 2/3 of our revenue is moving into production, with a large portion of our UAS portfolio entering higher-margin full-rate production. This is a very different Redwire than 5 years ago. As we look forward to 2026, our portfolio is evolving to a more balanced risk, balanced mix of risk with opportunities for gross margin improvement. Make no mistake, we still plan to invest heavily in advancing critical technologies with high-growth potential, such as VLEO, refuelable GEO, Quantum satellites, and our Stalker Block 40 UAS, but these growth investments are now supported by a broader portfolio and a proven framework for maturing our capabilities into production. Please turn to Slide 8. As part of this ongoing transformation, in January, we announced that going forward, Redwire will be organized into 2 business segments: Space and Defense Tech. These segments map to the 5 primary value drivers I described on our last earnings call, representing the product areas where Redwire has differentiated intellectual property, first-mover advantage and recognized thought leadership in rapidly growing domains with sizable total addressable markets. Our Space segment encompasses the next-generation spacecraft, large Space infrastructure and microgravity development value drivers and focuses on delivering for civil, national security and commercial Space customers. Our Defense Tech segment encompasses the combat-proven UAS and Sensors & Payloads value drivers and focuses on systems, Sensors & Payloads that provide intelligence, surveillance and reconnaissance capabilities for US and allied warfighters across multiple domains. Notably, this segment not only includes the operations from our acquisition of Edge Autonomy, but also Space -based Sensors & Payloads such as avionics, cameras and RF systems. We believe this new structure will enable us to maintain strong positioning and continue our growth trajectory across both established and rapidly emerging domains as well as provide greater visibility into our unique positioning in Space and Defense. Next, I would like to briefly touch on a highlight or 2 from the fourth quarter for each of our 5 value drivers. Please turn to slide 9. Starting with NextGen Spacecraft. During the fourth quarter, Redwire was awarded a $44 million Phase 2 award to advance DARPA's Otter Program. Otter leverages the design of Redwire's SabreSat platform, and this Phase 2 contract provides us funding to complete manufacturing and deliver the spacecraft to launch. Through our work with DARPA, we are strengthening our leadership in this critical domain and accelerating the development of cutting-edge capabilities that will define the future of VLEO. Please turn to slide 10. During the fourth quarter, Redwire successfully completed integration of 10 payloads for the European Space Agency's ΣYNDEO-3 satellite mission, marking a major milestone as it readies for launch in Q4 2026. The spacecraft is built with our highly versatile Hammerhead LEO spacecraft platform, which has logged 50 years of on-orbit performance. This mission aims to accelerate the development of new technologies and stimulate the European Space ecosystem. As the prime contractor, Redwire is proud to lead these efforts. Please turn to slide 11. Turning to Large Space Infrastructure, today, I am proud to introduce our Extensible Low-Profile Solar Array or ELSA. Building on the experience, technical expertise and success of our flight-proven ROSA product, ELSA is an innovative, high-performance, low mass power solution that leverages the flexible substrate technology of ROSA in a smaller form factor. Whereas ROSA is our leading flexible array solution for large spacecraft or space stations such as Blue Ring and the ISS, ELSA is our equivalent for high-quantity constellations of small satellites and provides 50% more power by volume than our traditional solar arrays of equivalent size. ELSA is engineered for volume production and offers a step change improvement in modular, scalable design and rapid turnarounds to drive down costs and improve delivery times. We look forward to announcing key ELSA contract awards in the near future as the industry recognizes the benefits and performance of this new product line. Please turn to slide 12. Also under our large Space infrastructure value driver, during the fourth quarter, Redwire was awarded an 8-figure contract by the Exploration Company to provide 2 International Berthing and Docking Mechanisms (IBDMs), developed in Belgium for their flagship spacecraft, Nyx. This agreement marks a significant step in supporting Europe's burgeoning commercial Space sector and follows an IBDM award from Thales Alenia Space we announced earlier in the year. This is an exciting example of how our investment in Berthing and Docking product development is now expanding into new opportunities for production. Please turn to slide 13. Turning to our Microgravity Development value driver, during the quarter, Redwire was selected for a second contract supporting Aspera Biomedicines' research into a cancer "Kill Switch". Aspera is revolutionizing oncology and regenerative medicine, and Redwire was proud to have once again been selected as a trusted implementation partner. Under this follow-on contract, Aspera's second set of on-orbit experiments will use Redwire's PIL-BOX hardware to further understand the crystal structure of ADAR1-p150 with the goal of creating better cancer drugs that improve patient outcomes here on earth. Please turn to slide 14. Let's turn now to our COMBAT-PROVEN UAS value driver, which falls within our Defense Tech segment. During the quarter, US Army soldiers began training with Redwire's Stalker UAS, representing the first time in years that a new Group 2 UAS was used in support of a US Army course at Fort Rucker in Alabama. As a mature combat-proven commercial technology that is built using a modular open systems approach, Stalker allows for easy integration with third-party technologies and this flexibility drew attention during the training demos. This further reinforces that Stalker is seen by the US Army as a critical part of their force design for long-range reconnaissance training and operations. Please turn to slide 15. In addition, during the fourth quarter, we announced the grand opening of our new 85,000 square foot facility in Ann Arbor, Michigan to increase production of fuel cells. Our fuel cells are a key differentiator for our Stalker aircraft, allowing for extended range and endurance, silent operations and easily sourced fuel. This is another great example of our shift from predominantly development to full production capacity in our portfolio. This new facility provides us the ability to scale production as the US Department of War executes on its drone dominance strategy. Please turn to slide 16. Lastly, moving to our Sensors & Payloads value driver. During the fourth quarter, Redwire received an award for Penguin VTOL aircraft and Octopus Gimbals camera payloads for the Croatian Border Patrol. Funded under the European Border and Coast Guard Agency, or Frontex, this award builds on successful border deployments around the world, and Redwire is proud to have been chosen again to provide these key technologies that are especially effective for border security and European Defense initiatives. Please turn to slide 17. With that, I'd now like to turn the call over to Chris Edmunds, Redwire's Chief Financial Officer, to discuss the financial results for the fourth quarter of 2025. Chris? Chris Edmunds: Thank you, Peter. Before turning to Slide 18, I want to highlight the image on this page, which is a photo taken by a Redwire camera during the Artemis 1 mission, the first in a series of increasingly complex missions to explore the moon and build towards the first crude mission to Mars. Artemis 2 is anticipated to launch in the coming months, and Redwire cameras will once again be on board to capture energy from the mission. Please turn to slide 18. Now diving into our results. Despite delays in the US government budget process impacting both Space and Defense Tech, revenue for 2025 increased by 10.3% year-over-year to $335.4 million, coming in towards the top end of our provided range of $320 million to $340 million. Please turn to slide 19. Next, I'd like to take a moment to provide some additional details around fourth quarter revenue and profitability. As included in our earnings release yesterday afternoon and in our Form 10-K to follow, we have, for the first time, provided financial details for our Space and Defense Tech segments. As Peter discussed at the beginning of today's presentation, our Space segment includes next-generation spacecraft, large Space infrastructure, and microgravity development. And our Defense Tech segment includes combat-proven UAS platforms, Sensors & Payloads, both airborne and space-based. Starting with revenue. As shown on the right-hand chart, during the fourth quarter, we reported total revenue of $108.8 million, representing a 56.4% increase on a quarterly year-over-year basis. During the quarter, our revenue was balanced between our 2 segments, with our Space segment recording revenue of $54.5 million and our Defense Tech segment recording revenue of $54.3 million. I would note that the contributions from the acquisition of Edge Autonomy were the primary driver behind the significant increase for Defense Tech on a quarterly year-over-year basis. Turning to profitability. While our fourth quarter 2025 gross margin of 9.6% is an improvement on a quarterly year-over-year basis, gross margin improvement is a key focus area as we move into 2026 and drive more programs from development to production. Leaving aside the net unfavorable impacts from EACs of $17.8 million, our gross margin would have been in the mid-20% range, closer to what we believe is representative of the potential of our business going forward, given our mix across the maturation framework Peter spoke about earlier. Our fourth quarter 2025 net loss was $85.5 million, which was impacted by more than $40 million in nonrecurring activity, including a $34.7 million goodwill impairment, $7.4 million impact from the equity incentive units assumed through the Edge Autonomy acquisition and $1 million related to the early debt extinguishment, which I will talk about a little more in a moment. In addition, Redwire significantly increased in future technology during the quarter spent on Research & Development from $1.4 million in 2024 to $9.5 million in 2025. Because of our confidence in signals we see with our customers and market, we see this investment contributing to the acceleration of our programs along the maturation framework. We ended 2025 with fourth quarter adjusted EBITDA of negative $18.1 million, a decrease on a year-over-year basis. Our negative fourth quarter 2025 adjusted EBITDA results was largely due to unfavorable impacts from EACs of $17.8 million. Please turn to slide 20. Finally, turning to a discussion of liquidity and capital structure. We have significantly strengthened our balance sheet and simplified our capital structure. We ended 2025 with record year-end total liquidity of $130.2 million, comprised of $94.5 million in cash, $35 million in undrawn revolver capacity, and approximately $1 million in restricted cash, a significant year-over-year improvement in total liquidity. During the year, we significantly de-levered, repaying a net $125.5 million of debt, including repayment of $105.5 million of outstanding principal during the fourth quarter through proceeds from an efficient At-The-Market or ATM program. Our repayment during 2025 will result in an estimated annual interest savings of more than $14 million. During 2025, Redwire also saw a 57% reduction in Convertible Preferred Stock outstanding through share repurchase and voluntary conversion and an 83% reduction in outstanding warrants through exercise. We note that Redwire's remaining outstanding warrants will expire during the third quarter of 2026. Finally, in February 2026, the company amended its remaining credit agreement, extending the maturity to May 2029 and lowered their interest spread from SOFR plus 700 to SOFR plus 3.75, resulting in an annualized interest savings of approximately $3 million. Taken together, we estimate total annualized interest savings to be more than $17 million from our de-levering and re-financing activities. Please turn to Slide 21. Although the delays from the US government shutdown impacted award timing in 2025, we continue to see a positive trend in contracts awarded as we move through the fourth quarter when compared with the first half of 2025. Our bookings during the fourth quarter of 2025 increased substantially, both year-over-year and sequentially to $164.9 million with the fourth quarter of 2025 book-to-bill ratio of 1.52, bringing our 2025 full year book-to-bill ratio to 1.32 and improving backlog to a record $411.2 million. Looking at key performance indicators by segment. During the fourth quarter of 2025, Space bookings were $110.9 million, driven by the Otter and Mix awards previously discussed. And Defense Tech bookings were $54 million, driven by demand for our Stalker and Penguin aircraft. Turning to backlog by segment. As of December 31, 2025, Space backlog was $299.8 million and Defense Tech backlog was $111.4 million. As a reminder, the majority of Defense Tech revenue is recognized at a point in time, whereas our Space segment, the majority of revenue is recognized over time, driving different backlog profiles. Although the US government shutdown delayed the timing of awards that had been expected in 2025, with key wins during the fourth quarter and line of sight in 2026, we are pleased with the continued positive change in our trend line for contracts awarded and believe our pipeline of new opportunities remains strong, giving us confidence in continued growth through 2026. Please turn to Slide 22 for a brief discussion of the outlook for 2026. With continued acceleration in our contracts awarded during the fourth quarter and confidence provided by our record backlog of $411.2 million, we are forecasting full year 2026 revenue to be in the range of $450 million to $500 million, which represents a 41.6% year-over-year growth rate at the midpoint. I would note that given lingering timing impacts of the government shutdown, we expect our revenue to build as we move through 2026. With that, please turn to Slide 23, and I'll now turn the call back over to Pete. Peter Cannito: Thank you, Chris. As discussed earlier in the brief, Redwire's transformation in 2025 positions us to enter 2026 with great momentum as an integrated multi-domain Space and we entered 2026 with confidence provided by our record $411.2 million backlog despite budget headwinds during 2025 and into early 2026. In addition, we are bolstered by a strengthened balance sheet, simplified capital structure and record end of year liquidity of $130.2 million. With that, I want to thank the Redwire team for their achievements during 2025. We will now open the floor for questions. Operator: [Operator Instructions] Your first question comes from Brian Kinstlinger with Alliance Global Partners. Brian Kinstlinger: Congrats on the improving capital structure. My question is, how is management adjusting its pricing model in response to the abnormally low gross margin throughout 2025? Have you contemplated higher fixed price quoting in Space, a more safer contracting vehicles such as cost-plus or time and materials, especially for new products like ELSA. Peter Cannito: Thanks, Brian. Appreciate your question. So, there's a couple of dynamic things there. So, I'll address two parts of this question. Starting with the easiest and the last part first. We basically have to, like all Defense contractors, we have to take our, meet our customer where they are in terms of the kind of contracting that they do. The Department of War has very openly discussed that they are moving away from cost-plus and time and materials and looking for contractors that are willing to take on firm fixed price development. And it's for that reason that we really took the time and effort at the beginning of this call to understand the portfolio effect that if you want to get market share in this market, you have to be willing to do some investment, whether it be through IRAD, if you want to bear the full cost or through additional development risk if you're willing to take on risk. But take on payments from customers at the same time. You have to be willing to do that in order to get through the development phase to get to production, which leads me to the first part of your question, where in terms of the pricing model, it's not so much trying to pad our pricing and ultimately losing when we're bidding against more aggressive competitors on the development phase of contract, but it's actually having that balanced portfolio I talked about where you may be taking on a more balanced set of development contracts with higher ADC risks, maybe lower margins as you buy yourself into the baseline in pursuit of a production tail. But now Redwire is in this position where we're taking on less of that as a percentage of the total portfolio. Now less of it doesn't mean we're bidding less we're still aggressively going after those development programs in order to increase our market share and penetrate the, particularly on the Space side of the market where the winners haven't really been determined yet. But with the transformational acquisition of Edge Autonomy, our portfolio, as you can see from that Slide 7, is now much more balanced. We have a production level of programs that are supporting that. And it's because of that production tail as the Defense Tech side of the business starts to scale as we anticipate it will in 2026, we expect to see the gross margin improvements that you're looking for. Operator: Your next question comes from Griffin Boss with B. Riley Securities. Griffin Boss: I will ask about Edge. So, the 100-plus aircraft to 7 countries post close, that's good to see. But do you have any insight on how many aircraft stand-alone Edge did in 2024? And then along these same lines, you mentioned that included in that 100-plus number or deliveries to the US Army via LRR. Does that mean you've received production orders at this stage? Or is that referring to the software deliveries for the training purposes? Peter Cannito: Griffin, thanks for your question. Chris, do you want to take the count one? Chris Edmunds: Yes. So, 100 aircraft since we closed the acquisition, they delivered about 200 aircraft this year, which is relatively consistent to where they were in the past year. We really leaned forward even Edge prior to the acquisition to build capacity to be able to handle the demand curve as the demand curve comes online. So, for the production here in the second half of the year at about 100 aircraft, that is right in the middle of their production curve. But with scaled capacity, as we see the growth continue to come in with the order book, as we talked about earlier, we'll have the ability to produce those aircraft as we go into '26 and beyond. Peter Cannito: Good example of that is the investment we made in the 85,000 square foot for our fuel cell production in Ann Arbor that we'll be able to see increased aircraft full rate production in '26. Griffin Boss: Got it. Okay. And then just the second part of that was regarding LRR and whether those are production orders or referring to the testing. Chris Edmunds: Yes. That was part of the testing. So, we're still anticipating the full production order here to come later this year. Peter Cannito: Yes. One of the things that we're excited about in terms of our ability to accelerate growth in Q4 was, as a reminder, that was still without a fully passed budget. So, some of the things that we talked about in our last earnings call that we were expecting to come online, one of them being orders for the LRR program was not included in that 1.52 book-to-bill. So that's still upside we anticipate in 2026. Operator: And your next question comes from Scott Buck with H.C. Wainwright. Scott Buck: Apologies if I missed this during the prepared remarks, but how much of the backlog is expected to be executed on over the next 12 months or should I say, calendar year 2026? And then are there any large concentrations within that backlog that would drive a materially outsized revenue results in any given quarter or potentially risks slipping into 2027? Chris Edmunds: Yes. I appreciate it, Scott. So, from a backlog standpoint, we've got about 50% or so of the guide in backlog. And as we look at the risk profile across that backlog, there are no single orders that are binary that would meaningfully move our view one way or the other, pretty balanced across the order book, both with geography diversification across the US and Europe as well as across our various value drivers. So about 50% or so of backlog for the guide. Peter Cannito: Yes. One thing I'll add to that is the, although we don't have anything necessarily in our forecast that we're looking at as a big material size value driver in our pipeline, not necessarily backlog; we do have, especially on the Space ties, we do continue to have opportunities like constellation size orders that could materially change our profile. We're just discounting those things in order to make sure that we are focusing on achieving our growth through what's already on the books. Operator: Your next question comes from Greg Konrad with Jefferies. Unknown Analyst: This is Sara on for Greg. So I guess sticking with backlog, what are you seeing in the broader order environment given some pickup in the 3 months, the 1.52 book-to-bill in Q4? How different are the order cycles between Space and Defense Tech? And what are the expectations for book-to-bill in 2026 supporting growth there? Peter Cannito: Yes. So thank you for your question. And so in terms of in the backlog, in that $1.52 billion, what it shows is as we start to close, so last year, we talked about a lot about moving up the value chain. And as we start to close bigger orders like Otter, which was the $44 million opportunity that I mentioned, full VLEO spacecraft order, you can see that the size of our orders are growing over time as part of that moving up the value chain strategy that we executed. In addition to that, you see another element with the 8-figure IBDM order that contributed to that $1.52 backlog that we closed in the fourth quarter, where we actually got 2 IBDM orders as we start to move into more of a production phase, low rate, but still a production phase for the IBDM. So that was really the characteristic of the fourth quarter backlog build. And those are long programs, year-long or more programs that will be, that gives us confidence in our revenue build over 2026. In terms of the order cycles between Space and Defense Tech, that's a very interesting question. The order cycles, and this is why it's not really apples-to-apples when you look at backlog between Defense Tech and Space. Space will have a really stronger backlog because it will be a multiyear backlog in many cases, where the conversion cycle for Defense Tech is really fast, especially on orders where we have some level of inventory already on the balance sheet. So an existing customer that already has a fleet of Stalker or Penguin aircraft can decide that they want to scale their fleet very quickly submit a purchase order. And if we have that available in inventory or even if we have aircraft coming off the production line, we can fill that order quickly. And so the conversion for Defense Tech is a lot faster than on Space. Chris, do you want to add anything to that? Chris Edmunds: Well, I was just going to point out, from a book-to-bill standpoint in the fourth quarter, we were just over 2x on the Space side, as Pete talked about, and just at a 1 on the Defense Tech, which just highlights that point. Operator: Your next question comes from Suji Desilva with ROTH Capital Partners. Sujeeva De Silva: Pete, Chris, congratulations on the bookings improvement. So just quick questions on the mix of Space versus Defense. Just some clarification on Defense. Is there a material part of Defense that's not the Edge Autonomy acquisition? And what is the growth expectation in '26 roughly across Space versus Defense? Peter Cannito: So let me address the first part. So yes, the Defense Tech not only includes the legacy Edge Autonomy capability, but it also includes our portfolio of Space optics other payloads and our Space RF systems. The reason for that is because when you go back and you look at part of our early discussion about the synergies that we expected by being multi-domain in Space, a lot of the things like optics or antennas or RF payloads are very similar across both UASs and satellites or spacecraft. So by putting them in the Defense Tech segment, we're able to achieve those synergies and truly be a multi-domain in the way we go to market in those technologies. So yes, a material portion of Defense Tech is part of the, came from part of the legacy Redwire Space part. Chris, did you want to talk about the latter part of the question? Chris Edmunds: Yes. I mean, so Suji, we're pretty balanced across the segment in our fourth quarter. We do see the fintech probably driving a little more contribution as we go through '26. Just line of sight on where they are, the growth rate on the DT side probably outperforms the Space side, maybe closer to 20% for line of sight. But as Pete said, on the Space side, what's in the order book is what we're managing to. But there are some really big and interesting opportunities in the pipeline that could really accelerate the growth on the Space side. But again, what we're looking at right now, pretty balanced currently, and we do expect the DT side to start to take a little larger share as we get in the back part of '26. Operator: And we have reached the end of the question-and-answer session. So I'll now hand the floor to Peter Cannito for closing remarks. Peter Cannito: Great. Well, thank you all for the excellent questions. With that, we appreciate everyone taking the time to listen today and go Redwire. Operator: Thank you. This concludes today's conference. All parties may disconnect.
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the BioLife Solutions, Inc. Q4 2025 Shareholder and Analyst Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to turn the call over to Troy Wichterman, Chief Financial Officer of BioLife Solutions, Inc. Please go ahead. Troy Wichterman: Thank you, operator. Good afternoon, everyone, and thank you for joining the BioLife Solutions, Inc. 2025 Fourth Quarter Earnings Conference Call. On this call, we will cover business highlights, financial performance for the fourth quarter and full year 2025, and provide 2026 financial guidance. Earlier today, we issued a press release announcing our financial results and operational highlights for the fourth quarter and full year of 2025 and provided 2026 financial guidance, which is available at biolifesolutions.com. As a reminder, during this call, we will make forward-looking statements. These statements are subject to risks and uncertainties that can be found in our SEC filings. These statements speak only as of the date given and we undertake no obligation to update them. Unless otherwise noted, all financial measures discussed reflect non-GAAP or adjusted results. Reconciliations of GAAP to non-GAAP or adjusted financial metrics are included in a press release we issued this afternoon. Now I would like to turn the call over to Roderick de Greef, Chairman and CEO of BioLife Solutions, Inc. Roderick de Greef: Thanks, Troy. Good afternoon, and thank you for joining us for BioLife Solutions, Inc.'s fourth quarter and full year 2025 conference call. 2025 was another strong year for BioLife Solutions, Inc., delivering double-digit revenue growth, operating margin expansion, and improved profitability. Throughout the year, we executed consistently against our key strategic priorities, advanced our efforts to reposition the portfolio, and strengthened the foundation to scale the business for years ahead. We exit the year simpler, more focused, and structurally stronger. With the divestiture of our EVO product line behind us, we enter 2026 with a strong balance sheet and a fully optimized portfolio that plays to our strengths and positions BioLife Solutions, Inc. to drive sustainable, profitable growth and shareholder value. Compared to 2024, our 2025 results from continuing operations demonstrate our increasingly attractive financial profile, which is driven by the culmination of our multiyear strategic transformation, a streamlined portfolio centered on market-leading consumables, and sustained growth from our commercial CGT customers, which reinforces our positioning to benefit from the continued growth and maturity of our end market. On the top line, total revenue grew 29% to $96 million, landing at the high end of our guidance, which was raised twice in the second half of the year. While gross margin experienced a decline year over year, primarily reflecting product mix and lower bag yields in the second half, operating leverage more than offset this impact and contributed to an increase in adjusted EBITDA of $25 million, or 26% of revenue, up from $13 million, or 18% in 2024. In the fourth quarter, total revenue reached $24.8 million, increasing 20% year over year, driven primarily by continued strength in our biopreservation media, or BPM, franchise with broad-based growth across our entire cell processing tools portfolio. Turning to Q4 revenue composition, our BPM product line accounted for approximately 85% of total revenue, with our top 20 BPM customers continuing to account for roughly 80% of BPM revenue. This concentration provides enhanced visibility into demand across the core part of our business. These metrics remain consistent with prior quarters and reinforce the stability of our recurring revenue base. Staying with our BPM products, direct customers continue to represent the majority of our mix versus distribution, and commercial BPM customers accounted for nearly 50% of revenue, up from the low-40s range in 2024. Both of these metrics reflect the ongoing shift toward later-stage and approved therapies that support both near-term and long-term growth. Stepping back from the quarter, our position within the broader CGT landscape remains strong. Our BPM products are embedded in 16 approved therapies and utilized in more than 250 relevant commercially sponsored CGT trials in the U.S., representing over 70% share. This includes more than 30 phase 3 trials in which our share is approaching 80%, underscoring BioLife Solutions, Inc.'s position as the partner of choice for later-stage clinical programs where success rates are higher and the path to commercial revenue is more clearly defined. Longer term, a key driver of CGT market growth remains the pace of FDA approvals, including unique therapy approvals, expanded indications, geographic expansion, and movement into earlier lines of treatment. While 2025 saw fewer approvals relative to 2024, we anticipate up to five unique therapy approvals over the next twelve months along with one new indication and at least one geographic expansion. We believe that the unique approval funnel is beginning to regain some momentum. This evolving regulatory backdrop supports our ability to capture additional value, especially within the late-stage programs we are already embedded in. Building on our BPM market leadership, we are working to expand our role within these clinical and commercial programs beyond biopreservation media. Our sales and marketing team is actively driving adoption of our broader cell processing tools across our marquee BPM customer base. As we have discussed previously, this cross-sell opportunity has the potential to increase our revenue per patient dose by two to three times relative to our BPM products alone, as customers incorporate additional components of our offering into their workflows. We have numerous product evaluations underway, including several with our largest commercial customers. While adoption cycles are lengthy, engagement remains strong and we expect to demonstrate some traction in 2026. Complementing our cross-sell strategy, we are also evaluating portfolio adjacencies that build on our scientific and commercial capabilities. In 2025, we assessed opportunities aligned with our product profile requirements that could broaden our product offering and bring additional value to our customers. One attractive strategic adjacency we identified is cytokines, which represent a natural complement to our emerging HPL product line. Earlier this month, we entered into a strategic distribution and product development agreement with UK-based Qkine Limited. The agreement provides us with exclusive distribution rights for certain cytokine products and nonexclusive rights for others within the CGT market. In addition, our product development teams will work together to package and store certain cytokine products in our CellSeal vial line. Our acquisition of Panthera and the investment in Pluristics last year, together with this new partnership, reflect our strategy to expand the platform through targeted M&A, minority investments, and strategic collaboration. These actions broaden our offering and increase our participation in the evolving cell therapy ecosystem. Turning to our outlook for 2026, we issued guidance this afternoon which included revenue between $112 million and $115 million, representing growth of 17% to 20%. As in prior years, our initial guidance reflects the visibility we have today based on the demand forecast from our key BPM customers. In addition, we see continued operating and adjusted EBITDA margin expansion and expect the company to generate full-year GAAP net income for the first time in many years. Before handing it over, I would like to comment on some recent developments in the cell therapy space, including encouraging clinical data in larger indications, continued advances in automation and manufacturing scalability, and renewed strategic investment by large pharma through multibillion-dollar acquisitions and next-generation facility buildouts, all of which reinforce our confidence in the long-term trajectory of the field and the attractiveness of the CGT market. BioLife Solutions, Inc. is well positioned as a market leader to benefit as these dynamics translate into durable demand over the long term. With that, I will hand the call over to Troy, who will provide an overview of our full Q4 and 2025 results and more details of 2026 guidance. Troy? Troy Wichterman: Thank you, Rod. Today, we will be reviewing current and prior period financials from continuing operations for Q4 and full year 2025 and providing 2026 financial guidance. Unless otherwise noted, all financial measures discussed reflect adjusted non-GAAP measures. Before we start with the financials, I am pleased to report we implemented our ERP manufacturing modules in February with no disruption to operations. This module allows for greater automated processes and controls in our manufacturing, quality, and accounting functions. This, in turn, provides a systematic foundation and automated processes to leverage into our planned growth. As shared in our press release today, we reported total Q4 revenue of $24.8 million, representing an increase of 20% over the prior year, and full-year revenue of $96.2 million, representing an increase of 29% over the prior year. The year-over-year increase in both periods primarily related to increased demand for biopreservation media from our customers with commercially approved therapies. For the full year 2025, we had growth across all product lines except our HPL media business, which was flat year over year due to certain import restrictions in China, which have since been abated. Adjusted gross margin for Q4 2025 was $15.8 million, or 64%, compared with $14.0 million, or 67%, in the prior year. Full-year adjusted gross margin was $63.2 million, or 66%, compared with $51.4 million, or 69%, in the prior year. The decrease in adjusted gross margin as a percentage of revenue in both periods was due to a continuing product mix shift toward bags, which carry lower gross margins than bottles, and we had lower-than-anticipated bag yields in the second half of the year. Improving bag yields is a clear operational priority as we enter 2026. Adjusted operating expenses for Q4 2025 totaled $14.7 million compared with $13.8 million in the prior year, and for the full year were $59.3 million compared to $52.9 million in the prior year. Adjusted operating income for Q4 2025 was $0.9 million compared with adjusted operating loss of $0.2 million in Q4 2024. Full-year adjusted operating income was $2.9 million compared to adjusted operating loss of $2.6 million in the prior year. Adjusted net income was $1.9 million in Q4 compared to adjusted net loss of $0.1 million in Q4 of the prior year. Adjusted net income for the full year was $6.3 million compared to adjusted net loss of $2.9 million in the prior year. The increase in adjusted operating income and adjusted net income was primarily driven by an increase in revenues year over year, in addition to a decrease in our sales tax accrual of $1.3 million. This was partially offset by increases in R&D expenses from increased headcount and investment in key projects. Adjusted EBITDA for Q4 2025 was $6.9 million, or 28% of revenue, compared with $3.7 million, or 18% of revenue, in Q4 of the prior year. Adjusted EBITDA for the full year was $25.0 million, or 26% of revenue, compared with $13.3 million, or 18% of revenue, in the prior year. Our adjusted EBITDA increased primarily due to higher revenue. In addition, we had a $1.3 million gain on a sales tax true-up recorded in Q4, which had approximately a 500 basis point impact on our adjusted EBITDA margin in Q4 and a 100 basis point impact for the full year. Turning to our balance sheet, our cash and marketable securities balance at 12/31/2025 was $120.2 million, compared with $98.4 million at 09/30/2025 and $105.4 million at 12/31/2024. Taking into consideration our adjusted EBITDA of $6.9 million, our increase in cash during Q4 2025 was primarily related to the $23.5 million in cash proceeds from the divestiture of SAVSU, partially offset by CapEx spend of $4.4 million, working capital usage of $2.2 million, and debt payments of $2.5 million. Our remaining SGD debt balance at 12/31/2025 was $5.0 million, all of which is short term. We expect to pay off the entirety of the loan by June 2026, in addition to a $1.2 million loan maturity balloon payment due at the time of maturity. Turning to 2026 financial guidance, total revenue is expected to be $112.5 million to $115.0 million, reflecting overall growth of 17% to 20%. The increase is primarily due to expected demand from our BPM customers with commercially approved therapies as well as increased demand for our other tools. We expect GAAP and adjusted gross margin for the full year to be in the mid-60s. We expect gross margins generally to be in line with 2025 due to favorable higher average selling prices, partially offset by product mix, primarily due to higher growth rates from our other cell processing tools. As Rod stated, we expect to achieve full-year positive GAAP net income and further expansion of adjusted EBITDA margins compared to 2025. The expected improvement in net income and adjusted EBITDA margins from 2025 is primarily driven by expected increased revenue, partially offset by expected increases in R&D and sales and marketing expenses to support our longer-term growth plans. Finally, in terms of our share count, as of 02/19/2026, we had 48.3 million shares issued and outstanding and 50.2 million shares on a fully diluted basis. Now, I will turn the call back to the operator to open up for questions. Thank you. Operator: We will now open for questions. The first question comes from Matthew Stanton with Jefferies. Please go ahead. Matthew Stanton: Maybe just to kick off for the guide, any more color you can provide in terms of assumptions between commercial and clinical? Rod, I think you said commercial went from low-40s to the mix to about 50. Can we see a similar magnitude of uptick in 2026 on the commercial side? And then just on the clinical side, are you starting to see some of the positive biotech funding data show up in activity levels or orders from customers? Just a little more flavor on what you are starting to see on the clinical side would be helpful as well. Thanks. And then just on the bag yield impact, is there any way to quantify what that was as a headwind in terms of margins in 2025? And then, Rod, I think you talked about it as a clear priority for 2026. Can you just talk a little bit more about timing and logistics in terms of resolving the bag yield headwind you saw in the back half of the year here? Thanks. Roderick de Greef: Sure. So we had a strong increase in our commercial customer revenue as a portion of total revenue. As we mentioned, it is about 20 points—actually, sorry, a little less than 10 points. But I think it is going to be not quite that much, and I would expect our commercial customers to be somewhere between 50%–55% in 2026. With respect to the second half of your question, we are not really seeing any significant uptick. And I think the reason for that is these customers are small, Matt. And so to the extent that they are either constrained or not constrained, the amount of product they buy from us is pretty small in their early stages. So we are really not seeing any major effect of that. As for bag yields, I think it is about a 2% or three-point headwind on gross margin in the second half of the year. I believe that we have found a solution to the issue. It is a solution that requires a 90-day customer notification. So we have that piece that is, by definition, built in from a timing perspective. And then in addition to that, we have to sell through the higher-cost inventory that we have, in terms of finished product that is in bags sitting in our warehouse, before we will start to see the impact of the higher-yield bags come through, which we expect would be right around Q4 of this year. Operator: The next question comes from Anna Snopkowski with KeyBanc Capital Markets. Please go ahead. Anna Snopkowski: Hi. This is Anna on for Paul. Thanks for taking my question and congrats on a great quarter. My first question is just around the CAR-T market. It seems like we are getting better patient access with the REMS removal. I was just wondering if you have seen this impact your top line at all or just customers' outlook at all? And then could you just remind us your exposure to CAR-Ts at this point? And then, just quickly following up on your outlook for 2026, how much would you say is rooted in commercial growth versus dependent on improving macro conditions in clinical trials? Or would you say most of your outlook is towards the commercial side? Thank you. Roderick de Greef: Yes. In terms of our commercial exposure, I would say it is at least over 80% with respect to CAR-Ts at this point, if not a little bit higher. It is really hard, Anna, to try to parse out the impact of REMS first. It just happened right within the last six months or so, and I think it is going to take a while for that to flow through to an increased number of patients being treated. So while we think it is an excellent move in the right direction—because I think patient access is probably the single largest constraint to the overall adoption—I have read where 20% of people who are eligible for CAR-T are actually receiving CAR-Ts. So I think patient access is a key factor in future growth, but it is hard to try to parse it out to the point of saying we have seen anything or not seen anything. And on 2026, I think it is fair to say that the primary driver for growth this year is going to be continued growth from the commercial customers that we have. Operator: The next question comes from Brendan Smith with TD Cowen. Please go ahead. Brendan Smith: Great. Thanks for taking the question, guys. I actually wanted to follow up on your commentary regarding the cross-selling there. Just a little bit more. Can you maybe expound a bit on really what ultimate success kind of looks like within that initiative? And sorry if I missed it, but can you just confirm if any contribution through that is included in some of your 2026 guidance assumptions? Or should we think of that more as upside? Roderick de Greef: Well, we have a base assumption around how much of the growth of our other tools—non-biopreservation media tools—that growth, how much of that is fundamentally related to therapies with respect to, for example, on the CellSeal vial side, versus new business that we are assuming to have come in. So we are pretty clear about that split, although we will not get that granular on this call. I think the ultimate measurement or metric at this time, at least for most of this year until we get a little bit more rigorous in our own data analysis, is the growth rate related to the non-BPM tools versus BPM. And we do expect, as a basket, that the non-BPM tools will grow at a faster percentage rate than BPM, in part because it is a smaller base that we are starting from. But as we put more focus on this and our systems get up to speed, we should be able to start speaking to the number of customers that are using one of our products, two of our products, three or more of our products. And that is definitely a goal internally to pull those metrics together and then figure out a way to report that externally. Operator: The next question comes from Steven Etoch with Stephens. Please go ahead. Steven Etoch: Hey, good afternoon and thank you for taking my questions. Maybe one on the partnership agreement you signed earlier this year. It is a pretty interesting deal, maybe a little outside of your normal deal structure, but what can you share with us just in terms of maybe the adoption potential of that product with your CellSeal vials and all that? And secondly, what could the margins look like for that type of business? Roderick de Greef: Yes. So I am not going to speak specifically to the margins, Mac, just from a competitive perspective. But we certainly have a margin profile that reflects the volume that we anticipate to move. With respect to the combination of their cytokines and our CellSeal vials, that is probably a six- to nine-month development project right there. So we would not expect to see much in the way of that revenue, in terms of pull-through on the CellSeal vial side of things, until the end of this year, early next. But this is a long-term strategic move for us. It is not about generating X amount of revenue in 2026, although we will drive some revenue. But really it is a longer-term market segment, product category that we want to be in, and feel we can win there, and that is why we are there. Steven Etoch: Appreciate that. And then maybe you touched on the bags being an issue in the second half of last year. But as it relates to CryoCase, do you see that as a potential opportunity to maybe reduce scrap and improve margins long term as CryoCase is adopted? Roderick de Greef: Yes. So it is important to keep in mind that the CryoCase, as it is configured today, is designed for the final product going from the developer’s factory to the patient. The rigid container—what we call the RCC—is designed and being designed to take 100 mL of our product from our factory to our customer, which is where we have the bag problem. Right? So currently, we are shipping most of our commercial product in bags from our facility to the developer’s facility, and then they drain that and they use it in their workflow. The idea would be to replace that bag on the front end, if you will, with the RCC. And we are probably 18 to 24 months away from doing that. So the remediation that I talked about is really process-oriented on our end, and I think that is going to alleviate the higher-than-average scrap that we have realized over the last six months. Operator: The next question comes from Matthew Hewitt with Craig-Hallum Capital Group. Please go ahead. Matthew Hewitt: Good afternoon. Thanks for taking the questions. Maybe first up, just so I heard you correctly, gross margins are still going to be weighed on a little bit here, first half of the year in particular. So we should be thinking somewhat similar in Q1 versus Q4? And then, you know, obviously, the Qkine partnership is unique—an opportunity to get into some new areas. Are you looking or exploring for more of those types of partnerships? Or are you still kicking the tires on potentially adding via acquisition? Thank you. Troy Wichterman: Yes, that is correct, and actually throughout the remainder of the year. As Rod mentioned, we do have inventory on hand, and it is going to take time to implement our strategies and our customers to adopt the new product format. So if you look at the full year, I would still expect in line with our guidance, as what we said. Roderick de Greef: Yes. I think it is all three of the things that I mentioned, which would be, you know, an outright targeted acquisition, a minority investment strategy, and/or a strategic collaboration like we have done with Qkine. And that is not to say that what we have done with Qkine is the final end step with them. As this relationship evolves into the future, as we understand how to sell that product better, it could very well be that things develop down the road with that particular company. Operator: The next question comes from Carl Byrnes with Northland Capital Markets. Please go ahead. Carl Byrnes: Yes, thanks for taking my question. Actually, most of my questions have been answered. I am just wondering if you are seeing any potential acquisitions that would be in the biopreservation area where the valuations have kind of come back to what would be more normalized attractive levels to pull the trigger? Thanks. Roderick de Greef: So, Carl, other than the Panthera acquisition, we keep a pretty close eye on what we consider to be potentially competitive technology in biopreservation. And while we are pretty rigorous in evaluating what is out there, nothing has come to our attention that would provide us with any sort of competitive advantage or value proposition that we do not already provide. That is why Panthera was unique, and that is why we made the move with it that we did. Carl Byrnes: Got it. Thanks. Congratulations again. Roderick de Greef: Thank you, Carl. Operator: The next question comes from Michael Okunewitch with Maxim Group. Please go ahead. Michael Okunewitch: Hey, guys. Thank you for taking my questions today. I guess I would like to ask a little about the Qkine collaboration. In particular, how comprehensive is this, and are there other commonly used cytokines and growth factors for cell and gene therapy manufacturing that might be the subject of future agreements or M&A activity? And then just to follow up on that, as you are saying that there is exclusivity on a limited number of cytokines, but is that exclusivity going both ways as in terms of who else can use CellSeal for those particular cytokines, potential distribution agreements that you may enter or any acquisition, trying to see if the exclusivity is just for you or for them to you as well. Roderick de Greef: Yes. I think the short answer is yes. The deal as it stands now is specific, from an exclusivity perspective, to certain of their cytokines that we believe are geared toward the types that are used by our key customers, as well as the pipelines that they have. So that is why it is a fairly narrow exclusivity. And we do have access to a much broader number of products on a nonexclusive basis. So, again, I would reiterate that this is the first step. We spent quite some time developing the relationship, primarily through our VP of Sales who is also located in the UK and has a history with these folks. And so I would say it is step one of a number of different ways the relationship could continue to move forward. Well, right now, it is one way for us relative to their cytokines. We have a sort of loose intent between the two parties around CellSeal, so we have to pay for that still. But I anticipate, based on discussions that we have had, that it is in their interest and our interest to widely have their products sold through with the CellSeal packaging to wherever it needs to go, or wherever they would like it to go, because that benefits us and it benefits them. And it is unique to them. We do not anticipate at this point in time entering into any agreements with other cytokine manufacturers to utilize the CellSeal vial. Michael Okunewitch: Alright. Thank you very much. I appreciate the additional color. Roderick de Greef: You bet. Operator: This concludes the question and answer session. I would like to turn the conference back over to Roderick de Greef for any closing remarks. Please go ahead. Roderick de Greef: Thank you, operator. In closing, we expect 2026 to be another strong year of revenue growth, operating margin expansion, and increased profitability. As the broader macro environment continues to evolve favorably, we remain focused on supporting our core BPM customer base, increasing adoption of our non-BPM products, and driving operational excellence across the organization. We are confident that our market leadership and business model position BioLife Solutions, Inc. to benefit from the secular trends developing across our growing yet still early-stage end markets, enabling us to deliver sustainable revenue growth, expanding profitability, and long-term shareholder value creation. Thank you for your time today. I look forward to seeing some of you at upcoming investor conferences. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to Stantec's Fourth Quarter and Full Year 2025 Results Webcast and Conference Call. Leading the call today are Gord Johnston, President and Chief Executive Officer; and Vito Culmone. Executive Vice President and Chief Financial Officer. Stantec invites those dialing in to view the slide presentation, which is available in the Investors section at stantec.com. Today's call is being webcast. Please be advised that if you have dialed in, while also viewing the webcast, you should mute your computer, as there is a delay between the call and the webcast. All information provided during this conference call is subject to the forward-looking statement qualification set out on Slide 2, detailed in Stantec's management discussion and analysis and incorporated in full for the purpose of today's call. Unless otherwise noted, dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded. With that, I'll turn the call over to Mr. Gord Johnston. Gordon Johnston: Good morning, everyone, and thank you for joining us today. 2025 marked another record year for Stantec. We delivered solid mid-single-digit organic growth and completed three acquisitions despite a year of ongoing geopolitical uncertainty. Global trends across the water, mission-critical, transportation and energy transition sectors continue to underpin strong demand for our services, and our diversified portfolio across sectors and geographies continues to enhance the resilience of our operations. As a result, we grew our net revenue almost 11% compared to 2024 to $6.5 billion, driven by 5% organic and 3.9% acquisition growth. Organic growth was achieved in all of our regional and business operating units with our Water business achieving almost 11% organic growth. Adjusted EBITDA increased close to 17% year-over-year and continued strong project execution drove our adjusted EBITDA margin to 17.6%, achieving our 2024 to 2026 strategic plan target range of 17% to 18%, 1 full year earlier than originally anticipated. We also delivered adjusted EPS growth of almost 20% compared to 2024. Looking at our results in each of our geographies. In the fourth quarter, U.S. net revenue increased 13.5%, driven primarily by 11.5% acquisition and just over 2% organic growth. On a full year basis, net revenue grew by almost 11%, supported by just over 5% acquisition and 3.4% organic growth. In our Buildings business, net revenue increased over 30% in the year, primarily due to our acquisition of Page, but also from solid organic growth. Public and private sector investments in data centers and other mission-critical facilities, science and technology and civic continue to drive organic growth in this division. Organic growth in Water was driven by large wastewater treatment projects, and growth in Environmental Services was primarily driven by the energy transition, mining and infrastructure sectors as well as continued work for a large utility provider. In Canada, fourth quarter net revenue grew 5.5% in the quarter, driven completely by organic growth. For the full year, net revenue grew over 8% compared to 2024, primarily through organic growth. We're pleased that our Water and Energy & Resources businesses continued to deliver strong double-digit growth. Momentum on major wastewater projects contributed to over 20% organic growth in water, and consistent progress on major industrial process projects drove 15% organic growth in Energy & Resources. Solid growth in Infrastructure was primarily supported by land development projects in Alberta, airport sector projects in Quebec, and bridge sector work in Eastern Canada. Public sector investment continued to drive growth in buildings, primarily in our civic and health care markets. Lastly, in the fourth quarter, our Global business delivered net revenue growth of 11%, achieving over 6% organic and 2.5% acquisition growth and to a lesser extent, positive foreign exchange impact. For the full year, the Global business grew net revenue by almost 13%, underpinned by almost 6% organic and over 4% acquisition growth. Our industry-leading Water business continued to deliver consecutive double-digit organic growth through long-term framework agreements and public sector investment in water infrastructure across the U.K., Australia and New Zealand. The ramp-up of new projects in Chile and Peru drove strong organic growth in Energy & Resources as the growing need for energy transition solutions continues to drive demand in mining for copper. We also achieved double-digit organic growth in our German Infrastructure business due to continued momentum on a major public sector electrical transmission project, and increased volume on transit and rail projects. I'll now turn the call over to Vito to review our fourth quarter and full year 2025 financial results as well as to provide an update on our backlog and financial targets for 2026. Vito Culmone: Thank you, Gord, and good morning, everyone. 