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Operator: Good morning, and welcome to the CIBC First Quarter quarterly results conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Geoff Weiss, Senior Vice President, Investor Relations. Please go ahead, Geoff. Geoffrey Weiss: Thank you, and good morning. We will begin this morning's call with opening remarks from Harry Culham, our President and Chief Executive Officer; followed by Rob Sedran, our Chief Financial Officer; and Frank Guse, our Chief Risk Officer. Also on the call today are a number of our group heads including Christian Exshaw, Capital Markets, Kevin Lee, U.S. region, Hratch Panossian, Personal and Banking, Canada and Susan Rimmer, Commercial Banking and Wealth Management, Canada. They're all available to take questions following the prepared remarks. As noted on Slide 1 of our investor presentation our comments may contain forward-looking statements, which involve assumptions and having inherent risks and uncertainties. Actual results may differ materially. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on reported and adjusted basis and considers both to be useful in assessing underlying business performance. With that, I will now turn the call over to Harry. Harry Culham: Thank you, Geoff, and good morning, everyone. We are pleased to start the fiscal year on strong footing with exceptional first quarter results. Our performance was driven by our team's collective focus on accelerating our proven client-focused strategy and unlocking further value through disciplined execution. Before I comment on our quarter 1 results, I want to offer some perspective on how our clients are managing through today's dynamic environment. We are staying close to them as they navigate a fluid operating backdrop with heightened focus on trade developments and geopolitical tensions. For my conversations with CEOs and industry leaders over the past few months, clients are generally managing near-term uncertainty well and remain optimistic about the longer-term. Our roots as the Bank of Commerce are very relevant today. Our bank was formed in 1867 to help capital flow to businesses that we're building our nation. Today, we stand ready to help our clients advance their agendas, including key infrastructure initiatives. We have a long history of being a trusted partner to the businesses and families we serve, and we remain focused on helping them grow in 2026 and beyond. Now turning to our quarter 1 results. On a reported basis, earnings per share of $3.21 were up 47% from the prior year and included income tax recoveries, which we have treated as an item of note. The remainder of my comments will focus on adjusted results. We reported adjusted earnings per share of $2.76, which were up 25% from the prior year, driven by a robust top line. Revenues of $8.4 billion were up 15% from the prior year. Importantly, our revenue growth is well diversified with record revenues across each of business units. Expenses were up 12% from the prior year. We delivered operating leverage of 3.6%, marking the tenth consecutive quarter in which we delivered positive operating leverage. Our critically remains resilient. Provisions for credit losses this quarter were largely aligned with our expectations. We continue to proactively stress test our portfolio for a wide range of scenarios to ensure our bank can navigate all market conditions. We are well prepared should we see a downturn in the environment while also being well positioned to grow with our clients. Our return on equity was 17.4% this quarter on the foundation of a robust 13.4% CET1 ratio. We returned roughly 78% of earnings to shareholders in the first quarter in the form of dividends and 8 million common share buybacks. These results reflect our unwavering commitment to delivering sustainable value for our shareholders and maintaining a solid foundation for future growth. Let me provide some highlights across each of our 4 strategic priorities that underscore the momentum we've achieved across our bank. Our first strategic priority is to grow our mass affluent and private wealth franchise. Across our managed mass affluent offering, we are connecting clients with dedicated advisers to help them achieve their goals. However, simple or complex. It's clear that this approach is working. Managed clients in Personal Banking are generating roughly 4x the revenue of an unmanaged client with Net Promoter Scores that continue to hit all-time highs. Within the past year, qualified clients in our managed offering grew by 6%, helping deliver money and balance growth of 12%. And from here, we are prioritizing client acquisition and growth with key client segments. We are also unlocking efficiencies to scale adviser capacity with mass affluent clients per adviser up 7% from the prior year. Our second strategic priority is to expand our digital-first personal banking capabilities. 48% of our retail products sold during the first quarter were through digital channels. That's up 5% from the prior year. As we implement continued enhancements through digital, we're putting more power in the hands of clients to deepen their relationships with our bank. We're also equipping our advisers with digital tools to create efficiencies for them, enabling them to spend more time with clients. Our third strategic priority is to deliver connectivity and differentiation to our clients. We built a highly connected culture that drives steady referral business across the bank, supported by an innovative suite of products designed to deepen relationships with our client base. Record revenues in Canadian Commercial Banking this quarter were fueled by single-digit volume growth on both sides by high single-digit volume growth on both sides of the balance sheet, robust margin expansion and strong connectivity across our teams. That collaborative momentum is also fostering greater cross-business engagement. This quarter, our Capital Markets platform captured elevated volume from client-driven demand, complemented by healthy referral activity from our Commercial and Wealth businesses. Earlier this month, we confirmed our role as a partner of the Defense Security and Resilience Bank Development Corp Group. As new opportunities emerge in Canada's key sectors, we are ready to work alongside our clients and industry leaders. Our fourth strategic priority is to enable, simplify and protect our bank by investing in technology, data and AI to drive operational excellence and further modernize our bank. We frame AI value through 3 pillars: revenue growth through better client experiences, operational efficiency and risk mitigation. These pillars guide where we invest and how we prioritize use cases. From a revenue perspective, these capabilities are enabling us to engage clients more intelligently, bringing the right insight adviser offer at the right moment. We're also using AI to accelerate and improve the consistency of credit decisions, supporting growth while maintaining discipline. On efficiency, we're simplifying our bank by reducing manual and repetitive work, so our teams can focus on higher-value activities. This includes automation, faster issue resolution and meaningful productivity improvements for our technology teams. And from a risk perspective, AI is helping protect our bank by strengthening fraud prevention, credit monitoring and AML functions. We've deployed these capabilities with governance built in from the start, ensuring transparency, control and regulatory alignment. Culturally, we see AI as an opportunity to rethink how work gets done, not just to automate existing processes. Our teams are encouraged to challenge legacy workflows, supported by training and clear policies for responsible AIUs. Having every CIBC team member doing this will propel us forward not just today, but also with future upcoming technologies. Rather than leading with a single enterprise value number, we focus on what is observable and repeatable such as scaled adoption, operational outcomes and improved risk performance. Over time, these benefits flow through to revenue, efficiency and returns in a disciplined and sustainable way. In closing, the positive momentum across our bank continues to build. We're focused on accelerating our execution in 2026 to drive robust, well-diversified growth by proactively preparing for uncertainty and staying close to our clients, we are well equipped to successfully navigate evolving market environments. And with that, I'll now turn it over to Rob for a deeper look at our financial results. Over to you, Rob. Robert Sedran: Thank you, Harry, and good morning, everyone. Let's start with 3 takeaways. First, the year is off to a strong start with another record earnings quarter and an ROE that was well above our current medium-term target. Second, the strong and broad-based revenue growth and solidly positive operating leverage reinforce our confidence in our strategy and demonstrate our focus on disciplined execution. And third, helped by strong reported earnings, our CET1 ratio edged higher even as we accelerated our capital return strategy by repurchasing 8 million shares during the quarter. Please turn to Slide 8. For the first quarter of 2026, earnings per share were $3.21 and included income tax recoveries, which we have treated as an item of note. Absent that, our effective tax rate was in line with expectations. On an adjusted basis, EPS was $2.76, up 25% from a year ago. Adjusted ROE was 17.4%, up 210 basis points from the same quarter last year. Let's move on to a detailed review of our performance. I'm on Slide 9. Adjusted net income of $2.7 billion increased 23% and pre-provision earnings were up a strong 19%. Revenues benefited from balance sheet growth, improving net interest margins and higher fee income. We continue to manage expenses prudently relative to revenues, delivering 360 basis points of operating leverage. Impaired losses were within our guidance range. Frank will discuss credit in his remarks. Please turn to Slide 10. Excluding trading, net interest income was up 13%, with continued balance sheet growth and expanding margins. All bank margin ex trading was up 17 basis points from the prior year and 6 basis points sequentially due to a combination of higher deposits, business mix and improved product margins. Those same factors drove Canadian P&C NIM of 300 basis points, which was up 10 basis points sequentially. In the U.S. segment, NIM of 401 basis points was up 17 points from the prior quarter due to continued strength in deposits, which was partially seasonally driven. After accounting for the seasonal drag on margin, we often see in Q2, we maintain our expectation of a stable to gradual positive bias on our net interest margins over time. Slide 11 highlights fee revenue trends. Noninterest income of $4.1 billion was up 18% with growth across payments, institutional, trading and consumer fees. Market-related fees also increased 18%, helped by constructive markets with particularly strong growth in trading, underwriting and advisory and mutual fund fees. Transaction-related fees were up 10% driven mainly by higher credit and FX fees. Slide 12 highlights our expense performance. Expenses were up 12%, driven by increased business activity, revenue-linked costs and technology investments across our bank. These expenses were paced relative to the robust revenue growth, and so we once again delivered positive operating leverage. Slide 13 highlights the consistent strength of our balance sheet. Our CET1 ratio at the end of the quarter was 13.4%, up 5 basis points from the prior quarter. We delivered strong organic capital generation, helped by strong reported earnings, partially offset by an increase in risk-weighted assets and the accelerated share buybacks. As a reminder, and as we disclosed last quarter, we will see a roughly 30 basis point benefit to our CET1 ratio in Q2 related to a reduction in operational risk weights. Our liquidity position is very strong with an average LCR of 133%. Starting on Slide 14. With Canadian Personal and Business Banking, we highlight our strategic business unit results. Adjusted net income growth of 25% and pre-provision earnings growth of 19% were revenue-driven. Revenues were up 13%, helped by margin expansion, loan growth and higher fee-based revenue. Net interest margin was up 34 basis points year-over-year and 9 basis points sequentially. We continue to see tangible results from our focus on deep and profitable client relationships, selective balance sheet deployment and disciplined pricing decisions. Expenses were up 7%, mainly due to higher spending on technology and other strategic initiatives and higher employee-related compensation. On Slide 15, we show Canadian Commercial Banking and Wealth Management, where net income and pre-provision pretax earnings were up 9% and 16% from a year ago. Revenues were up 13% from last year. Commercial Banking revenues were up 9%, driven by volume growth and margin expansion. Commercial loan and deposit volumes were up 7% and 8%, respectively, from a year ago. Wealth Management revenue growth of 16% was driven by higher average fee-based assets and increased client activity driving higher commissions. AUA and AUM were up 14% and 15%, respectively, compared with Q1 of '25. Turning to U.S. Commercial Banking and Wealth Management on Slide 16. Net income was up 19% from the prior year, mainly due to lower loan loss provisions and pretax -- pre-provision pretax earnings that increased 7%. Revenues were up 6% from last year. Net interest income was up 10% from improved loan and deposit growth and wider deposit margins. Fee income growth was impacted by lower annual performance fees in our Asset Management business. Expenses were also up 6% due to higher employee compensation, including costs related to severance and strategic initiatives. Turning to Slide 17 and our Capital Markets segment. Net income was up 42% and revenues were up 28% year-over-year. Global Markets revenue saw growth across most products. Investment Banking benefited from higher underwriting and advisory activity and Corporate and Transaction Banking revenues were up due to volume growth and higher fees. Slide 18 reflects the results of Corporate and Other, which was a net loss of $100 million compared with a net loss of $60 million in the prior year with both revenues and expenses influenced by some unusual items this quarter. In closing, we generated strong revenue growth, delivered positive operating leverage, returned significant amounts of capital to shareholders and strengthened our balance sheet. A strong start to the year. With that, I'll turn it over to Frank. Frank Guse: Thank you, Rob, and good morning, everyone. Through the first quarter of 2026, our credit portfolio performance has remained aligned with our expectations given the fluid operating environment. Mid ongoing tariff-related headwinds and negotiations, we remain vigilant and proactive in managing our credit portfolios to address both expected and unexpected changes. Our increases in allowances over the past 12 months and show a strong coverage against the economic environment, and we maintain a high level of confidence in the overall quality and stability of our credit portfolio. Turning to Slide 22. Our total provision for credit losses was $568 million in Q1, down from $605 million last quarter. Our allowance coverage remains robust at 79 basis points. Our performing provision was $48 million this quarter, reflecting the impact of credit migration and the evolving economic environment. Our provision on impaired loans was $520 million, up $23 million quarter-over-quarter. Higher provisions in our Canadian and U.S. Commercial Banking segments were partially offset by lower provisions in Capital Markets and Canadian Personal and Business Banking. Turning to Slide 23. In Q1, impaired provisions moved slightly higher with the impaired loss rate at 35 basis points. Impaired provisions in Canadian Personal and Business Banking and Capital Markets were down this quarter. Canadian Commercial Banking impaired was up in Q1, driven by losses across unrelated sectors. The losses in this portfolio are attributable to a small number of impairments, and the overall portfolio remains strong, and we do not expect losses to remain elevated to this degree through the balance of the year. Impaired provisions in U.S. Commercial Banking were up in Q1, but remained lower compared to the same period last year. Slide 24 summarizes our gross impaired loans and formations. Our gross impaired loan ratio was 64 basis points, up 3 basis points quarter-over-quarter. New formations were down in Q1, with a decrease in business and government loans, partially offset by an increase in consumer loans. While the impaired loan ratio on mortgages increased modestly this quarter, given continued softness in the housing market, our loan-to-value ratio for the mortgage book remains strong at 57% for the overall book and 68% on impaired balances. Overall, we do not expect material loss -- material increases in losses within our mortgage portfolio. Slide 25 outlines the 90-plus day delinquency rates and net write-offs of our Canadian consumer portfolios. The 90-plus day delinquencies in our Canadian consumer portfolios increased quarter-over-quarter primarily reflecting the current macroeconomic backdrop. Our consumer net write-off ratio increased modestly, mainly driven by the credit card portfolio, which continues to be affected by elevated unemployment and ongoing economic uncertainty. While we closely monitor evolving economic conditions, we remain confident in the overall strength and stability of these portfolios, which are aligned with our client-driven strategies. In closing, while impaired loan losses were slightly higher in Q1, our credit performance remains stable and resilient, reflecting our prudent risk management and disciplined portfolio oversight. We will continue to foster strong client engagement and proactively assess our portfolios, ensuring they remain robust amid the evolving market conditions. Our strong allowance levels continue to provide prudent coverage for changing economic conditions. And notwithstanding the higher impairments in our Commercial Banking portfolios this quarter, we remain comfortable with our full year guidance. I will now ask the operator to open the line as we welcome your questions. Operator: [Operator Instructions] Our first question comes from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess maybe first question for you, Harry or Rob. When we look at sort of the margin expansion that occurred this quarter and just the overall profitability, I think the ROE at 17.4%, appreciating, we can't run rate 1Q as the go-forward ROE profile. But just talk to us as we think about over the medium term, like why commerce, even with the 13.5% or higher CET1 should not earn somewhere between a 16% to 17% ROE and if the capital ratios were to decline, maybe even better. Like what would be the argument against that statement? Harry Culham: Ebrahim, nice to hear from you. I'll kick it off and maybe I'll pass it over to Rob in a moment. But the first thing I'd say is that our strategy has been consistent, and we believe we have unique competitive advantages that really position us well to deliver profitable growth. We target the right client segments where we can deepen relationships and be meaningful to our clients. We have the right product focus. If you think about deposits, investments, transaction accounts across each of our businesses, we have the right technology. As I mentioned earlier, we've invested in AI-enabled technology and perhaps you'll hear from Hratch later around what he's doing in the retail space because it's excellent. And we have the right culture, our team members are focused on delivering the entire connected bank to our clients. And so we're very confident in our ROE trajectory and that journey that we're on. And maybe, Rob, if you want to quantify some of the drivers, that would be great. Robert Sedran: Yes. Thanks, Harry, and Ebrahim, last quarter, we guided for the full year that we'd be above 15%. And I would -- obviously, the year is off to a very strong start. We're less worried about a specific target, though we do acknowledge the need to refresh our target. But as I said last quarter, when we talked about '26, once we cross 15%, it's not like it was mission accomplished for us. As Harry said, we think we've got the right strategy, the right investments, the right technology and the right people to drive what we think is a premium ROE, right? So we expect to continue to move this higher. And it's based on, to your point, the current level of buyback, the current capital levels, we're not doing anything particularly unnatural to get there. But I do want to maybe just stop for a second and talk about how we get there matters to us. Like we talk a lot about disciplined execution. The other word we use a lot around here is the word balance, right? And so when we think about where ROE is, we also think about it in the context of earnings per share growth. We're not over-rotating to ROE at the expense of earnings growth. Like there's a lot of unnatural things you can do to try to get your ROE higher in the short-term. That balance to us means over time, we can get both the earnings growth and the ROE expansion. And it's something that we've been doing rather successfully over the last little while. So our focus is on controlling what we can control and keep doing what we've been doing. We think that means the ROE is going to continue to move higher over time. Ebrahim Poonawala: Understood. And maybe, I guess, question for Hratch. I mean we've not seen this play out in the Canadian banks as much, but there's been obviously a lot of concern around AI, AI disruption risk. Perhaps you spent a lot of time around just the consumer franchise thinking about this. One, talk to us kind of your perspective on how you think about the opportunity versus the disruption risk for consumer deposits and banking and then maybe just your strategy as you kind of leading the business? Hratch Panossian: Yes. Thank you, Ebrahim. Thanks for the question. And look, I think the short answer is we think it's an opportunity as with any other technology, the way we look at it is how do we adopt the available technologies that are emerging in order to further our business strategy. And keying off a bit of what Rob was saying, right, our business strategy in retail is to continue to generate value for all of our stakeholders. That's how we believe the balance is achieved. And you're seeing that in the results, like I will say, very proud of what the team has delivered once again at 13%. Growth is there, top market revenue growth. But at the same time, after several years, we're inching back to the 30% ROE level. And I think that's because of everything that we've done in the business and we'll continue to do. So on the AI front, it does support our strategy. As we've talked about before, we've been very, very focused on where we're trying to grow and create differentiation. In the retail business, there's 3 priorities for us, lead in every day banking solutions for all of our clients, lead in investments and advice in the mass affluent segment and continue to drive the efficiency and simplification of our business, which benefits both our team and how easy it is for them to do their work as well as the shareholders through the efficiency. And we've been using, frankly, AI. You saw Harry's slide at the enterprise level. We've been using AI across all 3 of those things. But maybe one example I can give you, which I think is a good one that cuts across all of them is our Cortex platform that was referenced on the slide before. And the reason I think this is a good one, it actually highlights that AI itself and a lot of the attention there is right now on models and LLMs and some of our peers talk a lot about that. But the differentiation isn't really in the models. It's about how you build your business processes and change your business model to actually leverage what AI can do. And some of that is built on years of foundational investments. So Cortex is built on foundational investments in the quality of our data that we've made for many years. Foundational investments in our eCRM platform, which cuts across all of our channels, whether it's the front line and the branches, the contact centers or digital, foundational investments in our martech stack as well as many others. And now what AI allows us to do is to use some traditional, I'll call it, machine learning models to begin with in Cortex to allow us to understand on a personalized level, what clients need, get that to the right place, whether that's the digital channel or our advisers to be actioned and start leveraging even LLMs on top of that to help our advisers prepare for that conversation. And over time, even having a conversational interfaces to bring that LLM interface to clients directly. And we're also building Agentic flows on top of that to start processing things in the back end for our clients. And so when you put all of that together, we focused Cortex particularly. We launched at the end of last fiscal. This quarter, we focused particularly on the savings side and deposits. And what we're seeing is that 44% conversion rate uplift that you see there. That's relative to controls if we didn't follow the personalized approach that Cortex allows us to do. And that's just the beginning. We're going to rise from there. And again, if you look at the impact of that in units for the first quarter in the products that we applied the Cortex use cases to about 10% of unit sales actually came out of Cortex results. Operator: Our next question comes from the line of Matthew Lee with Canaccord Genuity. Matthew Lee: I know, Rob, you gave some color on NIM, but I just want to maybe understand how much the quarter-over-quarter expansion in Q1 was seasonality versus some of the deposit portfolio benefits and other? And then how much of a reversion should we expect throughout the year? Robert Sedran: Matthew, it's Rob. So I've often spoken in the past about the margin in 3 main buckets, right? There's the hedging and positioning, the so-called tractoring strategy, there's business mix and then there's the product margin, which kind of reflects the competitive environment. And I would say this quarter, the margin uplift has been about 1/3, 1/3, 1/3 roughly in those 3 categories. The hedges work, they do what they're going to do. The tractoring strategy will continue to roll on as we've discussed in the past. Mix was positive and both from a deposit volume perspective and a deposit mix perspective. So a little bit more noninterest-sensitive deposit, a little bit less term product and this deposit volumes were strong as they often are, particularly in the commercial businesses. Now in terms of going forward, often what we see -- and you saw it last year in Q2 as well, where we had a sequential downtick in net interest margin. There's some seasonality to it. I mean checking accounts tend to go down a little bit. Credit card balances tend to go down a little bit, Those commercial balances roll off, again, just seasonally as some of the -- some of our commercial clients are using funds for whether it's bonus payments, tax payment, restocking inventory, all kinds of reasons. So last year, we saw a slight downtick in Q2 as well. It wouldn't surprise me if that happened again this Q2. But the overall margin story otherwise continues to be that stable to gradual increase that we've been guiding to over time. Matthew Lee: Okay. So when we say stable NIM, it's kind of stable from the Q1 levels? Robert Sedran: Yes. Like I said, beyond factoring in potential seasonality in Q2 where it might give back a basis point or 2. The story beyond that is to continue to move stable to gradually higher. Operator: Our next question comes from the line of John Aiken with Jefferies. John Aiken: Frank, when I take a look at the 90-plus day delinquency rates in the Canadian portfolio, I understand that your confidence in terms of your own portfolio, your credit adjudication and everything else like that. But when I look at the upward trend in these numbers, how concerned should we be? Do you think that we're at or near a peak in terms of these levels? Do we think they may actually inflate a little bit more? And what do you think the impact could be in terms of your broader portfolio? Frank Guse: Yes. Thank you, John, for the question. I do believe there is also some seasonality in those numbers, say, in particular, if you look into the credit cards that usually tend to be a little higher in the Q1 pattern given the seasonal patterns there. But overall, I would say those numbers actually fairly well reflect our expectations against the ongoing macroeconomic backdrop. So that is why we do feel very confident with our guidance given because that would be included in those expectations. And I mean, we are seeing still some ongoing, I would say, softness in the economy. We have seen unemployment going up, going down a little bit, but having to a certain extent, plateaued. We do have the USMCA negotiations coming our way. So there's some uncertainty still ahead of us. But I'm not overly concerned with those numbers. We have the right strategies underneath both from a business perspective and from a risk management perspective to manage those portfolios very proactively. And as I said at the beginning, those broadly expect -- reflect our expectations that we had going into the quarter as well. John Aiken: And if I could, Rob, you to make some commentary about service in Caribbean, where it actually does look like the gross impaired loans are heading in the right direction. Is there anything you can comment about that region? Robert Sedran: No. I mean they are headed. As you said, there is a little bit of a trend there, but nothing really to call out. Operator: Our next question comes from the line of Doug Young with Desjardins Capital Markets. Doug Young: Just wanted to go back to Harry. I think you said 10 consecutive quarters of positive operating leverage. Just looking at your expense ratio, it's improved quite a bit. Maybe can you unpack a little bit about what you're benefiting from maybe Harry or Rob, what could throw a wrench into this? And then Hratch, maybe if you can kind of tag in, like it looks like you brought your expense ratio down in Canadian Personal and Small Business Banking quite a bit. Like how do we think about it going forward? Robert Sedran: Doug, It's Rob. Maybe I'll get started. And we -- the revenue visibility has been pretty good for us over the last little while. And so we've taken the opportunity to advance some spending that otherwise might have happened later this year or even next year to bring it forward a little bit and invest in future growth, right? So aside of the fact that revenue-linked expenses have also been rising, we've been managing that revenue to expense gap fairly well. And that's just how we think about our expense outlook. We do like to have that positive operating leverage. We're not going to -- we target it every quarter. We're not saying we're going to deliver it every quarter. It's nice to have a 10-quarter winning streak for sure, and we intend to continue it. But we do target on an annual basis. And with the environment that we've had, our expense in terms of absolute dollar or absolute percentage has been a little on the higher side, but it's been conscious and intentional spending to advance the priorities of the bank. So when we look forward, if revenue were to slow from here, we're confident that we have the levers to pull back some of that spending to maintain that operating leverage gap. Maybe I'll hand it over to Hratch for the second part of your question. Hratch Panossian: Yes, sure. Thanks, Doug. Look, it's an area of focus for us, right? We talk about the bank-wide operating leverage. But as you see in the trend, the same applies in the retail business. So our approach has been all along to try to grow our revenues in that 7% to 10% plus range that we've targeted and we've exceeded that and to generate positive operating leverage on top of that. And how do we do that? It's focusing on scaling the businesses where we already are carrying some of the expenses on and we've done a good job of doing that as we scale and take advantage of a lot of the investments we've made over the last while. But even without the revenue side, I think the expense side is something that we've been very sharply focused on. And we're applying the same approach in retail as we do elsewhere in the bank. We have to continue investing in the business. And what you do over time is you create a flywheel of you make the investments and a lot of the investments are also driving efficiency on the cost side and time of our team side. And that allows you to increase productivity, and that makes more room for us to invest in, so we can continue investing while keeping expenses more modest. And so I think for the rest of this year as well, you will see over the years, some of our expense growth moderate without our investment levels going down, actually continuing to increase. And part of it is we could talk about AI here as well and automation, but I think there's a lot of opportunity for us over time. If I touch just on our front line, who is a big part of the resources that we have at our disposal. We set a goal a couple of years ago to try to get to 1 million hours saved for the front line through automation and some of the new use cases and they're now Gen AI as well, and we reached that goal this year, a year ahead of schedule. We've now looked at multiples of that going forward to create more hours for our team, as Harry referenced in his remarks to spend time with clients. And so we're seeing the number of meetings with clients, the number of hours with clients each adviser is spending or each front line person is spending go up. We're doing the same thing with several use cases in our contact centers, where AI is allowing us to either divert calls, take calls through our AI voice bot that we've highlighted in the results or when a human has to pick up the phone. We've got some workflows in the back end that are leveraging AI that also help them. And I think there's efficiency there. And then there's the back end. We're looking at a lot of our processing of products, whether it's origination or servicing as I spoke about before. And I think what the Agentic workflows you can create today allow you to do is to create far more automation, which is good for everybody. It's good for clients. It's good for our team, not having to handle some of those exceptions and it's good for the shareholder and it's good for operational resilience, frankly, from a regulatory perspective. So I think all of that creates opportunity to continue generating positive operating leverage, which we will continue to focus on and to continue getting that mix ratio to a better and better place. And obviously, ROE continuing to trend to the 30% level it is now and higher. Doug Young: So just one follow-up for us. Like where do you think you can take that expense ratio? Hratch Panossian: I think, look, in the long-term at this point, I'll say directionally, we'd like to see it trend downwards. And we've talked about the business, and we think the potential of our franchise is to continue to grow above market, which we have been doing and continue to take the profitability metrics, whether that would be the mix ratio or the ROE to a premium level relative to the peer group. So I think we've got some room to go. Operator: Our next question comes from the line of Mario Mendonca with TD Securities. Mario Mendonca: Maybe this is for Rob. Could you help me interpret Slide 33. Is it a -- I'm talking about the interest rate environment where you show us the roll on and the roll-off rates? Is it as simple to suggesting that this chart will not change. If everything were static, that the margin expansion continues through to 2026, the end of '26 and even maybe in the first half of '27, and those 2 lines cross and it comes to an end. Is it really that simple? Robert Sedran: Well, Mario, yes, I mean, listen, when you think about the part of the margin expansion story that has been related to the balance sheet positioning, I mean, yes, it pretty much is that simple. By the time we get into middle of '27, you can see those lines start to intersect and it becomes more of a neutral. And that's based on the current forward curve, right? But based on the current forward curve, you can see that benefit start to slowly migrate towards neutral in '27. Now the other things that have been driving the margin, whether it's business mix and the focus on what we're doing in the retail bank to focus on bringing the money in like the deposit side, all of those things should continue to benefit the net interest margin beyond that period. But the structural benefit we've been seeing does start to roll off in '27. Mario Mendonca: It sounds like a little bit of a softball, but why is it that -- why has CIBC led the group in the last, say, 2 years, maybe 18 months in margin? I obviously compare all bank margin CIBC to the peers. And the gap is significant. I know you don't sit there worrying about what Royal is doing, but why would that margin be so much greater, the margin expansion be so much greater for CIBC than peers? Robert Sedran: Well, I'll try to handle softball notwithstanding. I'll try to handle it in a way that speaks more about what CIBC is doing rather than what others might be doing. We do manage for margin stability as best we can over time, which means that this benefit from the higher interest rates is bleeding in slowly. I can't speak to what the others have done or didn't do. But that benefit has been rolling in over time. And you've heard Hratch speak repeatedly on these calls about how we're looking at the mortgage business and how we're looking at our business mix generally in retail and where we're focused, those transaction accounts, the credit card businesses, the checking and savings accounts being more of a focus than say, the mortgage business has been helping the margin. And particularly in a period where mortgages haven't been growing very rapidly, it's been NII accretive as well. So for us, it comes down to executing on that treasury strategy of maintaining margin stability over time. And then the business strategies have been focused in the right areas, and we're going to continue to focus that way. Mario Mendonca: Last softball question, and I'll stop. We're still seeing this very, very strong growth in the financial institutions like the business and government lending. When you talk about what is CIBC up to there? And the reason I'm being so direct in asking the question is -- this is -- this pattern is familiar to me. Not for CIBC necessarily, but it's familiar to me in the Canadian banks where a particular lending loan category grows much stronger than peers. And 2 years later, we're all talking about what went wrong. So maybe just talk about where this financial institutions group growth is coming from? And how do you get comfortable this isn't going to be a sad story 2 years now? Christian Exshaw: Mario, this is Christian. So let me, I would say, try to unpack this. And I thought we actually spoke about it on last call. So if you look at that line item, we actually grew dramatically, I would say, in the second half of last year. And what we're trying to do now, as I said on last call, is to moderate this growth. So whilst the growth year-over-year is substantial, if you were to look at it on a quarter-over-quarter spot basis, then that growth is moderated to roughly 2%, which is in line with what I said, which was high single digit by the end of this fiscal. This is a business we're very comfortable with. It leads to a number of other products that we can market with those clients. We discussed the business consistently with our colleagues in risk management, just to make sure that as you said, we don't have any issues going forward. We're not in the storage business, we are in the moving business. So there's a lot of velocity in some of these books. So we're very comfortable with the risk. But I'll probably pass on to Frank, if Frank has anything else to add. Frank Guse: Yes. Thank you for the question. And as Christian said, I mean, we do feel comfortable with the books. We have the right guardrails in place. We have the right strategies in place on how we think about the various businesses that actually fit in our financial institutions line and we don't have any material concerns on that business. And as Christian said, we do see the growth moderating. Operator: Our next question comes from the line of Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: Okay. Rob, Harry, I mean, I heard you balanced, disciplined, profitable growth. I just wanted to look at our Hratch's business and Christian's business. I mean they are giving you similar ROEs have over the last, let's say, 5 quarters you're allocating more or less similar equity to each one of these businesses and earnings are within 10% of each other. So is this what balanced growth looks like? Is the capital markets can be as big as Canadian Personal Business Banking? Robert Sedran: Sohrab, it's Rob. I mean I would think of it a little bit more as over time, that balance will appear. As we think about the market environment we've been in, capital markets is doing quite well. and the environment is constructive. We're taking advantage of businesses that we've been building for many, many years that are ultimately being done well within risk appetite and well within all of our just business mix appetite. So when we think about -- I don't see a world -- or certainly, it's not our goal to have the world you just described happen. We think more each of our businesses can grow and over time at roughly the same rate. I mean, even the capital markets business, when we talk about the long-term targets for it, it's a 7% to 10% earnings growth kind of business, the same thing we target for the bank, the same thing we target for the retail bank. So I think there's a bit of a cyclical benefit or cyclical tailwind for us right now in the capital markets. But over time, we would expect that to normalize and see our businesses growing more in balance with each other. So when we talk balance, it's more in terms of growth rate rather than size. Sohrab Movahedi: Okay. And so if Christian could continue to give you good ROE, is there a finite on the capital that you're willing to allocate to him? Or is he open for business for as much capital as he needs? Harry Culham: Sohrab, It's Harry. I would say that the answer to the last question is no. We are -- we take a very balanced approach to where we allocate our capital. And when it comes to capital allocation, really, our approach is anchored in our client-focused strategy. This is all about our clients. So we're directing resources where we've seen strong client demand and, of course, long-term value creation. And that's what we're seeing right now. Obviously, this is a very interesting business capital markets as we speak in this cycle. And we believe that we are very well positioned to service our clients as we move through this cycle. We are delivering capital markets products, I might remind you Sohrab to the entire organization. So our commercial bank, our wealth clients , our retail clients all have the benefit of capital market solutions. So this is a very well diversified business within capital markets as part of the diversified bank that we run. Sohrab Movahedi: Yes. I wasn't debating you on it, Harry. I mean it looks like it's doing well. It's been a source of stability. I mean there's great track record over there. So I'm just curious as to why it couldn't be a bigger part of the bank but on a consistent basis. But that was my question. Operator: Our last question comes from the line of Gabriel Dechaine with National Bank Financial. Gabriel Dechaine: I just want to revisit that margin discussion in a slightly different angle here. For a while now, you've been guiding to something, I forget the language exactly stable to positive bias or upward bias, whatever it is. And you've been exceeding your guidance. And I'm just wondering, what's -- what drivers are doing better than you expected? Is it the mix that's shifted a lot more favorably? Is it the shape of the yield curve that's been a positive surprise. Just to give a sense of why you keep outperforming our expectation on that -- in that area? Robert Sedran: Gabe, It's Rob. So it does come down, I think, largely to mix and product margin as well. When we think part of mix is client preference, right? Like if mortgages were growing more rapidly in the industry, our mortgages will be growing more rapidly, that's positive for net interest income. It's not necessarily positive for NIM, right? And so when we think about client preference for -- at one point, it was client preference for GIC was a bit of a margin headwind. Some of that is rolling off, and now it's becoming more of a margin tailwind like that mix is something that can fluctuate over time. What doesn't fluctuate is where our focus is and what our strategy is and offering solutions to clients as opposed to a product level strategy, but clients often choose different things in that strategy. So with the mix evolving in a positive way, the margin has been doing better. And the other part that we can never really forecast is the competitive set and product level margins have been relatively stable, where we often in our guidance, assume there's going to be a little bit of price competition or a little bit of margin compression sometimes from some of the margins that we see in the market. So the hedging strategy has been doing what we exactly we thought it would do. The mix and the product margins are behaving well and in line with what our strategy is. But we don't always guide to exactly what clients are going to do because we never are positive on that going into a quarter. Overall, though, controlling what we can control, as I've said before, is what gives us the constructive view on margins. So we do think it's going to continue to migrate higher over time based on the things that we're doing. Gabriel Dechaine: And how important is the combination of slow mortgage growth plus the competitive dynamic based on that one graph in your slide, looks like the new inflows or renewals are still contributing to wider spreads. Hratch Panossian: Yes. Thanks, Gabriel. I'll jump in. It's Hratch here. So it's been a factor, but the mix is a much bigger factor than the inflow outflow differential, if you will. So if you look at over the last year, that differential between inflows and outflows had been, call it, a couple of basis points a quarter to the PBB margin positive. It is getting a little bit more muted. I would expect going forward, it's still a positive. We're still seeing, as you see on the chart, a bit of a differential there, maybe not as big as it was. And so for the next several quarters, I would still expect in the order of a basis point a quarter help from that. But the bigger factor is, as Rob said, the mortgages growth versus cards growth. And we've seen muted market on the mortgage side, right? We were expecting sort of mid- to low single digits this year, and that would have been part of our guidance and the market has been a bit slower than that. Now it's more low single-digit growth on mortgages. And we continue to do really well in our cards franchise, both because of our co-brand portfolio as well as our premium travel portfolio and some of our new everyday rewards cards. And so I think if that mix continues, that will be a bigger factor than the mortgage repricing. Gabriel Dechaine: The revolvers or proportion of revolving balances is increasing as well. Is that kind of a... Hratch Panossian: It is. We've seen utilizations are not up that significantly, but we are seeing interest earning balances and the reward balance is growing at a healthy pace, obviously, in a responsible way from a risk perspective. We have been very prudent on the card portfolio. We've actually taken some actions going back 1 year, 1.5 years ago to tighten up a bit, and I think you're seeing that in the results of our charge-offs and cards versus some of the peers. Operator: There are no further questions at this time. I would now like to turn the meeting over to Harry. Harry Culham: Thank you, operator, and thank you all for joining us this morning. I wanted to reiterate 3 key messages, which I hope resonated with you all today. One, we're delivering robust profitable growth. We continue to demonstrate that our ability to outperform is sustainable through different market environments. Two, we're focused on accelerating our execution. The cumulative effect of delivering strategic progress each quarter is significantly improving our capabilities across the bank. And three, we are well positioned to continue delivering high-quality financial results. We have a strong balance sheet and deep client relationships to continue growing organically. We are excited for the many opportunities ahead across each of our businesses. And before I close, I wanted to thank the entire CIBC team for putting our clients first each and every day. Thank you, everyone, and have a good morning. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to Novavax's Fourth Quarter and Full Year 2025 Financial Results and Operational Highlights Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Luis Sanay, Vice President, Investor Relations. Please go ahead. Luis Sanay: Good morning, and thank you all for joining us today to discuss our fourth quarter and full year 2025 financial results and operational highlights. A press release announcing our results is available on our website at novavax.com, and an audio archive of this conference call will be available on our website later today. Please turn to Slide 2. Before we begin with prepared remarks, I need to remind you that this presentation includes forward-looking statements, including, but not limited to, statements related to Novavax's corporate strategy and operating plans, its strategic priorities, its partnerships and expectations with respect to potential royalties, milestones, cost reimbursements, the current macro and regulatory environment, the development of Novavax's clinical and preclinical product candidates, the timing and results of clinical trials, timing of regulatory filings and actions, its APA agreements and related negotiations, projected market opportunity, full year 2026 financial guidance and revenue framework, and Novavax's future financial or business performance, including long-term growth, savings and profitability targets. Each forward-looking statement contained in this presentation is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Cautionary Note Regarding Forward-Looking Statements in the presentation we issued this morning and under the heading Risk Factors in our most recent Form 10-K and subsequent Form 10-Qs filed with the Securities and Exchange Commission available at sec.gov and on our website, novavax.com. The forward-looking statements in this presentation speak only as of the original date of this presentation, and we undertake no obligation to update or revise any of these statements. Please turn to Slide 3. This presentation also includes references to non-GAAP financial measures, which are total adjusted revenue, adjusted licensing, royalties and other revenue, combined R&D and SG&A expenses plus partner reimbursements and non-GAAP profitability. Please turn to Slide 4. Joining me today is John Jacobs, our President and CEO, who will highlight our growth strategy. Elaine O'Hara, Chief Strategy Officer, will focus on progress with our partnership strategy. Dr. Ruxandra Draghia, Head of R&D, will discuss our R&D updates; and Jim Kelly, Chief Financial Officer and Treasurer, will review our financial results and 2026 financial guidance and revenue framework. Please turn to Slide 5. I would now like to hand over the call to John. John Jacobs: Thank you, Luis. I'm excited to be here today with members of our executive team to share our fourth quarter and full year 2025 financial results. We made significant progress on our corporate strategy in 2025, successfully executing against our existing partnerships while advancing our organic pipeline, innovation efforts with our Matrix technology and making progress towards new potential partnerships. Our progress in 2025 was possible because of how we have reshaped the company since 2023 and with our new strategy, which we launched last year. Since the launch of our new strategy, we have evolved Novavax from a vertically integrated global commercial organization with a singular focus on COVID to a company that is focused on driving both near- and long-term value with our proven technology platform via partnering and R&D, supported by a lean and efficient operating model. We've also come a long way in stabilizing the company financially, doing so in a thoughtful, stepwise manner to maintain the capabilities needed to advance our strategy. And we are successfully executing our plan. For example, just this January, we announced a new agreement with Pfizer for Matrix-M. This new partnership allows Pfizer to utilize Matrix-M in 2 disease areas within their vaccine portfolio with one disease area already identified. If Pfizer commercializes just one significant product based on this agreement, this partnership could generate billions of dollars of revenue for Novavax over time through a combination of milestones and royalties. This agreement further demonstrates the value other companies with vaccine portfolios see in Matrix-M. Please turn to Slide 6. The changes we have made to date continue to strengthen our company, and we believe we can do even more to create value both today and in the future. As you can see on the slide, today from our existing partnerships, we have earned and received upfront and milestone payments, including those from our agreements with Pfizer and Sanofi, with over $800 million in nondilutive capital earned in the last 18 months. Anticipated continued royalties from our marketed and partnered products, including Nuvaxovid and the R21/Matrix-M malaria vaccine. And we're pleased by the progress made by Takeda in 2025, where they delivered over 12% market share for Nuvaxovid in Japan and more than 30 million doses of the R21/Matrix-M malaria vaccine marketed by Serum Institute have been distributed to help people fight this disease. In the mid- to long term, we intend to amplify this value through upfront payments from new potential partnerships, milestone payments from both new and existing partners for continued development of their assets with our technology. For example, Sanofi's combination vaccines with their flu products and our Nuvaxovid for which we are eligible for a $125 million milestone when their Phase III study initiates and/or development of additional assets with Matrix-M, for which we are eligible to receive launch and sales milestones of up to $200 million plus mid-single-digit royalties for each new vaccine Sanofi may choose to develop in the future using Matrix-M, plus a growing set of potential royalty revenue streams from multiple partners. Please turn to Slide 7. In addition to partnering, the other key lever in our growth strategy is R&D innovation. We are focused on leveraging R&D to strengthen our technology platform, expand its utility both within and potentially beyond infectious disease and drive further proof points and data to develop new assets with which we can partner. Our Matrix technology is a cornerstone of our partnering model, and we believe that we can build on our proven technology and expertise to create a portfolio of Matrix-based adjuvants to serve as an engine of innovation and value creation, reflecting our conviction that differentiated adjuvant offerings could represent a significant and expanding long-term growth opportunity for Novavax. Importantly, this model potentially positions us to generate diversified recurring revenue across multiple partnered programs. For example, we're exploring the potential development of new Matrix-based adjuvants for oncology and some hard-to-treat infectious diseases, potentially opening an even wider opportunity set. And we are exploring new formulations of Matrix-M, such as dry powder with the intent to increase its utility in our own and in partnered candidate vaccines. You will hear more about our approach to building a Matrix-based adjuvant portfolio from Elaine and Ruxandra later on in the presentation. Please turn to Slide 8. In 2025, we continued our commitment to operate in a lean and efficient manner. Of note, during the year, we significantly decreased our R&D and SG&A spend. As we continue to advance our growth strategy, we intend to continue reducing our operating expenses while maintaining the capabilities needed to support the strategy. Jim will provide an overview of our operating expenses and guidance later on in the call. We are pleased with the progress we made last year in 2025 and are excited about the potential that lies ahead in 2026, such as the potential for more partnership announcements, making continued progress across the spectrum of our R&D efforts, including the advancement of our preclinical pipeline and continuing to support our existing partners with implications for incremental milestone revenue. Elaine will address this component in her next remarks. Before we continue with the call, I want to acknowledge that the current macro and regulatory environment in the United States poses some significant uncertainties for vaccine companies. However, we remain optimistic about the future of vaccines and of Novavax. Deadly diseases are here to stay, and people still need proven approaches to protect themselves and their loved ones from those diseases. This is a long-term, serious and meaningful endeavor to be part of, not a short game. And with continued execution of our growth strategy, we intend to see our technology fueling multiple new vaccines and immunotherapeutics across multiple partner portfolios with the potential to save millions and potentially even billions of lives over time, driving significant value for our stakeholders and leaving a global health legacy we can all be proud of. We look forward to the year ahead, and we approach it with enthusiasm. And with that, I'll turn it over to Elaine to talk about our business development efforts. Elaine? Elaine O'Hara: Thank you, John. As John said, we're excited about the potential for 2026. On the business development front, we're focusing on driving immediate value with our existing technology platform. Please turn to Slide 10. We're pleased with the progress we have made on partnerships to date and have honed our capabilities in this area to drive future success. And we have proof points that this model is working. We are successfully executing on multiple partnerships and business deals since the launch of our company transformation. Some of the highlights include, in January, we signed a license agreement with Pfizer, which provided Novavax with an upfront payment of $30 million with the potential for up to another $500 million in development and sales milestones across 2 disease areas, $70 million in development milestones and up to $180 million in sales milestones for each disease area, respectively, plus future sales royalties for 2 decades. We have also signed new and expanded existing MTAs with a variety of pharmaceutical companies who are presently evaluating the potential of utilizing Matrix-M in their vaccine portfolios. This has included a new MTA with a large pharma company in the fourth quarter -- in February, the expansion of an existing MTA with a major global pharmaceutical company to include an additional field for exploration. And just this week, we signed a new MTA with an oncology company. So as you can see, we are quite active on the partnering front, and there is a depth of interest in our Matrix technology. We're seeing that once vaccine-focused companies experiment with our adjuvant, they often come back to us to explore more broadly after seeing results from their initial experiments. We have also continued to execute on our Sanofi partnership with all $225 million in eligible milestones achieved in 2025, and the expansion of our agreement to include Matrix-M in Sanofi's pandemic flu candidate program, which has recently received funding by BARDA. In addition, we're excited about the progress of Sanofi's combined flu and COVID-19 vaccine candidates with each combined Nuvaxovid with their leading flu candidate as further proof of the potential value that our platform can generate. We are encouraged by the recent public updates from Sanofi that included positive Phase I/II results from both flu/COVID combination programs shared in December and their recent comments highlighting this product as a key driver of future new product growth for them. Importantly, market research presented by Sanofi at last year's World Vaccine Congress suggests that 82% of those people who receive both influenza and COVID vaccines and 54% to 69% of those who receive one would adopt combo barring no material impact to reactogenicity and/or efficacy, thus indicating potential significant value over the current standard of care. We've also seen continued execution of our other partnerships, where, as John mentioned, we saw market share gains for both Takeda with Nuvaxovid in Japan and Serum with malaria. Finally, we executed agreements related to our facilities as we rationalized our footprint. Agreements signed with AstraZeneca to transfer one U.S.