2025 truly was another exceptional year for Stantec, and we are very pleased with our fourth quarter and our full year 2025 results. Sustained demand across our diverse multi-sector platform, underpinned by favorable global trends continues to support our strong results. In the fourth quarter, we achieved gross revenue of $2.1 billion and net revenue of $1.6 billion, an increase of 10.9% compared to Q4 of 2024. This growth was driven by 3.9% organic growth and 6.5% acquisition growth. As a percentage of our net revenue, project margins once again remained in line with our expectations at 54.5%. We achieved an adjusted EBITDA margin of 17.3% in the quarter, that's a 60 basis point increase compared to Q4 of 2024. The increase in margin primarily reflects lower admin and marketing expenses as a percentage of our net revenue, mainly due to higher utilization and our continued discipline in the management of our operations. And our adjusted EPS in the fourth quarter increased 12.6% to $1.25. Looking at the full year, as Gordon mentioned, 2025 was another record year for Stantec. Our gross revenue reached $8.1 billion, and we grew net revenue to $6.5 billion, up 10.7% when compared to our performance in 2024. This was achieved through 5% organic and 3.9% acquisition growth. And as a percentage of our net revenue, project margins came in at 54.3%, once again, in line with our expectations. On a full year basis, we achieved a very strong adjusted EBITDA margin of 17.9%, a 90 basis point increase year-over-year. This record margin was driven by strong project execution and cost management across our entire business. And finally, our adjusted EPS for the year reached $5.30, an increase of 19.9% when compared to 2024. Turning to our cash flow, liquidity and capital resources. During 2025, our operating cash flow increased 43.1% compared to 2024 and growing from $603 million to $863 million, reflecting continued strong cash flow generation through our revenue growth, operational performance and strong working capital management. Our free cash flow to net income conversion was 1.3x, above our target of 1.0x. DSO at the end of the fourth quarter was 69 days, a substantive improvement of 8 days compared to Q4 of 2024 due to excellence in working capital management. We finished the year with a net debt to adjusted EBITDA ratio at 1.3x within our internal range -- target range of 1 to 2x. As a result of our continued strong performance, the Board has approved an 8.9% dividend increase, with this, our annualized dividend will increase to $0.98 per share. It's important to note that our strong balance sheet leaves us very well positioned for future acquisition growth in 2026. Now turning to our backlog. At the end of 2025, our contract backlog reached a new all-time high of $8.6 billion, a 9.5% increase year-over-year, representing approximately 13 months of work. Acquisitions completed in 2025 contributed to backlog growth of over 8%, primarily within our Buildings business. Year-over-year organic growth was 3.6%. We achieved organic growth in all of our regions, most notably in Global, which delivered double-digit growth of 14.2%. We also saw strong backlog growth in Water and strength in our Buildings business was supported by health care, data centers and other mission-critical facilities. Let's now turn to our 2026 financial targets, and we expect another strong year. Net revenue growth is expected to be in the range of 8.5% to 11.5% achieved through organic net revenue and acquisition growth, primarily due to the Page acquisition. We anticipate our adjusted EBITDA margin will continue to expand, and that's driven by solid project execution, enhanced strategies in the management of admin and marketing, continued expansion of our high-value centers and optimization of our digital strategies. As such, we expect to deliver an adjusted EBITDA margin between 17.6% to 18.2%. And we expect to deliver 15% to 18% growth in adjusted EPS compared to 2025. These targets, of course, do not include any assumptions related to additional acquisitions, given the unpredictable nature of the timing and size of such transactions. With that, let me turn the call back to Gord to highlight the business drivers supporting our targets for 2026. Gordon Johnston: Thank you. As Vito mentioned, we expect strong net revenue for 2026, primarily driven by improved organic net revenue growth across the business. Each of our geographies is expected to be in the mid- to high single-digit range. Macro trends, including aging infrastructure, defense spending, water security, advanced manufacturing, the growing demand for mission-critical facilities and the energy transition, all continue to create meaningful opportunities for Stantec. Over the past couple of months, we've started to see an increase in activity in the U.S., and we expect this trend to continue throughout the year. We're securing our fair share of wins across all five of our business operating units. Growth in the U.S. will be underpinned by the continued strength of our Buildings business as we continue to capture synergies from the Page acquisition. Our Buildings team continues to see strong activity in data centers. As an example, Stantec was just selected by an artificial intelligence firm to design the initial 300- to 350-megawatt phase of a large data center campus, which has the potential to scale up to 1 gigawatt. In Environmental Services, work is picking up related to the U.S. Navy CLEAN Program and activity within the U.S. Department of Defense continues to accelerate. In the energy sector, particularly LNG, strong demand is expected to generate meaningful project activity and cross-selling opportunities for both our Environmental Services and Energy & Resources businesses. U.S. Infrastructure remains a significant growth driver for us. With roughly half of IIJA funding still to be allocated, we continue to see strong momentum across our Infrastructure business, including major roads and bridge projects in the Southeast and large transit and rail programs in the West. In Canada, organic growth will be driven by public and private sector spending plans. We continue to see strong growth in our Water business through major wastewater and biosolid treatment facilities. We expect strong growth in Environmental Services and Energy & Resources, with large private investments in energy infrastructure. And we're seeing strong growth coming from enhanced defense spending in both our Buildings and Infrastructure businesses. We're involved in a number of projects in the Arctic, where we bring specialized expertise in extreme climate conditions to support defense work. These include projects like Grays Bay Road, which leads to the proposed deepwater port that will have the ability to handle Navy vessels and large cargo ships. We're also involved in facilities to support the North American Aerospace Defense Command, and we're doing work for the Canadian Department of National Defense to deliver facility upgrades for the Canadian Armed Forces. And we also just secured a major design build contract for Defence Construction Canada's Multi-Mission Aircraft hangar. Finally, in our Global region, organic growth is expected to be driven by continued high levels of activity in our Water business under the ongoing AMP8 program. We're involved in over 20 AMP8 frameworks and we continue to be an industry leader in U.K. water by a significant margin. Stantec U.K. water team was recently named as a preferred bidder for the multibillion pound Scottish water enterprise, which is set to transform Scotland's water and wastewater networks. This program, which can extend out 13 years, is the largest program of investment in Scottish water's history. Combined with other frameworks in Australia and New Zealand, we expect strong growth in our Global Water segment. In addition, we continue to see strong demand in our Global Energy & Resources business and in Transportation, particularly in Germany. Outside of organic growth, M&A remains a fundamental driver for Stantec. However, we will not pursue acquisitions solely for the sake of growth or to meet a certain target. Acquisitions must be value accretive. Stantec has a long and proven track record of successful M&A with last year's addition of Page marking our 150th completed transaction. We're very well positioned to continue to build on this track record in 2026 and beyond, and we continue to see ample opportunities in the market. As we enter the final year of our 2024 to 2026 strategic plan, we're making meaningful progress towards the plan's targets. The momentum we've built, combined with favorable long-term market trends, position Stantec to drive sustained growth and shareholder value for many years to come. Before concluding today's prepared remarks, I'd like to touch on AI and how we're thinking about it at Stantec. As engineers, architects and designated professionals, we're trusted advisers. Our clients hire us to use our qualified judgment to solve problems and develop solutions using a variety of tools. AI helps manage scale, consistency and document-heavy work, so our teams can stay focused on the design intent, risk trade-offs and client accountability. To do this work, clients are continually asking for faster delivery, fewer surprises and clearer defensibility. For us, AI enables earlier option evaluation, reduces late-stage conflicts and improves quality control. The opportunity isn't the technology itself. It's the ability to make better decisions earlier and deliver stronger outcomes across the asset life cycle. From a financial standpoint, AI does not automatically translate to lower fees. In fixed fee work, it improves margins by reducing rework and execution risk. In time and materials work, it increases throughput and delivery confidence, allowing teams to manage more work in parallel. Our pricing remains anchored in value and risk reduction, not simply in hours. Strategically, we take a partner-agnostic approach. Our advantage isn't tied to a single technology. It's our ability to operationalize AI without compromising that trust governance or professional standards. We've moved beyond isolated AI pilots, and we're now enabling AI directly into our delivery workflows while maintaining professional accountability. AI also provides multiple revenue opportunities. For example, related to data center development, our teams are already working on 5 separate hyperscalers to develop approximately 2.5 gigawatt of capacity. Combined, these facilities are worth almost $35 billion. In addition, we're working on well over 100 other mission-critical facilities. This work crosses several of our verticals, given the need for planning, design, energy, cooling and resilience. We also see opportunities from advanced analytics and predictive advisory services for our clients, and for digital and data-enhanced deliverables. Clients trust us to securely manage and govern large volumes of project data, which enables us to provide predictive and structured analytical solutions. And these are just a couple of examples of how AI is an opportunity amplifier, enabling new work, new service lines and deeper client relationships. Clients who are building AI-enabled infrastructure and operations need trusted partners like Stantec who understand both engineering and data. In short, AI strengthens our professional model enhancing predictability, allowing for better delivery, creating new opportunities, and supporting margin enhancement. And with that, let me turn the call over to the operator for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Ian Gillies from Stifel. Ian Gillies: As you think about AI, and I had asked this question on previous conference call, how do you think this ends up translating into revenue per employee, employee utilization and the like? Because those have always been pretty key drivers in improving margin and improving top line. Gordon Johnston: Yes, absolutely. I think in all of those, Ian, it's favorable for us. I see this -- and I think we've talked before, like I see AI is just the latest tool in a series of sort of technological enhancements that have come through the engineering space. Each time these tools have come, they've made us more efficient and they've driven higher net revenue per employee. So we're thinking of things like the transition from when I graduated from calculators to computers to AutoCAD to 3D and now AI is just that latest tool that I believe will allow us to drive more revenue per full-time employee. Ian Gillies: Understood. And Gord, you've been pretty vocal about wanting to execute M&A over the last, call it, 18 to 24 months and rightfully so. But with the reset in valuation metrics for public equities, I guess, over the course of your career and as you follow the M&A market, how long does it typically take for by the companies to reset their valuation markers because there's probably a bit of a disconnect right now given the rapidity or how rapid it's been and how quickly things have moved over the last few months? Gordon Johnston: Yes. I mean -- it's interesting because as you can imagine, we're having these very same conversations. And the sort of the decline in the multiples in the public sector -- in the public markets is a pretty new phenomenon, for us, it's been a couple of weeks or a month. So we haven't really seen a lot of transactions that have closed in this period of time. So there is a bit of a -- probably an expectation adjustment that will take a while to flow through. The question is too is, is this sort of where all of us and our competitors are now, is this just a transient downward blip? Or is this going to be sustained for a period of time. And I think that will play into how we see what happens in the M&A market. Ian Gillies: A very quick follow-on. So would it be fair to presume that it may take a little longer than we would have thought maybe 6 months ago, just given everything that's happened. Gordon Johnston: Take a little longer for... Ian Gillies: Sorry, to execute on M&A. Gordon Johnston: Oh, we're very, very active still. Absolutely. And you always have a number of conversations in the works. And these are good firms that we see have good long-term bones and good synergies with Stantec. So certainly, the pricing conversation is ongoing, but that's only one conversation out of multiple to make sure that the fit is there, the synergies are there, the cultural piece is there. And now we're just talking about the financial piece. Vito Culmone: No, ultimately, we fundamentally believe in the long-term value creation opportunities for our sector, notwithstanding the recent downturn that you're alluding to. So clearly, valuation is one component, as Gord noted, of any conversation when it comes to targets. But the primary focus, it really is about how these potential acquisitions fit into our strategic portfolio, what it enables us to do for our clients. And so from that perspective, we don't see any timing-related issues. Operator: And our next question comes from the line of Sabahat Khan from RBC Capital Markets. Sabahat Khan: Great. Maybe just one on AI, and I promise to switch over to something else after. But I guess, in your sort of use of AI to date, where are you finding in terms of end markets or just these efficiency tools, digital tools, where do you see more application for such tools and capabilities today? And where do you think that sort of evolves over time? Is this something that can sort of make its way across all end markets providing efficiency. Just curious what you're seeing in the early days versus where you see this going? Gordon Johnston: Yes. Thanks, Sabahat. A couple of things we're focusing on both what we can do internally to make ourselves more efficient. And so those are back-office tools and things that we're working through. But then we're also on the front foot, how can our engineers and architects and professional services people use AI tools, again, to be more efficient, but also to refine work products. So some of the examples of things where we're using it, we're using a tool called Stable Diffusion in our Buildings group right now. And that's -- it's more of a visual and more of a graphical AI tool. So you can be working with the client, you can sketch something up and feed it into the AI tool, and it turns it into drawings and things much more efficiently. We have -- as you can imagine, when our engineers and architects around the world are working, we have to select a specific specification for a type of project that we're working on or a type of material or equipment. And so we have these very, very large specification libraries. So we're using AI tools to help us quickly narrow down what's the right spec to use. When we submit a big package, for example, to a client, we call it a design submittal. And there's a number of things that you have to check off to make sure that you -- from a regulatory perspective to get a permit or for client reviews that you've accomplished these things. We're using AI to help us in QA. And so a lot of these things will be used across all of our geographies and across all of our business lines. And so I think we're still in early days. But we and actually our design teams are pretty excited about where this can take us. Sabahat Khan: Okay. Great. And then just in terms of the sort of the setup into 2026, just looking at your guide, maybe just if you could dig into the U.S. segment a bit more. One of your peers noted a bit more predictability and stability in that market this year. Can you give, from your vantage point, what are you seeing across either the infrastructure side, water side, just kind of your larger end markets, in the U.S. market today and sort of where the funding mechanisms are for the year ahead? Gordon Johnston: Yes. Great. So a couple of things. One of the things there is we've mentioned in the prepared remarks that we've seen a little bit of increased activity in the U.S. over the last several months. And if you look at our U.S. backlog Q4 over Q3 is up about 3% just in the quarter. So that increase in activity that we're seeing is translating into backlog, and we do see that continuing forward. Incredible amount of work right now in the data center work that we're doing for the hyperscalers. We mentioned the 5 projects, $35 plus or minus billion worth of work there. So that continues to go a lot of environmental services work. We talked about the U.S. Navy Clean Water -- sorry, U.S. Navy CLEAN Program and D&D work. So there's a lot of opportunity we're seeing really across the majority of our sectors in the U.S., energy transition type work, grid strengthening in the south. So we're actually feeling pretty good broad-based support across the U.S. for us as we move into 2026. Operator: And our next question comes from the line of Frederic Bastien from Raymond James. Frederic Bastien: It feels like an engineering firm's ability to seamlessly embed AI with proprietary data will be a major competitive advantage going forward. And I think those who invest accordingly will obviously be awarded. Do you believe that will benefit larger firms like you over the smaller ones and potentially lead to more consolidation acquisition opportunities? Gordon Johnston: That is exactly our thesis as well, Frederic, that as we've talked over the past, some of the firms that have joined us, these 1,000-, 2,000-person firms, even before AI, they've got to this level, and then they need to professionalize IT and cybersecurity and finances and HR and such. And they don't have the resources either in terms of skills or finances to support that. They just want to focus on the work. And now we see AI is even driving that more, that just the additional investment in resources, both people and financially to get there, plus the data probably isn't in common formats and all those things. I do believe that this will -- as we move forward, that AI and some of the things that we see there will continue to drive more firms in that space towards the consolidators. Frederic Bastien: That's a good answer. You also -- in your prepared remarks, you mentioned some good developments on the defense side in Canada. Would you mind just expanding on that and potentially indicate whether all the momentum that we're hearing about is actually translating into projects and bids? Gordon Johnston: Yes. It absolutely is. We're seeing certainly a renewed focus from the Canadian federal governments related to defense, related to the Arctic as well as other governments around the world. But we did talk about the Defence Construction Canada's Multi-Mission Aircraft hangar, and I believe that's in Nova Scotia that we're working on. A facility upgrades for the Armed Forces sort of across the region. So there's a lot of work coming there. Interestingly, we started working on that Grays Bay Road project a year ago or more. But now I think everyone can see, well, that used to be and everyone say, well, that's like a road to nowhere, but it's not. It's a road to what will be a deepwater port that will hold both Navy vessels, cargo ships and the like. And so a lot of this work is coming to fruition, and I think you'll see a lot more coming in the short term. Vito Culmone: And Gord, we're particularly well positioned north of the 60th with our capabilities, right? Gordon Johnston: Absolutely. With our capabilities in Yellowknife, in Whitehorse and a number of other locations out there as well as significant presence in Alaska, uniquely positions Stantec for this north of 60 work. Operator: And our next question comes from the line of Chris Murray from ATB Capital Markets. Chris Murray: Good to hear that you might still have T-square sticking around. I guess the first question is just on margins. And when I look at the guidance, you're sort of either guiding to flat to up margins. So I was just wondering if you could talk a little bit about some of the puts and takes around where you think the margin profile evolves over the next little while. It looks like there's a some good opportunities in some of the back-office stuff you guys have been doing and certainly some of the AI tools. But just any color you can provide on how to think about evolution over the next year would be great. Vito Culmone: Yes. Chris, maybe I'll take that one. First off, we're incredibly pleased with the progress to date. So when you look at our 90 basis point improvement year-to-date, that's basically come 50% or half of it from, I'll say, the business itself, operations, whether that's project margin improvement across certain sectors, utilization improvement. And then the balance of it, I'll call it, more back office and driving efficiency and just operational scale. And frankly, as I think as we move forward, it's really more of the same. I don't think there's going to be any magic bullets that contribute to what it is. It's really just continuing to lean in our continued use of our global delivery centers, the excitement around what's happening there and the capabilities of our folks offshore, which are just incredible, both from a professional development -- a professional service perspective, but also from a back office, and we see significant continued momentum there. And so we definitely don't expect to be flat. Clearly, the low end of our range is 17.6%, which is where we landed the year, but we continue to see continued improvement. So just really more of the same. Labor at the end of the day is the biggest component of it, driven either by efficiency and/or utilization and then just continued focus on discretionary spend, I would say. But it all starts with, of course, really continued excellence in project management and project execution. That's where the fundamental point is, and just a shout out to our team of 34,000-plus across our organization who day in, day out, do well by our customers, our clients and obviously, the bottom line. So I really appreciate it. Chris Murray: Okay. Great. And then I know there's been a lot of focus on AI and infrastructure. But one of the other areas that we're seeing more evolution is resources. I know historically, that's been something that you guys have had a lot of exposure to. Just wondering if you're seeing any, call it, green shoots or new developments in the resource business, be that either new pipelines or sort of pre-feasibility work or around other kind of resource work that might drag in maybe the Water business or something like that? Gordon Johnston: Yes. So a couple of things there. We think it is in our MD&A, isn't it, Vito, that we did pick up environmental work and permitting work related to a 125-mile long natural gas pipeline in Tennessee. So we are seeing those projects absolutely coming to bear. And then also, in addition to that, from a resources perspective, incredibly strong performance this year in South America, in our Chile and Peru operations, a lot of work coming back from the copper mining perspective. I went down and visited our offices in both locations and the amount of investment in either mine expansions and new mines coming down there is truly phenomenal. Copper prices are still pretty robust and certainly required if we want to continue with this energy transition grid hardening, grid strengthening and such. So yes, we're seeing that electrical piece continues to grow for us, which in us is in our Energy & Resources business. We're seeing the resources required to support that. The copper mining and such continues to grow. And then as you -- as we talked about the this 125-mile long natural gas pipeline in Tennessee. So we are seeing more work in most of those phases in our Energy & Resources business. Vito Culmone: And you would have seen that through our 2025 results, Chris, the early shoots of it, we had a very strong year on organic growth, high single digits on the Energy & Resources, and we continue to expect that momentum organically to continue into 2026. Operator: And our next question comes from the line of Michael Tupholme from TD Cowen. Michael Tupholme: I just wanted to go over the organic growth outlook from a BOU perspective. I know overall, mid- to high single digits, the guidance. In 2025, you saw quite a bit of variance in terms of organic growth across the different BOUs. How do you see that looking in 2026, do you see sort of more consistent performance? Or should we still expect some of these higher growth areas to really be the drivers? Vito Culmone: Yes. Maybe I'll start there. As Gord, I think, indicated in his prepared remarks, we expect organic growth across all of our BOUs next year. So that's a great place to start. I mean water has been -- Water is now 22% of our business overall. We saw continued strength. I think it's 4 years of consecutive double-digit growth in Water, if not more than that. And we definitely continue to see that and expect that going forward. Infrastructure was a little maybe more muted in 2025 in the low single digits. I think that was a temporary drop from our more mid-single-digit range. So we expect continued strength there, a rebound there. Buildings, 4.4% organic growth in 2025, really a lot of strength. The Page acquisition, in particular, and what the team has brought to the table there, we're really coming off some very, very strong years and expect to rebound there. So really strength across all of them. Gord, any other commentary you might want to add? Gordon Johnston: No, I completely agree. Vito Culmone: Yes. Yes. So I think we'll -- Water will continue to lead the way, perhaps, but strength across the board. Michael Tupholme: I appreciate that. And sorry, not to belabor the point, but just Environmental Services, I guess, that was probably the weakest last year and in the fourth quarter was kind of flattish. How do you think about that one for 2026? Gordon Johnston: Yes. We do see with all of these projects coming along, whether they're in the north -- the Canadian North or these big pipeline projects that we talked about, the first group in the door is Environmental Services. So we do see that kind of leads up, provides us some support. So we're looking for stronger organic growth in Environmental Services this year than we saw in -- certainly in 2025. And then the last group perhaps is our Energy & Resources business that put up 8.7%, almost 9% last year, but we look for continued growth in that segment as well, really strong in mining, particularly in South America, the energy transition, the transmission and distribution work we're doing there. And so we're looking for pretty good strength across the board from all of our business operating units. Michael Tupholme: Okay. Perfect. And then maybe just one further question. You talked a little bit about M&A earlier in the call. As it relates to accelerating adoption and use of AI in the industry, is this in any way affecting how you're thinking about M&A, the kinds of targets you would be interested in? And are there certain targets that maybe we traditionally would have been interested in, but that's sort of evolving and changing and others that maybe now become of greater interest? Just curious as to how this is affecting your thinking on M&A? Gordon Johnston: Yes. I think from the core business that we're working on, our 5 core verticals and our geographies. AI, again, we think while it will enable us and make us more efficient, the firms that we're talking to are viewing it really from the same perspective. So it doesn't really change our thought process there. I don't think we're, at this point, looking to go out and buy an AI firm. We see them -- a lot of them are pretty highly valued, and with little revenue or certainly a little even less profit in many cases. So we're not looking to do that. We're developing those skills in-house, partnering with firms as required. So it really isn't looking to change our M&A strategy at this point. Vito Culmone: Yes. I would add, Gord, certain targets have more developed digital capabilities than others do. And so where we have some targets that really are a bit advanced and/or interested in have capabilities there. I think that gets our attention a little bit. And as far as how -- what value add they might bring to us. But as Gordon mentioned, no overall change in strategy as it affects our M&A. Operator: And our next question comes from the line of Maxim Sytchev from NBCM. Maxim Sytchev: I just wanted to start a bit with a broader question around thoughts on outcome-based pricing as there are some discussions around how much of a cost plus evolution we could see in the space right now? And I guess how AI and your expertise sort of ties in? Because I mean, I presume this is something that actually you would welcome as the penetration of some of these pricing models could evolve. So I'm just curious what are your thoughts at the moment? And are we seeing any evolution from that perspective? Gordon Johnston: Yes, great question. And what we're finding in a lot of this sort of fixed fee outcome-based pricing percentage of construction. A lot of it depends on the client and the type of work that you're doing. So a lot of the -- of course, the big design build or P3 projects that we do are all virtually all fixed fee or deliverables-based, milestone-based. And so there certainly, as we've been doing for the last 5 or 10 years, the increased use of technology, whether it's AI or other tools can help optimize your margin. A lot of buildings projects are similar, land development projects similar. But the government clients, in particular, we haven't seen -- as we work with the municipal clients really around the world, the city of X, Y or Z, they don't really move towards the -- or we haven't seen movement towards outcome-based pricing, fixed fee value based. They still seem to be more time and materials to an upset limit. Now through ACEC and through other of these sort of professional associations, we're absolutely having these discussions and seeing is there a way that we could move more towards it from a certainty perspective. But I think that would be not as much a Stantec initiative or an initiative of any of our competitors. It really would have to be an overall industry initiative, and that's where we're working with those industry associations to see what we can do to get ourselves there. But it's difficult. The other reason, Max, that I think a number of government agencies go with the time and materials is that if you want to go with an outcome-based price with a fixed fee, you have to have the scope incredibly well defined, so that the engineer can come in and say, the scope of what you're asking for, I'm going to do for $1 million fee just as an example. But if the scope is moving and there's going to be change orders and such, that really complicates the whole commercial terms. So it's -- there's a lot of work to be done, I think, before we can get municipal and government clients, in particular, off of time and materials type work. But the industry overall is working on it. Maxim Sytchev: Yes. No, that's great color. And maybe just one quick one for Vito, if I may. I mean the margin guidance is certainly stronger than we were modeling. And I'm just curious, if you don't mind talking about the ability to get to maybe that 18.2% at the high end of the range. What needs to happen from your perspective, Vito, to potentially hit that number? Vito Culmone: Yes. I think the higher we are on the revenue range, the more probability that we'll be on the higher end of the EBITDA margin. So that's just really operational leverage. I would say. Otherwise, from an initiative perspective, really, really pleased with everything we're doing and having the works. And we're working towards, obviously, our next 3-year plan, and we expect to have a date out to the community sometime soon, late in the year, probably more December, January as far as when we're rolling out our 3-year plan. And I'm very excited about the work and the modeling we're doing about what's the next 3 years look like from a margin perspective. So we'll wait and see where 2026 lands, but highly encouraged by the progress and the momentum to date. Operator: And our next question comes from the line of Benoit Poirier from Desjardins. Benoit Poirier: Yes, congrats for the strong achievement in 2025. If we look at Canada, organic growth came in very solid at 7.7% for the whole year. However, when we look at Q1 2025, you reported a very strong performance at 12.2%. So would it be fair to assume potentially a bit of a softer performance to start the year given the tough comparison, even though the outlook remains very strong. Vito Culmone: Yes, that might be appropriate, Benoit. I mean, again, we think about these things not necessarily from a quarter-over-quarter. You're absolutely right. By the way, last year was at 12.2% for Canada in organic growth in Q1. We ended the year at full year 7.8%. So I think Q1 might be a little bit softer relative to where we feel the full year will land for Canada. But as we've been noting in the commentary, when we look at the full year in all of our regions and all of our BOUs continued sort of -- we feel very nice sort of balance throughout the entire year. But that is our single biggest quarter for any region on an organic growth. And so you've pinpointed something that is a legitimate question for sure. But nothing that I'm overly concerned about or need to signal with related to Q1. Benoit Poirier: Okay. That's great. And obviously, a lot of talk about M&A bidding pipeline remains extremely solid. However, given the pullback in share price, I was wondering if you could provide more details. My understanding, there's a big preference on M&A. But given the strength of your balance sheet, do you see any opportunity to step in, in terms of buyback in the short to medium term? Vito Culmone: Yes, that's interesting. I mean, I think we will be renewing our NCIB. So first of all, as it relates to dry powder on the balance sheet, you saw our leverage 1.3 at the end of the year. That enables us to do sizable M&A on balance sheet. It's specific, obviously, to targets and whatnot, we will continue to prioritize our investment grade, obviously, and whatnot, that's important to us. But there's a lot of room there for us to do on balance sheet meaningful acquisition. So that's a wonderful privilege for us as we sit here, and that's important for us. So we'll just take that. And sorry, Benoit, I forgot the second component of the question. Benoit Poirier: Just wondering if you would be open to consider more closely the NCIB given the pullback in share price and probably given the fact that we haven't seen the seller expectation coming down yet? Vito Culmone: Yes. Short answer is yes. We would be more actively looking at buybacks with respect to where we're valued. First priority, of course, continues to be M&A for us. But we do have price ranges that we think when we look at our overall perspective of our organization and the value creation opportunities that we'll continue to look at it a little bit more closely than perhaps we have in the past. Operator: And our next question comes from the line of Jonathan Goldman from Scotiabank. Jonathan Goldman: Most of them have already been asked, but I guess I just have one high-level one, the anniversary of the IIJA this year, how do you see that playing out? And is there a potential for renewal or maybe a reshaping of that infrastructure bill and maybe some other form of disbursements there? Gordon Johnston: Yes. Great question. And so we've -- early on, 2 or 3 years ago, there was a lot of talk about an IIJA 2.0 and what it could look like. We haven't really heard as much of that over the last little bit. So we are seeing increasing activity, bidding activity and such as folks are beginning to look to how can they place their -- get some funding in place before IIJA current terms out in -- or has to be allocated by, I believe, it's September of this year. But recall, too, that once that is allocated, it doesn't have to be spent. So I think that the current funds from IIJA will continue to drive really solid performance in the -- not just for us, but for the overall industry in the transportation space primarily for the next 3 to 5 years. So there is some discussion about -- currently about renewing the Surface Transportation Act and such, and that will -- I don't think there'll be any concerns that, that would not be renewed. But yes, I haven't heard a lot of conversation about an IIJA 2.0 right now. But the industry, I think, will continue to be busy in the transportation space in the U.S., in particular, for the last -- next several years to come. Operator: And our next question comes from the line of Krista Friesen from CIBC. Krista Friesen: Maybe just a follow-up on the M&A topic. You've previously talked about how you expect a handful of larger firms to come to market this year. Is that still what you're seeing in the pipeline? And it sounds like that's still something you'd be interested in given your balance sheet capacity at this moment. Gordon Johnston: Absolutely. Yes. Some of the ones that we have been talking about, you've likely read that came and went in the latter part of last year. But there still are others that are either in process now or that we understand will be coming to the market here in the next couple of quarters. So still a good opportunity there, good optionality, in terms of geographies and type of work that these firms are engaged in. And absolutely, as you heard, Vito say the balance sheet is in good shape. So we absolutely will continue to look at those. And of course, paying particular attention to the pricing piece. Krista Friesen: For sure. And are you able to share maybe some of these larger firms, what areas they're operating in? Is power still a big focus for you? Gordon Johnston: Certainly, we do see some firms of the power focus that will be coming to market, but others as well in different lines of business that Stantec currently is in. And some of them are in the U.S. and some of them are -- we'd see Europe, Australia and such. So good geographic spread with these as well. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks. Gordon Johnston: Great. Well, thanks, everyone, for joining us this morning. We feel really good about 2025 and where we're going in 2026. So if you have any follow-up questions, please reach out to Jess Nieukerk, and we'll line things up and take it from there. So thanks again, everyone. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Fourth Quarter and Full Year 2025 Financial Results Conference Call. My name is Alan, and I will be your conference operator today. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Chief Corporate Affairs and Strategy Officer for Trulieve. Christine, you may begin. Christine Hersey: Thank you. Good morning, and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer; and Jan Reese, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported fourth quarter and full year 2025 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report on Form 10-K as well as our periodic quarterly filings. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with the United States generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for Trulieve's financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on Form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website. Lastly, at times during our prepared remarks or responses to your questions, we may offer metrics to provide greater insight into the dynamics of our business or our financial results. Please be advised that we may or may not continue to provide these additional details in the future. I'll now turn the call over to our CEO, Kim Rivers. Kimberly Rivers: Thank you, Christine. Good morning, everyone, and thank you for joining us today. We are thrilled to report outstanding financial results and meaningful progress on our strategic priorities. Congratulations to the entire team for delivering another year of stellar performance, highlighted by record units sold, industry-leading margins and robust cash generation. We finished the year with considerable momentum, underscored by a series of impressive accomplishments. In December, we won a conditional license in Texas and repositioned our debt, reducing balance sheet leverage and annual interest expense. On top of that, on December 18, President Trump signed an executive order to reschedule cannabis to Schedule III. I had the pleasure of attending this historic event where the President advanced the first major step in federal cannabis reform, acknowledging the medical value of cannabis. We applaud the President for fulfilling a campaign promise and expect the administration will follow through in short order. Importantly, rescheduling signals that long overdue common sense cannabis reform is achievable. Trulieve will continue to advocate for change to support cannabis consumers and the industry. Moving to our results. Full year revenue was $1.2 billion with traffic and units sold up 5% each. Fourth quarter revenue of $293 million increased 2% sequentially, in line with guidance. Full year and fourth quarter gross margin of 60% was driven by operational efficiencies, lower production costs and our disciplined approach to promotional activity. Record adjusted EBITDA of $427 million improved by 1% to 36% margin due to expense control in our core business. Full year operating cash flow of $273 million exceeded our target of $250 million. We exited the year with $256 million in cash after retiring over $380 million of debt in December. Overall, 2025 results were strong, leading to standout operational and financial performance despite volatility in consumer sentiment and macroeconomic conditions. Pressure on retail revenue from pricing compression and softer consumer behavior was offset by higher traffic and units sold. Throughout the year, our team was able to refine our product mix and promotional strategies to meet changing customer preferences while maintaining brand equity and margins. Low visibility, headline risk and mixed consumer sentiment have carried into 2026. Our team is ready to manage through business cycles, meeting customer needs when spending is pressured and when it rebounds. Wholesale revenue grew 23% in 2025, driven by strength in Maryland and Pennsylvania. In Ohio, our production partner continues to ramp sales of branded products, including Modern Flower and Roll One. We plan to grow our wholesale business this year as industry conditions permit. Following tremendous progress last year, we are concentrating efforts on 4 key areas. This year, our strategic priorities are: one, expanding access to cannabis; two, growing our loyal customer base; three, elevating our branded product portfolio; and four, investing in growth initiatives. Since inception, a core part of our mission has been expanding access to cannabis. Trulieve has been a leader in federal and state efforts to advance the industry, working tirelessly to educate key stakeholders about the many benefits of regulated cannabis. Rescheduling is a historic milestone with major practical and symbolic implications. First, rescheduling acknowledges the medical value of cannabis, affirming what patients and physicians have known for years. Second, rescheduling removes barriers to research while reducing the stigma for millions of Americans. Third, it removes the punitive tax burden of 280E, lifting pressure on state legal operators and allowing conversion from the illicit market to regulated channels. Finally, rescheduling sets the stage for much needed reform such as safer banking and eventual uplisting to U.S. exchanges. The vast majority of Americans favor common sense reform, and we look forward to supporting these efforts in the year ahead. While 40 states have adopted some form of medical and/or adult-use cannabis, access to state-tested products varies by state. We are pushing for expanded access as appropriate across our markets. In Florida, Trulieve continues to support the Smart and Safe Florida adult-use campaign. The campaign is fighting for ballot initiative inclusion this November. While the campaign submitted 1.7 million signatures prior to the February 1 deadline, state agencies reported a shortfall of validated petitions versus the required 880,000. The campaign has asked the Florida Supreme Court to address the invalidation of more than 90,000 signatures, which if allowed, would place the total over the required threshold. We anticipate the campaign will have greater clarity on valid inclusion for this year's midterms in the coming months as litigation unfolds. Turning to Pennsylvania. Governor Shapiro has again called for the legislature to pass adult-use legislation. We believe state legislators recognize the potential for adult-use to satisfy constituent demand for cannabis while generating revenue for the state. Several bills have been filed this session, and we remain optimistic that a compromise can eventually be reached. If adult-use is launched in Pennsylvania, Trulieve is well positioned given our established retail footprint, branded products and scaled production capabilities. In Texas, Trulieve was 1 of 9 operators awarded a conditional license for the medical marijuana program. We are honored to be among those chosen, and our team is working to finalize the license. Pending regulatory approval, we plan to quickly launch production and retail operations. Trulieve was first to market in several states, including Florida, Georgia and West Virginia. Our distinguished track record of working with patients, physicians and regulators to develop early-stage programs sets us apart. With over 135,000 patients today, telehealth consultations for patients and satellite pickup locations, the Texas Compassionate Use Program is poised for meaningful growth over the next few years. We look forward to contributing to the success of the program. In Georgia, new legislation has been filed that would expand the medical cannabis program. If passed into law starting in 2027, the program would include new qualifying conditions such as severe arthritis, severe insomnia, HIV, IBS and lupus and new form factors, including edibles and vapes would be allowed. While expanding access to cannabis is a core part of our company's mission, we remain passionate about growing our loyal customer base while providing best-in-class service, messaging and products. Training and team building to enhance customer service is ongoing. This month, we hosted our first National Retail General Manager Summit in Orlando. During this 4-day event, hundreds of leaders from across the country came together for training and to share ideas to improve retail operations and the customer experience. Attendees noted the event was a resounding success, setting the tone for our retail team to be energized and ready for the year ahead. Investments in personalized messaging, mobile app and rewards program allows more sophisticated interactions with customers. Over the past few months, we have moved beyond category-based segmentation, adding targeted messages to specific cohorts based on purchase behavior, browsing activity, engagement history and preferred communication channels. This year, we are investing in a major project that uses AI to automate segmentation, decisioning and execution to accelerate speed to market and real-time engagement. Internally, we are calling this multiyear endeavor Project Hyper as it will accelerate hyper-personalization of customer outreach. Deeper personalization enables more relevant messaging and promotions, improving the quality of interaction while driving desired results. In November, we launched a mobile app in Florida, providing customers one place for browsing, deals, reservations and rewards. Push notifications to learn about special promotions or when orders are ready for pickup, provide a seamless experience. In the first 90 days since the app launched, over 115,000 customers downloaded the app, leading to 3.5 million user sessions. Following the success in Florida, we are excited to launch the app in additional markets this year. Our rewards program grew 12% in the fourth quarter, reaching 915,000 members at year-end. Rewards members continue to spend on average 2.5x more than nonmembers, comprising 78% of fourth quarter transactions. We plan to introduce program tiers, enabling more robust rewards for customers who spend more, including exclusive offers, products and events. In combination, advanced messaging capabilities provide a competitive advantage while contributing to customer retention. Fourth quarter retention improved sequentially to 70% company-wide with 78% retention in medical-only markets, demonstrating the strength of our retail platform. High-quality branded products reinforce customer attraction and retention while building long-term equity. In 2025, we sold over 50 million branded product units. In-house brands, Modern Flower and Roll One continue to gain traction, representing almost half of the branded products sold. New and innovative branded product development is ongoing. Last year, our team introduced over 175 new SKUs, including the Roll One Clutch All In One, a discrete compact vape cart. In Florida, the Roll One Clutch launched in Q4 and it sold over 200,000 units. In the past month, we launched the Roll One Clutch in Arizona, Ohio and Pennsylvania, where initial customer feedback and sell-through rates have been positive. We plan to launch in additional markets in the coming months. As the industry continues to evolve, we are pursuing growth initiatives that align with our long-term objective to build a leading cannabis company. Investments include expansion of retail production and distribution in new and existing markets and technology and infrastructure. Exiting 2025, our scaled platform included 233 retail locations, supported by over 4 million square feet of production capacity. This year, we plan to add at least 5 new retail locations with the potential to further expand pending regulatory approval in Texas. Technology and infrastructure investments add flexibility and needed capabilities as our business grows. We are committed to making long-term investments to balance the need to remain competitive today while positioning Trulieve for the future as layer of prohibition are removed. Following tremendous results in 2025, we are carrying the momentum forward this year. Given our position as a leading voice for change, scaled operations and strong balance sheet, we are well situated to make substantial progress in the year ahead. With that, I'd like to turn the call over to our CFO, Jan Reese. Please go ahead. Jan Reese: Good morning, and thank you, Kim. We delivered full year 2025 revenue of $1.2 billion comparable to 2024. Continued pricing compression in retail offset -- was offset by growth in Ohio and wholesale. Contributors from new dispensaries, record units sold and full year adult-use in Ohio supported overall top line performance. Fourth quarter revenue was $293 million, declined 3% year-over-year, up 2% sequentially as new store openings, adult-use momentum in Ohio and wholesale growth were offset by ongoing pricing pressure and softer consumer wallet trends. Full year gross profit was $711 million, representing a 60% margin, consistent with the prior year. Gross margin strength reflected economies of scale, operational efficiencies across our platform and disciplined promotional management. Fourth quarter gross profit totaled $175 million, also at a 60% margin and up sequentially. We expect quarterly gross margin to vary based on product and market mix, inventory sell-through, promotional activities and idle capacity costs. For the full year 2025, SG&A expenses were $445 million or 38% of revenue compared to 43% in 2024. Driven by reduced operational expenses and lower campaign support, fourth quarter SG&A was $126 million or 43% of revenue. Adjusted SG&A declined to 30% of revenue from 31% last year, reflecting continued operational discipline and efficiency actions. Full year net loss was $160 million compared to a net loss of $155 million in 2024. Fourth quarter net loss was $43 million or $0.22 per share. Excluding nonrecurring items, fourth quarter net loss per share would have been $0.02. Full year adjusted EBITDA totaled $427 million compared with $420 million in 2024. Fourth quarter adjusted EBITDA was $105 million, representing a 36% margin and reflecting expense leverage across our core operations. Turning to our tax strategy. Beginning 2019, we filed amended returns challenging the applicability of Section 280E to our business. To date, we have received refunds totaling more than $114 million. While we remain confident in our position, final resolution may take time. We continue to accrue an uncertain tax position while benefiting from lower cash tax payments, excluding the impact of 280E in 2025 full year results would reflect positive net income. On balance sheet and cash flow, in December, we redeemed $368 million of senior notes and completed a $140 million private placement. We also repaid a $15.8 million mortgage in our West Virginia property. We ended the year with $256 million in cash and $232 million in debt and subsequent to the year-end, raised an additional $60 million through a second private placement. Full year operating cash flow was $273 million. Capital expenditure were $44 million and free cash flow totaled $229 million. Turning to the outlook. We expect first quarter revenue to decline sequentially by a low to mid-single-digit percentage, consistent with normal seasonality. Gross margin is expected to fluctuate quarter-to-quarter, but remain broadly in line with recent performance. Consumer trends will influence retail results and margin. For full year 2026, we anticipate operating cash flow of at least $250 million and capital expenditure up to $85 million. We will continue to invest in our retail production and distribution network, expand into new markets such as Texas and enhance technology and infrastructure capabilities. We plan to open at least 5 new stores, complete 5 relocations and refresh at least 45 stores this year. Pending regulatory approvals, we may accelerate investments in Texas. We may update our outlook as regulatory and market catalysts evolve. With that, I will return the call over to Kim. Kimberly Rivers: Thanks, Jan. Over the past 2 decades, cannabis reform has gained increasing momentum and growing mainstream acceptance. At last, the federal government is catching up to the American people with the first step towards reform. As President Trump's executive order states, decades of federal drug control policy have neglected medical marijuana uses while limiting the ability of scientists to complete necessary research. Rescheduling of cannabis to Schedule III acknowledges the medical value of cannabis and opens the door for additional research. It also sends a powerful signal that the government is willing to revisit antiquated policy that no longer serves the American people. We believe rescheduling is a precursor to additional reform, including safer banking and uplisting of U.S. cannabis companies to major exchanges. At the same time, state adoption of medical and adult-use programs continues, normalizing cannabis use and providing consumers greater choice. Trulieve remains firmly committed to cannabis reform and will continue to lead from the front, investing time and resources to drive change. With scaled operations in attractive markets, we are focused on driving profitable growth while maintaining flexibility to adapt as the industry evolves. Trulieve is defining the future of cannabis one customer at a time. Thank you for joining us, and as I always say, onwards. Christine Hersey: At this time, we'll be available to answer any questions. Operator, please open up the call for questions. Operator: [Operator Instructions] Our first question today comes from Luke Hannan from Canaccord. Luke Hannan: I wanted to follow-up on the CapEx outlook for 2026. So it is a step-up from 2025 and both Kim and Jan, you both outlined sort of the moving parts there. But I guess, specifically, I wanted to dive in a little bit on how much you plan on spending on Project Hyper. That will sort of be the first question, sort of what's embedded for 2026 there. And then secondly, on the refreshes, you've done a number of them so far, seeing good organic growth on the back of those. What's the runway look like for continued refreshes, not just for 2026, but if we think about the subsequent years as well? Kimberly Rivers: Luke, so we're very, very excited about Project Hyper. And really, I think that it's a testament to our investment strategy to date, given that we are able to build on investments previously made, including SAP, our consumer data platform and our insights that have allowed us to segment and really dive into this personalization concept. Project Hyper is building on the back of that and will allow us to lean into really utilizing all of this wonderful data that we have in a more robust way to really speak to an individual, including demographic information, past purchase history, along with other data such as purchasing time, preferred methods of communication, et cetera, to really accelerate again that personalized connectivity with the consumer. We are not going to separate out specific line items in the CapEx budget. And again, this will be a long project that likely will be a multiyear initiative with -- but we do intend to have milestones throughout this year with -- and we should start to see some returns on that investment in the back half. So we are very, very excited about that. Turning to your -- part of your question on store refreshes. We remain committed to making sure that we have an excellent retail experience for our customers and we'll continue to refresh stores as they kind of become due. We do have an audit process throughout the organization where we audit our stores very regularly and then they're added to a schedule for refresh depending on what the audit results are. And so, as you noted, last year, we did refresh a number of stores. This year, we're slated to refresh another slew of stores. I would anticipate that, that would continue in the future, again, but it is on an as-needed basis. Luke Hannan: That's great. And as a very quick follow-up, you did talk about the Texas opportunity a little bit. When do you expect to be granted, if you have any visibility on it, when do you expect to be granted that final license and then begin the build-out potentially after that? Kimberly Rivers: Sure. So we were granted a provisional license in Texas, which we're incredibly excited about. And the team has done an amazing job to get us to this point. We did receive actually this week a list of diligence follow-ups, which our understanding is it's the questionnaire that's going out to all of the provisional license holders, which we're in the process of completing. They do -- there is another round of licenses, 3 licenses that will be issued, I believe, in early April. So we're not sure if the state will choose to move on final issuances on round 1 before or after that next round is issued. So what I will tell you is that, in true Trulieve fashion, we will be absolutely ready to go to market. Again, I always say that Texas is a state that you go bigger, you go home. So we are very, very much looking forward to having a -- that will be a material market for us once we are awarded that final license. Operator: Our next question comes from Aaron Grey of Alliance Global Partners. Aaron Grey: I'd like to piggyback off that last question from Luke a little bit and dive a bit more into Texas in terms of that opportunity that you just kind of alluded to, Kim. How best to think about the potential for Texas and the ramping there? For you, do you see Florida transitioning out of the nursery program in 2016 as a good analog? And then how important do you think it is to have that first-mover advantage and really kind of dig into that CapEx investment to ensure you have, not only the capacity, but also the retail to get that initial market share that you can essentially potentially hold on to similar to what you've seen Trulieve do in Florida? Kimberly Rivers: Yes. I mean, look, I think that Texas is a tremendous opportunity. It's a market that we have been focused on for quite some time back to the days where we first announced our hub strategy as we talked about how we thought about M&A and organic growth. So Texas, we believe, is a key market for us. Again, we have a provisional license now. So timing will be dependent, of course, on regulatory approvals, and we look forward to working with the regulators to hopefully expedite that process as much as possible. But to your point, look, we believe that in Texas, with the -- not only the program setup as well as the population, we believe that it will be meaningful. Some key points in Texas there are 11 regions, and you are required to have a retail presence in those 11 regions prior to then being able to expand and add additional distribution capacity beyond those initial stores, which we're certainly prepared to do. To your point, we absolutely understand the importance of scale in the supply chain, and we'll be looking to make investments there as well because, again, we think that Texas is probably one of the most attractive market opportunities that we've seen since Florida. So we absolutely, to your point, we will be leaning in. We'll be using all of our knowledge from Florida and applying it to Texas because we believe very strongly that Texans deserve access to high-quality and a robust medical marijuana program and high-quality products. Aaron Grey: Okay. Great. Appreciate that color. Second question for me. Just in the case of Florida adult-use not occurring and think about incremental growth opportunities, I just wanted to know in terms of your outlook for potential M&A, what you're seeing in the marketplace? Have you seen potential valuations come down, especially in the private markets and any appealing assets that you're seeing? Kimberly Rivers: Sure. So, of course, as we mentioned, we are continuing to monitor the Florida potential for ballot inclusion. Just a quick update on that, I'm sure we'll be asked. The Supreme Court is hearing a jurisdictional -- basically jurisdictional motions on March 3, and then we'll make a decision as to whether or not they will hear the case as it relates to those 90,000 ballots that certainly we believe should be included in the final count. Florida, of course, is and would be a humongous market for us as it relates to adult-use. That being said, to your point, we are very excited, as I mentioned, about Texas from an organic growth standpoint. We also have and mentioned some law changes coming out of Georgia. We are also, right, continuing to push in Pennsylvania as well as doing some -- looking to do some expansion of existing footprint in other markets that we already are in. As it relates to M&A, I would say that we remain and will be inquisitive. We certainly have and are still committed to our strategy as we look for markets that are attractive and make sense for us given our hubs that we've established across the country. You know that we don't talk about markets specifically. But I will say that it does appear to me with valuations where they're at and where the market is as well as our cash position that we are in a good spot to be inquisitive in the future. Operator: Our next question comes from Russell Stanley of Beacon Securities. Russell Stanley: Maybe if I could first on Georgia. Great to hear about the efforts to expand that market. I'm wondering if you can talk about the pace of expansion -- market expansion to date against your expectations and talk to, I guess, your thoughts on the odds of that legislation passing. Any comments on the level of opposition you're seeing there? Kimberly Rivers: Sure. So Georgia has been an interesting program given some hiccups as it relates to where the legislature and how the legislature initially set up the program related to distribution versus where kind of we actually are. And so just as a level set, when the Georgia program was initiated, it was anticipated that pharmacies were going to be able to participate alongside of classic dispensaries in dispensation of medical cannabis. And then if you'll recall, there was -- were letters that were issued to those pharmacies and so -- by the DEA, and that put that entire distribution network on pause. And so one of the challenges in Georgia has been, one, kind of friction in terms of patients actually being able to get medical cards and how that system was set up through the Department of Health and the local offices as well as form factor and availability of products that folks needed, matching conditions and then the third is distribution. And so this legislation would get at, I'll call it, kind of the first 2. The state has been making gains to ease friction, allowing medical cards to be actually mailed now as opposed to having to physically go and pick them up. And then the second with this legislation would be around the form factors and availability of medical marijuana for expanded conditions, which, of course, is always a positive step forward. We are -- and actually, our team was in Georgia yesterday, lobbying on the Hill. I do think there's relatively strong support for those changes. But it's similar to kind of early days that we've seen in other medical states where expansion and those changes are going to take a little bit of time. So I think it's relatively in line with our expectations with the exception of the pharmacy piece and the distribution. I think what will be interesting and what's a little bit of an unknown at this point is what, if anything, does rescheduling or will rescheduling do as it relates to the impact on that pharmacy model. And would that potentially open the door to allow for those pharmacies to then be able to participate in distribution, which, of course, would accelerate adoption in that state from a patient perspective. So I think likely more to come as we kind of navigate through the realities of how that program sits within a new landscape once rescheduling happens. Russell Stanley: Great color. And maybe if I could follow-up on Texas. Obviously, there's been a number of ways in which end markets that market opportunity has been expanded over the last couple of years. And -- but it's still -- there are still some restrictions but a massive state. So I'm wondering how big you think this market could be under the current regulatory regime given the size against some lingering restrictions. Kimberly Rivers: Yes. I mean, I think that Texas has, like I said, the opportunity to be a very large market. Specifically, as mentioned on the call, there are fairly low friction points as it relates to patients being able to access physicians and initially get set up in the program, which in a number of markets, that really is and serves as a fairly high barrier to entry. And so with the availability of telemedicine in Texas and with the recent changes to the program there, we think that there's a lot of growth on the medical -- in the medical program that is yet to come. Some of that is a little bit of a chicken and an egg, we think, which certainly is our experience in other markets, meaning, right, you have to give someone a reason to go through the exercise of getting their medical card, meaning they have to have access to products, access to a store and be able to get those products before they're going to go through the process of getting a card. So we think that -- and expect that, that program will experience some pretty significant growth in the coming years as it relates to patient count. And again, the population there would indicate that there's significant -- it's teed up to be a pretty significant market. Operator: Our next question comes from Bill Kirk of ROTH Capital Partners. Nicholas Anderson: This is Nick on for Bill. First one for me, just on the gross margin improvement. Competitors are calling out competition and pressure. Just wondering if you could unpack that sequential improvement a little more. Was it more mix and pricing base versus cultivation cost improvements or vice versa? Just any color there would be helpful. Kimberly Rivers: Yes. Thanks, Bill (sic) [ Nick ]. So on the margin, I mean, look, that's something that we continue to be very, very proud of. And I think reflects our absolute high focus and high level of discipline. And it's really on a number of things, right? To your point, we are and continue to be very focused on efficiencies and our scale certainly helps there as we continue to produce very high-quality products at a scaled expense, if you will. So continuing to lower expenses while improving quality is always the name of the game. That being said, also how we approach our go-to-market strategy with respect to very strategic and focused promotional activity that is, again, taking our data and what we know about our customers and serving up right product, right price at the right location. We have a number of tools that enable us to be able to do that, including, of course, I mentioned investments moving to SAP, investments made in customer segmentation, our dynamic and variable pricing capabilities. So it really is understanding where the customer is, being able to read trends quickly and being able to respond to those trends in a disciplined way so that we are able to, again, have the right product mix at the right price while maintaining margin and profitability. Nicholas Anderson: Great. I appreciate that color. Second for me, just on the loyalty program. It was up again significantly sequentially. What percent of that growth came from Florida versus other markets? And what have been the primary drivers of success and adoption there? Just your thoughts on what's driven that growth over the past year would be helpful. Kimberly Rivers: Yes. I mean, I think that, again, kudos to the team, we were very, very focused on rolling out a best-in-class loyalty program. We began the rollout in Florida and then have been moving that to additional markets and candidly have gotten outstanding adoption in all the markets that we're currently -- our loyalty program currently is rolled out into. I would say that I think that there's a few things. I think, one, the ease of the program, really making it very easy for folks to sign up for the program and then, again, be able to communicate to them the results of participation, meaning you spend and you get, which is very much in line with loyalty programs across the country for big brands that we all know and love, which it was basically modeled after. So I think ease of use, I think the rewards and the ability to communicate the value of those rewards was also a key driver and has been a key driver. And we're very excited based on the feedbacks that we've gotten from customers. And again, we have a very engaged customer base. So there is a lot of back and forth with our customers, and that goes right into how we develop these things. We're very excited to, as I mentioned in prepared remarks, to be updating that loyalty program in response to customer feedback and offering tiers that we're going to be rolling out here in the near-term. And that will allow us to even further personalize and to engage our VIP or our top-tier customers with more specific and exclusive offerings and really based on their spend and how they're interacting with us. So really excited to continue to iterate and further develop the loyalty program as we move throughout the year. Operator: And our next question comes from Frederico Gomes from ATB Cormark Capital Markets. Frederico Yokota Gomes: Congrats on the great quarter. Just the first question, you're guiding for, I guess, substantial free cash flow again this year, and that's already obviously accounting for an increase in CapEx. So how are you thinking about that excess cash and specifically as it relates to potential stock buybacks given the current valuation level? And the second part of this question is, how do you think about that cash balance relative to, I guess, the growing UTP that you have in your balance sheet? Kimberly Rivers: Yes. So we are continuing to focus on generating cash because we believe that cash is the ultimate -- provides the ultimate optionality in the business. We've been talking a lot in the Q&A about opportunities that we have ahead. Obviously, we're not at a final point yet related to Florida and ballot inclusion. We also talked about Texas and what an exciting opportunity Texas is and potential growth in Georgia, kind of unsure yet around Pennsylvania and not adult-use flip. In addition to organic -- there's organic growth opportunities, though, we also mentioned that we're going to remain and maybe even accelerate a little bit our M&A optionality as well. And so I think that for us, it's important to have the cash available so that when these opportunities present themselves and when catalysts come into focus, we have the ability to act with immediacy and with a strong eye on maintaining right and improving shareholder value. And then as it relates to cash and the UTP, what I would say is that, again, the UTP is a reflection of a totality of a number. Management certainly does not believe that the company will ever pay that amount. It's an accounting rule that we, of course, want to make sure that we follow and that we're in compliance at all times. Upon rescheduling, we believe that, that accrual will stop. And we absolutely are in and we'll continue to update as the results of prior years and negotiations, conversations with the IRS continue to resolution. So again, not at all concerned as it relates to cash position via that UTP number and definitely focused to have that resolved within as quickly as possible once rescheduling comes to fruition. Frederico Yokota Gomes: Appreciate that. And just the second question would just be on international cannabis market. I'm just curious if you're looking at that or interested in any way in doing something there. Kimberly Rivers: Yes. So, I mean, again, I think we are constantly evaluating the opportunity set. I think that for us, Texas, as an example, is a significantly more exciting opportunity for us right now than other markets outside of the U.S. I continue to believe that we have plenty to do here in our backyard. That being said, I'm very much a believer of never say never. So continue to evaluate all opportunities, and we'll make decisions as those markets come into focus. Operator: This concludes our question-and-answer session. I would like to turn the call back over to Christine Hersey for closing remarks. Christine Hersey: Thanks, everyone, for your time today. We look forward to sharing additional updates during our next earnings call. Thanks again, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the iQIYI Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Ms. Chang You, IR Director of the company. Please go ahead. Chang Yu: Thank you, operator. Hello, everyone, and thank you for joining iQIYI's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. The company's results were released earlier today and are available on the company's Investor Relations website at ir.iqiyi.com. On the call today are Mr. Yu Gong, our Founder, Director and CEO; Ms. Ying Zeng, our Interim CFO; Mr. Xiaohui Wang, our Chief Content Officer; Mr. Youqiao Duan, Senior Vice President of our Membership Business; Mr. Xianghua Yang, Senior Vice President of International and Online Game Business; and Mr. Gang Wu, Senior Vice President of Brand Advertising Business. Mr. Wong will give a brief overview of the company's business operations and highlights, followed by Ying, who will go through the financials. After the prepared remarks, the management team will participate in the Q&A session. Before we proceed, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC. iQIYI does not undertake any obligation to update any forward-looking statements, except as required under applicable law. I will now pass on to Mr. Gong. Please go ahead. Tim Yu: Hello, everyone, and thank you for joining us today. In 2025, we focused on strengthening our core business to renew growth while achieving advancements in emerging businesses. These efforts drove a solid year-end performance with total revenue in Q4 returned to growth both annually and sequentially. Notably, our long-form dramas secured #1 in viewership market share on Enlightent data annual rankings with 5 titles exceeding 10,000 for the iQIYI popularity score. More importantly, we made remarkable breakthroughs in IP franchise development, moving beyond making individual hit titles to building evergreen IPs that drive growth across diverse formats. Strange Tales of Tang Dynasty stand as a stellar example as a flagship IP with 4 consecutive blockbuster seasons. It's influence has expanded from long to short and micro dramas as well as off-line experience. Our advertising businesses continue to demonstrate strong growth potential. Our overseas business has evolved into a sustainable and scalable second growth engine powered by accelerated organic momentum. In 2025, membership services revenue increased by over 30% year-over-year with growth accelerating to 40% in the second half of the year. The subscriber base reached an all-time high. At the same time, our experience business has entered a critical stage of development. For IP-based consumer products, we have built a dedicated in-house team and upgraded from a listening-only approach to a dual-track model, combining self-operated mechanism merchandise with licensing. This strategic shift strengthened our control our IP operation and amplifies monetization efficiency. On the offline experience front, we launched our first iQIYI LAND in Yangzhou on February 8, 2026, receiving positive initial reception. Two additional parks scheduled to open later this year. 2026 marks a key step towards scaled development as we build the experience business into a new engine for long-term value creation. Now let's dive into the details of our business performance in Q4. Starting with content, the cornerstone of our business. For long-form dramas, we secured the #1 viewership market share for Enlightent data driven by a robust slate of premium content and breakthroughs in serialized IPs that boost engagement and commercial results. Strange Tales of Tang Dynasty 3: To Changan marked our first title with 2 seasons exceeding a popularity score of 10,000. Among 2025 new releases, it ranked #1 in ad revenue and #2 in membership revenue. Following this momentum, the crime drama, The Punishment 2 further became the first title of 2026 to surpass 10,000 for the popularity score. It is also our second franchise with 2 seasons achieving this milestone. Shifting to movies, we maintained a diverse lineup with broad demographic appeal. For iQIYI originals, the summer's theatrical hit, The Shadow's Edge Bufeng Zhui Ying extended its offline success to the online demand. It not only topped all Q4 film releases by peak iQIYI Popularity Index score, but also became the highest rated domestic action crime film of the past decade on Douban. Additionally, our original online film, The Sixth Robber Yun Chao Da Jie An set a new all-time high for the popularity score within its category. For movies broadcasted on our platform, we retained the #1 viewership market share for 16 consecutive quarters. In Q4, we rolled out diversified titles, including The Warm Seat, That Two Lives [Foreign Language], The Animated Feature, Nobody, Lang Lang Shan Xiao Yao Guai; The Fantasy comedy, The Adventure [Foreign Language] and the female-oriented feature Flew Away [Foreign Language]. Furthermore, our innovative revenue sharing model designed to optimize returns for films with limited theatrical box office performance gained further traction. The Return of the Lame Hero, Bi Zhengming de Zhengming generated RMB 36 million in revenue -- in shared revenue, ranking first among all titles under this model. Turning to variety show, our dual focus on long-running franchise and fresh innovative IPs show market-leading performance in 2025. According to Enlightent data, 3 of our multi-season titles ranked in the top 10 most watched multi-season variety shows and 2 new releases ranked in the top 3 most watched new shows. Our originals continue to set benchmark. The Rap of China ranked its ninth season this year, cementing its position as China's longest running online variety IP. Additionally, Hi! Young Farmers 3, a spin of the developed beloved Become a Farmer franchise, featuring the boy group, reached an all-time high in its popularity score this season. Among brand-new originals, Wander Together Yuzhou shanshuo qing zhuyi exceeded 8,300 for popularity score. We also expanded IP values through merchandise partnerships with brands for Hi! Young Farmers 3, The Blooming Journey 2, Yilu Fanhua and Wander Together unlocking new revenue potential. Turning to micro dramas. We have expanded free content to over 70% of our 20,000 title library to broaden engagement. Our original portfolio is scaling to over 150 titles today, fueling record high membership and distribution revenues in Q4 from these offerings. Spin-off from Strange Tales of Tang Dynasty, The Chinese Detective [Foreign Language] and The Light On library [Foreign Language] both hit new highs for popularity school. Notably, over 70% of their debut viewers also watched the long-form serials, helping to extend the IP's life span. These releases not only boosted membership views, but also attracted top-tier brand partnership, moving well beyond the conventional performance ad model. Building on the momentum of the premium micro dramas, we are working into micro animations and business model centered on free content with a pipeline of over 10,000 titles in place, micro animation viewership and the time spent are growing rapidly. Beyond content, we further amplified our IP value from flagship marketing events. In December 2025, we hosted the annual iQIYI Scream Night, alongside a 2 days iQIYI Scream Carnival in Macau to honor the year's standout productions and talents. The event drew over 200 million on-site attendees and live stream viewers and brought together around 300 celebrities and industry partners. Next, let's dive into our 2026 content strategy and the exciting Q1 lineup. Starting with dramas, our Q1 slate includes between Love Between Lines, Da Xi, Swords into Plowshares, Tai Ping Nian, Born to Be Alive, Sheng Ming Shu, How Dare You, Cheng He Ti Tong, The Devil Between Us, Chu E, Our Dazzling Days, Sui Yue You Qing Shi, Pursuit of Jade, Zhu Yu and Love After You Yang, Zhong Qi Chu Nai For movies, we will meet audience demand with a diverse slate spanning top theatrical releases off and online movies. Q1 lineup features original online movies such as Northeastern Brother Season 3, Dong Bei Yong Ge and The Sing City [Foreign Language] alongside licensed titles such as [Foreign Language]. For variety shows, we are enhancing the long-term operation of multi-season IPs while exploring fresh and innovative new IPs. Key Q1 releases include Five Hearts Season 6, Wu Xi; Hit Song Season 2, You Ge; as well as new IPs such as Wonders Gather and Tonight Comedy Show, Jin Ye Xi You Xiu. For micro dramas, we will focus on creating original content with quality and innovation while enhancing operations, commercialization and deepening integration of AI. Q1 key titles include Return to a Better Tomorrow, Xin Yingxiong Bense; The Address of a False Noble Woman [Foreign Language] and The Amber hour [Foreign Language]. For animations, we will meaningfully expand our lineup of original Chinese animation compared with previous years. In Q1, our slate features original long-running series such as The Great Ruler, Da Zhuzai and Against the Gods Nitian Xieshen as well as popular IP, including How Dare You Season 2 and Ways of Crisis [Foreign Language]. For children's content, we will secure top-tier SSIPs, scale and original production and expand our AI-driven portfolio. In Q1, key offerings include a brand-new original title, Detective Baboo [Foreign Language] alongside licensed show such as PAW Patrol Season 11 Wangwang dui li dagong and the latest season of Pleasant Goat and Big Big Wolf Xi Yangyang Yu Hui Tailang. Moving on to the membership services. Over the past few quarters, our membership services revenue has shown consistent year-over-year recovery driven by diverse premium offerings. In Q4, members enjoyed the popular titles such as Strange Tales of Tang Dynasty 3: To Changan; Silent Honor, Chen Mo De Rong Yao; Fated Hearts, Yixiao Suige; Legend of the Magnate, Da Sheng Yi Ren, and Sword and Beloved, Tian di Jian Xin. We will revitalized our membership business through a range of operational initiatives. For example, we boosted new subscriptions and upgrades to the S-Diamond plan by offering inclusive products such as free Express package, which provided early access to families at no extra cost. In 2025, Express package were available for over 40 dramas. Additionally, we are strengthening member retention by emphasizing annual memberships during holiday promotions, e-commerce festivals and bundled partnership offers. To further increase the value of memberships, we introduced additional exclusive benefits, including 5 VIP events in the first quarter, featuring participation in offline show recordings, advanced screenings and the exciting iQIYI Scream Night. In particular, iQIYI Scream Night event was highly praised for exclusive perks like red carpet viewing privilege and live feed featuring their favorite celebrities. Moving on to advertising business. In Q4, brand advertising revenue growth both annually and sequentially, ad revenues from variety shows and our dramas both delivered double-digit annual growth, while core ad verticals such as food and beverage, Internet services and e-commerce and telecom services all recorded double-digit annual growth. Beyond long-form videos, our micro dramas and micro variety shows are gaining considerable attention from brand advertisers. For micro dramas, we have successfully engaged several renowned brands in 2025 through tailored content bundled sales that integrates product placements with theater branding and a string of collaborations. Likewise, our micro variety shows have received a strong market recognition, fostering long-term partnerships with multiple clients and driving impressive revenue growth. For commercial ads, we regained sequential revenue growth in Q4, driven by a healthier and more balanced advertiser portfolio. Revenue from small and midsized advertisers grew both annually and sequentially. By vertical, Internet services, e-commerce and financial services led growth. Additionally, we have deployed a proprietary large AI model for scaled ad delivery, leveraging deep thematic understanding that has boosted commercial rates. Moving on to technology. We introduced Nado Pro, our proprietary AI agent platform designed to revolutionize professional content creation by integrating leading global large models with iQIYI deep expertise in professional content production. Nado Pro efficient -- effectively streamlines the production pipeline from script evaluation to final generation. Currently in its close beta phase, Nado Pro is empowering our internal teams and select partners in a wide variety of professional content such as feature films, dramas, animation. In addition, Taodou World, our pioneering AI agent-based NPC platform continues to redefine entertainment experience. Users can now engage with over 1,700 NPC agents from our popular titles Song, Dialogue, Fan Fiction and Virtual Social Interaction. The platform creates powerful synergies with key content, delivers immersive emotion, connection with fans and extends the long-term value of our IP. Strong user adoption is translating into commercial success and revenue from Total War raising sharply year-over-year in 2025. In addition to pushing the boundaries of AI applications, we are leading the industry with cutting-edge virtual production technology. Our in-house developed IQ Stage system has meaningfully enhanced the efficiency of vehicle scene shots for the theatrical hit Pegasus 3, featuring Shen Teng. This achievement delivered unparalleled results with zero frame drops and zero aliasing representing the highest standard for virtual production in car scenes in China. At iQIYI innovation is at the core of everything we do with a portfolio of over 12,000 patent applications. We are proud to rank #72 among the top 100 Chinese enterprises for valid invention patents. In 2025 alone, we filed nearly 1,000 new patent applications, most of them driving achievements in AI across content development, production, broadcasting and offline experiences. Moving on to the business performance in regions outside of Mainland China. In Q4, we continue to deliver robust growth with membership revenue increasing by 40% annually. Markets such as Brazil, Mexico and Indonesia showed exceptional performance with membership revenue surging by over 80% annually. Our strong performance is driven by the growing popularity of our C-dramas, which have shown substantial annual revenue growth. Notably, Speed and Love, Shuang Gui was a standout hit in 2025, emerging as the best-performing the C-drama during the peak viewing period and toping popularity chart in 14 markets on our international platform. It performed exceptionally well in key regions like Thailand, Malaysia and Singapore, where it leads its category on Google Trends. Its success extended further with the spin-off variety, which became one of the most popular Chinese variety shows on our overseas platform this year. We are also ramping up production of local original content with strong user reception. The original Oops! I'm in Jail stood out as the top Taiwanese drama on our platform in 2025. Moreover, our Thai original variety show Running Man Thailand launched in February 2026 has secured exceptional brand advertising partnerships. Apart from long-form content, micro dramas captivated increased engagement among overseas audiences in Q4. Membership revenue from micro drama hit a new high, driven by originals such as Spring in the Palace and Wild Scene and licensed hits from China like Midsummer's Vendela. Our efforts in creating local original micro dramas have also started to show results with 5 titles premiered in December 2025, featuring local content for South Korea, Thailand, the U.K. and Indonesia. Among these, the Korean micro drama, Darling, Is It All Coincidence and the Thai micro drama, Catch Me If You Love Me have outperformed gaining notable popularity across and beyond our platform. In addition to content in Q4, we held 4 major offline marketing events in Thailand, Indonesia, Malaysia and Singapore featuring Chinese celebrities. This event amplifies the influence of our content and the commercial value of our platform, forged stronger partnerships and propelled the global reach of Chinese content. Moving on to Enterprise business -- moving on to experience business. While we are focusing on 2 core areas, IP-based consumer products and iQIYI LAND by leveraging our extensive IP assets, we aim to build a new engine for sustainable long-term growth. For IP-based consumer products, our self-operated merchandise demonstrated solid progress, highlighted by top-selling collectible cards from premium dramas like The Journey of Legend. For IP licensing, Strange Tales of Tang Dynasty 3: To Changan secured strong partnerships across food and beverage, beauty and outdoors. And Sword and Beloved set new sales records during its broadcast period. Looking ahead to 2026, we plan to grow our IP licensing business and expand our self-operated merchandise beyond collective cards to more categories. For iQIYI LAND, we adopt a light asset model by combining AI and XR technology with IPs. We create immersive experiences that are more efficient, flexible and require less space and investment than traditional theme park. Our first iQIYI LAND was successfully opened in Ganzhou on February 8. Our Kaifeng and Beijing locations are set to open later this year each incorporating unique local elements to deliver tailored experiences. Revenue will primarily come from ticket sales and on-site spending. Looking ahead, we aim to position iQIYI Land as a key sales channel for IP-based consumer products and a vital platform for maximizing the long-term value of our IP portfolio. In summary, in 2026, we will focus on 3 key strategic goals. First, we will strengthen our domestic core by enhancing the quality of original content, strengthening membership and advertising businesses. Second, we will aim to sustain strong growth in our overseas and experience business, building more robust engines for long-term expansion. Third, over the past several months, rapid advancements in AI large models worldwide has revealed a clear insight. The content production industry will be revolutionized within the next 1, 2, 3 years. This transformation will significantly cut production costs, lower barriers to professional content creation and boost both the quality and the quality content. This exciting changes will greatly benefit media platform, especially iQIYI. To seize this opportunity, we are dedicated to building a dynamic AIGC ecosystem and transitioning our platform from a centralized to a decentralized model. We look forward to sharing detailed initiatives at our upcoming iQIYI World Conference on April. Now let me hand it over to Ying Zeng for the financials. Ying Zeng: Thanks, Mr. Gong, and hello, everyone. Let me walk you through the key numbers for Q4. Total revenues for Q4 were RMB 6.8 billion, up 2% sequentially. Membership services revenue reached RMB 4.1 billion, down 3% sequentially due to seasonality. Online advertising revenue was RMB 1.4 billion, up 9% sequentially, primarily driven by the streaming content and e-commerce Double 11 campaign. Content distribution revenue reached RMB 787.7 million, up 22% sequentially, primarily driven by the increase in cash transactions. Other revenues were RMB 547.9 million, down 6% sequentially. Moving on to cost and expenses. Content cost was RMB 3.8 billion, down 5% sequentially as we adopt a more curated content acquisition strategy centered on quality. Total operating expenses were RMB 1.4 billion, up 2% sequentially. Turning to profit and cash balance. Non-GAAP operating income was RMB 143.5 million. Non-GAAP operating income margin was 2%. As of the end of Q4, we had cash, cash equivalents, restricted cash, short-term investments and long-term restricted cash included in prepayments and other assets at a total of RMB 4.7 billion. At quarter end, the company had a loan of USD 636.6 million to PAG recorded under the line item of prepayments and other assets. For detailed financial data, please refer to our press release on our IR website. Now I will open the floor for Q&A. Operator: Your first question comes from Xueqing Zhang with CICC. Xueqing Zhang: [Foreign Language] With recent upgrades in AI video generation models like Seedance, which are approaching production level quality. Could management share your view on how these advancements may impact iQIYI's business, particularly in content production and cost structure. What's your plan on leveraging AI video generation models? Tim Yu: [Foreign Language] Chang Yu: Our CEO, Mr. Gong is taking this question. Video generation models will substantially reduce the cost of producing long-form videos, shorter production time and lower the barrier to creation. This potentially will attract more new creators to this business and ultimately lead to more creations for the long-form video production. And this is very much beneficial to long-form video platforms like iQIYI, which means this will lead to increase in both the quantity and quality of long-form video content. Tim Yu: [Foreign Language] Chang Yu: Let me just discuss the impact of AI generation content for each content genres. For example, the micro animation is actually an AI-native content created entirely by AI. And for children's animation and also micro dramas, it has been demonstrated that large models can produce this content and reducing the production cost to 1/10 or less compared to traditional methods. For online films, animation and documentary, et cetera, these are rapidly permitted by AI-led production approaches as well. Among all these long-form video content, the most difficult ones to produce are the live-action content, for example, the theatrical films, drama series and variety shows. And in fact, these content have in part adopted AI in their production process and which the results have proven that these have significantly reduced the content cost -- content production cost. And based on our projections and estimations that we think the AI-led commercial film probably will emerge within the next 2 to 3 years. Tim Yu: [Foreign Language] Chang Yu: For iQIYI, we are actually placing our focuses on 2 areas to embrace these AI initiatives. On one hand, we have developed a Nado Pro an industry-specific AI agent for video content production. And on the other hand, we are working to build a new AIGC content ecosystem through various operation methods. Hopefully, that we can attract more creative talent under this new AI era. Operator: Your next question comes from Maggie Ye with CLSA. Yifan Ye: [Foreign Language] Can management walk us through company's content strategy for 2026 in more details? For example, how are we thinking about the key priorities across different genres, including drama, variety shows, film and micro drama, et cetera? And how are you thinking about the mix of self-produced content versus licensed one? Chang Yu: Thank you, Maggie. We will invite our Chief Content Officer, Mr. Xiaohui, to take this question. Xiaohui Wang: [Foreign Language] Chang Yu: Given the current volume of in production dramas, we will slightly reduce the number of dramas to be produced in 2026 and place greater emphasis on top-tier titles in terms of their quality. Xiaohui Wang: [Foreign Language] Chang Yu: In terms of the realistic and suspense and crime genres and these content categories have been iQIYI's strength in fact. And in these areas, we'll continue to maintain our innovation to create new content and more creative content and then maintain our advantage in these areas. Xiaohui Wang: [Foreign Language] Chang Yu: Starting in 2025, we have increased the supply of female-oriented content. For example, starting from the end of 2025, we started to roll out a new variety show called Winter Together. This is targeting for the new female users and also that the beginning of 2026, we also launched a female-oriented -- a young female-oriented drama called How Dare You. Xiaohui Wang: [Foreign Language] Chang Yu: For young male users, we have released multiple original animations this year, including the long-running series The Great Ruler, How Dare You Season 2 and a Way of choices. Xiaohui Wang: [Foreign Language] Chang Yu: With the support of new regulatory policies, we will step up exploration of innovative content, for example, the short-form drama series. Xiaohui Wang: [Foreign Language] Chang Yu: We recently introduced a unified revenue sharing policy across 8 major content categories, including dramas and films. And under this new framework, production partners return actually will be more directly linked to each title's revenue contribution and allowing outstanding work to earn higher returns. Xiaohui Wang: [Foreign Language] Chang Yu: Apart from the content category, for example, like theatrical films and drama series, like Mr. Gong mentioned earlier, we are actually gradually adopting and actually very proactively adopting AI-led production for categories such as micro animation, animation and micro dramas, while we're applying AI across other content categories to cut cost and also accelerate time line. Operator: Your next question comes from Lincoln Kong with Goldman Sachs. Lincoln Kong: [Foreign Language] My question is about the overseas business. How is our plan and strategy for 2026? Chang Yu: Thank you, Lincoln. We'll invite our Senior Vice President of International Business, Mr. Xianghua Yang to take this question. Please go ahead. Xianghua Yang: [Foreign Language] Chang Yu: In 2025, membership revenue grew by over 30%, with annual growth rate actually accelerating to 40% in the second half of the year. 2025 marked our highest growth rate year since the overseas business entered a stable operating phase. Xianghua Yang: [Foreign Language] Chang Yu: For 2026, our strategy is to sustain high revenue growth rate or even accelerate our growth rate. Xianghua Yang: [Foreign Language] Chang Yu: In terms of the content strategy, our market tailored content mixes actually have proven effective and continue to attract users. For C-dramas, they continue to expand their influence overseas. And the C-dramas will remain at the core of our overseas content portfolio, especially genres with strong cross-over appeal such as ancient costume, romance and contemporary romance. Xianghua Yang: [Foreign Language] Chang Yu: I am sorry, one more thing. Yes, go ahead. Xianghua Yang: [Foreign Language] Chang Yu: For content, we actually ramp up original production and local content licensing in Thailand, Malaysia and Indonesia. And in terms of operations, AI-powered translation and dubbing actually have significantly improved efficiency, reduced cost and accelerated the content release schedule. And going forward, we will fully leverage social media channels and use AI to generate promotional efforts, enabling low-cost, high-efficiency content distribution and user reach. Meanwhile, we will continue online and offline advertising to further amplifying the influence of C-drama. And last but not least, we will continue to promote content and strengthen our brand presence in international markets through initiatives such as celebrity sign-ups and also offline events. Operator: Your next question comes from Rebecca Xu with Morgan Stanley. Rebecca Xu: [Foreign Language] My question is about iQIYI LAND. Could management share the operating performance of iQIYI LAND, Yangzhou since its opening. Also, can you please share the 2026 plan for this business? Chang Yu: Thank you, Rebecca. I will invite our CEO, Mr. Gong to take this question. Tim Yu: [Foreign Language] Chang Yu: Our very first iQIYI LAND actually opened in Yangzhou on February 8 and offers 7 core immersive experiences, including stage performances, multisensory theaters, interactive light and shadow spaces. Tim Yu: [Foreign Language] Chang Yu: The first iQIYI LAND opened about 20 days since its opening and during which also we experienced the Chinese New Year holidays. And actually, the performance and the feedback actually are meeting expectations, which can be reflected in the ratings on major OTA platforms. And the average points are 4.8 out of 5. And actually recently, the latest rating exceeded -- reached 4.9 for certain platforms. Tim Yu: [Foreign Language] Chang Yu: From the opening until now, the visitor numbers have continued to grow. And based on the actual operations, we observed that this experience really offered fun for all ages. We see participants ranging from children as young as 4 to 5 years old to seniors in their 60s and 70s. Tim Yu: [Foreign Language] Chang Yu: We are looking at the potential for a 1 to 2x increase in peak single day revenue during the following peak period. For Yangzhou location actually has its special areas and for the spring season, especially March and April is a peak travel season for Yangzhou. And also upcoming, we have the Labor holiday in May, the summer months of July and August and also the National Day holiday in October and all these key holidays and periods could potentially boost the revenue performance compared to the first 20 days. Tim Yu: [Foreign Language] Chang Yu: And the expected growth will come probably from 2 major areas from a more deeper operations to a more finer detailed operation for the entire iQIYI LAND and also the increased efficiency for iQIYI LAND as well. Tim Yu: [Foreign Language] Chang Yu: Currently, the average transaction value for consumer products at iQIYI LAND is about RMB 100. We think there's potential for growth in the future. We will try to load more products in the future and also to extend to other content categories as we do a more refined consumer product team operation. Tim Yu: [Foreign Language] Chang Yu: And for this year, we will focus more on the self-operated IP consumer products and the operations will be strengthened this year, and this will lead to a revenue potential growth of 100% this year. Operator: Your next question comes from [indiscernible] with Guangfa. Unknown Analyst: [Foreign Language] Chang Yu: We'll invite our international business leader to take this question. Xianghua Yang: [Foreign Language] Chang Yu: In terms of our content, our brand or our slogan is beloved Asian content. So we focus not only Chinese content, but also the Asian content as well. Of course, Chinese content, which we call people or C-drama is our foundation because all the content has been already produced for our domestic business. So we only have to incur some of the dubbing and also translation, which is the cost with AI is much more efficient and controllable. But in addition to C-drama and also Chinese content, we also have, for example, Japanese animation, also Korean dramas and also the local content, for example, for the Thai region, Malaysia and also Indonesia. So this is how we set apart from many of the Western players in overseas. And for example, the Netflix and other houses, they host a lot of the Western content, whereas for us, we are the home of the beloved Asian content. Xianghua Yang: [Foreign Language] Chang Yu: Also, I want to add real quickly in terms of another content channel called micro drama. We actually -- this is something we rolled out end of last year. And in terms of the content viewing time contribution, micro drama already ranked us #2 content categories of the overseas platform and has been growing quickly and also very recently for the Chinese New Year, we have experienced rapid growth as well and reached a new high. So this is something else also that set us apart from the Western players in overseas market. Xianghua Yang: [Foreign Language] Chang Yu: And in terms of your question regarding ARPU and also membership performance. For ARPU actually for each region, it's actually different. Overall speaking, we think we're at the midrange of the price tier. For each different region, we expect a different price point. For areas more developed similar to the Western spending powers, the ARPU is a bit higher from the China domestic region. And for regions for the developing regions, for example, like the Southeast Asia, the average ARPU is a bit lower than the China domestic region. But overall speaking, I would say that the overseas ARPU will be greater or more than the China domestic ARPU. Xianghua Yang: [Foreign Language] Chang Yu: And in terms of the membership retention, in overseas business, we adopt the premium model, which is the free plus paid content model. And in areas such as more developed regions, I will say that this is very much similar to their spending habit and viewing habit, the retention is actually a bit better than domestic areas. But in some of the areas such as the developing regions, the retention performance is a bit lower. But overall speaking, the overall membership retention is similar to domestic level. Xianghua Yang: [Foreign Language] Chang Yu: In terms of we're adding the performance for the financial aspect. Overall speaking, the free cash flow now is positive. But in terms of the P&L performance for operating income because there is some financial accounting treatment that we still have to sort out. Now we haven't disclosed the exact numbers, but we will share more insights as we have more clarity. Operator: There are no further questions at this time. I'll now hand back to management for closing remarks. Chang Yu: Thank you, everyone, for joining the call today. And if you have any further questions, please do not hesitate to contact us. Thank you. Tim Yu: Thank you. Bye-bye. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, good morning, and welcome to the TriMas Corporation Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, TriMas Corporation's VP, Investor Relations, Sherry Lauderback. Please go ahead. Sherry Lauderback: Thank you, and welcome to TriMas Corporation's Fourth Quarter and Full Year 2025 Earnings Call. Joining me today are Thomas Snyder, TriMas' President and CEO; and Paul Swart, our Chief Financial Officer. We'll begin with prepared remarks covering our fourth quarter and full year results, followed by our expectations for 2026 and the future of TriMas, after which we will open the call for questions from our analysts. To help you follow along with today's discussion, both the press release and our presentation are available on our website at trimas.com under the Investors section. A replay of this call will also be available later today by dialing (877) 660-6853 and using the meeting ID of 1375-8505. Before we begin, I'd like to remind everyone that today's comments may include forward-looking statements, which are inherently subject to various risks and uncertainties. Please refer to our most recent Form 10-K and 10-Q filings for a discussion of the factors that could cause our results to differ from those anticipated in any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We also encourage you to visit our website where more information is available. In addition, please refer to the appendix of our press release or presentation for reconciliations of GAAP to non-GAAP financial measures. Throughout today's call, our discussion of financial results will be on an adjusted basis, excluding the impact of special items. At this point, I'll turn the call over to Tom. Tom? Thomas Snyder: Thank you, Sherry. Good morning, everyone, and thank you for joining us today. Before we discuss our quarterly and year-end results, I want to take a moment to reflect on 2025, a truly transitional year for TriMas. This is not the same company you saw a year ago. Over the past 8 months since I've joined TriMas, we have sharpened our strategic focus, strengthened our leadership team and begun rebuilding the foundation necessary to deliver stronger and more consistent performance going forward. I'd also like to formally introduce our new CFO, Paul Swart, who joined us in mid-December. Paul brings more than 25 years of financial and operational leadership experience, including 2 decades here at TriMas across corporate and operational finance, accounting and business planning. His deep familiarity with our business and his recent experiences leading transformation efforts make him a tremendous addition to our leadership team and an exceptional partner as we enter this next phase. We are excited to have him back. Welcome back, Paul. Over the past few months, we've refreshed our management approach, clarified roles and accountability and elevated decision-making speed and execution. This has enabled us to focus our energy on the areas that matter most, serving our customers, improving operations and developing our people and driving performance. We've made meaningful progress in elevating operational excellence and strengthening our commercial execution. In the latter part of 2025, we completed approximately 100 customer interviews across 10 countries as part of our voice of the customer initiative, giving us clear insights into customer expectations and where we must raise the bar to win with our customers. These insights are driving changes in how we organize and engage with customers so that we are more aligned with their needs and more connected in our day-to-day interactions. We also launched a structured global operational excellence program, a company-wide operating system rooted in Lean Six Sigma principles. This program is designed to drive continuous improvement, enhance efficiency and increase standardization across our footprint with a focus on safety, quality, delivery and cost. We are encouraged by the initial launch within our packaging business at 2 larger locations and look forward to rolling out the program to more sites in 2026. These operational and cultural changes are creating more unified practices across the organization, strengthening the foundation of data-driven management and elevating accountability among our teams. Building upon this increased accountability and better visibility into our KPIs, we also restructured our 2026 incentive program to reinforce a disciplined pay-for-performance culture that rewards results and aligns the entire organization on its true north. As I've traveled to our locations over the past several months, I've seen firsthand the impact of these efforts as we are a company with strong capabilities powered by talented people who are deeply committed to delivering value for our customers and shareholders. At the same time, those visits have highlighted clear opportunities for continuous improvement, areas where we can evolve, innovate and further strengthen our foundation for the future. Taken together, these actions underscore a simple point, TriMas today is becoming more focused, more agile and better positioned to deliver. With that foundation in place, let's turn to Slide 4 to review several key actions underway that will further transform TriMas and drive the next phase of improvement across the organization. First, we continue to make solid progress toward completing the divestiture of TriMas Aerospace, which we announced in early December. The transaction remains on track to close in mid- to late March. As previously communicated, the purchase price is approximately $1.45 billion in cash, which we expect will generate approximately $1.2 billion in net after-tax proceeds. As a result of the pending sale, TriMas Aerospace is now reported as discontinued operations beginning with these quarterly results. You'll also notice that we provided additional disclosure to help you interpret the results. We've included both total company performance and the breakout between continuing and discontinued operations where practicable. And to ensure comparability, we have recast certain historical periods to reflect the planned sale of TriMas Aerospace. That recast information will be available in the Form 8-K we are filing today. Following the close, TriMas will operate with 2 reporting segments: our Packaging segment and our Specialty Products segment. The divestiture positions TriMas as a more focused company and the significant proceeds provide us with meaningful flexibility as we execute our capital deployment priorities, including share repurchases, investing in organic growth initiatives, pursuing targeted acquisitions and maintaining our balance sheet. Let me now cover how we are approaching capital deployment as we move into the next chapter. Our priorities remain consistent, reinvesting in the business, pursuing selective acquisitions, particularly in the Packaging and Life Science space and returning capital to shareholders as appropriate. To support a more disciplined and strategic approach to M&A, we have established a strategic investment committee that brings sharper focus and rigor to evaluating opportunities aligned with our long-term vision. Since announcing the divestiture, we have repurchased more than 3 million shares for approximately $100 million. And as announced earlier today, we increased our remaining share repurchase authorization back to $150 million. The Board will continue to assess potential increases to the company's existing share repurchase authorization as we move forward. As we deploy capital, we expect to repurchase additional shares while also planning to pay down the revolver borrowings associated with the prior buybacks. In parallel with these strategic actions and a smaller, more focused organization, we have also reshaped our structure to operate more efficiently and better serve our customers. At the end of January, we implemented a company-wide realignment to streamline operations, including integrating certain corporate and business functions to simplify the structure, eliminate duplication and improve execution. Savings from the initiatives we have completed are expected to ramp up throughout the year, generating over $10 million of cost reductions in 2026 and more than $15 million on an annualized basis. In addition, within TriMas Packaging, we are restructuring the commercial and operational model to break down silos, accelerate decision-making and to strengthen customer engagement and responsiveness. This transformation is supported by several initiatives, including brand unification, expanded operational excellence programs, upgraded systems and continued optimization of our manufacturing footprint. Collectively, these actions are strengthening TriMas' operation model, enhancing customer satisfaction and positioning the company for sustainable long-term value creation. As we advance this work, I'm also drawing on several decades of personal experience operating in highly competitive environments where 2 principles ultimately determined who won, relentless cost discipline and unwavering focus on the customer. Those disciplines are more important today than ever as we compete to win in the marketplace. As I look at the transformation underway, I feel strongly that this is where I can help us create real value by instilling a sharper cost mindset across the organization and elevating our focus on serving customers better than our competitors. Shifting gears, let's turn to our full year and fourth quarter performance. Despite all the transition and change throughout 2025, we delivered full year and fourth quarter results in line with our expectations. Total company adjusted earnings per share for the year was $2.09, towards the upper end of our provided guidance range of $2.02 to $2.12, which had already been raised earlier in the year. I'm very proud of how our teams executed during this period of significant transformation. And with that, I'll now turn the call over to Paul, who can walk us through the financial results in more detail. Paul? Paul Swart: Thank you, Tom, and good morning, everyone. I'm so excited to be back at TriMas and help lead the company and our great group of employees in the next chapter of our history. Let's continue where Tom left off with a review of the financials on Slide 5, which shows our fourth quarter and full year results. This slide shows our total company results before consideration of the reclassification of Aerospace to discontinued operations to evaluate results consistent with how we provided our most recent outlook. Starting with the fourth quarter, TriMas total company net sales were $256 million, 12.5% higher than the prior year. Organic increases in each of our segments totaled just over 9% and were augmented by the contribution from TriMas Aerospace's 2025 acquisition in Germany and modest favorable currency exchange. These items were partially offset by the impact of the Arrow Engine divestiture, which was a part of TriMas for all of 2024, but only 1 month in 2025. From a profitability standpoint, fourth quarter segment operating profit increased more than 21% to $33 million, with margins expanding by 90 basis points, driven by the higher sales levels and continued operational execution. Q4 adjusted EPS declined by $0.03 year-over-year as the higher business operating performance was more than offset by the timing and higher levels of both incentive compensation and foreign currency exchange in '25 versus '24. Looking at the full year, total company net sales were just over $1 billion, up 12.7% year-over-year, driven by organic sales increases in each segment, most notably in Aerospace. Sales from our February Aerospace acquisition in Germany contributed $23 million, more than offsetting the impact of $18 million from the divestiture of Arrow Engine. Adjusted segment operating profit grew by more than 30% to $149 million, a 200 basis point increase year-over-year, driven by higher sales levels and continued operational improvements throughout the year. In addition, as Tom mentioned, adjusted EPS increased by $0.44 year-over-year or 27% to $2.09 toward the upper end of our guidance range of $2.02 to $2.12. Overall, we're pleased with the growth and margin expansion achieved during 2025, which meaningfully outpaced our original expectations with the Aerospace-specific growth significantly enhancing its financial profile and allowing for the monetization of the value our team has created when the deal closes in the coming weeks. Turning to Slide 6, I'll cover our cash flow and our balance sheet. We delivered strong cash performance during 2025, generating fourth quarter and full year 2025 free cash flow of $43 million and $87 million, respectively, with both figures more than double the prior year period. This improvement reflects stronger operating performance and disciplined working capital management throughout the year. This strong cash flow allowed us to fund the $38 million purchase price for the acquisition within Aerospace and repurchased over $100 million of stock during 2025, among other items, while only increasing our net debt by $64 million to $439 million. Following the Aerospace divestiture announcement, we repurchased more than 3 million shares for just over $100 million, reducing our year-end outstanding share count to 37.6 million. We approach these repurchases thoughtfully, taking on a measured amount of net leverage a few months in advance of having certainty while capitalizing on what we viewed as an attractive opportunity to buy shares at levels that did not reflect the company's underlying value. The newly announced share repurchase authorization today, back to $150 million, provides us with incremental flexibility going forward, particularly post deal close. At year-end, our total debt was comprised of $400 million of [ 4.5% ] bonds due in 2029 as well as approximately $70 million of revolving borrowings. While our net leverage remained flat with the prior year-end at 2.6x, it increased from 2.2x in the third quarter due to financing most of the share repurchases on the revolver. Finally, we expect to receive approximately $1.2 billion in net after-tax proceeds from the sale of TriMas Aerospace, which upon receipt, we would plan to pay down any amounts outstanding on the revolver. We plan to invest the remaining approximately $1.1 billion in high-quality interest-bearing accounts while awaiting redeployment. Assuming the deal closes in late March, we estimate this balance could generate up to $30 million in cash interest over the last 3 quarters of the year, subject to the timing and amount of cash redeployed and actual interest rate earned. Shifting gears now to business performance. Let's turn to Slide 7 to discuss Packaging. As expected, the fourth quarter was a mixed quarter, directionally consistent with what we've been managing all year. Sales were up 5% year-over-year, with organic sales up 2.4%, driven by strength in products serving the industrial and life sciences markets, partially offset by softer demand in food and beverage applications, particularly flexibles and closures. Operating profit of $15 million was down about 5% year-over-year, with margins at 11.6%, below prior year as well as the margins achieved in the first 9 months of '25, reflecting a less favorable mix as well as the typical Q4 seasonal pattern. For the full year, Packaging delivered 4% organic growth and held margins nearly flat with full year operating profit of $71 million and a 13.3% margin, which we view as a solid outcome given the persistent macro headwinds, tariffs and demand uncertainty across several end markets. Looking ahead, we expect 2026 to show continued momentum with 3% to 6% sales growth and margin improvement to 14% to 15% as cost-out actions already implemented ramp up and flow through. We expect sales and profit growth in Q1 will land at the lower end of these full year ranges and we'll continue sharpening operational and commercial execution, focusing on ways to improve profitability, efficiency and customer satisfaction. Overall, the business exited the year with a solid foundation and clear drivers of profit improvement as we move into 2026. Turning now to Slide 8. I'll review our Specialty Products segment. It was a solid year for Norris Cylinder, the remaining business in this segment, although its results are less visible due to the sale of Arrow Engine, which closed in January 2025. In Q4, Norris delivered nearly 14% year-over-year sales growth, although total segment sales were down 1.4% as the Arrow Engine divestiture more than offset that growth. Profitability, however, meaningfully improved. While there is still further improvement expected, operating profit and margin doubled year-over-year, with margins expanding to 6.5%, driven by Norris Cylinder's prior cost restructuring actions. For the full year, Norris Cylinder delivered 9.5% sales growth and nearly doubled operating profit, contributing to $5.4 million in operating profit and a 4.9% margin. While this improved performance helped, it's only partially offset -- it only partially offset the lost profit from Arrow as it was part of Specialty Products for all of 2024, but only 1 month in 2025. Looking ahead, we expect continued improvement with 3% to 6% sales growth in 2026 and operating profit margins in the 8% to 10% range. Q1 is expected to track toward the upper end of the sales range with margins growing from 2025 levels into the 8% to 10% range, supported by stronger intake, our made in the U.S.A. positioning and further leveraging the prior cost restructuring actions. Overall, despite the headwind from the Arrow Engine divestiture, Specialty Products enters 2026 with stronger profitability fundamentals and clear opportunities for further improvement. Now moving to our final segment, Aerospace, which is now reported as discontinued operations and assets held for sale on Slide 9. This was an exceptional year for the business, delivering record results and a key reason why we were able to secure a strong valuation in the pending sale. Fourth quarter sales increased 29% year-over-year, driven by improved output, commercial actions and nearly 10% growth from acquisitions. Operating profit grew more than 50% with margins expanding 240 basis points, supported by strong sales leverage and continued operational excellence. For the full year, sales grew nearly 35% with more than a 600 basis point improvement in operating margin, reflecting consistent execution across the organization. The team has done an excellent job in 2025 of creating value for TriMas and its shareholders. A big thanks to the team for their contributions in 2025. Given that the transaction is expected to close yet in first quarter and that Aerospace's financial results are included in discontinued operations, we are not providing forward expectations for this segment. To wrap up the financial review, despite a dynamic year of transition and macroeconomic challenges, our results met our expectations overall, providing a solid foundation from which to elevate the position and position the new, more focused TriMas going forward. Now that we reviewed the total company results, we thought it very important to level set you on remaining TriMas post the Aerospace sale on Slide 10, which shows the continuing business segments and consolidated metrics in 2025 as well as providing initial thoughts on 2026 and beyond. Net sales were $645 million in 2025 with operating profit of $34 million, adjusted EBITDA of $79 million and EPS of $0.55. As Tom has mentioned previously, remaining TriMas is an entity with several levers in our control to streamline, integrate and optimize costs as well as to simplify and strengthen commercial strategies. We have already implemented actions during the back half of 2025 and thus far in 2026, which we expect to significantly improve our financial results this year and which can be leveraged over future periods. And there is more that we will be evaluating as new IT systems and processes allow for further enhancements. In addition, the corporate office oversight functions and costs necessary for a $1-plus billion company are much different than for a focused business with 2 segments, and changes have already been made to centralize and integrate functions and positions with the business to simplify and reduce costs. And there are other opportunities over time, such as once the Aerospace transition support is completed that will further enable cost efficiencies. In 2025, TriMas operated at a 12% adjusted EBITDA margin, which we believe is 600 to 800 basis points lower than where this current set of businesses can and should operate on a long-term basis, even before reinvesting any aerospace proceeds to further strengthen the portfolio. As Tom will note in a moment, 2026 is expected to be a strong first step in a multiyear program to continuously improve toward those goals, and we plan to update you on our progress along the way. With that, I'll now turn the call back to Tom to provide further details on our outlook and our future. Tom? Thomas Snyder: Thanks, Paul. I would like to take a few minutes to talk about what the future looks like for TriMas as a more focused company, beginning with our 2026 outlook on page -- Slide #12. With the TriMas Aerospace sale expected to close in mid- to late March, my comments today focus on our continuing operation and the key assumptions behind our expectations for 2026. For the full year, we expect sales growth of 3% to 6% from our 2025 baseline of approximately $646 million. We also expect more than 300 basis points of adjusted operating margin improvement, driven by continued operational execution in both Packaging and Specialty Products, along with the full year benefit of the cost out and organizational realignment initiatives already underway, which include an expected reduction in corporate cash expenses of at least $10 million in 2026 versus 2025. Given the scale of the cost-out actions and the timing to reach their full run rate, we do not -- we do expect the first quarter of 2026 to be our lowest quarter for margins and earnings per share. While we anticipate 3% to 6% sales growth in Q1, we expect adjusted operating margin to improve by just over 100 basis points versus Q1 2025, although sequentially, it would represent more than a 400 basis point improvement versus Q4 of 2025. We've also provided a few additional Q1 assumptions given the significant changes taking place across the company. Across the first quarter and the balance of the year, we expect year-over-year improvements in sales, earnings and earnings per share in each quarter as savings build and operational performance continues to strengthen. And importantly, today's expectations do not include any redeployment of the TriMas Aerospace sale proceeds. Finally, given the pending sale of TriMas Aerospace, we plan to provide full year earnings per share guidance on our Q1 2026 earnings call in April once the transaction has closed. Before we move into Q&A, I want to step back and describe why we're so excited about the future of TriMas and the company we are becoming on Slide 13. With the Aerospace divestiture nearing completion, TriMas is emerging as a more focused and more agile organization built around businesses that have strong market positions and substantial opportunities for value creation. And importantly, we now have a foundation that we can continue to build upon in ways that further transform the company. Who we are -- who we currently are is clear. We are a global provider of high-value dispensing, closure and life science solutions supported by deep technical expertise, long-standing customer partnerships and a flexible global manufacturing footprint. Our end market exposure is well diversified, and our teams embrace a culture of innovation and operational excellence that drives innovative, sustainable and high-quality solutions. And just as important is what will set us apart, a customer-first approach with a unified sales team and integrated solutions. We've reshaped the organization to be simpler, faster and more responsive. Our innovation pipeline is increasingly aligned with customer needs, and we are leveraging technology and operational excellence to enhance quality, reduce cost and increase speed to market. Our strategy is centered on accelerating growth in higher-value, higher-margin applications, particularly in Life Sciences and areas of our packaging business where our capabilities and customer access give us meaningful opportunities to expand. And finally, as you know, we will also have financial flexibility to continue investing in our future. The aerospace sale proceeds will enable us to fund growth, pursue strategic acquisitions, maintain our solid balance sheet and return capital to shareholders. Taken together, the new TriMas is a focused portfolio with different capabilities, a stronger foundation and significant opportunities ahead. Turning to Slide 14. As we look forward, TriMas has multiple levers to drive growth across sales, earnings and long-term value creation. With a stronger operating base and meaningful capital to deploy, we are well positioned to accelerate our strategy, deepen customer partnerships and invest in the highest value opportunities across our markets. Our teams are energized, and I couldn't be more excited about the future of TriMas. Thank you. And with that, I'll turn it back to Sherry. Sherry Lauderback: Thanks, Tom. At this point, we would like to open the call to questions from our analysts. Operator: [Operator Instructions] We take the first question from the line of Ken Newman from KeyBanc Capital Markets. Kenneth Newman: Paul, it's great to hear from you again. Congrats on coming back. So maybe to my first one, I know there's a lot of moving pieces, so first, thanks for all the increased transparency around all that. I think it helps to get an apples-to-apples look. I'm curious if, first, could you just help us how to think about the cadence of margin improvement as we move beyond the first quarter? Are there things that are easier to kind of get done in the second and third quarters? Is there any seasonality we should kind of think about? Or is this really more of a linear progression up as we move through the year? Paul Swart: Sure. So I'll take that, Ken. So yes, as we think forward, there is an increased ramping savings related to our $10 million of cost savings actions as well as other initiatives that will be happening throughout the year. And as a reminder, Q2 and Q3 tend to be our highest sales quarters of the year, so we would expect an increase from Q1 to Q2 and then increased margin from Q2 to Q3. Q2 or Q3 could be the sales -- highest sales quarter as they've changed over the years, but they're the highest 2. And then Q4 typically has a step down from a sales perspective. We would also likely expect that margin declines Q4 versus Q3, but it would be still significantly higher than Q1. Kenneth Newman: Okay. That's very helpful. I appreciate that. And then within Packaging, obviously, you're forecasting or guiding to margin improvement there. I know there was a mix headwind this quarter that was a little higher than I was expecting on my apples-to-apples model. Is there a way to bridge how you think about the margin improvement within Packaging that's being driven by either cost-out efficiencies versus better mix or market demand? Thomas Snyder: Yes. I'll try and then, Paul, you can fill in where I've missed. Just strategically, in packaging, so we do have -- we have a lot of improvement going on there. And so some of it is the -- as we talked about consolidating organizational efforts, and so we had a kind of a fragmented approach around certain functional areas in the company. That's being consolidated, some of that was part of our January initiative. And then -- and we have operational improvements as well that are coming in through the year that are going to continue to deliver. Now the Q4 was -- had some headwinds and had some mix differences that kind of contributed to Q4, not all bad from my perspective, and so on the sales side in Q4, we had a lot more tooling sales in the quarter than -- let's say, than was normal. But that -- and that usually converts a little bit less than the products themselves. But the good news is that, that's laying the groundwork for key initiatives and projects that we're working on that are coming to market in 2026, and so I'm excited about that stuff. So not all bad from my perspective. Paul Swart: Yes. And from a balancing perspective, I think it's probably pretty well weighted between the 2 of them in terms of how much read-through is from cost savings actions versus how much is just going back to a normal product sales versus tooling sales as we move into first quarter, so I mean, I think it's pretty balanced between the 2. It's not that we're expecting a tremendous difference other than the tooling sales that we have visibility to in Q4, not repeating at the same level. Kenneth Newman: Got it. Okay. Maybe I could just squeeze one more in. It was good to see another increase in the share repurchase authorization today. Tom, you also talked about this new investment community to analyze potential deals. First, I guess, how aggressive can you get on the repurchase authorization in the coming quarters? And second, as it relates to potential acquisitions, is there a way to help us think about what the pipeline looks like today and how quickly you think you could go after a deal within some of those higher mix, call it, life science type of targets? Thomas Snyder: Yes. I mean we're spending a lot of time learning, studying, looking at opportunities, understanding opportunities that are actionable. But we need to get through where we are right now. We need to get the transaction behind us. We need to get it closed. And then we'll be more specific about what the outlook is in our Q1 call. We'll also have probably a little bit more clarity around capital redeployment. So it's hard to really give you any more specifics at this point. But we are looking at markets that are -- we do like our Life Science business. We do like the opportunities that we see in that space to continue to grow and bolt-on growth in that area as well as other opportunities that are higher value-added areas of our business. So I wish I could give you more, but that's pretty much where we are at the moment. Well, the share buyback, too, I mean, I think that's what I was saying, we'll give more clarity around that as we get through the -- between now and the first quarter. So we are reauthorizing, as you saw, another $150 million in total, and we continue to look at and evaluate what we should do beyond that. It's all part of our overall strategy, and we'll, again, provide more clarity on that down the road. Operator: The next question comes from the line of Hamed Khorsand from BWS Financial. Hamed Khorsand: So first off, anything that could derail the closing of the deal to Q2? What is it -- is there a specific event that you're looking for, for it to go through the closing process? Paul Swart: So there are regulatory processes, which obviously we don't control that are still underway based on everything we're aware of at this point. They're going through their normal course. And that's why we're projecting that if they are through when we expect them to be through based on typical days, that's why we're comfortable talking about the back half of March as the expected close date. So nothing we're aware of that would change that outcome today. Hamed Khorsand: Okay. And then in the Packaging segment, is there any particular end market or geography that you're expecting to outperform this year compared to what your guidance is? Thomas Snyder: Well, we're optimistic about several markets. We do have an expansive footprint. We're in different markets and different geographies that position us well for these opportunities as they come. We like -- we do have some growth in the life sciences area that we think is going to contribute well going down the road. We see growth in our industrials business as a result of regulations that are changing, and we have a leadership position in some of those markets. The beauty and personal care for us is a good market as well. It's got good growth across the globe and the markets that we compete in are performing well, so we continue to be optimistic in that area. We do expect food and beverage too, to have some recovery this year versus last year. Last year, as we've talked about, wasn't a very good year. So we're looking at, say, low -- at least low to mid-digit recoveries in that market. And we do have some leading expertise in technologies, especially in Europe around beverage products that are going to be mandated to change technology over the course of the next 18 months. And so we're -- we feel that we have a really good position there, too. So broadly, those are the big markets for us and kind of what we see coming down the road. Hamed Khorsand: Okay. And is any of that outlook that you just described because of the benefits of the cost cutting and the integration of the brands? Paul Swart: No. No. I mean what you're talking about is product specific. So it's really not as a result of the cost cutting or realignment, although I do think that inherent in that guidance is what Tom talked about related to our sales structure and our commercial strategy. Thomas Snyder: So I thought you there's more coming in your question, that's why I paused there. So the way that we're going to market, I think we're going to be more successful in being able to achieve growth in these particular areas. And my expectation is that we should be able to beat the market. I mean that's when I talked about earlier winning in the marketplace and beating the competition. The intent here is that we're going to be a low-cost, nimble organization that has quicker response times and with innovative products that meet the needs in the market. And we have a sales approach now that used to be a bit cumbersome. And so it was a duplication of sales across different product lines. What we heard through our voice of the customer survey is that we want a team, a person, a lead to talk to us about opportunities in our particular markets before we were tripping over ourselves. And so I think that's just another example of how we can bring efficiency to the commercial process. And if we can execute against everything that I've just said, we're going to be able to be more efficient, and we should be able to beat the market numbers from what I just talked about, so that's one of the areas that has me really excited. Operator: Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for their closing comments. Sherry Lauderback: Once again, we'd like to thank you for joining us today and for your continued interest in TriMas. We appreciate your ongoing support, and we look forward to updating you on our progress next quarter. Thank you. Thomas Snyder: Thank you. Operator: Thank you. Ladies and gentlemen, the conference of TriMas Corporation has now concluded. Thank you for your participation. You may now disconnect your lines.