-based facility and sell certain equipment netting $60 million in cash and resulting in future cash savings of up to $230 million and the sale of our Czech Republic manufacturing site to Novo Nordisk for $200 million. So please turn to Slide 12. As we look to generate new partnerships, our goal is to create a funnel of interested organizations, all of whom may be in various stages of discussions with us, and we are partnering closely with our R&D team to facilitate these conversations in 1 of 3 ways: First, generating our own data to share with potential partners and providing Matrix-M to potential partner companies for their experimentation to help determine if they want to move forward in a formal partnership. Secondly, continuing the exploration of potential new Matrix-based adjuvants. Matrix-M is our cornerstone adjuvant with broad utility, and this unique product is in our existing marketed products. We are working with our Matrix platform to develop new adjuvants each with their own unique attributes. The intention of this work is to create tailored adjuvants for disease areas such as oncology and difficult-to-treat infections. Third, advancing our recombinant technology with our own internal pipeline of vaccine candidates such as C. difficile, shingles and RSV combinations. In summary, as you can see from the slide, our strategy has several core pillars. We generate data for partner discussions, we expand the utility of Matrix to enable a portfolio of Matrix-based adjuvants and we create data from our preclinical programs to facilitate partnering discussions. Please turn to Slide 13. Importantly, the focus of our R&D efforts is grounded in where we see market opportunity. The markets we are targeting have the potential to reach over $100 billion by the early 2030s, with the global vaccine market projected at over $60 billion in the next 4 or 5 years and the immunotherapeutic vaccines subset of the oncology marketplace projected to reach over $42 billion by 2032. In addition, we're strategically directing our development work with the intent of creating differentiated assets. For example, our R&D team is exploring a multivalent adjuvanted C. diff vaccine candidate with potential for enhanced activity in a market where others have failed. If successful, this vaccine would address significant unmet need in this underserved population. Not only do we see this as a significant opportunity to reduce human suffering, but it also has the potential to tap into a projected over $2.5 billion total addressable U.S. market opportunity. We believe our partnering strategy best positions Novavax for long-term success and shareholder value creation while maintaining the flexibility to internalize assets when strategically advantageous. With each partnership, including existing, expanding and new partnerships, we have the opportunity for upfront payments, development milestones and royalties for current and future commercial sales, ultimately creating the potential opportunity for Novavax to earn billions of dollars over time, assuming, of course, successful execution. So Ruxandra will provide more detail on these programs supporting our business development efforts, and I'd like to turn the call over to her now. Ruxandra Draghia-Akli: Thank you, Elaine. Please turn to Slide 14. As John and Elaine have said, we are very excited about the potential in 2026 for R&D. We believe that our R&D efforts can generate incredible value for both our shareholders and the people who will benefit clinically from our innovations. The driving force behind [ this ] is our technology, which is front and center in our own pipeline of assets and R&D work and now in our partners' development efforts and pipelines. Let's take a look at each. Please turn to Slide 15. On our in-house R&D efforts, first, we are expanding our efforts in infectious diseases with our internal early-stage pipeline, including programs targeting C. diff, shingles and an RSV triple combination. We are making steady progress with the intent to advance at least one of these assets into the clinic as early as 2027. As Elaine mentioned, we are intentional in moving forward with work that targets an unmet medical need and offers the opportunity for differentiation. Please turn to Slide 16. Let's take C. diff, for example. This disease is a major public health threat, in particular, in the United States, Europe and in the elderly population, causing nearly 500,000 infections and tens of thousands of deaths annually in the U.S. Currently, there is no vaccine available. We have learned from existing data and applied available learnings when designing our antigens and implementing experimental plans. Multiple hypothesis might explain the type of data generated by previous vaccine candidates. Previous vaccine candidates were toxin-based designed to neutralize toxins rather than kill the bacteria themselves. Consequently, vaccinated individuals could still become colonized and the vaccines might not have reduced the overall burden of C. diff in the gut. Second, previous vaccine candidates might have generated insufficient mucosal immunity. Because C. diff infection is restricted to the gastrointestinal tract, protection is sought to require robust mucosal immunity, which we assessed in our very preliminary studies. Third, previous vaccines might have targeted only 2 toxins, A and B. However, a proportion of clinical C. difficile isolates express a binary toxin, which these vaccines candidate did not cover nor did they cover any of the pathogens/antigens. Please turn to Slide 17. As we started exploring how our technology might make a difference, we have been encouraged by early data. Our early-stage Matrix-M adjuvanted C. diff vaccine candidate uses a multivalent antigen approach, targeting a vast majority of circulating clades and rybotypes. Aside from immunogenicity studies, we have explored mucosal immunity and conducted challenge studies, results of which showed that this vaccine candidate outperform a 2-toxin alone comparator. We look forward to next steps and if successful, bringing this vaccine candidate into the clinic. We are sharing C. diff just as an example today. As we've previously stated, we believe we can advance one of our preclinical assets into the clinic as early as 2027. Please turn to Slide 18. Next, our R&D work is also looking at driving life cycle management and innovation for the Matrix-based adjuvant platform. Matrix positions us as a platform partner that can help to enable next-generation bacterial and viral vaccines because it has the potential to be utilized across multiple platforms such as in protein-based vaccine, our own vaccines are based on that platform, nanoparticles, inactivated toxoid conjugate or VLP vaccines. Matrix-M has a remarkable broad utility. But in addition to Matrix-M and based on our expertise with this asset, we have used the know-how and history to explore the potential creation of other Matrix-based adjuvants with differentiated properties. In fact, a key focus for our R&D work with our Matrix technology is to broaden the utility of Matrix, both inside and outside infectious diseases, while also evolving the life cycle of this critical technology. This includes potential new versions of Matrix-M and new Matrix-based adjuvants as we look to build a portfolio of new adjuvants. These efforts could enable expansion beyond infectious diseases, such as powering next-generation immuno-oncology strategies. Early research on this potential new adjuvants indicates that modifications to our technology have the potential to drive specific responses such as robust CD8 positive T cell activation responses as part of a comprehensive immune response. Please turn to Slide 19. Beyond our in-house R&D efforts, the impact of our technology has the potential to be amplified via our partners. First, we have marketed products, which include our technology, Nuvaxovid and the R21/Matrix-M malaria vaccine. In line with our strategy, our R&D efforts are designed to be an innovation engine for Novavax, supporting partnerships through our BD team. Elaine discussed the development work Sanofi is undertaking and could undertake in the future and the recently announced partnership with Pfizer with the potential for development of 2 vaccine products utilizing Matrix-M with one disease area already identified. And as Elaine mentioned, we have multiple MTAs in place as well as ongoing conversations with other parties about the potential of Matrix-M and the portfolio of new Matrix-based adjuvants. Our partnering discussions have the potential to result in collaborations and partnerships focused on a variety of areas across the respiratory, nonrespiratory and oncology markets and other areas, perhaps not yet contemplated. Of course, our approach hinges on the fact that in every instance, whether it's adding our technology to other platforms, creating new candidates with our own platform or creating a new portfolio of adjuvants, we strive to offer something new and different to potential partners. This R&D model, coupled with the infrastructure we have built using our deep bench of expertise and AI and machine learning enable us to quickly and efficiently explore opportunities in a low-cost, high-throughput manner with the potential for earlier value creation for the company. With that, I'll now turn the call over to Jim to discuss our financial results in more detail. James Kelly: Thank you, Ruxandra. Please turn to Slide 20. This morning, we announced our financial results for the fourth quarter and full year 2025. Details of our results can be found in our press release issued today and in our Form 10-K filed with the SEC. Please turn to Slide 21. I will begin with key highlights from our fourth quarter and full year 2025 financial results. We reported total revenue of $1.1 billion, a 65% increase year-over-year. As a reminder, our current year revenue results include $625 million that is primarily noncash revenue recognition from the resolution of Nuvaxovid APA agreements with Canada and New Zealand announced in the first quarter of 2025. For the fourth quarter of 2025, we reported total revenue of $147 million, a 67% increase compared to the same period in 2024. In addition, we reported positive income for both the full year and fourth quarter of 2025. We believe this reflects important progress as we improve our financial performance on many fronts, including addressing historical liabilities. During 2025, we continued to drive down our combined R&D and G&A expenses. On a non-GAAP and net of partner reimbursement basis, we reduced these costs by 42% and 53% for the fourth quarter and full year 2025, respectively. We accomplished these reductions while continuing to execute on partnership commitments and targeted core R&D investments to drive value. Novavax ended 2025 with $857 million in cash and accounts receivables. In addition, we added another $80 million of nondilutive cash in the first quarter of 2026 including a $30 million Pfizer agreement upfront payment and a $50 million initial draw from the new $330 million credit facility announced today. We executed this new credit facility with MidCap Financial to enable flexibility and continued access to nondilutive capital as we execute on our growth strategy. Based on the combination of our year-end 2025 cash and receivables and the $80 million in nondilutive cash in the first quarter of 2026, we believe we can fund our operations into 2028 without contemplating any new cash flow to Novavax. That said, we do anticipate the addition of significant cash flow from partners over time. Please turn to Slide 22 for a recap of our full year 2025 financial performance compared to our revenue framework and expense guidance. A reminder for all is that our non-GAAP adjusted total revenues exclude Sanofi supply sales and royalties that totaled $22 million in 2025. On a non-GAAP basis, we achieved $1.1 billion in adjusted total revenues. This was approximately $50 million higher than the midpoint of our revenue framework range and was driven by additional Nuvaxovid product sales, primarily to Israel as we delivered doses on an amended APA schedule. Additional adjuvant supply sales and royalties from Takeda and the Serum Institute as they continue their successful marketing of Nuvaxovid in Japan and R21 malaria vaccine in Africa, respectively. And finally, $22 million additional from R&D reimbursements from Sanofi related to clinical supply and support for commercial manufacturing preparations for the 2026, '27 season. These points highlight strong execution as we support our customers and partners and advance our growth strategy. For combined R&D and SG&A, I'll begin with GAAP performance of $500 million that was approximately $20 million favorable to the midpoint of our guidance. This was primarily related to R&D cost reductions and lower spend in the fourth quarter. On a non-GAAP basis, the approximately $42 million favorability result comes from a combination of the $20 million in lower GAAP R&D spend and the $22 million increase in Sanofi R&D reimbursement noted earlier. Please turn to Slide 23 for a detailed view of our fourth quarter revenue results. For the fourth quarter of 2025, we recorded total revenue of $147 million, a 67% increase year-over-year. A few comments on fourth quarter results. Nuvaxovid product sales of $20 million was split between Israel APA deliveries and Novavax sales to other global markets. Supply sales of $19 million reflected both Nuvaxovid finished goods sales to Sanofi and Matrix-M adjuvant sales to our partners. Sanofi licensing, royalty and other revenue of $98 million was primarily driven by the $50 million in milestones for the achievement of MAH transfers for both the U.S. and Europe and $28 million from R&D cost reimbursement in the period. We look forward to Sanofi's Nuvaxovid commercial efforts in 2026 and beyond. Importantly, 2026 reflects the first year where Sanofi is in a position to leverage all the commercial tools to compete effectively in the U.S. and global markets. Please turn to Slide 24. We made significant progress improving our cost structure in the fourth quarter of 2025, and I will focus my comments on our non-GAAP results for combined R&D and SG&A net of partner reimbursements. We delivered a 53% decrease in the fourth quarter of 2025 with major contributions from both R&D and SG&A as we executed on our cost reduction program. This highlights that excluding the R&D reimbursed by partners, our fourth quarter cost structure is just under half the size of where we were a year ago and annualizes to a $328 million run rate, highlighting that we are on track for a significantly lower spend profile as we enter 2026. Please turn to Slide 25. Now since I've covered most of fourth quarter and full year financial results already, I'll emphasize the positive operating and net income for both the fourth quarter and full year 2025. Please turn to Slide 26. Taking a moment to recap accomplishments made towards improving Novavax's financial strength and performance. Key takeaways from this work are that we've put Novavax in the position to have an estimated cash runway into 2028 and prior to contemplating any new cash flow into the company as we drive towards our goal of non-GAAP P&L profitability as early as 2028. Keys to the timing of our path to non-GAAP P&L profitability are the successful development and regulatory approval of the Sanofi flu/COVID combination program and successful commercial execution by Sanofi on both the COVID and combination programs. This could be further supported by any additional cash flow from new business development agreements and further cost reductions. Please turn to Slide 27 for a review of our multiyear combined R&D and SG&A expense guidance. We are committed to continuing to streamline our operating expenses to enable value creation. Today, and for the first time, we are providing our 2028 guidance of $200 million or below. This 2028 target calls for a $200 million and approximately 50% decrease compared to 2025. For 2026 and 2027, we're improving our non-GAAP combined R&D and SG&A expense guidance by $25 million each year to $325 million and $225 million, respectively, at midpoint. Importantly, in 2026, we anticipate operating at an approximately $200 million core spend profile when excluding costs tied to completion of partner and APA performance obligations. These include non-reimbursed Sanofi R&D support and COVID strain change and commercial manufacturing support of approximately $125 million and $25 million in 2026 and 2027, respectively. As these near-term activities are completed, we expect to be in a position to further decrease our cost. We recognize that reducing cost is only part of the value equation. Novavax's core combined R&D and SG&A run rate of approximately $200 million or below is focused on a targeted R&D investments to unlock value from our technology, including advancement of the early-stage pipeline with the potential to bring at least one program into the clinic as early as 2027, generation of new data supporting partnering Matrix-M, advancing our adjuvant technology for both infectious disease and oncology use, including new formulations as we look to build a portfolio of adjuvants and support for our ongoing Matrix-M manufacturing operations. Please turn to Slide 28. Now turning to our 2026 revenue framework. For 2026, we're following an approach similar to the 2025 revenue framework in that our non-GAAP adjusted total revenue excludes Sanofi supply sales, royalties and milestones from CIC and Matrix-M. This means there may be revenues in 2026 that are additive to our expectations for adjusted licensing royalties and other revenue. We believe that in the 2026, '27 season, Novavax royalties will grow significantly as compared to 2025 as 2026 reflects the first year where Sanofi is in a position to leverage all the tools needed to compete effectively in the U.S. and global markets. For 2026, we expect to achieve adjusted total revenue of between $230 million and $270 million. This includes $35 million to $45 million of Nuvaxovid product sales under existing orders to Israel and Germany, $40 million to $50 million of adjusted supply sales to our license partners, which primarily reflects sales of Matrix-M, $155 million to $175 million in adjusted licensing, royalties and other revenue consisting of $70 million to $80 million in R&D reimbursement as we continue our R&D support and technology transfer activities for Sanofi. $50 million to $60 million from other partner revenue from Takeda, Serum Institute and Pfizer, including the $30 million upfront payment under the Pfizer agreement received in the first quarter of 2026. And finally, $35 million of noncash amortization related to the previously received upfront and R&D milestone payments from Sanofi. While our current revenue framework excludes the potential for the $125 million milestone linked to the initiation of a Sanofi flu/COVID combination Phase III study, we are encouraged by Sanofi's progress and public comments and look forward to sharing updates in the future. In addition, we are highlighting our expectation that we will be earning the Sanofi $75 million technology transfer milestone although we are excluding this milestone from our 2026 revenue framework at this time. This is due to the recent Sanofi request that we complete a subset of these tech transfer activities at a new manufacturing site, and we are evaluating the potential timing impact of this request. We don't anticipate the outcome to impact either our stated estimated cash runway or vaccine supplies for the current or future seasons. We look forward to sharing additional updates as we improve Novavax's financial performance, cost structure and strength to deliver shareholder value. With that, I'd like to turn the call back over to John for some closing remarks. John Jacobs: Thank you, Jim. In summary, we are proud of our progress in 2025 and look forward to continued progress this year. We have started the year off strong with the new Pfizer partnership and look forward to executing against this agreement and our Sanofi agreement this year while continuing to pursue new partnerships. We're also excited about the continued advancement of our R&D efforts, including our early-stage pipeline, Matrix-M life cycle management and the exploration of new potential Matrix-based adjuvants. We are executing our growth strategy and believe that we are on a path to deliver long-term sustainable value. Thank you to our shareholders for your support. And as always, we appreciate all of the hard work and dedication of our employees without whom the success would not be possible. I would now like to turn the call over to our operator for Q&A. Operator? Operator: [Operator Instructions] Your first question comes from Roger Song with Jefferies. Jiale Song: Maybe 2 from us. So one is we know Sanofi is about to have a new CEO. Just curious, based on your interaction with them or recent interactions, any updated views, strategies on their vaccine business? We saw quite a few M&A in the past couple of months, but just curious about the new management or the new leader for the vaccine business. And particularly, if anything you can give us some comments around the 2026 expectation for the COVID sales, that would be very, very helpful. And secondly, totally here, you used the C. diff as the example for your pipeline showcase. Just curious about your early pipeline, any prioritization you are contemplating understand the first IND as early as next year into clinical. John Jacobs: Thank you, Roger. Great to hear your voice. Appreciate you joining us today. Let me take on your first question about the new CEO. The new CEO for Sanofi is not in place yet. There's a long history with Sanofi. But we -- our connectivity with our partner has not changed at all. They're outstanding partners, completely transparent and positive relationship. We're very pleased with Sanofi as a partner. And the folks we work with on a daily basis are there fully engaged and nothing has changed. So we see a continued bright future with that partnership. And I think you had a follow-up question then from there on potentially the fall season. Elaine, did you want to touch base on that? Elaine O'Hara: Yes. Thanks, John. I'll just take that. Hopefully, Roger, this is the question that you asked around the COVID, the upcoming COVID season. So we're very excited about the upcoming COVID season. Just to pick up on John's point, we obviously have multiple teams that work across both companies as it relates to COVID and future programs with Sanofi. And we've been working expeditiously over the last -- since we signed the collaborative license agreement back in 2024, both for last year's season and this upcoming season. This season is going to be the first real full season that Sanofi will be selling Nuvaxovid globally. And so all of the plans that we've been engaged on with Sanofi over the last year, very deep. Obviously, they've had a time to get through their contracting cycle at the retail level. This is the first full year that they'll have had the ability to do that. And so yes, the upcoming season looks very promising. They have direct-to-consumer advertising programs that they will be initiating later this year as well. So it looks like all systems go from a good -- for a good season in the 2026, 2027 year and season for Nuvaxovid. John Jacobs: And then Ruxandra, did you want to take Roger's question? Roger, I believe you were asking about our pipeline. And if we have priorities, we chose to share some information about C. diff today as an example. Rux, did you want to take that one? Ruxandra Draghia-Akli: Yes. Thank you, Roger. So indeed, we have chosen to give an example in C. diff. But of course, we are advancing with all the other early programs, the VZV, the RSV triple combination as well as the work around Matrix in -- both in the sense of new formulations and maybe new Matrix-based adjuvants. So all these programs are advancing each and every one at their own pace. There are actually very interesting results that we are generating in the preclinical space with each and every one of these programs, and we are looking forward in the future to sharing with you data from other programs. And thank you for the question. Operator: Your next question comes from Tom Shrader with BTIG. Thomas Shrader: Just kind of a broad question. I assume you don't want to build another vaccine commercial framework or at least you'd love help. As you look for partnerships for the Matrix-M, are co-promotes attractive? Is that something we might hear about. And then a very different question for Ruxandra. You've obviously piqued our interest that you've already tweaked Matrix-M to get a bigger T cell response. How do you develop from here? Do you need a partner with a vaccine, maybe a cancer vaccine? What are the next steps we might look for because it's certainly an exciting comment? John Jacobs: Tom, thank you for your questions, as always. And number one, as you know, Novavax has gone through a remarkable transformation in the last 3 years with this -- with the new management team and our focus and new strategy. And we've cut out our commercial capabilities, reduced expenses and are really focusing on partnering business development under Elaine O'Hara's leadership, who's with us here today and R&D under Ruxandra's leadership. And so we reserve the right always, of course to think about down the road, doing some kind of commercialization or co-promote, et cetera, with a product that might really be a game changer in a blockbuster if we were to get one out of the clinic. But our core focus right now is not that. So we'll be open-minded. If we get a real winner coming out of there and it looks exciting, we'll make the right decision to drive value for our stakeholders, for Novavax and for everyone who's counting on us when that time and if that time were to come. But our intention is lean investment, drive data and proof points for our tech, invest in Matrix as a platform creating -- our intent is to create new adjuvants tailored specific adjuvants for different purposes, both within and outside of infectious disease. We have a vision to have a portfolio of adjuvants based on this Matrix technology, starting with Matrix-M, which as we all know, is a remarkable adjuvant and product. That's our focus. And our new pipeline of assets, which we shared a bit about C. diff today, we're very excited. We're excited about all 3 of those assets right now, but we chose that as an example. Such significant unmet need there with C. diff. And I will say very quickly, Tom, we -- my family felt the impact of that as my sister-in-law lost her best friend to C. diff infection and the sequelae following that on a routine procedure in a hospital. So quite a difficult condition to treat, and we really hope we can bring forward a vaccine that would be meaningful. So then the other point on your question, go ahead, Ruxandra, about Matrix. Ruxandra Draghia-Akli: Yes. Thank you, Tom, for the question. So we are actually using our know-how and historical knowledge of not only Matrix-M, but this entire adjuvant field in order to create new formulations and new variants, versions of Matrix-based adjuvants that can be tailor-made to specific immune responses. Of course, that is a type of work that is undertaken in-house by our teams -- and when those types of new variants of Matrix will be actually completely tested and ready to partner, of course, that we are going to offer them to our partners in different fields like in oncology or in hard-to-treat infectious diseases as we have actually -- we, Elaine and her team went and realized these fantastic deals around Matrix-M. So internal work in view of partnership. Operator: Your next question comes from Anupam Rama with JPMorgan. Unknown Analyst: This is Joyce on for Anupam. It's great to see the continued progress on new Matrix-M partnerships. I think you noted one of your agreements this month was expanded to explore an additional field. I was just wondering if you could provide any more color on that. And then just broader, what is your view on the potential time horizon for these MTAs to turn into more formal partnerships? Just at what stage of development or evidence generation do you think you could start having those conversations with your partners? John Jacobs: A really great question. I'll have Elaine elaborate on that. Elaine's team leads our efforts on business development and the strategy on how we approach partners, which she shared some of in our prepared remarks earlier today. There's a methodology to that, that starts with R&D, with data that Ruxandra and her team generate and then Elaine and her team are able to share that data in partnership with our R&D colleagues with potential partners. And one comment I'll make and hand it over to Elaine for a little bit more elaboration on the process and what we might be able to expect. But what we're seeing is as other companies start to experiment with Matrix, learn more about it, most often, they're coming back to us to do more. And you heard that in some of Elaine's comments today. Elaine, you might want to elaborate there. Elaine O'Hara: No, thanks very much, John. So in some instances, we create and generate data ourselves internally to utilize and have that presented to various partners in partnering discussions. In other instances, we allow and provide Matrix-M to companies to test and experiment in their own clinic and in their own preclinical situation across either existing vaccines or vaccines that they may have in development. And as John mentioned, what we're seeing at the moment is several companies are coming back and asking to expand that opportunity to other fields, whether it's bacterial, viral situations and most recently, even oncology as well. So we're very excited about that. The time line is TBD. We don't have any -- necessarily any control over that because it's up to the partner in terms of what they're developing and how long that time line is going to sort of unfold. But that's why, obviously, we work with our partners then to gain an upfront payment for the ability to utilize Matrix-M and go through a collaborative license arrangement then where we can receive various milestone payments depending on when those partners hit those milestones as well as royalties in the future as well. So that's really the structure of the and strategic sort of direction that we move in with our partners, and we work very closely with them in many situations to get them from the start to the finish. And then obviously, they take it over themselves as well as they move Matrix-M through their own pipeline. So hopefully, that answers your question. Thank you. John Jacobs: Well said, Elaine. And Pfizer was one of -- just to build on that a little bit, Pfizer was one of the first organizations as our new strategy began to launch to begin assessing the potential of Matrix-M as we were focused on out-licensure of our technology and making this a cornerstone of the future for Novavax. There's been multiple potential partner discussions behind that and all at different stages. And we're not in a position to ever promise or commit that we're guaranteeing anything about another partner coming on board, but we can say that we have a pipeline of potential partners that is now building and growing. And as Elaine said, we had a large global pharmaceutical company, a top 10 kind of company that came back to us to expand their MTA into another field to explore. So as these companies learn and they see Matrix, Matrix won't work for everything, nothing works for everything. But it often works to solve problems and help these other companies unlock value or value potential in their pipelines. And as they see that, they're coming back again and again to us to expand and create additional opportunities with this asset. So we're excited. We anticipate and intend to drive additional partnerships in the future, and we will share those with you when they're inked and done should that occur. We can't say much more about it before that other than a lot of traction, a lot of work behind the scenes, all at different stages of progress and dialogue toward that eventual intended end. Operator: Your next question comes from Mayank Mamtani with B. Riley Securities. Mayank Mamtani: Congrats for the momentum you have on partnerships and pipeline... John Jacobs: Thank you, Mayank. Mayank Mamtani: Impressive discipline on spend scale down. So my 2 questions. One on the respiratory vaccines, FDA and also ex U.S. regulatory road map, what's your best understanding since you do have some correspondence relating to your own Phase III stage programs, CIC and flu. And there's obviously the Sanofi-partnered CIC program -- I don't know to what extent you've compared the 2, the Sanofi partnered and your own wholly owned CIC program. And I was just curious if this uncertainty starts to clear up, like what is sort of the way to assess value of your own 2 clinical stage programs? And then I have a follow-up. John Jacobs: Mayank, I apologize. So I just want to make sure we understood your questions. So first, I believe you were noting that we had received some feedback in the past on our CIC and flu programs. Obviously, we're not making further investment ourselves in those programs. We're looking to out-license those and partner those. And I believe you were asking us to compare and contrast that with some of the things that have been disclosed in the public domain from Moderna and others recently. Was that your question [indiscernible] any insight? Mayank Mamtani: And also the Sanofi data, we learned some in December. So there is, I think, a way to compare at least a high level, your CIC program with the Sanofi program. So I was just curious if that Sanofi program does go into Phase III, is there a way to ascribe value to the 2 programs, which I understand you're not investing, but are partnerable assets? John Jacobs: Got it. Well, what I can say about that, Mayank, is we were very pleased to see our partners advance both of those programs, 2 combination vaccines with their 2 flu vaccines, their leading high-dose flu vaccine, right, and Flublok and Fluzone High-Dose with our proven COVID vaccine. Very exciting. And there's been more recently -- and as you know, we can't and won't speak for our partners. But what we're excited to see are their comments in the public domain and their CFO was recently out on the road with analysts and investors, and they've publicly been speaking about the importance of these combination programs to their future as they start to contemplate the post-Dupixent Sanofi and how important that is. So I encourage everyone to take a look at those comments from Sanofi leadership in the public domain as they're getting ready for further leadership change, they've been quite direct about how important these assets are and how excited they are about it and have noted regulatory review, this is their words, not ours, expected in the '27, '28 time frame. So we're very excited about that. They're outstanding partners. They have tremendous capability in the vaccine space and a leadership position in flu globally, and we see a bright opportunity there. There's a pathway forward, we believe, and that we're encouraged by Moderna's progress with their flu vaccine. So what we're seeing there in the public domain, you can see and our investors can also see. So we're seeing a pathway forward there and ability to negotiate and work with the current administration. We're also hearing from the current administration that they believe in vaccines and want them to move forward. Obviously, some of the positions they've taken our industry and our scientific community may not agree with all the time, certainly. But there seems to be a pathway forward here, at least from what we can see together. So just making comments on what we see publicly, what our partners have said publicly, we couldn't be more excited about our future here and looking forward to next steps and hearing more from Sanofi. Mayank Mamtani: Very helpful color. And if I could ask a follow-up on your expected annualized run rate you want to be at ending this year. I know you mentioned you're at about $320 million ending 2025. So I want to understand target for year-end since it's a big step down '27 -- sorry, '26 to '27. And maybe just a bit more color on the new manufacturing site request from your partner, Sanofi, if any color you can give there more on time line of resolution there? John Jacobs: Thank you, Mayank. So I think I'll have Jim cover your questions about costs. I think very importantly, you heard in Jim's prepared comments, some non-GAAP description about the core costs for our company and then obligations we have that are trailing and the end stage of those trailing obligations on remaining APAs and tech transfer activities and things like that, that we're supporting our partner, Sanofi with. And that you can see very -- hopefully, very clearly in the provided slides and here in Jim's commentary, how those costs are anticipated to roll off towards the end of this year in a large part, those extra costs on those trailing obligations and that we then get closer to the core where we're operating our business. Jim, why don't you comment further on that for Mayank? James Kelly: Yes, certainly. Mayank, as you've watched the evolution of our cost structure, a couple of important points to think about in 2026. One in particular is that, a, we exit 2025 fourth quarter and an annualized rate that is consistent with the non-GAAP $325 million that we are guiding to in 2026. That said, when you -- while I'm not providing quarterly guidance, it is worth noting that it will be a bit front-end weighted for the following reasons. When you think about our preparations for the fall season and the type of manufacturing support and route to the fall, much of that work happens in the first and the second quarter of the year. So that's the first reason why you'll see a higher amount in the first part of the year. A second part is, as you might remember, we're supporting Sanofi on numerous R&D activities, including a post-marketing commitment, the majority of which will be front-end loaded into the year, a portion of which we're covering as well. So on that net of reimbursement basis, you'll see some incremental spending there as well. So therefore, the shape of our spend throughout the year towards our full year targets will be more front-end loaded for the reasons I just mentioned. And that is why as we look towards our ability to hit the appropriate both quarterization at the end of 2026 but also acknowledging that there'll be a drop-off in certain spend profiles as we complete activities, that's the shape of the business for 2026. So hopefully helpful on that front. John Jacobs: And Elaine, did you want to address the question about the tech transfer? Elaine O'Hara: Yes, absolutely, John. So thank you. Yes. So we -- as I mentioned earlier in one of the questions-and-answer sessions, we have multiple teams working very collaboratively, both with Novavax and Sanofi and one of those is actually a tech transfer team as well. And Sanofi made the decision to actually fully realize all of the tech transfer to a U.S. facility. And so as a result, that's just going to extend the time line for the tech transfer and take a little bit longer. That decision was recently made. All of their capability for the manufacture of Nuvaxovid will actually occur in the U.S. So again, we're supporting them and working with them to make that happen. Again, it doesn't affect, as Jim mentioned, our -- the health of Novavax from a cash perspective. And so I just wanted to give a little bit of additional information and context on that. John Jacobs: Jim, any further comments there? James Kelly: I would reiterate that, first of all, Sanofi, amazing partner. We've got the same conviction and confidence that we're working with the right partner, and we're going to help them do what they need to do to get all the technology transferred into their hands to manufacture effectively and have supply available for coming periods. So we don't see any impact on that. It's just simply working with the team on what I outlined as a subset of activities. So that's fine. And then I made a reference earlier about the milestone, $75 million. We'll come back to you regarding the implication and timing on that. It doesn't impact our cash runway. It doesn't impact, in our view, the likelihood of achievement. It's just simply working through some details with what we think is an excellent partner. Operator: Your next question comes from Pete Stavropoulos with Cantor Fitzgerald. Unknown Analyst: This is Sarah on for Pete. Congrats on the quarter progress. John Jacobs: Thanks, Sarah. Unknown Analyst: Question on Nuvaxovid. You've described 2025 as the transition and 2026 is the first commercial year for Nuvaxovid under Sanofi control. And so how much of that COVID 2026 uptake assumption depends on contracting wins versus physician patient-driven pull-through? And then additionally, can you just remind us how many MTAs are currently in place? John Jacobs: Good questions. I'll have Elaine comment a bit on the nature of contracting. We wouldn't be able to disclose for our partners the percentage or the wins or things like that. But certainly, contracting matters in the United States is the vast majority, over 90% in my recollection of COVID distributions in the United States have been through retail pharmacy. And that contracting begins the year before wraps up in sometime around second quarter the next year, and they're deep into that process right now, and it's very important. They were able to start that process this cycle for the first time because they had the BLA now in hand, the full -- all the tools, all the pieces in place at the end of last year, so they could start that full cycle negotiation with retail. So it absolutely matters in the U.S. marketplace, and they're in it from the beginning, and that's the first time for Nuvaxovid under BLA that we've been able to have our asset in the hands of a partner at that full cycle with all the pieces in place for them to work their knowledge and experience to begin to optimize over time, the penetration of the market for our asset. Elaine, anything to add to that? Elaine O'Hara: No, that's it, John. I mean, again, the cycle for Sanofi starts in November of the previous year. By the time they hit March, April time frame, those contracts should be wrapped up. I can't speak to the volume or the level of detail since they have full commercialization rights. So that is TBD yet, but we're very inspired by the conversations that we've had at our joint commercial committee that the 2026, 2027 season is going to be a full cycle season, again, based upon all of the components from a marketing perspective that they aim to put in place. So hopefully, that answers the question. John Jacobs: Yes. And the other question was about the number of MTAs. So we haven't disclosed all of the MTAs that might be signed. We're being very careful and selective. Like I said earlier, Sarah, in my prepared comments, since I joined the company in January of 2023, I've never seen this level of interest, but it's not surprising because Novavax historically, when they had first acquired the asset, brought it forward, right, through eventually R21 and a COVID vaccine. So those were the first assets that showed the world this adjuvant can make a difference. And then we transformed this company over the last 36 months to focus on out-licensing our technology and really making the world aware of that. And our R&D team was generating data to show that we have utility across multiple vaccine platforms, which was part of our comments today. And that Elaine, I brought Elaine in as our Chief Strategy Officer. She created a new capability here in Novavax to really start to negotiate these kind of things, reaching out to partners. And it's through the efforts of our employees here, Elaine and her team, Ruxandra and our R&D team and the concerted efforts and focused strategy that we've enabled the awareness of this amazing technology and help to enlighten others as to its potential. And then when they experiment with it themselves, most often, they're seeing the results and they're seeing it has the potential to unlock problems they might have been wrestling with for a while, unlocking value potentially in their portfolios. And then we see the actions from Sanofi. We see the actions from Pfizer. And under the new strategy, Pfizer was one of the first to be approached by Elaine and her team in this new construct post the Sanofi deal. That's turned into a deal that could, assuming successful execution by Pfizer, result in billions of dollars in future revenues and value for Novavax and all of our stakeholders. So there are many MTAs in place. We announced that we had existing partners ask for expansion or amendment of that MTA. Elaine, you may want to comment a little more. You just signed a new one in the last week with an oncology company. Elaine O'Hara: Correct, John. Yes. Actually, we've had some interesting weeks here in February with signing a new MTA with an innovative oncology company and then also an additional signature for an amendment for a large-cap pharma company to expand their initial MTA to cover another pathogen that they're interested in pursuing. So lots of interest. And again, we're delighted with that. Our goal is to accommodate our partners in every which way that we can from our research and development perspective to support all of the initiatives that we have with our partners at the moment. And so we're very excited about the future. Operator: Your next question comes from Chris LoBianco with TD Securities. Christopher LoBianco: Congrats on all the progress over the last few months. John Jacobs: Thank you, Chris. Christopher LoBianco: Can you provide any color on the specific characteristics or potential differentiating factors of Matrix that were most attractive to Pfizer? And then I had one follow-up question. John Jacobs: So we're -- Chris, just so my team could hear it, we had a little bit of trouble hearing the question. I believe you were asking, can we comment on the differentiating characteristics of Matrix that were attractive in particular to Pfizer? Is that -- did we hear you correctly on your question? Christopher LoBianco: Yes. John Jacobs: Yes. We won't be able to comment specifically on what Pfizer might have found attractive because Pfizer is keeping that confidential due to competitive reasons. But obviously, they saw significant value to sign such a meaningful potential deal with Novavax that's now on the books, and they're moving forward with their work. One of the 2 fields that they're allowed to explore with Matrix through the agreement has already been selected and they're contemplating the second. So -- but I think Ruxandra and Elaine could comment, maybe Elaine from a business perspective and Ruxandra from a scientific perspective, in general, why Matrix is such a powerful tool and why others in general, may be interested in it, Elaine. And then Ruxandra, please. Elaine O'Hara: Just very quickly, from a business perspective, I think Ruxandra said this in her commentary earlier on, Matrix has a lot of flexibility. The platform, the technological platform is very flexible, and it can support many vaccine platforms. I think that's very attractive. The whole nature of an adjuvant is that it can provide and enable a more targeted or specific or a broader immune response. And so with each one of those value propositions, what we -- when we have discussions with partners, obviously, they're interested in any or all of those. And that is largely the discussion that we have. And as I said earlier, they then take that back to their clinic to their preclinical situation of their clinic. And then that, as John mentioned, potentially helps them to either solve a problem or unlock additional value for their vaccine or their portfolio of vaccines. Rux? Ruxandra Draghia-Akli: Yes. Thank you, Elaine. Excellent point. On the top of what Elaine just mentioned, we might remember that in the clinical studies, we have generated significant amount of data showing that Matrix-M as an adjuvant is associated with a very favorable reactogenicity tolerability profile. So together with this broad type of immune response in combination with different vaccine platforms and different types of antigens being bacterial, being viral, now in our latest explorations in oncology, we are looking to actually capture and capitalize on all these characteristics, a broader immune response plus a tolerable profile. So I think that those might be some of the criteria that are serving as an impetus for potential partners to come to the table and start the conversation. Christopher LoBianco: That's great. That's very helpful. And then second question is, do you think there is more upside or downside risk for Nuvaxovid from the upcoming [indiscernible] 2026 ACIP meeting? And can you remind us if there is data that shows differentiation on long COVID and safety for Nuvaxovid relative to the mRNA COVID vaccines? John Jacobs: So I'll let Ruxandra comment on the long COVID question and the differentiating data. Regarding ACIP and upcoming interactions with the FDA and regulators and different decision-making bodies, we see -- we're optimistic about a pathway forward. Last year, the season rolled out and everyone was out at the same time, et cetera. We're anticipating the same thing to happen this year. But until it happens, you know what we know. So we can all see it in the public domain. There's a meeting now on the books. So that's good. And we'll pay attention to that. And as that unfolds, we'll roll with it. But we are doing everything we can to ensure that we are prepared to support Sanofi in their commercial efforts in the U.S. marketplace this year. So we're ready with supply for Sanofi. We understand the strains that are circulating, and we've been focused on that. Our team knows how to do that. Sanofi certainly is a global expert at doing that with their flu. We collaborate very closely with them. So we are ready. We are poised and what's beyond our control, we'll watch unfold together with you, and we'll go with the flow on that. But we're anticipating a pathway forward. We do not anticipate choice being completely removed from the American population on important tools like vaccines. But again, that's my personal opinion. That's our team's thought about it. We know what you know. We can watch it in the public domain. So let's see. But we do expect and anticipate optimistically a season to unfold this fall and are looking forward to seeing, assuming that smoothly goes this spring from the regulatory authorities, how well Sanofi can perform now in their first full cycle launch. Ruxandra Draghia-Akli: As far as your question around long COVID, epidemiological data published in high-level peer-review publication has actually pointed to the fact that vaccinated individuals have a lower risk of developing long COVID compared to unvaccinated individuals in different populations and geographies. And obviously, with any vaccinations, in particularly boosters are associated with this lower risk of long COVID per the published literature. So I don't know if that answers your questions, but at least whatever is out there as peer review data is showing this particular association. Operator: Your next question comes from Geoff Meacham with Citigroup. Unknown Analyst: This is Jarwei on for Jeff. Really exciting and encouraging to hear that you guys are expanding the pipeline opportunities beyond respiratory vaccines. Maybe just thinking about C. diff, shingles and RSV, what will inform timing for moving that into 2027? Could we -- could this possibly be more of a 2028 situation? And then also, could partnerships or potential partnerships for these programs influence expediency and selection on which one gets moved in the clinic first? And is that something you're exploring as well, partnerships that is? John Jacobs: Thank you for your question. And very importantly, your question focuses on one of the key elements of our R&D strategy and how R&D is supporting our efforts. Very importantly, the investments we're making in R&D are multiple and important to support primarily Matrix, that technology to expand the utility of Matrix to create new formulations of Matrix-M, such as dry powder, et cetera, and also working on the creation of new adjuvants based on the Matrix platform with the intention over time, should we succeed there of having a portfolio of adjuvants that are tailored and specific to target some very difficult to treat infectious diseases to go beyond infectious disease into oncology for specific types of oncologic conditions. So very -- that's where we're really focusing a lot. We have experts here on the scientific side in Sweden with Novavax that understand Matrix and for years, have worked with it and a lot of expertise in Rux's shop on that. Another key element, generating data and proof points that our business development team can utilize. And then third, but not last, that's important, we have some early-stage assets in development. The goal of that is to further -- to your point, Jarwei, is to further partnering opportunities and also to generate more proof points and data. So all along the way, and we're learning from each of these approaches. And combining that synergistically with our efforts on Matrix to further inform how we approach building this potential library of adjuvants, if you will, that we're working on. When it comes to expediency or timing, what we've said is as early as 2027, we could be in the [indiscernible] humans with one or more of these assets should we choose. We're not disclosing exactly where we are on time lines right now, but we feel confident in saying that at this point. Elaine, did you want to elaborate further? Elaine O'Hara: Thanks, John. I mean the only thing I would say is, a, we selected these antigens and these programs because we believe that they have a significant market opportunity, but also address unmet medical need. Each one of the programs has its own unique path forward from a preclinical perspective and also its unique opportunity in the marketplace as well. The way that we selected these programs was based upon competitive landscape, opportunity and other characteristics. And as John said, we will attempt and move into the clinic in 2027. That is our goal. And as we have data that's relevant to a potential partner, we will begin those discussions with those partners as they become available. That's the goal. John Jacobs: And Ruxandra, we're deeply into the preclinical work on all 3 of these programs, slightly different stage for each. We chose to share some information today on C. diff because it's obviously such a huge unmet need globally. There's no vaccine available. Others have -- importantly, Jarwei, others have tried and failed at least in their initial attempts to create a vaccine for C. diff, and we see companies going for that again now and trying. Our team was able to learn from there's a lot of data out there in the public domain and publications learn from those past attempts. And you heard some of the commentary from Ruxandra on how we're approaching this very differently from a multivalent antigen perspective, antigen versus toxin perspective, other things like that, that are very important. And of course, we have Matrix-M. And so we're very excited about what we're seeing. We're standing by our commentary that as early as '27, we could be in the clinic with one or more of these. And again, it's providing value to us in these behind-the-scenes discussions on business development. And the last point there, obviously, any management team, executive team working on a strategy like ours will always know more about where we are than we're allowed to share with everyone in the public domain. We won't make and cannot make promises about success on any of these endeavors. They have risk, they're challenging, but we're excited about what we're seeing on progress with potential partners what they're seeing in their own experiments and what we're learning from our R&D efforts, and we look forward to keep bringing you information as we can and as the story continues to unfold. Operator: Your next question comes from Alec Stranahan with Bank of America. Unknown Analyst: This is Matthew on for Alec. Maybe 2 from us. Can you just speak to the current agreements for Matrix-M that have been signed, whether those agreements also apply to sort of the portfolio of adjuvants you're thinking about developing going forward and sort of different formulations of Matrix-M? And then maybe on the pipeline as well. Curious if 1 of the 3 programs is sort of ahead of the others? And if they're all sort of similar stage, I guess, which one you would think about bringing forward? Is it dependent on developments in the therapeutic area, sort of updates there or something else? John Jacobs: Thank you for your question. I'll let Elaine comment on the current agreements that are signed regarding Matrix. Go ahead, Elaine. Elaine O'Hara: Thanks, John. Yes. Clearly, all signed agreements, all material transfer agreements that we have signed today focus exclusively on Matrix-M. So that's the answer to that question, sorry. And then, John, back to you. John Jacobs: No, you're right. And any new adjuvant, should we succeed in developing one or more additional adjuvants, that's our intent. That would be purely Novavax. And importantly, we have not exclusively out-licensed Matrix-M to any party. That's Novavax asset. And so we give licenses for particular indications and things like that to partners. So this would be -- should we succeed with one or more additional targeted adjuvants, that would be -- those would be ours, our IP. We can work with those, we can out-license those. We see that as a potential future engine for continued innovation and partnering opportunity, both within and our intention is to go beyond infectious disease in that regard. And you asked also about pipeline assets in that way. Ruxandra? Ruxandra Draghia-Akli: Yes. Thank you for the question. As far as the early pipeline assets, you might remember from our previous presentations and from my intervention that each and every one of them actually is addressing a different unmet medical need. For C. diff, there is no vaccine. For shingles, the issue was the reactogenicity that is associated with current vaccines. For RSV, it's a triple combination. So we are going and adding other antigens to that particular antigen of RSV. So each and everyone have their own complexities. We started these programs by designing a very rigorous target product profile that is based on where we are in the field and where we are from a business opportunity. That TPP is evolving as the ecosystem is evolving, it is a living document. And as we go along in our discovery and development efforts, we are always relating back to that TPP. If new data is created by somebody else, we are taking that into account, and we are asking the question, are we good enough, are we better, what do we need to do or what data should we develop in order to convince a partner and to convince ourselves that, that is a program that is worth pursuing. Operator: Your last question comes from Sean Lee with H.C. Wainwright. Xun Lee: Most of my questions have been answered, but I just have one more on the early pipeline. So it's for these 3 products that are in preclinical right now, can we expect to see any milestones this year regarding data disclosures? I mean, specifically, are you targeting any specific conferences where we can see some of the preclinical data on these? John Jacobs: Let's have Ruxandra go into a little more depth on the answer. But we're excited about what we're seeing. We're going to be very cautious about how much we share for competitive reasons. So for instance, in one scenario, if we think we have unlocked a potential pathway forward with an asset, I'm not saying that today, I'm saying that scenario, let's call it a hypothetical. We wouldn't want to share how we figured that out in the public domain, even though that might be exciting. So we're going to be cautious. Next steps, as we wrap up the work in the near term on our preclinical efforts, we could ready one or more of these assets. That's our intent for IND with the regulatory authorities. We would expect the potential of that to occur this year. And that's why we say as early as 2027 for -- to be in humans with one or more of these programs. So yes, we will continue, as we did today, begin to unveil first for C. diff here as an example, some of what we're learning and the progress we're making. We're going to remain cautious and a bit guarded on some of it because we want to be careful from a competitive standpoint. But we're making excellent progress. Our lean and careful investments are paying dividends internally from what we can see, and we're excited to continue to bring these forward with the intent of success with one or more of these down the road. So we'll keep you informed. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John Jacobs for any closing remarks. John Jacobs: Just want to thank everyone for joining us today. I want to thank all of our investors who believe in Novavax, believe in our technology. I want to thank our investors for being patient with us as we converted this company and transformed it from a company focused on COVID alone with one asset and the remarkable effort of our employees to unwind the large global organization built to commercialize one asset and do so without hurting our capabilities while changing strategy and while starting to move forward and teach the world about the technology this company had and was sitting on and made one asset with and to then start to enlighten others about the potential of that technology and the effort and the time that takes -- and everyone likes to see things right away. Show me yesterday, why did do a deal in a day. But this took time to convert the company. It took time also to enlighten others and share data and generate data to show them how this product might work with their pipeline assets or technology platform, then they do their own experiments. We saw Pfizer, one of the first that we started with our new strategy come forward. We're telling everyone we've got a pipeline of potential partners behind that. We'll never promise anything until we deliver it, but we want you to know we're working really hard every day. Our employees are having fun. We're excited to be engaged deeply into this new strategy and really optimistic about the legacy we can leave on global public health and the value we can drive for all of our stakeholders. Thank you again for your patience, your belief in us and our technology. We're working really hard for you. We're going to work hard not to let you down and to keep growing this business. Thank you, everyone. Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect, and have a wonderful rest of your day.