Eivind Roald: My name is Eivind Roald, and I'm the new CEO of Norse Atlantic Airways from December last year. I'm here to present the Q4 results together with our CFO, Anders Jomaas. Before I start, I will give a quick introduction to my background, and I'll also share some reflections on why I took the position as the new CEO. I have more than 30 years of experience from various executive positions in Scandinavian companies. I've been leading the turnaround in Hewlett Packard as Managing Director for many, many years. I was the Executive Vice President and Chief Commercial Officer in Scandinavian Airlines for many years, and I've also been leading European software companies and worked for several PE companies as well. When I accepted the position for this job, I was discussing and looking into Norse. And I see that this company has a very good foundation for actually becoming a very profitable company in the future. First of all, they have a very attractive leases agreement that goes for many years from now. They have a very competitive product that reach the market, and we see that with all the high load factor we have during the whole -- all the quarters as well. The balanced model with more than 50% of the aircraft now outsourced to Air IndiGo is also giving us an unforeseen revenue stream and indirectly also hedging the fuel that is an important part of the cost focus these days and an industry-leading ancillary sales -- ancillary sales that gives us a good foundation for actually increasing the revenue as we go in the future as well. We do also see some need for improvements when I look into the company. I think we need an even more clear business idea what we should focus on. We need to optimize the network to make sure that we reach the right destination and also the utilization of our aircraft. We need to accelerate the commercial initiatives, and we also need to ensure that we have flexible crew agreements to make sure that we can meet the different needs in the market. The needs for a more simplified organization and also taking more cost out is also an important part of what we needed to work on. And we have seen during the last months that we are struggling a little bit on the way we communicate towards our customers, and that's needed to be a focus as well. Cost will be an important part of the focus going forward. And basically, that was also the foundation for why I thought this was a very interesting opportunity to sign on. So let's look at some of the figures for Q4. I will try to focus on actually what's an important part of the Q4. The Q4, as such, is a big -- is a quarter with 2 months where we struggle a little bit on October, November, and then we saw the turning point came in, in December. The decision that the company took in 2025, where they decided on the ACMI agreement with Air IndiGo, where they decided also new network to focus on more to Asia with Thailand and as the most important part has now started giving good results. And that the turning point that came actually in December. December was a profitable month for Norse. And we also -- even though that we saw some irregularities during that month and have some extra cost that is a onetime cost, that month came out as a positive month. But the Q4 as such was a significant better revenue from $123 million to $156 million in revenue. The EBITDAR came in on a minus $3.1 million and an EBIT on minus $22 million. The load factor is still high during the whole month, whole quarter. And if we take a look at the 2025 figures, we see that it's a significant improvement from 2024 now with an EBITDAR on plus $56 million and an EBIT on minus $20 million, significant improvement from almost minus $100 million in 2024. We also have a huge impressive growth on the passenger side from $1.4 million to $1.8 million, and the load factor is still quite high. So the turning point we're talking about in December is an important part for investors to look into. And to give you some few more data points to have in mind, we had in December specifically a passenger growth of 22% with a production of plus 14%. And the TRASK growth was for that month, 6%. And we communicated in our traffic report for January that the TRASK increased by 20%. And later in the presentation, I will come back to say something about what that number is in February and also in March. The turning point came after the decision that the company took in 2025. They said they took strategic measures, they have now implemented the measures, and we now see the results. And that should be the main focus for investors going forward, not to look too much into Q4 as such, but more looking into the turning point in December and look forward. And if you look at December on the TRASK side, we see that November came in on plus 7% year-over-year, December 6% and then January, 20%. And as I said, I will come back to indicate a little bit more about February and March later in the presentation. On the ACMI side, we have completed now the delivery of the sixth aircraft to Air IndiGo. And as we have communicated earlier, we have a minimum revenue of 350 block hours per month. And as you see on the graph here, we are way above that for every month. And that gives us a more focus and more safe revenue side from Air IndiGo the coming year as well, an important part of having a better understanding of how the year will really come out. So with that, I will give the word to our CFO, Anders Jomaas, that will take us through some of the numbers in more detail. Anders Jomaas: Thank you, Eivind, and hello, everybody. I will give you some more insight into the Q4 numbers and the '25 per se. So if we start now looking at Q4 '25 and looking at the passenger numbers, we see that we fly a lot more, we have record high load factors. We are seeing 96%. Passenger numbers also increasing. We see that we go from 339,000 passengers Q4 '24 to more than 400,000 this quarter. Revenues keep coming up. Although EBITDAR and EBIT are lagging somewhat, we would like to see those higher. But if we look at the quarter -- sorry, the full year of 2025, we see the same trends. We see increasing number of flights. We see load factor increasing. We see passenger numbers increasing. Revenues are significantly up. And for the full year, we also see the improvement on EBITDAR and EBIT, where we have EBIT of $56 million -- sorry, EBITDAR of $56.5 million for the full year compared to $0 for '24. So this is the trajectory we're on of gradually increasing, and Eivind will also come back to our outlook for this year. Some key terms to note when we talk -- Eivind, you talked about TRASK, which is total revenue per available seat kilometer. This is important unit metric when we do our reporting. Similarly, CASK is cost per available seat kilometer. And it's basically the difference between the 2 that is important for us. So we see in this quarter that we improve TRASK by 3% -- sorry, for this year, we see that we improve TRASK by 3%. We reduce CASK by 10%, and we do that in an environment where we fly 20% more. So these are the important drivers for what's ahead for Norse. Looking at the quarter itself, we are -- we now see that we are able to also increase passenger revenue. The revenue per passenger is up 10% year-on-year from $343 in average per passenger to $379 this quarter. We also have a big belly on this aircraft and volumes have been relatively stable, a little bit lower, but we see higher prices also on the cargo side, which is an important contribution to the overall profitability of our company and our industry. I even mentioned that we fly a lot more to Thailand, Southeast Asia. These routes have been particularly strong in terms of cargo. We transport salmon going east, and we have a lot of e-commerce, especially around November, December season going back. Looking at Q4 in particular and focusing first on the mid-section of this graph, where we say that here you will see that we fly a lot more. ASK is available seat kilometer, basically how much production we deliver. So we produced 44% more seat kilometer this quarter compared to same quarter last year. The composition last year was 80-20 in terms of network and ACMI. Now it is shifting 62:38. And going forward, you can increase -- you can expect this to balance and be even more like 50-50-ish. So we produce a lot more, but we also produce more ACMI. Why this is important is that the cost base on ACMI is lower, meaning we do not pay for the cabin crew. We do not pay for the fuel. So this is, in fact, an implicit fuel hedge. And when we have 6 aircraft delivered to IndiGo, we actually have fuel hedged for 6 out of 12 aircraft. And we also do not pay for the airport charge and the handling. So the lower cost base also means that we -- the revenue is in U.S. dollars lower, but the margin is very healthy on the ACMI business. So if you look at the CASK, it has actually reduced from 4.5 to 3.6. The revenue TRASK is also down, but the important margin is increasing from 0.3 to 0.5. So actually a 70% increase in margins due to this shift we're seeing. We are continuously working on reducing CASK. Eivind mentioned there are several cost initiatives going on in the company. This will continue to go through the year and the coming years, continuous focus. But we are happy to see that we are reducing by 19% quarter-over-quarter, partly driven by the shift to ACMI, but also we see that we are able to reduce costs on certain important areas. If we look at the numbers, Eivind mentioned a few, I'll go a little bit more in detail on some of them. Revenue for Q4 was $156 million, up from $123 million same quarter last year. Personnel expenses, $43 million, which is driven by higher production, some general wage increases, some special one-offs, but also worth noting that FX has gone against us somewhat in the quarter, so approximately $2 million of the personnel expense increase is related to FX only. Fuel is a derivative of how much we fly. We have flown 11% more in the quarter, but also fuel prices have been higher, 7% higher in Q4 '25 than in Q4 '24. Other OpEx is mainly technical maintenance and again, a clear derivative of how much we fly. There is a one-off expense in there related to the engine incident in Q3 last year of $4.5 million, which will not be there in the coming quarters. SG&A, also a focus, glad to see that coming down, but there's further potential for further reductions also there. EBITDAR for the quarter, negative $3 million, EBIT negative $22 million and bottom line, $33 million loss for the quarter. Looking very quickly at the full year '25, revenues of $734 million and a positive EBITDAR of $56.5 million, leading to a loss of -- sorry, $61 million for the year. In terms of cash flow, we see that there is a negative cash flow from operations in Q4. Many reasons for that. We have talked about the cost base. We talked about the one-offs. We talked about the FX, continuous focus area. Working capital is reducing, and that is reflecting also the transition to ACMI and Charter. Financing cash flows of $7.5 million is related to a large extent to the equity raise we did in October, relatively small equity raise with net proceeds of $11 million, but that is in that number. Free cash end of the quarter, $18 million. Looking at the balance sheet. And for those of you who have followed us for a long time, you know that one to watch is the credit card receivables, which is $72 million. So it actually means that the acquirers as they call, or the credit card companies, they are sitting on $72 million of our funds. We are working on streamlining the whole payment flow in our company and to gradually reduce that. You'll see that it has come down, but we will continue to work on good solutions to make sure that we collect funds even earlier as we move forward. Equity for the company is negative $260 million, but keep in mind that as much as $175 million of that is noncash lease effects. So that was a lot of numbers. Eivind, I think I'll give the word back to you. Eivind Roald: Thank you, Anders. When I started, I was given a clear mandate from the Board that was to accelerate the already decided changes. And therefore, together with my management team, we have launched a product called Falcon. The Falcon project is focusing on a number of measures to secure that we now deliver a company that is profitable and where the investors can have trust in us in the future. Here is just some few examples on what kind of areas we are focusing on. And several of these have already also been decided and are under execution. We need, for example, to look into a much more flexible way of looking at where we can have much more profitable business. We have a lot of interest for ad hoc charter, for example, football in U.S. this summer is just one example. We also have a very good relationship with P&O Cruises and that has also asked for even more capacity for winter in '26 and '27. We look into all these kinds of interesting areas to put our aircrafts. To be more flexible also to find new destination is one of the things we also will look more into too. We will have a more focus on our premium products, so we will be able to increase the yield on that. And we will also need to look into the agreements with our crews to be sure that we have a more flexible model for where we can put our capacity. Reduction of SG&A goes without saying, it needs to go down, and we work on several initiatives within that area as well. That means we also will look into what should we keep internally and what we potentially can outsource. Every stone will be turned around and we looked into because we think we are now in a good position to deliver a company that will be profitable in the coming months. We started in January with the traffic report to be a little bit more open on our data points. And we would like to continue that to make sure that investors have a better platform to evaluate our performance. In this graph, you will see that we now give you an indication about how both Q1 and Q2 looks on a -- from a TRASK perspective. In Q1, we are selling our seat price an average of 40% higher price versus the same period in 2025. And for Q2, we are still 10% above. And we're still holding back selling seats to make sure that we can give up in the coming months. That means for TRASK in February, month-to-date, we see a clear indication of 20% year-over-year growth. And we already now see a year-over-year growth for March in the range of 20% to 30% for the March. In total, this says something about that the turnaround that started back in December accelerated in January, now continue. On the revenue side, we are quite confident. And with that as a backdrop, we also indicated to the market this today that we see a full year EBITDAR in the range of USD 130 million to USD 150 million and an EBIT in a range of USD 20 million to USD 40 million for the year. We have a lot of things to do, and we have a management team that is dedicated to deliver a profitable company in the coming months. And we look forward to have you on board as investors and that you can follow us also in the next quarter to come. With that, I will open up for Q&A. Operator: All right. We have a few questions here. We have room for a couple. The first one is you reduced the fleet through redeliveries and shifted half into ACMI. Is Norse becoming more of a capacity provider than a branded airline? Eivind Roald: The question was that we have delivered 3 aircraft back and that we have now an agreement with Air IndiGo for 50%, and we will move toward a more capacity provider than a pure airline. What I will say is that we will focus on where we can get the most margin out of it, where we can have most profit. If that means that we, for some period, will increase on having more outsourced to either if that is Air IndiGo or is it P&O Cruises or if it's others, that will depend on where we can get the highest margin. Margin will be the focus for the company. We just need to make that this company to be profitable. So that will be the focus. Operator: Are you seeing a booking spike on the FIFA World Cup in the U.S. this summer? And can Norse monetize on that opportunity? Eivind Roald: The question is if we can see a booking spike for the FIFA World Cup this summer. We see that it's still a huge interest for the FIFA World Cup. And we see specifically on ad hoc charters, we have tons of requests on ad hoc charters, and we are evaluating that now day by day, and we'll conclude if we should take some of our aircraft and deliver as an ad hoc charters for the FIFA World Cup. Operator: Good. Last question. with 2026 outlook, what gives you confidence this is finally the year Norse becomes sustainable profitable? Eivind Roald: So the question is what -- what we feel confident on the profitability for this year. First of all, the turning point started in December, and we have a great momentum. We see that on the trust, both for December, January, February and March. We have taken important decisions like outsourcing of 6 aircrafts that also indirectly, as Anders has said, is a hedging of the fuel that is a huge, huge cost for the company. We have put in place several actions for driving cost down, and we are underway to actually launch more cost initiatives as well. As far as we can see into the future, and of course, it's difficult to see the 9 to 12 months from now, but we have a super interesting product that the response in the market is very, very high, and we are confident that we will deliver these numbers for 2026. Thank you so much for listening in.
Operator: Hello, everyone. Thank you for attending today's International Seaways, Inc. Fourth Quarter 2025 Earnings Conference Call. My name is William, and I will be your moderator today. [Operator Instructions] At this time, I would now like to pass the conference over to our host, James Small, General Counsel with International Seaways. James, you may go ahead. James Small: Thank you, and good morning, everyone. Welcome to International Seaways Earnings Call for the Fourth Quarter and Full Year 2025. Before we begin, I would like to start off by advising everyone with us today of the following. During this call and in the accompanying presentation, management may make forward-looking statements regarding the company or the industry in which it operates, which may address, without limitation, the following topics: outlooks for the crude tanker and product tanker markets; changing trading patterns, forecasts of world and regional economic activity; forecasts covering the production of and demand for oil and petroleum products; the effects of ongoing and threatened conflicts around the world, the company's strategy and business prospects, expectations about revenues and expenses, including vessel, charter hire and G&A expenses; estimated future bookings. TCE rates and capital expenditures, projected dry dock and off-hire days, newbuild vessel construction, vessel sales and purchases, anticipated financing transactions and plans to issue dividends, economic, regulatory and political developments in the United States and globally. The company's ability to achieve its financing and other objectives and its consideration of strategic alternatives and the company's relationships with its stakeholders. Forward-looking statements take into account assumptions made by management based on various factors, including management's experience and perception of historical trends, current conditions, expected and future developments and other factors that management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties and assumptions, many of which are beyond the company's control that could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks and uncertainties that could cause the company's actual results to differ from expectations include those described in our annual report on Form 10-K for 2025 as well as in other filings that we have made or in the future may make with the U.S. Securities and Exchange Commission. Now let me turn the call over to Lois Zabrocky, our President and Chief Executive Officer. Lois? Lois Zabrocky: Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways earnings call for the fourth quarter and full year of 2025. On Slide 4 of the presentation, which you can find in the Investor Relations section of our website, net income for the fourth quarter was $128 million or $2.56 per diluted share. Excluding special items, adjusted net income for the fourth quarter was $122 million or $2.45 per diluted share, and adjusted EBITDA was $175 million. Today, we also announced the declaration of our largest ever quarterly dividend, which is a combined $2.15 per share to be paid in March. After this payment, Seaways will have paid over $1 billion in returns to our shareholders since 2020, a milestone that we are very proud of. As you can see in the upper right section of the slide, the dividend represents a payout ratio of 87% of our fourth quarter adjusted net income and is our sixth consecutive quarter with a payout ratio of at least 75%. We continue to believe in building on our track record of returning to shareholders as part of our consistent and balanced capital allocation strategy. We also have our $50 million share repurchase program in place until the end of 2026 as share repurchases remain an option for Seaways as an addendum to our payout ratio. On the lower part of the page, we are consolidating Tankers International, the leading VLCC pool by acquiring the remaining 50% interest and expanding Tankers International with a Suezmax platform. We took delivery of the Seaways Gibbs Hill and she delivered into Tankers International at the end of December. We paid $119 million for this high-spec scrubber-fitted VLCC after disposing of 10 older vessels with an average age of 18 years for proceeds of $131 million. So far in 2026, we've continued this trend by selling another 7 older vessels for proceeds of $216 million. Our remaining 4 LR1s will deliver in 2026, completing our newbuild program, which is fully financed. These 2 fundamental reasons are why we were able to extend our dividend beyond our 70% payout ratio. With only $30 million of Seaways cash needed to take delivery of the LR1s as well as the impeccable state of our balance sheet, which you can see on the lower right hand of the page, we believe this dividend provided great returns for our shareholders. We review our capital allocation strategy quarterly with our Board, and we remain steadfast in our commitment to shareholders. We have $724 million in total liquidity, which includes nearly $170 million in cash and $560 million in undrawn revolver capacity. During the fourth quarter, we repaid our leases, as previously announced, of about $258 million. This was then followed by the third quarter's bond issuance for $250 million, which unencumbered 6 VLCCs and lowered our cost of debt. Our net loan-to-value is below 13% and our spot cash breakeven rate is less than $15,000 per day. Turning to Slide 5. We've updated our standard set of bullets on Tanker Demand Drivers with subtle green up arrows next to the bullet representing positive influences for tankers, the black dash representing a neutral impact and red down arrows, meaning the topic is not positive for tanker demand. Without reading these bullets individually, we believe demand fundamentals are solid and continue to support a constructive outlook for seaborne tanker transportation. Oil demand growth remains healthy at more than 1 million barrels per day of growth projected for both 2026 and 2027. OPEC+ is supplementing the 1 million barrels per day of non-OPEC production increases by unwinding their own previous cuts. In the lower left-hand chart, both the EIA and the IEA are forecasting supply to exceed demand in 2026. We experienced some of this during the fourth quarter, where there was a substantial amount of oil on the water, much of which we understand to have done sanctioned barrels. However, as we look ahead, the market has not reacted to this projected oversupply. You would expect a contangoed structure market or at least a drop in the absolute price of oil. However, as you can see in the middle bottom chart, the market structure remains backwardated and absolute prices remain elevated. We believe China to be stocking up as they have built substantial storage capacity as seen in the lower right-hand chart. Another element driving the oil market dynamics is the geopolitical environment. The U.S., Iran tensions remain elevated. The Russia-Ukraine conflict has not been resolved. The United States started the year with upheaval of the Venezuelan government and their oil production. The geopolitical intensity on tankers remains strong, and we continue to work through a multitude of scenarios that constantly impact our business. On the supply side, on Slide 6 of the presentation, we're starting to see the enforcement of sanctions that are affecting our business, which provides support for the compliant fleet. When we take into consideration sanctioned vessels, the order book remains well below replacement of the fleet. On the bottom right-hand chart, we reflect vessels turning 18 or older by the end of 2029 when a majority of the order book will have delivered. We also layered in currently sanctioned vessels into the dark bars on the chart. These removal candidates to the compliant trade remain a multiple of those vessels that are on order, as noted in the chart as the light bar. This remains one of the most compelling cases for tanker shipping and the bottom line is that even with 15% of the fleet on order, there is simply not enough tankers to cover removal candidates for the compliant trade. We believe these fundamentals should translate into a continued up cycle over the next few years, and Seaways remains well positioned to capitalize on these market conditions. We will continue to execute our balanced capital allocation strategy to renew our fleet as well as to adapt to industry conditions with a strong balance sheet while returning to shareholders. I will now turn it over to our CFO, Jeff Pribor, to provide the financial review. Jeff? Jeffrey Pribor: Thanks, Lois, and good morning, everyone. On Slide 8, net income for the fourth quarter was approximately $128 million or $2.56 per diluted share. Excluding special items, our net income was $122 million or $2.45 per diluted share. On the upper right chart, adjusted EBITDA for the fourth quarter was $175 million. In the appendix, we provided a reconciliation from reported earnings to adjusted earnings. On the lower left chart, I would point out that our TCE Revenues from crude and product have been evenly balanced over the past year, but the crude segment outperformed products in Q4 with the return of VLCCs as the leader in tanker earnings. While our revenue and expenses were largely within expectations for the year, fourth quarter vessel expenses were higher than our guidance due to timing of stores and spares at year-end. Lightering business in the fourth quarter had around $7 million in revenue and expenses. Turning to our cash bridge on Slide 9. We began the quarter with total liquidity of $985 million, composed of $413 million in cash and $572 million in undrawn revolving capacity. Following along the chart from left to right on the cash bridge, we had $175 million in adjusted EBITDA for the fourth quarter, plus $19 million in debt service and another $23 million of dry dock and capital expenditures. We therefore achieved our definition of free cash flow of about $135 million for the fourth quarter. We received $36 million in proceeds from the sale of vessels in Q4, which offsets the remaining expense of $107 million for the purchase of the Seaways Gibbs Hill, a 2020-built VLCC which delivered in the fourth quarter. We also paid about $6 million in LR1 newbuilding installments net of financing. As previously announced, we repaid the sale leasebacks on 6 VLCCs for $258 million, deploying the proceeds from last quarter's bond issuance. The remaining $42 million represents our $0.86 per share dividend that we paid in December. The latter few bars reflect our balanced capital allocation approach where we utilize all the pillars, fleet renewal, balance sheet optimization and returns to shareholders. In summary, the result of our activity this quarter yields a net decrease in cash of $261 million. This equates to ending cash of $167 million with $557 million in undrawn revolvers for total liquidity of nearly $724 million. Moving to Slide 10. We have a strong financial position detailed by the balance sheet on the left-hand side of the page. Our liquidity remains strong at $724 million. We have invested about $2 billion in vessels at cost on the books, which are currently valued at about $3 billion. And with under $400 million of net debt at the end of the fourth quarter, our net loan-to-value is approximately 13%. In the lower right-hand table of the page, we have included a summary of our debt profile. Gross debt at the end of 2025 was $578 million. Mandatory debt repayments through the end of 2026 are about $30 million. Our debt is 100% fixed or hedged, which contributes to our cost of debt being below 6%. We continue to enhance our balance sheet to maintain the financial flexibility necessary to facilitate growth as well as returns to shareholders. Our nearest maturity in the portfolio is in until next decade. We have 31 unencumbered vessels, and we have ample undrawn RCF Capacity. We continue to explore ways to lower our breakeven cost even more to share in the upside with substantial returns to shareholders. On the last slide that I'll cover, Slide 11 reflects our forward-looking guidance and book-to-date TCE aligned with our spot cash breakeven rate. Starting with TCE fixtures for the first quarter of 2026, I'll remind you that actual TCE during our next earnings call may be different. But in the first quarter so far, we are continuing to see the impacts of the elevated rate environment we began to see in the second half of 2025. We currently have a blended average spot TCE of about $50,900 per day on 71% of our first quarter expected revenue. On the right-hand side, our expected 2026 breakeven rate is about $14,800 per day. Based on our spot TCE Booked to-Date and our spot breakevens, it looks like Seaways can continue to generate significant free cash flows during the first quarter and build on our track record of returning cash to shareholders. On the bottom left-hand chart, we provide some updated guidance for our expenses in 2026. You'll notice that we've added a few million dollars per quarter to our projected G&A. These increases represent the impact of consolidating Tankers International into INSW's financials. I would also like to note that we've added guidance for what we are referring to as other revenues, which are TI commissions that offset this increase. We also included in the appendix our quarterly expected off-hire and CapEx. I don't plan to read each item line by line, but encourage you to use these for modeling purposes. That concludes my remarks. I'd like to now turn the call back to Lois for her closing comments. Lois Zabrocky: Thank you so much, Jeff. On Slide 12, we have provided you with Seaways investment highlights, which we encourage you to read in its entirety, and I will summarize here briefly. Over the last 10 years, International Seaways has built a strong track record of returning cash to shareholders, maintaining a healthy balance sheet and growing the company. Our total shareholder returns represent over 25% compounded annual return. We continue to renew our fleet so that our average age is about 10 years old in what we see as a sweet spot for tanker investments and returns. We've invested in a range of asset classes to cast a wide net for growth opportunities and to supplement our scale in each class we operate in larger pools. We aim to keep our balance sheet fortified for any downturn in the cycle. We have over $550 million in undrawn credit capacity to support our growth. Our net debt is under 13% of the fleet's current value, and we have 31 vessels that are unencumbered. And lastly, our spot ships only need to earn collectively under $15,000 per day to breakeven in 2026. At this point in the cycle, we expect to continue generating cash that we will put to work to create value for the company and for our shareholders. Thank you very much. And with that said, operator, we would now like to open up the lines for questions. Operator: [Operator Instructions] Our first question comes from the line of Liam Burke with B. Riley. Liam Burke: Lois, I had a question on your MR partial fixtures for the first quarter '26. Your prepared comments, you mentioned that the refinery margins are at 5-year averages, but it doesn't seem that compelling to warrant the type of TCE rates that you've got fixed for first quarter. Is there anything out there in the macro that's driving up those rates? Lois Zabrocky: Well, geopolitically, of course, now EU is not going to import refined Russian product. And that had previously been allowed from India. And so there's definitely a period of adjustment here that benefits the MRs versus the bigger clean LRs that normally would do that move, right? So that helps us logistically. And then Derek Solon, our Chief Commercial Officer. Derek, maybe talk about diesel spikes or the winter? Derek Solon: Thanks, both. I guess I would say, firstly, your main geopolitical point seems to be one of the big drivers of the MR rates being as strong as they are. Like you said, it's less refined product coming in from India that came from Russian crude. So that was previously coming in on bigger product carriers. So that's the benefit of the MRs. And also when you see less refined products coming from Turkey, which was previously refined from Russian crude, that's all coming from Atlantic -- a lot of that's coming from Atlantic Basin. So that's U.S. Gulf exports back to Europe, which is really helping the MRs. And of course, we've had a pretty challenging winter here in the Northeast as many of the listeners will know. And so when you get these weather delays, you get a lot of ships being disutilized or stuck in ports. So that sort of exacerbated the supply issue, which has helped us. Liam Burke: Great. And then Lois, you have been pretty nimble moving from spot to time charters. It looks like that you're pretty comfortable that rates -- spot rates are going to be healthy for the foreseeable future. Lois Zabrocky: Yes, absolutely. The spot market is just going from strength to strength. This is not to say that we wouldn't layer in some time charters as we just see these outsized numbers, but we're going to be judicious. We -- I mean, part of what we hope to value add is to remain open to -- when you see the high utilization and then the geopolitical laid on top of it, even though we can't control that, to remain open to the possibilities of this market, which has just continued to impress us. Operator: Our next question comes from the line of Sherif Elmaghrabi with BTIG. Sherif Elmaghrabi: At this point, the VLCC fleet is looking pretty modern and you guys have refreshed a good chunk of your MRs. Just looking across your diversified fleet, there's still some older vessels maybe on the Suezmax side. Can we think about that as the next up on your renewal campaign? Or maybe more broadly, where are you seeing the most attractive opportunities right now? Lois Zabrocky: Yes. I'll flip it over to you, Derek, in a second. But we would definitely say, of course, you see us taking the remaining 4 of our 6 LR1s. The first 2 are already operating in the fleet, and that was just incredibly well timed on that renewal, really critical sector for us. And you saw us bring in a modern VLCC right before the market went crazy here. We still like the lineup of the big ships. And while recognizing that right now, the market, as I said, is going from strength to strength. I don't know if you want to add anything to that, Derek, or if that cuts it. Derek Solon: No, Lois. Thank you. That's the same answer, I get. Sherif Elmaghrabi: And then one for Jeff. You guys took the opportunity to exercise some repurchase options and that's all good stuff that lowers your cost of debt. Can you remind us just if there are any other repurchase options coming up on your remaining sale-leaseback vessels? Jeffrey Pribor: We've got flexibility on all of the remaining debt that we have that's structured as leases. So we have complete flexibility. But a real theme of 2025 was that we put our balance sheet in a place where we want to be. So I don't see us exercising those options, which is essentially additional deleveraging beyond where we are today because we like where we are, and that allows us maximum flexibility to do things like we did, which was increase our dividend. Operator: Our next question comes from the line of Omar Nokta with Clarksons Securities. Omar Nokta: Just a couple of questions on the company specifically. Obviously, seeing as low as you were just talking about, we're seeing rates go from strength to strength. And typically, when VLCCs hit this $200,000 level, it's almost like the culmination of some short squeeze, but it feels like this is a bit stickier. Just wanted to ask in terms of the your current VLCC footprint. You have the 3 VLCCs on contract to Shell that are -- that do have a profit share element. Can you just remind us how that profit split works on those ships? Lois Zabrocky: Absolutely. Derek, why don't you describe how that's rewarding INSW right now? Derek Solon: Okay, Omar. The profit shares that we have on the Shell VLCCs, we have a base rate that we've had since the beginning of the time charter. And then there's a market element that is added to that based on the spot market and the Baltic graph. And then from there, we split the profits above that base rate, 50-50 with our charterer. So in a market like this, it will be quite beneficial. Omar Nokta: Okay. So there's no full upside, there's no cap at the top in terms of where the spot rate. There's no color, for instance, on that. Derek Solon: Great question, Omar. Thanks. But no, there's no cap on top. Omar Nokta: Okay. And then maybe I know this is obviously a Board decision. You stepped up the dividend here to that 87% threshold. The past maybe 4 or 5 quarters, you were around that 75% level. Is this a new range for us to expect going forward, especially just given the earnings power and the liquidity and the overall leverage or low leverage you have? Is 87% something we should kind of think about as a new base level going forward? Lois Zabrocky: Omar, I'll start on that one and let Jeff -- that's where he lives. But we're super excited. This is our highest dividend return to shareholders, and this follows 6 quarters of at least 75%. And that's a lot of that's testament to the balance sheet. And Jeff, do you want to add to that? Jeffrey Pribor: Sure. Thanks, Lois. Yes, Omar, the definition of a high-quality problem is how to keep dividend providing a really good yield when your stock price is going up steadily. So I'm -- we're super pleased to have this dividend, as we noted, the one that puts us over the top over $1 billion in dividends in total. That's number one. Again, we -- I think you know because we've talked about it a lot, we really focus on free cash flow, right? And what we looked at was, hey, as we said, the balance sheet is in good shape. We don't need to allocate more cash to deleveraging. We had the $30 million of LR1 payments that Lois mentioned in her remarks was what we needed for fleet renewal this quarter. So we were able to direct all the rest of the free cash flow to a dividend. And that sort of worked out to be 215 or 87%. Again, we focus first on cash, but we know we're always going to lean into increasing the dividend, and we know people want to know how that is as a payout ratio. So yes, it's the highest yet. It represents a over 12% yield on an annualized basis. We will -- it's part of the pattern. As I said, we'll lean into always being able to share as much as we can with the shareholders. Operator: [Operator Instructions] Our next question comes from the line of Chris Robertson with Deutsche Bank. Christopher Robertson: Just in terms of the current market strength, what is your assessment around the impact that Sinokor Maritime has had on the VLCC segment in particular? And do you think that this impact is enduring or fleeting? Lois Zabrocky: Yes. So we only like to opine about ourselves. But without a doubt, the -- I would call it a restructuring of the ownership base where always tanker owners are highly, highly fragmented. So the fact that you now have a major player consolidating legitimate VLCC tonnage is a true strength in our market. And that indeed, as we've combined Suezmax's now into Tankers International, that is -- offers owners also a footprint to keep that commercial exposure. And come into a position of strength. So we really are excited about what we're seeing there. It is a fundamental shift in the ownership base and again, in a highly, highly fragmented market. Right now, you've got over 150 VLCCs on the OFAC sanctions list, players that are not maintaining the ships that are trading rogue barrels and the fact that in that market that this owner has recognized, now is the time to gather legitimate unsanctioned tonnage and really take advantage of the marketplace. It's that staying power, and it's very, very strong leadership and exciting to all the VLCC owners. Christopher Robertson: Yes. Interesting, Lois. Just kind of building on that, given the impact that it has had and owners are seeing the impact, what are your thoughts around further consolidation in the industry, either on the crude side or the refined product side? Do you think we'll see more of it now that these benefits are pretty clear? Lois Zabrocky: I think so. And I also would say that our customer base recognizes this. These are -- you see a shift from the charters, the customers into recognizing and making sure that they have access to tonnage. So this just provides more drive and demand for owners where I think when the market looks like it doesn't have as high a utilization, customers can be more relaxed. So you're seeing customers saying, "Hey, I need to make sure that I have access to vessels" And all of that structurally is super positive for tanker owners. Operator: Thank you. At this time, I would now like to pass the conference back over to Lois for any closing remarks. Lois Zabrocky: We just want to thank everyone for joining us, International Seaways for our Q4 and full year 2025, and we look forward to talking to you next quarter with strong tanker markets. Thank you. Operator: Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Now I will hand the conference over to the speakers, CEO, Martin Welschof; and CFO, Stefan Ericsson. Please go ahead. Martin Welschof: Thank you, and welcome, everybody, to our year-end report. Today is February 26, 2026. And as usual, I will start with the summary. So we had a couple of key events in the fourth quarter. First of all, the 2 ASH data sets. So with BI-1808, our lead candidate targeting TNF receptor 2, we saw very strong data in T-cell lymphoma, and we presented that at ASH 2025, and I'll come back to the data a little bit more in detail later. And then we had another ASH presentation about BI-1206, which is our lead targeting FcgammaRIIb in combination with rituximab and Calquence in non-Hodgkin's lymphoma. And that was also presented at ASH 2025 and also a very, very strong data set. I should mention that BI-1808 that was monotherapy, single-agent therapy. Then, we also started our Phase IIa trial evaluating BI-1206 in combination with pembrolizumab in treatment-naive advanced or metastatic non-small cell lung cancer and uveal melanoma. So this is really the first-line setting. And this is, as I will explain later, based on data that we have seen in end-of-the-line patients, and that data actually convinced Merck to go together with us into first line under a supply and collaboration agreement. And then last but not least, we also got orphan drug designation from EMA for BI-1808, another very important milestone, for the treatment of cutaneous T-cell lymphoma, CTCL. And then we had another -- a couple of events after the end of the period. Number one, obviously, a very promising data set in our ongoing Phase IIa study for BI-1808 with KEYTRUDA for the treatment of recurrent ovarian cancer. And we published that ahead of JPMorgan, and I will also discuss that data set a little bit more in detail. And then we had here in the report and maybe not everybody is aware about this, but I will highlight it, updated clinical data sets for 1808 and pembro in combination in ovarian cancer as well as the BI-1206 study for the treatment of non-Hodgkin lymphoma. So we have additional patients there, and I will mention it again when we discuss specifically those 2 data sets. And then also very happy that we could nominate 2 new Board members. Of course, they still need to be confirmed and elected on the Annual General Meeting. Number one, Kate Hermans, a very experienced and seasoned business person in the pharma and biotech industry. And then Scott Zinober, who was for roughly 20 years, the portfolio manager at Viking. So both 2 very, very strong U.S. profiles, and we're very happy to welcome them to our Board. Then, before I go into a little bit more in detail, just to have a quick look at our clinical pipeline. As usual, I always emphasize here, so we have multiple value drivers. So as you know, in August, we focused on the 2 more mature programs, 1808 and 1206. And 1808 is currently running with -- in combination with pembrolizumab in recurrent ovarian cancer. And there, we have this very nice data set that is actually continuing to generate good data. And then we have planned, so this has not been started yet, a combination with 1808, pembrolizumab and paclitaxel based on the very interesting data that Merck published at ESMO. And this is actually quite exciting because it could lead to a very interesting development in recurrent ovarian cancer. Then, obviously, as you already know, CTCL single agent, I'll go briefly over the data that we presented at ASH. And then we are currently running this also in combination with pembrolizumab, although we already have very strong single-agent data in CTCL of 1808. We still want to see how it looks in combination with pembro. And then 1206, the triplet targeting non-Hodgkin lymphoma, specifically follicular lymphoma, mantle cell lymphoma and marginal zone lymphoma. And there, we also have an update. So the data set is maturing further and basically confirming the trend as we see also the 1808 data set in ovarian cancer in combination with pembrolizumab. So that is really very, very encouraging. And then as already mentioned on the previous slide, so we kicked off first-line combination -- in combination with pembrolizumab 1206 in non-small cell lung cancer and uveal melanoma. And there, we will see the first readout already during the second half of this year. But I will come back to the milestones this year and also an outlook into 2027 later at the end of the presentation. Here, I just want to mention that we see basically complete and partial responses in all clinical programs, which is really, really confirming the 2 single agent having activity in liquid as well as in solid cancer, which I think is very -- giving a lot of comfort, and that's what you want to see at this stage. Then going a little bit more into detail. So first, our anti-TNF receptor 2 program, 1808 in solid tumors and then the same in T-cell lymphoma. So we have, as already mentioned, very promising efficacy in ovarian cancer, and that is kind of building on the single-agent activity that we have seen in ovarian cancer. But obviously, if you want to treat something like recurring ovarian cancer, you have to go into combination. And since we knew preclinically already that we have strong single-agent activity, but also very good synergy with pembrolizumab, it was a no-brainer, and that's why we did this. And in addition to the data that we have shown ahead of JPMorgan, we have one additional partial response. So one stable disease has turned now into a partial response and one additional stable disease that corresponds to 24% ORR and disease control rate of 57%. So basically, the data set that we have shown ahead of JPMorgan is kind of confirmed and is maturing further into the right direction. So again, 24% overall response, 57% disease control and available -- 21 available ovarian cancer patients, which I think is very encouraging and showing the right trend. And also when we look on the next slide, at the spider plot, you can also see how immunotherapy is working, and we have a firm belief that 1808 could be potentially the next KEYTRUDA. And you see here 2 dotted lines. So a pink one, which is basically if you're above this is progressive disease. If you're below this is stable disease. And then you have a yellow line, PR, which is basically if you then go beyond this or below this, then you have a partial response. And you can see how immunotherapy is working. So you have patients at stable disease and then there for a while, the immune system works and then it gets pushed down into partial response. And this is actually very, very interesting because also when you look at KEYTRUDA alone, it's about 80% ORR in combination with our drug, it's 24%. I think this is actually a very interesting and strong data set and of course, further maturing. Then switching to CTCL and PTCL, our T-cell lymphoma data that we presented at ASH 2025. And there, we have shown 46% ORR, 92% disease control in 13 evaluable CTCL patients, a very strong data set. And I should mention here also at this place, both data sets, so the one in ovarian cancer as well as the one in T-cell lymphoma has also a very excellent safety profile. So it's very, very well tolerated, which is important, especially when you think about the combination in ovarian cancer with pembrolizumab because if you -- you are only able to do this in case you have a good safety profile, which we have. But going back to T-cell lymphoma here on this slide. So what is important besides the good safety profile is that we see immune activation early on with depletion of regulatory T cells and the influx of CD8 positive T cells into the skin. So we have a clear skin component. And very briefly on the spider plots, here, you can also see nice duration already. In this case, the black line is basically below that is stable disease. And then you see the dotted line is below is partial response. And you can see that we already have a complete response now in Sézary Syndrome, which is really continuing for more than a year. So also, you can see that duration is coming into play here, as you could see also for the more early ovarian cancer data set. So it really looks very promising. Then switching to our other program, our anti-FcgammaRIIB program, 1206 in non-Hodgkin's lymphoma as well as in solid tumors, starting with the non-Hodgkin's lymphoma. So this is the combination with rituximab and acalabrutinib. So it's a triplet. And this is a little bit different slide that we have shown so far. So we have this splitting up now into follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma. We see good responses in both. Dark green is complete, light green is partial. And we have actually compared to the data set that we have shown at the end of last year, 4 additional partial responses and 1 additional stable disease, keeping basically the very good 80% ORR and the disease control rate of 100%, which is, I think, excellent. And you can see activity in all 3 subsets. We are focusing more on follicular lymphoma because this is also more interesting for our supply and collaboration partner, AstraZeneca, because they don't have follicular lymphoma on the label of acalabrutinib. Then, again, spider plot here as well. Everything that is below the dotted line is good because that means it's either a partial response or complete response. And then you see also quite a number of stable diseases. And you see here also that the data matures, that means you see first a stable disease, then it goes into partial response and then eventually into complete response. And we also have here very, very good duration. And we have some idea about the duration from our doublet study that we did before that was just 1206 in combination with rituximab. And of course, the patient population that we're focusing on is our patients that do not respond anymore to any CD20-based therapy. And there, we have now a couple of patients that actually are in complete response for several years after the end of the study. So then on the solid cancer side for 1206, this is a data set that is from the dose escalation where we were targeting patients, end-of-the-line patients that do not respond anymore to either anti-PD-1 or anti-PD-L1, where we also had some very interesting signals. So we had very interesting complete and partial responses. And based on that, we went back to Merck, our partner here for the supply and collaboration on combination with KEYTRUDA. And we agreed that we should go into a Phase IIa first-line non-small cell lung cancer and uveal melanoma with 1206 and pembrolizumab, and this is now ongoing. And as I said, so the first readout will be during the second half of this year, which is pretty soon anyway. Then, I will hand over to Stefan. Stefan Ericsson: Thank you, Martin. I will present the financial overview for Q4 and the 12-month period, January to December. All amounts are in SEK million unless otherwise mentioned. Net sales were SEK 3 million in Q4 2025 compared to SEK 21.4 million in Q4 2024. That's SEK 18 million lower in Q4 2025. That decrease is related to the production of antibodies for customers was lower in 2025. And net sales for January to December 2025 were SEK 226 million. For the same period in 2024, net sales were SEK 45 million. That's an increase of SEK 182 million. The increase is mainly related to the SEK 20 million payment we received when XOMA Royalty acquired future royalty and milestone interest for mezagitamab. And before that, we got a SEK 1 million milestone in that collaboration. Production of antibodies for customers was SEK 19 million lower in 2025. Operating costs decreased from SEK 147 million in Q4 2024 to SEK 132 million in Q4 2025. That's a decrease of SEK 15 million. We had quite higher cost in BI-1808 and quite lower cost in BI-1607 and lower cost in BI-1206 and BI-1910. And we had somewhat higher personnel costs in Q4 2025. From January to December, the increase of operating costs was SEK 62 million from SEK 516 million in 2024 to SEK 578 million in 2025. We had quite higher cost in BI-1808 and BI-1206 and quite lower cost in BI-1607, and lower cost for production of antibodies for customers. And personnel costs in 2025 were quite higher compared to 2024. And the result for Q4 2025 was minus SEK 125.8 million and result for January to December 2025 was SEK 332.9 million. Liquid funds and current investments end of December 2025 amounted to a total of SEK 593 million. And finally, based on ongoing studies, BioInvent is assessed to be financed for the coming 12-month period. Over to you, Martin. Martin Welschof: Thank you, Stefan. So at the end of the presentation, I want to go over the key catalysts for the remaining part of this year as well as give you an outlook for 2027. And as you will see, this is actually a quite dense picture here. So we have a lot of interesting news this and next year. So starting with 1808 in T-cell lymphoma. So already by mid this year, we'll have first Phase IIa data in combination with pembro, but also additional monotherapy data since we do dose optimization at the moment. Then, for 1808 in solid tumors, second half of this year, we should have further Phase IIa data in combination with pembro. And as you could see already here, so the data is maturing to the right direction. So that should be also a very interesting milestone to looking forward to. Then switching to 1206, our FcgammaRIIB platform, we'll have midyear already the additional Phase IIa data with -- in combination with rituximab and acalabrutinib. And then last but not least, 1206 in solid tumors, first-line non-small cell lung cancer and uveal melanoma, we'll have the first readout of that data during the second half of this year. Then looking into 2027, again, starting from the top, first, our TNF receptor 2 platform, 1808 in T-cell lymphoma. During the first half, we'll complete the Phase IIa dose optimization. That is the monotherapy. And then during the second half, we could potentially start the pivotal study. Then, 1808 in solid tumors. During the second half of next year, we would have potentially the first Phase IIa data, the triplet in combination with pembro and paclitaxel. And this is actually quite interesting because in case we really see a nice uplift there, and maybe we can later discuss it during the Q&A in more detail, this could also then lead immediately, of course, data-driven to a pivotal study. So a very, very interesting program to follow. Then, FcgammaRIIB, 1206 in non-Hodgkin lymphoma. So during the first half of 2027, we potentially could start the pivotal triplet study and then in the solid cancer, first-line non-small cell lung cancer and uveal melanoma. During the first half of 2027, we complete the Phase IIa data and could potentially start during the second half, Phase IIb BI-1206 plus pembro in non-small cell lung cancer. So as I mentioned, a very dense news flow, very interesting milestones and that should be something really looking forward to. And I think I will end here my presentation and happy to take questions. Thank you. Operator: [Operator Instructions] The next question comes from Richard Ramanius from Redeye. Richard Ramanius: Why not start off on the last slide? And when do you think it would make sense to take in a partner to conduct any of these studies? I guess, it would be some of the studies in 2027. Martin Welschof: Yes. So basically, what I can say to that, we are in interesting discussions, as you know. So we have a very active approach in business development partnering anyway, and we are in discussions with some company for some time. Obviously, we have AstraZeneca and Merck already at the table in a way through those supply and collaboration agreements, and they follow the programs very closely. And I think we might already see some activity around partnering -- potential partnering, deal making, during the second half of this year. And of course, you can never promise. It's always then depend on the data, on what the market environment is, et cetera, et cetera. But we will be keen to partner one or the other with hopefully, large pharma companies such as Merck and AstraZeneca. Richard Ramanius: Right. Could you just clarify more in detail exactly what more do you need to accomplish with BI-1206 in NHL to make the triplet ready for a pivotal trial? Martin Welschof: Yes. So basically, we will have, as I already mentioned, the 30 patients in the current ongoing study. That's enough. And then we can discuss with the regulators and start preparing for potential pivotal study. That's why I think that will take the rest of the year once we have the data by mid this year and then could start that potentially next year. But also to mention it here, our main focus currently from a strategic perspective is more on the solid cancer side because that is a much stronger value driver. But we are committed to get the TCL as well as the NHL that you are talking about ready for potential pivotal study. Richard Ramanius: Last question. What funding options do you have for 2027? Martin Welschof: Yes. So obviously, we will look at everything all the time. Number one, we're looking at partnering. And number two, of course, there's always a financing option because I think if you have good data as we have, you have always both possibilities, but we have a strong focus on partnering. Operator: The next question comes from Sebastiaan van der Schoot from Kempen. Chiara Montironi: I'm Chiara Montironi on behalf of Sebastiaan. So a couple from me, if I may, again, regarding potential partnering discussion. Could you go over whether BI-1206 or BI-1808 is one of the more logical options to out-license? And the second question will be around uveal melanoma and first-line non-small cell lung cancer data set for BI-1206. Can you provide some insight into what magnitude of efficacy would give you enough comfort to continue forward with the program? Martin Welschof: Yes. Thank you very much for those questions and very nice to meet you. So regarding partnering, we are currently discussing both 1808 and 1206. So we have discussions around both programs, and that's also what you should do as a biotech company because you can't be picky. You have to see what opportunity turns up and then you go from there. My dream scenario would be, though, that we keep 1808 a little bit longer and partner 1206 first. But as I said, so we have discussions around both at the moment. Then regarding the data set of 1206 in first-line non-small cell lung cancer, I think what we would like to see as a target is 60% ORR, and I think then we will be in good shape. Operator: The next question comes from Arvid Necander from DNB Carnegie. Arvid Necander: I came a bit late here, so sorry if the questions have already been answered. But the first one on 1206. So really good to see the breakdown of responses by subtype in NHL. So on the back of this analysis, I just wanted to ask if follicular lymphoma is the indication that makes most sense to pursue in a registration-directed trial? And then I guess, secondly, on the non-small cell lung cancer data targeted for second half of the year which will provide an important new signal, how should we think about expectations here? What would mark a strong outcome in your view? Martin Welschof: Thank you for your questions. Maybe I'll start with the last one first because there was a little bit of an overlap regarding that already. So what we hope to see, our expectation is that we see an ORR, so that's about BI-1206 in combination with pembrolizumab in first-line non-small cell lung cancer of 60%. I think if you see that, that will be a strong signal. And in that sense, also, it's a very good clinical trial because we really put it to the test. And if you see this kind of response, I think we are very happy. And I think that would be also something that is super interesting for Merck or should be super interesting for Merck. Then regarding 1206 in non-Hodgkin lymphoma, yes, I think the activity is in all 3, and we had a stronger focus on follicular lymphoma. And I think I mentioned it during the presentation, maybe you didn't hear this. This is a little bit driven by our supply and collaboration partner, AstraZeneca, because acalabrutinib doesn't have follicular lymphoma on the label. And since we think that might be a potential partnering possibility, we were focusing on follicular lymphoma a little bit more than on the other 2. And what we were trying to do is have a focus on follicular lymphoma at the same time point also showing that it works for marginal zone as well as mantle cell lymphoma, which I think we clearly did. And of course, also for the audience here, when you look at non-Hodgkin lymphoma, the largest -- by far largest population is follicular lymphoma, I think also from a commercial perspective, it makes a lot of sense. Operator: The next question comes from Dan Akschuti from Pareto Securities. Dan Akschuti: Congrats on the progress now with potentially 2 pivotal programs next year. And I think there's been a lot of discussion about partnering. And yes, both drugs work in multiple settings. So I'm thinking a bit like how are you going into these negotiations, if you can share a bit more because follicular lymphoma, for instance, as with any approved immuno-oncology drug, they never stay approved in only one indication. So it's kind of a mechanism proof of concept that you have. Are you marketing this specifically? Or do you see interest from that from the pharma side to basically not just do a deal on the indication, but more broader on the drug or on the mechanism? And how you approach that for both drugs, 1808 and 206? And if you have gotten this kind of interest from pharma or has it been very indication specific? Martin Welschof: Yes. Thank you, Dan. So I think, in general, you can say -- and that's -- you see it also here on this slide. So 1808 is our TNF receptor 2 platform and 1206 is our FcgammaRIIB platform because both mechanism, as you say, are broad. And of course, what you do in early clinical development, you try to find a signal that you can follow in order to generate some more comprehensive data sets, and that's what we're doing. And especially as a small company, you have to be very prudent because you can't go too broad at the beginning. But just to go through maybe step by step. So when you look at 1808 first, maybe, then you can clearly see that we already have established a very broad efficacy range. So remember, probably, the single-agent activity in GIST in ovarian cancer, but also in lung cancer. And now the strong data set in combination with pembrolizumab. At the same time point, we also see strong single-agent activity in T-cell lymphoma. So they already can go and see the broad potential application range that we have for that compound. And talking about 1808 first, maybe. So yes, the discussions that we have, of course, initially indication-driven because wherever you have the first more comprehensive data set, that's what drives it. And of course, that we had with TCL. But now since we have the ovarian cancer data set since early this year, we also have interesting discussions around ovarian cancer, obviously. So absolutely broad. And the same is true for 1206. So we have this in non-Hodgkin lymphoma. And of course, the study that we run is very targeted towards AstraZeneca in a way. So we'll see how that works out, and we will know that probably already quite soon. But then you have the solid tumor side, where we work in combination with pembrolizumab, and especially 1206 is quite interesting because there we have a supply and collaboration agreement with AstraZeneca regarding acalabrutinib for non-Hodgkin lymphoma and of course, then the same -- not the same, but also supply and collaboration agreement with Merck for the solid cancer side. And on the solid cancer side, for both compounds, I also would say, starting again with 1808, if we -- if you see -- if we continue to see what we see, then it will not be only interesting for ovarian cancer. It will be also interesting for other cancers like maybe triple-negative breast cancer, for example, and maybe other solid cancers. So I think very broad application potential, but we go one step at a time. So current focus clearly on ovarian cancer, which is already a quite interesting market. And the same is true for 1206 in solid tumors if it should work as we hope. So around 60% ORR in first-line non-small cell lung cancer. Then it's -- there's no reason why it should not work with other solid cancer indications in combination with pembrolizumab first line. So both have a platform. It's a platform potential and platform application. And that's how also our discussions are driven. So obviously, they start with the first data sets. And once you have then the other data sets, that continues to grow. And of course, what we are trying to do is to see that we also reach that stage. So with 1808, we have that now with the ovarian cancer data, and there will be further ovarian cancer data already during the second half of this year. And then for 1206 with the second half of this year, the first readout for the combination with pembro in first-line non-small cell lung cancer, also will initiate this type of discussions. Dan Akschuti: Great. Just a follow-up, if I may, and maybe you cannot answer it. But you can share if you see a willingness from pharma to value the assets broadly. And like is there interest in broader patterns beyond composition of matter or like broader preclinical data that you have? Do you see signs that are really indicating that they're interested really in the platform or maybe you cannot share that with us? But if... Martin Welschof: Well, I can talk about it in, of course, general ways, and I can refer a little bit to the discussions that we had during JPMorgan. We had one discussion, which was really interesting where exactly what you were describing was the case. They obviously were super intrigued by the T-cell lymphoma data, but then also say you have this very beautiful ovarian cancer data. Plus also, I think interesting for the audience, we just uploaded also a publication that is really describing in detail how it works. And I think a lot of partners or potential partners really value the depth that we have regarding the science. So we can really and have described in this publication how 1808 works in detail. And I think the clinical data in hand with the preclinical data and science data and mechanistic data basically is important to drive good and fruitful partnering discussions, and we have that. Operator: The next question comes from Oscar Haffen Lamm from Stifel. Oscar Haffen Lamm: My first one will be on 1808 in CTCL. I mean with data expected in combo with pembro in mid-2026 and potential start of a pivotal trial by next year, I was just wondering what will basically decide whether to use the monotherapy or the combo with pembro in the pivotal trial. I mean, will it be purely based on efficacy? Will it be safety as well? Just curious to hear your thoughts on that. Martin Welschof: Yes. So basically, just as a background also to the audience. So currently -- and coming back to the milestone that you were just referring to. So it will not be only the pembro data. There will be also additional pembro combination data, but also additional mono data. So because what we're currently doing is we run -- it's in combination with pembro, but we also do already dose optimization in mono or with the single agent basically. And a driver, of course, will be that you have to see a significant better ORR. And of course, at the end, also, it's a little bit early for that, but duration, of course, is also important. And then, of course, also safety, yes. So we did some analysis with some external help. And the expectation would really, if you combine it with pembro that you see an uptick in efficacy. And of course, you don't want to have safety problems because at the moment, safety is really, really good. And I think that is also a very important aspect of our monotherapy data that we have so far because since we have such a good safety, we could also go into earlier lines of the disease since we have no toxicity. And I think that is also quite important. And of course, would make also the patient population that you might be possible to treat would widen this up basically. So we really want to see an uptick. And the reason why we do it is basically just to see whether we can have a better efficacy. I think the efficacy that we already have as a monotherapy is good, is exceptional, especially in combination with the safety that we see. Oscar Haffen Lamm: Just a follow-up on that. How many patients do you target to have in CTCL before the end of Phase II meeting with the FDA? Martin Welschof: Yes. So it will be the full data set. I don't have that at the moment in front of me. I think what we have shown so far was 15-plus patients. So it will be kind of roughly the double amount. And I think for the -- now I'm talking about the monotherapy data. And then for the pembro data, it's something around 15 patients, right, in combination with pembro. Oscar Haffen Lamm: Okay. And just one last question for me, still on 1808, but this time in ovarian cancer. Is the decision to add paclitaxel to the combo of 1808 and KEYTRUDA done on the back of some conversations with Merck? I mean maybe they've hinted to what they want to see in the data. And then maybe as a follow-up on that, how many patients will you recruit for that arm? Martin Welschof: Yes. So basically, that was triggered -- that thought was triggered much, much earlier, and it was already part of our protocol when we started the doublet. We first just wanted to see how it works in combination with pembro. And this we got to know now. So it's 18% -- 8% ORR compared to 24% in the combination. And since we were following the field quite closely, we had already in the protocol that we could go with a triplet, and we also have done already some preclinical work. And we know 1808 works also very well with paclitaxel. So once we saw the ESMO data published by Merck and then the only thing that was missing -- we were actually already quite convinced by that, but the only thing that we're missing then for us to really plan this more seriously was then the approval of pembro and paclitaxel. And we expect a super cool safety profile, that is no other safety issues compared to KEYTRUDA combined with paclitaxel, plus, of course, a very nice uptick in overall response rate. And here again, I don't have the patient numbers in front of me, but I think it was around 30 patients that we want to do in the triplet, maybe a little bit more, at least the amount of patients that will be needed in order to have as a next step potential pivotal study. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Martin Welschof: Yes. Thanks, everybody, for participating in our call, plus also the very good questions. I think that discussion around those questions helped a lot to really demonstrate and show that we are at a very important and interesting time of the company. The slide of the key expected clinical milestones is still up on this presentation. So I think with that, you can clearly see a very dense news flow, as I already mentioned, and each of those programs can drive very interesting value development for the company. So stay tuned. And already by mid this year, there should be more, and then we will see where we land. But I'm very optimistic for the company. And I think for me, from my perspective, the most important thing is the data. And the data is good, and we knew that already, but also it's maturing in the right direction. So I think that gives me a lot of hope and confidence. Thank you very much.
P. Williams: Well, good morning, everyone, and welcome to Derwent London's 2025 Full Year Results Presentation. And before moving on to the results, you will see another news this morning and a strong set of a building in Whitfield Street, more to follow. Now the order of today's presentation is slightly different. As well as, you'll be hearing from Emily and Damian. While Nigel is not on the stage, he is, of course, here for some Q&A. Now turning to Slide 2. The group's business model and portfolio provide strong foundations on which to build on an exciting and successful future. Our portfolio is strategically positioned with 75% in the West End and 81% within a 10-minute walk of Elizabeth line station. These are London's best performing areas. It is high quality with significant embedded reversion potential, a diverse tenant base and robust vault. Flexibility has always been fundamental to our approach, and we look to continually adapt our portfolio to evolving market conditions to ensure that we are well positioned for future market evolution. We have an exciting West End focused development pipeline in some of the strongest submarkets, presenting a real opportunity to drive rents and, therefore, returns. Our schemes are designed to meet the full spectrum of occupier demand from the London commands, headquarter space, which serves our core customer base as well as furniture flex product, all delivered to our exacting standards and complemented with high-quality amenity. We also have good visibility on income growth. Our reversionary potential of GBP 70.9 million will come through into earnings as we continue to lease up and deliver the best phase of next phase of schemes. but we're not standing still. There is substantial opportunity ahead to create further value. Now turning over. 2025 was a solid year of execution. We completed asset management transactions with rental income of nearly GBP 60 million, a record year. And in the context of a low vacancy rate, we agreed over GBP 11 million of new lettings at rents 10% above ERV. In terms of disposals, we sold GBP 216 million in 2025 and 2026, we're off to a good start. Since the start of the year, we've exchanged contracts of GBP 140 million, including Whitfield Street announced today with a further GBP 140 million under offer, broadly in line with December book values. Proceeds will be redeployed into higher return opportunities, including selective developments, acquisitions and other accretive alternatives. Emily will provide more detail in this shortly. 2026 has started with strong momentum with GBP 1.5 million of new leases completed, and we're under offer with a further GBP 14.4 million, including all of the offices and network. In addition, there is GBP 4.4 million in negotiations. Slide 4. This momentum provides a momentum -- a springboard for growth. Our market outlook informs our immediate action plan, which is focused on accelerating returns through active portfolio management and disciplined capital allocation. We are now past the inflection point with the outlook characterized by 3 powerful drivers. Firstly, London, which is our market, we have an unrivaled expertise in demonstrating its enduring dominance as a European and -- on the European and global stage. Once again, it is proving its resilience and agility in adapting to change, reinforcing its position as Europe's undisputed business capital. Secondly, the ongoing strength of the occupational market, supported by high demand and very limited supply. You will hear more on this from Emily in due course, who'll provide further context on this. Finally, improved liquidity in the investment market driven by a return of capital flows both into London and into offices. Turnover is up with larger lot sizes now transaction. The combination of our proactive execution and positive market dynamic gives us the confidence to increase our 2026 ERV guidance for our portfolio to plus 4% to plus 7%. I will now hand over to Emily and Damian, who will take you through our immediate strategy and provide more detail on the financial outlook. Thank you. Emily Prideaux: Thank you, Paul. Looking now at our immediate priorities. Our near-term strategy is clear, firmly focused on returns, position the portfolio to capture the strongest rental growth and capital appreciation opportunities through active portfolio management and disciplined capital allocation with a clear focus on execution and total return on capital. Recycling will accelerate. We plan to dispose of up to GBP 1 billion over the next 3 years and at a faster pace than our historic run rate of GBP 200 million per annum. These disposals will be focused primarily on mature assets where the business plans have been delivered or where prospective returns are lower than alternative opportunities available to us. Capital redeployment will be disciplined and returns driven. We will systematically assess the relative merits of all options open to us at any one point in time. The foundations of our capital allocation framework will be built on maintaining a strong balance sheet and a net debt-to-EBITDA below 9.5x. Within that framework, we will consider share buybacks alongside selective development where we have confidence in strong returns and strategic acquisitions that support a pipeline for the next decade and contribute to long-term value creation. Overall, our focus is to proactively manage the portfolio to ensure an appropriate risk return profile that delivers both earnings growth and attractive total accounting returns. Damian will cover this in more detail shortly. So what does this look like in practice? HQ offices will remain our core business, where we continue to have strong conviction. We will also continue to deliver flex and do so at proportionate levels aligned to market demand and in a way that ensures sensible cost ratios and a simplified operational model that is portfolio rather than asset by asset led. As such, our overall flex offering will likely grow to circa 10% to 15% of the portfolio from the current circa 8%. Both our HQ and flex workspace are supported and enhanced by our DL member platform. Whether we're buying, selling or investing, we will do so within a disciplined risk return framework that balances income resilience and earnings growth with value creation. This may well involve the acquisition of core plus assets in the future as well as the development projects we are well known for. We will selectively develop those office schemes where we have confidence in the medium- to long-term returns. These include Holden House and Middlesex, where we are already on site as well as Greencoat & Gordon and 50 Baker Street, both due to start later this year. In addition, we will seek to drive value via strategic unlocking and alternative uses on sites, working alongside relevant partners to maximize returns. These include Blue Star House, Old Street Quarter and 230 Blackfriars Road, and we'll touch more on these later. Finally, we have an established brand and platform, and we believe there's opportunity to leverage this more effectively. This could take the form of development management fees, promotes, partnership structures or other arrangements that are returns accretive. I'll now hand over to Damian, who will provide more detail on the balance sheet as well as the outlook for earnings and total accounting return. Damian Wisniewski: Thank you, Em, and good morning, everyone. So taking a look at our returns outlook and earnings first. The 2 large recent projects at Network and 25 Baker Street are now essentially complete. Baker Street provides annualized rent on a net effective basis of about GBP 18 million a year or GBP 22 million headline. Based off ERV at the year-end, Network's annualized rent will be about GBP 11 million or GBP 13.7 million headline, and we expect rental income here to commence around the middle of the year. Our debt refinancing is complete for now. Our average interest rate increased in June '25, but is now expected to be largely stable through to 2031. Admin expenses were reduced in 2025, and we're targeting further cost savings to come. So with rental values growing and cost inflation easing, we now expect to see another period of earnings growth over the medium term. This feeds into our total accounting return outlook, too, also expected to benefit from improving development surpluses on our carefully chosen schemes and accelerated capital recycling. We will not lose our well-established financial discipline. That is based on low leverage, a focus on balancing value creation against interest cover and earnings and our 18th consecutive year of increased ordinary dividends. Now looking at the earnings outlook in more detail. We currently expect 2026 rental income from 25 Baker Street and Network to be about GBP 18 million higher than it was in '25. This will be supported by rent reviews and other new lettings across the portfolio. We've allowed for disposals of about GBP 400 million this year, but the earnings impact is small as the average IFRS rental yield is close to our marginal interest rate. West End projects, including Holden House and the refurbishment of Middlesex House, will, however, reduce earnings in the short term. There are also additional voids at Page Street, which is being marketed for sale and 50 Baker Street. We're targeting further cuts in admin costs this year. And after disposals and CapEx, we forecast our average debt to fall. However, the refinancing of the convertible bonds in June last year increased our weighted average interest rate by about 50 basis points. We're also expecting about GBP 6 million less interest to be capitalized in 2026 than in '25. Putting this all together, we therefore expect 2026 earnings to be about 42p to 44p a share in the first half, followed by 52p in the second half. That is 10% ahead of H2 '25. So overall, about 3% to 5% lower than in '25, but rising significantly in H2. 2027 should then see EPRA earnings step up. We estimate that about 5% to 10% growth from the 2025 level or about 15% above '26 levels. And this is as growing rents are captured and we capitalize more interest. And then by 2030, we see earnings rising very substantially. Our models indicate at least 25% to 30% of uplift as rental reversion is captured and income flows from completed projects at Holden House, 50 Baker Street and elsewhere. Now considering the total accounting return. The 3 main building blocks are shown on this chart: earnings, capital growth and development returns. These are now supplemented by a fourth, a renewed focus on accelerated disposals to provide further options to boost our returns. Earnings first and assuming investment yields in our sector remain stable, 3% or a little more based on NTA is a realistic level. As the NTA grows, so will earnings. Next, capital growth, where we believe 3% to 5% of NAV is a reasonable outlook, allowing for the rental growth we're now seeing, backed by stable investment yields and allowing for a typical 1% or so adjustment for CapEx and voids. The third aspect is the increasingly attractive development returns, now growing again after being squeezed over recent years. IRRs up to expected letting are now regularly hitting 10% or more for our current and future projects, but rental growth could push these further. Our analysis shows a positive development contribution every year since our first major scheme in 2010. The final element is to free up capital from the higher disposals mentioned earlier into an improving investment market. This could be for future value creation schemes as well as potential share buybacks should that be more attractive at the time. We've set a GBP 1 billion sales target over the next 3 years, which could provide up to about GBP 250 million of excess capital. That's after allowing for planned schemes and the acquisition of Old Street Quarter in late '27. So now moving back to our 2025 results and the financial highlights. We show a solid performance for 2025, the net tangible assets up to 3,225p per share and a 5% total accounting return. Gross and net rental income was slightly higher than 2024, but EPRA earnings were affected by lower surrender premiums and higher finance costs after the midyear refinancing. Note also that our trading profits are excluded from the definition of EPRA earnings. Our debt metrics were all very sound, helped by the disposals totaling GBP 216 million and a busy year of refinancing. Finally, the dividend, which has been increased again by 1.2% and remains well covered by EPRA earnings. Next, the 2.4% uplift in EPRA NTA over the year. After dividends, the group retained 25p per share from earnings, including 8p from disposal profits and other items. The trading profits all came from our 25 Baker Street scheme, the majority from the sale of 24 out of the 41 residential units at George Street. The revaluation surplus in 2025 was equivalent to 51p per share. Of this, 20p or about 40% came from development surpluses. These figures are after slightly higher-than-normal deductions for additional CapEx and voids in 2025, together about 40p per share. Now the next slide, some additional valuation data. As in 2024, our ERVs grew at about 4% with the West End outperforming. Valuation yields remained stable, helped by the rental growth outlook and moderating central bank rates and inflation. Our topped-up initial yield on an EPRA basis at the year-end was 5.1% and the true equivalent yield was 5.71%. The portfolio remains good value with average topped-up rents around GBP 65 per square foot. Now EPRA earnings. These are set out here with the 3 main categories: property, admin and finance. Gross rents were up by GBP 3.5 million. And after property costs and impairment, net rental income was slightly higher than 2024 too. However, surrender premiums were GBP 2.5 million lower this year. So overall, net property and other income was GBP 1.7 million down on 2024. As mentioned earlier, we focused on cost efficiencies again in '25 and admin expenses were down by GBP 2.4 million on an EPRA basis despite inflationary cost pressures. Net finance costs were up significantly in the second half of the year. This is mainly due to the GBP 175 million of convertible bonds, which had an IFRS rate of 2.3%, being refinanced in June with new 7-year bonds at 5.25%. This took our weighted average interest rate up by about 50 basis points over the year. Average debt was also GBP 110 million higher than in '24, though this was partly offset by GBP 2 million -- GBP 2.9 million more capitalized interest. The higher finance costs took EPRA profits down to 98.4p per share. But if we add back the trading profits, which are excluded from EPRA EPS, adjusted EPS was 102.1p. The next slide shows movements in gross rents. After a delayed completion date, 25 Baker Street contributed GBP 5.4 million in 2025 and the retail units at Soho Place, another GBP 0.9 million. Other lettings and asset management transactions added GBP 7.6 million. GBP 10.2 million of income was lost due to space taken back or becoming vacant. Like-for-like gross rents were up 2.4%, impacted by our EPRA vacancy rate increasing from 3.1% to 4.1% through the year. We incurred GBP 182 million of CapEx in 2025, almost half of which was at Network and 25 Baker Street. The ungeared IRR up to PC at Baker Street was 11.3%, with network expected to deliver between 8% and 9% and we'll update these figures later in the year. These both represent good returns after significant yield expansion through the life of each project, helped by disciplined cost control and rents almost 20% above original appraisal levels. CapEx in 2026 is expected to be 22% lower at about GBP 142 million. 50 Baker Street is not yet committed, but we do expect it to move ahead in the summer and are particularly optimistic about return prospects here. Emily will take you through these later. Next, the ERV bridge, which we're now showing on a net effective rent basis to help make earnings forecasting easier. The previous headline rent basis is also shown at the bottom of the chart. Total rental income reversion is now GBP 70.9 million after incentives allowed at 20% and with GBP 216 million of future CapEx. Note that the pure reversion on the right-hand side from reviews and expiries remains at GBP 15.9 million, but this figure is after reclassifying GBP 3.8 million of reversion into the major projects category. Now refinancing. And as noted earlier, we were busy in June, issuing new unsecured 7-year bonds and redeeming the convertibles. As noted, this caused our weighted average interest rate to rise, giving an average through the year in 2025 of 3.8%, up from 3.3% for the whole of 2024. We expect our spot rates to fall in March 2026 when we repay the 6.5% LMS bonds. This should keep the average for 2026 at around 3.8%, but we believe lower in the second half than in the first. Redeeming those LMS bonds will also mean that by the end of Q1, all of our debt will be unsecured. At the moment, we're not expecting to issue any more fixed rate debt in 2026, any funding needed most likely coming from bank facilities. However, it's good to know that other debt capital markets remain both liquid and competitive with margins looking increasingly attractive. Our debt position is summarized on the last slide with all debt ratios and covenants comfortable. Cash and undrawn facilities rising over the year to GBP 627 million. Fitch retained our A- senior unsecured rating last year since when our gearing has fallen. Our borrowings had a weighted average unexpired term of 4.2 years at year-end and net debt to EBITDA was reduced to 9x. We anticipate it falling further through 2026. Thank you. And now back to Emily. Emily Prideaux: Before moving to our operational activity, let me set the scene with an overview of the London office market, where we have good reason to be optimistic as we look ahead. Firstly, London itself, where we have the highest concentration of top universities worldwide, providing an unmatched talent base. It is Europe's unicorn capital and #1 VC investment as well as Europe's leading financial center. It also ranks third globally for AI venture capital investment behind only the Bay Area in New York in the U.S. and is Europe's biggest hub for generative AI. We recognize the ongoing debate on this topic, and it will, of course, change how people work. Overall, we do not believe AI will remove the need for high-quality offices, and we believe London is one of the global cities best positioned to benefit given its depth of talent, innovation and global connectivity. As with any fast-moving driver of change, we will stay close to these developments and be ready to adapt as the opportunity evolves. London's strength is also reflected in sector diverse office demand, underpinned by a broad knowledge-based economy and finance, technology and creative industries all in growth. This global city attracts both blue-chip corporates and high-growth occupiers, and its diversity makes it significantly more resilient through the cycles. London is where global businesses want to be. And the office occupier market fundamentals are strong. 2025 saw robust activity, 11.4 million square feet of take-up with over 3.5 million square foot under offer. Importantly, 80% of deals over 20,000 square foot were expansionary, signaling genuine business growth. Vacancy remains low and prime vacancy sub-2%. Looking ahead, we expect a significant supply punch, rental growth and lease events working in landlords saver with occupier renewals extending income and rent reviews now delivering good reversion. The occupational market is inflecting positively, and we're well positioned to benefit. And what are occupiers looking for? Real estate quality matters more than ever, buildings with a rival impact, rich amenity, flexibility and quality, be that retrofit or new build. Location and connectivity, very important, proximity to crossrail, transport more generally, talent and amenity. But critically, all that London has to offer is what makes it a city, which attracts domestic and European businesses and HQs. The scale and depth of industry and skill is unmatched in Europe. We understand these drivers. Our portfolio is built around them, and our forward-look strategy is designed to capture the value they create. Finally, turning to the investment market. Liquidity is now improving. Investment volumes in 2025 totaled GBP 7.1 billion, a 40% increase on the year previous. Yields have stabilized. The market has inflected and investor confidence is improving, driven by a strong occupier market and supply crunch, as we heard earlier. 2025 also saw the return of the large lot size transactions with double the numbers seen in the year before. This is a trend we're expecting to continue in 2026 as debt costs reduce, boosting overall levered returns. GBP 23.5 billion of equity is now targeting London, an 18% increase on 2024, and Knight Frank reported in a recent survey that offices are the most targeted sector by investors in 2026. Geopolitical events elsewhere are enhancing London's appeal and its position as global safe haven. All this means that we are expecting a further increase in turnover in 2026 to over GBP 10 billion, and this will contribute positively to our plans for disposals. Now to our own portfolio activity. We completed GBP 216 million of disposals in 2025, and we exchanged contracts for disposals totaling GBP 145 million in 2026 so far. In addition, we have GBP 135 million under offer and are in discussions on GBP 100 million. These sales support our target of GBP 1 billion of capital recycling into an improving investment market where proceeds can be more effectively redeployed elsewhere into higher return opportunities. In addition, we will continue to selectively hunt for value-creative opportunities to acquire, be that to support medium, long-term value through development or to support income in the nearer term. Turning to leasing performance. 2025 was a resilient year with GBP 11.3 million of new leases signed, around 10% ahead of ERV. As the chart shows, leasing activity across the standing portfolio has been broadly consistent with long-term averages for a number of years. Excluding pre-let, this highlights the strength of underlying demand for our space. And we've started '26 with strong momentum, GBP 14.4 million under offer, including all of the space at Network as well as the GBP 1.5 million transacted and a further GBP 4.4 million in negotiations. These figures support a strong year ahead for leasing activity. Turning to Slide 29 and asset management. '25 was a record year for asset management with transactions completed across GBP 59 million of income, almost 30% above our previous peak. More importantly, though, was the quality of what we achieved. Our focus was on capturing reversion, extending income and aligning lease profiles with our longer-term asset strategies. Through early and proactive engagement with occupiers, we were able to structure transactions that balance flexibility with greater income visibility while mitigating void risk and future capital expenditure. Rent reviews of GBP 37.4 million secured over 7% above previous rents, reflecting the strong rental growth across submarkets and renewals and regears with long-standing occupiers, extended lease lengths and deepened relationships. Transactions such as Adobe at White Collar Factory and Burberry at Horseferry House demonstrate the strength of our occupier partnerships and reflect the positives for us of occupiers taking the stay put option, while major rent reviews at Brunel and 80 Charlotte Street enabled us to capture good reversion. Overall, this was a year where active management translated directly into stronger income security and enhanced reversionary potential. And this will be an important part of business activity as we look ahead in this market. Moving to developments. At 25 Baker Street, which completed in August 2025, offices were 100% pre-let at 16.5% above appraisal ERV, generating headline rent of GBP 21.7 million and an ungeared IRR of 11.3%. And at Network W1, the offices are now fully under offer. Practical completion of the building is expected within the next week. Full details of the financials on this will be confirmed once transacted in coming weeks. We've maintained good returns on these schemes in spite of significant outward yield shift. Looking ahead, we have a focused and disciplined development pipeline, which remains a core part of our business model and driver of future returns. We're making good progress on site at Holden House and strip-out works have commenced at Greencoat & Gordon. Both of these schemes are in well-connected locations in submarkets with strong demand and limited supply with completions targeted in 2027 and 2028, respectively. We're also on site now with the comprehensive refurbishment of Middlesex House, where we're giving new life to this tactful 1930s Art Deco warehouse building in the heart of Fitzrovia. Together, these schemes, 2 of which are traditional refurbishments, represents a substantial value opportunity for the group with double-digit attractive expected returns. And importantly, this growth potential is already within the portfolio, driven by projects under our control, providing clear visibility over future earnings and value creation. At 50 Baker Street, we're due to commence an exciting new build development later this year. This is a scheme positioned in a submarket with very limited supply, great connectivity and strong growth prospects, which deliver all those things on the occupier wish list, amazing arrival and amenity, large floor plates, flexibility and quality design and architecture, of course. Our base appraisal shows strong returns with rental growth expected to enhance them further given the strength of the Marylebone occupier market as well as the product to be delivered. Alongside our near-term development pipeline, we also have over 1 million square foot where we are actively exploring alternative primarily living-led uses and strategic partnerships to maximize long-term value creation. At Blue Star House working with an operating partner, planning consent is in place for apart-hotel development scheme. At Old Street Quarter, we are working with related Ardent in a development management capacity for the time being to progress a mixed-use living-led campus. Importantly, the structure of this allows flexibility over delivery, including joint ventures, forward funding or indeed plot sales, allowing us to deploy capital selectively and efficiently. And at 230 Blackfriars Friday Road, early feasibility work indicates significant residential-led potential with scope to materially increase floor area. Together, these assets provide meaningful optionality to partner, develop directly or realize value through sales. So in summary, operationally, 2025 has been a strong year, accelerating capital recycling as liquidity improves, resilient leasing activity, record asset management activity, successful delivery and pre-letting of major developments and a disciplined pipeline with attractive expected returns. Now over to Paul, who will wrap up. P. Williams: Thank you very much indeed, Emily. Now to outlook on Page 35. As you heard, there is significant activity across the business. We are busy. GBP 140 million of disposals signed since the start of the year with a similar amount under offer and a further GBP 100 million in negotiations. The stage is set for 2026 to be a strong year for leasing. And we're on site of 3 really exciting projects, which we have forecast will deliver an average IRR in excess of 10%. We have a clear plan for the accretive redeployment of disposal proceeds as we seek to balance near-term income with value creation in the medium term. This includes potential share buybacks. London feels different. The fundamentals are good. The office cycle has really turned a corner. Rents are growing strongly. Investment liquidity has improved markedly with London offices being the most demand sector. There has been a notable pickup in activity. We're seeing more inquiries from potential occupiers and increasingly broad range of investors are knocking on our door. And this is the foundation of our ERV increase for 2026 to plus 4% to plus 7% and our confident financial outlook. Now a personal reflection. As you know, I've made a decision to retire after 38 years at Derwent. I've been with the business man and boy, and I'm proud of what we have achieved over that time. I'm excited for 2026 and beyond and that the business is well placed with a great team. Thank you. We're now going to take questions from the room and then from those who are joined remotely. P. Williams: Questions, please. Thomas Musson: It's Tom Musson at Berenberg. A question first on the perceived AI risk to tenants. The market is beginning to price some of this in recent share price moves. Interestingly, a lot more in the U.S. Would you expect property valuers to react here, perhaps assuming greater tenant covenant risk or changing assumptions around lease renewal probabilities? Just would be interested if any of this has been part of conversations you've had with them. Emily Prideaux: Yes. I think, firstly, one of the benefits we obviously have is how close we are to our occupiers and indeed other occupiers in the market. So any area of change like this will always stay close to. I think in terms of the property sector more specifically in the valuation point you read, there's 2 strands to the AI debate at the moment. One is the direct demand versus the indirect impact, if you like. To date, we're not seeing that reflected negatively by any means in the valuation piece. I think the covenant point is as with any of the other big tech booms we've seen over the cycles. There will obviously be winners and losers in that. And from our perspective, we always take that covenant risk piece very seriously. But on a more general piece in terms of the AI story, I think we feel, as I mentioned, that globally, I think London is somewhere that should really position themselves well for that. But it's something we're going to stay very close to as things evolve. Thomas Musson: Second one, you mentioned potential share buybacks in the event of being in a surplus capital position. At what point would you consider yourselves to be in a surplus capital position? Do we wait until you've cleared this year's CapEx requirement, for example, or some of next year's too? Just interested how you think about that. P. Williams: Look, we have a plan to sell something over GBP 1 billion over the next 3 years. We started off really well this year. We have got some investment going into the portfolio for really accretive developments. But as we build up those resources, I think we should have a good look at that and be open-minded. Damian, do you want to add a bit to that? Damian Wisniewski: Yes. Tom, it's a good question. I think let's get some disposals out of the way. We've made a good start to the year. Personally, I think we need to get sort of 200 plus under our belt before we can seriously look at what we do. We do have Old Street quarter coming up in probably late 2027. So we need to look at that in our forward funding plans as well. So I think the GBP 400 million this year is a good start. We've mentioned there could be up to GBP 250 million of excess capital over the 3 years. That doesn't mean to say we have to wait for 3 years. So I think we will look at this as we go, and we will see how things progress. I don't want to commit to a particular number today, but I hope you can see how we're thinking about this. Thomas Musson: That's helpful. Maybe if I could ask one last one, just on the residential sales at 25 Baker Street. I think at the half year, you'd exchanged on 23 of the 41 units today. I think you say you sold 24, so one more. What's the demand like right now for those? And are you having to meaningfully adjust price there to generate interest at this point? And should we address our trading profit expectations for the rest of the units? P. Williams: I think we started off really well with prices well above our underwrite and there's some very strong prices, particularly for the bigger units, GBP 3,700 a square foot. We've got a little one that's left. They will take a little bit longer time, but they're great flats in great location, but it will take a little bit longer. Damian, do you want to add to that? Damian Wisniewski: Yes. Just one other point to make is that the 2025 result included the cost of all the affordable housing. So from here on, it's essentially profit. Now the market has definitely got slower, and I'm pretty sure we'll see pricing coming off a bit. But we've got quite good headroom here. So confident that at some point, we will see a pickup. A lot of beds for sale. So if anyone is interested, please let us know. Adam Shapton: Adam Shapton at Green Street. I had to put my hand down then when Damian bed didn't want to look I was volunteering. Firstly, congratulations, Paul and Nigel, on retirement, let me say that. Before I get into questions. Just a clarification on the GBP 1 billion of disposals number. Is that in addition to what's already exchanged and under offer or... Damian Wisniewski: No, GBP 1 billion includes the figures that we've done this year. So GBP 1 billion over -- we would have done GBP 280 million, I think, as the deals get done. So that's a good start. So we're hoping that we're going to get something close to GBP 400 million this year. So that's the plan. Adam Shapton: And just in that context, if I may say 3 years sounds quite conservative to do another GBP 750 million. What's the limiting factor there? I mean you talked about improving market. You quoted Knight Frank on all the equity... Emily Prideaux: Don't view the GBP 1 billion as a cap. I think what we're looking to do is proactively dispose here mature assets where the business plan is delivered and where we think we can deploy other more accretive opportunities. So it's not a fixed number per se. And depending on the market and where we're at in terms of other opportunities that may move. Adam Shapton: So both the number and the time scale might conservative. Is that fair? P. Williams: We're seeing liquidity improving because obviously big assets are GBP 100-odd million today. Last year, I think they doubled GBP 100 million the year before we difficult. So I think as we see liquidity go up, and if we can get a strong price for those assets, we're going to be realistic and sensible. But I think we want to make sure when we do sell, we sell well and we sell at the right price with the balance sheet in good place. I want to make sure that we do it strategically. Richard and his team are well set up to do that. And I'd say we will accelerate disposals and we see a strong price for something and we can use the money more accretively, we would certainly do that. Adam Shapton: Great. Just 2 more. On the flex growth, Emily, you mentioned going from 8% to 10% to 15%. I think I'm right in saying the 8% is a mixture of F&F and third-party operators. Emily Prideaux: Yes. Adam Shapton: So what's the shape of that? Emily Prideaux: The growth from 8% to 15% is more around our portfolio and what expires within that time frame of a size and location where we think will naturally move to flex. So it's not proposing that we're going out shopping per se for an extra 7% of that stuff. It's more that we're looking at where the sub 10,000 square foot units coming back in the right submarkets and they will likely convert. Adam Shapton: Okay. But we should expect to be more your in-house as it were rather than leasing? P. Williams: We've got a number of refurbishments at the moment, which I think we're ideally placed for that sort of thing. Adam Shapton: Okay. And maybe somewhat related to that, on admin costs, you made some good progress. How should we think about a floor of where that could get to in today's money? Given your strategic ambitions, you want to sweat the platform more, where could the... Damian Wisniewski: I think our target for this year is another couple of million. I think at that stage, that feels like it's quite lean. There would have to be quite structural changes before we can go much lower than that. But that's a reasonable target for now. Callum Marley: Callum Marley from Kolytics. A couple of questions. Outlined the new strategy today with disposals and buybacks. But the stock has obviously been trading at a material discount now for a few years, and you've had a while to act on it. Why are you committing to this now? Emily Prideaux: I think in terms of the strategy, in terms of -- we're looking at all optionality here. So we're disposing, but then obviously focusing on the balance sheet. You've seen track record of development and investment where we're committed and where we want to commit. Obviously, looking at the dividend and as Damian touched on, which you can pick up on the share buybacks come as and when we reach that surplus. So it's looking at the whole picture and that optionality around that, keeping open-minded to that. Damian Wisniewski: I think also the key really is how the investment market is now opening up. we have had 2 years where it's been quite challenging to sell large lot sizes. And as a result, the leverage has crept up a bit. The balance sheet is still strong, but maintaining a strong balance sheet has always been one of our foremost requirements. we now have more options coming open to us as well. So -- and the other thing, of course, is maintaining earnings. And you've got the situation now where the IFRS yield on most of the things we're looking to sell is probably very close to our marginal interest rate. So the earnings impact of disposals is much less than it was, say, 3 or 4 years ago. So I hope that gives you some idea as to how... P. Williams: I think that's the point with the market opening up more liquidity, give more opportunity to sell and consider what we do with that money. So I think that the market equity has improved a lot. Callum Marley: Got it. And then the 25% earnings growth target, is that built on sustained rental growth? And if so, what's the number? Damian Wisniewski: The rental growth to 2030, essentially, what we're doing is we're building into our models some growing reversion from rental growth of around about 4% per annum. We've also got, I think, expecting increasingly attractive returns from projects like 50 Baker Street and Holden, where the gearing impact as well, it improves those returns still further. You factor that in, about half of the rental growth comes from those 2 projects and about half of it comes from the rest of the portfolio. Callum Marley: So 4% is the... Damian Wisniewski: So roughly 4% per annum is what we're putting in our models going forward, yes. Callum Marley: And if I could just ask on Page 22, just looking at the prime office rents, seem to be flat from 2015 to 2019. What makes you think that '25 to 2030 that is going to be 4% a year going forward? P. Williams: I think -- firstly, I think there's a pretty tight supply crunch and that demand is pretty good. People are growing. 80% of the deals last year with 20,000 square foot people were growing. Rents do need to increase in order to -- a small proportion of people's outgoing. So I think if people want to be in good locations, they need to pay the right rent for the right location. So I think it is time for landlord to earn a bit more money. So I think we feel pretty positive about it. Last few years, despite the difficult macroeconomics, we've been consistently letting at 10% above ERV. We have strong visibility about inspections and viewings and tenant demand. So I think we feel pretty positive about. London is a place to be. People want to be in town. Emi, do you want to add to that? Emily Prideaux: Yes. I think the 4%, if you look at the sort of big houses prospects over the next 5 years, that's probably pretty conservative. I think the supply crunch is a big driver at the moment. London has got a supply shortage that we haven't seen before. Part of our repositioning is making sure we're in the right place for that. But I think the 4%, we're pretty comfortable with from a market perspective. And this year, we're in a place where every submarket in London is now projecting growth, whereas before it has been much more spiky following COVID. So you're really seeing that evening out now in terms of a more lateral growth across the city. Damian Wisniewski: Rents have fallen behind other costs quite substantially over the last 5 years. They're now beginning to catch up, and we're seeing our rents growing now at a slightly faster rate than overall cost. But really, that's been squeezed quite a bit over the last 5 years. If you go back to the last big rental cycle, which was sort of 2012 onwards to 2015, our earnings pretty much doubled in that period. And I'm not forecasting a doubling, that would be nice. We'll come back next year, hopefully. But I think our 30% increase feels very realistic given that we are seeing really quite a shift in the dynamics and overdue, I think. Zachary Gauge: It's Zachary Gauge from UBS. A couple of questions from me. One is on the ERV growth conversion into capital growth during '25. Obviously, 4% ERV growth. I think at the portfolio level, you're only 0.8% on capital growth. Can you touch on why the value was -- aren't giving you the uplift when yields were effectively stable and why you're confident that going forward, that will convert into the 3% to 5% capital growth that you've guided to? And then the second one, sort of again, picking up on the share buyback point and capital allocation. I noticed that the net debt-to-EBITDA target seems to have shifted slightly from getting it below 9 at the end of this year to now sort of 9.5 going forward. Bearing that in mind and the capacity that gives you, should we sort of see the GBP 250 million of excess capital from the GBP 1 billion of disposals as the high watermark for buybacks? And would that then be sort of flexible depending on where you sit on the net debt-to-EBITDA ratio and obviously doing potentially more disposals than GBP 1 billion. P. Williams: So Damian, do you want to start with... Damian Wisniewski: I'll start with the second question. So the 9.5 isn't a target. We've currently got it down to 9, I'd prefer it to be lower than that. We're expecting it to be lower by the end of this year. So 9.5 is really where I think we see the upper limit over the next few years. Could there be a bit more available? Yes. I think we need to see how we go on this. We'll update you as we go. But the 9.5 is very much an target. On the valuation point, I think I mentioned earlier, we've got about 40p a share of additional CapEx and discounting for voids and the time effect of rental growth coming through. That did impact us in 2025. We've looked over the last 10, 15 years. And the average amount by which we see valuations impacted by CapEx and voids is roughly 1% per annum. Last year, it was more like 2%, 2.5%. We have been looking at a number of new schemes to try and grow rents. And I think that was one of the reasons you've seen a bit of a step-up in 2025. But we don't think that is a normal level, and we think it will come back down closer to its 1%. The only other point to make is that our 3% to 5% is on NTA -- and the -- obviously, the rental growth is on the gross asset value. So there's an impact there as well, which helps. Zachary Gauge: Sorry, on the GBP 250 million being the top end of buybacks and dependent on additional disposals? Damian Wisniewski: Not a top end at this stage. I mean let's wait and see. I think -- I don't think it's all going to come in one go either. I think we need to get the disposals underway, look at the capital allocation at the time, and we'll take it from there. But -- so 3 years isn't forever either. So let's see where we go. Emily Prideaux: I think it's going back to the plan we've talked about, Zach, in terms of looking at all of those -- the options available to us alongside one another. P. Williams: Paul, I think you had your hand up. Yes. Paul May: It's Paul May from Barclays. Just 3 questions, I think, for me. You regularly provide the ERV target, but I think through the presentation, I've noticed sort of welcomed increased focus on earnings and cash flow moving forward. Do you think you'll consider providing a like-for-like rental growth target per annum moving forward? I appreciate you said the 4%, but just sort of give some color there in terms of converting ERV growth into actual cash flow would be sort of welcome. Regarding the disposal of Whitfield Street, obviously, I understand Lone Star is a pretty high cost of capital enterprise. Do you have any indication as to what they're expecting on that site and why they can hit their sort of 20% plus IRR targets versus what you would have expected to achieve on that site? And then just on the 2030 targets, is it reasonable to assume that that's relatively back-end loaded. There will be a little bit of bumpiness between '27 and '29. And then as those schemes complete, that should come through into 2030? P. Williams: Well, just touching on Wakefield Street first. I mean, obviously, they will have a fairly -- probably a bit more aggressive view on rental growth. We're very happy with the price. I think a net initial of the price of 5%. [indiscernible] on the 5% is good. bit of vacancy coming up. It's a 20-year-old building. I can't really speak for them as to where they think their returns could be. They're probably reflecting the same thing we are as much as the West End is very tight, rents are growing and a very good location. So they're probably targeting pretty aggressive rental growth. But for us, we think recycling support and getting some more money into the portfolio, we can secure a strong price, which we did, and we're investing elsewhere. So I think it's all about their view about where rents might grow. We're not renowned for being overly aggressive on where we see rents growth. So I say we're delighted with the start of the year, how much sales we've done, how much we've got under offer. We wish them well with the purchase. I'm sure they'll be delighted with it some time. As I say, we've done -- we've made our money there. It's a 20-year-old building, and we've got plenty of other opportunities to spend the money. Do you want to talk about… Damian Wisniewski: Yes. First of all, on the like-for-like rent, it's an interesting idea. I think we'll certainly consider it. I mean the point to make here is that the rental growth grows the reversion and it takes time for that to be captured into earnings. And so you tend to get this cycle where initially, the like-for-like rents lag behind ERV growth. But at the end of the cycle, they can often outpace it. So we found -- in that period, we mentioned earlier that 5 years when rental growth was very low. For the first 2 or 3 years of that, our like-for-like rents were still growing nicely because they were based on previous reversion. So you get this slightly different timing impact coming on. We'll think about how we might guide to that going forward. In relation to the earnings, you are right. A lot of the uplift comes from 50 Baker Street and Holden House and others coming through probably in late '29, early '30. So it is quite a step-up in '30. We do think though that there will be some nice solid earnings growth in '28, '29, but it's really then a step up in '30. Paul May: Perfect. Sorry, last couple. One, coming back to the initial question on AI. Do you think your portfolio or your tenant base of smaller -- generally smaller tenants, smaller floor rates actually offer some protection in that AI world given it's probably larger entities that are cutting back on some of the graduate recruitment. P. Williams: Well, short answer, yes. I think very big banks, et cetera, who knows. I think one of London's great benefits is to buy a diverse space. Average -- I think average size of our lettings across our portfolio, about 15,000 square foot. I think that gives quite a lot of resilience with such a range of different occupiers. Emily, do you want to add to that? Emily Prideaux: I think that covers it most other than to say, obviously, the way we look at our portfolio generally and AI falls into this is to make sure we've got everything to meet that match demand. So the high growth at the lower end, probably in the fitted space growing up to the 50 Baker Street. So I think like any other, I think we'll make sure it's balanced in that way. Paul May: I am sorry, just final one linked to that. The 10% to 15% on flex, given that 15,000 square foot sort of average tenant mix, and that's probably skewed by a few large ones and then quite a few even smaller ones. Could flex become a significantly larger part of your portfolio than the 10% to 15%? Emily Prideaux: At the moment, we think the 15% is probably where it still makes sense from maintaining everything that we have to look at in terms of cost ratios, operational efficiencies and overall net-net returns in terms of extra CapEx and everything else that goes into it. So at the moment, that's where we think we will always continue to kind of mirror the market and make sure we're delivering what we believe the market is. Over the years of flex and all the headlines it's grabbed, it's never really moved much from the sort of 4% to 7% of the total market activity. So it feels -- we're looking at that on all the financial metrics, but also where we think the market is. So -- of course, it could change in the future and we'll adapt as we need to, but that's where we feel it's right at the moment. P. Williams: I think that's a good point as a percentage of the market. It's relatively small. We got a lower headlines and it's done well. But we also like our headquarters, nice long leases, helps our valuations. Thank you, Paul. Any other questions we've got from the room more? Do we have anyone online on telephone? Operator: First question from the phone comes from the line of Marc Mozzi from Bank of America. Marc Louis Mozzi: My first question is around how is the Board weighting M&A optionality as a way to boost shareholder returns and addressing the gaps that have been created by the recent senior departures. Emily Prideaux: I think it's a question around how -- was the question just bear with me that the -- how do we think about perspective of addressing succession matters. P. Williams: I mean, obviously, we're very focused on our business at the moment. And obviously, I've made a decision that I'm going to retire and there is a process going ahead with finding a successor. So the focus is on the business. There's nothing to report to say about M&A, particularly. Unless we misunderstood your question, Marc, it wasn't a great line. Marc Louis Mozzi: It was a question. My second question is around effectively given AI-driven derating of New York office stock prices, do you still view share buybacks as the right call in that environment? And the next one related to that is how confident are you in the long-term earnings and total return specifically target that you've provided through 2030? P. Williams: Well, I think firstly, it's always got to be a balance between buybacks and investment and all the rest of it. And obviously, it's got to be seen as an opportunity at the moment. Damian, do you want to add anything to that? Damian Wisniewski: Yes. I mean the principal things we're trying to do, we're trying to accelerate disposals to give us more options. The first thing we do is maintain a strong balance sheet. The second thing is we invest in our accretive returns for our schemes. After that, we have options. And the AI is one of the many factors we take into account in looking at investment decisions. And we're all trying to work out what it means short term, medium term and long term. For now, though, I think hopefully, our capital allocation outlook is clear, and we will keep our eyes and ears open to see how things move forward. But I'm not sure we can say much more at this stage. Marc Louis Mozzi: I just wanted to have your thought. And the final question for me is, how much disposals are you assuming in your 2030 target? Damian Wisniewski: 2030. So we're assuming about EUR 1 billion in the next 3 years and I think a couple of hundred million a year per annum after that. Is that right, Jennifer? Unknown Executive: Yes. Damian Wisniewski: Jennifer does all the modeling, so she knows. Marc Louis Mozzi: GBP 1.2 billion, GBP 1.3 billion? Damian Wisniewski: About GBP 1.3 billion, GBP 1.4 billion over the 5 years. P. Williams: We got one more. Operator: The next question comes from the line of Alex Kolsteren from Van Lanschot Kempen. Alex Kolsteren: Two questions on this presentation. So you mentioned EUR 2 million of cost savings target in 2026. What's the reasonable amount to assume for 2027 on top of that? Damian Wisniewski: Yes. So we took about GBP 2.4 million came off our EPRA cost in 2025. We're anticipating a similar level in 2026. I think our models assume inflation after that, but we will be looking to make this business as efficient as we possibly can. So anything we can do after that to reduce costs will be done. There isn't a specific cost target, I think, in the 2027 model at this stage, but that doesn't mean to say we won't look at further efficiencies. Alex Kolsteren: And then one more on the capitalized interest. On Slide 9, you say that the capitalized interest in 2027 is about GBP 8 million higher than in 2026. On Slide 51, where you break down your CapEx pipeline, the 2026 number is GBP 6 million and 2027 number is GBP 8 million. So where does the remaining GBP 6 million increase come from? Damian Wisniewski: Yes. I mean these figures in the back here are for essentially the committed schemes. If you look at the top half of the report. There is -- in the bottom, it says consented 50 Baker Street. That is not yet in the top half of the project because it's not been committed. When it does get committed, and we're assuming it will do, then it will go into the top half, and we'll show you the capitalized interest. So that figure in the outlook includes capitalized interest for 50 Baker Street, the appendix doesn't. Unknown Executive: There are 2 questions on the webcast. The first says, while you've mentioned the possibility of share buybacks, are you taking any other active steps to reduce the gap between the current share price and the net asset value? P. Williams: Well, we're hoping this presentation will help. I mean we're selling, we're letting. We think the market is improving. The fundamentals are good. So actively, we're looking at other options of whether buybacks or something similar. Emily? Emily Prideaux: That's exactly that. The plan you've heard today is laser-focused on shareholder returns and what we get and where our focus is in that regard. Unknown Executive: And then the last question is, within the 2030 guidance, does it take account of a potential share buyback? Damian Wisniewski: No. P. Williams: That's an easy answer. Thank you, everyone, for today. We're all around if anyone wants to have a chat afterwards, pick up the phone or obviously on tour as well. So thank you for your attending today. I know it's a busy week for everyone, and have a good day. Thank you very much.