Operator: Ladies and gentlemen, welcome to AIXTRON's Fourth Quarter and Full Year 2025 Results Conference Call. Please note that today's call is being recorded. Let me now hand you over to Mr. Christian Ludwig, Vice President, Investor Relations & Corporate Communications at AIXTRON for opening remarks and introductions. Christian Ludwig: Thank you very much, Anna. A warm welcome to AIXTRON's 2025 results call. My name is Christian Ludwig. I'm the Head of Investor Relations & Corporate Communications at AIXTRON. With me in the room today are our CEO, Dr. Felix Grawert; and our CFO, Dr. Christian Danninger, who will guide you through today's presentation and then take your questions. This call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. All documents referred to in this call can be accessed via our website in the Investor Relations section. Please take note of the disclaimer that you find on Slide 1 of the presentation document as it applies throughout the conference call. This call is not being immediately presented via webcast or any other medium. However, we intend to place a transcript on our website at some point after the call. I would now like to hand you over to our CEO for his opening remarks. Felix, the floor is yours. Felix Grawert: Thank you, Christian. Let me also welcome you all to our full year '25 results presentation. I will start with an overview of the highlights of the year and then hand over to Christian for more details on our financial figures. Finally, I will give you an update on the development of our business and our new guidance. Let me start by giving you an overview of the highlights of the year on Slide 2. The most important messages of the day from my viewpoint are: in 2025, we have performed well in a soft market environment by achieving revenues of EUR 557 million, a decline of 12% year-over-year. That translates into a CAGR of more than 13% since 2020. We delivered on our adjusted 2025 revenue guidance, meeting the upper end of our guidance given in October '25. Mainly due to the lower utilization in operations, due to one-off restructuring costs, and due to G10 ramp-up adjustments, our gross profit was down 15% to EUR 222 million, and EBIT was slightly down with minus 24% at EUR 100 million as a result of this. Similar to last year, we finished the year with a strong Q4 '25 performance. We achieved 31% EBIT margin, a level comparable to last year's extraordinary Q4. This marks a great achievement of our operations team as we managed to realize all shipments that customers had asked us to deliver in Q4. The highlight of the operating performance is our cash flow generation. Operating cash flow increased by more than EUR 180 million to EUR 208 million. And our free cash flow increased by more than EUR 250 million to EUR 182 million. With that, we concluded the year '25 with a cash level of EUR 225 million, a good step towards rebuilding our strong cash position that we always have desired. Thus, despite the weaker net profit, we have decided to propose a stable dividend of EUR 0.15 per share to our shareholders. Our outlook for the year 2026 is based on an expected continued weaker market environment. We expect revenues to come in at EUR 520 million in a range of plus/minus EUR 30 million with a gross margin between 41% and 42% and an EBIT margin between 16% and 19%. Breaking this down by segment, AI will be the key revenue driver in '26, fueling strong growth in optoelectronics and lasers through rising demand for optical interconnect. In contrast, SiC, silicon carbide power will face a weak year due to overcapacity and slowing EV momentum with LED and microLED and GaN power demand remaining broadly stable. This concludes the short highlights section. I will now hand over to our CFO, Christian Danninger. He will take you through the full year '25 financials. Christian? Christian Danninger: Thanks, Felix, and hello to everyone. Let me start with the highlights of our revenue development on Slide 4. As Felix mentioned, the revenues in 2025 were down 12% to EUR 557 million. Our strategy of serving various uncorrelated end markets with our equipment proved again successful in 2025. We saw strong growth in the optoelectronics area. This compensated to some extent, the weaker demand for equipment for LED and microLED as well as gallium nitride power electronics. The breakdown per application shows that 57% of equipment revenues comes from GaN and SiC power, 23% from optoelectronics, 15% from LED and a 5% contribution from R&D tools. The aftersales business contributed to total revenues with a growth of 1% to EUR 112 million. The aftersales share of revenues grew to 20%, up from 17% a year ago. Now let's take a closer look at the financial KPIs on the income statement on Slide 5. Gross margin decreased by 1 percentage point versus 2024 to 40%, which was primarily due to lower utilization operations, G10 ramp-up adjustment expenses and the one-off restructuring cost. Accordingly, gross profit was down by 15% year-over-year to EUR 222 million. As we had planned, our spending on R&D in the year 2025 decreased to a total of EUR 81 million due to a reduction in external contract work and lower consumables costs. This helped to drive our OpEx down 7% to EUR 122 million. Combined with the lower gross profit, this resulted in an EBIT of EUR 100 million, which is 24% lower year-over-year. Net profit was down 20% year-on-year at EUR 85 million. This results in an effective tax rate of 15% in fiscal year 2025, a clear positive were our Q4 2025 gross and EBIT margins at 46% and 31%, respectively. Despite the 18% lower revenues number at EUR 187 million, we were able to beat the very strong level of Q4 2024 on gross margin level and meet it on EBIT margin level. Orders in the quarter came in at EUR 170 million, an uptick of 8% versus last year's quarter. For the full year, order intake came in at EUR 544 million, slightly weaker than last year. And thus, our backlog at EUR 258 million is down by 11% year-over-year due to the above-mentioned softness in demand. Now to our balance sheet on Slide 6. We ended the year 2025 with a total cash balance, including other financial assets of EUR 225 million, which was well above the EUR 65 million last year. There are a number of factors driving this increase. Firstly, inventory levels at the end of 2025 came down by about EUR 85 million to EUR 284 million compared to EUR 360 million at the end of '24. This is the result of our adjusted supply chain strategy and corresponding measures after initially front-loading the supply chain in 2024 in expectation of stronger revenue growth. We target a further reduction of inventory levels through 2026. Second, we have seen a solid decrease in outstanding receivables compared to the last year and which generated some EUR 60 million in cash. As a result of putting on the brakes in our supply chain early on, the amount of payables have been stable during the course of the year. Advanced payments received from customers, on the other hand, were slightly down year-over-year at EUR 44 million due to the decline in order intake, combined with a shift in the regional customer base and partially impacted by some key date effects. At year-end, down payments represented about 17% of order backlog. As a consequence of all these factors, operating cash flow improved by more than EUR 180 million to EUR 208 million in the financial year 2025. As mentioned already in previous calls, CapEx decreased significantly in 2025 due to no additional investment requirements for the innovation center. As a result of the significantly lower CapEx, free cash flow improved by more than EUR 250 million year-over-year to EUR 182 million from negative EUR 72 million in 2024. We expect further solid free cash flow generation in 2026. Lastly, we are proposing a stable dividend of EUR 0.15 per share. Despite our lower net earnings, we want our shareholders to participate in the improved cash flow generation. Going forward, following an intensive investment phase in the years 2023 and 2024, CapEx alone for the innovation center was EUR 100 million. AIXTRON plans to use the cash flow in 2026 to further build a strong cash position. Also, I want to remind you that AIXTRON expressly does not pursue a fixed dividend policy, but rather adjust the payout ratio to reflect the respective business performance and capital allocation priorities. With that, let me hand you back over to Felix. Felix Grawert: Thank you, Christian. I will continue by giving you a brief summary of the key market trends we saw last year and before I move on to our expectations for '26. I will start with our currently weakest segment, the silicon carbide power business before moving on towards the strongest segment step-by-step. SiC. Throughout the past year, the global silicon carbide market has undergone a significant transition. In Western markets, we are seeing a temporary slowdown driven by weaker electric vehicle demand and substantial idle capacity at several customers. This has even resulted in reduced or scrapped 6-inch capacity in some cases. We expect the digestion period for silicon carbide epi tools to continue throughout 2026 in Western markets. China, by contrast, remained a strong pillar of demand in '25 for AIXTRON with solid order intake and robust shipments in the first half of the year. In the second half of '25, also in China, SiC demand has softened. And in '26, we expect the digestion to continue also in China. Despite this short-term softness, the midterm outlook for SiC beyond '26 remains highly attractive. Substrate prices have dropped significantly, making silicon carbide devices far more competitive versus silicon IGBTs and enabling broad market adoption, both in EVs and across industrial applications. Even more importantly, the technological transition is well underway. The industry is rapidly moving from 6-inch to 8-inch wafers, starting with Western customers, now also in China, with a full shift expected towards '27 and '28. At the same time, the introduction of superjunction silicon carbide MOSFETs, which require multiple thin epitaxial layers instead of a single thick layer will significantly increase epi tool demand. Our batch-based G10 SiC platform is ideally positioned for this new operating model and has already achieved major milestones with the shipment of our 100 system during 2025. In 2026, we expect very strong demand [Technical Difficulty] at the beginning of '25 and have been steadily recovering. AIXTRON maintains a clear market leadership position with more than 85% market share across GaN device classes, and we remain deeply engaged with customers expanding their GaN road map into [Technical Difficulty] coming years. Importantly, GaN is emerging as a central technology for AI-driven power architectures, particularly as hyperscale data centers plan the transition to high-efficiency 800-volt platforms. We expect additional volume from GaN from AI applications at some time in the 2027 and '28 time frame. The exact timing for when this happens is unknown, and we will keep you posted when signs of this are getting clearer. In parallel, we are working with a small set of customers on 300-millimeter GaN. These customers have existing 300-millimeter silicon fab, which they desire to repurpose for GaN. Our 300-millimeter GaN tool is fully operational with our own innovation center, as we call our 300-millimeter team room and collaborations with imec and leading power semiconductor manufacturers are ongoing. Now, let me come to the LED and microLED market. After a period of muted investment, now the market for red, orange and yellow LEDs, we call them ROY LEDs, is showing clear signs of recovery, driven primarily by development in China. This momentum from display makers who are pushing the boundaries of image quality. In fact, several major TV manufacturers are now transitioning to full RGB backlighting architectures, which further boosts demand for ROY LED as tool. This trend underscores a broader shift. Even traditional LED backlighting is being reinvented, establishing miniLEDs as preliminary storage stage towards microLED. Enhanced local dimming, full color backplanes and ultra-high brightness panels are now becoming standard in premium consumer displays. These innovations are breathing new life into an application space that many considered mature. At the same time, exploratory and qualification work of customers towards microLEDs continues with customers in Europe, U.S. and Asia. The focus of this work has shifted away from watch and television now strongly towards AR/VR glass applications. We expect this market is still some time out into the future until a larger revenue contribution. And given the fact that one wafer can serve hundreds of AR glasses, the expected demand will be much, much smaller than what we would have anticipated for television applications. Overall, we can say that for AIXTRON, ROY LEDs and microLEDs together translate into a solid revenue contribution of around 15% of group revenue for both '25 and '26. Now, let's finally come to our strongest segment in '26, the lasers for datacom. The global indium phosphide laser market has entered a new phase of growth. And from Q4 '25 onwards, we have seen an even stronger momentum in this segment. We have served this market for many years with our proven G3 and G4 platforms historically for telecom and datacom applications, supporting the further adoption of high-speed broadband communications. As far as cloud services with a market share we estimate well north of 90%. The demand we see today is linked to a structural up cycle linked to AI data center build-out and the development of data-hungry new generation of GPUs. And this structural shift creates the demand for indium phosphide-based lasers grown by MOCVD with a massive adoption of optical interconnect now also within the data center architecture. As bandwidth requirements move to 800 gig and data 1.6T, the laser content per data center is increasing multifold to enable the required bandwidth. Our customers are subsequently not only ramping their manufacturing, but also rolling out new product generations with higher bandwidth that are also more integrated like photonic integrated circuit, PIC, now in order to be always faster, more compact and more energy efficient. For the majority of our users, their road map now includes a shift away from 3 and 4-inch to 6-inch wafer size. That is an enormous step for a market that has been historically very conservative. It enables them to access the advanced manufacturing technologies for these new types of products. Our G10 ASP product has rapidly established itself as the tool of record, as we say, for this new generation of photonic devices, replacing customer legacy system, producing higher yield and cheaper 150-millimeter indium phosphide epi wafers. We are serving all of the top 10 suppliers to this market. And demand is coming from all regions of the world, from leading suppliers in the U.S., from the ones in Europe, but also from optoelectronic leaders in Japan, in Taiwan and in China. Looking at demand dynamics, we expect the optoelectronics business to more than double year-over-year from 2025 into 2026. With this, it makes up for a large part of the revenue that declined in silicon carbide that I illustrated earlier. Finally, let me now present our full year guidance for 2026 to you on Slide 19. This guidance takes into account all the factors that I just described previously. We expect revenues to come in at EUR 520 million in a range of plus/minus EUR 30 million. We expect a 2026 gross margin of 41% to 42% and an EBIT margin between 16% and 19%. The effects of a personnel reduction we have initiated in the beginning of '26 are already included in this forecast. Now, let me comment on the first quarter of '26. As usual, sales in the first quarter of the financial year will be lower than the annual average first quarters. In Q1 '26, we expect revenues of EUR 65 million in the range of plus/minus EUR 10 million. This is comparatively low figure, fully in line with expectations and with a seasonal pattern of the business. For completeness, we have adjusted our USD to euro budget exchange rate at which we record U.S. dollar-denominated orders and backlog to USD 1.20 per euro. With this outlook, I'll pass it back to Christian. Christian Ludwig: Thank you very much, Felix. Thank you, Christian. Anna, we will now be happy to take the questions. Operator: [Operator Instructions] So the first question is from Ruben Devos of Kepler Cheuvreux. Ruben Devos: I just have one on the guidance basically, pointing to EUR 520 million a year. Obviously, you started the year effects of the seasonality at EUR 65 million, which is about 12% of the total. So just curious about how you see the quarterly cadence at this stage. And what might give you maybe the confidence that orders of, I think you talked about EUR 280 million, whether that will materialize at the pace needed for a strong H2? Felix Grawert: Yes. Thank you very much. So we expect again in '26, the pattern that we have seen in previous years, where we have the year a pretty much back-end loaded towards Q3 and Q4. I think that's a seasonal pattern, which we have already seen in 2024 and 2025. If you recall in '24, in the fourth quarter, we even shipped over EUR 200 million. Now in the fourth quarter, it was around EUR 180 million. So it's not uncommon that we are backend or backwards loaded. I think it will not be as heavy in '26. But the Q1 is very weak. I think in Q2, Q3 onwards, we should be maybe around EUR 110 million, EUR 120 million, EUR 130 million, I don't know, something like this. So north of EUR 100 million, I would say. And then clearly, in the Q4, I think we will be peaking. So nothing to be -- don't expect the Q2 is again another EUR 65 million and I think we would be a little dry. But that's not going to happen. Does that answer your question? Ruben Devos: Yes, certainly. The second one is just around the G10, which is the tool of record at the leading laser customers. When a customer qualifies your tool and locks in, how long does that qualification typically last before it needs to be, let's say, recompeted? I'm just trying to understand a bit the stickiness of your opto business and whether your position today, which is very strong, obviously, whether that's a meaningful barrier already or whether there for each new product generation, that sort of, yes, reopens the door for competition? Felix Grawert: I think in the laser business, you have probably the most sticky and the most difficult to requalify from all the segments. So with many customers, qualification efforts have been going on since 1 or 2 years already. And the complexity comes in the qualification for a laser tool from the fact that it's not just one simple laser, or one simple layer like you have in silicon carbide. In SiC, this is our most simple tool, I would say. You have one single layer, a thick single layer and every customer is doing kind of almost the same. Now in contrast, in the laser domain, typically, each wafer gets not only put into the tool once for one layer, but the laser customers have very advanced structures. And in these modern architectures and high-speed devices that is currently now making up the market, many wafers of our customers see the tool 3, 4, 5 or even 6x from the inside, meaning the customer makes a layer, doing some other steps, the wafer is put into the tool again, makes another layer and so on and so forth. And you can imagine if something changes in the deposition and that is repeated 5 or 6 times, an error or a change is then repeated or taken to the power of 5 or taken to the power of 6 that depends on a very, very precise repeatability. And so with many of these customers, we've been working since multiple tools, multiple years. That's also the reason why the G10 ASP, which we launched already in '21, '22 is only now getting the strong momentum from the laser market because the qualification has taken such a long time. Ruben Devos: Okay. And just a final question is that you're launching the 300-millimeter Hyperion tool commercially in '26. Just curious how many customer qualifications are currently underway? And when would you expect sort of the first repeat orders to come in? Felix Grawert: We work with multiple customers. I think it's important to differentiate. Some customers are, I would say, in an exploratory and research stage. And there's many of these, I don't know, I think probably double-digit or so. However, I think from commercial relevance, 300-millimeter will, as I mentioned in my prepared remarks, only initially only for a relatively small number of customers. And that is those guys who have a very big 300-millimeter silicon fab, which they want to repurpose and convert an existing 300-millimeter silicon line to a 300-millimeter gallium nitride line. I think all the other stuff like microLED and so on is more like playing around, researching, exploring ways. But I think those market segments probably take another, I don't know, 2, 3, maybe 4 years until they really mature. We are engaged. We work on a lot. But I think in terms of revenue and really making numbers, that's still quite some time away. Operator: The next question is from Martin Marandon-Carlhian from ODDO BHF. Martin, unfortunately we cannot hear you anymore. [Operator Instructions] Christian Ludwig: Let us continue with the next question, please. We can take him later. Operator: The next question is from Rohan Bahl of Barclays. Rohan Bahl: I just wanted to touch on that 300-millimeter GaN tool. I mean your peers said overnight that have gotten several orders on 300-millimeter GaN already. So I just wanted to check your progress on getting Hyperion ready for production volume lines rather than sort of your R&D quality tool that you have at the [ minute ]. Felix Grawert: I think we are very well on track with respect to that. We have also multiple orders again from these few customers that I was mentioning. Rohan Bahl: Okay. And maybe just on the 800-volt AI data center opportunity for GaN, everyone is getting excited about this. So just curious on how things are progressing here? What have customers been saying to you and whether you're still sort of expecting orders to ramp up materially in the second half? I've noticed your backlog has been building for 2027. So I wonder if there's any 800-volt business in there? Felix Grawert: So the 800-volt is splitting essentially into multiple types along the architecture. You probably have seen the slides on the 800-volt architecture by NVIDIA and by major suppliers such as Infineon, right? So we are participating in multiple stages on that chain. The one part is coming from the overland line on the silicon carbide, which translates or transfers from over 10 kV down to 1,200 volts, 2 kV, 1 kV. This is the biggest part silicon carbide. Then gallium nitride comes into play at 650 volt at 100 volt and even at lower stages like 20 volts. So this is where we are participating. We are with multiple customers working on 650 and 100-volt devices for exactly this architecture. And to our understanding, the qualification efforts of our customers means either IDMs or foundries, again, with their customers, being the board makers and the power supply makers for these architectures is ongoing. To our understanding, there is no clear time line on when exactly the switch is taking place yet. And that is also the reason why I commented in my prepared remarks that we know that this is coming, and we are pretty sure that this is coming sometime in the time frame, I always say '27 and '28, but we don't know exactly when it is coming. So in the order backlog that you're referring to, I don't think there is still 800-volt orders in. I think this is other topics more like EV silicon carbide related. Of course, general tool for silicon carbide can be used for any segment. That's clear. But I think the button when exactly the 800-volt is getting pushed and the orders are coming in, the timing is still a bit uncertain. I would not be able to give you the point in time at this period of time. Operator: So Martin Marandon from ODDO BHF is back. Martin Marandon-Carlhian: My first one is on photonics and opto, et cetera. Considering that several of your customers are talking about very significant indium phosphide CapEx increase this year. And I understand that the big acceleration in terms of orders was really in Q4 last year. Do you think we are quite early in that CapEx cycle? Or do you think that '26 could be the peak? So how -- basically, how do you think about '27 at the moment? Felix Grawert: Thanks a lot. I think that's a very good question. Yes. Let me try to shine a little more light on it, how we see it. And again, we only have, again, a piece of the puzzle, but let me try to explain what we are aware of and what we believe. And so we see that the cycle really has kicked off towards the end of '25. So you have seen that in the fourth Q4 '25, our photonics orders have significantly increased. Q1 to Q3, they were still on a relatively low level. In Q4 '25, our photonics orders have increased. We still, already now in Q1, we see continued order momentum from our customers. Some orders have already received. Others are in discussion with customers. And we expect -- and this is also, by the way, the reason you may have seen that our coverage of revenues with orders, our backlog is lower than we have seen in many past years because we are at the very beginning of the cycle. I think that explains this topic, so on. However, we have indications from a number of customers like kind of their road map, their forecast, what they need throughout the year. This is baked in our guidance. So our guidance reflects that already. And we expect that the orders are coming in essentially throughout Q1 and continue to come in Q2 and covering then the revenues that we have forecasted for the year. And as you see, it's a quite significant increase. It's more than double year-over-year for the photonics side. And I mean, this is very helpful for us because I think we all are aware, silicon carbide is really dropping almost dead this year, meaning pulling a bit hole in our revenues. This hole is now just nicely getting filled up by the photonics. It's quite helpful. Now I think you've indicated how long this extends into '27. Of course, very difficult to predict the future. My guess is it's not only 1 year, but it's extending beyond that. However, to comment how much or to which extent it's the majority in '26 and is it even the same level in '27 or less in '27 and more in '27, that is too early. I have no indications to qualify that. Martin Marandon-Carlhian: Okay. And just another one for me on GaN adoption in data centers. I think in the past, you said you could expect orders in H2 this year or in '27 for '27 and '28 revenue. But how do you think about how the ramp will happen? What I mean by this is that, it looks like a big ramp. So how it usually happens with your customers? Do you have already some discussion with when and how much you need to be ready? Or do you really see that ramp once the orders start to come in basically? Felix Grawert: That is a very good question. I think both things come together at the same time. Typically, when a ramp for a new segment is happening, we see the first orders for that particular second or that particular application coming in from one customer or typically from 2 or 3 customers at the same period of time because normally then a segment is coming and also the guys who are using the chips are not only relying on one source, but typically on 2 or 3 sources. So typically, we then get the first orders, particularly for a given segment to come in. And along with the orders that are coming in, we sit together with our customers, they share forecast with us, and we jointly sit on the table making a ramping plan, because normally, it's not that the customer needs only 2 tools or only 10 tools, but rather the customer has a plan and say, look here, in the first year, I need 10 and the next year, I need 15 and the year thereafter, I need 15. How do we best do it? How do we best distribute it over time and so on and so forth. This is normally what's happening. And I expect when this 800-volt GaN ramp is really starting, we are not there yet, but then I expect to have these discussions with customers. Operator: The next question is from Oliver Wong of Bank of America. Oliver Wong: My first question is, again, back to 300-millimeter GaN. I understand that the -- we're not expecting huge revenues upfront. But I was wondering -- so my understanding is that whether it's with the 200-millimeter or the 300, usually customers kind of go with one major supplier, one tool of record, so to speak. I was wondering what kind of timing can we expect for the leading 300-mill GaN suppliers to kind of make a decision on that? Felix Grawert: I think Q4, Q3 or Q4 of '26. Oliver Wong: Got it. And my other question is regarding the lead times. I was wondering if we can get an update on currently where the lead times are for the major end markets and kind of where you expect that to trend? Felix Grawert: Excuse me, I didn't understand your question. Oliver Wong: The lead times between orders and revenues for kind of your major end market categories. Felix Grawert: I think we are probably around -- I think it depends by the market, somewhere between 7 and 10 months, I would say, or 6 and 10 months, something like this. But honestly, I don't have it broken down by end market. We are back to normal, right? If you recall, yes, in the post-COVID, our lead times were very long. We are now back to a normal lead time. Operator: Next question is from Madeleine Jenkins. Madeleine Jenkins: I just had one -- another one on GaN. You mentioned utilization rates are improving. Do you have a kind of a broad sense of where they are now? And then also on this data center opportunity, obviously, I know timing is uncertain. But sort of volume or demand-wise versus kind of the consumer business that made up GaN in the past. Do you think it's a similar size? Or do you see it being bigger? Any color on that would be great. Felix Grawert: Utilization rates, that's always very difficult to predict, because we get more like signs from our customers, qualitative signs like: we need new tools, we don't need new tools. I would guess across the market, probably utilization rates are maybe 60% to 80%, I would say. So on a decent level now, I mean, earlier, we were probably around 30% to 50% after the big GaN investment wave where the demand wasn't there yet. So I think it's still taking a little bit of time until the next investment wave is getting triggered. But as we said, somewhere around the '27 time frame, early in '27, end of '27 or maybe even end of this year, we will see some investment trigger. Now as for the size, and I think with GaN, it's important to note that GaN has been penetrating across all market segments. It started off, as you rightfully note, 4, 5 years ago, purely in the consumer market, chargers for smartphones, chargers for notebooks and those kind of applications where the form factor was the driving topic. By now, we have seen GaN penetrate kind of across all the market segments, which is addressed by silicon means motor drives for battery-driven applications. We've seen it in motor drives for things like air conditioners, more like high-power, high-voltage topics. We've seen it in 100-volt and 20-volt point of loads and servers to reduce the energy consumption of servers so kind of all market segments. So I think you cannot split GaN any longer into a consumer or non-consumer segment. I think GaN is really on a trajectory of getting a very widespread application. Madeleine Jenkins: Makes sense. And I know you -- in your release, you flagged that there's a decent chunk of orders for 2027 delivery. Could you just kind of provide some more color on that? Why is it? Kind of is it just lead times or -- is there kind of specific customer capacity additions going on? Felix Grawert: No, no. What we have said is, we expect as we see the utilization rates of the installed base now gradually increasing. And as we see further adoption of GaN, particularly in the 800-volt architecture for AI, we expect that at some point, whether it's the end of '26 or sometime in '27 or at the end of '27, we don't know the exact timing. We expect at some point, utilization rates to be at a level where it triggers new investments, new tool purchases by our customers, and where especially the 800-volt architecture is then switched to GaN. Today, a big part is still on silicon. And once that switch has happened away from silicon to the much more energy-efficient GaN, then this will trigger in our expectations, new tool orders by customers because they need to expand their capacities in order to serve this additional market segment. But when exactly it happening, whether this is end of '26 or early '27 or end of '27, we explicitly say we don't know the timing. Madeleine Jenkins: Sorry, I get it. So I was talking more kind of broad comment on your current backlog. I think over EUR 100 million is for delivery in '27. I just wondered why that was the case? Felix Grawert: Well, this is a mix of applications. It's a mix of applications. A big part is silicon carbide, where customers have ordered and as the market fell down and became slower, customers said, can we have it a little later? Yes, I think the biggest part -- I would guess the #1 application amongst those is silicon carbide. Operator: The next question is from Martin Jungfleisch of BNP. Martin Jungfleisch: First one is a bit of a follow-up on the guidance and the lead times. It looks like that you need around EUR 300 million in new orders in the first half to make the '26 guidance. Is that kind of the right way to think about it with lead times of 7 to 10 months? And then maybe if you can comment if you're on track to meet this kind of EUR 150 million order run rate in Q1 already? That's the first question. Felix Grawert: Yes. We see ourselves fully on track. We sleep very well. We feel very well in covering and securing that. Martin Jungfleisch: Okay. Then maybe another follow-on on the moving parts. I think if I understood you correctly, you mentioned that you expect photonics revenues to double this year. So then what are the moving parts? I think you said also GaN should be up moderately. So is it like the 3D sensing part or the LED part that should be down massively this year then? Felix Grawert: Sorry, I didn't get the last one. I didn't get the last part of your question. Martin Jungfleisch: Yes, I was just asking with photonics doubling, I think that's what you said this year. And what are the moving parts within that revenue guidance? I think you said GaN should also be up moderately, so is 3D sensing, LED, silicon carbide then down quite massively? Is that the right way to think about it? Felix Grawert: Yes, exactly. That's the right way to think about it. I would say LED/microLED roughly is flat. Silicon carbide massively down. This is a big hole that's in there. And this hole, to the largest part, is getting filled up by the doubling of the optoelectronics. And that's why overall, and if you sum it up, we come at those slightly down numbers from the whatever EUR 557 million we had in the past year in '25 and now to the EUR 520 million plus multiple. Martin Jungfleisch: Okay. And maybe if I can, just a small follow-up on the gross margins. Can you just break down the moving parts a bit on the gross margin guidance for this year? So what is kind of the headwind from lower revenues that you're seeing, what is the better product mix and so on? And maybe if you think about -- if we go back to EUR 600 million revenue next year, what would be the gross margins on a like-for-like basis when you assume all the benefits from the restructuring program, et cetera, should this be like 45% then? Felix Grawert: So great question, but I don't have all the numbers prepared. It sounds like almost I would need an Excel sheet next to me to answer your question. So on a joking note. No, let me try and best to help you explain as much as I can without having a computer next to me, yes? So you see we managed to keep the gross margins around stable compared to last year or improve even a little bit. And what you see here is already we did first a slight amount of headcount reductions early in '25, so last year already. So a part of that benefit already becomes effective in '26. We then, as you have seen, have been able to gain further efficiencies, and we do another slight headcount reduction now or have done in January already. It's completed. We did it very early in the year. And the cost for that is, of course, included in the guidance. And we've been working a bit on our efficiency in operations, streamlining processes and operation shop floor work and all that kind of stuff, right? And all that allows us to keep the gross margin stable. Now the question is, how should you think about it? Well, if you go into next year, into '27 -- again, I just do it on a like-for-like basis. I didn't do it the Excel spreadsheet for your hypothetical EUR 600 million. But you can then take out from the cost this what we said, mid-single-digit million restructuring cost. That's, of course, a onetime cost, and that's onetime in '26 and not again in '27, kind of. So that will help on the gross margins. And honestly, I haven't looked at the details of the product mix, which, of course, also plays a role. I haven't done that. But it will certainly help on the margin. And just to make sure -- maybe one more comment, just to make sure that you get that, as you now probably looking to get some numbers into your model. And if you look at the R&D cost, we had in '24 an R&D cost on the order of EUR 90 million, and we had in '25 an R&D cost on the order of EUR 80 million. In the current year '26, if you do your model, we'd rather put in EUR 90 million of R&D cost. You will come to that if you do the math anyways with gross margin and the EBIT margin, just to make sure that you get the right number so everybody gets the right numbers here because we have quite some new ideas for new products, and that always translates then for us into R&D because at some point, '27, '28, we expect the markets to pick up, and of course, our investors and you guys expect that we have then a fresh portfolio winning and securing our market position again. Now it's down. But when new markets are there, then it's a lot of fun. We want to be prepared and we want to be ready for that. Operator: Next question is from Jarad Abed of mwb research. Christian Ludwig: It doesn't seem to be there. Let's take the next question please, Anna. Operator: Maybe it should work now, Mr. Abed, can you hear us? Abed Jarad: Yes. Can you hear me? Operator: Yes, we can hear you now. Abed Jarad: Okay. Sorry. Yes, I just have a quick question regarding Q4 backlog movement. I mean there is notably an order cancellation of approximately EUR 11 million. Can you provide some color on this? Felix Grawert: Yes. I think that was 2 process modules. I think it was a customer from laser and gallium nitride, if I recall. Abed Jarad: Okay. And my second question, I'm trying to understand the overcapacity in silicon carbide. Is it like structural or cyclical? Felix Grawert: Cyclical. So we get from our customers literally the feedback that they say, look, gradually capacity is now starting to fill. I mean we looked 1 year ago probably at 30% utilization, but the adoption of silicon carbide continues in the market. A big element that helps is that the prices for substrates have dropped significantly. And due to that, the overall -- and substrates make in silicon carbide a major part of the overall cost, probably the #1 cost position is substrate. Those are getting cheaper. With that, and the silicon carbide power devices are getting more affordable. The cost is going down. And as cost is going down, silicon carbide MOSFETs gain relative in attractiveness compared to silicon power devices, silicon IGBTs. And with the gaining attractiveness that design-in is increasing, they're getting more widespread and the demand in terms of units is increasing. And as the units are increasing, the existing capacity gradually gets filled. And at some point -- again, we don't know the timing, but at some point, the overcapacity will be digested and then new orders will be triggered. And again, we expect this sometime in the '27 and '28 time frame. When exactly, we don't know. Abed Jarad: Okay. But you know that like -- I mean, it's -- you mentioned previously that you expect some orders once annual EV production with silicon carbide inverters surpassed 3 million units. Is it still the case? Felix Grawert: I didn't get your question with the numbers that you were just saying. Sorry, I couldn't understand. Abed Jarad: Yes, sure. You mentioned previously that you are expecting like silicon carbide acceleration once annual EV production with silicon carbide inverters surpassed 3 million units. Is it still the case? Felix Grawert: I think we've never given out a number of 3 million units for inverters. I think that's a very specific number, which is probably not from us. Christian Danninger: I think it is referring to a broad assessment of how many cars we would need on the street to see a pickup. That was -- that's where it came from. Christian Ludwig: As a proxy. Christian Danninger: As a proxy, exactly. Felix Grawert: Honestly, we cannot comment on that. Operator: Next question is from Craig McDowell of JPMorgan. Craig Mcdowell: My first one is on pricing. And certainly, on the device side of opto, we're sort of seeing, obviously, a tight market, and it seems like device makers -- laser device makers are able to take price and pretty significant price. I'm wondering whether that changes the value that you offer to your customers on the indium phosphide tool and whether you're able to see price increases and specifically whether that's included in your more than doubling comments for 2026? Felix Grawert: The main driver for the doubling is literally on the number of tools. So it's not a doubling by price, yes, that would be nice. It's literally doubling by the number of tools, by the number of shipments. But historically, optoelectronic tools are on the higher side of the pricing in our portfolio simply due to the fact that those laser tools are of a very high level of complexity. If you compare an LED tool going into China and you take a laser tool and you open them and look at them next to each other, you feel that one tool is filled with twice the number of technology inside than the other tool. And somehow that's, of course, reflected in the price. Craig Mcdowell: But given the tightness in the end market, you're not yet raising the prices of your own tools, to be clear? Felix Grawert: No. We don't. That's never a good idea towards customers. They don't like that. Craig Mcdowell: Understood. Okay. And then just on -- you mentioned that you're still in discussion with opto customers through Q1. Some of those orders might have been written, certainly discussions ongoing. Just wondering whether there's a change in tone with your opto customers, are you talking on a multiyear period now in terms of delivery? Or is it still very much sort of within the next sort of 6, 12 months that conversations are happening? Felix Grawert: It depends customer by customer. We have both types. We have some customers discussing kind of literally the next tool. I need something very, very fast. When can I have 5 tools? Please as fast as possible. I have others more engaged in a structural discussing throughout the year '26 and then others more looking around the multiyear road map. It really depends by customer purchase team or strategic planning team. We have all of it. Operator: The next question comes from Om Bakhda from Jefferies. Om Bakhda: I just had a question on your silicon carbide business. I guess when we look through the course of the year, is there -- I mean is there anything that you see today that could happen, that could mean that the guidance that you've given on SiC could prove to be conservative in the second half of this year? Felix Grawert: Well, that's a very good question with lots of buts and if. Let me think. Honestly, I think for the second half of '26, my gut feeling tells me it would be a bit too early, seriously for silicon carbide and talking about revenue, because I think there still is some capacity in the market, which still needs to be digested as we had discussed earlier. I think if we look into '27, purely the EV demand can be a nice driver, as discussed. We see now that silicon carbide devices more and more get designed into higher voltages. So not only 1 kV, 1,000 volt, 1 kilovolt, but also 2,000 volt, 3,000 volt, 10,000 volt, so 2, 3 10 kV, and notably in the space of grid applications for solid-state transformers and applications like that. But I think this is -- would be too early to expect a tool demand, equipment demand for that in '26. I think we are clearly looking towards '27 and '28 for these new applications and new trends. That's my gut feeling. Maybe I'm wrong. If we can ship more, we are happy to serve the market. We have capacity. We can serve the market, no problem. But I think realistically, and giving you the most realistic estimate, I would not expect an uptick in terms of revenues, maybe orders towards the end of the year, but I don't think there's a big uptick in shipments in '26. Om Bakhda: Got it. And then just a follow-up in terms of your sort of the order momentum you're expecting in the first half of this year. When you sort of look at the discussions you've had year-to-date, how should we think about the mix in your order book? Is it sort of largely opto based in H1? Or could we see some GaN tool orders coming and inflecting in H1 potentially for shipment in the second half of this year? How should we think about that mix in the order book? Felix Grawert: I would expect, if I look at ongoing customer discussions at this point in time, again, there can always be surprises, but I'm just extrapolating what kind of discussions are ongoing. And we know then the discussions take between, I don't know, 1 and 3 or 4 months to materialize, which kind of covers the H1 quite well. I would expect in H1 a significant optoelectronics/LED loaded order intake, whereas then in the second half, I would expect the power electronics gradually to come back. Operator: Moving on to the next question from Michael Kuhn of Deutsche Bank. Michael Kuhn: I'll stick with, let's say, order composition. Of the roughly EUR 260 million order book you currently have, I think you gave some indications already. But could you maybe give some deeper insight into how the composition is by category, power versus non-power and maybe even going into a little more detail? Felix Grawert: Yes. I think if we look at the order backlog of '25, I think opto is around 40%, SiC 30%, GaN 20%, LED 10%. Do you think so, Christian? Christian Danninger: Yes. That makes sense. Approximately. Felix Grawert: Approximately, right? Christian Danninger: Yes. Michael Kuhn: Understood. And then on GaN and let's say, the next upward cycle, you mentioned at some point in the presentation that you expect AI data center power to drive the tool demand by factor 3. What would be the comparison base for that factor 3, just to get a better idea on how big the market could grow? Felix Grawert: I think we look here at the comparison, the total market size is more like around '24, '25. And the factor of 3, which we've illustrated more like an upside scenario comparing '25 versus 2030 kind of a 5-year comparison, one point in time, '25 versus 2030. I think this is what we have looked at right now. Michael Kuhn: Okay. So this is -- '30, this is nothing like 4 in 2 years' time, at least from today's point of view? Felix Grawert: No, no, no, no. I think this is a gradual increase. As we have discussed in this call already, we believe at some point in '27, there could be the first momentum starting and then it's a design in. And as always, in our applications, our markets, it's a ramp. It's a new trend, which is then happening. It's getting designed in. So our customers, our IDMs have now made devices, which is in the qualification with their customers, board makers, GPU makers, rack makers and so on and so forth. The architecture has been set. Now the complete industry is working on it. Hopefully, it's going to be fast. We know the AI industry is a very fast-moving industry. So maybe it's faster than some of the other industries. But then at some point, it's being designed in and then the volume is starting and then gradually over time, it gets penetrating and the adoption rate goes from today 0% then whatever, 10%, 20% in the initial stage and at some point, 2030, 100% adoption rate after the adoption is completed, and then we look at that point in those numbers. So a gradual adoption. Again, still our assumption. You never know how the adoption goes. Sometimes things go very, very fast, would be nice, but that's the assumption which is under. Michael Kuhn: All right. Understood. And then one more question. Obviously, we are not yet there. But let's say, the -- say, cycled as well and you're ramping capacity big time. When would you reach, let's say, your current capacity towards 100%? And when would you consider, let's say, reactivating your Italian capacity that is currently mothballed and what would be the potential cost associated with that? Or is that not even a planning scenario as of now? Felix Grawert: Honestly, it's not relevant for the overall business or profitability. I would say capacity can always be scaled up in one way or another, which way we choose to take, we will decide when we are there. But I think it's nothing that affects the P&L in one way or another. It's not a constraint. It's not a limit to us. It's not a profitability limit or inhibitor or whatever it is, it's just operations. Operator: The next question is from Nigel van Putten from Morgan Stanley. Nigel van Putten: I just wanted to follow up on some of the customer behavior in the optoelectronics end market. I mean, some of them have said that they're currently