Operator: Now I will hand the conference over to the speakers, CEO, Martin Welschof; and CFO, Stefan Ericsson. Please go ahead. Martin Welschof: Thank you, and welcome, everybody, to our year-end report. Today is February 26, 2026. And as usual, I will start with the summary. So we had a couple of key events in the fourth quarter. First of all, the 2 ASH data sets. So with BI-1808, our lead candidate targeting TNF receptor 2, we saw very strong data in T-cell lymphoma, and we presented that at ASH 2025, and I'll come back to the data a little bit more in detail later. And then we had another ASH presentation about BI-1206, which is our lead targeting FcgammaRIIb in combination with rituximab and Calquence in non-Hodgkin's lymphoma. And that was also presented at ASH 2025 and also a very, very strong data set. I should mention that BI-1808 that was monotherapy, single-agent therapy. Then, we also started our Phase IIa trial evaluating BI-1206 in combination with pembrolizumab in treatment-naive advanced or metastatic non-small cell lung cancer and uveal melanoma. So this is really the first-line setting. And this is, as I will explain later, based on data that we have seen in end-of-the-line patients, and that data actually convinced Merck to go together with us into first line under a supply and collaboration agreement. And then last but not least, we also got orphan drug designation from EMA for BI-1808, another very important milestone, for the treatment of cutaneous T-cell lymphoma, CTCL. And then we had another -- a couple of events after the end of the period. Number one, obviously, a very promising data set in our ongoing Phase IIa study for BI-1808 with KEYTRUDA for the treatment of recurrent ovarian cancer. And we published that ahead of JPMorgan, and I will also discuss that data set a little bit more in detail. And then we had here in the report and maybe not everybody is aware about this, but I will highlight it, updated clinical data sets for 1808 and pembro in combination in ovarian cancer as well as the BI-1206 study for the treatment of non-Hodgkin lymphoma. So we have additional patients there, and I will mention it again when we discuss specifically those 2 data sets. And then also very happy that we could nominate 2 new Board members. Of course, they still need to be confirmed and elected on the Annual General Meeting. Number one, Kate Hermans, a very experienced and seasoned business person in the pharma and biotech industry. And then Scott Zinober, who was for roughly 20 years, the portfolio manager at Viking. So both 2 very, very strong U.S. profiles, and we're very happy to welcome them to our Board. Then, before I go into a little bit more in detail, just to have a quick look at our clinical pipeline. As usual, I always emphasize here, so we have multiple value drivers. So as you know, in August, we focused on the 2 more mature programs, 1808 and 1206. And 1808 is currently running with -- in combination with pembrolizumab in recurrent ovarian cancer. And there, we have this very nice data set that is actually continuing to generate good data. And then we have planned, so this has not been started yet, a combination with 1808, pembrolizumab and paclitaxel based on the very interesting data that Merck published at ESMO. And this is actually quite exciting because it could lead to a very interesting development in recurrent ovarian cancer. Then, obviously, as you already know, CTCL single agent, I'll go briefly over the data that we presented at ASH. And then we are currently running this also in combination with pembrolizumab, although we already have very strong single-agent data in CTCL of 1808. We still want to see how it looks in combination with pembro. And then 1206, the triplet targeting non-Hodgkin lymphoma, specifically follicular lymphoma, mantle cell lymphoma and marginal zone lymphoma. And there, we also have an update. So the data set is maturing further and basically confirming the trend as we see also the 1808 data set in ovarian cancer in combination with pembrolizumab. So that is really very, very encouraging. And then as already mentioned on the previous slide, so we kicked off first-line combination -- in combination with pembrolizumab 1206 in non-small cell lung cancer and uveal melanoma. And there, we will see the first readout already during the second half of this year. But I will come back to the milestones this year and also an outlook into 2027 later at the end of the presentation. Here, I just want to mention that we see basically complete and partial responses in all clinical programs, which is really, really confirming the 2 single agent having activity in liquid as well as in solid cancer, which I think is very -- giving a lot of comfort, and that's what you want to see at this stage. Then going a little bit more into detail. So first, our anti-TNF receptor 2 program, 1808 in solid tumors and then the same in T-cell lymphoma. So we have, as already mentioned, very promising efficacy in ovarian cancer, and that is kind of building on the single-agent activity that we have seen in ovarian cancer. But obviously, if you want to treat something like recurring ovarian cancer, you have to go into combination. And since we knew preclinically already that we have strong single-agent activity, but also very good synergy with pembrolizumab, it was a no-brainer, and that's why we did this. And in addition to the data that we have shown ahead of JPMorgan, we have one additional partial response. So one stable disease has turned now into a partial response and one additional stable disease that corresponds to 24% ORR and disease control rate of 57%. So basically, the data set that we have shown ahead of JPMorgan is kind of confirmed and is maturing further into the right direction. So again, 24% overall response, 57% disease control and available -- 21 available ovarian cancer patients, which I think is very encouraging and showing the right trend. And also when we look on the next slide, at the spider plot, you can also see how immunotherapy is working, and we have a firm belief that 1808 could be potentially the next KEYTRUDA. And you see here 2 dotted lines. So a pink one, which is basically if you're above this is progressive disease. If you're below this is stable disease. And then you have a yellow line, PR, which is basically if you then go beyond this or below this, then you have a partial response. And you can see how immunotherapy is working. So you have patients at stable disease and then there for a while, the immune system works and then it gets pushed down into partial response. And this is actually very, very interesting because also when you look at KEYTRUDA alone, it's about 80% ORR in combination with our drug, it's 24%. I think this is actually a very interesting and strong data set and of course, further maturing. Then switching to CTCL and PTCL, our T-cell lymphoma data that we presented at ASH 2025. And there, we have shown 46% ORR, 92% disease control in 13 evaluable CTCL patients, a very strong data set. And I should mention here also at this place, both data sets, so the one in ovarian cancer as well as the one in T-cell lymphoma has also a very excellent safety profile. So it's very, very well tolerated, which is important, especially when you think about the combination in ovarian cancer with pembrolizumab because if you -- you are only able to do this in case you have a good safety profile, which we have. But going back to T-cell lymphoma here on this slide. So what is important besides the good safety profile is that we see immune activation early on with depletion of regulatory T cells and the influx of CD8 positive T cells into the skin. So we have a clear skin component. And very briefly on the spider plots, here, you can also see nice duration already. In this case, the black line is basically below that is stable disease. And then you see the dotted line is below is partial response. And you can see that we already have a complete response now in Sézary Syndrome, which is really continuing for more than a year. So also, you can see that duration is coming into play here, as you could see also for the more early ovarian cancer data set. So it really looks very promising. Then switching to our other program, our anti-FcgammaRIIB program, 1206 in non-Hodgkin's lymphoma as well as in solid tumors, starting with the non-Hodgkin's lymphoma. So this is the combination with rituximab and acalabrutinib. So it's a triplet. And this is a little bit different slide that we have shown so far. So we have this splitting up now into follicular lymphoma, marginal zone lymphoma and mantle cell lymphoma. We see good responses in both. Dark green is complete, light green is partial. And we have actually compared to the data set that we have shown at the end of last year, 4 additional partial responses and 1 additional stable disease, keeping basically the very good 80% ORR and the disease control rate of 100%, which is, I think, excellent. And you can see activity in all 3 subsets. We are focusing more on follicular lymphoma because this is also more interesting for our supply and collaboration partner, AstraZeneca, because they don't have follicular lymphoma on the label of acalabrutinib. Then, again, spider plot here as well. Everything that is below the dotted line is good because that means it's either a partial response or complete response. And then you see also quite a number of stable diseases. And you see here also that the data matures, that means you see first a stable disease, then it goes into partial response and then eventually into complete response. And we also have here very, very good duration. And we have some idea about the duration from our doublet study that we did before that was just 1206 in combination with rituximab. And of course, the patient population that we're focusing on is our patients that do not respond anymore to any CD20-based therapy. And there, we have now a couple of patients that actually are in complete response for several years after the end of the study. So then on the solid cancer side for 1206, this is a data set that is from the dose escalation where we were targeting patients, end-of-the-line patients that do not respond anymore to either anti-PD-1 or anti-PD-L1, where we also had some very interesting signals. So we had very interesting complete and partial responses. And based on that, we went back to Merck, our partner here for the supply and collaboration on combination with KEYTRUDA. And we agreed that we should go into a Phase IIa first-line non-small cell lung cancer and uveal melanoma with 1206 and pembrolizumab, and this is now ongoing. And as I said, so the first readout will be during the second half of this year, which is pretty soon anyway. Then, I will hand over to Stefan. Stefan Ericsson: Thank you, Martin. I will present the financial overview for Q4 and the 12-month period, January to December. All amounts are in SEK million unless otherwise mentioned. Net sales were SEK 3 million in Q4 2025 compared to SEK 21.4 million in Q4 2024. That's SEK 18 million lower in Q4 2025. That decrease is related to the production of antibodies for customers was lower in 2025. And net sales for January to December 2025 were SEK 226 million. For the same period in 2024, net sales were SEK 45 million. That's an increase of SEK 182 million. The increase is mainly related to the SEK 20 million payment we received when XOMA Royalty acquired future royalty and milestone interest for mezagitamab. And before that, we got a SEK 1 million milestone in that collaboration. Production of antibodies for customers was SEK 19 million lower in 2025. Operating costs decreased from SEK 147 million in Q4 2024 to SEK 132 million in Q4 2025. That's a decrease of SEK 15 million. We had quite higher cost in BI-1808 and quite lower cost in BI-1607 and lower cost in BI-1206 and BI-1910. And we had somewhat higher personnel costs in Q4 2025. From January to December, the increase of operating costs was SEK 62 million from SEK 516 million in 2024 to SEK 578 million in 2025. We had quite higher cost in BI-1808 and BI-1206 and quite lower cost in BI-1607, and lower cost for production of antibodies for customers. And personnel costs in 2025 were quite higher compared to 2024. And the result for Q4 2025 was minus SEK 125.8 million and result for January to December 2025 was SEK 332.9 million. Liquid funds and current investments end of December 2025 amounted to a total of SEK 593 million. And finally, based on ongoing studies, BioInvent is assessed to be financed for the coming 12-month period. Over to you, Martin. Martin Welschof: Thank you, Stefan. So at the end of the presentation, I want to go over the key catalysts for the remaining part of this year as well as give you an outlook for 2027. And as you will see, this is actually a quite dense picture here. So we have a lot of interesting news this and next year. So starting with 1808 in T-cell lymphoma. So already by mid this year, we'll have first Phase IIa data in combination with pembro, but also additional monotherapy data since we do dose optimization at the moment. Then, for 1808 in solid tumors, second half of this year, we should have further Phase IIa data in combination with pembro. And as you could see already here, so the data is maturing to the right direction. So that should be also a very interesting milestone to looking forward to. Then switching to 1206, our FcgammaRIIB platform, we'll have midyear already the additional Phase IIa data with -- in combination with rituximab and acalabrutinib. And then last but not least, 1206 in solid tumors, first-line non-small cell lung cancer and uveal melanoma, we'll have the first readout of that data during the second half of this year. Then looking into 2027, again, starting from the top, first, our TNF receptor 2 platform, 1808 in T-cell lymphoma. During the first half, we'll complete the Phase IIa dose optimization. That is the monotherapy. And then during the second half, we could potentially start the pivotal study. Then, 1808 in solid tumors. During the second half of next year, we would have potentially the first Phase IIa data, the triplet in combination with pembro and paclitaxel. And this is actually quite interesting because in case we really see a nice uplift there, and maybe we can later discuss it during the Q&A in more detail, this could also then lead immediately, of course, data-driven to a pivotal study. So a very, very interesting program to follow. Then, FcgammaRIIB, 1206 in non-Hodgkin lymphoma. So during the first half of 2027, we potentially could start the pivotal triplet study and then in the solid cancer, first-line non-small cell lung cancer and uveal melanoma. During the first half of 2027, we complete the Phase IIa data and could potentially start during the second half, Phase IIb BI-1206 plus pembro in non-small cell lung cancer. So as I mentioned, a very dense news flow, very interesting milestones and that should be something really looking forward to. And I think I will end here my presentation and happy to take questions. Thank you. Operator: [Operator Instructions] The next question comes from Richard Ramanius from Redeye. Richard Ramanius: Why not start off on the last slide? And when do you think it would make sense to take in a partner to conduct any of these studies? I guess, it would be some of the studies in 2027. Martin Welschof: Yes. So basically, what I can say to that, we are in interesting discussions, as you know. So we have a very active approach in business development partnering anyway, and we are in discussions with some company for some time. Obviously, we have AstraZeneca and Merck already at the table in a way through those supply and collaboration agreements, and they follow the programs very closely. And I think we might already see some activity around partnering -- potential partnering, deal making, during the second half of this year. And of course, you can never promise. It's always then depend on the data, on what the market environment is, et cetera, et cetera. But we will be keen to partner one or the other with hopefully, large pharma companies such as Merck and AstraZeneca. Richard Ramanius: Right. Could you just clarify more in detail exactly what more do you need to accomplish with BI-1206 in NHL to make the triplet ready for a pivotal trial? Martin Welschof: Yes. So basically, we will have, as I already mentioned, the 30 patients in the current ongoing study. That's enough. And then we can discuss with the regulators and start preparing for potential pivotal study. That's why I think that will take the rest of the year once we have the data by mid this year and then could start that potentially next year. But also to mention it here, our main focus currently from a strategic perspective is more on the solid cancer side because that is a much stronger value driver. But we are committed to get the TCL as well as the NHL that you are talking about ready for potential pivotal study. Richard Ramanius: Last question. What funding options do you have for 2027? Martin Welschof: Yes. So obviously, we will look at everything all the time. Number one, we're looking at partnering. And number two, of course, there's always a financing option because I think if you have good data as we have, you have always both possibilities, but we have a strong focus on partnering. Operator: The next question comes from Sebastiaan van der Schoot from Kempen. Chiara Montironi: I'm Chiara Montironi on behalf of Sebastiaan. So a couple from me, if I may, again, regarding potential partnering discussion. Could you go over whether BI-1206 or BI-1808 is one of the more logical options to out-license? And the second question will be around uveal melanoma and first-line non-small cell lung cancer data set for BI-1206. Can you provide some insight into what magnitude of efficacy would give you enough comfort to continue forward with the program? Martin Welschof: Yes. Thank you very much for those questions and very nice to meet you. So regarding partnering, we are currently discussing both 1808 and 1206. So we have discussions around both programs, and that's also what you should do as a biotech company because you can't be picky. You have to see what opportunity turns up and then you go from there. My dream scenario would be, though, that we keep 1808 a little bit longer and partner 1206 first. But as I said, so we have discussions around both at the moment. Then regarding the data set of 1206 in first-line non-small cell lung cancer, I think what we would like to see as a target is 60% ORR, and I think then we will be in good shape. Operator: The next question comes from Arvid Necander from DNB Carnegie. Arvid Necander: I came a bit late here, so sorry if the questions have already been answered. But the first one on 1206. So really good to see the breakdown of responses by subtype in NHL. So on the back of this analysis, I just wanted to ask if follicular lymphoma is the indication that makes most sense to pursue in a registration-directed trial? And then I guess, secondly, on the non-small cell lung cancer data targeted for second half of the year which will provide an important new signal, how should we think about expectations here? What would mark a strong outcome in your view? Martin Welschof: Thank you for your questions. Maybe I'll start with the last one first because there was a little bit of an overlap regarding that already. So what we hope to see, our expectation is that we see an ORR, so that's about BI-1206 in combination with pembrolizumab in first-line non-small cell lung cancer of 60%. I think if you see that, that will be a strong signal. And in that sense, also, it's a very good clinical trial because we really put it to the test. And if you see this kind of response, I think we are very happy. And I think that would be also something that is super interesting for Merck or should be super interesting for Merck. Then regarding 1206 in non-Hodgkin lymphoma, yes, I think the activity is in all 3, and we had a stronger focus on follicular lymphoma. And I think I mentioned it during the presentation, maybe you didn't hear this. This is a little bit driven by our supply and collaboration partner, AstraZeneca, because acalabrutinib doesn't have follicular lymphoma on the label. And since we think that might be a potential partnering possibility, we were focusing on follicular lymphoma a little bit more than on the other 2. And what we were trying to do is have a focus on follicular lymphoma at the same time point also showing that it works for marginal zone as well as mantle cell lymphoma, which I think we clearly did. And of course, also for the audience here, when you look at non-Hodgkin lymphoma, the largest -- by far largest population is follicular lymphoma, I think also from a commercial perspective, it makes a lot of sense. Operator: The next question comes from Dan Akschuti from Pareto Securities. Dan Akschuti: Congrats on the progress now with potentially 2 pivotal programs next year. And I think there's been a lot of discussion about partnering. And yes, both drugs work in multiple settings. So I'm thinking a bit like how are you going into these negotiations, if you can share a bit more because follicular lymphoma, for instance, as with any approved immuno-oncology drug, they never stay approved in only one indication. So it's kind of a mechanism proof of concept that you have. Are you marketing this specifically? Or do you see interest from that from the pharma side to basically not just do a deal on the indication, but more broader on the drug or on the mechanism? And how you approach that for both drugs, 1808 and 206? And if you have gotten this kind of interest from pharma or has it been very indication specific? Martin Welschof: Yes. Thank you, Dan. So I think, in general, you can say -- and that's -- you see it also here on this slide. So 1808 is our TNF receptor 2 platform and 1206 is our FcgammaRIIB platform because both mechanism, as you say, are broad. And of course, what you do in early clinical development, you try to find a signal that you can follow in order to generate some more comprehensive data sets, and that's what we're doing. And especially as a small company, you have to be very prudent because you can't go too broad at the beginning. But just to go through maybe step by step. So when you look at 1808 first, maybe, then you can clearly see that we already have established a very broad efficacy range. So remember, probably, the single-agent activity in GIST in ovarian cancer, but also in lung cancer. And now the strong data set in combination with pembrolizumab. At the same time point, we also see strong single-agent activity in T-cell lymphoma. So they already can go and see the broad potential application range that we have for that compound. And talking about 1808 first, maybe. So yes, the discussions that we have, of course, initially indication-driven because wherever you have the first more comprehensive data set, that's what drives it. And of course, that we had with TCL. But now since we have the ovarian cancer data set since early this year, we also have interesting discussions around ovarian cancer, obviously. So absolutely broad. And the same is true for 1206. So we have this in non-Hodgkin lymphoma. And of course, the study that we run is very targeted towards AstraZeneca in a way. So we'll see how that works out, and we will know that probably already quite soon. But then you have the solid tumor side, where we work in combination with pembrolizumab, and especially 1206 is quite interesting because there we have a supply and collaboration agreement with AstraZeneca regarding acalabrutinib for non-Hodgkin lymphoma and of course, then the same -- not the same, but also supply and collaboration agreement with Merck for the solid cancer side. And on the solid cancer side, for both compounds, I also would say, starting again with 1808, if we -- if you see -- if we continue to see what we see, then it will not be only interesting for ovarian cancer. It will be also interesting for other cancers like maybe triple-negative breast cancer, for example, and maybe other solid cancers. So I think very broad application potential, but we go one step at a time. So current focus clearly on ovarian cancer, which is already a quite interesting market. And the same is true for 1206 in solid tumors if it should work as we hope. So around 60% ORR in first-line non-small cell lung cancer. Then it's -- there's no reason why it should not work with other solid cancer indications in combination with pembrolizumab first line. So both have a platform. It's a platform potential and platform application. And that's how also our discussions are driven. So obviously, they start with the first data sets. And once you have then the other data sets, that continues to grow. And of course, what we are trying to do is to see that we also reach that stage. So with 1808, we have that now with the ovarian cancer data, and there will be further ovarian cancer data already during the second half of this year. And then for 1206 with the second half of this year, the first readout for the combination with pembro in first-line non-small cell lung cancer, also will initiate this type of discussions. Dan Akschuti: Great. Just a follow-up, if I may, and maybe you cannot answer it. But you can share if you see a willingness from pharma to value the assets broadly. And like is there interest in broader patterns beyond composition of matter or like broader preclinical data that you have? Do you see signs that are really indicating that they're interested really in the platform or maybe you cannot share that with us? But if... Martin Welschof: Well, I can talk about it in, of course, general ways, and I can refer a little bit to the discussions that we had during JPMorgan. We had one discussion, which was really interesting where exactly what you were describing was the case. They obviously were super intrigued by the T-cell lymphoma data, but then also say you have this very beautiful ovarian cancer data. Plus also, I think interesting for the audience, we just uploaded also a publication that is really describing in detail how it works. And I think a lot of partners or potential partners really value the depth that we have regarding the science. So we can really and have described in this publication how 1808 works in detail. And I think the clinical data in hand with the preclinical data and science data and mechanistic data basically is important to drive good and fruitful partnering discussions, and we have that. Operator: The next question comes from Oscar Haffen Lamm from Stifel. Oscar Haffen Lamm: My first one will be on 1808 in CTCL. I mean with data expected in combo with pembro in mid-2026 and potential start of a pivotal trial by next year, I was just wondering what will basically decide whether to use the monotherapy or the combo with pembro in the pivotal trial. I mean, will it be purely based on efficacy? Will it be safety as well? Just curious to hear your thoughts on that. Martin Welschof: Yes. So basically, just as a background also to the audience. So currently -- and coming back to the milestone that you were just referring to. So it will not be only the pembro data. There will be also additional pembro combination data, but also additional mono data. So because what we're currently doing is we run -- it's in combination with pembro, but we also do already dose optimization in mono or with the single agent basically. And a driver, of course, will be that you have to see a significant better ORR. And of course, at the end, also, it's a little bit early for that, but duration, of course, is also important. And then, of course, also safety, yes. So we did some analysis with some external help. And the expectation would really, if you combine it with pembro that you see an uptick in efficacy. And of course, you don't want to have safety problems because at the moment, safety is really, really good. And I think that is also a very important aspect of our monotherapy data that we have so far because since we have such a good safety, we could also go into earlier lines of the disease since we have no toxicity. And I think that is also quite important. And of course, would make also the patient population that you might be possible to treat would widen this up basically. So we really want to see an uptick. And the reason why we do it is basically just to see whether we can have a better efficacy. I think the efficacy that we already have as a monotherapy is good, is exceptional, especially in combination with the safety that we see. Oscar Haffen Lamm: Just a follow-up on that. How many patients do you target to have in CTCL before the end of Phase II meeting with the FDA? Martin Welschof: Yes. So it will be the full data set. I don't have that at the moment in front of me. I think what we have shown so far was 15-plus patients. So it will be kind of roughly the double amount. And I think for the -- now I'm talking about the monotherapy data. And then for the pembro data, it's something around 15 patients, right, in combination with pembro. Oscar Haffen Lamm: Okay. And just one last question for me, still on 1808, but this time in ovarian cancer. Is the decision to add paclitaxel to the combo of 1808 and KEYTRUDA done on the back of some conversations with Merck? I mean maybe they've hinted to what they want to see in the data. And then maybe as a follow-up on that, how many patients will you recruit for that arm? Martin Welschof: Yes. So basically, that was triggered -- that thought was triggered much, much earlier, and it was already part of our protocol when we started the doublet. We first just wanted to see how it works in combination with pembro. And this we got to know now. So it's 18% -- 8% ORR compared to 24% in the combination. And since we were following the field quite closely, we had already in the protocol that we could go with a triplet, and we also have done already some preclinical work. And we know 1808 works also very well with paclitaxel. So once we saw the ESMO data published by Merck and then the only thing that was missing -- we were actually already quite convinced by that, but the only thing that we're missing then for us to really plan this more seriously was then the approval of pembro and paclitaxel. And we expect a super cool safety profile, that is no other safety issues compared to KEYTRUDA combined with paclitaxel, plus, of course, a very nice uptick in overall response rate. And here again, I don't have the patient numbers in front of me, but I think it was around 30 patients that we want to do in the triplet, maybe a little bit more, at least the amount of patients that will be needed in order to have as a next step potential pivotal study. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Martin Welschof: Yes. Thanks, everybody, for participating in our call, plus also the very good questions. I think that discussion around those questions helped a lot to really demonstrate and show that we are at a very important and interesting time of the company. The slide of the key expected clinical milestones is still up on this presentation. So I think with that, you can clearly see a very dense news flow, as I already mentioned, and each of those programs can drive very interesting value development for the company. So stay tuned. And already by mid this year, there should be more, and then we will see where we land. But I'm very optimistic for the company. And I think for me, from my perspective, the most important thing is the data. And the data is good, and we knew that already, but also it's maturing in the right direction. So I think that gives me a lot of hope and confidence. Thank you very much.
Operator: Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Fourth Quarter and Full Year 2025 Financial Results Conference Call. My name is Alan, and I will be your conference operator today. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Chief Corporate Affairs and Strategy Officer for Trulieve. Christine, you may begin. Christine Hersey: Thank you. Good morning, and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer; and Jan Reese, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported fourth quarter and full year 2025 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report on Form 10-K as well as our periodic quarterly filings. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with the United States generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for Trulieve's financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on Form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website. Lastly, at times during our prepared remarks or responses to your questions, we may offer metrics to provide greater insight into the dynamics of our business or our financial results. Please be advised that we may or may not continue to provide these additional details in the future. I'll now turn the call over to our CEO, Kim Rivers. Kimberly Rivers: Thank you, Christine. Good morning, everyone, and thank you for joining us today. We are thrilled to report outstanding financial results and meaningful progress on our strategic priorities. Congratulations to the entire team for delivering another year of stellar performance, highlighted by record units sold, industry-leading margins and robust cash generation. We finished the year with considerable momentum, underscored by a series of impressive accomplishments. In December, we won a conditional license in Texas and repositioned our debt, reducing balance sheet leverage and annual interest expense. On top of that, on December 18, President Trump signed an executive order to reschedule cannabis to Schedule III. I had the pleasure of attending this historic event where the President advanced the first major step in federal cannabis reform, acknowledging the medical value of cannabis. We applaud the President for fulfilling a campaign promise and expect the administration will follow through in short order. Importantly, rescheduling signals that long overdue common sense cannabis reform is achievable. Trulieve will continue to advocate for change to support cannabis consumers and the industry. Moving to our results. Full year revenue was $1.2 billion with traffic and units sold up 5% each. Fourth quarter revenue of $293 million increased 2% sequentially, in line with guidance. Full year and fourth quarter gross margin of 60% was driven by operational efficiencies, lower production costs and our disciplined approach to promotional activity. Record adjusted EBITDA of $427 million improved by 1% to 36% margin due to expense control in our core business. Full year operating cash flow of $273 million exceeded our target of $250 million. We exited the year with $256 million in cash after retiring over $380 million of debt in December. Overall, 2025 results were strong, leading to standout operational and financial performance despite volatility in consumer sentiment and macroeconomic conditions. Pressure on retail revenue from pricing compression and softer consumer behavior was offset by higher traffic and units sold. Throughout the year, our team was able to refine our product mix and promotional strategies to meet changing customer preferences while maintaining brand equity and margins. Low visibility, headline risk and mixed consumer sentiment have carried into 2026. Our team is ready to manage through business cycles, meeting customer needs when spending is pressured and when it rebounds. Wholesale revenue grew 23% in 2025, driven by strength in Maryland and Pennsylvania. In Ohio, our production partner continues to ramp sales of branded products, including Modern Flower and Roll One. We plan to grow our wholesale business this year as industry conditions permit. Following tremendous progress last year, we are concentrating efforts on 4 key areas. This year, our strategic priorities are: one, expanding access to cannabis; two, growing our loyal customer base; three, elevating our branded product portfolio; and four, investing in growth initiatives. Since inception, a core part of our mission has been expanding access to cannabis. Trulieve has been a leader in federal and state efforts to advance the industry, working tirelessly to educate key stakeholders about the many benefits of regulated cannabis. Rescheduling is a historic milestone with major practical and symbolic implications. First, rescheduling acknowledges the medical value of cannabis, affirming what patients and physicians have known for years. Second, rescheduling removes barriers to research while reducing the stigma for millions of Americans. Third, it removes the punitive tax burden of 280E, lifting pressure on state legal operators and allowing conversion from the illicit market to regulated channels. Finally, rescheduling sets the stage for much needed reform such as safer banking and eventual uplisting to U.S. exchanges. The vast majority of Americans favor common sense reform, and we look forward to supporting these efforts in the year ahead. While 40 states have adopted some form of medical and/or adult-use cannabis, access to state-tested products varies by state. We are pushing for expanded access as appropriate across our markets. In Florida, Trulieve continues to support the Smart and Safe Florida adult-use campaign. The campaign is fighting for ballot initiative inclusion this November. While the campaign submitted 1.7 million signatures prior to the February 1 deadline, state agencies reported a shortfall of validated petitions versus the required 880,000. The campaign has asked the Florida Supreme Court to address the invalidation of more than 90,000 signatures, which if allowed, would place the total over the required threshold. We anticipate the campaign will have greater clarity on valid inclusion for this year's midterms in the coming months as litigation unfolds. Turning to Pennsylvania. Governor Shapiro has again called for the legislature to pass adult-use legislation. We believe state legislators recognize the potential for adult-use to satisfy constituent demand for cannabis while generating revenue for the state. Several bills have been filed this session, and we remain optimistic that a compromise can eventually be reached. If adult-use is launched in Pennsylvania, Trulieve is well positioned given our established retail footprint, branded products and scaled production capabilities. In Texas, Trulieve was 1 of 9 operators awarded a conditional license for the medical marijuana program. We are honored to be among those chosen, and our team is working to finalize the license. Pending regulatory approval, we plan to quickly launch production and retail operations. Trulieve was first to market in several states, including Florida, Georgia and West Virginia. Our distinguished track record of working with patients, physicians and regulators to develop early-stage programs sets us apart. With over 135,000 patients today, telehealth consultations for patients and satellite pickup locations, the Texas Compassionate Use Program is poised for meaningful growth over the next few years. We look forward to contributing to the success of the program. In Georgia, new legislation has been filed that would expand the medical cannabis program. If passed into law starting in 2027, the program would include new qualifying conditions such as severe arthritis, severe insomnia, HIV, IBS and lupus and new form factors, including edibles and vapes would be allowed. While expanding access to cannabis is a core part of our company's mission, we remain passionate about growing our loyal customer base while providing best-in-class service, messaging and products. Training and team building to enhance customer service is ongoing. This month, we hosted our first National Retail General Manager Summit in Orlando. During this 4-day event, hundreds of leaders from across the country came together for training and to share ideas to improve retail operations and the customer experience. Attendees noted the event was a resounding success, setting the tone for our retail team to be energized and ready for the year ahead. Investments in personalized messaging, mobile app and rewards program allows more sophisticated interactions with customers. Over the past few months, we have moved beyond category-based segmentation, adding targeted messages to specific cohorts based on purchase behavior, browsing activity, engagement history and preferred communication channels. This year, we are investing in a major project that uses AI to automate segmentation, decisioning and execution to accelerate speed to market and real-time engagement. Internally, we are calling this multiyear endeavor Project Hyper as it will accelerate hyper-personalization of customer outreach. Deeper personalization enables more relevant messaging and promotions, improving the quality of interaction while driving desired results. In November, we launched a mobile app in Florida, providing customers one place for browsing, deals, reservations and rewards. Push notifications to learn about special promotions or when orders are ready for pickup, provide a seamless experience. In the first 90 days since the app launched, over 115,000 customers downloaded the app, leading to 3.5 million user sessions. Following the success in Florida, we are excited to launch the app in additional markets this year. Our rewards program grew 12% in the fourth quarter, reaching 915,000 members at year-end. Rewards members continue to spend on average 2.5x more than nonmembers, comprising 78% of fourth quarter transactions. We plan to introduce program tiers, enabling more robust rewards for customers who spend more, including exclusive offers, products and events. In combination, advanced messaging capabilities provide a competitive advantage while contributing to customer retention. Fourth quarter retention improved sequentially to 70% company-wide with 78% retention in medical-only markets, demonstrating the strength of our retail platform. High-quality branded products reinforce customer attraction and retention while building long-term equity. In 2025, we sold over 50 million branded product units. In-house brands, Modern Flower and Roll One continue to gain traction, representing almost half of the branded products sold. New and innovative branded product development is ongoing. Last year, our team introduced over 175 new SKUs, including the Roll One Clutch All In One, a discrete compact vape cart. In Florida, the Roll One Clutch launched in Q4 and it sold over 200,000 units. In the past month, we launched the Roll One Clutch in Arizona, Ohio and Pennsylvania, where initial customer feedback and sell-through rates have been positive. We plan to launch in additional markets in the coming months. As the industry continues to evolve, we are pursuing growth initiatives that align with our long-term objective to build a leading cannabis company. Investments include expansion of retail production and distribution in new and existing markets and technology and infrastructure. Exiting 2025, our scaled platform included 233 retail locations, supported by over 4 million square feet of production capacity. This year, we plan to add at least 5 new retail locations with the potential to further expand pending regulatory approval in Texas. Technology and infrastructure investments add flexibility and needed capabilities as our business grows. We are committed to making long-term investments to balance the need to remain competitive today while positioning Trulieve for the future as layer of prohibition are removed. Following tremendous results in 2025, we are carrying the momentum forward this year. Given our position as a leading voice for change, scaled operations and strong balance sheet, we are well situated to make substantial progress in the year ahead. With that, I'd like to turn the call over to our CFO, Jan Reese. Please go ahead. Jan Reese: Good morning, and thank you, Kim. We delivered full year 2025 revenue of $1.2 billion comparable to 2024. Continued pricing compression in retail offset -- was offset by growth in Ohio and wholesale. Contributors from new dispensaries, record units sold and full year adult-use in Ohio supported overall top line performance. Fourth quarter revenue was $293 million, declined 3% year-over-year, up 2% sequentially as new store openings, adult-use momentum in Ohio and wholesale growth were offset by ongoing pricing pressure and softer consumer wallet trends. Full year gross profit was $711 million, representing a 60% margin, consistent with the prior year. Gross margin strength reflected economies of scale, operational efficiencies across our platform and disciplined promotional management. Fourth quarter gross profit totaled $175 million, also at a 60% margin and up sequentially. We expect quarterly gross margin to vary based on product and market mix, inventory sell-through, promotional activities and idle capacity costs. For the full year 2025, SG&A expenses were $445 million or 38% of revenue compared to 43% in 2024. Driven by reduced operational expenses and lower campaign support, fourth quarter SG&A was $126 million or 43% of revenue. Adjusted SG&A declined to 30% of revenue from 31% last year, reflecting continued operational discipline and efficiency actions. Full year net loss was $160 million compared to a net loss of $155 million in 2024. Fourth quarter net loss was $43 million or $0.22 per share. Excluding nonrecurring items, fourth quarter net loss per share would have been $0.02. Full year adjusted EBITDA totaled $427 million compared with $420 million in 2024. Fourth quarter adjusted EBITDA was $105 million, representing a 36% margin and reflecting expense leverage across our core operations. Turning to our tax strategy. Beginning 2019, we filed amended returns challenging the applicability of Section 280E to our business. To date, we have received refunds totaling more than $114 million. While we remain confident in our position, final resolution may take time. We continue to accrue an uncertain tax position while benefiting from lower cash tax payments, excluding the impact of 280E in 2025 full year results would reflect positive net income. On balance sheet and cash flow, in December, we redeemed $368 million of senior notes and completed a $140 million private placement. We also repaid a $15.8 million mortgage in our West Virginia property. We ended the year with $256 million in cash and $232 million in debt and subsequent to the year-end, raised an additional $60 million through a second private placement. Full year operating cash flow was $273 million. Capital expenditure were $44 million and free cash flow totaled $229 million. Turning to the outlook. We expect first quarter revenue to decline sequentially by a low to mid-single-digit percentage, consistent with normal seasonality. Gross margin is expected to fluctuate quarter-to-quarter, but remain broadly in line with recent performance. Consumer trends will influence retail results and margin. For full year 2026, we anticipate operating cash flow of at least $250 million and capital expenditure up to $85 million. We will continue to invest in our retail production and distribution network, expand into new markets such as Texas and enhance technology and infrastructure capabilities. We plan to open at least 5 new stores, complete 5 relocations and refresh at least 45 stores this year. Pending regulatory approvals, we may accelerate investments in Texas. We may update our outlook as regulatory and market catalysts evolve. With that, I will return the call over to Kim. Kimberly Rivers: Thanks, Jan. Over the past 2 decades, cannabis reform has gained increasing momentum and growing mainstream acceptance. At last, the federal government is catching up to the American people with the first step towards reform. As President Trump's executive order states, decades of federal drug control policy have neglected medical marijuana uses while limiting the ability of scientists to complete necessary research. Rescheduling of cannabis to Schedule III acknowledges the medical value of cannabis and opens the door for additional research. It also sends a powerful signal that the government is willing to revisit antiquated policy that no longer serves the American people. We believe rescheduling is a precursor to additional reform, including safer banking and uplisting of U.S. cannabis companies to major exchanges. At the same time, state adoption of medical and adult-use programs continues, normalizing cannabis use and providing consumers greater choice. Trulieve remains firmly committed to cannabis reform and will continue to lead from the front, investing time and resources to drive change. With scaled operations in attractive markets, we are focused on driving profitable growth while maintaining flexibility to adapt as the industry evolves. Trulieve is defining the future of cannabis one customer at a time. Thank you for joining us, and as I always say, onwards. Christine Hersey: At this time, we'll be available to answer any questions. Operator, please open up the call for questions. Operator: [Operator Instructions] Our first question today comes from Luke Hannan from Canaccord. Luke Hannan: I wanted to follow-up on the CapEx outlook for 2026. So it is a step-up from 2025 and both Kim and Jan, you both outlined sort of the moving parts there. But I guess, specifically, I wanted to dive in a little bit on how much you plan on spending on Project Hyper. That will sort of be the first question, sort of what's embedded for 2026 there. And then secondly, on the refreshes, you've done a number of them so far, seeing good organic growth on the back of those. What's the runway look like for continued refreshes, not just for 2026, but if we think about the subsequent years as well? Kimberly Rivers: Luke, so we're very, very excited about Project Hyper. And really, I think that it's a testament to our investment strategy to date, given that we are able to build on investments previously made, including SAP, our consumer data platform and our insights that have allowed us to segment and really dive into this personalization concept. Project Hyper is building on the back of that and will allow us to lean into really utilizing all of this wonderful data that we have in a more robust way to really speak to an individual, including demographic information, past purchase history, along with other data such as purchasing time, preferred methods of communication, et cetera, to really accelerate again that personalized connectivity with the consumer. We are not going to separate out specific line items in the CapEx budget. And again, this will be a long project that likely will be a multiyear initiative with -- but we do intend to have milestones throughout this year with -- and we should start to see some returns on that investment in the back half. So we are very, very excited about that. Turning to your -- part of your question on store refreshes. We remain committed to making sure that we have an excellent retail experience for our customers and we'll continue to refresh stores as they kind of become due. We do have an audit process throughout the organization where we audit our stores very regularly and then they're added to a schedule for refresh depending on what the audit results are. And so, as you noted, last year, we did refresh a number of stores. This year, we're slated to refresh another slew of stores. I would anticipate that, that would continue in the future, again, but it is on an as-needed basis. Luke Hannan: That's great. And as a very quick follow-up, you did talk about the Texas opportunity a little bit. When do you expect to be granted, if you have any visibility on it, when do you expect to be granted that final license and then begin the build-out potentially after that? Kimberly Rivers: Sure. So we were granted a provisional license in Texas, which we're incredibly excited about. And the team has done an amazing job to get us to this point. We did receive actually this week a list of diligence follow-ups, which our understanding is it's the questionnaire that's going out to all of the provisional license holders, which we're in the process of completing. They do -- there is another round of licenses, 3 licenses that will be issued, I believe, in early April. So we're not sure if the state will choose to move on final issuances on round 1 before or after that next round is issued. So what I will tell you is that, in true Trulieve fashion, we will be absolutely ready to go to market. Again, I always say that Texas is a state that you go bigger, you go home. So we are very, very much looking forward to having a -- that will be a material market for us once we are awarded that final license. Operator: Our next question comes from Aaron Grey of Alliance Global Partners. Aaron Grey: I'd like to piggyback off that last question from Luke a little bit and dive a bit more into Texas in terms of that opportunity that you just kind of alluded to, Kim. How best to think about the potential for Texas and the ramping there? For you, do you see Florida transitioning out of the nursery program in 2016 as a good analog? And then how important do you think it is to have that first-mover advantage and really kind of dig into that CapEx investment to ensure you have, not only the capacity, but also the retail to get that initial market share that you can essentially potentially hold on to similar to what you've seen Trulieve do in Florida? Kimberly Rivers: Yes. I mean, look, I think that Texas is a tremendous opportunity. It's a market that we have been focused on for quite some time back to the days where we first announced our hub strategy as we talked about how we thought about M&A and organic growth. So Texas, we believe, is a key market for us. Again, we have a provisional license now. So timing will be dependent, of course, on regulatory approvals, and we look forward to working with the regulators to hopefully expedite that process as much as possible. But to your point, look, we believe that in Texas, with the -- not only the program setup as well as the population, we believe that it will be meaningful. Some key points in Texas there are 11 regions, and you are required to have a retail presence in those 11 regions prior to then being able to expand and add additional distribution capacity beyond those initial stores, which we're certainly prepared to do. To your point, we absolutely understand the importance of scale in the supply chain, and we'll be looking to make investments there as well because, again, we think that Texas is probably one of the most attractive market opportunities that we've seen since Florida. So we absolutely, to your point, we will be leaning in. We'll be using all of our knowledge from Florida and applying it to Texas because we believe very strongly that Texans deserve access to high-quality and a robust medical marijuana program and high-quality products. Aaron Grey: Okay. Great. Appreciate that color. Second question for me. Just in the case of Florida adult-use not occurring and think about incremental growth opportunities, I just wanted to know in terms of your outlook for potential M&A, what you're seeing in the marketplace? Have you seen potential valuations come down, especially in the private markets and any appealing assets that you're seeing? Kimberly Rivers: Sure. So, of course, as we mentioned, we are continuing to monitor the Florida potential for ballot inclusion. Just a quick update on that, I'm sure we'll be asked. The Supreme Court is hearing a jurisdictional -- basically jurisdictional motions on March 3, and then we'll make a decision as to whether or not they will hear the case as it relates to those 90,000 ballots that certainly we believe should be included in the final count. Florida, of course, is and would be a humongous market for us as it relates to adult-use. That being said, to your point, we are very excited, as I mentioned, about Texas from an organic growth standpoint. We also have and mentioned some law changes coming out of Georgia. We are also, right, continuing to push in Pennsylvania as well as doing some -- looking to do some expansion of existing footprint in other markets that we already are in. As it relates to M&A, I would say that we remain and will be inquisitive. We certainly have and are still committed to our strategy as we look for markets that are attractive and make sense for us given our hubs that we've established across the country. You know that we don't talk about markets specifically. But I will say that it does appear to me with valuations where they're at and where the market is as well as our cash position that we are in a good spot to be inquisitive in the future. Operator: Our next question comes from Russell Stanley of Beacon Securities. Russell Stanley: Maybe if I could first on Georgia. Great to hear about the efforts to expand that market. I'm wondering if you can talk about the pace of expansion -- market expansion to date against your expectations and talk to, I guess, your thoughts on the odds of that legislation passing. Any comments on the level of opposition you're seeing there? Kimberly Rivers: Sure. So Georgia has been an interesting program given some hiccups as it relates to where the legislature and how the legislature initially set up the program related to distribution versus where kind of we actually are. And so just as a level set, when the Georgia program was initiated, it was anticipated that pharmacies were going to be able to participate alongside of classic dispensaries in dispensation of medical cannabis. And then if you'll recall, there was -- were letters that were issued to those pharmacies and so -- by the DEA, and that put that entire distribution network on pause. And so one of the challenges in Georgia has been, one, kind of friction in terms of patients actually being able to get medical cards and how that system was set up through the Department of Health and the local offices as well as form factor and availability of products that folks needed, matching conditions and then the third is distribution. And so this legislation would get at, I'll call it, kind of the first 2. The state has been making gains to ease friction, allowing medical cards to be actually mailed now as opposed to having to physically go and pick them up. And then the second with this legislation would be around the form factors and availability of medical marijuana for expanded conditions, which, of course, is always a positive step forward. We are -- and actually, our team was in Georgia yesterday, lobbying on the Hill. I do think there's relatively strong support for those changes. But it's similar to kind of early days that we've seen in other medical states where expansion and those changes are going to take a little bit of time. So I think it's relatively in line with our expectations with the exception of the pharmacy piece and the distribution. I think what will be interesting and what's a little bit of an unknown at this point is what, if anything, does rescheduling or will rescheduling do as it relates to the impact on that pharmacy model. And would that potentially open the door to allow for those pharmacies to then be able to participate in distribution, which, of course, would accelerate adoption in that state from a patient perspective. So I think likely more to come as we kind of navigate through the realities of how that program sits within a new landscape once rescheduling happens. Russell Stanley: Great color. And maybe if I could follow-up on Texas. Obviously, there's been a number of ways in which end markets that market opportunity has been expanded over the last couple of years. And -- but it's still -- there are still some restrictions but a massive state. So I'm wondering how big you think this market could be under the current regulatory regime given the size against some lingering restrictions. Kimberly Rivers: Yes. I mean, I think that Texas has, like I said, the opportunity to be a very large market. Specifically, as mentioned on the call, there are fairly low friction points as it relates to patients being able to access physicians and initially get set up in the program, which in a number of markets, that really is and serves as a fairly high barrier to entry. And so with the availability of telemedicine in Texas and with the recent changes to the program there, we think that there's a lot of growth on the medical -- in the medical program that is yet to come. Some of that is a little bit of a chicken and an egg, we think, which certainly is our experience in other markets, meaning, right, you have to give someone a reason to go through the exercise of getting their medical card, meaning they have to have access to products, access to a store and be able to get those products before they're going to go through the process of getting a card. So we think that -- and expect that, that program will experience some pretty significant growth in the coming years as it relates to patient count. And again, the population there would indicate that there's significant -- it's teed up to be a pretty significant market. Operator: Our next question comes from Bill Kirk of ROTH Capital Partners. Nicholas Anderson: This is Nick on for Bill. First one for me, just on the gross margin improvement. Competitors are calling out competition and pressure. Just wondering if you could unpack that sequential improvement a little more. Was it more mix and pricing base versus cultivation cost improvements or vice versa? Just any color there would be helpful. Kimberly Rivers: Yes. Thanks, Bill (sic) [ Nick ]. So on the margin, I mean, look, that's something that we continue to be very, very proud of. And I think reflects our absolute high focus and high level of discipline. And it's really on a number of things, right? To your point, we are and continue to be very focused on efficiencies and our scale certainly helps there as we continue to produce very high-quality products at a scaled expense, if you will. So continuing to lower expenses while improving quality is always the name of the game. That being said, also how we approach our go-to-market strategy with respect to very strategic and focused promotional activity that is, again, taking our data and what we know about our customers and serving up right product, right price at the right location. We have a number of tools that enable us to be able to do that, including, of course, I mentioned investments moving to SAP, investments made in customer segmentation, our dynamic and variable pricing capabilities. So it really is understanding where the customer is, being able to read trends quickly and being able to respond to those trends in a disciplined way so that we are able to, again, have the right product mix at the right price while maintaining margin and profitability. Nicholas Anderson: Great. I appreciate that color. Second for me, just on the loyalty program. It was up again significantly sequentially. What percent of that growth came from Florida versus other markets? And what have been the primary drivers of success and adoption there? Just your thoughts on what's driven that growth over the past year would be helpful. Kimberly Rivers: Yes. I mean, I think that, again, kudos to the team, we were very, very focused on rolling out a best-in-class loyalty program. We began the rollout in Florida and then have been moving that to additional markets and candidly have gotten outstanding adoption in all the markets that we're currently -- our loyalty program currently is rolled out into. I would say that I think that there's a few things. I think, one, the ease of the program, really making it very easy for folks to sign up for the program and then, again, be able to communicate to them the results of participation, meaning you spend and you get, which is very much in line with loyalty programs across the country for big brands that we all know and love, which it was basically modeled after. So I think ease of use, I think the rewards and the ability to communicate the value of those rewards was also a key driver and has been a key driver. And we're very excited based on the feedbacks that we've gotten from customers. And again, we have a very engaged customer base. So there is a lot of back and forth with our customers, and that goes right into how we develop these things. We're very excited to, as I mentioned in prepared remarks, to be updating that loyalty program in response to customer feedback and offering tiers that we're going to be rolling out here in the near-term. And that will allow us to even further personalize and to engage our VIP or our top-tier customers with more specific and exclusive offerings and really based on their spend and how they're interacting with us. So really excited to continue to iterate and further develop the loyalty program as we move throughout the year. Operator: And our next question comes from Frederico Gomes from ATB Cormark Capital Markets. Frederico Yokota Gomes: Congrats on the great quarter. Just the first question, you're guiding for, I guess, substantial free cash flow again this year, and that's already obviously accounting for an increase in CapEx. So how are you thinking about that excess cash and specifically as it relates to potential stock buybacks given the current valuation level? And the second part of this question is, how do you think about that cash balance relative to, I guess, the growing UTP that you have in your balance sheet? Kimberly Rivers: Yes. So we are continuing to focus on generating cash because we believe that cash is the ultimate -- provides the ultimate optionality in the business. We've been talking a lot in the Q&A about opportunities that we have ahead. Obviously, we're not at a final point yet related to Florida and ballot inclusion. We also talked about Texas and what an exciting opportunity Texas is and potential growth in Georgia, kind of unsure yet around Pennsylvania and not adult-use flip. In addition to organic -- there's organic growth opportunities, though, we also mentioned that we're going to remain and maybe even accelerate a little bit our M&A optionality as well. And so I think that for us, it's important to have the cash available so that when these opportunities present themselves and when catalysts come into focus, we have the ability to act with immediacy and with a strong eye on maintaining right and improving shareholder value. And then as it relates to cash and the UTP, what I would say is that, again, the UTP is a reflection of a totality of a number. Management certainly does not believe that the company will ever pay that amount. It's an accounting rule that we, of course, want to make sure that we follow and that we're in compliance at all times. Upon rescheduling, we believe that, that accrual will stop. And we absolutely are in and we'll continue to update as the results of prior years and negotiations, conversations with the IRS continue to resolution. So again, not at all concerned as it relates to cash position via that UTP number and definitely focused to have that resolved within as quickly as possible once rescheduling comes to fruition. Frederico Yokota Gomes: Appreciate that. And just the second question would just be on international cannabis market. I'm just curious if you're looking at that or interested in any way in doing something there. Kimberly Rivers: Yes. So, I mean, again, I think we are constantly evaluating the opportunity set. I think that for us, Texas, as an example, is a significantly more exciting opportunity for us right now than other markets outside of the U.S. I continue to believe that we have plenty to do here in our backyard. That being said, I'm very much a believer of never say never. So continue to evaluate all opportunities, and we'll make decisions as those markets come into focus. Operator: This concludes our question-and-answer session. I would like to turn the call back over to Christine Hersey for closing remarks. Christine Hersey: Thanks, everyone, for your time today. We look forward to sharing additional updates during our next earnings call. Thanks again, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Eivind Roald: My name is Eivind Roald, and I'm the new CEO of Norse Atlantic Airways from December last year. I'm here to present the Q4 results together with our CFO, Anders Jomaas. Before I start, I will give a quick introduction to my background, and I'll also share some reflections on why I took the position as the new CEO. I have more than 30 years of experience from various executive positions in Scandinavian companies. I've been leading the turnaround in Hewlett Packard as Managing Director for many, many years. I was the Executive Vice President and Chief Commercial Officer in Scandinavian Airlines for many years, and I've also been leading European software companies and worked for several PE companies as well. When I accepted the position for this job, I was discussing and looking into Norse. And I see that this company has a very good foundation for actually becoming a very profitable company in the future. First of all, they have a very attractive leases agreement that goes for many years from now. They have a very competitive product that reach the market, and we see that with all the high load factor we have during the whole -- all the quarters as well. The balanced model with more than 50% of the aircraft now outsourced to Air IndiGo is also giving us an unforeseen revenue stream and indirectly also hedging the fuel that is an important part of the cost focus these days and an industry-leading ancillary sales -- ancillary sales that gives us a good foundation for actually increasing the revenue as we go in the future as well. We do also see some need for improvements when I look into the company. I think we need an even more clear business idea what we should focus on. We need to optimize the network to make sure that we reach the right destination and also the utilization of our aircraft. We need to accelerate the commercial initiatives, and we also need to ensure that we have flexible crew agreements to make sure that we can meet the different needs in the market. The needs for a more simplified organization and also taking more cost out is also an important part of what we needed to work on. And we have seen during the last months that we are struggling a little bit on the way we communicate towards our customers, and that's needed to be a focus as well. Cost will be an important part of the focus going forward. And basically, that was also the foundation for why I thought this was a very interesting opportunity to sign on. So let's look at some of the figures for Q4. I will try to focus on actually what's an important part of the Q4. The Q4, as such, is a big -- is a quarter with 2 months where we struggle a little bit on October, November, and then we saw the turning point came in, in December. The decision that the company took in 2025, where they decided on the ACMI agreement with Air IndiGo, where they decided also new network to focus on more to Asia with Thailand and as the most important part has now started giving good results. And that the turning point that came actually in December. December was a profitable month for Norse. And we also -- even though that we saw some irregularities during that month and have some extra cost that is a onetime cost, that month came out as a positive month. But the Q4 as such was a significant better revenue from $123 million to $156 million in revenue. The EBITDAR came in on a minus $3.1 million and an EBIT on minus $22 million. The load factor is still high during the whole month, whole quarter. And if we take a look at the 2025 figures, we see that it's a significant improvement from 2024 now with an EBITDAR on plus $56 million and an EBIT on minus $20 million, significant improvement from almost minus $100 million in 2024. We also have a huge impressive growth on the passenger side from $1.4 million to $1.8 million, and the load factor is still quite high. So the turning point we're talking about in December is an important part for investors to look into. And to give you some few more data points to have in mind, we had in December specifically a passenger growth of 22% with a production of plus 14%. And the TRASK growth was for that month, 6%. And we communicated in our traffic report for January that the TRASK increased by 20%. And later in the presentation, I will come back to say something about what that number is in February and also in March. The turning point came after the decision that the company took in 2025. They said they took strategic measures, they have now implemented the measures, and we now see the results. And that should be the main focus for investors going forward, not to look too much into Q4 as such, but more looking into the turning point in December and look forward. And if you look at December on the TRASK side, we see that November came in on plus 7% year-over-year, December 6% and then January, 20%. And as I said, I will come back to indicate a little bit more about February and March later in the presentation. On the ACMI side, we have completed now the delivery of the sixth aircraft to Air IndiGo. And as we have communicated earlier, we have a minimum revenue of 350 block hours per month. And as you see on the graph here, we are way above that for every month. And that gives us a more focus and more safe revenue side from Air IndiGo the coming year as well, an important part of having a better understanding of how the year will really come out. So with that, I will give the word to our CFO, Anders Jomaas, that will take us through some of the numbers in more detail. Anders Jomaas: Thank you, Eivind, and hello, everybody. I will give you some more insight into the Q4 numbers and the '25 per se. So if we start now looking at Q4 '25 and looking at the passenger numbers, we see that we fly a lot more, we have record high load factors. We are seeing 96%. Passenger numbers also increasing. We see that we go from 339,000 passengers Q4 '24 to more than 400,000 this quarter. Revenues keep coming up. Although EBITDAR and EBIT are lagging somewhat, we would like to see those higher. But if we look at the quarter -- sorry, the full year of 2025, we see the same trends. We see increasing number of flights. We see load factor increasing. We see passenger numbers increasing. Revenues are significantly up. And for the full year, we also see the improvement on EBITDAR and EBIT, where we have EBIT of $56 million -- sorry, EBITDAR of $56.5 million for the full year compared to $0 for '24. So this is the trajectory we're on of gradually increasing, and Eivind will also come back to our outlook for this year. Some key terms to note when we talk -- Eivind, you talked about TRASK, which is total revenue per available seat kilometer. This is important unit metric when we do our reporting. Similarly, CASK is cost per available seat kilometer. And it's basically the difference between the 2 that is important for us. So we see in this quarter that we improve TRASK by 3% -- sorry, for this year, we see that we improve TRASK by 3%. We reduce CASK by 10%, and we do that in an environment where we fly 20% more. So these are the important drivers for what's ahead for Norse. Looking at the quarter itself, we are -- we now see that we are able to also increase passenger revenue. The revenue per passenger is up 10% year-on-year from $343 in average per passenger to $379 this quarter. We also have a big belly on this aircraft and volumes have been relatively stable, a little bit lower, but we see higher prices also on the cargo side, which is an important contribution to the overall profitability of our company and our industry. I even mentioned that we fly a lot more to Thailand, Southeast Asia. These routes have been particularly strong in terms of cargo. We transport salmon going east, and we have a lot of e-commerce, especially around November, December season going back. Looking at Q4 in particular and focusing first on the mid-section of this graph, where we say that here you will see that we fly a lot more. ASK is available seat kilometer, basically how much production we deliver. So we produced 44% more seat kilometer this quarter compared to same quarter last year. The composition last year was 80-20 in terms of network and ACMI. Now it is shifting 62:38. And going forward, you can increase -- you can expect this to balance and be even more like 50-50-ish. So we produce a lot more, but we also produce more ACMI. Why this is important is that the cost base on ACMI is lower, meaning we do not pay for the cabin crew. We do not pay for the fuel. So this is, in fact, an implicit fuel hedge. And when we have 6 aircraft delivered to IndiGo, we actually have fuel hedged for 6 out of 12 aircraft. And we also do not pay for the airport charge and the handling. So the lower cost base also means that we -- the revenue is in U.S. dollars lower, but the margin is very healthy on the ACMI business. So if you look at the CASK, it has actually reduced from 4.5 to 3.6. The revenue TRASK is also down, but the important margin is increasing from 0.3 to 0.5. So actually a 70% increase in margins due to this shift we're seeing. We are continuously working on reducing CASK. Eivind mentioned there are several cost initiatives going on in the company. This will continue to go through the year and the coming years, continuous focus. But we are happy to see that we are reducing by 19% quarter-over-quarter, partly driven by the shift to ACMI, but also we see that we are able to reduce costs on certain important areas. If we look at the numbers, Eivind mentioned a few, I'll go a little bit more in detail on some of them. Revenue for Q4 was $156 million, up from $123 million same quarter last year. Personnel expenses, $43 million, which is driven by higher production, some general wage increases, some special one-offs, but also worth noting that FX has gone against us somewhat in the quarter, so approximately $2 million of the personnel expense increase is related to FX only. Fuel is a derivative of how much we fly. We have flown 11% more in the quarter, but also fuel prices have been higher, 7% higher in Q4 '25 than in Q4 '24. Other OpEx is mainly technical maintenance and again, a clear derivative of how much we fly. There is a one-off expense in there related to the engine incident in Q3 last year of $4.5 million, which will not be there in the coming quarters. SG&A, also a focus, glad to see that coming down, but there's further potential for further reductions also there. EBITDAR for the quarter, negative $3 million, EBIT negative $22 million and bottom line, $33 million loss for the quarter. Looking very quickly at the full year '25, revenues of $734 million and a positive EBITDAR of $56.5 million, leading to a loss of -- sorry, $61 million for the year. In terms of cash flow, we see that there is a negative cash flow from operations in Q4. Many reasons for that. We have talked about the cost base. We talked about the one-offs. We talked about the FX, continuous focus area. Working capital is reducing, and that is reflecting also the transition to ACMI and Charter. Financing cash flows of $7.5 million is related to a large extent to the equity raise we did in October, relatively small equity raise with net proceeds of $11 million, but that is in that number. Free cash end of the quarter, $18 million. Looking at the balance sheet. And for those of you who have followed us for a long time, you know that one to watch is the credit card receivables, which is $72 million. So it actually means that the acquirers as they call, or the credit card companies, they are sitting on $72 million of our funds. We are working on streamlining the whole payment flow in our company and to gradually reduce that. You'll see that it has come down, but we will continue to work on good solutions to make sure that we collect funds even earlier as we move forward. Equity for the company is negative $260 million, but keep in mind that as much as $175 million of that is noncash lease effects. So that was a lot of numbers. Eivind, I think I'll give the word back to you. Eivind Roald: Thank you, Anders. When I started, I was given a clear mandate from the Board that was to accelerate the already decided changes. And therefore, together with my management team, we have launched a product called Falcon. The Falcon project is focusing on a number of measures to secure that we now deliver a company that is profitable and where the investors can have trust in us in the future. Here is just some few examples on what kind of areas we are focusing on. And several of these have already also been decided and are under execution. We need, for example, to look into a much more flexible way of looking at where we can have much more profitable business. We have a lot of interest for ad hoc charter, for example, football in U.S. this summer is just one example. We also have a very good relationship with P&O Cruises and that has also asked for even more capacity for winter in '26 and '27. We look into all these kinds of interesting areas to put our aircrafts. To be more flexible also to find new destination is one of the things we also will look more into too. We will have a more focus on our premium products, so we will be able to increase the yield on that. And we will also need to look into the agreements with our crews to be sure that we have a more flexible model for where we can put our capacity. Reduction of SG&A goes without saying, it needs to go down, and we work on several initiatives within that area as well. That means we also will look into what should we keep internally and what we potentially can outsource. Every stone will be turned around and we looked into because we think we are now in a good position to deliver a company that will be profitable in the coming months. We started in January with the traffic report to be a little bit more open on our data points. And we would like to continue that to make sure that investors have a better platform to evaluate our performance. In this graph, you will see that we now give you an indication about how both Q1 and Q2 looks on a -- from a TRASK perspective. In Q1, we are selling our seat price an average of 40% higher price versus the same period in 2025. And for Q2, we are still 10% above. And we're still holding back selling seats to make sure that we can give up in the coming months. That means for TRASK in February, month-to-date, we see a clear indication of 20% year-over-year growth. And we already now see a year-over-year growth for March in the range of 20% to 30% for the March. In total, this says something about that the turnaround that started back in December accelerated in January, now continue. On the revenue side, we are quite confident. And with that as a backdrop, we also indicated to the market this today that we see a full year EBITDAR in the range of USD 130 million to USD 150 million and an EBIT in a range of USD 20 million to USD 40 million for the year. We have a lot of things to do, and we have a management team that is dedicated to deliver a profitable company in the coming months. And we look forward to have you on board as investors and that you can follow us also in the next quarter to come. With that, I will open up for Q&A. Operator: All right. We have a few questions here. We have room for a couple. The first one is you reduced the fleet through redeliveries and shifted half into ACMI. Is Norse becoming more of a capacity provider than a branded airline? Eivind Roald: The question was that we have delivered 3 aircraft back and that we have now an agreement with Air IndiGo for 50%, and we will move toward a more capacity provider than a pure airline. What I will say is that we will focus on where we can get the most margin out of it, where we can have most profit. If that means that we, for some period, will increase on having more outsourced to either if that is Air IndiGo or is it P&O Cruises or if it's others, that will depend on where we can get the highest margin. Margin will be the focus for the company. We just need to make that this company to be profitable. So that will be the focus. Operator: Are you seeing a booking spike on the FIFA World Cup in the U.S. this summer? And can Norse monetize on that opportunity? Eivind Roald: The question is if we can see a booking spike for the FIFA World Cup this summer. We see that it's still a huge interest for the FIFA World Cup. And we see specifically on ad hoc charters, we have tons of requests on ad hoc charters, and we are evaluating that now day by day, and we'll conclude if we should take some of our aircraft and deliver as an ad hoc charters for the FIFA World Cup. Operator: Good. Last question. with 2026 outlook, what gives you confidence this is finally the year Norse becomes sustainable profitable? Eivind Roald: So the question is what -- what we feel confident on the profitability for this year. First of all, the turning point started in December, and we have a great momentum. We see that on the trust, both for December, January, February and March. We have taken important decisions like outsourcing of 6 aircrafts that also indirectly, as Anders has said, is a hedging of the fuel that is a huge, huge cost for the company. We have put in place several actions for driving cost down, and we are underway to actually launch more cost initiatives as well. As far as we can see into the future, and of course, it's difficult to see the 9 to 12 months from now, but we have a super interesting product that the response in the market is very, very high, and we are confident that we will deliver these numbers for 2026. Thank you so much for listening in.