ramping supply. They see demand ahead of supply, maybe even towards next year. But do you feel that comment is directed at you? When you speak to customers, do you have to disappoint them? Are you shipping to, let's say, 80%, 70% of demand? You've mentioned, as an example, a customer that comes in with a shipment for 5 tools as quickly as possible. Are you still able to serve those type of requests? Or do you have to sort of disappoint them and saying, well, that's going to be quite a bit longer than maybe the 6 to 10 lead time month lead time you've indicated before? Felix Grawert: Well, in this case, good for our optoelectronics customers. The silicon carbide customers are so nice to step to the side for them in this year, leaving a lot of unused capacity, both in our shop floor and within our suppliers. And as you know, we work on a -- how do you say, modular system with our Planetary systems. So all our products are closely related to each other as a family, you can say. That is now a capacity that is not being emptied or not used by silicon carbide customers because that market is currently sleeping. We can use the same supply chain for parts and of course, also the same kind of assembly tools on our own shop floor and the skill set of our people now to do the labor part. In other words, we have free capacity to literally serve all the demand, which is currently coming in. It might be a different game if the silicon carbide would be at the same time in the party now. But silicon carbide, as we have illustrated, is really leaving the gap, and this gap is currently just now being taken by the laser guys. It's good for them. Nigel van Putten: Got it. So when they say we can't ship, it kind of reflects your lead times, you think? Or especially when your customers... Felix Grawert: It should not be us who's the bottleneck. Yes, it should not be us who's the bottleneck. And my team, my operational team, my sales team is handling it. I expect if there would have been a bottleneck, I would know it. I'm not aware of any bottleneck across the entire industry. Nigel van Putten: Perfect. That was my question. But then maybe a broader question. You said larger wafer size and better yield. I think one customer said it's 6 inches is 4x the product of the 3-inch, which -- or yes, the current capacity. So maybe ballpark to give us an idea in terms of the capacity you're shipping this year relative to the installed base, what do you think the increase is you can serve with sort of your view on the revenue you're shipping into '26? Felix Grawert: Well, that's a very, very difficult question. I can only illustrate to you the various factors to that because the installed base is -- first of all, many, many tools, but many of them still on 3-inch and 4-inch wafer size, as you said, which is a much, much smaller capacity in terms of square centimeters or number of chips that you can get out of it in other ways. The other point is, that while the installed base counts many, many tools in the installed base, many times those old tools, they would be dedicated to one product and they would only be qualified for certain products, so with huge inefficiencies. So I think we are currently like the shift in new architecture towards photonic integrated circuits to the PIC on indium phosphide, also much bigger chips, much more functionality is really -- it's a world which is not comparable to the old world I would say. Because it's different chips, different products, a much larger wafer size, much higher productivity. So I think the industry is really seeing a massive momentum. But on the other hand, as illustrated, inside of the data centers, even inside of the racks, we go completely away from electric cables and go completely to optical data connects, which inside of the racks is really new to the industry. So the demand is massively increasing. Operator: The next question is from Adithya Metuku from HSBC. Adithya Metuku: Just firstly, just thinking about the capacity that's coming on board for indium phosphide lasers. From what I understand, the yields are something like 50% and that the continuous wave lasers used in CPOs are about 1/10 of the die size of EML lasers. So I just wanted to hear your thoughts on how you think about the yield improvement, especially if the die sizes go down. That combined with the die sizes going down with the existing capacity that's in place or you will have put in place by the end of 2026. I suppose the question is, it's been asked, but how much does the capacity go up? And will there be enough demand to drive further growth in your optoelectronics business in 2027 if yields go up, die sizes go down 10x because of continuous wave laser adoption. So any thoughts around that would be great. And I've got a follow-up. Felix Grawert: I think you asked the billion-dollar question, but I don't have the answer for you, unfortunately. I think the effect you're alluding to is a typical pattern across the whole semiconductor industry that in a new market segment, you start with a relatively low yield simply because the application is there, the application needs the capacity, the application needs a ramp. But then over time, new generations of products step-by-step come in, which come with a die size shrink and higher yields, means you get more capacity out of your installed base. Typically, such a process, so I cannot -- upfront, I cannot quantify this for you. This is -- I don't know. I think also our customers at this point in time don't know. Typically, this process that you are describing is happening over a 2.5, 3, 3.5, 3, 4-year time horizon because it takes one generation of chips and after the next generation and the next generation, typically, at least you need 1.5 to 2 years for one generation after the next, because your customers are simply not able to digest a faster succession of generations and also to increase the yield takes some time. So what it means is my personal guess, and again, it's only a speculation, but I can share the opinion I have with you is that this is not only a 2026 trend, but at least this trend in this market will extend into 2027, that I think is very, very clear. This does not happen within 1 year. Now to which extent and how large this will extend in '27 and '28? I think that's the billion-dollar question I cannot quantify for you. But I'm very convinced that we are not talking about 1 year, but at least about 2, and I would guess rather a 3- to 4-year time horizon. Adithya Metuku: Got it. So essentially, you are expecting growth in '27, but you don't know the magnitude of the growth at this stage. Would that be a fair way to characterize it? Felix Grawert: That's a fair way. Yes, exactly. That's a fair way. Adithya Metuku: Got it. And then just following up on an earlier question, you talked about the epitaxy machines not being the bottleneck. To my understanding, it's the indium phosphide substrates. Is that right? Or is there some other bottleneck in the system that's preventing your laser customers from ramping capacity and meeting the demand that they're seeing? Felix Grawert: I hear also that indium phosphide substrates is a bottleneck that's currently being addressed by the entire value chain. I know this both on the side of our customers who need the substrates in their factories, and I know it also from substrate manufacturers. And I'm aware that there is a large, very well coordinated and well-orchestrated initiatives by our customers and by the substrate makers together in place to address these bottlenecks. But yes, that's, I think, a topic which is currently being worked on in this value chain and in this industry. Adithya Metuku: Understood. And then maybe just one last clarification. Are you able to give any color on the divisional growth revenue expectations for the first quarter? Felix Grawert: Honestly, I don't have the numbers. Operator: And the last question for today from Malte Schaumann from Warburg Research. Malte Schaumann: My first one is on silicon carbide superjunction technology. So can you maybe share your view on how the time line until adoption might look like? And then associated to that, would your tools in the existing base require an upgrade to incorporate that? Felix Grawert: A very good question. So we are aware that all the leading device makers are currently working on superjunction technologies. To my understanding, the first devices will be launched at the end of '26 by suppliers, means in the second half of '26 or the first half of '27, volume ramps of devices happening in the market. And we think that superjunction technologies in silicon carbide will be strongly embraced by Western players because it's a major way for them to get more dies per wafer and hence, to reduce the cost per chip. So it's a massive trend, which is currently being strongly pushed across the entire industry. As for our tools, there's no further upgrade needed for our tools. They are able to run as is. And one point I would like to illustrate, nevertheless, is that the superjunction technology where essentially you don't take one thick layer, let's say, 10, 12, 14 microns of thickness, but you rather split this into 3 or 4 thinner layers and the wafer gets put into the tools multiple times. Most customers embrace a technology, which is called multi-EP, multi-implant, so you do an epi step to do an implant, you do another epi step, another implant. So the wafer gets several times into our tools, a little bit like what we saw in the indium phosphide just earlier in the discussion. And that means that for one wafer of superjunction devices, you need more epi time. You need more tool time in the epi, and we expect that this will be also one driver at some point, as illustrated in the '27, '28, '29 cycle, which will trigger additional demand from our customers for more tools because they need to expand their epi capacity in order to accommodate all the superjunction MOSFETs. So it's a market trend that we like a lot because it helps our business. Malte Schaumann: Okay. Understood. Secondly, on working capital. With the shift in the product mix away from power to opto this year, can you keep your inventory target? I think it was around EUR 200 million by the end of '26. And then secondly, with respect to the down payments, we have seen quite a significant decline over the past few years relative -- down payments relative to order intake. So what are your thoughts where these levels should normalize going forward? Felix Grawert: Yes, good question. So inventories, yes, we expect inventories to go further down. The shift in product mix, in fact, is an effect which is not helping. So we are still -- but we are still targeting EUR 200 million to EUR 220 million in terms of inventories. So maybe there's 20 more than we initially expected due to the shift of product mix, let's see. But still, we target a significant further reduction of inventories. It's gradually burning down, maybe a little bit slower as you're indicating, but still significant. Christian, maybe you can take the second part. Christian Danninger: On the down payment, it's a little bit more difficult because we don't have complete control on it. It really depends on end market mix, regional mix, customer mix and also cutoff date effect. I mean, the number at the end of the year was really low. We expect it to recover to some degree, but to predict this in detail is quite difficult. And it's also not the major negotiation point with customers, right? It's part of the deal, but not the major part. So it's a little bit difficult to predict. It should increase trend once again. Malte Schaumann: Okay. Okay. Lastly, a quick one on R&D. You indicated an increase in R&D spending this year. Would you expect another increase with the rising business volume generally over the next years and '27? Or would that volume be more or less sufficient to support your programs you have in mind? Felix Grawert: I think we discussed already earlier. So in '24, we had around EUR 90 million. In '25, we had around EUR 80 million. For '26, we expect again around EUR 90 million. Malte Schaumann: And then beyond '26, so the EUR 90 million is sufficient for the next few years... Felix Grawert: It look -- that always depends a little bit on individual cycles of products. At some point in the cycle, the products take a little more money. At some point in the cycle, they take a little less, it depends throughout where the portfolio stands. Honestly, I wouldn't want to predict beyond that. Operator: Thank you very much from my side. With that, there are no more questions in the queue. So I'm closing the Q&A session and handing the floor back over to Ludwig. Christian Ludwig: Well, thank very much. Thank you very much all for your questions. The IR team and part of the management team will be on the road in the next couple of weeks, so we'll see a lot of you, hopefully, in-person. And for those we do not see, we will have our next quarterly call scheduled for April 30, when we will report our Q1 figures. So if we don't see you until then, then have a happy Easter and talk to you end of April. Goodbye, and thank you. Felix Grawert: Bye-bye.
Operator: Good morning, and welcome to Park Dental Partners Fourth Quarter and Full-Year 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions]. Certain statements made during the call today constitute forward-looking statements made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the company's earnings press release issued yesterday and in the company's filings with the SEC. The forward-looking statements made today are as of the date of this call, and the company does not undertake any obligation to update the forward-looking statements. Today's call will also include certain non-GAAP measurements. Please see the company's earnings press release for a reconciliation of the non-GAAP financial measures. The press release is available on the company's website. I will now turn the call over to Mr. Pete Swenson, Chief Executive Officer and Chair of the Board for Park Dental Partners, Inc. Sir, you may begin. Peter Swenson: Thank you, Olivia. Good morning, everyone, and thanks for joining Park Dental Partners Fourth Quarter Earnings Call. Joining me today is our CFO, C.J. Bernander. First and foremost, I want to start off by recognizing our doctors and team members across the organization. Our people are our greatest asset. Every day in every practice, you show up with a shared commitment to deliver the best patient experience to every patient every time. That consistency is the foundation of our reputation, our performance and our ability to grow. I'm grateful for the professionalism and dedication that our teams bring to patients and to one another. Secondly, we're proud that the majority of our shares are held by our doctors and team members. In January, we launched our employee stock purchase plan, giving our doctors and team members another way to share in the value we create together. For those who may be newer to Park Dental Partners, I'd like to take a moment to briefly describe who we are and what makes us unique. We are a dental resource organization built for the long term. Our affiliated practices began serving patients in 1972. This year, 2026 marks our 54th year of combined operations. That longevity reflects a model that has endured over the decades because it's grounded in patient-centered care, a highly collaborative culture and operating discipline. Today, we provide a comprehensive set of business support services to our affiliated dental practices. Park Dental Partners teams handle things like administration, scheduling and billing, collections, facilities so that our doctors and team members can focus on what they do best, provide quality care to our patients. We are patient-centered in everything we do, which leads to high patient satisfaction and retention and ultimately drives long-term value for our shareholders. Importantly, our doctors provide a full spectrum of services in an integrated care model. Our goal is to be able to address the needs of patients over their lifetime, whether it's general or specialty care. Clinical leadership is core to our identity. Our affiliated practices are overseen by 2 outstanding Chief Clinical Officers, Dr. Christopher Steele, who oversees our general dentistry and Dr. Alan Law, who oversees specialty care. We also benefit from the rest of our expanded talent and leadership team, including Jean Lind, our Chief Administrative Officer; Jason Halupnick, who is our VP of Business Development; and Brian Zard, who is our VP of Operations. At the core of our identity is the belief that practicing doctors need to play a central role in the management and the governance of our organization. One tangible example of that is the depth of doctor engagement we have today. 50 of our doctors actively contribute outside of their clinical schedules to help us operate the business efficiently and effectively. They're shaping care standards, training, clinical systems, patient experience and operational improvements. We view this as a significant competitive advantage for our organization. With long-term ownership opportunities, alignment to our mission, vision and values and pathways for growth, we believe our model is compelling to new dental school graduates, mid-career doctors and late career clinicians alike. Now a word on our growth strategy. Our long-term growth strategy is straightforward: increase the number of doctors serving patients. We do this in 3 ways: adding doctors to existing practices, acquiring additional practices and opening de novo or new practices. Today, we have 214 doctors across 3 states, and we believe that we can grow that significantly over time. Looking at the overall industry, we are well positioned to continue growth over the coming years. The U.S. dental service market is estimated to be $173 billion and is growing at roughly 4% to 5% a year. It remains very fragmented. There are an estimated 200,000 licensed dentists in the U.S. and over 2/3 are solo practitioners or small independent groups. We're focused on taking full advantage of our opportunity here to grow. We believe in building market density over time in order to unlock operating efficiencies, expand integrated specialty care services and to strengthen our brands. Our approach to M&A is disciplined, where we prioritize cultural fit and focus on opportunities that we believe have the potential for long-term value creation. Looking ahead, we intend to continue acquiring and opening de novo practices in existing markets to grow our share while entering 2 to 3 new markets over the next few years with a land-and-expand playbook. Turning now to the fourth quarter results. We're pleased with the record year of revenue and adjusted EBITDA. It was a great year that culminated with our IPO in early December. I was pleased with our same practice revenue growth of 5.8% in the year. Our revenue growth rate for the year was 6.4%. This was a great performance, and I believe there's upside to this level of growth as we continue to act on our acquisition strategy. We have a robust pipeline and with a strong balance sheet, we're well positioned to capitalize on the right opportunities. The timing of acquisitions is difficult to predict. While we strive to have a regular cadence of closings, we will not sacrifice our long-term goals to hit certain short-term metrics. Patient retention remains high at 89.9% and reflects the strong relationship between our affiliated doctors and their patients. In addition to solid financial performance, our teams invested in our people and in technology in 2025. Some of the highlights include an investment in our people by launching 3 new learning and development platforms. The first was polished patient experience, which is a program for doctors and clinical team members to improve their patient interaction skills. Second was Charting Your Course, a program to support new graduate doctors as they transition from dental school to clinical practice. Finally, a career development tool that will help support long-term team member retention, which is so important to our business. We continue to invest thoughtfully in technology. Our team completed the implementation of an AI tool called Overjet, which assists our doctors in reading radiographs and diagnosing care. Our team upgraded our workforce management system to UKG, which we expect will drive enhancements to productivity and improve workforce planning. While we're talking about technology, I'll just add that we're excited about the continued benefits that digital dentistry is bringing to patient health outcomes and to the professional satisfaction of our doctors and team members. We also see meaningful opportunity over the coming years to drive efficiency in administrative workflows as we apply advanced technologies, including AI in areas like documentation support, revenue cycle processes and other operational tasks that may reduce friction for our teams. We'll approach this responsibly with a focus on security, compliance and ensuring technology supports not detracts from patient care. Growth in 2025 included the opening of multi-specialty de novo practice in Rochester, Minnesota; and 3 practice acquisitions, 2 in Minnesota and 1 in Phoenix, Arizona, which marked our entry into our third state. We're excited about Arizona, and our strategy there is straightforward, that land and expand approach. As of January, we've entered both the Phoenix and the Tucson markets, partnering with some terrific doctors who share a passion for delivering great patient care. I'll conclude my remarks by reiterating something that I hope resonates with all of our stakeholders. As I mentioned in the beginning, we prioritize patient care. We think long term and are committed to keeping doctors at the center of governance and management. We believe this will translate nicely to increased shareholder returns long term. With that, I'll turn it over to CJ for the financial update. Christopher Bernander: Thanks, Pete. Good morning, everyone. As Pete mentioned, we had a great year with strong performance throughout. We remain confident in our ability to deliver consistent organic growth while also growing inorganically through a disciplined M&A strategy. For the fourth quarter, revenue was $61.2 million, representing 7.5% growth year-over-year. General practice revenue grew 6.2% to $44.7 million and multi-specialty practice revenue grew 11.3% to $16.5 million. Same practice revenue growth was 6.3% year-over-year, driven by increased patient visits, clinical hours, increased fee and reimbursement growth. For the full-year, revenue totaled $244.5 million, 6.4% growth year-over-year. General practice revenue grew 4.8% to $179 million. Specialty practice revenue grew 11% to $65.5 million and same practice revenue growth was 5.8% for the full-year. From a top line perspective, there's a few other details I'd like to highlight. First, multi-specialty revenue is growing at a faster rate than general dentistry and has been for a number of years. This is driven by our expansion of specialty services into the markets that we operate in and the smaller revenue base that we currently have for that part of the business. Outside of our expansion, we're also seeing increased patient demand for specialty services and expect demographic trends to continue to drive tailwinds for specialty dental services over the coming years. Secondly, we've added 3 practices in 2025. However, 2 of them had no material impact on the revenue in the year since they were deals that were completed on December 31. Thirdly, our clinical schedules operate on weekly staffing models. When comparing periods, there can be variances based on the number of days in operation. For 2025, we had 1 less working day than 2024. Normalizing for the number of operating days, revenue growth in 2025 would have been 6.9% on an apples-to-apples basis versus 2024. Moving to our cost structure, 2 quick definitions for you. Cost of services are expenses incurred within the 4 walls of our practices and include both variable costs such as doctor compensation, supplies, lab fees as well as fixed costs such as occupancy and utilities. General and administrative costs represent our DRO shared services that provide administrative support to the practices. This includes functions such as quality assurance, IT, accounting, legal, patient call support, business development and revenue cycle. During 2025, we did have a few cost items all related to our IPO that I'd like to bring to your attention. IPO transaction costs were a large onetime item in 2025, totaling $2.7 million. These are included in our G&A and are an add-back for our adjusted EBITDA. Also, fourth quarter expenses included $8.8 million in non-cash share-based compensation expense related to the vesting of pre-IPO shareholders restricted shares. Approximately 30% of the pre-IPO restricted shares vested upon the IPO date and the remainder will vest over the next 12 quarters based on continued employment of doctors and management. Share-based compensation shows up in 2 places on our income statement, salaries and benefits in the cost of services area and in G&A. With our IPO, we are now also incurring additional public reporting costs, which started in December. We currently expect our public company cost run rate to be about $400,000 to $500,000 a quarter going forward in our G&A expenses. Inclusion of share-based compensation expense and the increased shares outstanding were the drivers of the EPS decline year-over-year. Share count is another area I'd like to provide you with some color. We ended the year with 4.25 million shares outstanding, which included 1.5 million shares from the IPO. Pre-IPO shares that were unvested as of year-end totaled 2.36 million. Our average diluted shares were 1.94 million for 2025 and 2.49 million for the fourth quarter. Because of share weighting, both amounts reflect only 27 days of the IPO share count. Looking ahead, if all pre-IPO shares fully vest over the next 3 years, our outstanding share count will be approximately 6.6 million shares by the end of 2028, not factoring in any future events. Turning to cash flow and leverage. Our operating cash flows were $17.6 million in 2025, demonstrating the cash flow generation ability of our business. Cash and cash equivalents were $25.2 million as of December 31, which included $18.4 million net cash proceeds from the IPO. We plan to deploy cash towards future growth, utilizing the land and expand concept that Pete highlighted earlier. Our long-term debt was $10.1 million on December 31, which decreased $1.9 million versus prior year. We also maintained a $15 million line of credit, which was undrawn as of December 31. As we announced via 8-K last week, that line of credit was recently amended to do several things, including extending the term from March 2027 to March of 2029 and modifying our debt covenants to be more in line with other public companies, for instance, including share-based compensation as an add-back in the covenant calculation. In regard to those covenants, we operate well below our debt covenants and expect to do so as we move forward. Turning to our 2026 outlook. Our outlook philosophy is to only include same practice growth and completed acquisitions. M&A timing is not easily predictable even with a robust pipeline, thus, we feel it best to only include completed deals in our outlook. The 2026 outlook we've provided includes the 3 acquisitions and 1 de novo practice we completed in 2025, along with the 1 additional acquisition announced so far this year. We expect full-year 2026 revenue to range from $254 million to $258 million, same practice revenue growth of 3.5% to 5%, and we expect adjusted EBITDA to range from $21 million to $23 million or 8.3% to 8.9% of revenue. Again, we expect, but as you know, we cannot assure that there will be more M&A activity as we move through 2026. As always, we'll remain disciplined with a sharp focus on fit, culture, returns and long-term value creation. We plan to update you on our outlook quarterly, incorporating any completed acquisitions in those periods. I'll wrap up my financial comments by saying that overall, we're pleased with our performance in 2025 and the continued momentum across the organization. As we look ahead, we remain focused on supporting our affiliated doctors, increasing the number of doctors we support and allocating capital in a disciplined way towards opportunities that drive long-term value for our shareholders. Now I'll hand it back to Pete. Peter Swenson: Thank you, CJ. Becoming a public company is a meaningful milestone, but we view it as the beginning of our next chapter, not the finish line. Since 1972, we've built an organization with deep roots, and we believe access to long-term capital will help position Park Dental Partners for the next 50 years of reinvestment and growth while staying true to our culture and our commitment to patients and clinicians. We're excited about the opportunities ahead and remain committed to creating long-term value for all of our stakeholders. Thank you for your support. With that, CJ and I are pleased to take your questions. Operator: [Operator Instructions]. Our first question coming from the line of Mike Grondahl with Northland Capital Markets. Mike Grondahl: Maybe just the first question, Pete, if you could talk a little bit about that robust pipeline, maybe how it compares to 6 to 12 months ago? Peter Swenson: Sure. Thank you, Mike. I would just say, as we look at our pipeline, you saw some of that yield coming late last year with a couple of closings and then right off the bat here in January with another one in Tucson. I would say good momentum coming into the year. Really looking forward to expanding in Arizona now that we've entered that market, got some great doctors, Dr. Holmes, Dr. Romero, looking forward to working with those teams to identify more opportunities for growth in Arizona beyond Minnesota and Wisconsin. Mike Grondahl: Can you remind us the team you have working on M&A and looking at these opportunities? How significant is that team? Peter Swenson: Last year, actually brought back Jason Halupnick, who was with us. Jason leads that effort for us, and he's responsible for half of the deals that we've closed over time. Jason is supported by an analyst and our overall leadership team is deeply involved, including myself in driving that inorganic growth. Mike Grondahl: Then maybe lastly, if we looked at the sales cycle for these -- the 3 acquisitions you've done, the 2 at the end of '25 and the early '26. How would you describe the length of that sales cycle? Is it many months, a couple of months from when you maybe initially talk to them to when you can get a transaction done? How has that trended, the sales cycle? Peter Swenson: Yes. It varies, as you can imagine, by the size of the transaction, how many owners might be involved. It could be a couple of months in some of the larger opportunities, you can imagine developing relationships for years in your pipeline. Mike Grondahl: Then maybe just lastly for me. The 3 acquisitions you've announced were single or 2-doc locations. How does the pipeline look from, I don't know, 6 docs or 5-plus doctors? Is there a couple of those or some of those in the pipeline, too? Peter Swenson: Yes. I would say, as we described on our roadshow last year, there are different size opportunities, and we're continuing to pursue all of those categories. Operator: Our next question coming from the line of Matt Hewitt with Craig-Hallum Capital Group. Matthew Hewitt: CJ, congratulations on hosting your first quarterly update call as a public company. Maybe first up for me and sticking to the pipeline of opportunities. Could you remind us -- so when you go in and acquire a practice, maybe talk a little bit about how you're able to go in, implement some new efficiency programs and how long it typically takes before you're able to get those new practices up to company margins? Christopher Bernander: Matt, thanks for the question. This is CJ. Happy to answer it. Consistent with Pete's comments around the size and shape of certain acquisitions, I'd say it depends. We have practices we've acquired where we're achieving -- that are operating very efficiently and effectively, and we're hitting that run rate in 3 months. Then we have other ones that we may be investing in. As Pete said in the roadshow and subsequent to that, our strategy is to operate multi-doctor practices. In the instances and where you're seeing single doctor practice acquisitions, oftentimes, we're looking at how do we add that second doctor or that third doctor. That process does take a little bit of time. It could be 12 to 18 months before we're up to #2 or #3. It's going to depend on finding the right talent fit for that area. What we can confirm is that every deal that we do, we're excited about the opportunity for growing it into the future. I'd say that getting there is going to vary based on deal, but you can think of the quick ones being in that 0 to 3-month range and then some taking longer. We're also looking at how do we set the practice up for success in the long term by growing it out to be a multi-doctor practice. Matthew Hewitt: Thank you for the update on the software. I find that really an interesting opportunity, quite frankly. The software platforms that you described, are those something that you will sell independent of even your own practices? If so, does that create an entry into potential practice acquisitions down the road where maybe you've gotten in with the software and they get comfortable with you and decide, boy, that would make sense for us to be part of the Park Dental platform. Christopher Bernander: Yes. Great question, Matt. We feel like our technology and software stack is best-in-class. It is a great I'd say, selling point for doctors to look at joining our organization because they're surrounded with the best tools that there are out there. Our goal with those is to allow our doctors and our team members to be efficient, to be effective, to practice at the top of their license. In doing so, we're focused internally right now on those tools and technologies to help drive our organization forward. We're not currently evaluating turning those external, but we do find a tremendous amount of value, both operationally in deploying them and then also as Pete and others are having those conversations from an M&A perspective, we feel like we can go in with our chin up around the tools and technology we surround our teams with and have great conversations with potential doctors. Matthew Hewitt: I would think it's a big differentiator. Well, congratulations on your first quarterly update call, and we look forward to the future ones. Thank you. Operator: There are no further questions. I will now turn the call back over to CJ. Bernander for any closing comments. Christopher Bernander: Thank you, and thanks, everyone, for attending our first quarterly earnings call. We do anticipate filing our first 10-K in mid- to late March. We appreciate your investment, your interest in our company and look forward to our next interaction with all of you. Have a great rest of your day. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Welcome, ladies and gentlemen, to the Fourth Quarter and Full Year 2025 Earnings Conference Call for Organogenesis Holdings, Inc. [Operator Instructions] Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, 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 and its subsequently filed quarterly report. You are cautioned not to place undue reliance upon any forward-looking statements. which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, further events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the company's earnings release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gillheeney, Sr. Organogenesis Holdings' President, Chief Executive Officer and Chair of the Board. Please go ahead. Gary Gillheeney: Thank you, operator, and welcome, everyone, to Organogenesis Holdings Fourth Quarter 2025 Earnings Conference Call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we're going to cover during our prepared remarks. I will begin with an overview of our fourth quarter revenue results and provide an update on key developments in recent months. Dave will then provide you with an in-depth review of our fourth quarter financial results, our balance sheet and financial condition at quarter end as well as our financial outlook for 2026, which we introduced in our press release this afternoon. And I'll provide some closing comments before we open up the call for questions. Let's begin with a review of our revenue results in Q4. We delivered record sales results, which exceeded the high end of the guidance range outlined on our third quarter conference call, driven primarily by better-than-expected growth in sales of our Advanced Wound Care products, which increased 83% year-over-year. Sales of our Surgical & Sports Medicine products declined 2% year-over-year, which was within the range of our guidance assumptions. The record revenue performance we delivered in the fourth quarter reflects our team's strong execution and commitment to our strategy to build upon our deep customer relationships and promoting access to existing and recently launched products. I want to acknowledge and thank our team for continuing to show up every day for our patients amidst the very challenging environment in 2025. 2025 was a significant year for the industry with CMS enacting the most meaningful health policy changes in decades. We continue to believe these changes are favorable to our portfolio and to our mission. CMS shifted reimbursement to support high-quality evidence-backed PMA products while reducing payment for non-PMA products that have not undergone the most rigorous type of review so that more patients have access to products that go beyond simple wound coverings. CMS has cited the clinical differentiation of PMA products and supports higher payment for the category to encourage innovation in the space. Their comments indicate that PMA products were never part of the problem and understand the higher development and manufacturing costs require sufficient reimbursement, not only to sustain the market availability of Apligraf and other high-value PMA products, but also to introduce new PMA products in the future. As discussed on our earnings calls last year, Organogenesis has actively participated bringing about these changes, and we remain committed to working with CMS and other stakeholders to further expand access to life-saving technologies as well as incentivize investment in innovation in the space and achieve long-term stability in the market. Unfortunately, withdrawal of LCD coverage policies for skin substitutes announced on December 24 and comment regarding discarded product on December 30 have resulted in clinical confusion and material disruption in the market. We do not believe these actions by CMS signal any step back from the original goals outlined to reform coverage and payment of skin substitutes. We believe the comments on December 30 regarding discarded products were intended to proactively address activity from certain competitors in the market that are attempting to exploit the new payment policies by focusing on larger-sized skin substitute products, specifically amniotic products. Unfortunately, these comments have resulted in significant clinical confusion impacting utilization of our PMA-approved product in the first 2 months of 2026. We do not believe the agency's commentary on discarded products should apply to PMA products. CMS' commentary and actions in recent years have indicated that PMA products were never part of the fraud and abuse. Further, CMS expressly stated in the final Medicare physician fee schedule for calendar year 2026 announced on October 31, 2025, that PMA products are clinically differentiated and deserve payment at a higher rate. We believe the significant clinician confusion, which is impacting utilization of our PMA-approved product is a result of the agency's comments on December 30 and will be resolved in a way that's consistent with the policy CMS set by grouping products based on their FDA classification. As discussed on our earnings call last year, this was a key focus of our feedback and policy recommendations to the agency. CMS has consistently indicated one of their goals in policy reform was to increase access to PMA products. While 2026 is off to a difficult start, I want to make it clear that I'm very optimistic about our future. We believe CMS' efforts to overhaul coverage and payment for our market represent a watershed moment for the industry and the final Medicare physician fee schedule for calendar year 2026 announced on October 31, 2025, represents the most meaningful step forward towards payment reform in more than a decade. I believe our overall position is very strong, and it is from this strong position that we are making capital investments that will support our company's future growth and continued leadership in the space. Our new manufacturing and R&D center in Smithfield, Rhode Island is advancing well. This state-of-the-art facility, once completed, will allow us to scale manufacturing of Apligraf and PuraPly AM. We commercialized Dermagraft, strengthening our portfolio with another clinically proven PMA product and gives us the capacity to expand our product portfolio to treat burns with FortiShield and TransCyte, which is another PMA product. We are increasing our focus on clinical evidence by investing in trials and published studies because science and evidence have always been core to our foundation. And as coverage policies evolve, evidence will be the currency of credibility, and we intend to remain in the lead. Looking beyond wound care, we are closer than ever to expanding our mission into entirely new markets with our ReNu program. Late last year, we initiated our rolling BLA submission, which we expect to complete in the first half of 2026. And if approved by the FDA, ReNu represents a transformational opportunity, not just for Organogenesis, but for the millions of Americans living with knee osteoarthritis pain, particularly those whose only alternative today is a total knee replacement. We can change the treatment paradigm and improve the lives of these patients as part of our vision to be a force for meaningful change and set a higher expectation in healing and recovery. With more than 40 years in regenerative medicine and a diverse evidence-based portfolio with technologies in each FDA category, we believe we are best positioned in the skin substitute market and will continue to be a leader in the space with highly innovative, highly efficacious products that deliver on our mission of advancing healing and recovery beyond our customers' expectations. With that, I'll turn it over to Dave. David Francisco: Thanks, Gary. I'll begin with a review of our fourth quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net product revenue for the fourth quarter was $225.1 million, up 78% year-over-year and up 50% sequentially. As Gary mentioned, these results came in above the high end of expectations we provided on our Q3 call, which called for total revenue range of $162 million to $187 million. Our Advanced Wound Care net product revenue for the fourth quarter was $217.2 million, up 83%. Net revenue from Surgical & Sports Medicine products for the fourth quarter was $7.9 million, down 2% year-over-year. Surgical & Sports Medicine product sales were up 12% for the full year 2025 period, fueled by continued strong growth in sales of our PuraPly family of products. Our total revenue results for the fourth quarter included $0.5 million of grant income related to the grant issued from the Rhode Island Life Sciences Hub, offsetting our employee-related costs in our Smithfield facility. This compares to no impact in the prior year period. Gross profit for the fourth quarter was $175.2 million or 78% of net product revenue compared to 75% last year. The change in gross profit was primarily due to a shift in product mix. Operating expenses for the fourth quarter were $162.3 million compared to $116.4 million last year, an increase of $45.9 million or 39%. Excluding cost of goods sold of $49.9 million for the fourth quarter and $31.1 million last year, our non-GAAP operating expenses for the fourth quarter were $112.4 million compared to $85.4 million last year, an increase of $27 million or 32%. The year-over-year change in operating expenses, excluding cost of goods sold, was driven by $26.3 million or 36% increase in SG&A expenses and a $1.9 million write-down of certain nonrecurring expenses, offset partially by a $1.2 million or 11% decrease in research and development expenses. Operating income for the fourth quarter was $63.3 million compared to operating income of $10.2 million last year, an increase of $53.1 million or 519%. Excluding noncash amortization and certain nonrecurring costs in both periods, our non-GAAP operating income was $75.9 million compared to $11.7 million last year, an increase of $64.2 million or 549% year-over-year. GAAP net income for the fourth quarter was $43.7 million compared to a net income of $7.7 million last year, an increase of $36 million. Net income to common for the fourth quarter was $31.5 million compared to a net income of $5.1 million last year. Net income to common includes the impact of the cumulative dividend, the noncash accretion to redemption value of our convertible preferred stock and undistributed earnings allocated to participating redeemable convertible preferred stock. Adjusted net income for the fourth quarter was $52.9 million compared to $8.8 million last year. Adjusted net income excludes after-tax impacts of intangible amortization, write-down of assets held for sale, disposal of construction in progress, FDA BLA fees for ReNu, PFS regulation-related charges, specifically nonrecurring inventory write-down adjustments for excess and obsolete inventory and upfront licensing costs resulting from the shift in product lines and additional inventory write-downs related to onetime loss of a key distributor in a certain international location. We have included a detailed reconciliation of GAAP to non-GAAP adjusted income in our press release this afternoon. Adjusted EBITDA for the fourth quarter was $84.2 million or 37% of total revenue compared to adjusted EBITDA of $18.2 million or 14% of total revenue last year. Turning to the balance sheet. As of December 31, 2025, the company had $94.3 million in cash, cash equivalents and restricted cash with no outstanding debt obligations compared to $136.2 million in cash, cash equivalents and restricted cash with no outstanding debt obligations as of December 31, 2024. We believe that we are well capitalized with our cash on hand and other components of working capital, availability under our revolving credit facility of up to $75 million and net cash flows from product sales. Turning to our 2026 outlook, which we introduced in this afternoon's press release. As Gary mentioned earlier, last year, CMS announced the most meaningful health policy changes in decades, and we continue to believe these changes are advantageous to our portfolio and mission. As a leader in the industry, we expect to gain share in this new environment as we leverage the largest, most comprehensive portfolio across multiple FDA classifications. However, we are experiencing near-term challenges as we enter 2026 and the operating environment remains highly uncertain given clinician confusion surrounding CMS' comments on December 30. As a result, we expect total net revenue to decline in the range of 25% to 38% year-over-year for the full year 2026 period. We expect these challenges to impact our financial results in the first half of 2026 with meaningful improvement in clinician confusion and the overall operating environment, together with the strength and breadth of our portfolio to result in substantial market share gains over the second half of 2026. Specifically, our current expectations assume first quarter revenue declines of approximately 50% year-over-year, driven primarily by the significant clinician confusion and related impact on utilization of our PMA-approved product as a result of CMS' commentary on December 30. We expect to drive strong sequential growth in the second quarter, resulting in first half revenue declines of approximately 30% to 35%. We expect to deliver strong sequential revenue growth in both the third and fourth quarter of 2026, which we expect will result in positive adjusted EBITDA, particularly in the fourth quarter, where we expect to drive high teens adjusted EBITDA margins. With that, I'll turn the call back over to Gary for closing remarks. Gary Gillheeney: Thank you, Dave. '25 was a challenging year, but we are proud of the team's commitment to our long-term growth strategies. Our team's strong execution resulted in total revenue and profitability for fiscal year 2025 that exceeded the high end of our initial financial guidance ranges we introduced in our fourth quarter call last year. We also advanced our strategic priorities, most notably with our ReNu program and securing our new manufacturing facility in Rhode Island to support future growth. We expect continued strong execution and operational progress as we work through the challenging year this year. While we expect the first half of '26 to be impacted as the skin substitute market adapts to sweeping changes from CMS to reform coverage and payment for skin substitutes, we expect to drive significant market share gains in the second half of 2026 and remain confident in the long-term opportunity for Organogenesis. After a period of transition in the market in 2026, we expect to return to normalized annual growth in 2025. We continue to believe we are well positioned to win in the future. We expect to remain a leader in the space with highly innovative, highly efficacious products that deliver on our mission to provide integrated healing solutions that substantially improve outcomes while lowering the overall cost of care. With that, I'll turn the call over to the operator to open the call up for questions. Operator: [Operator Instructions] And our first question is coming from the line of Ryan Zimmerman of BTIG. Iseult McMahon: Gary, Dave, this is Izzy on for Ryan. So just to start out, I wanted to focus on your fourth quarter results for Advanced Wound Care. That 83% was definitely really strong and much stronger than you were anticipating. So I was curious how much of that growth you believe is due to customers maybe pulling forward some of the inventory ahead of the January 1 reimbursement changes? Gary Gillheeney: Yes, there's really not a tremendous amount of opportunity for that because obviously, the products are going on to patients. So we don't think there was a tremendous amount of that. What we didn't see at the back end of that was an increase in aggressive pricing tactics, which we assumed was going to happen. But as you said, I mean, we beat our midpoint of our guidance by about $50 million. So it was an amazing quarter for us. We were quite pleased. Iseult McMahon: Got it. That's helpful. And as we start to think about 2026, can you help us kind of bridge the gap between what we saw in fourth quarter and the decline that you're forecasting for the rest of the year? I mean how much is that purely mathematical with the reduced price of $127? Or is that more of lower unit volumes due to the confusion that you're seeing in the market? Gary Gillheeney: No, we expect to gain share in 2026. So we're quite pleased with that. We think there's a couple of things that will happen is that we'll continue to see the competitive dynamics improve as we move through the year. And then in addition to that, obviously, we'd indicated that Q1 will be quite challenging based on the customer confusion based on all of the elements that happened late in 2025. Obviously, the $127 is an element there. We had planned for that. We expected that. So we felt that we could perform quite well with that. Also with the LCD being pulled late last year, we figured that, that would be something that we could overcome without any question. And then the last piece was the comments that were made on December 30, which really put some pressure on clinicians overall and really just has pulled back quite considerably. So it's really that major factor that's happening there from that standpoint. Iseult McMahon: Got it. That's helpful. And then last one for me. I know we are about 2 months into the quarter as of right now. So I was curious if you're starting to see anything that's giving you confidence in those share gains as we move throughout the year. Are you seeing any of the smaller competitors maybe exiting the market, supply issues? If you can provide us any color there, that would be really helpful. David Francisco: Yes, sure. Well, as I mentioned, we are seeing some aggressive pricing pressure in the quarter, which I think means that exactly what we anticipated might happen in the fourth quarter, people trying to clear out their inventory and that type of thing. So we are seeing some early signs of that potential change in the customer -- excuse me, competitive dynamics as we move forward. Gary Gillheeney: And just to follow up with Dave's comment that these issues that we see are transitory. We don't -- we do think that the flood of low-cost products will not sustain throughout the year, which is one of the reasons the back half, we believe, will be better. We think the clinician confusion as it relates to the comments on December 30, we're working our customers through that process and how to use our products with that issue. And we also think that there's just kind of a freeze in the market that folks are just generally confused by the health policy changes, and they were sweeping. They basically have reduced the reimbursement for non-PMA products and shifted them to PMA products and folks are trying to follow the reimbursement process and what does that mean for pricing and overall reimbursement. So there's just a lot of information. And those types of issues are transitory that we can work through. As Dave mentioned, $127 is something we contemplated and have no issues with, feel we can grow nicely at $127. It's more of the confusion that we have to work ourselves through. Operator: [Operator Instructions] We are currently showing no remaining questions in the queue at this time. This does conclude our conference for today. Thank you for your participation. You may now disconnect.