Operator: Good morning, everyone. My name is Bo, and I will be your conference operator today. I would like to welcome you to the First Advantage Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. Hosting the call today from First Advantage is Ms. Stephanie Gorman, Vice President of Investor Relations. [Operator Instructions] Please note today's event is being recorded. It is now my pleasure to turn the meeting over to Ms. Stephanie Gorman. Please go ahead, ma'am. Stephanie Gorman: Thank you, Bo. Good morning, everyone, and welcome to First Advantage's Fourth Quarter and Full Year 2025 Earnings Conference Call. In the Investors section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This webcast is being recorded and will be available for replay on our Investor Relations website. Before we begin our prepared remarks, I would like to remind everyone that our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in our filings with the SEC, including our 2024 Form 10-K and our 2025 Form 10-K to be filed with the SEC. Such factors may be updated from time to time in our periodic filings with the SEC, and we do not undertake any obligation to update forward-looking statements. Throughout this conference call, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort appear in today's earnings press release and presentation, which are available on our Investor Relations website. To facilitate comparability, we will also discuss pro forma combined company results, consisting of First Advantage and Sterling Check Corp's historical results and certain pro forma adjustments as if the acquisition of Sterling had occurred on January 1, 2023. The pro forma information does not constitute Article 11 pro forma information. I'm joined on our call today by Scott Staples, our Chief Executive Officer; and Steven Marks, our Chief Financial Officer. After our prepared remarks, we will take your questions. I will now hand the call over to Scott. Scott Staples: Thank you, Stephanie, and good morning, everyone. Thank you for joining our call. Today, we have 5 key messages. First, we delivered what we believe was our best quarter ever with exceptional Q4 results capping off an impressive 2025. We exceeded our previously updated expectations on all guidance metrics with particularly notable adjusted diluted EPS growth of 67% in the fourth quarter. We continue to be a category leader, supported by our go-to-market success with a robust 17% growth contribution from new logo and upsell, cross-sell, resulting in 12% overall pro forma revenue growth in the quarter. When combined with our diverse vertical mix, consistently high customer retention and focus on cost discipline, it is clear that we are driving outstanding results amid this dynamic macroeconomic environment. Second, we are pleased to share that we have completed our core integration activities for the Sterling acquisition, and we are seeing the strategic and financial benefits as promised. While we continue to action additional synergies, looking forward, we are turning the page from primarily an integration focus to one of innovation and are committed to accelerating our growth through our scaled strengthened business, which brings me to our third point. We are executing and in fact, accelerating our FA 5.0 growth strategy. Through our best-of-breed product and platform approach, we are winning with our enhanced customer value proposition and expanded offerings and are poised to capture meaningful opportunities in growth areas such as digital identity, our differentiating co-selling relationship with Workday, ongoing new product releases and international account expansion. Building upon our success in 2025, we are allocating additional resources in 2026 to further accelerate our go-to-market and product capabilities. We expect these actions will drive incremental organic revenue growth and sustainable long-term value creation. Fourth, today, we are announcing 2 strategic capital allocation actions, both of which are supported by the success of our business, our strong cash flow generation and our confidence in our continued growth. First, in February, we are voluntary prepaying $25 million of debt, maintaining our consistent trend and commitment to reducing net leverage. Second, we are announcing a new $100 million share repurchase authorization. Our strong position today gives us the ability to both pay down our debt and simultaneously buy back our shares, which we believe do not currently reflect the value of our business. And finally, we are introducing our full year 2026 guidance. We saw more stabilization across market conditions in the fourth quarter, and we are seeing our positive top line momentum carrying into 2026. This strong performance is reflected in our bottom line earnings as well with our 2-year compound annual adjusted diluted EPS growth rate from 2024 to the 2026 guidance midpoint expected to be approximately 20%. While we are maintaining a modestly cautious outlook on base performance, expecting it to remain slightly negative for the year, we are bullish on 2026 given our go-to-market and recent pipeline success. We remain confident in our positioning to create long-term shareholder value and deliver consistent progress toward our 2028 long-term targets. Turning to Slide 5 and an updated view of First Advantage at the end of 2025. We continue to be a category leader in our industry. Our customer value proposition offers differentiated technology platforms, proprietary data and a broad collection of innovative solutions across a comprehensive and diversified range of verticals. In 2025, we delivered impressive full year revenues, which grew from $1.57 billion with $441 million of adjusted EBITDA. Our pro forma adjusted EBITDA growth of 11% with pro forma adjusted EBITDA margin expansion of 170 basis points and adjusted diluted EPS growth of 27% were enabled by the completion of the core integration activities for the Sterling acquisition, successfully delivering on our synergy plan and the execution of our FA 5.0 growth strategy. We completed over 200 million screens across more than 200 countries and territories on behalf of our 80,000-plus customers with the average tenure of our top 100 customers increasing to 13-plus years. Our diverse customer base includes approximately 2/3 of Fortune 100 companies and more than 1/2 of Fortune 500 companies. Our gross retention remains high at approximately 96% for the year, having risen to 97% in the second half of the year. We have over 100 integrations with applicant tracking systems and human capital management partners, including our market differentiating global co-selling relationship with Workday, giving us a unique competitive advantage in several of our key verticals. And speaking of competitive differentiation, this year, we crossed the milestone of accumulating over 1 billion records in our 2 proprietary databases, a 10%-plus increase year-over-year, providing our customers with a more comprehensive, powerful data foundation that enables the speed and efficiency we are known for. Our national criminal record file database now contains well over 900 million U.S. criminal history records and our verified database contains approximately 135 million work history and education records. Our verticalized go-to-market approach remains a differentiator and a key driver of our growth strategy. We offer deep subject matter expertise in our industry segments, and we use industry-specific data to advise our customers on topics such as leading practices and product optimization. Our enterprise customers' diverse vertical mix, global reach, mix of hourly and salary focused customers and diligent focus on controlling the controllables make our business resilient and able to perform well through macroeconomic cycles. On this slide, we have provided an updated view of our vertical mix for 2025. We continue to feel confident in our strategic focus on health care, transportation and retail and e-commerce, which represent our 3 largest verticals, all with near- and long-term growth levers. We believe that each offers substantial runway for new upsell and cross-sell expansion supported by favorable underlying market trends. Now turning to Slide 6 and a closer look at our outstanding performance in the fourth quarter. We generated meaningful revenue, adjusted EBITDA, adjusted EBITDA margin and adjusted diluted EPS growth with results exceeding our updated expectations. Impressively, in Q4, our combined upsell, cross-sell and new logo growth rate was 17%, significantly outperforming our long-term growth algorithm target. This was enabled by our robust go-to-market momentum, including material contribution for a number of key 2025 wins and gives us momentum for stable yet elevated 2026 growth. Retention remained high at 97%. Base revenue performance again improved sequentially, remaining just below neutral and spot on with our expectations. Our go-to-market teams continue to deliver as further demonstrated by our 17 enterprise bookings in the fourth quarter, which brings us to a robust 66 for 2025. Each deal with $500,000 or more of expected annual contract value. These wins are some of the many reasons we have confidence in our ability to continue generating new logo and upsell, cross-sell revenue and help support our outlook for expected strong growth in 2026. Additionally, we are encouraged by the continued strength and increase in our late-stage pipeline, measuring at near record highs, including a meaningful volume that are incorporating our digital identity product. Looking at our verticals in the fourth quarter, our balanced and resilient vertical strategy supported our standout performance despite how headline economic data portrayed the higher environment. We saw strength in retail and e-commerce, driven by new, upsell and cross-sell along with a stable base with the seasonal peak hiring duration and volumes improving compared to last year and more in line with historical trends. Health care showed nice year-over-year growth driven by new logos, upsell and cross-sell despite notable base weakness in certain health care-related subverticals. Transportation and logistics saw growth in Q4, driven by positive base demand with strong traction during the peak season. General staffing, manufacturing and industrials and technology also showed positive year-over-year growth in Q4, partially powered by the success in our new logo and upsell cross-sell programs. Business and professional services, gig economy and financial services verticals experienced some pressure in the fourth quarter, but did not meaningfully inhibit our overall fourth quarter performance. January and initial February order volumes reflect trends generally consistent with what we saw in Q4. Our international business for Q4 continued to sustain strong year-over-year revenue growth in all regions, giving us confidence in our prospects for further international expansion. Although macro uncertainty persists in the fourth quarter, we saw many of our customers shifting to a more encouraging tone, and we are seeing this continue into 2026, regardless of the headlines you may be reading. We continue to remain confident that our diversified mix of verticals, customer segments and geographies provides a meaningful degree of resiliency to AI impacts and will allow us to capitalize on future growth opportunities. Additionally, we recently completed our annual trends report based on insights from thousands of enterprise-focused HR leaders and job seekers worldwide. The report will be published in the coming weeks. The data highlights strong demand for expanded screening services, risk mitigation as the #1 new top priority and rising identity-related challenges. as the biggest trend. These trends reinforce our growth expectations and positioning as an identity provider. Now turning to Slide 7 and a summary of our key accomplishments in 2025 and focus areas for 2026. Our 2025 organizational performance exceeded our expectations. We closed on the transformational acquisition of Sterling in October 2024, and we are incredibly pleased with the results, particularly in regard to customer retention, which has actually improved over the past 2 quarters. Synergy capture and realization, cultural alignment and our best-of-breed approach to technology and products, which has really resonated with our customers. In 2025, we executed and completed the core elements of our integration process while delivering a seamless customer experience throughout as evidenced by our high retention levels of 96% to 97% during the year, the favorable feedback we received from customers. We also significantly advanced our synergy realization efforts, reaching $55 million in run rate synergies actions and made progress on deleveraging our balance sheet. We had a number of impressive new logo wins in 2025, providing us momentum as we exited the year and substantial revenues already booked as we enter 2026. One win in particular, has the potential to be a top 5 customer and has already been driving significant growth. Adding to our success, we are seeing a very nice trend of winning back some customers who tried the competition and decided to return due to our outstanding platform, proprietary data, speed and service quality. As we have discussed before, we continue to take a proactive and strategic approach to AI. To be clear, we see AI as an enabler of our strategy, not a disruptor of our business model. We are executing from a foundation of long-standing technology leadership and deep tech experience across our management team. We have been building and deploying AI data and machine learning solutions since 2021, including Gen AI rollout since 2024. Some of these solutions are behind the scenes, helping us operate more efficiently and some are customer-facing, such as our Agentic AI and chatbots. We are also accelerating adoption of AI-powered development tools across the organization with hundreds of engineers leveraging AI capabilities to optimize our platform faster than we have ever been able to do. With our progress, scale and strategy, we believe we are well positioned in our industry to be a winner with regard to of where we have deployed AI solutions across our products, technology and operations include the following: AI is fully embedded in our next-gen Profile Advantage applicant portal, increasing efficiency, improving the user experience and reducing call center contact rates by approximately 50%. AI is also an essential element of our SmartHub AI intelligent router, which is now available for all U.S. customers for use within the verification process. as well as our digital identity solutions supporting our competitive advantage. We also began deploying AI-enabled capabilities in our criminal records processing workflows to help streamline operational steps, manage volumes and identify items for additional review while maintaining a human-in-the-loop process for all record matching, adjudication and reportability determinations. Internally, we have also leveraged AI to enhance the productivity of our engineering staff, automate tasks, enhance our product capabilities and help our go-to-market teams with customer acquisition activities. AI governance is also critical in our industry as we operate in a highly regulated high-stakes environment where accuracy, auditability and compliance are nonnegotiable. Our customers rely on our solutions to make informed employment decisions that carry legal, regulatory and human consequences. Trust is foundational to our brand. Our screens and verifications must be explainable, auditable and compliant across jurisdictions and geographies and seamlessly integrated into customers' HCM and ATS workflows. What we offer is not simply a software problem or a data search exercise. What we offer requires deep domain expertise, regulatory infrastructure and a consultative service model that is tailored to the specific regulatory and operational needs of the industries we serve. It also requires knowledge about the complexities of compliance with federal, state and regional laws like the FCRA in the U.S. and GDPR in Europe, along with many subject matter specific regulations like DOT and BIPA, which makes operational scale well beyond software and data, all that more important. We operate in a fragmented global landscape that often extends beyond the digital world. The data we use is not simply consumed off the Internet. Our platform is supported by thousands of direct relationships for criminal records access, both digitally and many jurisdictions physically, a proprietary third-party network of over 20,000 brick-and-mortar locations for drug testing and health screening and a proprietary network of over 1,000 in-person physical fingerprinting collection kiosks that enable a number of our solutions. The combination of proprietary data assets with more than 1 billion proprietary records, large-scale proprietary physical fulfillment networks, long-standing compliance capabilities, consultative expertise and deep system integration is difficult to replicate and positions us to continue to responsibly deploy AI, enhance efficiency and create durable long-term shareholder value in a rapidly evolving technology landscape. Looking at 2026, we have multiple other initiatives in flight, focusing on scaling in ways that continue to improve speed, consistency and efficiency. Our focus is on redesigning key workflows with AI at the center. This includes expanding our use of AI agents, enhancing document classification and extraction capabilities and applying AI-enabled automation in verification and fulfillment processes. all while maintaining disciplined governance to support and ensure responsible and compliance use of AI. We believe our focused innovative approach to leveraging AI positions First Advantage to create long-term value. Also in 2025 and into 2026, we continue to see strong and growing customer interest in our market differentiating digital identity products, which enable our customers to address the increasing concerns of identity fraud. Customers are seeing the benefits of our cohesive offering, and it is helping us win in the market, creating opportunities that were not there before. Digital identity is a key selling point for customers despite being a small component of overall contract value. In several recent large wins, we actually started with digital identity as the focus of an RFP, then we were able to significantly expand our scope when our customers recognize the benefits of our integrated solution, driving pipeline momentum. During 2025, a number of Fortune 500 companies went live with our digital identity product, and we expect to see this momentum continue. We are building on the early successes of these products, and we expect penetration to accelerate meaningfully in 2026 as customers increasingly recognize the need for the benefits of our highly sophisticated fully integrated solutions. As we progress through 2026, we are well positioned to maximize the benefits of our strengthened business to continue to win in the market, drive synergy realization and further accelerate our performance. Building upon the great success we have seen to date with our FA 5.0 growth strategy, in 2026, we are enhancing our product, sales and marketing capabilities to continue to deliver meaningful, sustained value for our customers and stakeholders. These efforts include further leveraging AI across our product portfolio, increasing our identity fraud-related product penetration, creating brand-new products and expanding our international business. We will keep you updated on our progress in the coming quarters. With that, I will now turn the call over to Steven. Steven Marks: Thank you, Scott, and good morning, everyone. I'll start with fourth quarter results on Slide 9. As Scott mentioned, we believe Q4 was the best quarter in First Advantage's history. Our fourth quarter revenues were up 12% versus last year on a pro forma basis, coming in at $420 million, with our year-over-year revenue growth rate meaningfully increasing from Q3. Our go-to-market success significantly exceeded our long-term growth algorithm as the combined contribution of new logo, upsell and cross-sell revenues delivered exceptional growth of 17% in the quarter, our highest in recent history. Part of the uptick in Q4 new logo upsell and cross-sell relates to order volume in Q4 from our new wins, part of which would have otherwise been recognized in the third quarter as certain new customers deferred their screening until they were live on our platform. Into 2026, as these customers ramp, we expect quarterly revenue to normalize and translate into steady, sustainable growth going forward. Our retention remained extremely high at 97%. We saw more consistent customer demand during the peak hiring season than last year and closer to being in line with historical norms. The trends in our base performance continued to improve on par with how we had forecast the fourth quarter with base remaining slightly negative. Adjusted EBITDA for the fourth quarter was $117 million, up an impressive 17% versus last year on a pro forma basis. Our adjusted EBITDA margin of 27.8% exceeded our expectations, representing an improvement of 110 basis points versus the prior year on a pro forma basis, despite being slightly lower sequentially from Q3 due to mix. This mix shift was driven by the sizable incremental upsell, cross-sell and new logo revenue from our go-to-market wins in 2025, which had a larger mix of products with higher relative third-party data pass-through costs. Overall, our robust revenues were enabled by our continued focus on accelerating synergies, our disciplined approach to cost management and the scalable nature of our business. Adjusted diluted EPS was $0.30, a 67% increase year-over-year and also ahead of our expectations. The benefits of our greater scale, expense and capital management and lower interest expense as a result of our debt repricing and voluntary debt repayments to date have supported our per share earnings growth. Turning to full year results on Slide 10. Not only do we believe Q4 was our best quarter ever, but we believe 2025 was our best year ever. Our full year 2025 performance exceeded our most recent guidance ranges for revenues, adjusted EBITDA, adjusted net income and adjusted diluted EPS. This is further evidence that we continue to be diligent and successful at controlling what can be controlled within our business and the resiliency of our diversified business model and our industry leadership position enable us to navigate the uncertain macro environment. On Slide 11, you can see how we are continuing to make great progress on our synergy program. As of quarter end, we had actioned $55 million in acquisition synergies, moving closer to our total synergy goal. We realized $8 million of incremental synergies in the fourth quarter, bringing our total 2025 incremental realization to $38 million or $42 million realized over the transaction lifetime. Now turning to cash flow, net leverage and capital allocation on Slide 12. We are incredibly pleased that for the year, we generated adjusted operating cash flows of $232 million, a substantial increase of $67 million or 41% on a year-over-year basis. This impressive performance was driven by the larger scale of our business, the benefit of the OBBBA tax law, which reduced our required cash tax payments and our overall focus on cash flow. Our cash balance at December 31, 2025, was $240 million. Our synergized adjusted EBITDA net leverage ratio at year-end was 4x and represents a decrease of 0.4x from a year ago when we had closed the Sterling acquisition. Additionally, as Scott mentioned, today, we are announcing 2 key capital allocation actions. First, continuing our commitment to consistently paying down debt. And subsequent to the end of quarter, this week, we are making an additional voluntary prepayment of $25 million, bringing our total debt repayment since closing to $95.5 million. Second, today, we have announced a new $100 million share repurchase authorization, which we will opportunistically execute over the coming quarters. The success of our business strategy and the strength of our balance sheet and cash flow profile have allowed us to make the strategic decision to allocate a portion of our capital towards share repurchases. The reality of our recent repurchases a strategic use of capital that maximizes shareholder value creation and is an opportunistic method to deploy capital in an environment where we believe the market is not reflecting the long-term prospects of our company. Said simply, at our current valuation, this is just prudent corporate finance. Enabled by the strength of our financial position, we are able to pursue a balanced capital allocation strategy that includes both voluntary debt repayment and opportunistic share repurchases while maintaining our focus on deleveraging, liquidity and long-term value creation. As we strategically balance our capital allocation priorities, our near-term deleveraging time line may change modestly. However, our long-term leverage objectives remain unchanged, and we expect to continue to reduce leverage towards our long-term target of 2 to 3x. Moving to Slide 13 and our 2026 guidance. We expect 2026 total revenues in the range of $1.625 billion to $1.7 billion, adjusted EBITDA of $460 million to $485 million and adjusted diluted EPS to $1.25 per share. For revenue, this represents approximately 6% year-over-year growth at the midpoint, with upside potential driven by the success of our go-to-market initiatives. We expect to expand full year adjusted EBITDA margin by approximately 40 basis points at the midpoint as we continue to leverage synergies and scale our growth. On top of this, we expect impressive adjusted diluted at the midpoint. When compared to our 2024 adjusted diluted EPS following the Sterling acquisition, this represents a robust 20% 2-year CAGR. Our 2026 guidance builds off the success we had in 2025, including our outstanding go-to-market wins as we maximize the benefits of our stronger business and enhance our competitive strength. Our guidance includes assumptions for synergies, go-to-market strength, investment in organic growth, shifting product mix and our current view of the macro environment. Specifically, it assumes action synergies within our full year target range of $65 million to $80 million by the end of the year. We expect our exceptional go-to-market productivity to continue with robust upsell, cross-sell and new logo growth during the year coming in at the high end, if not slightly above our long-term growth algorithm. As we have mentioned, in 2026, we expect order volumes from our newer win [Audio Gap] course of the year. We expect momentum in the first half of the year, continuing what we saw in Q3 and Q4, driven by the large deals that went live in 2025. We also expect customer retention to remain in line with our strong historical performance of around 96% to 97% Factored into our 2026 guidance are the impacts of our strategic investments in organic growth, including enhancing our product, sales and marketing capabilities as well as expanding our international business opportunities. While also -- while we anticipate the near-term revenue and margin contributions to be more limited during -- more limited due to the offsetting effects of the investments themselves, we will establish a solid foundation for additional future growth. We expect growth to accelerate in the second half and meaningfully by year-end, propelling revenue performance and margin expansion in the mid and long term. In addition to these factors, we also expect the more recent impacts of higher out-of-pocket pass-through fees in our current product mix to continue as the newer deals mentioned before roll over into 2026, providing a modest headwind to margin percentages, although dollar profitability of these deals is very attractive. As it relates to the macro environment, the labor market we broadly serve looks to be more stable entering into 2026, continuing the trend of a relatively flat hiring environment we saw in 2025. With this in mind, for 2026, we expect that base growth will remain modestly negative between 0 and negative 2% for the year. Looking at quarterly phasing in 2026, with a more stable macro backdrop, strong rollover from upsell, cross-sell and new logo and our go-to-market growth initiatives driving second half growth, we expect all 4 quarters to have revenue growth rates in the mid- to high single digits. We do expect base growth to be slightly higher in Q3 and then lower in Q4 as revenue smooths out to a more normalized quarterly distribution, which includes the impacts of the 2025 wins I just mentioned. We expect Q1 adjusted EBITDA margins to be around 26%. While we have some incremental benefit from the more recent synergies, the impact of revenue mix and initial growth investments impact early year margin appreciation. As revenue scales up seasonally, we expect margins to improve meaningfully in Q2 towards 28% before reaching the 29% range in the second half of the year. Similarly, for adjusted diluted EPS, we expect meaningful year-on-year expansion in all 4 quarters, with Q1 expected to be at or just above $0.20 per share with a ramp to the high $0.20 range in Q2 and improving to the mid- to upper $0.30 range in both Q3 and Q4. We anticipate free cash flow for the year in the range of $160 million to $190 million. This notable year-over-year increase reflects our ability to generate incremental cash flow from better working capital management and a significant decline in integration-related costs while also investing in accelerating our growth. We have provided additional assumptions in the appendix of our presentation. Overall, we enter 2026 in a position of strength with opportunity to continue to build on our success through our FA 5.0 growth strategy. With that, let me turn it back to Scott for closing remarks before we open the line for questions. Scott Staples: Thank you, Steven. In closing, we delivered outstanding results in 2025 and are carrying our strong execution momentum into 2026. Looking ahead, as a clear leader in our space, we remain focused on consistently winning by delivering best-in-class solutions for our customers. We remain confident in our ability to achieve consistently strong results and are progressing well toward the 4-year financial targets we established during our Investor Day in May 2025. I would like to thank the First Advantage team for your continued dedication to supporting our customers. With that, we will open the line for questions. Operator: [Operator Instructions] We'll go first this morning to Shlomo Rosenbaum of Stifel. Shlomo Rosenbaum: Really a strong quarter and the commentary seems like things are improving and getting better. The question I have is to start out with is what are your clients telling you about their own hiring plans? And in particular, how are they taking the AI evolution into consideration? And are you concerned at all that their plans might change on a dime because all of a sudden, they feel that they may not need the amount of people that they were thinking of doing -- having before? Because the business is subject to short-term changes and with the visibility not necessarily as great for when things all of a sudden change on a dime. Scott Staples: Yes, Shlomo, I think I'll start by how customer-focused we are. And I think you know we spend a lot of time with our customers. We are talking to them daily, weekly, monthly, quarterly. We are actively involved in their hiring process and in their planning. So we have pretty good visibility and a lot of what I would call sample data to basically base our 2026 plans off of. So what you're seeing in the media doesn't match what our customers are saying. And keep in mind, we primarily have an enterprise focus. So we're talking to the larger customers. I'd say if you look at the media, you'll hear a neutral to negative tone. But when you talk to our customers, we're hearing a neutral to positive tone. I don't recall a single customer conversation that I've had going into 2026, where a customer has mentioned a decline in hiring. We are only hearing flat to positive. And we're actually also hearing that in certain verticals, which are surprising where you feel like there may be AI disruption. We are not hearing that at all. We are hearing that they're actually hiring more people or planning to hire more people in 2026. So we're hearing a neutral to positive tone from our customers, and that's encouraging. Shlomo Rosenbaum: Okay. And then there was a comment about there was a certain amount of delayed volumes in 3Q that ended up in 4Q because of the timing, I guess, of full implementation. Are you able to quantify what the impact of that was or at least estimate what that was in terms of the revenue growth, they contribute to the revenue growth in the fourth quarter? Scott Staples: Yes, Shlomo, it actually wasn't a delay. What ended up happening is that a couple of customers were waiting to go on board with us and held screening volume back from their previous provider. So it's not really a delay. It's more of a kind of a reflection of the value proposition we bring. And that's why I kind of mentioned in the prepared remarks that there'll be a small flip in base growth between Q3 and Q4 if you're just doing your quarterly pacing because when that normalizes out, we'll just have a shift. And it's not huge, but it's a couple of percentage points probably that shift between the 2 quarters. Operator: We'll go next now to Ashish Sabadra of RBC Capital Markets. Ashish Sabadra: Thanks for providing those detailed insights in the prepared remarks around the more around AI, the AI integration, implementation plans and efficiency. I was just wondering if it's possible to quantify or provide anecdotal example of the benefits from the AI adoption. Maybe if you could provide any insights into like software development, product rollout, customer service? And also if you've started to see any benefit from your AI adoption in terms of new wins and upsell, cross-sell. So any kind of benefits, both internal or external from AI? Scott Staples: Yes, Ashish, I will -- I'll give you a broad answer to that question because it's extremely hard to quantify because it's literally everywhere. And it's embedded in all of our products and in a lot of our new wins. So as I mentioned in the in the prepared script that we've got AI all throughout our product platform, whether it's our SmartHub technology, which has a very large impact on verifications. We actually have a number of wins in 2025 where they have specifically told us that they came to us because of our SmartHub verification product. So it's starting to catch on. AI is embedded in our digital identity products. And we have a lot of wins in 2025 where a digital identity has been the tip of the spear. It's amazing, I will call it an absolute epidemic right now that customers are experiencing with identity fraud. And our products are really resonating with our customers. So yes, there's been cost savings from AI, whether it's in our customer care center where we don't need as many agents because we're doing things through chatbots. There's been wins because of AI and because of technology. But it's just so hard to quantify because I just think this is the new first advantage. This is -- all of what you're asking is embedded in everything we're talking about from a sales standpoint to an operational standpoint. So very hard to carve out, but I would say the impact is phenomenal. Ashish Sabadra: That's great color. And obviously, it's reflected in the results as well. I also wanted on the solid cross-sell, upsell momentum of 12% in the quarter. quarter. I understand a lot of it is driven by this new win momentum. But I was wondering if you could provide incremental color around what's driving that cross-sell? Are we adding more business units, geographic expansion? And where are you winning these businesses from? So any more color on those fronts will be very helpful. Scott Staples: Yes. Again, keeping in mind that our focus is more on the enterprise side. So a lot of these deals are with the larger companies. But I'll make a couple of high-level comments. First of all, in general, our sales engine is humming. I mean this is the best I've ever seen it. The pipeline is the highest it's ever been. And if you look at our total enterprise new business across new logos, upsell and cross-sell, it's actually up 24% year-over-year. That's a massive increase. And what we're also seeing is our average deal size is increasing. So not only are we winning deals, we're winning larger deals. And I would say these larger deals are more bundled and they're more complex. And average deal double digits. So there's a lot of good momentum on the sales side. So in general, what's driving it is package density. Package density is booming, I would tell you that right now. So I mentioned in the script that we -- again, we talk about how we're talking to customers every day. But I also mentioned in the script how we launched our annual trend survey just recently. And we talked to literally well over 2,000 HR professionals and very interesting what we're hearing from them. 89% of employers plan to add additional screening products in the next 1-year to 2 years. And a lot of that is driven by the challenging and even at sometimes dangerous world that we live in. And our customers are looking for more risk protection. So what was also mentioned in the script was risk is now the #1, by far, top priority for our customers. If you ask me that question 3, 4, 5 years ago, it was always speed and then it was cost. Now it's risk, speed and then cost. And that's a dramatic shift. A lot of this has been driven by, again, the epidemic that we're seeing in identity fraud. Again, going back to that survey, which we will release over the next couple of weeks, 76% have experienced falified employment details and 45% have experienced candy identity misrepresentation. These are huge openings for us, as I mentioned, digital identity as the tip of the spear. But what's beautiful about our product offerings is that we can integrate all of this for the customer. Just think about where we touch. We touch everywhere from recruiting through the background screening through onboarding all the way to I-9 and their first day of work and even beyond through monitoring. So customers are really liking our product suite because it's not a point solution. It's an embedded workflow that touches all the things that they're worrying about. Operator: We go next now to Andrew Steinerman of JPMorgan. Alexander EM Hess: This is Alex Hess on for Andrew Steinerman. I wanted to just ask a quick question about the margin guide for 2026. Can you walk us through some of the puts and takes there, how to think about the degree to which you're reinvesting and sort of the why now behind reinvesting so much of the -- what seems to be the cost synergy benefit as well as can you highlight any of the mix headwinds from newer logos? Maybe unpack that a little more. Steven Marks: Yes, Alex, good question and obviously, kind of a core theme of the guidance that we talked about. So a few factors that are headwinds and tailwinds in terms of just margin percentages. But overall, really feel good about the net dollar productivity at a margin. So I think we've talked about margin mix for the last couple of quarters and especially with some of these newer deals and the verticals that they're in and the product suites that were sold, there is just a relatively higher mix of those out-of-pocket fees, which are all pass-throughs to the customer, but that do dilute you on a margin percentage basis. So that's certainly a factor in there. And we -- you saw that a little bit in Q4. And obviously, as that rolls over through Q1, 2 and 3 next year, that will normalize out a little bit. obviously, spending some work, the initiatives Scott talked about automation and some of our data products to try and offset some of that, but that's certainly a factor. On the headwind or the tailwind side, we'll have some of the rollover from synergies and incremental synergies. But as you called out, we are prioritizing some incremental investment. And I think the rationale there is really we see ourselves creating some really strong competitive differentiation. If you look at some of the HCM and ATS partner success that Scott highlighted in the prepared remarks, some of the product success and really just using the success of the integration, the stability in the customer base and looking at how we're positioned in the market right now. It's just an opportunistic time to invigorate incremental growth by putting some dollars towards product, sales, marketing, which are areas that we've invested in the past and always seen really strong returns out of. Scott Staples: And Alex, I'll just add on why now. As I mentioned, we're talking to our customers every day, and they're sending us really good buying signals. So it's -- why now has really become an easy decision for us. We've got actual pipeline that will -- that is backing up a lot of these investments that we're making. So we're not making these investments in a build it and they will come model. We're actually making these investments with already defined pipeline where our customers are saying, if you build this, we'll buy it. So these decisions actually became pretty easy, but that gives you a little more color on why now. Alexander EM Hess: Got it. That's super helpful. And then as we think about those -- that pipeline of defined investments, can you walk us through internally how you think about the payback period that's required to make incremental investments back into the business? Is this something where in -- we see the momentum on the top line continue into '27 because of these investments? Or is this a '28, '29, 2030 type of payoff? Scott Staples: No, yes, you'll see impact in the second half of this year. There'll be some in-year impact because of these investments. And they certainly will carry into '27 and '28. And the good news about a lot of these investments is we don't think we need to actually do them again in '27 and '28. So that would -- that's going to help EBITDA in the future as well. But Steven, you might add a little more color. Steven Marks: Exactly right, Scott. I think, obviously, you invest early in the year. We expect good returns in the second half of the year. Like a lot of our go-to-market success, when you have that back half of the year success, you get the rollover impact into the future periods. And like Scott said, these aren't -- a lot of these aren't permanent additions. These are either onetime development exercises or rebranding and some other stuff like that of making sure that we can accelerate over the short term and then create long-term value. Operator: We'll go next now to Andrew Nicholas of William Blair. Daniel Maxwell: This is Daniel Maxwell on for Andrew today. I was wondering if you can give a little more detail on how you're thinking about the ROI from each of your capital allocation priorities heading into the new year. Definitely sounds like repurchases are incrementally attractive at this price. But is there a willingness to sacrifice some free cash flow that would go to deleveraging in favor of repurchases? Or are those truly not mutually exclusive? Steven Marks: No. As you heard in my prepared remarks, it's an and equation, not an or. I think we're very fortunate. We've got a -- you heard our free cash flow guide of $160 million to $190 million, finished the 2025 with $240 million of cash on the balance sheet. We generated $70 million of net cash flow last year in 2025. So we're able to -- as you heard us announce, pay down $25 million of debt this quarter and able to also announce $100 million of buyback authorization. With the buybacks, we'll obviously be a little bit opportunistic there at the current valuation levels. It's very accretive from an EPS and just any kind of corporate finance math you run, it makes sense to do share repurchases at this valuation, especially with our numbers and P/E ratios and things like that. But we have the ability and flexibility of generating good cash flow the success of the integration, we talked about this on the prepared remarks, but to finish the integration with 96% to 97% customer retention, curtailing a lot of the onetime expenses and now having strong free cash flow into the future, it was an opportunistic time to look back and say, we don't think we're being valued correctly. And if the market doesn't correct, we'll happily buy back some of those shares. But it's not to the sacrifice of debt prepayment. We'll do both at the same time. Daniel Maxwell: Great. That's helpful. And then as my follow-up, you guys had some good commentary on which verticals were doing well and which are still kind of lagging moving into the new year. I was curious if there's -- there were anything in the quarterly results that kind of came as a surprise, particularly on base growth front or if there was especially strong momentum in any given area on the sales front? Scott Staples: Yes. I mean just a couple of things there. One, what we were happily surprised about was the quarter resembled what our normal peak season would look like. So if you recall, we had back-to-back years of a sluggish peak. We had a great peak. It started when we thought it would start. It lasted well into -- well past Thanksgiving into December. We had a great December as well. So peak was very encouraging, and that's great for retail, e-commerce, transportation. They're all kind of aligned there. I don't think we had any surprises either negative or positive across any of the verticals. They all kind of came in line with what we thought. And I think geographically as well, as we mentioned, our international business was firing on all cylinders across all regions, not singling out a single one as a star performer or a laggard. They were all firing on all cylinders, which was great. So I think the signaling to us that the peak season was back was great. It obviously made for our best quarter ever in Q4. It's just -- I think what's interesting maybe is it sort of goes against what you read in the media or you're seeing and hearing because this is not what our customers are feeling. Operator: We'll go next now to Manav Patnaik at Barclays. Ronan Kennedy: This is Ronan Kennedy on for Manav. Can you please talk at a high level to the puts and takes that would take you to the respective low and high end of the guided revenue range, whether it be the macro and your base or cross-sell new or other components, please? Steven Marks: Yes. Ronan, and you kind of hit on the 2 main ones. So certainly, as we talked about 6% growth at the midpoint, kind of assumes that flat hiring environment, as I shared, embedded in the range at the upper and lower end is we think base is still between 0 and negative 2%. It's that continuing flat environment. Obviously, there's still all the policy uncertainty that comes out of Washington these days that could always move that towards that upper or lower end. But as Scott just mentioned, we're hearing very positive tones and very consistent tones across the enterprise customer portfolio. And then certainly, we've got good rollover momentum going into 2026. So we feel good about delivering higher end of our algorithm on the new logo and upsell, cross-sell front. But as we have our deals that are already in pipeline, how those ramp plus the investments we're making and the incremental growth that we can get there, that's what pushes us probably from that midpoint towards the upper parts of the guidance range would be the success of those as well. So -- those are really the 2 main factors. We are very pleased with the consistency and stability within retention. And that part of the algorithm, we don't take it for granted, but it's such a core part of what we do here and our focus on our customers that, that 96% or 97% retention number can be modeled in very consistently. Ronan Kennedy: Got it. And then on the synergies, can I confirm, I think you've actioned $55 million run rate as of '25, targeting the $65 million to $80 million. Can you reconfirm reported synergy benefit realized in '25 4Q and what the guide assumes for synergy realization benefit? Steven Marks: Yes. So you're right, Ronan. So as of the end of the year, we had actioned $55 million of the $65 million to $80 million target. $8 million was incrementally realized in Q4 of 2025. If you recall, when we closed the deal on October 31, '24, we did some day 1 synergies and realized $4 million in 2024. So that $8 million is incremental to that. So for the year, the incremental synergy realization was $38 million. Daniel Maxwell: Okay. And what's assumed for the realization for '26? Steven Marks: Yes. I mean, obviously, we have some rollover from what we've already actioned. Our first priority for the year is growth. The synergies, we said we'll get to the targets by year-end. It's probably more second half of the year when we action those synergies just because as we've talked about on some of the last few questions, we're using 2026 and the momentum we have going into the year to help propel incremental growth. We've got a great action plan on getting those synergies, which are primarily in cost of sales and optimizing data acquisition costs and things like that. But we know we'll get it. We'll just be a little later in the year. That's just kind of the balance of growth versus synergies. Operator: We'll go next now to Jeff Silber of BMO Capital Markets. Jeffrey Silber: I know it's late. I'll just ask one. You alluded a few times in your prepared remarks to the digital identity practice. Is it possible to quantify that for us either as a percentage of revenues or growth? And what's embedded in guidance for 2026? Scott Staples: Yes. I think it's becoming harder and harder to quantify because it's embedded in a bundled solution. We will try to give you some sort of quantification of the impact of Digital ID probably in another 6 months. We just let this pan out a little further. But there's really 2 aspects to it. There's one where it can be quantified as a stand-alone operation and two, where it's embedded in -- with a number of other products a little harder to quantify. But I can tell you anecdotally that it's having a tremendous impact on the pipeline and our -- and a number of go-lives in Q4 with very large customers. So one, we're going to get a quantification of a revenue lift Two, we believe it also brings a lot of stickiness with it. So it should even help retention because now you're really embedded with a customer when you're handling their Digital ID all through their background check and onboarding. So we will give -- try to give you a little more quantification flavor of that in about another 6 months, but I can anecdotally tell you it's having a really nice impact. Operator: We'll go next now to Scott Wurtzel of Wolfe Research. Scott Wurtzel: I'll just ask one as well and actually on Identity too. Just in the context of like mix impact on margins, what sort of -- I guess, what sort of impact does identity have on margins, I guess, relative to some of the other products that you have? Scott Staples: Yes, go ahead, Steven. Yes. Steven Marks: No, it's certainly a higher-margin product because you don't have to go out and acquire court data or driver record data or drug screening costs, things like that. So it is a higher-margin product. It's really a core tech service in its heart. But as Scott mentioned, it's getting harder and harder to break apart the discrete impact of it because it's either embedded and bundled into other services. And to Scott's other point, it's driving and it's the reason a lot of customers are looking at and/or choosing First Advantage. So you could argue it's tremendously benefit from a margin standpoint because you're winning opportunity, it's almost a marketing mechanism at this point. Operator: We'll go next now to Kyle Peterson with Needham. Kyle Peterson: Nice results I'll just ask one as well. I wanted to ask a little bit on upsell, cross-sell, particularly package density. That's been a really nice tailwind for you guys for quite a while here. I guess if you guys had to guess what inning would you say that we're in here? Like is there still a lot of progress? Is this going to continue to support pretty sustained growth over the next couple of years? Or a lot of the packages kind of fully densified? Just any color as to where we are would be really helpful. Scott Staples: Yes. Staying with the sports analogy, Scott. I would say that actually, the game has started all over again. So where we were probably a year ago is maybe halfway through the game. But I'd say the game has completely started over. So it's first inning of the next generation of package density with digital identity being at the center. It's also -- I hate to say this, but turn your TV on it night and the world is very challenging right now. And as I mentioned with our trends report, risk and risk mitigation has leapfrogged to our customers, our buyers' #1 concern. And what that then means is package density because they're just looking for more and more protection. They want to protect their employees. They want to protect their brand. They want to protect their offices, their physical infrastructure. They want to protect their shareholder value. So any time we can come up with more data searches, better data searches, we can come up with new offerings, new product lines, new ways of doing verifications, new ways of doing identity, we seem to be catching a very welcoming ear at our customers because their C-suite and their boards are continuously asking them what else can we be doing. So I'd say the game has started over with digital identity being the cleanup hitter in your metaphor, where it's really an epidemic right now and First Advantage is really in a good position. Operator: And ladies and gentlemen, that is all the questions we have today. So that will bring us to the conclusion of today's conference call. We'd like to thank you all so much for joining the First Advantage Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. At this time, you may disconnect your line, and have a wonderful day. Goodbye.