Hakon Volldal: Good morning, and welcome to Nel's Fourth Quarter and Full Year 2025 Results Presentation. My name is Hakon Volldal, I am the CEO. With me today, I have our CFO, Kjell Christian Bjornsen; and our Head of Investor Relations, Marketing and Communications, Wilhelm Flinder. Today, we have the following agenda. We will skip the Nel in brief section and go straight to the fourth quarter and fiscal financial year 2025 highlights. We will have a commercial update. We will talk about our new technology that we are about to launch, and we will, as usual, end with a Q&A session. Quarterly highlights. Revenue from contracts with customers came in at NOK 330 million in the quarter. We had an EBITDA of minus NOK 36 million. Solid order intake. I think it's the second best order intake in Nel's history of NOK 686 million. Order backlog increased to NOK 1.3 billion, and we ended the year with a cash balance of NOK 1.6 billion. In the quarter, we had several highlights. Among them, the PEM purchase orders from HyFuel and Kaupanes from hydrogen solutions in Norway, together with a combined value of more than $50 million. We were chosen as a technology provider for GreenH projects in Kristiansund and Slagentangen in Norway. And we received a third order for containerized PEM solutions from H2Energy in Switzerland. We also took a final investment decision on industrializing the Next Generation Pressurized Alkaline platform. Coming back to that a bit later in the presentation. Looking at the fourth quarter results. Revenue, as I said, came in at NOK 330 million. That's a 9% increase quarter-on-quarter and a 20% decline year-on-year from the fourth quarter last year. EBITDA flat versus last year and also flat quarter-on-quarter. The big difference versus last year is actually on the EBIT line with a negative EBIT in the fourth quarter of NOK 920 million compared to NOK 106 million minus in the fourth quarter last year. That is due to roughly NOK 800 million in impairment losses due to our next-generation technology influencing the value of the current platforms or the legacy platforms. I'll come back to the specifics a bit later. No cash effect, of course, on the impairment. That means we end the year and also the quarter with a solid cash balance of NOK 1.6 billion, slightly down from NOK 1.9 billion at the end of '24. In a historical context, 2025 came in below '23 and '24, but still higher than '22, '21 and '20. EBITDA losses came in at minus NOK 275 million, again, as a consequence of the reduced revenue. So not a year that we wanted. But still, in a historical context, around NOK 1 billion is decent. Alkaline was the main reason for the decline on the revenue side and also on the EBITDA side. We went from NOK 1 billion in '24 and a positive EBITDA of NOK 127 million down to NOK 562 million in '25 and a negative EBITDA of NOK 16 million. Again, this was partly due to canceled contracts or also the bankruptcy of one of our customers that was supposed to drive top line and EBITDA performance in '25. On the PEM side, we increased revenue slightly from 2024, and we also improved EBITDA slightly. More revenue is needed in order to bring the PEM business into black numbers on the bottom line. Order intake and backlog. That was a very positive development in the fourth quarter. As I mentioned, the fourth quarter was the second -- or is represented the second best order intake for Nel ever. I think we had one quarter in '22 that was better, but compared to what you can see here in '24, '25, it was a big, big step forward, of course, driven by the big contracts in Norway with HYDS. It also means that the backlog has increased from below NOK 1 billion to NOK 1.3 billion, and 2/3 or roughly 70% of the backlog is now related to our PEM technology. Order intake accumulated ended in line with previous years, below 2022, which was a very good year, but again, a big step forward from NOK 977 million in 2024. And as you can see here on this slide, most of the order intake in '25 came on the PEM side. Important for Nel is to protect our cash balance. And the cash burn rate historically has been high as the company has invested into R&D and also production assets. We have been cautious in '24 and '25 to bring down the cash burn rate. We continue to invest into technology, but there is not the same need to invest into assets as there was historically. Compared to '23, we reduced the cash burn by 35% in '24, and we have reduced it further by 41% in 2025. Again, there will be some investments into production assets, production equipment for manufacturing lines and also some investments on the technology side. But if you look at the operational losses and CapEx together, we will not go back to what we witnessed in '21, '22, '23 and '24. We will have a controlled burn rate going forward. This is driven by a reduction in, among other things, full-time employees. We have gone from 430 people in total in Nel to 346 at the end of '25. And as a consequence, we have also reduced personnel expenses from NOK 646 million in '24 to NOK 569 million in '25. That's a 12% decline. The impairments that we took in the fourth quarter actually reflect our optimism around next-generation technology platforms. We have developed a new technology that we believe in. We believe the new technology will be superior to the technology we have sold traditionally. And that means, as a consequence of this new technology, we expect demand to shift to the new platforms and there will be less demand for the old or existing products. And that means the value of those platforms will be reduced, and we have reduced also the book value of these assets. We took an impairment loss of NOK 361 million related to our atmospheric alkaline production assets, more specifically Line 1 at Heroya, and we've also taken NOK 439 million in impairment related to goodwill and intangible technology assets stemming from the acquisition of the PEM division back in 2016. Moving on to the commercial update. 2025 was not a lost year. We also had some good progress. Among the highlights, I would like to mention the partnership agreement with Samsung E&A. We became their preferred global partner for hydrogen. We received the third purchase order from a major U.S. steel producer, a nice big purchase order from Collins Aerospace for U.S. Navy stacks, where we equip submarine vessels with our PEM stacks. We sold a solution to the Aberdeen Hydrogen Hub in Scotland. As I mentioned, big orders from HYDS in Norway and a nice third order from H2Energy in Switzerland, and also the recognition of Nel as the technology provider for GreenH projects in Kristiansund and Slagentangen. Going a bit more into detail on the contracts that we signed in the quarter. This is a picture of an installation we have done in Switzerland together with H2Energy. It's in Kobel. It's close to hydrogen power station. This is not what we will develop based on the order that we received, but it shows what we have done with them. And now they have placed an order for a similar facility, and it represents the third such order to Nel from H2Energy and we take pride in that because it means that when somebody comes back to you and orders more equipment, they're happy with the performance. In the hydrogen industry, there have been lots of stories about equipment that doesn't work and suppliers that can't make plants run. This is a customer that has had the opportunity to check our equipment, test it, run it and they come back to us to buy more. I think that's a nice testimony of the quality of what we now deliver on the PEM side. The purchase order for 40 megawatts from HYDS was the highlight in the quarter. The 2 projects they will develop are the HyFuel project and Kaupanes, 20 megawatt each, and we plan to deliver the MC500 containerized PEM systems to these 2 projects. Both projects are funded partly by Enova and total contract value exceeds $50 million, and that represents the largest order for PEM equipment that Nel has received so far. And also the second largest contract we have signed in history. We will produce the solutions at our PEM manufacturing facility in Wallingford, Connecticut. We will deliver more than 20 megawatts to 2 projects in Norway that will be developed by GreenH. The minimum scope agreed for each of these projects is 10 megawatt of electrolyzer equipment plus engineering and technical support. The 2 sites are designed to supply clean hydrogen to industrial and maritime users, and they will form part of GreenH's network of distributed regional hydrogen production facilities. Again, these projects are partly supported by Enova with funding. And also size and delivery of the schedules for these 2 projects will be confirmed at a later date, exactly when they will produce it and what technology that has been chosen. If we sum up what is happening in Norway, on the maritime side is actually starting to look quite interesting. There are the 2 projects with HYDS, Floro and Egersund; there are the 2 projects with the GreenH, Slagentangen and Kristiansund; and then there's also the Rjukan project with the Norwegian Hydrogen, where they announced a maritime offtaker of the hydrogen they will produce at Rjukan. And altogether, this forms a quite interesting picture of what is happening in Norway and also the fact that you can supply now hydrogen from different sites, means that it becomes more attractive to invest in hydrogen vessels for ship owners, because you're not dependent on one site only, you have multiple sites available, and that redundancy of fueling options and bunkering options is important. In the fourth quarter -- actually, that's not correct, earlier this year, we launched the Electrolyzers for Europe initiative. It's an initiative consisting of 6 leading electrolyzer OEM manufacturers, all European, to promote electrolyzers made in Europe. Europe has more than 10 gigawatt of annual electrolyzer production capacity, but less than 1 gigawatt has actually been deployed, and that means we're lagging behind EU's target of having 40 gigawatt installed by 2030. This slow uptake is, among other things, due to unclear and/or to rigid regulations, insufficient offtake and cancellations across many early-stage hydrogen project developments. What we aim to do with this initiative is to unite the leading electrolyzer OEMs and help push for clearer frameworks, predictable demand signals, and faster policy execution. And by speaking with one voice, a unified industry voice, this initiative aims to protect Europe's technological leadership, strengthen competitiveness versus subsidized imports and accelerate large-scale hydrogen deployment. So that's a good initiative. Nel is one of the founding members of this body, and we hope more industry players in Europe will join this initiative going forward, so that we can help politicians shape the regulations that we need to drive the industry forward. Talking about or coming to the outlook section and offering somewhat a market perspective going forward, it's slightly challenging. But what we have seen is that order intake in 2025 increased by 15% versus 2024. And again, it was not evenly distributed throughout the year. We had low order intake in the first -- actually, first quarter was good, second and third quarter not so good, and then the fourth quarter was very strong. It accounted for almost 60% of the total order intake for the year. It's difficult to predict order variations between the quarters. But if we look at the long term or mid- to long-term trends, we are positive. What about the short-term trends? We continue to see several promising projects in the 20 megawatt to 150 megawatt range. And these projects are expected to take final investment decision over the next quarters. Especially on the PEM side, we see a lot of opportunities. And the reason why containerized PEM has strong momentum is that projects have indeed become smaller. They have been scaled down from maybe several hundred megawatts to something which is slightly smaller as the first phase. Developers had to start with 20, 40, 50 megawatt instead of going directly to hundreds of megawatts in order to phase in demand. And that means, with the first step of 10 to 50 megawatt, we are in the sweet spot for Nel's containerized PEM solutions. With a containerized PEM solution, you also get a proven, efficient and standardized alternative to customized solutions. And I think a lot of the customers have seen that designing a hydrogen production plant from scratch is expensive. The amount of engineering and planning that you need to put into it is quite substantial. And then having something ready to go arriving in containers simplifies overall project execution and also enables you to shorten the schedule to go to market with hydrogen. It also improves the redundancy, because you have access to multiple systems, and it's easy to build it out stepwise to scale it over time. Significant CapEx reductions on this particular solution, of course, also help. We have worked hard over the past couple of years to get the cost down. The market is price sensitive. So as a result of our cost reductions, we also see that we can enable more projects to move forward with a profitable business case. With respect to geographies, Europe is currently the most active and promising region for Nel, but we also have leads and opportunities in North America, the Middle East and Asia. Then we move on to the technology update. As I have said before, we have spent a long time developing a new generation of alkaline electrolyzers. We have spent more than 7 years developing a brand-new platform. It has taken a long time, but we really wanted to build it from scratch and build a product that is in fact better than what we have on many, many different dimensions. We wanted to be the best electrolyzer the world has ever seen. And now we are here. This is not a PowerPoint rendering, this is a picture of the prototype at Heroya. It's close to our production plant located inside the Heroya Industrial Park, where we for some time now have tested a real version of our pressurized electrolyzer. And what do we aim to accomplish with this solution? We hope that this new solution will set new industry benchmarks. We see that this solution is extremely compact. We can reduce system footprint by up to 80% if we compare it to our existing atmospheric alkaline solution. Why is that important? Well, especially in Europe where there is -- which is the most promising region at the moment, you don't have all the land that you would like to have. Land is expensive. And sometimes you need to locate your hydrogen production plant inside an industrial park or you need to develop a brownfield site. That means having a compact solution that can fit on the site that you have access to, the plot that you have available, it's important. Even more important, I would say, is to get the system CapEx down, the cost of building the entire plant, not just the electrolyzer itself, but everything that goes with it. It's the complete system cost that has to come down for our customers. With this solution, we believe we can bring the total system cost down by 40% to 60%. And that means we start to get close to a level where hydrogen becomes very attractive. Long term, of course, it's not only about the CapEx, it's more about the OpEx side. And OpEx is driven by electricity consumption. This solution will significantly improve the energy consumption for generating hydrogen. We believe that on a system level, we can get down below 50-kilowatt hours per kilogram of hydrogen. And that is a 10% to 20% improvement over most systems today. To add some color to why we are confident that we can deliver on this CapEx and OpEx improvements, I'll just touch briefly on some important points. OpEx, again, the electricity consumption, it's the design of the electrolyzer itself. We have improved the energy efficiency, so 0 gap electrode design, improved diaphragms. We have also spent a lot of time designing a smart system that limits the shunt currents that typically plague pressurized electrolyzer systems. We have a unique and patented solution for avoiding shunt currents. So all of that design work leads to improved energy efficiency in the stack itself. Also important is the fact that you can operate the electrolyzer at different loads. We have a wide operating range, meaning you can run the electrolyzer at the 100% or you can run it at 10%, 20%. So that wide operating range is important when you want to optimize the electricity cost and how much hydrogen you produce, at what hours during the day. We also had a quick ramp up and down. And that is important because it means you can respond to price changes in the market rapidly. If you spend hours bringing your electrolyzer load down, you will not benefit from the fluctuations in electricity prices. Our system has been designed to use as little electricity as possible and still give customers the opportunity to optimize the electricity consumption based on pricing in the markets and how you want to run your system. CapEx reductions are driven by the fact that our system now consists of fewer and cheaper modules. Because there is pressure generated inside the electrolyzer, gas is coming out at 15 bar pressure instead of coming out at atmospheric pressure, we can avoid modules such as scrubber and the gas holder. And we also, because of that pressure, can reduce the size of the modules. Our system has been designed for outdoor installation, which is rather unique. I'm not aware of any other pressurized alkaline electrolyzer technology that can be installed outdoor. Most are installed inside buildings. Having a separate building for your electrolyzer adds a lot of costs, because there are safety regulations linked to ATEX zones, et cetera, that drive up the cost of the building. So we avoid all of that cost. It can operate outside, even in Norwegian or Nordic climate, through the winter conditions. The footprint is small, as I commented on, and this helps reduce cabling, piping and site works linked to concrete, et cetera. It brings all of the construction costs down, because you don't need to prepare thousands of square meters. You get the small compact footprint with less work. And that means all in all, also because our system is standardized, modularized, everything comes inside 20-foot skids, we significantly reduce the engineering, construction and commissioning cost. Why is that important? Because the labor part sometimes account for more than 50% of the total CapEx for the customer. So it's not only about getting the hardware cost down, it's also about getting the labor cost down, and our system delivers on both of these things. We announced, I think right before Christmas, that we delivered first gas with solid results, confirming our anticipated business case. And that led to the Board of Directors giving us the green light for building 1 gigawatt of stack production capacity at Heroya. So very pleased with the results so far. And now it's full speed ahead to commercialize this technology. We have produced gas on the prototype plant, as we said, in 2025. We took final investment decision on the gigawatt production line in the fourth quarter. We will launch the product commercially in the first half of 2026. May 6 is the magical date when we will invite customers and partners to come observe this technology, and also share more technical data and commercial data with them for what this system can do. We aim to validate the full customer pilot in the second half of 2026 and be in position to deliver at scale. What does that mean? Well, it means hundreds of megawatts in 2027. This project is funded by the European Union. We have received EUR 135 million in grants for industrializing the concept. Doesn't mean that we will spend all of that, but we are lucky and very happy that we have a solid financial backing for building the production line and running the pilot tests from the European Union. Then we are done with the official presentation and move on to the Q&A part of the quarterly presentation. And then you have a script you need to go through first, Wilhelm. Wilhelm Flinder: Thank you, Hakon. Before we start the Q&A session, just a few practical points. [Operator Instructions]. To manage the time, we ask you limit yourself to, I think we can take 2 questions at a time. If there's room at the end, you are welcome to rejoin the queue. We will also take written questions submitted through the Q&A function if time allows. If we don't get your questions, feel free to reach out to us at ir@nelhydrogen.com. And as a reminder, we will not comment on outlook specific targets, detailed terms and conditions for individual contracts, or questions about specific markets. Modeling questions are also best handled offline. And with that, I think we can get started. Wilhelm Flinder: As of now, I see no one has actually raised their hand, but we have received some questions -- here, we have one. Anders Rosenlund, I'll bring you on the screen. Please go ahead. Anders Rosenlund: You talked about this new pressurized alkaline system with the energy reduction of some 10% to 20% compared with most systems today. And the indication of below 50 per kilo is a bit vague. But could you just give us an indication of what you think energy consumption is for alkaline today, or what the systems that you deliver are consuming? Hakon Volldal: I think the big -- if you look at PEM and atmospheric alkaline, it's usually in the 55 kilowatt hour to 60 kilowatt hour per kilogram range, depending on who the OEM is. And then there are lots of OEMs claiming to be at very low figures for pressurized alkaline. And the problem is, yes, you might be that on the stack itself, but you lose a lot of that electricity due to so-called shunt currents, so electricity spent on producing hydrogen where you don't want it, in the manifold system. So if you look at the real energy consumption, it might be 15% to 20% higher than what we stated in data sheets because of that effect. And that means you, in some cases, are well above 60 kilowatt hour per kilogram of hydrogen, which comes as a big surprise to customers when they turn on the plant and they compare the electricity consumed versus the hydrogen coming out of the plant. Anders Rosenlund: And the above 60, that applies for PEM or alkaline... Hakon Volldal: That above 60 is for pressurized alkaline technology with high shunt currents. PEM is typically around 55, I would say, on the system level. And then, of course, a lot of these systems degrade over time. So there's a degradation effect of 1% to 2% per year. And our system has been designed to minimize that degradation effect, so that you end -- after, say, 6, 7, 8 years, your energy efficiency is still okay and not just during the first couple of years. Anders Rosenlund: And just a follow-up there because you said -- you referred to the others out there with those electricity consumption levels. But I presume that also applies for your equipment, that your equipment is not materially different since this is an improvement compared to what you already are producing? Hakon Volldal: No, I would say, if you look at PEM, there were not those big variations. It's either 53, 54, 55, 56. I mean most OEMs are in that range. And then plus the annual degradation. The big unknown is on the alkaline side. We produce atmospheric stacks where you have very low shunt currents, but higher energy consumption than we will have with the new technology. The problem is related to the existing pressurized alkaline stacks on the market today. And without throwing specific companies under the bus, we can say that most of these technologies are plagued by high shunt currents, which means you might operate in the 55 to well above 60 kilowatt hours per kilogram range. So we don't have the problem with shunt currents because we don't deliver pressurized alkaline technology today. When we do, the whole product has been decided to avoid that problem, and that is the differentiating factor. Wilhelm Flinder: Thank you, Anders. I see no hands. So let's jump to some written questions. From Morten, will you sell your old alkaline stacks in the future when your new tech is available, or just deliver on placed orders and then switch to pressurized alkaline? Hakon Volldal: I think we will still sell some atmospheric electrolyzers. There are some use cases for atmospheric stacks that are quite good. But as we have said, we think the majority of the market will prefer our new technology, because it is cheaper. The levelized cost of hydrogen will be lower for many customers, and that is the reason we have done the impairment, but we will be in a position to supply customers with the old or existing products if they want them. So I think we will sell both, but over time, the majority of the demand will be related to the pressurized alkaline technology. Wilhelm Flinder: So another one from Morten, do you think there will be consolidation in the electrolyzer world? And do you think Nel will survive these initiatives? Hakon Volldal: I think we have -- I can start and then you follow up, Christian. I think that consolidation has already started. There are a couple of companies that have gone bankrupt or given up. And I think that is likely to continue. There will be fewer players out there. Nel aims to be one of the companies that remain when the dust settles. And then, of course, we are a publicly listed company. Anybody can buy us. If somebody wants to buy us and pay a very high price, I think it's up to the shareholders to consider that, but we plan to remain a leading company. We remain to be one of the key players in the industry. And with the launch of the new product, first, the pressurized alkaline product and, in a couple of years, the new PEM technology, we believe we are in a position to capture a significant share of what we believe will be a sizable hydrogen market. Anything to add here, Christian? Kjell Bjørnsen: No, nothing. Wilhelm Flinder: So will you need PEM in the future when you have pressurized alkaline solution? And if yes, why? Hakon Volldal: So we will -- PEM and alkaline technology have slightly different use cases. Some customers prefer PEM, some customers prefer alkaline. We are in a position to pick the one solution that fits the business case or the project the best. And then we are of the opinion that it's much better for Nel to disrupt itself than for somebody else to do it. That's why we continue to invest into the R&D side. The pressurized alkaline technology will cannibalize and over time, outcompete the atmospheric alkaline version. It might even cannibalize the PEM product. And then if we launch a new PEM product, it is because we believe that product either has some unique benefits that will drive demand from certain segments, or because it will even outcompete the pressurized alkaline technology. So Nel aims to bring the best technology to market that we can possibly come up with. And if that means cannibalizing the old technologies, so be it. Wilhelm Flinder: Good. Also a question from Thomas on here. And I don't think we can be very specific, of course, but maybe some general comments around it. Are there large EPC tenders where Samsung and Nel are currently jointly bidding on? Hakon Volldal: Yes. Wilhelm Flinder: Yes. Good. We've also got some questions from David Lopez on e-mail. Some of these are already taken, but will the new pressurized alkaline technology be able to compete on price for projects worldwide with electrolyzers made in China? Hakon Volldal: Yes. And especially outside China. If you go back to my comment earlier that when you look at the total cost of starting a project, if you look at the CapEx side, more than 50% could be related to labor costs. And that is engineering hours, construction, commissioning, testing, et cetera, happening on site. Whether you start with equipment coming from China or equipment coming from Europe, you need to perform that with local labor on site. So even if the hardware cost is cheap for Chinese equipment, that labor portion is still very, very high. And what we aim to do with our solution is to bring that labor cost down to a minimum. That means we can be a bit higher on the hardware side if we can be much better on the labor cost side. I believe that with our pressurized alkaline technology, we are competitive on the hardware cost side, and we are much better on the labor cost side. And that means we have a winning solution for CapEx. Over time, the Chinese will probably -- they learn fast, they move fast. We have to expect that they will have a lasting competitive advantage related to their supply chains that will enable them to beat us on CapEx. We will do as best as we can, but it's fair to say that they -- or assume that the electrolyzers coming out of China will have a lower production cost. What can we do then? Well, we can beat them on the OpEx side. The OpEx is still more important than CapEx. CapEx is the first hurdle, but for the levelized cost of hydrogen, energy consumption is key. And that's where we, with this technology, have taken a giant leap forward in terms of efficiency and where we still see opportunities to improve. And compared to what is there today coming out of China, we are many, many steps ahead on the actual performance on the electrical consumption. So I believe we have, with the pressurized alkaline system, a world-leading technology that will put Nel in a position to win projects globally. Wilhelm Flinder: Thank you. I'll do another one from David Lopez. Given the Trump administration's policies, have there been any advances in the Michigan plant project? And if the project has been halted, will we have to wait until the new U.S. election to see if the new administration is more supportive of green energy? Kjell Bjørnsen: So we've said before on this topic that we will not build an empty factory. And unfortunately, in a market situation as it is, there is no market for building that facility. So we are not actively doing anything on that side. We would have loved to, but we would need to wait until there is a market. Wilhelm Flinder: Thank you. I see we have another question from Anders Rosenlund. Please go ahead. Anders Rosenlund: Could you comment on working capital and possible efforts to bring down the very large inventories? Kjell Bjørnsen: Yes. So the key thing on the large inventory is inventory that we have because some of our customers basically stopped their projects. Some of them even went bankrupt. We are working very hard to get that over to a cash conversion, working with several concrete projects, but we are dependent on new project wins to sell that. We're not adding to the problem by producing more. Also for the PEM side, with the newly advanced orders, we are making sure that we hold back our commitments until we have money on the book. So you could say the larger than normal inventory we have is a result of some of the historical project cancellations. Anders Rosenlund: And the reason why it stays high for a couple of quarters in a row is because of lack of alkaline sales? Kjell Bjørnsen: Yes. So there's limited new large alkaline orders that are possible to both sign and then deliver on. That's one of the things we are working very hard with and it's a key priority to get that sold. Wilhelm Flinder: Thank you, Anders. It seems we are now out of questions, so I think we'll end the Q&A session here. If anything comes after the call, you're always welcome to reach out to us at ir@nelhydrogen.com. And I'll hand the word back to the management for any final remarks. Hakon Volldal: Yes. I think if we look isolated on the 2025 financials, we are, of course, not happy with the figures. We wish the performance would have been higher, but it became clear quite early that we would have a difficult 2025 in terms of top line and EBITDA. What I'm happy about is that 2025 has definitely not been a lost year. We have used 2025 to strengthen key partnerships with strategic EPC partners, Reliance, technology development partners. We have massively invested in our new technology platforms and successfully developed those platforms towards commercial launch. Because of the difficult markets and lack of demand for legacy products, we had to accelerate the R&D effort and bring the launch plans closer to us, and I am proud of the organization for its ability to deliver on that ambition. We go to market now with a new product in May. And I really, really believe in that product, because it has been designed from scratch based on the right set of, let's call it, guiding stars, so what is required to make hydrogen projects work. We have looked not only at our piece, the stack, but we have taken a system view and really tried to look at this from the customers' perspective, what can we do to bring total system costs down? What can we do to bring the cost of producing hydrogen down? And that makes me quite optimistic about 2026. Despite a difficult 2025, we had a good ending to the year with important contract wins in Norway. We still see demand for our PEM products. I think we are likely to sign more PEM contracts going forward. And then hopefully, we can get more momentum on the alkaline side through our efforts to get rid of the inventory of electrodes, but also start to build the order backlog for the pressurized technology going into '27 and '28. So with that, I think we will come back in April with even more news on the launch of the new product platform, and we look forward to maturing that.
Sam Wells: Good morning, everyone, and thanks for joining today's first half FY '26 results call for Cettire. My name is Sam Wells from NWR, and I'm pleased to have with me from the company today Cettire's Founder and Chief Executive Officer, Dean Mintz; as well as Chief Financial Officer, Tim Hume. Both Dean and Tim will spend some time reviewing the ASX results released this morning, including some notable financial and operational highlights. [Operator Instructions] We'll aim to have this call wrapped up within 30 minutes, including Q&A. And thank you, and over to you, Dean. Dean Mintz: Thanks, Sam. Good morning, everyone, and thank you for joining Cettire's interim results briefing for the 2026 financial year. Before we begin, I'd like to remind you of the disclaimer statement in our results presentation. That disclaimer also applies to this investor call. I'm joined today by our CFO, Tim Hume, and together, will take you through the company's results for the 6-month period ending 31 December 2025. Today's results are the outcome of our relentless focus on profitable growth with a clear bias towards profit in what remains a tough luxury market. Gross revenue was $505.7 million and sales revenue was $382.8 million, both were broadly stable year-on-year. Importantly, excluding the U.S., sales revenue grew 13% year-on-year to $225 million, which is a testament to our ability to grow our market share in newer markets. We had 613,000 active customers during the period, reflecting a deliberate reduction in paid marketing, combined with softer U.S. demand. Repeat customers continue to represent a growing share of gross revenues now at 69%. Our bias towards profitability saw adjusted EBITDA of $8.7 million and a half-on-half improvement of $20.5 million. This result clearly demonstrates the benefit of our agile and flexible business model. Our AOV increased 17% year-on-year to $961, reflecting the continued loyalty of our customers and the pass-through of our higher U.S. duties in our pricing. We closed the period with $61.4 million in cash and 0 financial debt. Against the backdrop of significant headwinds, our team executed exceptionally well. Our steadfast strategy to prioritize profitability, maintain cash and strengthen customer loyalty continued into H1 FY '26. This was executed in an environment where demand for luxury goods remains soft. The global personal luxury goods market declined approximately 2% in calendar year 2025, as a result of falling consumer demand globally, ongoing macroeconomic uncertainty and significant changes in U.S. trade policies. In the U.S. specifically, the elimination of the de minimis duty exemption from late August '25 resulted in price increases that further impacted U.S. demand. To address these challenges, we focused on growing market share outside of the U.S. This resulted in sales revenue ex U.S. growing by 13%. We also deliberately reduced paid marketing investment and turned our efforts towards enhancing engagement with our existing customers. This drove further growth in gross sales from repeat customers. On the supply side, engagement with brands and inventory holders has never been stronger. We exited H1 FY '26 with record available inventory levels, further strengthening our customer value proposition and minimizing supplier concentration. Localization remains a core strategic priority. Our efforts in the half delivered an uplift in sales from emerging markets representing 45% of gross revenue, up from 37% the same time last year. And from a balance sheet perspective, our capital-light model continued to deliver resilience with closing cash at $61.4 million and no financial debt. Turning to Slide 6. We finished the 6-month period with 613,000 active customers. New customer adds slowed, reflecting softer demand and a decision to lower marketing spend. We prioritize our investment towards quality engagement and conversion of the volume. Our average order value increased to $961 with repeat customers spending $1,050 per order on average compared to $811 for new customers. This increase largely reflects the incorporation of higher duties in our pricing. Repeat customers now account for 69% of gross revenues, up from 67%. This trend of increasing loyalty reflects the ongoing attractiveness of our business model to consumers. This loyalty is a key enabler as it helps sustain the business through cycles and underpins the long-term profitable growth. This chart once again reflects the benefits of having a strong cohort of loyal customers and our ability to increase our share of wallet over the long term. Our unit economics over the period strengthened with both customer -- with both customer acquisition costs and delivered margin improving compared to the preceding 6 months. Customer acquisition costs declined to $83, reflecting a reduction in paid marketing investment. While this comes at a cost to new customer adds, we believe it is prudent to manage marketing spend in line with achieving a reasonable return on investment. Delivered margin per active customer was $179, delivering a sequential improvement versus H2 FY '25 at $148. This reflects our deliberate reduction in promotional activity to prioritize profit. Our localization strategy continued to diversify our revenue base during the period with emerging markets, gross revenue increased by 21% year-on-year. These strategic markets now represent around 45% of Cettire's gross revenue. Established markets, including the U.S., U.K. and Australia contracted 13%, primarily driven by the challenges impacting the U.S. The U.S. now represents approximately 41% of gross revenues, the Australia at 6%, and U.K at 8%. We continue to focus on increasing market share in existing and new markets by focusing on enhancing our capabilities and driving localized initiatives. During the period, we launched our Arabic language capability to capitalize on the momentum we are seeing in the Middle East. We have also successfully launched Cettire's flagship store on the JD platform in China, and we'll continue to explore additional routes to market in that region. Our supply chain with hundreds of suppliers continued to grow strongly over the past 6 months. Engagement levels remain very high as inventory holders and luxury brands seek new routes to market in the challenging demand environment. Pleasingly, we exited the half with record levels of inventory and grew our published stock products by 60% year-on-year. To support our strategy, we continue to invest in our commercial team to support our increased levels of pipeline opportunities that includes luxury brands and third-party inventory holders. I'll now hand over to Tim. Timothy Hume: Thanks, Dean, and good morning, everybody. Sales revenue was $382.8 million, down 3% on the prior year. This reflects the impact of U.S. tariff changes and softer demand in the region. Excluding the U.S., sales revenue grew by 13% to $225 million. Gross revenue was $505.7 million, while refund rates remained relatively stable. Delivered margin at 14% of sales was impacted by higher U.S. duties costs being absorbed into our fulfillment cost base. This was partially offset by a decrease in overall promotional activity. The duties impact was more fulsome in the second quarter due to the end of the de minimis exemption in the U.S. from September onwards. Importantly, however, delivered margin percent improved compared with the second half of fiscal year '25. Paid acquisition expenses were 4.2% of sales revenue and brand investment was modest at $1.9 million. This reflected our deliberate strategy to prioritize profitability. Adjusted EBITDA was $8.7 million, delivering an EBITDA margin of 2.3%. Pleasingly, our focus on driving profit delivered a half-on-half adjusted EBITDA turnaround of $20.5 million. Moving on to the balance sheet. Closing cash was $61 million, and we continue to have 0 financial debt. The increase in cash since June was supported by operating profits combined with favorable working capital dynamics. The year-on-year increase in contract liabilities is reflective of lengthier delivery times that we saw in the period leading up to the end balance date. This has resulted in a deferral of revenue recognition until the subsequent period. We continue to invest in our technology platform to develop capability and reinforce our competitive advantage. This resulted in capitalized investments as a proportion of sales revenue being 2.2%. The other key call out relates to the receivables. As a reminder, we have receivables relating to credits for VAT paid on purchases in Europe. To be more specific, these are statutory receivables that are due and payable. They could be paid at any time. However, we're subject to the time line of the government to pay out these amounts. The government has been slow to pay and out of caution, we have conservatively re-classed an additional portion of this receivable to noncurrent. Short-term challenges in luxury are expected to persist, albeit there are some signs of improvement. Importantly, the long-term fundamentals of the sector remain robust. The most recent study on luxury by Bain-Altagamma estimates the personal luxury goods market for the '25 calendar year declined by 2%. They cited macroeconomic headwinds, trade disruption, shifting customer preferences and a deteriorating value proposition as the reasons for the slowdown. On the positive side, the research is forecasting 3% to 5% growth in the 2026 calendar year. Moving now to the outlook. In the short term, there continues to be uncertainty within the global luxury personal goods market with performance varying significantly across geographies. In the current quarter, Cettire is cycling a period of aggressive promotional activity and some pull forward of U.S. demand that occurred ahead of the Liberation Day tariffs being implemented in early April 2025. Promotional activity peaked in March 2025, whereas in the current year, Cettire has meaningfully reduced its level and frequency of promotion. In light of the above, the Q3 comparator from last year has made the current quarter a lot more challenging from a growth perspective. And as against this backdrop, that our quarter-to-date gross revenues have decreased by 13% versus the prior corresponding period. The U.S. policy and macroeconomic environment remain dynamic and will continue to influence our sales activity in that market. However, the company expects to achieve a significantly improved growth profile in the fourth quarter of fiscal year '26. I'll now hand you back to Dean to conclude. Dean Mintz: Thanks, Tim. In closing, the fundamentals of our business have not changed. We have a large and loyal customer base that has multiple growth pathways. We continue to grow our supply base, creating 1 of the world's largest online inventories of luxury goods. We have a capital-light, self-funded model built for profitable growth and have flexibility to adapt to changing market conditions quickly. And we have a fit-for-purpose strong balance sheet, leading proprietary tech stack and a first-class team with exceptional capabilities. With these foundations, Cettire is well positioned to navigate near-term challenges and deliver long-term profitable growth. On that note, I'll now hand back to Sam. Sam Wells: [Operator Instructions] The first question is on delivered margin. Can you talk to how delivered margin progressed through the half? And how much of this is structural versus cyclical changes? And sort of further looking from a medium- and longer-term perspective, how do you think about delivered margin... Timothy Hume: Thanks, Sam. Just in terms of the Q1 versus Q2 profile, first quarter, we were -- delivered margin 15%. Second quarter, we came in below that. I think, the key influence there on the Q1 versus Q2 is the impact of the de minimis changes in the U.S. was felt from September onwards. So we've seen a large step up in our fulfillment costs since that point. We now have a duties attachment rate in the U.S. of 100%. So every order into the U.S. attracts duty. Prior to the changes in the de minimis, the duties attachment rate in that market was a fraction of what it is today. And so if you think about the duties essentially as a pass-through, you might maintain the same amount of dollar delivered margin on an order, but that's off a higher revenue base. And so your percentage margin comes down. Now I think you had the second part of your question, Sam, was around structural versus cyclical. I think if you compare our margin today with a couple of years ago, the bulk of the decline that we have seen is cyclical in nature. The luxury market has been through a number of challenges in the last couple of years that have been well documented. And the market remains very competitive. So the bulk of the change that we've seen is cyclical. But more recently, the increased duties attachment rates in the U.S.A., which I referred to is dilutive to margin. Now looking forward, we certainly think there's room to grow that delivered margin over the medium term. So there's no reason why we can't get back to 20% plus over the medium term. I mean currently, the market remains promotional. The other thing we've seen in the recent period is that there has been some consolidation in online luxury. And other things equal, that should provide a more constructive backdrop looking forward. Sam Wells: And just in terms of the turnaround in EBITDA half-on-half, what are the main levers that have enabled that from negative $12 million approximately last half to positive $9 million... Timothy Hume: Look, Sam, obviously, it's been a challenging environment when you take into account a slowdown in the luxury market and the elimination of the de minimis in the U.S., which is our biggest market. Despite this, we've been able to hold revenue and improve EBITDA, as we said, by $20 million in just 2 quarters. I think in terms of how we are able to do this, from a tariff perspective, we increased -- we've increased our pricing to absorb the additional duties. And we've also moderated our promotional activity to really focus on improved revenue quality. Also drove a lot of efficiencies on the fulfillment side. And we continue to invest in marketing in a strategic and conservative way. There's still a lot more to be done, and we're targeting to have further improvements in the coming half. Sam Wells: And next question, your biggest market, the U.S. has had its challenges of late, many of which you've talked to in the presentation, what's driving the growth ex the U.S.A.? And can you specifically touch on margin expansion in regions like Middle East and China, and comment that on the time it takes for these markets to switch... Dean Mintz: I think in a lot of these markets, we're still relatively early. And they're very large luxury markets. We've put a lot of effort into our localization initiatives, which we spoke about previously. In the Middle East, we released localized language, Arabic language. And that's been very, very helpful. And at the same time in China, we're continuing our efforts there. And we launched our flagship store on the JD platform, which took a considerable amount of work from both sides, both JD and us. Sam Wells: And just a follow-up on the expansion strategy more broadly. How do you balance increasing sales and engagement in existing markets and with existing customers rather than expanding into new locations like you mentioned? Dean Mintz: Do you want to take that one, Tim? Timothy Hume: I think we're -- look, I mean, of course, we want both. There's no question. I think in the recent period we've been putting a little bit more weight on engagement with our existing customer base. And that's simply because the returns on marketing investment have been more challenging. And so we have had -- we've taken a very conservative approach to our marketing spend. You see that on our numbers in this half. You see that in effectively our net adds. And -- but the level of engagement that we have with our existing base continues to be very strong. And the customers that we do have are extremely attractive, right? You see that in the repeat customer AOV. And you see that in the repeat customer spend. So the returns on -- unsurprisingly, the returns on engagement are on existing customers, I should say, are very, very attractive in current market. The other thing that's interesting at the moment, which if you just kind of peel back the next layer of our -- the customer profile. We've seen in the last several months now a stabilization in our retention rates, which is very encouraging, notwithstanding some of the external pressures that we touched on through the course of the call. So that retention rate is very much stabilized and goes to the strength and engagement of the existing customer base. And -- but we have less gross adds coming into the funnel at the moment as a consequence of our more conservative investment profile. It won't always be like this. As the return profile improves, then we'll -- there will be an opportunity for us to be more outward facing in terms of that marketing investment. And you can expect that, that will be -- a good portion of that investment will be allocated to the markets where we're newer. And so -- but those markets at the moment are growing really encouragingly even at current investment levels. So that's certainly something to keep an eye on. Sam Wells: Great. Next question, your auditor has highlighted a material uncertainty in relation to going concern. Why is this? And do you expect any change in supply chain relationships or terms as a result of this? Timothy Hume: Well, I mean, let's -- I think, first of all, let's just be very clear that we have an unqualified set of accounts out today. And that's very clear from the report from the auditor. So I think that's very important for people to understand. I think, from my perspective, there's not really anything new here. If you look back at our accounts in June, there was a current asset shortfall in June and also a note in our annual report around going concern. Now I mentioned earlier on the call that we've taken a more conservative view around the timing of our -- of when our tax receivables will convert to cash naturally, and as a consequence of taking that more conservative view, we have re-classed some of the receivable from current assets to noncurrent assets. So naturally, this will impact the current asset balance, and that's why the auditor has commented in the way that they have. I think -- this is -- there's an element here of this being a technical accounting point. The auditor has flagged that the business has a current asset shortfall and accordingly directed readers to read the relevant note in the accounts. So I don't think there's too much more to say on that. With regards to supply chain, I think -- if I can refer back to our comments earlier in the presentation, the level of engagement that we have with the supply chain at the moment, both in terms of directly with brands as well as with third-party suppliers is the strongest it's ever been. Our supply chain has continued to grow very strongly over the last 6 months. And we're a very important partner to all of our suppliers, and it's business as usual on that front. Sam Wells: Great. And just maybe a follow-up there. Can you please explain why these Italian VAT receivables are still growing and getting larger and whether or not they can be collected? Timothy Hume: Sure. So the simple mechanics work that we make purchases in various markets around Europe. We pay VAT on those purchases. This is purchase of goods and services. We pay VAT. And in payment of that VAT, we generate an input VAT credit, no different to a business operating in Australia that pays GST, generates an input GST credit, same thing conceptually. The process of getting a refund though, is not necessarily the same. And so -- and we have a net receivable position in those markets because our purchases exceed our sales in the market. Why does it take so long? Well, look, certain governments in Europe are notorious for being slow around managing their own payables, if you will. And can be particularly slow for foreign companies. And so I think this is a very frustrating situation, but it's a major priority for us to convert it to cash. And we're working on broader improvements to our supply chain, which we expect to be implemented during this half, which should considerably improve our cash flow profile around European input VAT going forward. Sam Wells: And you might have just touched on that with your final comments to the answer, Tim, but can you just -- sorry, you flagged a few options to mitigate your current asset efficiency. Can you elaborate on these and whether or not they could possibly impact the business? Timothy Hume: Look, I think the initiatives that we have in place are very straightforward. We need to continue executing in the market and driving sales. And there remains considerable scope for us to improve the efficiency of our cost structure, both as it pertains to variable costs as well as fixed costs. And so we are -- commercially, our objective is to run with the leanest possible cost structure and ultimately translate that into profitability. I refer back to Dean's comments, we have had a $20 million-plus turnaround in profitability in the last 2 quarters. And we're very focused on continuing to drive improvements in profitability going forward. I think the business has faced some very significant disruptions in its major markets over the last couple of years. In the last 12 months, in particular, we think about some of the news flow out of the United States, which is our largest market. And we've absorbed those challenges. We've held revenue. And against that backdrop, not only if we held revenue, but we've significantly improved profitability. And I think that's a testament to the flexibility that our business model has. And that sets us up well to drive improvements in profit going forward. Sam Wells: Great. How should we think about marketing spend going into H2? Will spend be aggressively cut again in light of the Q3 '26 trading update that you provided and the ongoing volatility there? Timothy Hume: I don't think you should -- investors should expect any meaningful change in terms of current run rates. So we're investing at the moment at a level which is still achieving a good balance between generating a return on investment and overall growth. I think there are some funny comps that we're working through in this quarter from a growth perspective. But we're also -- if you look back at the fourth quarter of last year, where anyone who was operating cross-border of the -- against the backdrop of the changes in U.S. trade policy had a very difficult operating environment. We had a very challenging fourth quarter in fiscal year '25. And I think at this stage, our best current view is that the business will -- from a growth perspective, even if this is a challenging quarter that it will rebound strongly in the fourth quarter of this fiscal year. And you've -- we've indicated that in our trading update today where we're anticipating that revenues are going to be not too far off where they were last year. Sam Wells: Great. Do you have a rough sense of what gross profit dollar growth decline has been in the quarter to date? And what is the offset on delivered margin with lower promotional intensity? Timothy Hume: Sorry, I think the question is what is profit in the third quarter? Is that the question? Sam Wells: So do you have a rough sense of what gross profit dollar -- sorry, gross profit dollar growth or decline has been in the quarter? Timothy Hume: I don't think we're -- we've made any comment today about current quarter profitability in our trading update. And I don't think that it's appropriate to provide that on this call. Sam Wells: Okay. Next question, any prospects you might get a tax cash refund at some point given the NPAT losses over the last calendar year? Timothy Hume: Cash tax refund, is that the question? No, generally, the bulk of our business is resident in Australia for tax purpose. And so we tend not to get income tax refunds in Australia as a company, but you do have losses that you can offset in the future. So I think that's a consideration in the Australian market. But I don't think we can expect income tax refunds. But naturally, we work in -- we're operating in many markets around the world at this point. And whilst there are certain markets in Europe, which may not be as speedy at paying their -- their payables as we are, there are plenty of other markets around the world where we do have import tax credits, which are paid on a timely basis. Sam Wells: Great. And just another one, sticking with the financial statements. Why did you pay $5 million of cash taxes when you made a pretax loss last year? Timothy Hume: So the tax payment that we made would have been in relation to our tax position for the prior year, where we were profitable. Sam Wells: Okay. Are you able to break down the Q3 '26 sales performance by region, U.S.A. versus ex U.S.A.? Interested to understand if ex U.S.A sales growth is holding up in Q3. Timothy Hume: Yes. We haven't disclosed the numbers in terms of the Q3 to date regional splits. But the dynamic that we've described broadly around the company that we have, we have a 2-speed company this year, okay? We have the U.S., where we are cycling not only the -- if you think about this quarter last year, and tariffs were not something that people were talking about. And so we have 2 layers of this tariff issue in the U.S. One is the general discussion around which country has to pay what based on where something is made. And then there's a separate threat to that discussion around does the de minimis exemption apply or not. So both of those changes in the U.S. have been individually and collectively meaningful for us as has the corresponding uncertainty that, that's created for the consumer in the U.S. These are dynamics which have unquestionably had an impact on our business in recent quarters, and we are still cycling a world where that was not on the table. That's going to continue to present itself in year-on-year growth rates in coming quarters. If you think about it, the de minimis change was implemented at the end of August. So we're going to be seeing some strange things in the U.S. comps really until the December quarter in this calendar year. So that will continue to play out. The rest of the business, excluding the U.S., continues to grow very strongly. We talked on the call about the global luxury market down 2% year-on-year in calendar year '25, and our business has grown in the teens percent in the second half of the year. And that is again, in the context of much lower promotional activity from our business. So that's a very encouraging sign for us. We're continuing to take share. Our localization strategy is doing as it was intended to do. And I think we can expect this dynamic to play out for the foreseeable future. Sam Wells: Great. Thank you. That's all the time we have for questions today. If there are any unanswered still, please feel free to send them through or if there's any additional follow-ups, and we'll endeavor to get back to you. And that concludes the Q&A session and brings us to the end of today's first half earnings call for Cettire. Thank you all for joining, and have a...
Operator: Good morning, ladies and gentlemen, and welcome to Veolia Annual Results 2025 Conference Call with Estelle Brachlianoff, CEO; and Emmanuelle Menning, CFO; and also Daniel Tugues, Country Director of Spain. [Operator Instructions] This call is being recorded today, Thursday, February 26, 2026. I would now like to turn the conference over to Ms. Estelle Brachlianoff. Please go ahead. Estelle Brachlianoff: Thank you, and good morning, everyone. Thank you for joining this conference call to present Veolia's 2025 results. I'm accompanied by Emmanuelle Menning, our CFO; and by Daniel Tugues, Head of Spain. I'm on Slide 4. 2025 was the second year of our 4-year GreenUp plan, and I consider it as a truly pivotal year in our trajectory, and I will tell you how. 2025 was another year of outperformance and historical high. We exceeded our guidance with an organic EBITDA growth of plus 6.3%, above the target range of 5% to 6% despite a complex environment and with a particularly robust fourth quarter. In the 2 years since the start of GreenUp, we have significantly improved our profitability with an increase of 150 bp in our EBITDA margin and plus 11.8% average annual growth of current net income. The first half of GreenUp is a real success, and we are fully in line with our trajectory, even ahead when it comes to our ROCE at 9.4% after tax at the end of 2025. This is 2 years in advance of our targets. But in 2025, above all, we resolutely resumed external growth with 2 major multibillion dollars acquisitions in Water Technologies and U.S. Hazardous Waste, two of our growth boosters accelerating, therefore, the group's transformation towards more international and technology-driven businesses and enhancing the group's growth profile for the years to come. We have also enhanced our shareholder return in 2025 as we complemented our dividend policy with a multiyear share buyback program related to our employee shareholder plan. The excellent 2025 result as well as our strong fundamentals allow us to be very confident for '26 with an ambitious guidance and full confirmation of our GreenUp trajectory building a stronger group going forward. I'm now on Page 4 -- 5, sorry, where you see that 2025 results are at a historic high and largely exceed our initial objectives. Revenue reached EUR 44.4 billion, up 2.8%, excluding energy price, which are essentially pass-through for us, as you know. EBITDA increased by a substantial 6.3% on a like-for-like basis, above our 5% to 6% guidance range and shows a margin improvement of 70 basis points, above plus 80 basis points in '24. We are now at the historical high of 15.9% margin rate -- EBITDA margin rate in Veolia. This is thanks to our continued performance improvement and recurring efficiency gains with an enhanced performance outside Europe, where EBITDA jumped by plus 9.3%, complemented by the last synergies coming from the Suez acquisition 4 years ago. Current net income was up plus 9.1%, in line with our guidance and demonstrating our strong operating leverage. Net financial debt remains well under control at EUR 19.7 billion, even after EUR 2.3 billion of net financial acquisition, closed in '25. Our leverage ratio is at 2.79x at the end of '25, well below 3x, testimony to our strong financial discipline and our capacity to have room for maneuver in the future. Finally, we reach our ROCE targets 2 years in advance and achieved a remarkable 9.4% after-tax ROCE in 2025. Page 6 illustrates our enhanced growth in international markets, notably outside Europe, where our businesses are not only faster growing, but also more profitable with an EBITDA margin already at 17.8%, which is better than the 15.9%, nevertheless, a historical high for the group as a whole. Our revenue grew by 4.1% organically outside Europe with an excellent performances in Latin America, Africa and the Middle East, notably. Emmanuelle will detail each zone performance in a minute, but I would like here to highlight a few key commercial successes. In the Middle East, after years in the making and technical design, we were awarded, and we've just signed a few days ago, a $500 million project in Saudi Arabia for the Saudi Aramco TotalEnergies Consortium, SATORP. We will design, build and operate a massive new plant to treat the super complex effluent of this petrochemical site. In the U.S., in addition to the strategic execution of Clean Earth, which we expect to close mid-'26, our biggest and most transformative acquisitions since the merger with Suez. As you know, we've complemented the strong organic growth with 3 tuck-in and hazardous waste, which are high value creative. In Chile, we signed the first hybrid municipal industrial desalination plant in Valpara so. In India, we secured 2 strategic contracts for 2 of Mumbai's larger water treatment plants. Both facilities will use Veolia cutting-edge technologies. Finally, in Europe, we also enjoyed a very encouraging commercial momentum. Page 7 shows our performance split by activities. On the one hand, our booster activities, which is Water Technologies, Hazardous Waste and Bioenergies have continued to grow at a steady pace in '25, plus 4.3% organic and plus 8% including tuck-ins, almost 2x faster than Strongholds. Strongholds on the other hand, confirmed their resilience and infrastructure life profile with a 2.2% growth. As you know, Strongholds and Boosters go hand in hand with 30% of our revenue coming from a combination of activities. Those numbers are a confirmation of the sustained demand for our proprietary solutions to tackle critical needs from securing water supply to treating pollutant and protecting health. This top line performance translates well into value creation with EBITDA up 4.8% for Stronghold and jumping by 12.1% for Boosters. Emmanuelle will give you all the details in a few moments. 2025 was also the year of the successful launch of new technology and offers. I would like to give you two examples on Slide 8. First, in PFAS treatment, which, as you know, is a fast-growing and very promising business unit opportunity for Veolia. We achieved EUR 259 million of revenue in PFAS in '25, which is up 25% versus 0 in 2022. And as you know, we aim to reach EUR 1 billion by 2030. In 2025, we developed BeyondPFAS, our end-to-end management solution from detection to disposal, combining Water Technologies and Hazardous Waste and including our DropFast proprietary technology to optimize HTI disposal. We already provide PFAS treatment in the U.S., in France and in Australia, and we've already deployed 30 PFAS removal units in our U.S. water operations and plan an extra 15. In the area of new urban energy, we presented our new Ecothermal Grid offer in Poznan last November. It's a truly green heating and cooling solutions for existing and greenfield networks, using untapped local sources of energy, which is really unique at Veolia. We target EUR 350 million extra revenue in 2030. We actually already have a pipeline of GBP 1 billion of projects in the U.K. as part of the deployment of our new Ecothermal Grid offering, and I'm very pleased we were recently awarded a first in this U.K. pipeline with flagship scientific Wellcome Genome Campus in Cambridge. I'm now on Slide 9. In 2 years, the delivery of the GreenUp plan, combining resilience and growth was above our own expectation, both in terms of growth performance and strategic transformation. And this in spite of a complex economic and political context, which impacted foreign exchange rates, fiscal stability and production costs, notably energy costs. These first 2 years were indeed marked by a strong improvement in our profitability and value creation with an average annual 11.8% growth in current net income group share between '23 and '25, combined with a spectacular improvement of ROCE post tax to a record high 9.4% in '25. Our performance during these first 2 years was also augmented by the completion of Suez Energy Plan, which evidenced our capacity to boost the performance of the business we integrate. On Slide 10, given our very strong '25 results, the Board proposed to the AGM a dividend of EUR 1.5 per share, up 7% versus '24 and 20% since '23 and in line with our EPS growth. Since the start of GreenUp, I really -- as I mentioned in the beginning, we have also enhanced our shareholder return as we complemented our dividend policy with a multiyear share buyback program in order to offset the impact of our employee shareholding program. And this represented EUR 402 million in 2025. 2025 was a pivotal year in many ways. I'm on Slide 11. First, 2025 was the last year of Suez integration. We successfully completed our integration plan with EUR 534 million of synergies delivered in full year, above our initial target of EUR 500 million. This clearly demonstrates our track record in securing delivery of value creation when it comes to external growth, and we will, of course, apply those skills to the Clean Earth's acquisition. Moreover, 2025 has also been the year where we've crystallized strategic move consistent with our GreenUp strategy, investing in priority in highly innovative and technology-driven activities, our Boosters and outside Europe. Two major acquisitions were signed or closed in '25, creating value and enhancing the group's growth profile going forward. This began in the spring with EUR 1.5 billion invested in Water Technologies to buy out the minority interest and to fully merge our entities, and be in a position to extract EUR 90 million of additional synergies and enhance our growth capabilities on a worldwide dynamic market. We then accelerated external growth in Hazardous Waste. First, with several tuck-ins for a total amount of almost EUR 370 million in the U.S., in Japan and in Brazil. And finally, with the strategic acquisition of Clean Earth in the U.S. This $3 billion acquisition, the largest in Suez will allow us to double our size in Hazardous Waste in the U.S., positioning us as #2. Veolia will strengthen its presence in the U.S. altogether with more than $6 billion turnover and a very strong position to deliver unique solutions and technologies to remove pollutants, to secure water supply and support reshoring of strategic industries. The complementary of Clean Earth and Veolia's assets in the U.S. will enable us to extract significant synergies of $120 million and will be accretive from 2027, excluding PPA, assuming a closing midyear '26. On Slide 12, we've illustrated the accelerated portfolio transformation underway with EUR 8 billion of asset rotation in 4 years towards a group that is stronger, more international and more technology-rich. This transformation enhances our sustained growth profile and will create additional value for many years to come. We started GreenUp with a divestment program of around EUR 1 billion, including the disposal of our SADE French construction activity and the non-duplicable sulfuric acid generation activity region. In '25, we will have crystallized major acquisition in our boosters, specifically in Water Tech and with Clean Earth to close in '26. We will divest an additional EUR 2 billion in the 2 years post closing of Clean Earth. The typical candidates for disposal are assets that are mature or nonstrategic or undercritical in size. I would like to highlight the fact that these divestitures are not all financing purposes as well finance Clean Earth on our balance sheet and recover 3x leverage as soon as '27, but rather in order to keep flexibility for investment in faster-growing activities or geographies. Acquisitions, net of disposal represent a cumulative net financial investment of EUR 2.5 billion compared to the EUR 2.2 billion initially envisaged for GreenUp. Before we move to our guidance for '26, I would like on Slide 13 to emphasize the group's sustainable growth engine, which explains how we could be confident about our future performance. The demand for our services has never been stronger. And it is here to stay whilst crisis multiple because the proprietary solutions Veolia provides are answers to critical needs for industries and cities alike. Indeed, our customers, businesses and committees are facing growing challenges in terms of water scarcity, water quality, pollution control, supply chain interruption and a growing determination to achieve strategic independence and accelerate industrial reshoring. In short, for cities to deliver essential services for industries to produce, for economies to grow, one thing is nonnegotiable. This is environmental security, securing water, securing energy, securing supply chains, protecting health. We secure water supply to cities by leveraging our unique patent of technologies, our efficient network distribution using AI, by resuming wastewater and running energy-efficient desalination plants. We secure supply chain for industries by mining waste or waste heat to secure local sources of energy or critical minerals, thus avoiding dependents on long-distance imports. We protect health with Hazardous Waste management and depollution, ensuring that drinking water is at the highest standard and securing the license to operate for strategic industries such as MicroE or pharma. Whatever the turbulence in the world, Veolia's mission and unique offer is, therefore, to keep vital resources available, reliable and affordable to enhance strategic autonomy and to take advantage of sustained demand for our services and technology. On Slide 14, I would like now to share how Veolia is uniquely positioned to benefit from this sustained demand as we've built a unique powerhouse for environmental security. Our worldwide leadership and presence in 44 countries always in the top 3, gives us size to innovate and develop unique technologies through our 14 R&D centers. As you may remember, we hold more than 4,400 patents in water treatment, for instance. Our proprietary solutions are then locally delivered, and tailor-made to fit each community or industrial complex specific needs. We are really multi-local in our delivery, which explains why we are not affected by tariffs and why ForEx does not impact our margin rate and central government are not central to us. In addition, our customer base is really varied. 50% from municipalities or public authorities, 50% from private customers and wide ranging from retail and hospitals to microelectronics, pharma or oil and gas. This variety is combined with the long duration of our contracts, 11 years on average. The high Net Promoter Score, which ensures a renewal rate of over 90% and with no one single contract representing more than a small percentage of the group revenue. This offers massive resilience in our performance. Finally, we provide a unique combination of waste water and energy solutions. That's our edge. It's already delivering 1/3 of the group's revenue from these combinations. Veolia has really transformed into a unique global powerhouse for environmental security, organized to grow and innovate whilst ensuring resilience and long-term performance in an uncertain world. This sustained demand and unique positioning gives me high confidence for the years to come as the group has never been stronger. I'm on Slide 15. The GreenUp trajectory is fully confirmed. I would like to highlight why our organic EBITDA and net result growth are sustainable for the years to come because they are fueled by top line growth, supported by sustained demand for critical services, boosted performance in certain activity, notably Hazardous Waste and Water Technologies, superior and continued effort on efficiency and cost control, as well as an ability to react quickly and strongly when needed with specific action plan, as we will see in a minute with Spain and a good track record in successful integrating companies when we complement organic with external growth. For 2026, we have very ambitious targets on an organic basis, which will be complemented by the Clean Earth acquisition when we close the deal. On a stand-alone basis, we expect a continued solid organic revenue growth, excluding energy price, an organic EBITDA growth of 5% to 6%, and I would like to highlight this is without Suez synergies since they are now behind us, a current net income growth of at least plus 8% at constant ForEx. The dividend will continue to grow in line with current EPS and our leverage ratio will be below or equal 3x before Clean Earth. And after Clean Earth, equal or slightly above 3x. As you know, we would consolidate Clean Earth for only part of the year, and we'll be back to 3x or below 3x in 2027. As you know, we have to go through various regulatory approvals before we close the Clean Earth acquisition, which we said will be accretive from year 2 and current EPS. Assuming the closing happens mid-'26, which is the best assumption we can do now, this would mean synergies will start in '27, and the transaction will be accretive to current net income from 2027 before PPA. The $2 billion -- sorry, EUR 2 billion disposal program should be delivered in the 2 years post-closing of Clean Earth acquisition. Before Emmanuelle details our '25 results, I will hand over to Daniel Tugues, Head of Spain. He will give you some color about how we can drive performance improvement and sustain margin increase as well as top line growth in what is a historical activity and typical stronghold for us, thanks to our agility. Daniel, floor is yours. Daniel Tugues: Thank you, Estelle, and good morning, everyone. I'm Daniel Tugues, Country Head for Spain. I'm very happy to be here today to present Veolia's 2025 results and illustrate our GreenUp execution with a focus on our activities in Spain over the past 2 years. Estelle just mentioned, Veolia is unique because we are an environmental security powerhouse. and this is highly relevant in Spain, where climate change and the scarcity of resources, notably water are central to our citizens' concerns. Indeed, 70% of Spanish people believe that they are vulnerable to the effects of climate change, which are already happening in Spain. Citizens still vulnerable, and I'm afraid they are right. 75% of our land is threatened by desertification. We just went through the worst drought on record, which ended last spring, and it is going to get worse with 20% less precipitation expected by 2050. As it is recognized, these impacts could prove far more costly than the capital expenditure required for adaptation. This is precisely what Veolia is doing in Spain, driving ecological transformation by providing efficient water networks and reuse solutions, by securing supply chains for industries, providing them with local energy and by protecting health with waste management and depollution. Given this geography, it is no accident that we developed innovative solutions early on, such as wastewater reuse, which already accounts for 15% of our water supply and growing and other nonconventional resources such as desalination. To illustrate the point, during the past drought, the water coming out of the tap in Barcelona was sourced 1/3 from traditional sources, rivers and wells, 1/3 from desalination and 1/3 from water reuse. We have shared this experience with our Veolia colleagues. First, with our French colleagues across the building and also with our American teams who are very much looking forward to deploying those solutions in their countries. Veolia is strongly positioned to tackle Spain's critical needs. Spain is the fourth largest country of operations for Veolia, with EUR 2.8 billion in revenues or EUR 3 billion if we include the activities of our specialized business units for Water Technologies and Hazardous Waste. Our presence has grown significantly since 2022 with the integration of Suez and notably Aguas de Barcelona. The defining feature of our presence in Spain is our strong local footprint, deeply embedded across territories and communities. Starting with water, which represents 70% of our revenue. In a nutshell, Veolia is the #1 water provider in the country, locally anchored and positioned across the complete water cycle management from production and distribution of drinking water to the collection and treatment of wastewater. We run long-term concessions such as Aguas de Barcelona, Aguas de Murcia, Aguas de Alicante and many others, and we are also active in water technologies and operate several industrial wastewater treatment plants and desalination facilities. such as those in Tenerife and Almer a. In energy, Veolia is the #1 in building energy services and also leader in energy efficiency. Examples include EcoEnergies, the Barcelona District Heating and Cooling network using residual energies and energy efficiency projects for sites like Hospital Reina Sofia in Cordoba and maybe other similar sites around the country. In waste, we provide circular economy solutions for municipalities and industrial clients, notably in plastic recycling, waste-to-energy and hazardous waste, the latter including a high-temperature incinerator near Tarragona. Our strategy going forward is not only to continue developing those businesses and enhance profitability but also to constantly innovate at EUR 1 billion, especially given the strong demand for treating new pollutants for more simpler solutions and for new sources of local energy from waste or wastewater. On a personal level, having spent many years focused on water, I can say that the One Veolia project is like a tremendous opportunity to me. As for the whole of Veolia, 2025 has been a pivotal year for Spain, and I would like to show you how we have been able to recover while improving our profitability over the past 2 years since the launch of GreenUp. Given the underwhelming performance we faced in 2022 and '23, notably in water concessions, we decided to launch a specific action plan in 2023 called Hunter associated with specific objectives and incentives for managers, not only at the national level but also at the regional one. And I must say that Hunter benefited a lot by leveraging Veolia's performance culture and tools in our Spanish operations, including internal benchmarking on operational costs and KPIs as well as a proven methodology. To boost the top line, we launched a tariff campaign to catch up with cost in water concessions with a tailor-made approach for each of our more than 1,000 contracts. In parallel, we deployed a commercial excellence program to enhance our offers, and we also complemented our organic growth with 13 tuck-ins, mainly in energy efficiency, which were highly value accretive as they are actually plug and play. Over 2 years, this represented EUR 87 million in enterprise value, bought at an average multiple of 7.4x EBITDA. In terms of operational performance, we largely improved our efficiency, not least with AI. For instance, we put in place an AI customer service tool across Spain, that currently deals with more than 1,000 daily transactions, improving availability of our customer service, omnichannel 24/7 no waiting, while at the same time, saving nearly EUR 1 million. Those efficiency measures were complemented by the synergies delivered from the Suez integration. All in all, Spain delivered EUR 109 million in efficiencies plus synergies from 2023 to '25. All that resulted in a very significant improvement of our growth and performance. In 2 years, revenue has grown by 12% and EBITDA by no less than 40%. We are very proud of these results as we are even ahead of our plan to hence Spain's performance. But this is not the end of the journey, as I am focused on continuing to deliver sustainable and profitable growth for Veolia. Demand for all our services in the country is strong, and the power of One Veolia offers many possibilities for combining our diverse expertise to secure essential services. Thank you for your attention, and I will now hand over to Emmanuelle. Emmanuelle Menning: Thank you, Estelle. Thank you, Daniel, and good morning, everyone. Veolia 2025 results are very strong, perfectly aligned with our GreenUp trajectory and above our initial guidance and that on many grounds. For growth, we continue to deliver solid growth, thanks to strong underlying business trends and fueled by boosters, which progressed by 4.3% and even 8% if we consider tuck-ins. Second, performance in the first 2 years of GreenUp, we considerably improved our profitability driven by strong intrinsic growth and synergies, leading in 2025 to an EBITDA organic growth of 6.3% and to a very strong improvement of 70 bp of our EBITDA margin in 16%, which reflects the success of our strategic choices. We maintain a robust operational leverage, enabling us to grow current net income at a faster pace. And third, capital allocation, while we resume external growth in 2025, we maintain a very strong balance sheet with a leverage ratio below 3x at year-end, thanks to our strong free cash flow. And finally, value creation, the successful GreenUp execution led to an outstanding ROCE, which is the best measurement of our value creation at 9.4%, which was our objective for 2027, so delivered 2 years in advance. With EUR 34.4 billion in revenue, we experienced a solid growth of 2.8%. The operating leverage and the delivery of efficiencies and synergies were excellent and resulted in solid organic EBITDA growth of 6.3%, above guidance, current EBIT growth of 8.9%, current net income growth of 9.1%, with underlying higher growth, even higher if we restate for last year set capital gain. Net financial debt reached EUR 19.7 billion. The leverage ratio reached 2.79x, below 3x as expected. ForEx impact was significant as announced due to lower U.S. dollar and LatAm currency. This reflects the improved performance of our international activities, which is increasing value creation. But as you know, as a multi-local group with very limited international trade, ForEx has very limited impact on margin rate and on net income level. Moving to Slide 23, you can see the revenue and EBITDA evolution by geography. The main features in 2025 was the enhancement of our growth outside Europe and the superior growth of EBITDA in both outside Europe and Water Tech segments. In Q4, EBITDA growth accelerate as announced at the end of Q3, thanks to the benefit of our action plan notably in France and the good performance of Water Tech. I will start with Water Technologies, for which 70% of our activities are recurring, corresponding to product, mobile unit and chemicals, while 30% is more volatile by nature, what we call projects. In 2025 and especially in the first 9 months, project revenue was impacted by the timing of milestone delivery and a strong comparison basis versus last year. And as we announced in Q3, Water Tech revenue rebounded in Q4 and grew by 3.6% for the full year, excluding project by 4.6%. Operational performance was excellent with EBITDA growth of 14%. America, Africa, Middle East and APAC performed well in 2025 with revenue growth of 4.1% and EBITDA growth of 9.3%. Europe grew by 3.3%. And finally, France and Hazardous Waste Europe, revenue was flat, but EBITDA increased by a significant 6.3%, thanks to good Hazardous Waste performance, efficiency action in solid waste and resilient water activity. Now let's take a look at our performance by businesses. Very solid growth in our Strongholds, which proved themselves very resilient with very high margin and capacity to continue increasing EBITDA growth. Let's start with Municipal Water. Revenue increased by 3.5% with a remarkable EBITDA progression of plus 6.1%. We continue to benefit from good indexation, have achieved successful tariff renegotiation in Spain, and in the U.S., which protect our future earnings. Volumes were on a very good trend, up close to 3% in Europe. Solid waste revenue grew by plus 0.5% with a very strong EBITDA progression of plus 6.8%, which illustrates our capacity to implement efficiency plan, supporting EBITDA improvement. Revenue from District Heating Network increased by plus 1.7%, excluding energy prices, thanks to a sustained e-tariffs. Let's move on to our Boosters performance on Slide 25, which have gone very well, with revenue up by 4.3% and by 8% including tuck-ins. Overall, EBITDA performance is excellent, up by 12% with an increase of the average EBITDA margin by 100 bp, which confirms GreenUp choices. Skipping Water Tech that I am just commenting and started with Hazardous Waste. Revenue increased by 5.3%, including tuck-ins and 3.8% organically with EBITDA up by 12.8%, which is outstanding. I would like to highlight especially the strong growth in the U.S., up plus 9.2%, including tuck-ins, fueled by incineration volumes and mix. In Bioenergy, revenue was up plus 5.8%, excluding energy prices, and EBITDA increased by 5.1% with strong sales momentum in Belgium, Southern Europe and in the Middle East. The revenue bridge on Slide 26 explain the drivers of our growth in 2025. Negative ForEx impact decrease in Q4. Scope was slightly negative as the impact of 2024 divestiture, SADE, Lydec and RGS was compensated for a large part by the favorable impact of 2025 external growth. The impact will turn positive in 2026. The expected consolidation of Clean Earth in the second semester 2026 will further contribute. The impact of energy prices was as expected, divided by 2 compared to last year. Recycled prices were neutral. Weather effects after a colder winter at the beginning of year in Europe, Q4 was marginally helpful. The contribution of commerce and volume was comparable to last year. And finally, price effects were, as expected, lower than in 2024 due to lower inflation and contribute plus 1.4% to top line growth. On Page 27, you have the EBITDA bridge detailing our organic growth of 6.3%, above the annual guidance between 5% and 6%. Negative ForEx impact increased in Q4, as mentioned earlier. This impact was very much ups and down the line for EBIT and current net income. Scope was slightly negative, but as expected, was positive in Q4. The impact of energy was minus EUR 40 million, less than last year as expected, while recycled prices were slightly up, plus EUR 10 million. Intrinsic growth contributed by a significant plus 4.8% to EBITDA growth, thanks to the combination of commerce volume works for 2% and pricing productivity efficiency for 2.8%, it accelerated in Q4, thanks to the benefit of our action plan in France and the rebound in Water Tech, including new synergies, and I'll come back later to those synergies. Now let's dive into our second lever of value creation after growth, which is performance and efficiency. I am now on Slide 28, which shows our 2025 performance. In terms of our yearly efficiency plan, we achieved EUR 399 million in gain in line with our annual target of EUR 350 million, which we will, for sure, renew in 2026. Efficiency are indeed a permanent level of value creation embedded in our operation and therefore, one we can count on for years to come, not to say forever. It is worth noting that digital and AI gain already account for 23% of our recurring operational efficiency. Suez synergies are fully completed, as Estelle mentioned. We have achieved another EUR 100 million of gain in 2025 for a cumulative total of EUR 534 million since day 1, well above our initial objective of EUR 500 million, which, as you know, was raised a year ago to EUR 530 million. This overachievement is a testimony to our capacity to successfully integrate our acquisitions and the clear marker of the success of the Suez merger. Going forward, we will benefit from the synergies coming from the merger of our 2 Water Technology entities following the buyout of the 30% minority stake of CDPQ in June '25. We target EUR 90 million by '27 and EUR 20 million have already been achieved. On top of that, after we closed the acquisition of Clean Earth mid-'26, we will start the integration process and target a total amount of $120 million of synergies between 2027 and 2030. Let's now analyze our performance below EBITDA, and I am on Slide 30. Going down to current EBIT, this slide illustrates perfectly the operational leverage of our business model. 2.8% revenue growth, 6.3% EBITDA growth and 8.9% EBIT increase. Current EBIT grew to EUR 3.7 billion at a faster pace than EBITDA. I am particularly pleased with our financial results, which excluding financial capital gains, show a slight decrease of EUR 21 million of our financial charges. This was due to a combination of a well-controlled cost of debt and lower other financial charges coming notably from French exchange results. We did not benefit in 2025 from net financial capital gain contrary to 2024 with the SADE disposal. The tax charges were only slightly higher by EUR 11 million, and our current tax rate decrease from 27.1% to 25.4%, thanks to the benefits of Water Technologies fiscal synergies. Finally, current net income increased by 9.1% at constant ForEx in line with our debt. Moving to net income group share, I am on Slide 31. Noncurrent charges were stable at minus EUR 433 million. They include additional integration costs coming from Water Tech merger, one-off restructuring charges and an exceptional litigation provision in 2025. Net income group share reached EUR 1.2 billion, showing an excellent growth of 10.9%. Now free cash flow generation, which is key. I am on Slide 32. I am satisfied with the progression of the net free cash flow of EUR 39 million at constant ForEx, which we achieved despite the working capital evolution due to less project down payment in Q4 and one-off litigation payments in 2025, including Flint for around EUR 70 million. The underlying evolution of our working capital was, in fact, quite good with another reduction in the DSO of 5 days to 74 days. Thanks to our dedicated plan, which will continue quicker invoices. We have a clear plan to reduce time to invoice, cash collection, new ERP with use of AI. CapEx was once again under site control and was stable in 2025. CapEx will remain under control but continue to include significant growth CapEx, which will generate EBITDA. As you can see on Slide 33, net financial debt is well under control, which is EUR 19.6 billion at the end of 2025 versus EUR 17.8 billion at the end of 2024. This increase of EUR 1.8 billion is due to the resumption of external growth with EUR 2.3 billion of financial investment, which includes the purchase of the Water Tech minority stake for EUR 1.5 billion. This was not at the detriment of our leverage, which remained well below 3x at 2.79x. This bridge also reminds you of our share buyback program, which has been launched to offset the dilution of the employee shareholding program for EUR 400 million in 2025. We have, again, in '25, successfully issued new bonds, which attracted market interest and was done with very good market conditions. I will also mention that 85% of our net financial debt is at fixed rate. Our balance sheet, therefore, remains very strong. Both rating agencies confirmed strong investment-grade rating in '25. Before concluding, this slide reminds you of our 2026 guidance, which Estelle has commented earlier, continued solid organic revenue growth, excluding energy prices, EBITDA organic growth between 5% and 6%; current net income of minimum 8% at constant ForEx, excluding Clean Earth, which we will close mid-'26 and which will be accretive as soon as '27, excluding PPA, leverage ratio equal or below 3x, including Clean Earth and equal or slightly above 3x with Clean Earth acquisition. And as usual, our dividend will grow in line with our current EPS. And we fully confirm our GreenUp objective. Finally, let me remind you that we have started our $2 billion nonstrategic asset divestiture program, which I cannot, of course, give you detail, but which will also contribute to the continued soundness of our balance sheet while providing us with balance sheet headroom. Thank you for your attention. Estelle Brachlianoff: Thank you, Emmanuelle. Thank you, Daniel, and we are ready, 3 of us, to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Arthur Sitbon with Morgan Stanley. Arthur Sitbon: I was wondering basically about your 2026 current net income target, which is at constant FX and basically without the Clean Earth impact. I was wondering if you could provide some more thoughts on at the current FX levels, what do you see as the mark-to-market impact from FX on your 2026 numbers as well as potential comments to understand a bit the magnitude of the Clean Earth impact for 2026? And you confirm the GreenUp target. So you talked about 8% growth in net income in 2026, but there is more growth. It's a 10% pace annual for -- by 2027 for the GreenUp target. So I was wondering basically if we should understand that net income growth will considerably accelerate in 2027. And my last question is just on your broader medium-term objectives. I was wondering if at some point you would consider rolling over your targets and maybe guiding to 2028 and 2029 or if we should wait for early 2028 for your new business plan? Estelle Brachlianoff: Thank you for your questions. Many different ones. Just a few things. We're very happy about the 2025 results, which was a very value accretive and a history high and well on our trajectory of GreenUp and even exceeded some of the target in EBITDA and in ROCE, just to mention the 2 of them. In terms of the guidance for '26, you have noted that the guidance left-hand side of the slide, if you want, is without Clean Earth and after Suez merger. So in a way, it's a kind of stand-alone. But of course, the acquisition of Clean Earth will be accretive for years to come. So the way to have a look at it, and that's why it's an ambitious one. We are saying that without any Suez synergies and before the accretion and the synergies of Clean Earth, we are able to deliver in '26 5% to 6% organic growth of EBITDA and at least 8%. So it can be more than 8%, but it's at least 8% of net results. That's what the guidance says. So I just wanted to highlight that it was after Suez and before Clean Earth. which means that it's really a confident and ambitious guidance, which I'm very confident we will deliver. In terms of the global ForEx element, and it's not only on like net results, it's on everything. I just want to highlight again that ForEx for us is a translation, not transaction. In other terms, as I tried to explain, we are a multi-local delivery company, which means that the cost and revenue are in the same currency. And therefore, ForEx up or down doesn't impact our margin. And we've proven it in '25. We've proven in '24, within 2 years, plus 150 business point -- bp, sorry, of margin increase. So proof is in the pudding, as you say in English, that it doesn't impact our margin. And as you know, ForEx translation at 100 at the top of our P&L goes down to 20 basically, so 20% or divided by 5 when it comes to net results, that's the global figures that we've already mentioned. But again, ForEx for us is not a real thing, as you know, like it doesn't impact our margin. It's more a sign of our being international and goes up and down, but it's not a question of anything, but the translation of us being very international. In terms of the targets midterm. So what the GreenUp trajectory, which I could fully confirm today and have fully confirmed it today, is 10% on average over 4 years, assuming, of course, more than 8% this year, and there is no reason why it should slow down going forward. We've achieved already 12% in the first 2 years of the plan. So we are really on the at least 10%, which we've said we would deliver in the GreenUp trajectory. So I guess that's a confirmation again. So another way to see the guidance for '26 on net result is in '25, we said and we have delivered around 9% of net result increase. And this was with Suez synergies in. And in '26, we said we'll do more than 8% without Suez synergies, and again, before like any positive effects of the Clean Earth synergies. So in terms of rolling over targets, that's always a good question. We have a few moving parts here. And the big one is the timing of the closing of Clean Earth, which everything is running exactly as we expected so far. But I will wait until we have the various authorization before we can have a clear timing, but that's a good point. At one point, we will be able to show visibility over years beyond 2027 GreenUp. But what I can say from now on is we've already crystallized with the acquisition of Clean Earth, value creation beyond 2027 with the synergies as well as enhanced revenue growth. So the more the company is international innovation-driven, which we are transforming quite rapidly the portfolio into, the more in the years to come and beyond '27, you will have a company, which is enhanced growth and enhanced value creation, in particular, thanks to the synergies of Clean Earth. I don't know if you want to complement something, Emmanuelle? Emmanuelle Menning: So maybe one element. So very quickly, as mentioned by Estelle, the figure that you see and the 2026 guidance is fully aligned with GreenUp. We have demonstrated in the past a very good result for the first part of GreenUp. I'm not going to mention again the ROCE, which is absolutely amazing 2 years in advance. And as mentioned by Estelle, you have seen the trajectory in terms of EBITDA with a target between 5% and 6% which is very strong, which is long term and which also show our capacity to grow on high potential growth and high-margin businesses as without the merger -- the Suez merger synergies, we are continuing on the same trend. In terms of ForEx impact, you will have at net result level, it's our estimation based on the ForEx rate for -- at the end of December, an amount which is similar to what you had in 2025. So '26 equal to 2025. You were mentioning... Estelle Brachlianoff: It's difficult to say because ForEx goes up, ForEx goes down, like it's super uncertain. Emmanuelle Menning: Yes, it's with the estimation that we have for the -- at the end of 2025. And where you're right is that, of course, in 2027, we will benefit from synergies from Clean Earth and the full synergies also of Water Technologies. And the element, which is, for us, very important is that you know at Veolia that the trains are arriving on time. You have seen what we were able to do with ROCE, with EBITDA, and we don't have any intention to stop and to not have this impact. Estelle Brachlianoff: You can't confirm that. Operator: Your next question comes from the line of Bartek Kubicki with Bernstein. Bartlomiej Kubicki: I would like to discuss 2 aspects as well, please. Firstly, if we think about tariffs overall in waste and water in 2026, where do you see them moving and more specifically in France as 2025 was relatively subdued in terms of revenues increase in both waste and water? And secondly, if we think about your M&As, which has just happened and which are about to happen this year, just 2 sub questions. A, what will be the contribution of Clean Earth into your net income once it is being acquired? And secondly, what will happen to your integration costs with now 2 companies, or in 2026, 2 companies being integrated into your group? Shall we expect an increase going forward? Or shall we stay flat at around whatever EUR 30 million, EUR 40 million per annum as in the past? Estelle Brachlianoff: Thanks for your two questions. So in terms of waste and water price more so than tariff, probably, I don't know, and specifically in France, a few things. Altogether in terms of price for our activities, as you know, 70% of the Veolia revenue is indexed and 30% is prices in pricing. And as we said, like inflation is relatively neutral or slightly positive for us, which means that when the cost base goes up, the price go automatically up or via pricing and vice versa. So everything is a way to protect our margins. So I think the priority for us is to protect our margin. In terms of anticipation for '26 in France, it will depend on inflation and a few indexation formulas, which have anniversary dates. I don't expect a big plus in '26 in terms of this indexation given the inflation is relatively low, but that was anticipated. And again, that cost base and revenue base are in the same type of range. What I could say in addition is, in a way, the proof is in the delivery of our performance in France in '25 because we had a revenue which was relatively flat roughly but a big plus in EBITDA, which you see on slide -- I can't remember where it is. But anyway, you will see that in our pack. And this is thanks to our action plan. And in a way, that's exactly the same example, which Daniel just highlighted in Spain. We increased our EBITDA by a lot more than our revenue, thanks to a lot of efficiency plans, and it was specifically the case in Spain and France because we anticipated it. We knew that there won't be a big push from the revenue, from tariff or from specifically or indexation or from the economy. And we launched specific action plans. So it was Hunter in Spain. It was called Ariane in France, and it delivers results. It delivers results in EBITDA level. So what we expect in '26 is exactly the same as we've seen in '25. Top line probably modest, but EBITDA will grow again in '26 in France and in Spain, plus Daniel has ambition on the top line as well, as you've heard him explaining earlier on. In terms of M&A and Clean Earth's net income. So basically, the question is the timing of the closing. We said it would be accretive in current EPS from year 2. So assuming the closing is mid-'26, it will mean year 2 is mid-'28. So mid-'28 is not a point where you look at the net result because it's end of the year. So assuming, again, end of mid-'26 we close. It will mean that in '27, it will be accretive before PPA and in '28 accretive even after PPA, if you want. So more accretive before PPA and accretive altogether, including the PPA. And it's a very modest dilution in 2026. Again, assuming the timing I just highlighted, modest as in what really, really less than 0.5% of potential dilution, again, assuming the timing I just highlighted. And integration costs, we've highlighted, we will have integration costs in the 4 years of the delivery of the synergies. So synergies $120 million in 4 years. And integration costs, we said... Emmanuelle Menning: We communicated when we when we did the signing at the end of November, so it's less than the $120 million. It would be around $90 million. Estelle Brachlianoff: Yes, we said $90 million over 4 years. You have years with a bit more, years with a bit less. But roughly, if you divide on average the $90 million by 4 years, you have a good estimate. Operator: And your next question comes from the line of Olly Jeffery with Deutsche Bank. Olly Jeffery: Two questions for me as well, please. The first one is staying on the topic of M&A. You're looking to divest EUR 2 billion of investments or assets rather within 2 years of closing the Clean Earth deal. Could we expect you to get on the front of that and do that potentially some divestments by the end of this year? And do you have any color at all now on what type of assets you might be looking to or geographies you might be looking to divest in? And the second question is on hazardous waste in the U.S., but again, connected to Clean Earth. In the U.S., you've got finite incinerators, potentially more onshoring coming to the country. That seems like quite a good combination for having pricing power going forward. Compared to when you made the Clean Earth acquisition, do you think actually the environment for hazardous waste in the U.S. has improved? And we've seen some hazardous waste peer share prices in the U.S. do particularly well year-to-date. Estelle Brachlianoff: Two good questions. So on the EUR 2 billion disposal in the 2 years following the closing of Clean Earth, a few things. The timing I mean, we have, as you can imagine, a list with Emmanuelle and with the various options, and I won't be detail -- I will not detail them today. Nevertheless, I can give you a little bit of color on this list. So we have not anticipated a big sell in '26. We will go on with the traditional small and medium portfolio rotation, which we do every year anyway, but nothing as a big as a big object is in our plan so far. So what are the typical candidates in this list, which is another way of answering your question. I guess, threefold, one is mature. The other one is nonstrategic. And the third one is not in the top 3. Let me explain them one by one. What I mean by mature, it means a business, which we don't think we can grow much more the profit in the years to come. I'm talking about the profit here. As you can imagine, in some of our Stronghold activities, we still have a way to increase our profitability, and therefore, we would keep them. So it's really the -- if we are the max of profitability, and we don't anticipate any way to go better. The second, like criteria is what I call nonstrategic. Nonstrategic, typically, it's what we've done when we've divested the SADE, which is a construction business. We said years ago, we don't want to be in construction. We want to be in technology. And that was a good example of that. The third one is what I call non-top 3. As you've seen in our geographical strategy, there is an element of when we are in a country, we want to be in the top 3 of this activity in this country. It's a key element to have pricing power, for instance, which is what we said earlier on. We have a few smaller objects which are not yet in the top 3. So either we have a way to put them in the list in the years to come or if not, we will divest them. So that's the 3 criteria lists, which met the list which we have with Emmanuelle, and we have various option and will deliver in the 2 years following the Clean Earth closing. In terms of Hazardous Waste, you're right, we're super happy about Hazardous Waste business in the U.S. And there is nothing in the last few months, which is anything but confirming it's a very good acquisition, the Clean Earth one. Synergies-wise, platform-wise, including to be able to develop other services of Veolia beyond the Hazardous Waste. So you're right, the trend is good. We've seen a very good Q4 in Hazardous Waste in the U.S. for us. If I remember why it's a 7% organic growth for Q4, which is a very good positive way to end the year, and to begin the next one. So all the lights are really on a green light. We are very, very confident it will create a lot of value for years to come. Operator: Next question comes from the line of Juan Rodriguez with Kepler. Juan Rodriguez: I have two on my side, if I may, more follow-ups. The first one is on guidance at the net income level in 2026. I want to be clear. You said that you expect no synergies from Suez, but it does include water tech synergies on 2026. Is that right? And can you please quantify the fiscal positive effect that the water tech synergies had on your 2025 results because it supported a lower tax rate? And are they part of the EUR 90 million synergies that you're targeting. So this is the first one. And the second one is on France. You said that performance was slightly better in 2025 despite weaker revenues. Can you please quantify the level of the performance that you had in here? And what is expected ex Hazardous Waste? And what is expected for 2026? You signal some improvement in the region, [indiscernible] in the low to mid-high single digits. So some color on that would be helpful. Estelle Brachlianoff: So I've tried to note down all your question. Hopefully, I won't miss anyone, anything. So you're right, the net income guidance before Clean Earth acquisition in '26 does not include any Suez synergies because it's over. Does include, of course, the recurring gains, which will, again, efficiency gain more than EUR 350 million again in '26. And does includes some of the CDPQ water tech synergies, but they are not of the same magnitude of the Suez acquisition. That's why I won't compare apple and pear. But you're right, they do include some synergies of the water tech. I want to say that it started well with -- in H2, we already had EUR 20 million, if I remember, Emmanuelle, of synergies from the Water Tech acquisition, which was delivered in H2. We've closed in on the 1st of July. So EUR 90 million over 3 years, EUR 20 million already delivered in H2. There will be another lot in '26, another lot in '27. And that's when I mentioned the synergies as in EUR 90 million over 3 years. This is the EBITDA synergies, if you want, because we said clearly that they were on top of that fiscal and in a way, net income synergies, which already were delivered a lot in '25. So EUR 20 million of EBITDA, if you want synergies already, plus already some fiscal synergies in '25. Do you want to comment on the fiscal tax rate. Fiscal tax rate, maybe, Emmanuelle. Emmanuelle Menning: With pleasure. Thank you for your question. So as you know, in the GreenUp plan, we targeted a tax rate of 27%. Our current tax rate in 2025 decreased significantly from 27.1% at the end of '24 to 25.4%, thanks partially to the benefit of our water technology synergies. As an example, in the U.K., we have been able to offset past and future tax losses, which were not recognized before. In France, also, we were able to merge the total group of Water Technology. And also in 2025, we benefit from a positive impact led by the anticipation reduction of the CIT rate in Germany. So all of that is contributing to the good tax rate and we have also a positive ambition for 2026, which participate to the net result as the fact that we have the cost of debt fully under control. And on your question about France EBITDA, hopefully, you have the answer on Slide 23. Where you see the business unit Front and Hazardous Waste Europe with a revenue which was basically flat compared to -- or slightly negative compared to '24 with all the -- what we said about indexation formulas and so on and so forth, but a plus 6.3% EBITDA growth. So I think that's the type of results we see from the specific action plan we've launched 2 years ago in Veolia, we just don't wait. We anticipate and act quickly and strongly. So this was called Ariane in France, and you see the results. And this was called Hunter in Spain. And you've seen in Spain, and it was presented by -- because it's kind of a bit the same, plus 14% EBITDA growth in '25 compared to '24 in Spain. And we won't stop here. So you can go on with this type of improvement in '26 for France and for Spain. Operator: And your next question comes from the line of Davide Candela with Intesa Sanpaolo. Davide Candela: I have two, if I may. The first one is if you can share with us sensitivity on energy prices, mostly with regards to Europe. I know that in most cases, the energy component is a pass-through for you, but at least if you can provide a bit of sensitivity that would likely most refer to your WTE plans throughout Europe and so on? That would be the first one. Second one is with regards to your approach to demand. You said that the demand for your services is strongly increasing. I was wondering if you can share how you approach that in the sense that you are being selective in waiting. And so taking the most valuable contracts or opportunities or on the other hand, you are taking a more aggressive approach in trying to put more pressure on power on your prices and just being proactive in trying to take demand from your clients directly. And with regards to that also on volumes, which is the capability you have to attract more and more and if there is a risk of saturation in that respect And yes, that will be the second one. Estelle Brachlianoff: Thank you. So energy price sensitivity. So you're right, energy price for us are global pass-through. This is why we published and we've been publishing for years now, excluding energy price. Why is that so? Because we mainly sell heat and when you know the price of the entrance as in what we have to buy to produce the heat for the district heating net price goes up, the tariff goes up. And that's why it protects our margin again. The little effect, which is not what I said, is on the cogeneration of electricity, if you want, and the ancillary service is associated with it, where it's a little bit more into our margin. So it's more -- it's not the main product for us. We're not a producer of power. We're not at all. But we use all the equipment and infrastructure we have, specifically in district heating and things like that to try to deliver ancillary services in addition and on top. So this top-up is what can go up and down, and it's a little bit more like variable for us. If you have a view over 3, 4, 5 years in a way, you can see that in our figures because as you can imagine, the price of energy in Europe has gone through the roof in '22 and then down very massively in '23 and '24. And you can have a look at the sequence of our EBITDA in our Energy business over 4 years. There was a big plus, a small minus for the reason I just mentioned in terms of the cogeneration of electricity. But altogether, the curve is on the up over these few years. So in a way, we've demonstrated what I said in the figures from '22 to '25. In terms of the demand for our service, what I was trying to highlight is, I was asked a lot of questions about, okay, is Veolia about ecology, the environment? Yes, we are, but we are more about critical needs. I think this is important. So whatever the elections results are in a country, we're not about politics here. We're about critical needs for industries and population. That's what makes us super resilient when it comes to supply of water, when it comes to supply of critical materials and critical minerals, when it comes to supply of energy, we produce local resources Therefore, they don't depend from like far away imports, disruption of supply chain and so on and so forth, which is very key for all our customers. So that's why the demand is, in a way, the more the crisis, the more the demand is paramount because we are really critical for our customers. In terms of your question about how selective are we shooting everywhere? It's the former of the latter. We still are very selective. We don't want revenue for the sake of it. We want revenue, which can create value not only for 1 year but for years to come. The 2 keywords are resilience and growth here. The business model of Veolia is really sustainable growth and for years, which means that we've intentionally decided not to bid for specific tenders, for instance, in West municipal collection because it was not value creative for us to focus on what is very value creative, typically our growth boosters. So we are very selective and the choices are clear, the growth Boosters. So Water Technologies, Hazardous Waste and bioenergy. In terms of where we go for saturation at one point in terms of volume, do have a limit in a way, in our plants and installed base. This is not exactly the way it works. In water, the needs go with the growth of the population or the growth of the industries and the plants do follow, if you want, and that's what we've seen regularly. In terms of Hazardous Waste, it could have been a limiting factor, and that's exactly why we have invested in 5 new facilities across the globe, which are just ramping up from last year till 2028, exactly to be ensuring we unlock the future growth. So we're not only at Veolia talking about the guidance for '26. And when I say we have an enhanced profile of growth for years to come, I can talk to you about '28, '29, 2030, even with the Clean Earth acquisition synergies and investments we've made. Operator: And your next question comes from the line of Philippe Ourpatian with ODDO BHF. Philippe Ourpatian: I have three questions, in fact. One is a slight, I would say, a clarification concerning the efficiencies means that the Slide 27 is showing EUR 326 million growth in performances on which you have some price effects and volume effects. I would like to know exactly what was the amount of the efficiencies you were mentioning, in fact, previously