Operator: Good morning, and welcome to Crescent Capital BDC, Inc.'s Fourth Quarter and Year Ended December 31, 2025 Earnings Conference Call. Please note that Crescent Capital BDC, Inc. may be referred to as CCAP, Crescent BDC or the company throughout the call. I'll start with some important reminders. Comments made over the course of this conference call and webcast may contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. The company assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not guarantee of future results. I'll now turn the call over to Dan McMahon. Daniel McMahon: Thank you. Yesterday, after the market closed, the company issued its earnings press release for the fourth quarter and year ended December 31, 2025, and posted a presentation to the IR section of its website at www.crescentbdc.com. The presentation should be reviewed in conjunction with the company's Form 10-K filed yesterday with the SEC. As a reminder, this call is being recorded for replay purposes. Speaking on today's call will be CCAP's Chief Executive Officer, Jason Breaux; President, Henry Chung; and Chief Financial Officer, Gerhard Lombard. With that, I'd now like to turn it over to Jason. Jason Breaux: Thank you, Dan. Hello, everyone, and thank you all for joining us. I'll start today's call by summarizing our results and outlook and follow that with some commentary on the current market environment. In terms of fourth quarter earnings, we reported net investment income of $0.45 per share as compared to $0.46 for the prior quarter. Once again, our earnings over-earned the quarterly dividend. Consistent with our dividend policy and fourth quarter earnings, our Board declared a quarterly cash dividend of $0.42 per share for the first quarter of 2026, payable on April 15, 2026, to stockholders of record as of March 31, 2026. Net asset value was $19.10 per share as of December 31, compared to $19.28 per share as of September 30. This decline reflects unrealized losses stemming from certain portfolio companies. While NAV per share has declined over the past several quarters, reflecting market volatility and certain credit-specific marks during 2025, we believe it is important to view our performance over a longer horizon. The broader portfolio remains fundamentally healthy with stable credit metrics, strong sponsor support and performance in line with our underwriting expectations. Since inception, CCAP has maintained one of the more stable NAV profiles across the public BDC sector, supported by our disciplined underwriting, diversified positioning and a focus on senior secured sponsor-backed companies, which we have maintained throughout our history. Capital preservation remains core to our strategy, and we are actively managing the portfolio to maintain consistent long-term NAV stability. I'd now like to touch on our outlook for CCAP's earnings power and dividend sustainability. First, while lower base rates have impacted yields across the space, CCAP remains well positioned today. For the fourth quarter, net investment income covered our base dividend by 107%. We ended the year with net debt-to-equity of 1.20x, below the 1.30x upper end of our target range, preserving flexibility to prudently grow the portfolio and deploy capital through Crescent's origination platform. Crescent's private credit platform has been active with over $6.5 billion of capital committed in 2025, including over $1.7 billion during the fourth quarter. Our existing portfolio remains one of our most active origination channels with add-ons representing over half of our transactions over the same period. We are also encouraged by the recent increase in transaction activity in Q4 and early 2026. As origination and refinancing volumes normalize, structuring fees and accelerated amortization income can serve as incremental contributors to earnings. In addition, our spillover income of approximately $1.16 per share, which is nearly 3x our base dividend continues to provide meaningful support as we navigate the current rate transition. All of that said, we fully recognize the earnings headwinds facing the entire BDC space related to forward base rate expectations. As such, we and our Board are actively reviewing a range of options to ensure CCAP is positioned to deliver durable earnings and attractive returns across market cycles, and we expect to provide a more fulsome update on our plans and any actions stemming from that review in May when we report next quarter's results. We look forward to updating you further next quarter. Let me now shift gears and discuss what we are seeing in our market. We are operating in an increasingly competitive private credit market. Capital formation across direct lending strategies has remained strong with a growing number of lenders competing for high-quality sponsor-backed transactions. This has resulted in tighter spreads and evolving deal structures, particularly in the broadly syndicated and upper end of the middle market. This environment, maintaining underwriting discipline and strong structural protections remains essential. Within private equity, the past 3 years have been characterized by subdued exit activity with sponsors favoring recapitalizations and dividend transactions over traditional M&A to generate liquidity in a muted market. This has created a backlog of portfolio companies awaiting monetization. As rate pressures ease and financing markets stabilize, we are seeing sponsors selectively reengage in the M&A market to deliver liquidity to their limited partners. At the same time, elevated redemption activity in the perpetual nontraded BDC space may potentially contribute to a more balanced supply-demand dynamic. Overall, we continue to view the long-term outlook for private credit favorably. Disciplined underwriting, thoughtful selectivity and active portfolio management remain essential to driving strong performance. With that, I'll turn it over to Henry to provide additional detail on our portfolio and recent investment activity. Henry? Henry Chung: Thanks, Jason. Please turn to Slides 13 and 14. We ended the year with approximately $1.6 billion of investments at fair value across a highly diversified portfolio of 184 companies with an average investment size of approximately 0.6% of the total portfolio. We believe disciplined position sizing is one of the most effective tools for managing idiosyncratic credit risk. Broad diversification across industries, end markets, sponsors and issuers help limit concentration risk and support durable performance across market cycles. Since inception, our portfolio has consisted primarily of first lien loans representing 91% of the portfolio at fair value at year-end. Our investments are supported by well-capitalized experienced private equity sponsors with 99% of our debt portfolio in sponsor-backed companies as of year-end. At origination, the weighted average loan-to-value of the portfolio is approximately 40%, underscoring the meaningful equity buffer beneath us. We believe conservatively capitalizing the portfolio companies is a key driver of downside protection and recovery potential across cycles. It is also worth noting that 71% of our portfolio includes covenants, far higher than in the upper middle market or broadly syndicated loan market. We view covenants as an important risk management tool, providing earlier visibility into potential issues and a structured framework to engage early with sponsors if performance softens. In terms of software and services, we have been investing in the sector for over 15 years, applying a consistent underwriting approach throughout. Our focus has always been on durable cash flow generating businesses that deliver mission-critical enterprise embedded software with high switching costs, where the cost of failure or disruption is prohibitively high for customers. This long-standing discipline has guided how we underwrite technology risk across multiple innovation cycles, and we believe our approach is inherently defensive against AI-driven disintermediation risk. Today, software and services represent approximately 20% of our portfolio, and we continue to apply the same cash flow-based underwriting principles that have guided us for decades. Consistent with this approach, we do not invest in any annual recurring revenue or ARR loans. Please turn to Slide 15, where we highlight our recent activity. Gross deployment in the fourth quarter totaled $71 million, as you can see on the left-hand side of the page. During the quarter, we closed 5 new platform investments totaling $29 million. Even as spreads have tightened, our focus remains on high-quality companies with strong credit profiles. These new investments were loans to private equity-backed companies with a weighted average spread of approximately 490 basis points, with Crescent serving as lead or agent on all the new platform investments. The remaining $42 million came from incremental investments in our existing portfolio companies. The $71 million in gross deployment compares to approximately $78 million in aggregate exits, sales and repayments, resulting in net realization of approximately $7 million for the fourth quarter. Turning back to the broader portfolio, please flip to Slide 16. The weighted average yield on our income-producing securities at cost decreased 40 basis points quarter-over-quarter, ending the year at 10%. This decline was primarily driven by lower base rates following the recent rate cuts. Importantly, we remain disciplined in our deployment approach, prioritizing credit quality, structural protections and long-term risk-adjusted returns over maximizing headline yield. The weighted average interest coverage of the companies in our investment portfolio at year-end improved to 2.2x, demonstrating durability and strength within the earnings and our underlying portfolio companies. As a reminder, this calculation is based on the latest annualized base rates each quarter. Please flip to Slide 17, which shows the trends in internal performance ratings. Overall, we have seen stability in the fundamental performance of our portfolio, resulting in consistency in our risk ratings and a weighted average portfolio risk rating of 2.1. On the right-hand side of the slide, you'll see that 1 and 2 rated investments, representing names that are performing at or above our underwriting expectations, decreased from 87% to 86% quarter-over-quarter, continuing to represent the lion's share of our portfolio at fair value. As a percentage of debt investments at cost and fair value, nonaccruals increased from 3.3% and 1.6% as of September 30 to 4.1% and 2% as of December 31, driven by the addition of 2 new nonaccrual investments during the fourth quarter. It is worth noting that in January, one nonaccrual investment restructured and another was fully realized via a sale, which decreased pro forma nonaccruals to 1.4% and 3.2% of debt investments at fair value at cost. Given our highly diversified portfolio and acquired assets, we continue to have a nonaccrual rate that is higher than our long-term average. We are actively managing these portfolio investments and note that these are driven by idiosyncratic company-specific issues. The broader portfolio remains healthy, and we continue to observe demonstrable growth across the majority of our portfolio companies. With that, I will now turn it over to Gerhard. Gerhard Lombard: Thanks, Henry, and hello, everyone. For the fourth quarter ending December 31, 2025, we reported net investment income of $0.45 per share as compared to $0.46 for the prior quarter. This decrease was largely driven by lower interest income due to lower reference rates. Turning to the balance sheet. As of December 31, 2025, our investment portfolio at fair value totaled $1.6 billion, consistent with the prior quarter. Total net assets were $706 million and NAV per share was $19.10, a decrease from $19.28 at the end of the third quarter due primarily to net unrealized depreciation in the portfolio. Let's shift to our capitalization and liquidity on Slide 19. As a reminder, in October, we proactively priced $185 million of senior unsecured notes structured across 3 tranches with a delayed draw feature. We intentionally incorporated the delayed funding feature to align proceeds with our 2026 maturity schedule, allowing us to efficiently address our unsecured maturities while minimizing negative carry. The first 2 tranches totaling $135 million closed on February 17. The final $50 million tranche will fund in May in advance of additional 2026 maturities. Pro forma for this activity, over 90% of our committed debt now matures in 2028 or later, meaningfully extending our maturity profile and enhancing balance sheet flexibility. We remain in active dialogue with our underwriting partners regarding additional unsecured issuance as we continue to thoughtfully manage our maturity ladder and optimize our capital structure over time. The weighted average stated interest rate on our total borrowings was 5.83% as of year-end, down from 5.99% quarter-over-quarter due to lower base rates. Our quarter end debt-to-equity ratio was 1.25x or 1.2x net of balance sheet cash, up from the prior quarter, but within our stated target range of 1.1x to 1.3x. With $242 million of undrawn capacity subject to leverage, borrowing base and other restrictions and over $30 million of cash and cash equivalents as of year-end, we have sufficient liquidity to selectively further fund investment activity while maintaining a debt-to-equity ratio inside our target range. As Jason noted, for the first quarter of 2026, our Board has declared our regular dividend of $0.42 per share. And with that, I'd like to turn it back to Jason for closing remarks. Jason Breaux: Thank you, Gerhard. In closing, while 2025 presented a more dynamic environment across both rates and credit markets, we believe CCAP enters 2026 from a position of strength. Our portfolio remains highly diversified and predominantly first lien, supported by experienced sponsors and meaningful equity cushions. We have maintained prudent leverage, enhanced the duration of our liabilities and preserved liquidity to navigate a range of market conditions. At the same time, our Board and management team are thoughtfully evaluating additional steps to further strengthen our earnings profile and long-term return framework in alignment with shareholder interest. Private credit continues to offer compelling opportunities for disciplined lenders with scale and selectivity. Crescent has been investing in private credit and delivering consistent returns to our investors across multiple cycles over the past 30 years. CCAP's focus remains clear: protect capital, enhance sustainable earnings power and deliver attractive risk-adjusted returns for shareholders over the long term. We appreciate your continued support and look forward to updating you next quarter. Operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Robert Dodd with Raymond James. Robert Dodd: On -- I know you don't really want to talk about this because you said you give us more information next quarter, but you opened the door to questions about exactly what you'll be reviewing with the Board and long-term position, et cetera. I mean, is this -- are you talking about like a discussion of like dividend structure? Because it's obviously in context of long-term dividend or more strategic kind of initiatives as you also mentioned in context of like an -- so I know you will next time, but can you give us like a skeleton to hang some thoughts on at least about what kind of things you mean when you made that comment? Jason Breaux: Go ahead, Henry. Henry Chung: Robert, this is Henry. Just -- I think I could start off by providing that our review here is really focused on long-term earnings durability and creating a proper alignment with shareholders. What that includes with respect to your question about a skeleton here is it includes an evaluation of our fee structure as well as our base dividend level relative to forward earnings expectations. As we alluded to, we'll plan to have more detailed commentary on both going forward in the following quarter here. But what I will say is that we believe that we're positioned well currently for near-term stability. We're operating from a position of strength today by over-earning the dividend. And what we really want to do here is proactively adapt to what we are potentially expecting to be a lower rate environment, which obviously has implications for us as a predominantly floating rate asset base. And as a result, in terms of kind of the key focus areas, those are the 2 that I would point you to as we just think about this broader review. Robert Dodd: Got it. Very helpful. On the -- one other quick one and then another [ one ]. On -- in January, you said there was another [ call ] exit and one was sold. Was it sold at the mark or repaid at par? Or can you give us -- I mean, we'll see it eventually, but -- and that obviously lowered nonaccruals fairly significantly, I think. Henry Chung: Yes. The investment was realized at close to the mark. Robert Dodd: Got it. One second. On the -- so then talking about like the kind of the future earnings of the business. I mean, yes, base rates coming down. It sounded like you might be a little bit optimistic that maybe spreads will widen depending on fund flows and other things. Can you give us more thoughts there? I mean, if spreads do widen, how optimistic are you that the activity levels stay robust? Because they've started to pick up a little bit, but partly that's because spreads have been tight. I mean, can you kind of reconcile that thought for us? Henry Chung: Yes. I'd say on the latter point, so we -- the spreads, and you could see this in terms of where we've been originating new investments, have largely been consistent within that 475 basis points to 500 basis points over SOFR context for new first lien and new tranche investments, I'd say for the better part of the last 3 to 4 quarters. And in conjunction with that stability here, we've certainly seen, despite that we're still at historical lows in terms of LBO activity, that activity really start to creep up towards the end of last quarter and also at the beginning of this year. We certainly think that as deal activity continues, there is potential for opportunity to capture -- potentially capture excess spread here in certain pockets where we're seeing a little bit more, I would say, price discovery. But more broadly, I would say that in the near term, the expectation here is, it does look like spreads have stabilized for high-quality assets that are first lien in that kind of 475 basis points to 500 basis points over SOFR context. In terms of just broader LBO activity as a whole, the year did start off quite active, and we were pleased with how we were seeing deployment to the beginning of the year. I think just given more broadly what's going on, we're watching closely how the financing markets react here as well as the broader LBO markets react. But I would say that we certainly had an optimistic start in terms of the pipeline to the year. Operator: Your next question comes from the line of Mickey Schleien with Clear Street. Mickey Schleien: Yes. Just a couple of questions from me. Could you give us a little bit more color on the main drivers of the realized gain during the quarter and the unrealized losses? Henry Chung: Mickey, thanks for the question. The main driver of realized gain was an investment that was sold during the quarter. We had an investment that was previously on nonaccrual several years ago, MTS that we ended up realizing above our cost basis. So that transaction closed during the fourth quarter. In terms of the unrealized losses, the largest driver this quarter were related to our 2 investments that we placed on nonaccrual this quarter [ Generate ] and Transportation Insight. The former relates to an investment that the outlook for the business has fundamentally -- or has certainly degraded. And as a result, we market accordingly. And then Transportation Insight is an investment that we've spoken about the sector in the past, but is indexed to the third-party logistics sector, and we continue to see challenges in that space. So that's been the other large driver on a quarter-to-quarter basis. Mickey Schleien: I understand. And if you could just repeat the pro forma nonaccruals as of the activity in January? I didn't get a chance to write it down quickly enough. Henry Chung: Yes. It's approximately 100 basis points on cost of nonaccruals that we are expecting to come out of the portfolio. So it's on a pro forma basis, 1.4% of fair value and 3.2% of cost. Mickey Schleien: Terrific. And lastly, at a high level, can you give us some background on the rationale for rotating proceeds from portfolio repayments into new investments instead of taking advantage of deep discount to NAV that the stock is offering? Henry Chung: Yes. I think I want to remind you that the current buyback program does remain in place, and we have been buying back shares in the market. When we announced our repurchase program last year, one of the key considerations with respect to our buyback program is weighing the buybacks in relation to what we're seeing in the investment pipeline. As stated at that time, our goal here with CCAP is to make investments in private credit investments that provide durable long-term income for shareholders. And how we think about deploying excess capital here as we get reinvestments is weighing that against our pipeline and determining the relative attractiveness of new deals that we have on our investment pipeline relative to just simply creating or simply providing incremental ROE vis-a-vis share repurchases. And I think what we've seen with just the quality of the investments in the pipeline today is that there's still a lot of benefit in terms of being able to provide that durable income by reinvesting proceeds. So as a result, we're taking a balanced approach here where we're still continuing to execute on our buyback plan that we initially announced here, but we are maintaining the overall asset base and continuing to invest in new investments as they come through the pipeline. Mickey Schleien: Okay. I understand. And lastly, you've noted that you may be examining the dividend policy down the road. But as we sit today, is the supplemental dividend policy still in place? Henry Chung: Yes, that's correct. The supplemental dividend is still in place. As a reminder, we do have a measurement test that is put in place with respect to the supplemental dividend. And as a result of that measurement test this quarter, there will not be a supplemental dividend that is paid related to Q4 earnings, but that construct remains in place. Mickey Schleien: And the constraint is probably related to declines in NAV. Is that correct? Henry Chung: That's correct. It's a 2-quarter look back with respect to NAV on the supplemental measurement test. Operator: Next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Henry, in your comments, you indicated that software and services is 20% of the portfolio. On Page 14, it says 15%. Did you just misspeak? Or was there a change in exposure there? Henry Chung: The software and services as a total of our portfolio just based on the industry breakdown is -- it's 20%. Is there -- was there a specific -- or sorry, which page are you referring to, Chris? Christopher Nolan: I believe Page 14 of the deck. I'm looking at the... Henry Chung: I believe that's... Christopher Nolan: I might be looking upper right-hand. [ Don't know ]. It could be -- there's another section that has a similar color. So it could be my mistake. Henry Chung: Yes. I'm looking at our stats here, and it's 20% on Page 14. Christopher Nolan: Okay. No problem. On this... Henry Chung: 15% is commercial and professional services. Christopher Nolan: Got it. They're shaded sort of similarly. Okay. On the topic of software and services, is the plan -- is -- does the firm still intend for any of those maturing investments to reinvest into software or to lower the exposure going forward? Henry Chung: Yes. It's a good question. With respect to software -- there's a couple of comments that I ought to make just with respect to, first, the performance of our software investments. And then second to your -- more directly to your question, the underwriting approach and the outlook. What we've seen within our software portfolio to date is that the performance has been quite strong. We're seeing both revenue and EBITDA growth across our portfolio within software as well as demonstrable deleveraging that has coincided with strong fundamental performance there. As you think about how we underwrite software, and we made this comment earlier, but this is a sector that we've been investing alongside our sponsors for over 15 years. Disintermediation has been a critical component of our underwriting thesis from the very beginning of investing in this space. And what we really do look for here is software that demonstrates mission-critical system rules, deep workflow integration, demonstrating a system of record type value proposition as well as software that operates in highly regulated end markets where there is just a high cost of failure. We also really do focus here on the actual value proposition that's being provided to customers, not so much whether or not it's just difficult for the software to be replaced, but do the customers actually like the product they're using? And are we seeing supporting trends in those software investments via -- vis-a-vis the retention stats? Our experience has demonstrated that these attributes tend to provide durable cash flows in these investments. And as a result, to the extent that we do see new software investments that exhibit these characteristics, we will continue to find a home for these in our portfolio. And we think that they certainly provide good credits to add to our portfolio today. A couple of other notes I'll make here with respect to software is when you think about our software investments, we are in a first lien position, and we are not the equity. And why that's important is we have an equity cushion beneath us that's supported by cash contributions from our private equity sponsors. And the other piece that I note here is -- and I think this is particularly of importance to us just in the market that we're in today is we do not do any ARR loans. We don't do structured loans as PIK DDTLs. So we're not just focused on the enterprise value of the underlying software companies. We're also focused on the current cash flows, what's available to service our debt and in situations that may require and what's available to delever our capital structure and reduce our risk. So we continue to think that there is attractive opportunities here. And with the shakeout that's happening in the broader marketplace, there will continue to be so. But we want to really articulate here that the focus and what's allowed us to have success investing in the space historically, we will continue to maintain that discipline. And it's one that served us well historically and one that we think will continue to serve us well going forward. Operator: There are no further questions at this time. I will turn the call back over to Jason Breaux for closing remarks. Jason Breaux: Okay. Operator, thank you. Once again, everyone, we appreciate your time today and your interest in CCAP, and we look forward to providing you with another update for our first quarter earnings in May. Thanks all. Operator: That concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Seadrill Fourth Quarter 2025 Earnings Call. [Operator Instructions] I will now turn the call over to Kevin Smith, Vice President of Corporate Finance and Investor Relations. Please go ahead. Kevin Smith: Welcome to Seadrill's Fourth Quarter 2025 Earnings Call. I'm Kevin Smith, Vice President of Corporate Finance and Investor Relations; and I'm joined today by Simon Johnson, President and Chief Executive Officer; Samir Ali, Executive Vice President and Chief Commercial Officer; and Grant Creed, Executive Vice President and Chief Financial Officer. Our call will include forward-looking statements that involve risks and uncertainty. Actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or year, and we assume no obligation to update them, except as required by securities laws. Our filings with the U.S. Securities and Exchange Commission provide a more detailed discussion of our forward-looking statements and the risk factors affecting our business. During the call, we will also reference non-GAAP measures. Our earnings release furnished to the SEC and available on our website includes reconciliations with the nearest corresponding GAAP measures. Our use of the term EBITDA on today's call corresponds with the term adjusted EBITDA as defined in our earnings release. I'll now turn the call over to Simon. Simon Johnson: Thanks, Kevin. Hello, and thank you for joining us for today's call. I'll begin by recapping our 2025 achievements before moving to the broader market outlook. Following my remarks, Samir will discuss recent contracting successes and our commercial outlook. Grant will then review fourth quarter and full year 2025 financial results before providing guidance for 2026. For full year 2025, we delivered EBITDA of $353 million, exceeding the midpoint of the original guidance range in what proved to be a very challenging market. Safety is the foundation of everything we do. And in 2025, Seadrill raised the bar again. We achieved the best safety performance in our history as measured by total recordable incident rate, delivering 50% better than the IADC offshore industry benchmark. That kind of margin is not accidental. It's the product of rigorous standards, elite crews and uncompromising operational discipline. That operational discipline does not stop at safety. It translates directly into performance. In 2025, we did not simply perform well, we separated ourselves from the pack. The West Neptune reinforced its best-in-class reputation by delivering a record-breaking 6 zone completion for LLOG in the U.S. Gulf, completing the program in 11 days and exceeding the prior benchmark by an impressive 60%. That level of execution is why the rig is now entering its second decade under continuous contract. Following Harbour Energy's acquisition of LLOG, we look forward to extending what has already been an exceptional long-term partnership built on performance. Additionally, West Polaris and West Neptune delivered highly complex NPD programs using state-of-the-art integrated riser joint technology, which translated into more than 12 hours saved during rig up and rig down per well and meaningful economic value for our customers. With over 100 MPD wells drilled, our crews operate further up the learning curve than most in the industry. The West Elara and ConocoPhillips Supplier of the Year Award for their focus on execution, recognition that reflects not just performance metrics, but the consistency and reliability that sophisticated operators demand. Meanwhile, the West Tellus reached an outstanding milestone, 400 consecutive days of BOP subsea deployment while delivering 5 wells offshore Brazil. This marks the second longest deployment in our fleet history, demonstrating the durability of both our equipment and our crews in a demanding deepwater environment. This superior performance has already extended into 2026. In January, the Sevan Louisiana successfully executed 2 well interventions using Trendsetter's innovative Trident system, its first deployment in the U.S. Gulf. This advanced technology is broadening the rig's market potential, attracting attention from customers who appreciate its operational flexibility and its proven effectiveness in both shallow and deepwater environments. Our strategic partnership with Trendsetter has resulted in a truly differentiated offering that will continue to deliver advantages for both companies well into the future. None of this performance is coincidental. Throughout 2025, we invested deliberately in our people through ongoing professional development opportunities. We expanded course offerings at the Seadrill Academy in Dubai, operational discipline and technical services workshops around the world and launched our first safety leadership assessment program. We conducted training in simulated environments that replicate our equipment and procedures, resulting in a cycle of self-improvement and advancement in our operational practice. Our customers consistently reference the quality of our crews, their can-do attitude and their focus on well site performance over centralized bureaucracy. This is what operating at the top of the performance curve looks like, technical capability matched by disciplined execution. Commercially, in a competitive market, we maximize utilization across our high-specification fleet. Our backlog profile provides strong revenue visibility into 2026, growing coverage into 2027 and substantial contracting leverage in an improving market. The West Capella's return to operations in the second quarter of 2026 represents a significant enhancement to Seadrill's forward earnings trajectory. The 14-month award from long-standing customer, PTTEP, reflects confidence in the rig's consistent performance throughout its many years in service and reinforces our competitive position in a region experiencing growing energy consumption and offshore activity. Turning to the broader market. The current macro environment is the most favorable in recent memory. After a subdued 2025, the ultra-deepwater market entered 2026 with renewed strength. Tightening supply and increasing visibility point towards an even more robust 2027 as day rates, utilization and contract durations gain positive momentum. The International Energy Agency's annual World Energy outlook now projects that oil and gas demand will grow through 2050, a notable reversal from prior expectations of a near-term peak. Declining production from existing fields and rising consumption is forecast to quickly absorb any near-term oversupply. In fact, the market will require roughly 25 million barrels per day of new production by 2035 just to remain in balance. Growing oil demand, operators pivoting back towards deepwater and mounting confidence in the next exploration wave all indicate the beginning of an upcycle. For several quarters, we have consistently highlighted that operators have prioritized shareholder returns over reserve replacement. The impact of underinvestment is becoming increasingly evident and that narrative is beginning to flip. Amid projections of growing oil and gas demand and the lagging energy transition, the longevity of reserves is becoming a focal point for oil majors and the sell side. The Financial Times last week reported that oil and gas super majors are undergoing increasing pressure to spell out their growth plans after years focused on shareholder returns and capital discipline. They are now facing growing calls to explain the visibility of future production and where the new barrels will come from. It seems that concerns about short-term supply imbalances have receded in the wake of a far bigger problem. Momentum behind the strategic pivot to deepwater continues to build. Just last week, Eni announced significant new discoveries in Namibia and Cote d'Ivoire, underscoring the growing scale of opportunity in frontier offshore basins. Importantly, this trend extends beyond the majors. The government of India, for instance, has outlined plans to drill 150 wells over the next 7 years, activity that could necessitate up to 5 additional floaters. We've highlighted growing deepwater exploration from the majors and activity has accelerated as they intensify efforts to secure future growth. Shell recently acknowledged the need to rebuild its exploration pipeline after reserves fell to the lowest level since 2013. We can already see this in action with Shell signing a joint study agreement for exploration blocks in Indonesia, marking the return following the 2023 exit. Chevron plans to increase annual exploration spending by roughly 50% over coming years with 10 to 15 exploration wells in the U.S. Gulf and 20 exploration wells in West Africa during the next 3 to 5 years. Chevron also signed an agreement for offshore exploration in Syria and acquired 4 blocks offshore Greece earlier this month. Petrobras is returning to Namibia after acquiring an interest in the block in the Luderitz Basin and Libya recently awarded blocks under its first lease sale in 17 years. The need for new reserves and sustained production growth is increasingly urgent. Exploration is back and it's scaling. And with that, I'll turn the call over to Samir. Samir Ali: Thanks, Simon, and good day to everyone. I'll walk through our recent contracting activity before sharing our thoughts on the commercial landscape for the year ahead. Despite a competitive environment in 2025, the value of contracts we secured has grown every quarter over the last 12 months. Our disciplined approach to fleet management, minimizing idle time and securing contracts that maximize our assets' technical capabilities has established a solid foundation as the balance between global offshore rig supply and customer demand becomes increasingly constrained. Since our last earnings update, we've added $0.5 billion to our contracted backlog, which currently stands at approximately $2.5 billion. In the U.S. Gulf, Seadrill continues to be a preferred contractor. Our skilled teams consistently deliver high performance, earning repeat work and recognition. In December, the West Neptune secured a 4-month extension with LLOG, securing the rig schedule into September and adding $48 million to contracted backlog. As Simon mentioned earlier, we look forward to deepening our partnership with LLOG under its new ownership, building on over a decade of productive collaboration and shared success. Staying in the region, the Sevan Louisiana has been awarded a well intervention program with 2 different customers. We are pleased to report on the successful deployment of the Trendsetter Trident well intervention system on our campaign with Walter Oil and Gas. After completing the work with Walter, we are eager to demonstrate the Sevan's continued versatility through upcoming work with a large IOC. Outside the U.S. Gulf, Seadrill has been actively securing several contracts over the last 3 months. In Angola, TotalEnergies exercised a priced option to commit to Sonangol Quenguela for an additional 10 months into February 2027. In Norway, Equinor awarded the West Talara a 450-day accommodation contract after we reached a mutual agreement with ConocoPhillips to make the rig available. In Brazil, the West Carina extended its current contract with Petrobras through April 2026. Also in Brazil, Equinor exercised a priced option on the West Saturn, keeping the rig working through October 2027. Lastly, the West Capella was successful in a competitive tender with PTTEP in Malaysia. The program is anticipated to commence in the second quarter of 2026, contributing $152 million to contracted backlog over an estimated period of 440 days. More importantly, the reactivation of the West Capella strengthens Seadrill's earnings potential in 2026 and 2027, reaffirming our presence in Southeast Asia, one of the most exciting geographies for deepwater demand. This award reflects our disciplined approach to reactivations, deploying capital selectively, where we see strong customer commitments and attractive return potential. Turning to our outlook. We maintain our confidence in deepwater demand in '26 with even more optimism looking into 2027. The offshore drilling industry operates on a simple principle, utilization drives day rates. With committed drillship utilization currently at 88% and sideline capacity unlikely to enter the market, supply constraints are likely to intensify as demand continues to rise. Although some market softness may persist in certain geographies during parts of the year, the sheer number of opportunities and the durations of programs are increasing, particularly in high-growth regions such as Africa and Southeast Asia. Seadrill is well positioned to capitalize on that opportunity set. At present, 90% of the midpoint of our 2026 revenue range is covered by firm backlog and we are having ongoing conversations regarding the rigs that have near-term availability. In the U.S. Gulf, recent day rates have remained stable in the low 400s. And despite some near-term softness, we anticipate rates will remain in this range. 7 drillships, including the West Neptune and the West Vela are set to become available in 2026. Importantly, for our rigs, both are contracted in the first half of the year, allowing us time to secure work in the second half of the year. With several long-term opportunities in undersupplied geographies, we expect some rigs will be bid outside of the region and may leave the U.S. Gulf. Nevertheless, short lead times in the U.S. Gulf means demand can recover swiftly. Our assets in the region demonstrate outstanding technical performance. As Simon pointed out, the West Neptune has consistently set new records. The West Vela has a reputation for completing projects ahead of schedule and under budget and the Sevan Louisiana is drawing increasing interest from clients who appreciate its unique capabilities and strong results in niche applications. All 3 rigs are at the top of the performance curve and are very well placed to fill their schedules in 2026 and 2027 in the U.S. Gulf or in other regions. Moving to Brazil. IOCs have begun to consume rig capacity. Recent awards from Shell and BP and an ongoing tender with Equinor are positive developments that help mitigate current uncertainty around NOC plans. The West Carina, our seventh generation drillship equipped with MPD and dual BOV capabilities is set to finish its current contract at the end of April. We continue to actively market the rig for opportunities with customers in Brazil and outside the country for a wide range of projects starting in the second half of '26 and early '27. In West Africa, our final rig with availability in 2026 is the West Gemini, which is currently operating under the Sonadrill joint venture. As noted in the previous quarters, recent contracting awards for all 3 rigs within the JV reinforced its stability and our market-leading position in Angola. The West Gemini has promising prospects to secure additional work through the joint venture, both in Angola and across Africa beginning in late '26 and early 2027. The outlook for global deepwater demand is becoming clearer and leading indicators support this perspective. Market research by Westwood shows the number of subsea tree installations has increased for 5 consecutive quarters. They also forecast that floater utilization rates will recover, reaching 91% in 2026 and 96% in 2027. Additionally, there are 44 years' worth of outsetting floater requirements with commencements across Africa and Asia alone. Ongoing industry consolidation continues to support a more rational supply environment, reinforcing on the sustainable pricing improvements. And as ever, market research does not capture opportunities resulting from direct negotiations. The foundation for 2026 has been laid. In particular, the benefit of repricing legacy contracts for the West Jupiter, West Tellus and West Saturn will be felt in the second half of the year and even more so in 2027. This should set the stage for a meaningful increase in earnings and free cash flow. For Seadrill's fleet, we are not just predicting increasing day rates, we are already securing them. And with that, I'll hand it over to Grant. Grant Creed: Thanks, Samir. I'll now walk through our fourth quarter and full year 2025 performance before providing our outlook for 2026. For the fourth quarter of 2025, total operating revenues were $362 million compared to $363 million in the prior quarter. Contract drilling revenues were $273 million, a sequential decrease of $7 million, driven by fewer operating days for the West Vela, which commenced a new contract in mid-November. This impact was partially offset by additional operating days for the Sevan Louisiana. Reimbursable revenues, which increased $5 million during the fourth quarter to $16 million, partially offset the decrease in contract drilling revenues. Total operating expenses for the fourth quarter were $344 million, a sequential increase of $7 million, mostly due to a rise in depreciation and amortization costs associated with the capitalization of recently completed SBS and capital projects. SG&A was flat quarter-on-quarter at $27 million. Resulting fourth quarter EBITDA was $88 million, bringing full year 2025 EBITDA to $353 million, exceeding the midpoint of the guidance range previously provided. Turning to the balance sheet. We ended the year with a total cash balance of $365 million, which includes $26 million in restricted cash. The $63 million use of cash during the fourth quarter was primarily related to 3 items; a $43 million payment for the unfavorable legal judgment related to the Sonadrill joint venture as previously disclosed in 2025; accelerated capital and long-term maintenance expenditure, which was $69 million in the fourth quarter as we brought forward spend relating to contract preparations for the West Jupiter and West Tellus and a new contract for the West Capella. And finally, the timing of accounts payable disbursements. Overall, we continue to maintain a robust balance sheet with total liquidity of $524 million. And at the end of the fourth quarter, gross principal debt was $625 million with maturities extending through 2030. Moving on to our outlook for the year ahead. For full year 2026, we anticipate total operating revenues of $1.4 billion to $1.45 billion and that excludes $50 million of reimbursable revenues, and EBITDA of $350 million to $400 million. And that EBITDA guidance includes a noncash expense of $26 million related to amortization and mobilization costs and revenues. In terms of timing of this EBITDA generation, we expect Q1 to be lower than subsequent quarters as the West Jupiter, West Tellus and West Capella undergo new contract preparations. We then expect a step-up in Q2 following the commencement of these contracts. As a reminder, both the West Jupiter and West Tellus are repricing to 3-year contracts at day rates roughly $200,000 per day higher than before, amplifying the benefit of the West Capella resuming operations. Full year capital expenditure and long-term maintenance guidance range is $200 million to $240 million, a significant step down from the previous 2 years. We expect an inflection to strong cash flow generation in the middle of this year after the West Jupiter, West Tellus and West Capella commenced contracts and the associated CapEx for contract readiness and working capital investments are behind us. In summary, Seadrill has built a solid foundation and is now well positioned for future earnings and cash flow expansion. The combination of an expanded working fleet, the repricing of legacy day rates, which are already embedded in backlog and declining capital expenditures significantly enhances the earnings and cash flow potential of the company in the second half of 2026 and into 2027. Improving market conditions as widely predicted by industry participants are a catalyst for further earnings growth. And with that, I'll hand the call back to Simon for his closing remarks. Simon Johnson: Thank you, Grant. We delivered against our EBITDA target in 2025 while achieving record safety performance, setting operational records and investing in our people to widen that gap. We see a clear path to meaningful earnings and free cash flow expansion in the second half of 2026 and growing into 2027. Our commercial execution and backlog visibility provide a solid foundation, while our substantial contracting leverage and improving market conditions positions us to capture rate upside as the cycle accelerates. We have long maintained that consolidation is healthy for our industry and view the recently announced combination of 2 of our peers as further evidence of an increasingly durable market structure. Our clients agree on the need for resilient, well-funded drilling companies that consistently perform at the highest level through time. Following the latest industry consolidation, Seadrill will be the third largest deepwater driller in the world and we see a gap between our fleet and the smaller drillers behind us. Against this backdrop, we believe Seadrill continues to represent a compelling value opportunity. Our share price has appreciated more than 50% over the last 3 months, yet continues to trade at a meaningful discount to the U.S. listed offshore driller peer group on both forward earnings multiples and implied steel values. To close, I would like to thank our valued customers, partners and shareholders for your continued confidence. To our dedicated employees, particularly our offshore crews, thank you for your enormous efforts over the past year. Every success we achieved happened because of your teamwork and commitment to operational discipline, following procedures, using our tools and doing every job the right way every time. We delivered in a challenging market. We are setting the standard in deepwater drilling and we are positioned to lead as the cycle strengthens. I'll now hand the call over for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Eddie Kim with Barclays. Eddie Kim: Simon, you highlighted a more robust 2027 in your prepared remarks with day rates, utilization and contract durations gaining positive momentum. Leading-edge day rates for top-tier drillships right now are in the low $400s range. Do you expect that as the market begins to tighten, we could see day rates on contract announcements sometime next year returning back to that sort of mid-$400s level? Or do you think that's looking more like a 2028 event? Simon Johnson: Look, Eddie, I think you're going to see some rate movement now based on the data that we're seeing in the market, both the number of tenders, the capacity that's already been booked up with contracts starting in '27. I would expect our rates in excess of those levels, to be perfectly honest. You may see that in '26, in fact. That's not to say it's going to be a smooth path. I think as those people who have existing white space seek to fill the front ends or the back ends of their projects they committed to, you may see a broader range of fixtures. But I think based on the data we're seeing, and Samir can go into some greater detail, I think the rates will be at higher rates than the ones you talked about. Samir Ali: So we're seeing demand increase and supply is inelastic. So as utilization continues to improve, we should see day rates continue to climb. But I think it will be dependent on the geography. You'll see certain geographies move before others. But directionally, it feels like utilization is going to improve as we enter into '27 and definitely into 2028. Eddie Kim: Got it. That's great to hear. My follow-up is on the Petrobras blend and extends. I'm a bit surprised we haven't seen the conclusion of these negotiations from either yourself or your peers. When do you expect these negotiations are going to conclude? And is the likely result of these blend and extend negotiations currently reflected in the full year guidance you've provided? Or would that represent an incremental impact? Simon Johnson: Well, look, Eddie, we continue to have really positive discussions with Petrobras, but we don't control the timing there. So the way I would describe it is that I think it's working through the system I wouldn't see anything untoward. I don't want to make any predictions about when that will come to pass. But our focus down there in Brazil has been to identify those rigs that are best matched to the requirements of Petrobras in the longer term. And that's what we focused on in terms of blend and extend. But Grant, I'll pass to you for the second one. Grant Creed: Yes. On the guidance, when we put our forecast together, Eddie, we use, of course, a number of assumptions, but we use the best information available to us at the time when putting that together. Operator: Your next question comes from the line of Fredrik Stene with Clarksons Securities. Fredrik Stene: So I was hoping that you could maybe give a bit more color on how you're thinking about your fleet. As you walked through this in your prepared remarks, the near-term availability is mostly concentrated in the U.S. Gulf. And it seems like there are possible changes and movement of some of those rigs potentially going to other regions. You mentioned Africa, Southeast Asia as regions to where rigs could potentially go, either yours or somebody else's. So I was wondering, are you able to give a bit more color on how you're kind of strategically positioning these vessels in terms of chasing short-term versus long-term work? Are there any vessels that you would prefer to stay in the Gulf, et cetera? And as like a sideline question to that, but within the same theme of potential rig movements, you have great exposure to Brazil. Are you considering proactively moving or bidding some of those rigs ending in '27, '28 into other regions just to lower your exposure there? Or are you kind of happy with that? Sorry, that actually turned out to be 2 separate questions, but hopefully [indiscernible]. Samir Ali: So Fredrik, I'd say, look, with the U.S. Gulf fleet, we are obviously looking at opportunities both in the U.S. Gulf and outside the U.S. Gulf. They are some of the highest spec rigs out there in the world and some of the best performing rigs in the world. So for us, it will be -- it's an economic choice. If we can find work in the U.S. Gulf, we'll keep them here, but they are mobile assets. And if we find an economic alternative outside of the country, outside of the U.S. we'd happily move them. So for us, it really does come down to where do we generate the highest cash flow off of those assets. And we're not married to one geography over the other. But moving rigs is expensive. So look, we'll keep them here. But if we can't find work that makes sense, we will absolutely move them. I'd say the same thing applies to our fleet in Brazil, right? I mean, we are happy to move rigs around. It is not cheap, but if it makes sense, we will do it. We do have a lot of exposure to Brazil. So I wouldn't see us sending more rigs down there. Could we move an asset or 2? Potentially. But that's kind of how I classify how we view the market is we'll move them where it makes the most sense. Fredrik Stene: All right. That's fair. Then I guess this is my follow-up. But on the stacked fleet, Aquaria, Phoenix, Eclipse, do you have any updates on any of those assets since last time? Simon Johnson: There's nothing really to share at this time. I mean, the West Eclipse has been long-term stacked down in Namibia. Of the 3 rigs that you mentioned, that's probably the one that's least likelihood of reactivation. That's a low-spec asset, requires material capital investment to reactivate it and it's not terribly competitive in terms of its overall specification. However, I think the situation is a little bit different for the Phoenix and the Aquarius. They are also burdened with high reactivation costs. We want to be good stewards of our precious capital. And we're just waiting for the right market dynamic. And most importantly, whereby that large capital investment can be defrayed by a material contribution by the underlying customer. That's a necessary prerequisite to bringing them back to life. But the harsh environment, in particular, has improved dramatically over the last 12, 18 months. It's been one of the best performing sectors of the rig market. And I think we're still watching and waiting. We just need the right term of work and the right customer with a checkbook to fund the bringing the rig back to work. Samir Ali: The only thing I'd add to that is we're actively marketing those rigs, but it's finding that right opportunity that, to Simon's point, justifies the investment. But we announced a contract for the Elara. So we are in Norway for the foreseeable future. So for us, we have a shore base and we'd like to add more capacity to kind of cluster more rigs in that region. Operator: Your next question comes from the line of Greg Lewis with BTIG. Gregory Lewis: Simon, everybody, you mentioned the consolidation in the space. I'm kind of curious, I know in the past, you've talked about really a viable company in the offshore space kind of to be a real competitor and have a global presence needing, I think in the past, you've talked about 15 rigs. I guess my question is around, yes, I mean, hey, your stock has had a tremendous run. It is still at a discount versus maybe some of your peers. Maybe that's scale, maybe that's other reasons. We could debate that all day long. But I guess my question is, just given the price appreciation and now it looks like you're -- it looks like you are the third largest driller left standing, how do you think about using your equity capital to potentially expand your fleet? And I know we've seen this in other industries, not necessarily in the offshore drilling industry, but kind of the use for shares for rigs. Just kind of curious, just given that, hey, it is definitely a pyramid structure in the offshore drilling industry where there are a few players at the top and then there are more than a few companies that have 1 or 2, just a few rigs with a small presence, just kind of curious how you're thinking about just given the run-up in the stock, potentially using your equity capital to expand your fleet and what looks like a very attractive time to be expanding the fleet at this point in the cycle? Simon Johnson: Yes. Look, we see the cycle as very constructive. And as I mentioned to an earlier question, we think there's going to be day rate development in the months, years ahead. So that's obviously very attractive. We're also mindful that we've done a lot of hard work over the last couple of years in terms of rightsizing the fleet and putting effort into optimizing the running of the organization. So obviously, there's been a lot of speculation about what the future might hold following recent [ RigVell ] transaction. The customers and vendors have out consolidated the drillers in recent years. Despite the capital-intensive nature of our segment, the drillers remain fragmented. So there's definitely work to be done. And there's a sense of inevitability about further consolidation. I would say that there's a long tail of subscale competitors, but any opportunities for Seadrill will need to be strategically compelling and competitive within our overall capital allocation framework. So we're constantly surveilling the market, but I think you can really expect us to be disciplined. Our shareholders have been very patient. And as our average daily rate has been improving in '27 and the revenue profile that we expect to benefit from in that year starts to come into focus, we want to make sure that we're careful with the capital that we've got. We're careful with the equity currency. I think you can anticipate they'll be very disciplined as we look at any opportunities that might appear. Anything to add to that, Grant? Grant Creed: I think that covers it. Gregory Lewis: Okay. Great. And then I was hoping you could talk -- I'm curious on your thoughts around the recent ONGC tender. I know there's a couple of rigs in country. I believe they contracted a drillship earlier this month. But really, I mean, you were one of the last international contract drillers there with the Polaris, which I guess, when that rig kind of left, that was kind of the start of the current weakness that we've been seeing in the market. Just kind of curious, any thoughts around the timing of those tenders? Is that -- I believe it's 3 drillships and 2 semis. Is that firm? Just kind of when do you -- and more importantly, when do we actually think we could actually see some progress from ONGC in awarding those tenders, i.e., when are bids potentially due for that to give them time to digest those and come back with awards? Simon Johnson: Yes. Great question, Greg. Let me start off and then Samir can jump into the granularity. But I think the Indian market has been very quiet in recent years. So this was a surprise news to us. I think it's really positive. I think it's an example of work programs that hadn't been previously anticipated coming to the fore. It's not the only place where we're seeing activity pop up that was not expected. But certainly, the sheer number of rigs that they're talking about across ONGC and Oil India is obviously of tremendous interest. We like operating in India. There's a great cost structure there. And we think that the local energy demand picture is compelling, frankly. So we intend to participate. But Samir can talk a little bit about the specific opportunities. Samir Ali: Yes. So look, we were one of the first to come out saying Southeast Asia, I'll include India, and that was a market -- growth market. And I think the ONGC tender's more just emblematic of the demand we're seeing out there, right? There is an upswell of demand coming from not just ONGC, but there's other operators that we're expecting will launch here shortly or have launched. So it's more of a broad-based demand. And I think that's the key for us is ONGC will absorb 3 ships potentially and 2 semis. In terms of timing, it could be late this year, early next year, but we'll figure that out as we go through the process. But more, I think that the key is it is an upswelling of demand and it's not in one particular country. It's not just India. It's not just Indonesia. You are seeing demand across the board in that part of the world. Operator: Your next question comes from the line of Keith Beckmann with Pickering Energy Partners. Keith Beckmann: Similar to kind of what we've been hearing here, we've seen some large tenders show up recently as well as some increased contracting over the last month here, which has been positive to see within the space. I just wanted to get an idea of if in customer conversations, are you starting to see operators get a little bit more aggressive on locking up capacity in '27 and beyond over the last months here? Samir Ali: It's still early days. I think some of them are starting to come around to that. Some of them are still holding out hope. But I think that shift is coming and the tone in the conversations is moving towards looking at capacity in '27, '28, '29 even. So you do have clients going further and further out and that to us and the terms is increasing as well, right? People are going longer term, which usually means that there is a growing concern that there might not be the supply available that they want. Simon Johnson: I think the broader picture, too, is that we see exploration improving in every area, whether it's about new leasing rounds, whether it's about people shooting seismic. Some of the near-term indicators, FIDs are up year-on-year, subsea tree awards are up year-on-year. There's a whole picture of improvement here that's supportive and exciting. Keith Beckmann: Awesome. That's great to hear. And then my second question, well, hit on a little bit already. I just wanted to get an idea on for the second half '26 here, what's -- I think you guys said 90% contracted at the midpoint of revenues. What's kind of the maybe outlook between the Vela and Neptune and Carina, the ones that are rolling off here and then maybe even throw in Louisiana as well since it keeps finding ways to win work? Samir Ali: Yes. So look, we have active dialogue on all of those rigs. And I think that's the important part. So for us, we've got to turn those conversations into contracts. And we've made some reasonable assumptions on what we can do there. But I think for us, it was a, let's see what we can do, but we have active dialogue on all 4 of the assets, some in the U.S. Gulf, some outside of the U.S. Gulf, just given most of those rigs sit here in the U.S. Operator: Your next question comes from the line of Hamed Khorsand with BWS Financial. Hamed Khorsand: So the first question is just on your outlook. Obviously, there's been a lot more activity there. But that was also the case in the prior years at the starting point that you would see some sort of pickup by the end of '26, early '27. Is there certainty that these tenders would close in time that you could foster some sort of revenue and EBITDA improvement as the year closes? Or is this more just tentative industry talk right now? Samir Ali: Yes. So I'd say the difference here is the real tenders that are in market. Some of them candidly may fall away, but there's also the direct negotiations that we're having with particular clients and I'm sure my peers are having with their clients. So when you take all that into balance, it seems like it is different this time around. And the other thing is we're not reliant on one country or one region. It is broad-based across the world. You're seeing demand in parts of Asia, in West Africa, East Africa. So it is -- we're not relying on one country. We're not relying on one client. So it does feel like if you take the tenders that we know of right now, plus direct conversations we're having and even if some of them fall away, you still should expect utilization to increase, which will drive day rates. Hamed Khorsand: And then given this backdrop, what's the conversation here about redeploying your capital to share buybacks? Grant Creed: Yes, Hamed, look, of course, I can't comment with specifics here, but just point back to the capital allocation, which Simon referenced earlier, our framework that we are out there publicly. It talks about having a minimum level of cash of $250 million, net leverage of 1x and then returning no less than 50% of our free cash flow during the year. And so after we have paid for maintenance CapEx, the remaining cash that we have generated, we look at what's going to generate the highest returns for us, whether that's buying discrete assets or buying our own stock and/or returning capital to shareholders via dividends. We'll review all those and we continuously review all those. I think it's fair to say that with this inflection that I was referring to in my prepared remarks, inflection middle of this year as we move off legacy day rates, we have the Capella resuming operations. We have the Jupiter and Tellus reacceptance projects behind us and the working capital investments behind us, we will be inflecting to cash flow-positive in quite some significant way. And so that question will become certainly more relevant as we go forward. Operator: Your last and final question comes from the line of Noel Parks with Tuohy Brothers. Noel Parks: I've been thinking about -- it has been a long 18 months here and seeing the stock rebound has been great, rewarding the patience that you observed has definitely been good for investors. And I guess I'm just trying to get a sense on maybe the trajectory on pricing. And thinking as an example, if you have a customer that is -- needs to talk about a contract renewal or extension where it's pretty obvious that they're going to hang on to the rig, just wondering what the discussion is like there? Are they totally open to realities of pricing upside? Are they open to pricing, but looking for longer term? I just wonder what's sort of that -- those stable relationships, how those guys are coming to the table these days? Samir Ali: I'd say each one of them is unique and kind of has their own dance that we have to go through. Some of them are always willing to give you a bit more term for a better day rate. Some are, look, I've got a 1-, 2-, 3-well program, and this is the rate I'm willing to pay and they'll pay a bit of a premium for the flexibility. So unfortunately, there's not a one-size-fits-all for our client base. But I think overall, we're having those conversations of, look, this is the new reality. Utilization is starting to improve. We do have a few other alternatives. So we're able to kind of push rates where we can. But I'd be cautious to say also that it really depends on what part of the market you're in, in terms of geography and what the utilization is of kind of assets in that geography. Simon Johnson: I think it's also worth adding, Noel, that if you go back to where we were 12, 18 months ago in the similar sort of day rate paradigm, broadly speaking, you didn't have any problem getting access to a rig if you needed one. You contrast that with the situation that we see developing, emerging at the moment and it's quite different. There's a reduced field of competition for the tenders that we're participating in, certainly starting at the end of the year. And I think that's what's driving our confidence. We just think there's a fundamentally different lead time that the customers are having to observe. And I think your point is well made that it's probably going to drive better conversations with existing clients looking to extend rather than to seek to place capacity outside of existing contracts. Noel Parks: Right. Interesting. I was listening to a producer recently talk about the service environment. And it seemed they were, I wouldn't say unconcerned about their ability to secure a rig if they have some exploratory success. But they also didn't sound like they really were considering the possibility, as you said, of reduced response to tender, which I think of as people beginning to all rush to crowding through the same door at the same time. Do you have anything under negotiation that you think will attract some real attention when contract terms get announced either near-term or longer-term? Samir Ali: So we're not going to go into specific contracting right now, but we are starting to see more tenders come, especially for second half of this year, really into '27, where the demand is increasing. I think you'll see some movement of rigs potentially from the U.S. Gulf into those markets, into those regions. So overall, we are seeing movement of rigs from one region to another. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may disconnect.