in your slide has separated from works, volumes and commerce. That's the first question. And in this question, there is also another one concerning the next slide, which is the 28, where you are mentioning EUR 399 million. It's over the target of EUR 350 million of efficiencies. Could you spread it a little bit more by activities or geographies? You mentioned France and Spain as a specific plan, but to have more color about where this EUR 399 million were generated? Second point -- second question is hazardous waste. Could you just remind us or elaborate more about the new facilities because Germany -- in Hazardous Waste, Germany has started, if I'm not wrong. And there is some other geography where you are working, U.S., U.K., Saudi Arabia and Asia. Could you just remind us, in order to take into account those volumes and maybe value creation effects? And last, you just issued a press release concerning India. Your famous French competitor also issued a lot of press release concerning this area. It seems to me that India was not an easy country. We have seen Suez losing a lot of money years ago in this contract. What has changed in this market concerning water? And what are the level of risk or capital employed you are injecting in this kind of country, even if I do think that it's mainly through OEM contract? Estelle Brachlianoff: It looks like you have not only the question, but the answers, and you're right. But I will elaborate in a minute. So efficiencies in a way, the answer is on Page 28. So efficiency, EUR 399 million, which we've retained 47%, right, Emmanuelle? Emmanuelle Menning: Absolutely. So [Foreign Language] Philippe. So roughly, when you say -- you're absolutely right, from the EUR 399 million which have been fueled by all the specific action plan also which were in France and in Spain and the rest is, as you know, fully embedded in our business for 70%. We have been able to retain 47%. When you look at this number, if you want precise number, we have volumes commerce, which is around 10% growth and pricing net efficiency, which is around 2.8% growth. So roughly EUR 140 million and EUR 190 million. Estelle Brachlianoff: So 47% of EUR 399 million equals EUR 189 million, plus volume and commerce, roughly equals what you see on the slide. And where is it mainly? So the beauty of the Veolia's model, it's everywhere. That's why we're so confident we can keep it forever because it's a series of plants everywhere in the globe, which have initiatives, which combined give you the number. The specifics where you have more than the average are France, Spain and China. France, Spain and China launch specific plans, which were more than the average, given the fact that we're disappointed by the result in '23, basically for those geographies. So we've launched specific action plan with specific names, the Hunter, the Ariane and there was an equivalent one in China. And that's why on those geographies, we have a perfectly big disconnect between revenue and EBITDA growth because this was thanks to the very, very well-executed delivery of this plant, which again won't stop. Hazardous Waste. So the various Hazardous Waste -- yes, do you want to add something on the... Emmanuelle Menning: Yes, with pleasure. So you know us perfectly well, Philippe. Regarding the efficiency, one point that I wanted to add. As you know, 70% is fully embedded in our business model. It's what we sell, selling price increase, purchasing and procurement improvements. And on top of the 3 specific plans that Estelle has mentioned, and which are taking a lot of energy to the French team, but also to Daniel in Spain. So with very, very specific action plan where you have strong SG&A efficiency on top of procurement and on top of operational improvement, we have launched this year, and you see it in our results. What we call, it was a project which was called Mobi. So we are dealing with a lot of energy of what we consider as assets, which are not as performance as we wanted them to be, meaning that for us, it's a clear approach of upper out and all the team is working very, very strongly to it, and it's in all our geographies, and it is contributing toward our leverage -- operational leverage that you see and the increase of EBIT of 8.9%. Estelle Brachlianoff: In terms of Hazardous Waste, you're right, we have 5 new plants which are under construction or under commissioning. In terms of the sequence, we've showed it during our deep dive on waste a few months ago. So we are exactly on the trajectory we showed you at that time, which means that just to refresh your memory, you have a phase of construction, but then you have like what we call cold commissioning and then hot commissioning and then ramping up of operational performance with a commercial -- commercializing the plant. So depending on the difference, what we call by ramping up, again, cold commissioning, hot commissioning and then commercializing progressively the total capacity of the plant. It takes quite a while. It's not you press a button and it's on and off and 100% instantly. It takes usually between the cold, hot commissioning and the full capacity 2 to 3 years. Just to give you an idea. This is classical in this business, but then you're here forever, which has its merit. And in terms of the as orders of the being in this situation, the first to come online has been the Saudi one which has already gone through the -- and I hope I won't miss one, but the cold and hot commissioning and we are in the ramping up of the commercial activity, then the next on the line is Blue Jay, which is our facility in the U.K. in solvent, which is in the ramping up mode as well. I think we've finished the hot commissioning, and we are in the ramping up of the commercial activity. Then the next on the new will be the German one you mentioned, but which is not there yet. We are more at the end of the construction phase, if you want, not yet in the commissioning one. The next one will be in Asia and the next one will be in the U.S. All that means that combined, if I remember well, we've put again the figures in our presentation. But if I remember what it's 285,000 tonnes of capacity, which will be active at the end of GreenUp, but out of 130,000 tonnes of capacity when they are fully ramped up 100%, so 1 or 2 years after the end of GreenUp. And India, you're exactly right. We're not doing crazy things in India. That's why I was super proud about this contract, which is new of its kind. You've answered yourself the question, like there is not funds employed at all of Veolia. We've delivered technologies, and then we'll have 15 years of O&M contract. So it's not about funds employed here. It's about selling technology and know-how in terms of maintaining plant. Those are massive ones. We are talking about a plant, which will be able to sustain the water supply for 60% of the entire Mumbai global population, which I remember is a 12 million like population. So those are massive, and I'm very happy that it was without risk associated exactly, as you said. So we're not chasing revenue for the sake of it. So we said we will exit construction. So in India, many, many -- so it's EUR 250 million backlog, by the way. We are not chasing revenue for the sake of it. So that's why a lot of the contracts which were announced by competitors, we didn't even bid to be honest, because we don't want to be in construction and pouring concrete. This is not what we do. We do sell technology, plus we do want to be in the O&M. All the rest, we just don't go for it at all. So we are super selective in India as elsewhere, but this opportunity was a very, very good one. Operator: [Operator Instructions] Your next question comes from the line of Charles Swabey with HSBC. Charles Swabey: Just one question for me on efficiency gains. And the '23 that came from digital and AI in '25, can you give us an idea how this compares to your assumptions when you put together the GreenUp plan? Would you say that they have exceeded expectations? And how should we think about this going forward? Estelle Brachlianoff: Thanks for your question. We have no idea there will be AI at this level when we launched GreenUp, which was at the end of '23, we've conceived the whole thing and launched it beginning of '24. So we had no specific expectation. We knew we were already very much into digital. or AI, but not GenAI, if you want. And this is really ramping up and a big potential for future efficiencies in the years to come. I think 23% is already a big figure. So we're not the style of talking about things we're trying to deliver that instead of talking too much. And I think that was a proof of it. We've picked our battles as well because some of it is more a miss than delivering new results. We've picked the tools, which actually are delivering real efficiencies. Real efficiencies for us means consumer less water, produce more green energy. This is the criteria, which we've picked a few proof of concepts and there were many of them, we've picked a few just to be on the scaling up front. Emmanuelle Menning: And what is also absolutely amazing is the increase of the percentage of digital. It was in the past 5%, 10% of our efficiency gain and now it's 20%, and it will continue to increase. Estelle Brachlianoff: You're right. Yes. I will say thank you very much. It looks like we have no further questions. And just wanted to say how happy we are about 2025, which not only was on target or even beyond targets in a few different KPIs, but as well as really a pivotal year for Veolia. We've crystallized major transformation in our portfolio, which will generate really enhanced growth and value creation for years to come and years with a lot of assets, as in '26, '27, '28, '29. I'm very confident about Veolia's trajectory, and there is more to come. Thank you very much. And let me, before I finish, I invite you not to miss what we've put on the slide, which are a few dates. If you want to have more information about our ESG agenda and multifaceted performance that's a webinar on the 23rd of March, and we'll have a deep dive on innovation, tech and AI in London on the 14th of April. Thank you very much. Operator: Thank you. And ladies and gentlemen, this now concludes today's presentation. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the High Liner Foods Incorporated Conference Call for the Results of the Fourth Quarter of 2025. [Operator Instructions] This conference call is being recorded today, Thursday, February 26, 2026, at 10:00 a.m. Eastern Time for replay purposes. I would now like to turn the call over to Jennifer Bell, Vice President of Communications for High Liner Foods. Jennifer Bell: Good morning, everyone. Thank you for joining the High Liner Foods conference call today to discuss our financial results for the fourth quarter of 2025. On the call from High Liner Foods are: Paul Jewer, Chief Executive Officer; Kimberly Stephens, Chief Financial Officer; and Anthony Rasetta, Chief Commercial Officer. I would like to remind listeners that we use certain non-IFRS measures and ratios when discussing our financial results as we believe these are useful in assessing the company's financial performance. These measures are just fully described and reconciled to IFRS measures in our MD&A. Listeners are also reminded that certain statements made on today's call may be forward-looking statements under applicable securities law. Management may use forward-looking statements when discussing the company's investments and acquisitions, strategy, business and markets in which the company operates as well as operating and financial performance in the future. These statements are based on assumptions that are believed to be reasonable at the time they were made and currently available information. Forward-looking statements are subject to risks and uncertainties. Actual results or events, including operating or financial results could differ materially from those anticipated in these forward-looking statements. High Liner Foods includes a thorough discussion of the risks and other factors that could cause its anticipated outcomes to differ from actual outcomes in its publicly available disclosure documents, including its most recent annual MD&A and annual information form. Please note that High Liner Foods is under no obligation to update any forward-looking statements discussed today. At the close of markets yesterday, February 25, High Liner Foods reported its financial results for the fourth quarter ended January 3, 2026. That news release, along with the company's MD&A and audited consolidated financial statements for the fourth quarter of 2025 have been filed on SEDAR+ and can also be found in the Investors section of the High Liner Foods website. If you'd like to receive our news releases in the future, please visit the company's website to register. Lastly, please note that the company reports its financial results in U.S. dollars, and therefore, the results to be discussed today are also stated in U.S. dollars unless otherwise noted. High Liner Foods' common shares trade on the Toronto Stock Exchange and are quoted in Canadian dollars. I will now turn the call over to Paul for his opening remarks. Paul Jewer: Thanks, Jen, and welcome, everyone, to our fourth quarter and full year 2025 conference call. I'm joined today by our Chief Financial Officer, Kimberly Stephens; and our Chief Commercial Officer, Anthony Rasetta. Before I pass the call over to my colleagues, I would like to begin by sharing my perspective on our performance and outlook. During the fourth quarter, we made progress across our business, delivering top line growth. While external pressures continue to weigh on margins during the quarter, the actions we've taken to support the bottom line are working, and we ended the quarter in a better position than where we started. Importantly, that improvement has carried into the first quarter on both the top and bottom line. Rising raw material costs and tariffs require us to make deliberate trade-offs as we balance volume, pricing and profitability while continuing to deliver value to our customers. We are addressing these priorities in a disciplined and coordinated way across the business, recognizing that some actions translate quickly while others take more time to be fully reflected in our results. We're balancing cost-saving actions, continuous improvement and automation efforts with constructive pricing conversations with customers and suppliers to help offset rising costs. As we've discussed before, particularly in retail, pricing actions take time to fully flow through given longer lead times. At the same time, we're continuing to invest in the opportunity ahead. We expect the consumer to remain focused on value in 2026, and we see potential to grow the seafood category as consumers look for healthy, high-protein options, both at home and when dining out. Our innovation pipeline, including our recently launched fully cooked whitefish products is focused on value-added offerings that make seafood easier and more convenient to choose. We're encouraged by the traction we're seeing across our core portfolio and new innovations. Building on that momentum, we will continue to execute against our branded and value-added strategy while balancing price, promotion and innovation across our business to drive profitable sales growth. As demonstrated by our recently completed oversubscribed incremental addition to our term loan and the extension of our ABL, we have the financial flexibility and balance sheet strength to generate long-term shareholder value. Our disciplined cost management and prudent approach to capital allocation supports my confidence in our outlook and in our ability to deliver sustainable margin improvement in the near-term. With that, I will hand over the call to Kimberly to discuss our financial performance. Kimberly Stephens: Thank you, Paul, and hello, everyone. As Paul outlined, our fourth quarter results reflect both the challenges of our operating environment and the progress that we've been making to generate improved performance across our business and to return to profitable growth. Consistent with the previous quarter, we recorded the remaining temporary purchase price accounting adjustment related to the acquisition of the U.S. retail brands, Mrs. Paul's and Van de Kamp's from Conagra Brands. This adjustment, combined with the continued raw material and tariff pressures that materialized more significantly in the fourth quarter as we move through higher tariff inventory faster than anticipated, limited margin recovery. We sold through the remainder of the acquired Conagra Brands inventory in the fourth quarter, which resulted in the temporary accounting noncash impact of approximately $1 million on our gross margin. In addition, we also saw a shift in some Lent-related volume for these brands into Q1 as we are now shipping these products directly to the consumer. As Anthony will discuss shortly, we have a solid strategy in place to enhance the positioning of these brands heading into the important Lenten period, and we have seen the margins normalize now that the acquired inventory is fully sold through. In terms of plant efficiencies, we are making progress on our previously discussed automation upgrades. And while planned downtime continue to impact our utilization during the quarter, we are realizing the benefits of these initiatives through labor savings and plant performance, which will support enhanced profitability. Sales volume increased in the fourth quarter by 900,000 pounds or 1.5% to 61.3 million compared to 60.4 million pounds in the fourth quarter of 2024 due to targeted promotional activity as well as the additional week in the fourth quarter of fiscal 2025. Sales increased in the fourth quarter by $35.2 million or 15% to $270.2 million compared to $235 million in the same period last year, driven by the increased volume as well as the increased pricing reflecting inflationary markets and favorable product mix supporting the company's branded value-added strategy. Gross profit decreased in the fourth quarter by $1.3 million or 2.5% to $49.7 million and gross profit as a percentage of sales decreased by 330 basis points to 18.4% as compared to 21.7% in the fourth quarter of 2024. The decrease in gross profit is driven by the increased expenses related to the tariffs on the seafood imported into the U.S. and the higher raw material pricing on selected species as well as targeted promotional activity. The gross profit was also impacted by the increased cost of the inventory related to the Conagra Brands acquisition, which I mentioned earlier, resulting in that temporary margin contraction of approximately $1 million. Adjusted EBITDA decreased in the fourth quarter by $4.5 million or 18.9% to $19.3 million compared to $23.8 million in 2024 and adjusted EBITDA as a percentage of sales decreased by 7.1% compared to 10.1%. The decrease in adjusted EBITDA reflects the decrease in the gross profit previously mentioned as well as increased distribution and SG&A expenses. Reported net income increased in the fourth quarter by $2.1 million or 35.6% to $8 million, while diluted earnings per share increased to $0.27 compared to $0.20 in the prior year. The increase in net income reflects the debt modification gain that we recorded in the finance income for the 14 weeks ended January 3, 2026, as a result of the long-term debt amendment and the lower income tax expense, offset by the decrease in adjusted EBITDA. Excluding the impact of certain nonroutine or noncash expenses that are explained in our MD&A, adjusted net income in the fourth quarter of 2025 decreased by $9.8 million or 78.4% to $2.7 million. Adjusted diluted earnings per share decreased $0.09 from $0.41 in 2024. With regard to cash flows from operations and the balance sheet, net cash flows from operating activities in the fourth quarter of 2025 increased by $9.4 million to an inflow of $30 million compared to an inflow of $20.6 million in the same period in 2024. The increase is primarily driven by favorable changes in nonworking capital balances, specifically due to lower accounts payable and accrued liabilities in comparison to the same period in 2024, offset by higher inventory balances, both related to the Conagra Brands acquisition as well as the opportunistic buying ahead of some of the raw material prices. Net debt in the end of the fourth quarter of 2025 increased by $89.2 million to $322.4 million compared to $233.2 million in the end of fiscal 2024, reflecting higher bank loans and higher term loans due to the Conagra Brands acquisition and investments in inventory. Net debt to adjusted EBITDA was 3.5x at January 3, 2026, compared to 2.3x at the end of fiscal 2024. We expect the ratio to be slightly above the company's long-term target of 3x at the end of fiscal 2026. As Paul mentioned, we also completed the $60 million incremental addition to our senior secured Term Loan B, which was oversubscribed and a 5-year extension of our asset-based revolving credit facility during the fourth quarter. This transaction signals the strong confidence that we have in our long-term strategy and further strengthens our financial flexibility and liquidity. I'll now pass the call over to Anthony to discuss our operational highlights. Anthony Rasetta: Thanks, Kimberly, and hello, everyone. As you've heard today, tariff headwinds and inflation continue to put pressure on seafood pricing and volume during the quarter. However, what we are seeing in the category is that, consumers are still willing to spend on value-oriented products that offer a premium dining experience at home at the right price. Against this backdrop, we continue to lean into key channels, innovation and targeted promotional activity in partnership with our customers to drive growth across our branded and value-added portfolio and support category recovery. Importantly, our targeted promotional activity is supporting the long-term positioning of our brands, helping us to stay top of mind for our customers and consumers beyond the scope of the promotion, putting us into a strong position heading into Lent. Looking specifically at our retail performance. In the U.S., strong momentum in our branded value-added products and successful promotional activations led to market share gains for the quarter and the full year. Despite accelerated inflation, consumers in the U.S. continue to prioritize premium frozen seafood options that deliver restaurant quality experiences at home. This was apparent in the strength of our premium Sea Cuisine product line, which continued to lead both High Liner and the category in growth. Gains in this brand were driven by strength in the club channel, which is winning in the current value-led environment. Our Tortilla Crusted Tilapia SKU performed particularly well in this channel during the quarter, and we were thrilled to close the year with this product ranking as the #3 item in the entire value-added seafood category. We also saw success in the traditional grocery channel, driven largely by our value-added salmon products. We are excited by the opportunities ahead for Sea Cuisine in 2026 as we continue to grow the brand through innovation as demonstrated by the recently announced launch of our battered fish strip and shrimp products in partnership with GUINNESS. These 2 new offerings now available in grocery and club channels provide delicious restaurant quality pub favorites direct to consumers' homes. Our value-oriented product line, Fisher Boy also performed well during the quarter as we expanded distribution, particularly in our smaller pack sizes to reach more price-sensitive consumers that respond well to value-priced offerings. We continue to advance the integration efforts with Mrs. Paul's and Van de Kamp's during the quarter, and we have a strong plan in place to grow these brands in 2026. We're optimizing price and promotional activities with key retailers ahead of length to drive incremental distribution, leveraging full-scale shopper marketing programs and realizing synergies. In Canadian retail, the market remains highly competitive and inflationary driven. Amid this environment, we saw demand increase for our private label products during the quarter as these offerings appeal to more cost-sensitive consumers. Though these options are critical to the category, the continued importance of the premium segment and strength of our Pan-Sear products, which maintained category leadership during the quarter, signals consumers are still looking for quality meals at home. While we expect headwinds to persist in 2026, I'm confident in our ability to continue to navigate market dynamics through optimized pricing, strategic promotions and successful innovation. Now turning to Foodservice. Traffic during the quarter was stable despite elevated inflation, driven largely by menu deals as operators leaned into innovations, increased promotions, loyalty programs and marketing to enhance the guest experience and support sales. In this environment, we continue to leverage the diversity of our portfolio to grow our offering in value-oriented species. This includes pollock and haddock-based products as well as alternative species like Hake and Southern Blue Whiting that provide operators with compelling, consistent seafood solutions at a competitive price. This approach, combined with our balanced pricing ahead of Lent, supported our ability to grow top line, and we are proud to be the top value-added seafood manufacturer in foodservice in North America. Quick service restaurants was our fastest-growing channel by volume during the quarter, and this remains an area of focus for our business heading into 2026. As Paul mentioned, we're also excited about the significant opportunity in our new fully cooked whitefish product line, which we launched in convenience and noncommercial channels last month. These products present operators with easy-to-execute affordable offerings that support back-of-house efficiencies and drive seafood category recovery. We're off to a great start with strong customer engagement around these products, and we're excited to expand distribution in QSR in the future. Outside of these channels, casual dining -- the casual dining segment remained a bright spot during the quarter as our partnerships with key customers continue to generate growth. We're also leveraging our strategic partnerships with customers to introduce Norcod's Snow Cod, a premium offering in the North American market with commitments secured for Q1. Customer engagement for these products in the fourth quarter showed strong results with great pull-through, and we look forward to expanding distribution of this product in 2026. Overall, I'm confident with the work we've put in to link strategic promotional activations to high-impact channels, supported by balanced pricing and cost-saving initiatives and positions us well to drive sustainable top and bottom line growth heading into Lent. With that, I'll hand the call back to Paul for his concluding remarks before opening the call for Q&A. Paul Jewer: Thank you, Anthony. As we have outlined today, we are taking the necessary actions, including meaningful investments in our business strategy, brands and plants to support margins and expand the seafood category. Looking ahead, we continue to be excited by the significant opportunity that exists for growth in North American seafood consumption, particularly as demand for healthy and sustainable protein is rising. The recently updated U.S. dietary guidelines and the prominence of GLP-1s further supports this environment, and we're thrilled to see seafood becoming more prominent as more consumers start to prioritize protein at every meal. As a leader in the frozen seafood category, we are actively working to capitalize on this long-term growth potential through continuous innovation that delivers choice and value to customers and consumers. This includes our fully cooked products as well as our newly launched Sea Cuisine, GUINNESS beer battered fish strips and shrimp products, which are helping to draw even more consumers to our brands and the category. In the near-term, our focus remains on executing against our continuous improvement initiatives, prudently managing costs and implementing strategic pricing initiatives to support performance improvement on the top and bottom line. That said, we are in a fortunate position to have a strong balance sheet, and we will continue to explore strategic growth opportunities as appropriate and in line with our long-term value creation objectives. In closing, I'm proud of our team and our ability to finish the year with renewed underlying momentum across our business. Our disciplined approach to cost management and margin improvement initiatives is taking shape in our financial results, and we expect to return to EBITDA growth starting with this first quarter of 2026. With that, operator, please open the line for questions. Operator: [Operator Instructions] And I see we have our first question from Luke Hannan with Canaccord Genuity. Luke Hannan: I wanted to first start with the volume performance in both Q4 and then Q1 thus far. So it will be a 2 or maybe even a 3-part question. First, I just want to get a sense of what the cadence looked like from the beginning of the quarter to the end. And I'm wondering if possible, if we can strip out so we can just think about it on an apples-to-apples basis. So if we strip out the impact of the USDA volumes and then also any incremental volumes that you may have realized thus far from integrating the Conagra Brands, what did that volume growth look like year-over-year? How different is that from the reported number, again, both for Q4 and then as we think about the performance thus far in Q1? Paul Jewer: Yes. So you're right, a couple of parts to that question, Luke. I think, first of all, on the USDA front, there was some small positive benefit to volume, but it was pretty small in the quarter still because we still had the contract from a year ago that was rolling over. So there's a small impact there, but really pretty insignificant. The Conagra volume actually, as Kimberly highlighted in her prepared remarks, was actually a slight negative for us in the quarter, almost 2 million pounds. And the primary reason for that is while a year ago, we were shipping the product to Conagra in advance of Lent. Now we're shipping the product directly to the customers during Lent. So some of that volume shifted into the first quarter. In terms of the volume performance, when you kind of exclude those things, it's -- we certainly saw it improve as we moved through the fourth quarter. And we've certainly seen that continue for the start of the first quarter. Now some of that's to be expected in the first quarter because Lent is earlier. And so certainly, we were off to a strong start in January. But we're -- even when adjusting for what we think the impact of the Lent shift is, we're still pleased with the volume momentum. Luke Hannan: Okay. Great. And then my follow-up here is going to be on margins as well and then tying it into the commentary on your expectations for adjusted EBITDA growth -- year-over-year growth in 2026. So keeping in mind that my expectation, and I imagine most investors or Street's expectation is that, the margin headwinds that you're witnessing from tariffs right now that's likely to continue for most, if not all, of H1. There should be some benefits, though, that you realize in the second half of the year from a margin perspective. Similar -- so as far as just the cadence, I guess, of year-over-year EBITDA growth in light of that, is it fair to say then that for the -- even though you expect growth in Q1, it should be relatively more muted in the first half and then more significant in the second half? How should we think about that? Paul Jewer: Yes. I think that's fair. You have to factor in some seasonality into that, though, as well. And as you pointed out, in Q1, we do have the benefit of a typically strong quarter for us because of Lent. And we were in a much better position in Q1 than we were in the back half of 2025 because of the action we've taken on pricing. So that's certainly helped with our margin performance. We are though continuing to promote to support volume in the category. So there is some promotional impact, and that's likely to be heavier in the first part of the year, to your point, than it will be in the back half of the year. And then the other piece that will certainly continue to help margins in the back half of the year more than perhaps what we see in the first quarter will be our continuous improvement initiatives and the actions we're taking on taking costs out of the business. Because that's to support margin improvement through the year, as you point out, but it's also so that we can continue to find ways to deliver value to the customer and consumer in what is an inflationary category. The tariff piece, we'll see some impact as it shifts from what was previously IEEPA tariffs to the new 10% or 15% tariff that's imposed. And country by country, that will have some impact. And we don't expect to see much more in the way of increases in price on key raw material species like [indiscernible] because a lot of that has already been both costed in and priced into the business. Operator: [Operator Instructions] We have our next question from Michael Glen with Raymond James. Michael Glen: Just following on your comments on inflation, Paul, like would you say -- like when you look across your species, maybe aggregate basis, would you say inflation has cooled and this is absent tariffs, but general inflation across input has moderated somewhat right now? Or has it continued to move higher? Paul Jewer: No, it's still high inflation, and you'll see that in terms of the gap between volume and sales performance. So a lot of that is just the lag time in our supply chain, right? So we're really still seeing the inflation from higher cost in 2025 showing up in the business today. I would expect, as I mentioned in my answer to the previous question, that we'll start to see that inflation start to get better as we get towards the back part of the year because so much of it has already been reflected in the market. And we would expect, particularly on those really higher-priced species, we may see some impact on demand. What we have been pleased with is how we're starting to see even more interest in some of the alternative species that we've been bringing to market as a result of that inflation, and also good performance on species that haven't seen the same amount of inflation, species like pollocks as an example. Michael Glen: And how far -- can you give an indication about how far you are right now in terms of putting through the price you need to put through to offset the inflation? Anthony Rasetta: Michael, it's Anthony. I think from a foodservice perspective, given the pricing cycles, we're actually able to do that quite regularly. And so are able to manage that on a monthly basis, and that helps us with passing it on. From a retail perspective, that's where, as we noted, as I think Paul noted in the script that, that takes a little bit longer. From a retail perspective, we're in a blackout period in the fourth quarter before Christmas time and then have pricing announced to customers. And so I would expect that to start getting reflected after Lent into the second quarter and beyond. The first quarter, we'll continue to see not the full pricing reflected because of the Lent timing. So we're still being intentionally promotionally focused as the key window to be competitive to drive trial of our innovation and to support category recovery. Michael Glen: And then when -- during the comments, Kimberly, you referenced normalized -- maybe as normalized gross margins. Can you -- like for Q1, where -- like we're looking at about 18.5% gross margin through the back half of last year. I know that there's a bit of noise in there. Like what is sort of the front half versus the back half gross margin outlook, if you could give some assistance on that? Kimberly Stephens: Yes. So I think on average, like on an annualized year, we look around about 21% to 22% gross margin. As you pointed out at the end of 2025, we unfortunately were seeing margin contraction. But I think in the beginning of this year, I think you could anticipate seeing a little bit lower than we were last year at around 23.7%. I think this year, you should expect anywhere between that 21%, 21.5% gross margin. Anthony Rasetta: Yes. The only build would be, again, in the first quarter, we'll continue to see promotional activity and shifting because of Lent timing. So that puts a little more pressure on margins. And then when we think about the inflation that's in the market, when we're looking at margins as a percent of net sales, that will continue to drive the percentage down while we're obviously looking to increase absolute gross profit. Paul Jewer: But to your point, Michael, sequentially, you'll see margin percentage higher in Q1 than it was in the back half of 2025. Operator: We have our next question from Nevan Yochim with BMO. Nevan Yochim: I appreciate the comments so far on quarter-to-date trends. Just hoping you could talk about your volume outlook, maybe just expectations for 2026. Paul Jewer: Yes. Certainly, we are expecting to grow volume in 2026 on a full year basis, and we are in good shape to do that in the first quarter based on our start. We typically would suggest that we would have volume growth in the low single digits. So that's kind of the 2%, 3% range. And at this stage, the way the first quarter started, we don't see any reason to have to suggest otherwise. Nevan Yochim: Great. And then maybe just an update on the Conagra Brands acquisition. We're coming up on about 8 months here. Can you provide some detail on maybe realized synergies to date and whether you're on track for your $11 million run rate EBITDA by 2027? Paul Jewer: Yes. Certainly, we're actually, I would say, slightly ahead of schedule. We feel good about synergy realization thus far on the procurement side. That was one of the areas where we had synergies, so buying of pollock in particular. And you're starting to see that now flow through into the business in the first quarter. We have started to realize some of the benefits on the distribution of product as we now have the products in our warehouses and traveling on the same trucks as our products. So you'll start to see that benefit continue to grow through 2026. And then finally, we are anticipating some synergy benefit on the manufacturing side. I would say that we haven't yet realized. That will be more later 2026 where that materializes. But beyond synergies, the integration went very well, completed ahead of schedule in November. And we're pleased, as Anthony mentioned in his remarks, with the progress we've made on the brands, on the interactions with customers. And we feel good about the plan that we have in place for those brands for Lent, which is an important selling period for those brands. So really pleased at this stage with how that has gone. Nevan Yochim: Glad to hear that. Just one more for me on these fully cooked products that you've introduced into foodservice. Can you talk about maybe your near-term goal for penetration as a percentage of sales and then maybe long-term aspiration to launch additional new products or expand into retail? Anthony Rasetta: Nevan, it's Anthony. Yes, so far, so good on the whitefish products. We have 4 items that are out in the market now. We are in market with a national convenience customer in the U.S. and we're starting to ship to a noncommercial -- into noncommercial channels and have listings at major distributors. So still a relatively small portion of the business overall. But given the incremental channels and the incrementality of fully cooked in seafood as penetration relative to chicken and beef that are pretty widely distributed. We're excited by the prospect and what that can represent for us going forward. In terms of future launches, we're absolutely working on species outside of whitefish and the breaded and battered launches that we have right now and expect to be in a place to introduce more of that by the end of the year. Operator: Our next question is from Luke Hannan with Canaccord. Luke Hannan: Just wanted to follow-up on one comment that you made. I can't remember if it was Anthony or Paul, which one of you had mentioned this, but there was talk about the updated USDA Dietary Guidelines featuring seafood being a little bit more prominent, being featured a little bit more when it comes to every meal, just more consumption in general. Does that -- based on your experience, has that ever translated into maybe more seafood being actually featured on the menus of some of more of your contract feeder customers in the past? Like are they sort of instructed, I guess, to follow along the USDA Dietary Guidelines? Anthony Rasetta: Yes, Luke, absolutely. I think with the -- not just the Dietary Guideline changes, which are helpful as protein is playing a more prominent part, but also in what Paul talked about on GLP-1s, the general consumer sentiment looking for higher protein, lower calorie items. It's a conversation that we're seeing in terms of macro trends that our customers are more interested in. I was at a couple of industry conferences, both for food service and retail, where that was a prominent part of the conversation and helping us with interest in further distribution of seafood on menus. Paul Jewer: And one of the largest segments in our contract feeding business, Luke, is health care, hospitals, long-term care homes and one of the next largest would be schools. And so they absolutely do consider the USDA guidelines as they plan for feeding and meals. Operator: We have no further questions. At this time, I will now turn the call over to Paul Jewer, President and CEO, for closing remarks. Paul Jewer: Thank you, operator, and thank you for joining our call today. We look forward to updating you with our results for the first quarter of 2026 on our next conference call in May. Operator: And thank you, ladies and gentlemen. This concludes our conference call. We thank you for your participation. You may now disconnect.
Operator: Welcome to the HEICO Corporation First Quarter 2026 Financial Results Call. My name is Samara, and I will be your operator for today's call. Certain statements in this conference call will constitute forward-looking statements, which are subject to risks, uncertainties and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include, among others, the severity, magnitude and duration of public health threats, our liquidity and the amount and timing of cash generation, lower commercial air travel, airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services; product specification costs and requirements, which could cause an increase in our cost to complete contracts; governmental and regulatory demands, export policies and restrictions; reductions in defense, space or homeland security spending by U.S. and/or foreign customers or competition from existing and new competitors, which could reduce our sales; our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth; product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales; cybersecurity events or other disruptions of our information technology systems could adversely affect our business and our ability to make acquisitions, including obtaining any applicable domestic and/or foreign governmental approvals and achieve operating synergies from acquired businesses; customer credit risk, interest, foreign currency exchange and income tax rates; and economic conditions, including the effects of inflation within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs and revenues. Parties listening to this call are encouraged to review all of HEICO's filings with the Securities and Exchange Commission, including, but not limited to, filings on Form 10-K, Form 10-Q and Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events or otherwise, except to the extent required by applicable law. I now turn the call over to Eric Mendelson, HEICO's Co-Chief Executive Officer. Eric Mendelson: Thank you, Samara, and good morning to everyone on this call. Thank you for joining us, and we welcome you to this HEICO First Quarter Fiscal '26 Earnings Announcement Teleconference. I'm Eric Mendelson, HEICO's Co-Chairman and Co-CEO. I am joined here this morning by Victor Mendelson, HEICO's other Co-Chairman and Co-CEO; and Carlos Macau, our Executive Vice President and CFO. We received many nice comments about Victor's extemporaneous remarks as he opened our last conference call to discuss HEICO's 2025 fourth quarter results. So we thought our listeners would appreciate a little insight into HEICO before we discuss HEICO's 2026 first quarter results. Obviously, HEICO's 2026 first quarter results reflect continued growth, and we are very proud of them, especially considering that only 36 years ago, HEICO had only $25 million in revenue, $2 million in earnings and 200 team members. Our dad, Victor and I would often question ourselves, how is our 36-year 23% compound annual growth rate in share price possible, especially when we were rarely leveraged at more than 2x EBITDA. First, we have to thank God for these results. But second, we realized that Dad always had a saying, do the right thing, which was our mantra 24/7 365 for the past 36 years. It wasn't just the same. It was embedded in every single decision, every part sold or repaired, every company acquired and simply everything we did. Obedience to the unenforceable became our DNA from the time Victor and I were small children to now when we are 60 and 58 years old. Doing the right thing means making honorable choices when nobody is looking. It means spending tens of millions of dollars on quality systems, not because our customers or regulators require them, but because we know it's a good investment that protects our brand. It means properly reserving for obsolete or excess inventory, not because our auditors require it, but because we know it's needed and mistakes must be learned from, recognized, learned from and never repeated, not swept under the rug in order to protect reported earnings. These are just 2 of the many things that HEICO has done routinely over decades and why we've never had a onetime unusual charge to earnings, whereby the economic earnings of the upcycle are largely erased following a black swan event and investors don't realize much of the earnings never existed in the first place. Considering our terrific results, we're even more proud of them, given the added cost that many people don't appreciate, but everyone benefits from in the long run. HEICO was built for long-term and sustainable cash generation, which permits our earnings and cash flow to compound decade after decade, not just year after year. We are not into programs of the year, buzzwords or comparing ourselves to others hoping to get a higher multiple on our shares. We're designed for long-term challenging but sustainable earnings increases. I hope this provided a little insight into HEICO's secret sauce as you listen to our first quarter results. Before reviewing our operating results in detail, I want to take a moment to thank and recognize all of the people who made our excellent performance possible. HEICO's sustained growth and consistent profitability result directly from our team members' talent, dedication and hard work. Our team members drive our success and differentiate us from other companies. Thank you all for all of your continued commitment and for contributing to another strong outstanding quarter. We are very proud of the first quarter results, which reflect consolidated margin expansion, record net income and strong increases in operating income and net sales. We remain very bullish and optimistic about HEICO's ability to win new opportunities in fiscal '26 and continue our growth, profitability and strong cash generation legacy. To summarize the highlights of our first quarter of fiscal '26 record results, consolidated net income increased 13% to a record $190.2 million or $1.35 per diluted share in the first quarter of fiscal '26, up from $168 million or $1.20 per diluted share in the first quarter of fiscal '25. Consolidated operating income and net sales in the first quarter of fiscal '26 improved by 15% and 14%, respectively, as compared to the first quarter of fiscal '25. Net income attributable to HEICO in the first quarter of fiscal '26 and '25 were both favorably impacted by a discrete income tax benefit from stock option exercises. The benefit in the first quarter of fiscal '26, net of noncontrolling interests was $21.8 million or $0.15 per diluted share as compared to $26.5 million or $0.19 per diluted share in the first quarter of fiscal '25. By the way, that means we got a higher benefit from the discrete income tax benefit from stock options last year as compared to this year. The Flight Support Group delivered strong results in operating income and net sales, achieving quarterly increases of 21% and 15%, respectively, as compared to the first quarter of fiscal '25. The increases principally reflect strong organic growth of 12%, driven by increased demand across all of Flight Support Group's product lines as well as the contributions from our fiscal '25 acquisitions. The Electronic Technologies Group net sales improved 12% as compared to the first quarter of fiscal '25. The increase principally reflects strong organic growth of 6%, driven by increased demand across most of our products as well as contributions from our fiscal '25 and '26 acquisitions. Cash flow provided by operating activities was $178.6 million in the first quarter of fiscal '26. Operating cash flow for the quarter was negatively impacted by distributions of approximately $22.7 million to a long-term team member over 40 years and participant in the HEICO Leadership Compensation Plan, the LCP. The LCP is fully funded and all sources of cash for these distributions are derived from investments in corporate-owned life insurance policies, which are considered investing cash inflows within our statement of cash flows. As a result, the LCP distributions are not an actual use of cash. We will have another large LCP distribution during the remainder of fiscal '26 of approximately $73 million, which will negatively impact operating cash flows. However, since the LCP, as I said, is fully funded, the distribution will continue to be net cash neutral to HEICO. Consolidated EBITDA increased 14% to $312 million in the first quarter of fiscal '26, up from $273.9 million in the first quarter of fiscal '25. Our net debt-to-EBITDA ratio was 1.79x as a result as of January 31, '26, as compared to 1.6x as of October 31, '25. The increase in our leverage ratio is a direct result of the successful completion of an acquisition during the first quarter. Acquisition activity in both operating segments remains very strong with a very healthy pipeline of opportunities. We continue to target complementary businesses that align strategically and financially, focusing on disciplined accretive transactions that enhance HEICO's long-term value. In January 26, we paid our regular semiannual cash dividend of $0.12 per share. This represented our 95th consecutive semiannual cash dividend since 1979. Now I'd like to take a moment to discuss our recent acquisition activity. In January, our Electronic Technologies Group acquired 100% of Axillon Aerospace's Fuel Containment Business, which was renamed Rockmart Fuel Containment. Rockmart designs and manufactures advanced fuel containment solutions, primarily for military fixed and rotary wing aircraft. The purchase price of this acquisition was paid in cash using proceeds from our revolving credit facility, and we are very excited that Rockmart has joined the HEICO family, and we are very excited about their future contribution to HEICO's earnings. Earlier this month, the Flight Support Group acquired 100% of EthosEnergy Group Limited. Ethos provides repair solutions for engine components and accessories for various industrial gas turbine, aeroderivative gas turbine, aerospace and defense engine platforms. I'm sure everyone on this call is keenly aware of the tremendous increase in demand for power caused by the exponential demand in AI or artificial intelligence and LLMs or large language model adoption. And this power is largely expected to be created through the use of industrial gas turbines and aeroderivative gas turbines. HEICO is obviously excited to enter this market and bring our technical capability and OEM relationships to serve this growing power demand. And we believe HEICO's acquisition of Ethos provides us with the perfect platform to sell our high-quality repair solutions to satisfy these rapidly growing needs. The purchase price of this acquisition was paid with a combination of cash using proceeds from our revolving credit facility and shares of HEICO Class A common stock. And this week, the Flight Support Group entered into an agreement to acquire 80% of the stock of a company that provides a range of services for commercial aviation and defense component platforms. Closing is subject to governmental approval and standard closing conditions and is expected to occur in the second quarter of fiscal '26. The remaining 20% will continue to be owned by certain members of the seller's management team. We expect these acquisitions to be accretive to our earnings within the year following the acquisition. I now turn the call over to Victor Mendelson, HEICO's other Co-Chairman and Co-CEO to discuss the first quarter results of our Flight Support and Electronic Technologies Groups in further detail. Victor Mendelson: Eric, thank you very much. Before we get into the details, I echo what Eric mentioned at the outset of the call and thank our team members, the HEICO team members. The results we're discussing today are a direct reflection of their talent, their discipline and commitment to execution. Their collaboration and focus on excellence in all they do and all we do is truly inspiring. The Flight Support Group's net sales increased 15% to $820 million in the first quarter of fiscal '26, up from $713.2 million in the first quarter of fiscal '25. The net sales increase in the first quarter of fiscal '25 stems from strong organic growth of 12% and the impact from our fiscal '25 acquisitions. The organic net sales growth reflects increased demand across all of our product lines. The Flight Support Group's operating income increased 21% to $200.7 million in the first quarter of fiscal '25, up from $166.1 million in the first quarter of fiscal '25. The operating income increase in the first quarter of fiscal '26 was principally driven by the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth and an improved gross profit margin. That improved gross profit margin principally resulted from the previously mentioned higher net sales and a more favorable product mix within our repair and overhaul parts and services product lines. The Flight Support Group's operating margin improved to 24.5% in the first quarter, very impressive in the first quarter of fiscal '26, up from 23.3% in the first quarter of fiscal '25. The increased operating margin in the first quarter of fiscal '26 principally reflects a decrease in SG&A expenses as a percent of net sales, mainly reflecting the previously mentioned SG&A expense efficiencies and improved gross margin. Acquisition-related intangible amortization expense consumed 260 basis points, approximately 260 basis points of our operating income in the first quarter of fiscal '26. So the FSG's cash margin before amortization, or EBITA, as we call it, was approximately 27.1%, which is excellent and has been consistently excellent and is 110 basis points higher than the comparable FSG cash margin of 26% in the first quarter of '25. Obviously, we are very, very happy with the continued operational excellence and improving cash generation demonstrated by the businesses in the FSG. Now turning to the first quarter results for the Electronic Technologies Group. The group's net sales increased 12% to $370.7 million in the first quarter of fiscal '26, up from $330.3 million in the first quarter of fiscal '25. The net sales increase was occasioned by strong 6% organic growth and the impact from our fiscal '25 and '26 acquisitions. The organic net sales growth is mainly attributable to increased sales of our aerospace and defense and other product -- electronics products, partially offset by a decrease in space product sales. The Electronic Technologies Group's operating income was $73.2 million in the first quarter of fiscal '26 as compared to $76.5 million in the first quarter of fiscal '25. That operating income decrease principally reflects a decrease in gross profit margin, partially offset by the previously mentioned net sales growth. The decrease in gross profit margin, and this is important, resulted from a less favorable product mix of defense products and the previously mentioned decrease in net sales of space products, partially offset by the previously mentioned increase in net sales of our aerospace products. As you know, quarterly margin variability in our ETG is consistent with the group's history, and there are periods in which shipments of lower, though not low margin products are a greater proportion of our sales than in other quarters, which is predominantly based on shipment schedules. Based on our backlogs and our shipment plans, we expect the ETG margins to improve as the year progresses, particularly in the second half of the year. The Electronic Technologies Group's operating margin was 19.8% in the first quarter of fiscal '25 as compared to 23.1% in the first quarter of fiscal '25 -- excuse me, 19.8% in the first quarter of fiscal '26 as compared to 23.1% in the first quarter of fiscal '25. The decreased operating margin principally reflects the previously mentioned lower gross profit. And you may recall that we experienced similar unfavorable mixes from time to time, including the first quarter of fiscal '24 and the rest of the year was quite healthy for us, and we're expecting the same kind of thing this year. Importantly, before acquisition-related intangibles amortization expense, our operating margin was approximately 24% as intangibles amortization consumes over 410 basis points of our margin is, as you know, how we judge our businesses, and it most closely correlates to cash. On a true operating basis, these are still excellent margins even though we would not be satisfied with them on a full year basis. The ETG's strong margins resulted in another record backlog, demonstrating both strong demand for our products and robust end markets. Our shipments and shipment mix are typically uneven during the course of the year. We experienced some of that unevenness in our shipment mix this quarter, which was not a surprise and is a pattern we've often discussed on these calls and elsewhere. We are pleased with the quarter's organic growth and are particularly excited about the opportunities in defense, commercial aerospace and space for the remainder of fiscal '26. And I should add that this optimism is supported by the record backlog and increasing order volumes we've experienced. Thank you, and I turn the call back over to Eric. Eric Mendelson: Thank you, Victor. Our team is filled with optimism as we look at the remainder of fiscal '26. We expect continued sales momentum in both Flight Support and the Electronic Technologies Group, supported by organic demand for our products, together with the impact of recent acquisitions. The current pro business agenda in the United States continues to align well with our long-term goals, providing key markets like defense, space and commercial aviation with a very strong tailwind in funding. We remain focused on pursuing selective acquisition opportunities that align with our growth strategy. Our disciplined focus to financial management continues to emphasize long-term shareholder value through a combination of strategic acquisitions and organic growth while preserving financial strength and flexibility. Acquisition activity remains extremely robust across both business segments, supported by an outstanding pipeline of potential opportunities currently under evaluation. Our acquisitions teams are busier than ever working on these potential transactions as one of HEICO's core strengths is identifying high-quality businesses that complement and reinforce our strategic positioning. We believe HEICO is the preferred buyer for sellers seeking a great home for their businesses. Consistent with our long-standing acquisition philosophy, we will only pursue opportunities that meet our strict financial and strategic criteria are accretive and have the potential to generate durable long-term value for our shareholders. We thank you for listening to this call. And now, Samara, if you'd like to open up the floor for questions, we're happy to answer them. Operator: Thank you. [Operator Instructions] And we'll take our first question from Larry Solow with CJS Securities. Lawrence Solow: Great. I guess first question for Victor. Just I think maybe the ETG putting a little pressure on the shares this morning. It sounds like -- and I know you referenced Q1 '24. It sounds like the mix issue is completely temporary. It was a pretty significant sequential drop, but any more color on that, your backlog, I guess, the mix. It doesn't sound like you have any termination and we could bounce right back to that low to mid-20s range for the year. Is that fair to say? Victor Mendelson: Yes, I think that's absolutely right. That's our expectation. And based on the shipment schedules and what we have, that's what we're expecting. And it isn't unusual for us to move around. It may be lower than the average. But we get -- sometimes we get the perfect storm of good shipment schedules and sometimes we got the perfect storm of unfortunate shipment schedules. But -- and that's why we really guide people to look at the full year on the ETG, particularly as it moves on throughout the quarters. And the experience we had on this was in multiple different products and subsidiaries, as I said, sort of the perfect storm on the downside, if you will, on margins, very heavily mix related, extremely heavily mix related. And right now, what we have scheduled for shipments and what our subsidiaries are showing on the -- as the year wears on is pretty exciting. Of course, we'll have to see. There are no guarantees, I always say in life. But right now, I'm feeling good about what our companies are telling us, feeling very good about what our companies are telling us. Lawrence Solow: Right. And it feels like a great environment for a lot of your companies, right, in the defense side for sure. Victor Mendelson: Yes. I mean if you look at our orders and you look at our backlog in the group and how it's been growing, it's very exciting. And the mix of what's been growing is a nice mix overall. So feeling good about it. Nothing is ever easy, but feeling good about it. Lawrence Solow: Yes, sure. And while I got you a pretty nice sized acquisition, the Axillon, I guess, you renamed Rockmart Fuel. I think it's your third largest ever in HEICO history. So any more color on this? Is this your usual sort of type multiple and accretion we should expect over time? Victor Mendelson: It's a very nice business. It is a -- it's a supplier and has done a lot of business with one of our other subsidiaries, Robertson Fuel Systems. We -- they will be operating separately, but there's a lot that they can do for each other in terms of production, smoothing out production as well as new designs and being pretty innovative for our customers. And so that will actually -- that is reporting to the Robertson business to keep things very streamlined and easy. I think it's -- we expect that to be -- it has been growing. We expect it to continue to grow. There's a big aftermarket, if you will, cycle to it replacement cycle that appears to be growing. We appear to be in the early innings of that. So we're pretty happy with it. As we said, we expect it to be accretive to earnings in the first year of ownership. We've only owned it for about a month. So, so far, so good. But I won't declare victory or anything else based on 1 month. So right now, feeling pretty good about it. Lawrence Solow: Great. If I could just one quickly for Eric. Just the organic growth, still very strong at 12% on a difficult comp. I'm just curious, historically, Q1, you usually have seen some seasonal slowdown. We haven't in the last couple of years in the recovery and growth on the aerospace side. But just curious, any thoughts on -- are we maybe just getting into a little more normal seasonality where Q1 actually drops a little bit from Q4, which we hadn't seen in a couple of years, but we used to see if we go back. Eric Mendelson: Larry, thank you very much for your question. I mean, you're absolutely correct. I mean, in general, if you look last year, Q1 was the lightest organic growth, likewise in 2024 as well. I'm particularly proud of these results given the high comps that we had in the prior years. We had very high comps basically for the last 4 years and to post 12% organic growth on top of them, I think, is really outstanding. And if you will, we didn't stuff the channel. There's a whole bunch of inventory that could have gone out which didn't go out for various reasons. But we're very careful to make sure that we do what the customers want. I'm very happy with these numbers. I think they reflect very well on the group. Operator: And we'll take our next question from Peter Arment with Baird. Peter Arment: Nice results as usual. Victor, maybe we could just drill in a little bit to try to understand the space kind of mix. I know in the past, it's been a nice margin contributor for ETG. But could you describe a little bit? I think you were a little more GEO-oriented versus like the LEO market. Is that still true just given the overall mix and just how you see the overall kind of setup for HEICO, given all the demand for LEO market? Victor Mendelson: Yes. It's a very good question. Originally, the business was more heavily GEO -- and over time, I would say now we're more heavily LEO. And that -- in the businesses that were GEO originally, shifting to LEO isn't cheap, right? The margins are less. There's a lot of different product design and R&D that goes into that. And -- but that -- I think we're getting through, if you will, sort of the other side of that over the course of this year. And we still have a pretty good offering for GEO, but we go where the customers are, and that's really the LEO market. And we have some great businesses with very strong margins in LEO, too, by the way. Actually, I think now some really strong margins there. So -- but that, as you may recall, too, has been a very uneven -- very, very uneven business, I mean, from quarter-to-quarter. And we like space, but we're not going to be too much of a space company for that reason. And you probably noticed that. We've limited. We've been careful how we've grown in space for that reason. Peter Arment: Got it. I appreciate the color there. And then, Eric, just briefly, can you give a little commentary there a competitor bought a PMA business. And obviously, you guys still, I think, are kind of the leader in PMAs. Is this a deal that had overlap with you? Or how should we view that? Eric Mendelson: Thanks, Peter, for your question. Well, you know how the old saying goes, imitation is the highest form of flattery. And for years, when we started doing this, people thought we were crazy to be in the PMA business. And then they thought we were crazy to be in the repair business and distribution and all the things we did. And those people who were smart enough to invest in HEICO did extremely well. So we think this is a sign that the PMA market is incredibly strong, and there are a tremendous number of PMA candidates out there. People have asked me, what does this mean for HEICO's competitive positioning? And we feel very strongly about HEICO's competitive positioning. We have a -- we've been running this company for 36 years, and we've always focused on the customer and always focused on generating value for the customer. And I would venture to guess we probably have the best customer relationships in the entire industry. And I don't anticipate that to change. And that's because we add value, we do what we say we're going to do, and people know when they work with HEICO, they're getting a top quality product. So we still have a tremendous presence in that market. We are totally committed to it. And I think it shows that others are recognizing the value of the PMA business. Operator: And we'll take our next question from Ken Herbert with RBC Capital Markets. Kenneth Herbert: Yes, Eric, maybe just wanted to follow up on your just comments there. I think there's a belief that PMA represents one of the real secular growing markets coming out of the pandemic as the industry continues to face a lot of service challenges. Can you just maybe comment from an industry perspective, what kind of growth you're seeing in PMA and where maybe you see specific opportunities for HEICO, either in markets you typically haven't been in or maybe with customer sets or any other ways you look at the market to help us better frame how PMA is actually really doing broadly and for you, obviously, here as we continue to see the recovery. Eric Mendelson: Yes, Ken, I would be happy to answer that. And first of all, I really recognize you as you were one of the early -- one of the analysts who very early on figured out that what HEICO was doing in the PMA space was going to be very successful, both to the airlines as well as for our shareholders and team members and those who followed your advice have profited handsomely. We are very committed and have never been more excited about the PMA business than we are today. We are -- we've got roughly 20,000 different parts. It is a huge catalog and a huge competitive advantage because when we want to develop a new part, I mean, there's very little stuff in this world, which is truly, truly new to us. We've got this catalog. We're able to go back and reference the drawings, the specifications, the vendors, the manufacturing processes and the barrier to entry is tremendous in doing that. So what we really need is greater acceptance at the airlines. And we've spoken about this for many years, why don't the airlines buy even more? And why don't they push us to buy even more. We're very happy with what we've done, but why isn't it even more? And I do think, to your point, that coming out of COVID, they recognize what we've said all along that PMA isn't only about price. It's about turn time and making sure that you've got an alternate vendor and you have the part on the shelf. I have got tremendous respect for all of our competitors who supply parts to the industry. It's a very hard thing to forecast the demand for a particular part. You never know what it's going to be, and it depends on so many things, including the type of build that was done by either the airline or the repair station at the prior shop visit for the engine or the component. If times were good and they had plenty of money and then they put a lot of new parts in, then when the component comes back, you're not going to need a lot of parts. But if times weren't good and they did the minimum, then you're going to need a lot of parts. And the problem is for all of the vendors, it becomes extremely difficult to forecast in that situation. So what we've always said is that HEICO provides not only top quality and outstanding value and cost savings, but we also provide availability. And this is something that has become front and center since COVID. So we're happy about that. When you look at the -- you asked specifically the products that we're doing, our sales in the PMA business are roughly 3/4 non-engine, which would be components, airframe, interior and about 25% engine. Our engine business is at a record level. We are doing extremely well. We are developing more engine parts. The airlines want us to develop more engine parts. I think you've written about the cost of engine overhaul and the cost to overhaul some of these new engines is significantly higher than the cost to overhaul some of the existing engines. So we think that there's going to be tremendous opportunity for us throughout the entire value chain. And I don't want to pick on just engines, but on components as well. The newer components are extraordinarily expensive. I mean they are off the charts nuts on the prices that they are charging. So I think that HEICO is going to do extraordinarily well. in our PMA and repair businesses as we help airlines reduce their costs and keep them somewhat manageable and provide an alternate source of supply. I can't get into obvious specific product types or manufacturer types for competitive reasons. We'd rather just go do our thing and satisfy the airlines. Kenneth Herbert: Yes. I appreciate all the color, Eric. Just to put a finer point on that. Carlos Macau: I might just add to what Eric just said, just to maybe put a few leaves on the tree, if you would. Our organic growth in our aftermarket business, which is our parts and repair business was up organically in the teens and Specialty Products is in the high single digits. So to echo what Eric said, I mean, our end markets in aerospace are very robust and our guys are executing. I just thought you might find that nugget helpful. Kenneth Herbert: I appreciate that, Carlos. And maybe just to put a finer point on it. Historically, the argument was the lessors and maybe some of the emerging market airlines didn't use PMA much. Are you seeing any shift in customer types and adoptions? Eric Mendelson: Yes. We are seeing shifts in customer types and adoptions. The airlines recognize they need this. I'm aware of all sorts of activity and initiatives, which I'd rather not call out on this call for competitive reasons, but we think that they are going to benefit HEICO tremendously. Operator: And we'll take our next question from Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe my first question, I just wanted to clarify something I joined later on the call. With Ethos, was it paid through A Class shares? And Eric, how do we think about those distributions happening because I think you were mentioning it. And why was it A Class versus the common stock? Eric Mendelson: Yes, I'd be happy to answer. So most of the consideration was cash. So I think it was roughly -- Carlos knows the exact percentage, but I think it was over 80% in cash, if I'm not mistaken. Carlos, is that correct? Carlos Macau: That's correct. It was a small quantity of A shares, and they wanted to feel like owners. It was their request. Eric Mendelson: They -- yes. And look, sometimes we do this because people are very happy to own the HEICO stock. The request was for A shares. So that is why we granted the A shares, and that was the concept there. But we're very excited about that acquisition. Sheila Kahyaoglu: Okay. Got it. No, it certainly seems like the right end market to be in. And then maybe, Victor, one for you. As we think about ETG profitability going forward, I know it ebbs and flows. Is there any way you could bridge us on the margins in the quarter and like how to look forward? Victor Mendelson: Look, we continue to expect 22% to 24% GAAP margins in the business, which is 26% to 28% over the course of the year. So you're going to have quarters that are above and below that amount, which is, again, historically the case. I mean there's nothing new to this. I try to remind people this as often as possible that there will be variability in the margins and the growth rate of the ETG. There's nothing that's changed. There's nothing that's fundamentally changed in the business. Thank you, Sheila. Eric Mendelson: And by the way, Sheila, just to expand on what I said about Ethos, the sellers recognized that this market was really a tremendously growing market. And for them to part with one of the foremost repair and overhaul shops focusing on industrial gas turbines and aeroderivative gas turbines, they really wanted to be compensated. And the request for HEICO A shares was in order to help reward them. We're very excited. Everybody is very knowledgeable about what's going on in the power generation space. And Ethos has incredible capabilities in developing and executing on parts repairs, component repairs and the access to that market. They've got 3 different facilities, in Connecticut, South Carolina and Aberdeen, Scotland. So they've got great access to the market, great people, great technology. And by putting it with HEICO, I think that it's going to provide HEICO with the ability to access what is, as you know, a tremendously growing market. So the A shares were just a component, if you will, a sweetener because if they're going to part with what we think is an incredible asset, they wanted something additional. And we were able -- the other thing which is important, it's very easy to buy companies, but to buy companies at prices where it's accretive is using cash is extremely difficult. And we were able to get this deal done at a reasonable price and the A shares were part of that enticement. Operator: And we'll take our next question from Scott Deuschle with Deutsche Bank. Scott Deuschle: Victor, there's some elevated inflation right now in certain parts of the microelectronics supply chain, particularly for memory. So I was wondering if you could speak to what ETG is seeing there and if you expect to see any margin pressure there either now or in the future? Victor Mendelson: Thank you, Scott. It's a good question. We're definitely experiencing that elevated inflation rate in some of the components. We typically are able to pass those on to our customers. I think they accept that. They understand that. But there is a lag effect, and that does take some time. You've got to work off the POs and items that are in the backlog. It is what I would consider a headwind, but more in the noise level and not particularly notable. And by the way, it varies business by business. But overall, on a consolidated basis, more in the noise level. Scott Deuschle: Okay. Are you generally able to get all the product that you need? Like is supply chain itself a limiter? Or is it just a cost issue? Victor Mendelson: I would say it's essentially normal, what it's been outside of that supply chain crunch, which is to say that there's always something. There's always a hot list item that's late and kind of holding things up somewhere in the system. And -- but for the most part, everything is running normal. So it's kind of like airline schedules on a typical day. There are a certain number of delays, and that's kind of how it's running now. Scott Deuschle: Okay. And then for Eric, do you see any opportunity for AI to help accelerate any of the maybe reverse engineering analysis for PMA and the speed at which new products can be brought to market? Or alternatively, do you think AI could help yourself for your airline customers better query parts catalogs and identify new maybe previously unexplored PMA opportunities? Just trying to better understand how HEICO can use AI to sustain or even accelerate growth. Eric Mendelson: Yes. That question has a lot of insight. And I think the answer is definitely with regard to both developing new parts, streamlining processes. I was just up at one of our subsidiaries last week, and they showed me there was a certain process in our quality acceptance area where we had multiple documents and multiple forms had to be filled out, and they were able through AI to come up with a revised process, which is significantly more efficient than what we were doing before. So we're already using it in the operations at HEICO. As far as the engineering, I think there is a lot of opportunity there, and it is as well being used over in the engineering process. And I agree with you for customers to be able to figure out what they need to buy and look at the HEICO performance rate, our quality rate, our quality rating, how happy everybody is with us. I think that it will be a continued tailwind for HEICO. I mean there's no reason why customers aren't buying more of our product line. And I think AI will accelerate our growth. Operator: And we'll take our next question from Ron Epstein with Bank of America. Ronald Epstein: Just as a follow-on here. If you look at some of the evolving contract structures that are going on with some of the big defense primes in particular, the 7-year framework agreements, so far, we've seen a handful of Lockheed, a bigger handful with RTX -- what kind of impact do you expect that to have on you guys, if at all, where potentially you could get visibility on contracts out maybe 7 years? And how does that impact your business? And how are you thinking about it? Victor Mendelson: Yes, Ron, good question. We think it's a net positive. We have a number of companies that supply on a lot of those programs. So it's something that gives us nice visibility into the future, helps us plan better. And on capacity, we've got really good capacity availability. It's usually a question of hiring people and bringing more people in and figuring a way to do that in different shifts. So overall, I think that's a net positive for us. Eric Mendelson: And also just to add to that, in the Flight Support Group Specialty Products division, we think that, that's going to have a very good impact because we've got -- we produce a lot of these different components and having the advanced visibility into what's coming down the road is going to be extremely helpful. And that's been a good tailwind for that business as well with record backlogs for missile defense products. Ronald Epstein: Got it. Got it. Got it. And then we've talked about some supply chain stuff. I mean, have you had any impact from critical minerals or magnets or whatever else and how you've been managing that in places where you do? Victor Mendelson: Yes, it's very, very minimal. It has not been a significant issue for us. And so far, we do not expect that it will become one. And in fact, there could be opportunities for us as a result of that when some of the new supply comes online in the U.S. vis-a-vis acquisitions and things of that nature, but that's further down the road. Ronald Epstein: Got it. Got it. And then maybe one more, if I can, to both of you guys. What are you seeing broadly in the acquisition market around valuation and so on and so forth? I mean as you both know, no doubt, the sector has gotten pretty hot. And how is that impacting how you're looking at valuations and how you can do M&A going forward where it is accretive in the framework of time that you guys like? Victor Mendelson: Yes. So Ron, it's definitely pushed multiples up over a long period of time. It isn't anything new, maybe a little bit more than historically. For us, certainly, that's why we're working so hard to make sure that we do as well as we've done in the past. And one of the important factors with us, I think, is the seller. And is the seller someone who's looking for something unique, particularly a good home for the business, someone who's going to retain the legacy and the operations in a similar capacity as operated in the past. And that gives us a really big advantage we've discovered historically. It doesn't mean we're going to buy everything we want, but it means there's a very nice pipeline. We have to count on a little more future growth, I think, and believe in the growth stories a little more than we used to. And so we're spending more time doing that to ensure that we think we're going to get the growth out of the businesses that's estimated. Eric Mendelson: And then also just to add to that for a moment, Ron, as we mentioned, our acquisition teams are busier than ever. Their pipelines are full. I would expect additional acquisition activity this year. I think our shareholders, my guess is they're going to be very happy about what we're doing. And the other key thing is that, as Victor said, by differentiating ourselves and providing the best home for the seller, that has tremendous value. It's very easy to go out and pay high prices and win an acquisition. It's another thing to make it work financially. And HEICO has very rigorous cash flow requirements. And we model each deal on its own, where it's got to support its own debt service, its own working capital needs, et cetera. And that's how we've been able to compound. You don't compound by going out and paying crazy prices for something. You compound by buying something that can stand on its own and is very reasonable. And when you look at the -- some of the prices of switching topics for a moment of some of what I believe are the defense tech businesses, I think they're extremely exaggerated. And we look for businesses that generate cash now and in the future and paying extremely high multiples for something that really doesn't generate cash is just not what HEICO is about and not what we plan on doing. Operator: And we'll take our next question from Scott Mikus with Melius Research. Scott Mikus: I was curious, do you have a sense of how inventory levels are at your airline customers? Because you mentioned that you didn't want to stuff inventory into the channel. And then I was also curious, within your distribution businesses, have there been any noticeable changes over the past several quarters in how fast they are moving inventory as the pace picked up as airlines prep for the summer travel season? Eric Mendelson: Yes. The -- I would say the inventory levels are very consistent to what we've seen in the past. There are certain parts which they can be overstocked on, other parts where they're understocked on. But in general, there hasn't been a big change. As far as our distribution businesses, we've done extremely well. They are extremely busy, supporting the demands of the aftermarket. And -- but I really sort of see it very much as business as usual and not much of a change for HEICO there. Scott Mikus: Okay. And then thinking back a year ago, a lot of us were asking about DOGE and how that could benefit your business. We're now 1 year into the current administration. So have you started to see the Pentagon get the ball rolling on acquiring more alternative parts to both reduce maintenance costs and improve readiness rates for military aircraft. Are they at least doing it on the derivatives like the P-8s and KC-46s? Eric Mendelson: We've seen some movement there, yes. We always said that this would be a medium-term project. It's very hard to get things fully moving at the speed that we would like. But we are seeing good progress there, and we do anticipate further progress to come. So we feel very good. You look at the President's defense budget and something's got to be a bill payer for these tremendous increases. And this is very logical. And I think what the Secretary of War is doing makes a lot of sense, and they just can't keep on paying these high prices. So I'm still very optimistic in that regard. Operator: And we'll take our next question from John Godyn with Citi. John Godyn: Eric, I wanted to follow up on the energy business and Ethos and what you're doing there. You offered a number of data points and breadcrumbs. We see different companies across A&D attacking this in different ways. I just wanted to talk about it big picture, but the types of questions on my mind are, did you kind of go down this path based on reverse inquiries from customers? What types of components do you expect to supply? Is it based on your existing SKUs? Or do you think that you're going to develop new SKUs? There are so many questions here. I can't go through all of them, but I just wanted to give you a chance to kind of talk through this a bit more. Eric Mendelson: Sure. Thank you. And I think that's a great area, which frankly, hasn't been focused on by a lot of people. We thought that this would be a great market. If you look -- we've been working on Ethos now for approximately a year. So we started that project a year ago. And we saw what was going on in the industrial gas turbine space and to a lesser extent, the aeroderivative. And we thought that this would be a very strong area. So we went out very aggressively to work with the seller and come up with a deal that made sense. I think we also developed a very good relationship with the operating folks at the businesses, and we were definitely their preferred buyer. As far as the aeroderivative connection, I mean, that makes a lot of sense. Everybody is very familiar with what HEICO does and really what we can bring to some of the aeroderivative parts should customers want that as well on the industrial gas turbine parts. Both on the IGT and the aerooderivative, Ethos has very strong OEM relationships. And they have -- they're approved by various OEMs to support those products, and they've been doing so for a very long time. So we are going to continue to support those channels and not offer an alternative if there is an OEM relationship there. Where there aren't OEM relationships, we'll try to form them with different companies. And if not, we think that there is very good opportunity to continue penetrating the markets there. There's just a huge demand. I mean you see what's going on with all the power companies. And Ethos has an extremely wide array of products that it services. It does blades, veins, all sorts of various static parts, rotating parts, components. And we think that their technology lines up perfectly with ours, and we are super excited to have made this acquisition, and we think that it's going to be extremely successful and a great entree for HEICO. If HEICO were to try to enter the industrial gas turbine or the aeroderivative market on its own, it would be extremely difficult. We didn't have much of a relationship with those customers. And here, Ethos has been an incredible supplier for decades with these companies. Actually, Ethos, the genesis of it is it used to be the Wood Group Aero accessories and components group. So they have decades of working with the energy companies and the turbine suppliers. So we think we've got a great platform to leverage and move forward. John Godyn: And this is such a big market. I'm just kind of -- this is a very big picture question, but do you see this as something that could become so large for HEICO over -- in the fullness of time that as symbolically, we might even have an IGT segment, a third segment for the first time or something like that? Could it be that big? Eric Mendelson: That would be very aspirational. So I don't want to get over my skis here and promise that, but we do have very high expectations for the business. It really -- I would say it's in early innings right now. The company has got great capability, great people, 3 locations. And I hope what you're saying is correct, and I'm sure that our team members at Ethos and at Wencor are listening to this call, and they are inspired by your question and outlook for it. Operator: And we'll take our next question from Matthew Akers with BNP Paribas. Matthew Akers: Most of mine have been asked already, but I wanted to just touch on the balance sheet and just how you feel 1.8x leverage, obviously, has come down quite a bit since went. I think historically, you've been a little bit lower. So just how you feel -- are you comfortable at this level? Would you prefer to be lower? It sounds like there's a lot of potential M&A deals in the pipeline. So just kind of how you're thinking about the balance sheet here. Carlos Macau: I'm happy to take that question. Our leverage right now is under 2x. So I'm very comfortable at this leverage point. And I expect that what we've done in the past will continue in the future. We'll continue to use a line of credit as a primary vehicle for funding acquisitions, which then affords us the opportunity to quickly pay that down and reload for the next deals. And so we'll still use that type of a structure. Right now, our permanent debt or the bonds that we have are running less than 1 turn of EBITDA. So I think our capital structure is quite flexible, and we're not capital constrained. So from a balance sheet perspective, we could go higher on leverage. I think if we did that, it would be very opportunistic and there would have to be a pathway to generate significant cash to bring us back down in the 2x, 2.5x leverage ratio. I mean I would think that, that's something that's doable for us. I don't think HEICO is going to be a 7x levered business. That's not in the cards for us. But I'm not going to rule out for an incredibly good acquisition. If we went to that level and had a pathway to get back down into the 2s over a reasonable period of time, we would certainly consider that and execute on if it was good for our shareholders. Matthew Akers: That's helpful. Yes. And then I guess just one on ETG. I guess, was the government shutdown at all related to any of the mix impact that you guys discussed in the quarter? Or is that not the driver? Victor Mendelson: That wasn't the driver. It did have some impact a little bit, stuff shifting out. And so we'll pick up the benefit of that later on in the year, but I wouldn't call it a material impact. Operator: We'll take our next question from Gavin Parsons with UBS. Max Miller: You have Max Miller on for Gavin. It's pretty clear that a lot of the tightness in the aftermarket and some of the OEM pricing you're seeing actually increases the value proposition of a HEICO alternative. If we hypothetically flip that script, what are the implications for HEICO in a world where maybe some new aircraft come online, some of the older platforms come out of the fleet and aftermarket or at least the fleet age begins to normalize a little bit. Does that change the math for PMA utilization and where you see HEICO thriving? Eric Mendelson: We don't think so. I mean our business is always impacted by, first and foremost, the growth in fleet hours or available seat miles. And then it is the subcomponents of that are you look at the age of the aircraft. I mean, you've got this 20-something thousand aircraft fleet, which is aging 1 year per year. And the OEMs do a really good job of making sure that they escalate prices very aggressively to make up for any of that -- to take advantage of that. And then when you look at the fleet retirement, that typically hasn't been a big part of the equation. But it is something that we continue to look at. There are also -- I think there's a very big opportunity for all of these new aircraft that have been delivered roughly over the last 10 years, the price of the spares on those aircraft is significantly higher than on the spares on the aircraft that they replace. So if you look at line for line, the same line LRU on an older aircraft versus a newer aircraft, the newer ones are significantly more expensive. So all of this is to say, I think -- I agree with you. I think our value proposition increases substantially. And I think that we're going to be in a very good place. We're already taking advantage of the opportunity in a lot of these markets, and I think that will continue. Operator: And we'll take our next question from Michael Ciarmoli with Truist. Michael Ciarmoli: Maybe quickly, Eric, just to go back to John's energy line of questioning, and I don't know if this is a quick one or a conversation for a bigger conversation for another time. But the CFM56 and its potential use in the power generation market, you've obviously got a lot of content on some of those legacy platforms. Should we expect that assuming it gains traction in the energy marketplace, can that be a significant tailwind in terms of those platforms generating a materially more amount of parts, thinking that they've got life after or additional life besides kind of in the traditional aircraft market? Eric Mendelson: Yes. I think definitely. When you look at the aeroderivative market, there is tremendous life in repurposing those engines. There are many companies doing that, whether it's on some of the old CF6s or the CFM56s. But the use of the HEICO parts in those repairs and overhauls is, I expect going to be substantial. So I think that there is a very good tailwind for us there. Operator: And we'll take our next question from Jonathan Siegmann with Stifel. Jonathan Siegmann: Congratulations on the quarter. Just one for Carlos. Just looking back at space organic growth in ETG in the Q last year, it was exceptional, $13.5 million year-over-year. So you're going to give us how much it was down this quarter. Can you -- in this Q, can you preview what that decline is? Carlos Macau: The decline was -- yes, I can give you some color on that. So the decline in space organically was in the high single digits for the quarter compared to Q1 of '25. And as Victor mentioned earlier, Jonathan, it's not a result of order volume kicking down or backlog not being there. It's really just a function of shipments, always is with space. And so I wouldn't read too much into that to be candid with you. I think you'll see some of that recover in the subsequent quarters as we catch those shipments going forward. Jonathan Siegmann: I think that shows it has to do with that great strong comp last year. And the other question I've heard folks ask us is you have exceptional positioning with the legacy space and defense hardware providers. How is your penetration with new customers in this area? Are you guys able to maintain positions at these new people in space and defense? Victor Mendelson: Thank you, John. It's a good question. The answer to that is yes. We picked up a number of new space and defense tech customers along the way. And so far, we're holding on to them. The way we generally look at it is that we are going to supply the customer base. They need our parts, our products regardless of who they are. And for the most part, that seems to be holding true. Thanks for the question. Operator: And we'll take our next question from Tony Bancroft with Gabelli Funds. George Bancroft: Great job. Mine obviously is revolving around the defense budget. You saw the proposed potentially a $1.5 trillion budget. Even if that doesn't come to fruition over a number of years, is still -- it's a big number just directionally. How do you see that impacting your business? Maybe just broad strokes on that? And then obviously, all the announcements earlier this year from the Department of War on the programs, drone dominance, arsenal freedom, you name it. How -- what have you been told that you've spoken to the Department of War and just maybe an overall view on those dynamics? Victor Mendelson: Well, first, Tony, thank you very much for joining us and for your comments and we very much appreciate them. In terms of the outlook for us, the impact on us, first question that you asked, the impact on us of the increased defense budgets and some of these orders that definitely is beneficial. I mean, obviously, the devil will be in the details ultimately where that falls over the years. But from what we see and have heard, and we talked a little bit earlier about some of these multiyear buys that the government is doing on programs we're on both sides of the business. This applies to both the Electronic Technologies and Flight Support groups. There's definitely an impact and a benefit. And maybe we're even seeing some of that in our backlogs now, and that's a good thing. And in terms of the Golden Dome possibilities, it's not that completely defined publicly. But from what we know and what we see, it consists of a lot of existing programs, particularly obviously, missile defense programs. And again, we're on both sides of the business, Flight Support and Electronic Technologies. We're on a lot of those programs. And there appear to be some newer tracking and reconnaissance parts of that system. And we are -- from what we're told, some of the things we're selling on, I can't go on obviously, specifics, but we're told that they are for Golden Dome. There's no Golden Dome department. You don't get a letter head that says Golden Dome is officially Golden Dome. There was this list of companies they put out as primary vendors. But remember, we're down a layer in the supplier base. And then, of course, as I answered earlier, I mentioned the defense tech guys are participating there, it appears in a variety of ways, and we're picking that up as well. So overall, both are positives for us, and we feel good about them, again, both sides of the business. Operator: And we'll take our next question from Louis Raffetto with Wolfe Research. Louis Raffetto: Maybe one for Carlos. Just the stock comp expense was pretty high in the quarter. I know it was sort of called out in the press release as well. Just curious, does that level continue throughout the year? Or does it step down? Or does it ramp up? Carlos Macau: It's a good question, Louis. The -- if you recall -- you may remember last year, we talked a little bit about the performance feature that were attached to our options in '25. And what winds up happening is when -- normally, our options historically have always just been time-based. The vest over 5 years. Now we added a performance feature last year for growth in the business. And what winds up happening is the amortization of that expense actually accelerates as a result of that. It's part of the accounting rules that drive us crazy sometimes. But nonetheless, -- so what will happen is we'll probably catch a little bit more of that elevated expense in the front half of this year, and then it will taper off towards the end of the year. And in fact, as we get into the following fiscal year, it should taper down probably on par or lower than what it had been historically because we would have amortized a lot of those 25 grants in fiscal '26. Louis Raffetto: I appreciate it, Carlos. Yes. I know how much you love all the accounting on that. Carlos Macau: Yes, right. Louis Raffetto: Maybe one for Victor and Eric, just kind of, again, big picture here. Obviously, you guys have grown a ton over your 36 years. You're kind of in the $5 billion neighborhood. So just how do you guys think about the scale of the business, the sheer number of underlying businesses that are operating? And at some point, do you see some other potential portfolio action as making sense? Victor Mendelson: Yes. Listen, we've been able to adjust and grow with the business and morph, if you will, the organization as we've gone. There was a point in time where everything reported either to Eric or to me, this is Victor speaking, reported to one of us. And over time, we've gone to more of a bit of a working supervisor model, if you will, really extraordinary and talented people who show an ability to handle multiple companies at one time and acquisitions as well, multisite situations, for example, and they are leading groups, and we've been breaking this down into groups of both sides of the business, and that's going to continue. And the acquisition, you probably noticed the acquisitions we've made have generally been into those groups or into or under reporting to another subsidiary. So we want to keep that talent doing it that way. And we think that's very scalable. Operator: And at this time, I will turn the conference back to the management team for any additional or closing remarks. Eric Mendelson: Thank you very much, everyone, for participating in our call and for those who asked questions. We are always available, it's Eric, Victor or Carlos for any of your additional questions that you may want to ask offline. And we look forward to speaking with you again on our second quarter fiscal '26 conference call at the end of May. So thank you very much, and this concludes our call. Operator: Thank you. And this does conclude today's call. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome to the EPR Properties Q4 and Year-End 2025 Earnings Call. [Operator Instructions]. Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now hand the call over to Brian Moriarty, Senior Vice President of Corporate Communications. Brian Moriarty: Okay. Thank you, Jenny. Thanks for joining us today for our fourth quarter and year-end 2025 earnings call and webcast. Participants on today's call are Greg Silvers, Chairman and CEO; Greg Zimmerman, Executive Vice President and CIO; Mark Peterson, Executive Vice President and CFO; and Ben Fox, Executive Vice President. I will start the call by informing you that this call may include forward-looking statements as defined in the Private Securities Litigation Act of 1995, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate or other comparable terms. The company's actual financial condition and the results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of those factors that could cause results to differ materially from these forward-looking statements are contained in the company's SEC filings, including the company's reports on Form 10-K and 10-Q. Additionally, this call contains references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release and supplemental information furnished to the SEC under Form 8-K. If you wish to follow along, today's earnings release, supplemental and earnings call presentation are all available on the Investor Center page of the company's website, www.eprkc.com. Now I'll turn the call over to Greg Silvers. Gregory Silvers: Thank you, Brian. Good morning, everyone, and welcome to our fourth quarter and year-end 2025 earnings call and webcast. The fourth quarter capped a year of solid execution and clear progress toward accelerated growth. Our resilient portfolio benefited from durable tenant performance and steady consumer demand contributing to strong financial performance, including FFO as adjusted per share increase of 5.1% and AFFO per share increase of 6.2%. During the fourth quarter, we announced transactions which significantly expanded our portfolio of championship golf courses along with premier regional water park acquisition, further diversifying our attraction sector. As we move into 2026, we expect to build on our strong industry relationships while substantially increasing our investment spending. We are actively pursuing opportunities across multiple target property types with a flexible approach that encompasses both potential portfolio scale acquisitions and smaller strategic transactions, positioning us to capitalize on attractive opportunities as they arise. Turning to industry and tenant performance. Our portfolio of properties continues to demonstrate broad stability. For the year, North American box office grew 1% and we anticipate further growth in 2026, supported by an increased number of wide release titles. Performance across our other property sectors remained steady, demonstrating the strength and resilience of our diversified portfolio. As we expand the diversity of our experiential portfolio, we're seeing a balancing effect, strength in certain sectors helping to offset periodic softness in others, reinforcing overall portfolio resilience. Our strategic capital recycling program continued to deliver meaningful results in 2025. By executing targeted dispositions, we strengthened portfolio qualities, reduce concentration and unlock capital to deploy into higher returning experiential investments. We will continue to use disciplined opportunistic recycling as a proven lever for driving value creation. Our balance sheet remains one of our most important competitive strengths. During the fourth quarter, we successfully closed a $550 million public debt offering and established a $400 million at-the-market equity program, 2 significant capital market initiatives that bolster our financial flexibility and fund our growing investment pipeline. Reflecting the confidence we have in our earnings trajectory and conservative payout ratio, we are also pleased to announce a 5.1% increase to our monthly dividend to common shareholders. In summary, we built a robust pipeline of high quality experiential investments. Our strong balance sheet and expanded operator relationships now give us access to larger opportunities and our disciplined approach to capital allocation positions us to capitalize on the significant investment opportunities we anticipate in 2026. Now I'll turn the call over to Greg Zimmerman to go over the business in greater detail. Gregory Zimmerman: Thanks, Greg. At the end of the quarter, our total investments were approximately $7 billion with 333 properties that are 99% leased or operated. During the quarter, our investment spending was $147.7 million. 100% of the spending was in our experiential portfolio. Our experiential portfolio comprises 278 properties with 54 operators and accounts for 94% of our total investments or approximately $6.6 billion. And at the end of the quarter was 99% leased or operated. Our education portfolio comprises 55 properties with 5 operators, and at the end of the quarter, was 100% leased. Turning to coverage. The most recent data provided is based on the December trailing 12-month period. Overall portfolio coverage remains strong at 2x. Turning to the operating status of our tenants. 2025 box office was $8.7 billion, a 1% increase over 2024. Q4 box office was $2.2 billion compared to $2.4 billion in Q4 2024. Q4 performance was led by strong results from Zootopia 2 which gross $337 million in Q4 and has exceeded $420 million to date. Wicked: For Good gross $335 million. Avatar: Fire and Ash gross $250 million in Q4 and picked up an additional $147 million after the first of the year. Five Nights at Freddy's 2 also outperformed. The slate for 2026 looks solid with the Super Mario Galaxy Movie, The Mandalorian and Grogu, Toy Story 5, The Minions 3, Moana, The Odyssey, Spider-Man: Brand New Day, Avengers: Doomsday and Dune Messiah. Analysts expect box office to increase in 2026. Going forward, we will be moving away from providing annual estimates for box office performance. We initiated the practice after the pandemic as theaters reopening, box office was recovering, and we were navigating the writers and actor strikes. With all the dislocation, we thought it was helpful to share our perspective. The business is stabilizing, so this is no longer necessary. Additionally, it's important to highlight that the bulk of our theater rent is not tied to fluctuations in box office. The only significant percentage rent component of our theater rent comes from Regal, which is based on a lease year rather than a calendar year, and our estimate of Regal percentage rent is embedded in our percentage rent guidance. A couple of points related to box office. First, higher-margin F&B spending increasingly constitutes a higher percentage of exhibitors overall revenue. As such, it is not necessary to reach 2019 box office levels for us to have comparable coverage. Second, as we have consistently noted the number of major releases directly correlates to box office, an increased number of major releases typically drives increased box office growth. Over time, major releases tend to generate an average performance in the range of $70 million. Turning now to an update on our other major customer groups. Our East Coast ski and Midwest key operators got off to a great start with above-average snow, and that strength continued through the winter. Our Northern California asset opened late because of lack of snow, but conditions have improved significantly with recent snowfall. We will see if snowfall continues to hold throughout the season. Alyeska has had strong demand throughout the season augmented by its membership program and inclusion in the iConnetwork. Our Eat & Play coverage remains strong even with some continuing macro pressures on consumers and expense increases. In Andretti Karting, Kansas City location opened well in mid-November, Schonburg, Illinois is expected to open in the second quarter of 2026. Our second Penn Stack located in Northern Virginia is also expected to open in Q2. Of note, in early January, Topgolf Callaway announced the completion of its sale of a 60% interest in Topgolf to Leonard Green Partners, the transaction value TopGolf at around $1.1 billion. We view this positively because Topgolf now has a focused private equity majority owner. Many of our attractions are closed for the season. The Cartes Outdoor Winter Park and Hotel de Glace opened in December and are benefiting from sustained domestic travel within Canada. We are quite pleased with the performance metrics at Enchanted Forest Water Safari in our operator's first full year of ownership. With the indoor water park and family entertainment center fully opened at Bavarian Inn, we saw significant year-over-year increases in revenue and EBITDARM. We are bullish on the fitness and wellness space. Since 2024, we have invested approximately $150 million in this vertical including golf, Fitness and Hot Springs. All 3 of our Hot Springs assets delivered strong year-over-year performance. Our education portfolio continues to perform well. Our customers' trailing 12-month revenue for Q3 was essentially flat with EBITDARM down due to expense increases. Coverage remains strong. Our investment spending continues to be entirely within our broadening range of experiential asset types. In Q4, we invested $147.7 million, bringing our total for 2025 to $288.5 million. This includes funding for projects that we have closed on but are not yet open. In addition, we have committed approximately $85 million to experiential development and redevelopment projects, which we expect to fund in 2026. Q4 investment spending was anchored by our acquisition of a 5-property portfolio of championship golf courses in the Dallas Metroplex for approximately $90.7 million. The properties will be leased and operated by Advance Golf Partners, a leading golf course operator. This investment follows our extensive research into the golf space and adds to the additional golf investment we made earlier in 2025. Given our deep relationships, the increased focus on fitness and wellness among multiple generations and demographics and the wide range of investment opportunities, including golf, climbing gyms, traditional gyms, hot springs and spas, we are excited about the potential for continued growth in this space. We also acquired the Ocean Breeze Water Park in Virginia Beach, Virginia, in a sale-leaseback transaction for approximately $23.2 million. Ocean Breeze will be leased and operated by an affiliate of Premier Parks, a long-time strategic partner. We kicked off investment spending for 2026 with the first quarter acquisition of the Vital climbing Lower East Side in Essex Crossing for approximately $34 million. As I noted before, we are particularly bullish on the fitness and wellness space and excited to grow our relationship with this outstanding operator by adding a high-quality Manhattan location along with our existing vital climbing location in Williamsburg, Brooklyn. As demonstrated by our investments in Q4 and already in Q1, we are increasing our investment spending cadence. We are seeing high-quality opportunities for both acquisition and build-to-suit development in our targeted experiential categories. Our disciplined deployment strategy has enabled us to expand the depth and breadth of our portfolio of experiential properties over the past several years. Our investment spending throughout 2025 and heading into 2026 reflects our deep relationships and high-quality opportunities. We are announcing investment spending guidance for funds to be deployed in 2026 in the range of $400 million to $500 million. During the quarter, we sold 2 leased theater properties for alternative uses and 2 land parcels for net proceeds of $16.1 million and recognized a gain of $5.3 million. Additionally, as announced on our Q3 call, we received $18.4 million in proceeds from a partial paydown on a mortgage note relating to the Gravity Haus and Steamboat Springs. In the past 5 years, we have sold 33 theaters. We had one remaining vacant theater. Disposition proceeds totaled $168.3 million in 2025. We are announcing 2025 -- 2026 disposition guidance in the range of $25 million to $75 million. I'll now turn it over to Mark for a discussion of the financials. Mark Peterson: Thank you, Greg. Today, I'll discuss our financial performance for the fourth quarter and the year, provide an update on our balance sheet and close with introducing 2026 guidance. FFO as adjusted for the quarter was $1.30 per share versus $1.23 in the prior year, an increase of 5.7%. And AFFO for the quarter was also $1.30 per share compared to $1.22 in the prior year, an increase of 6.6%. Before I walk through the key variances, I want to point out that we had disposition proceeds totaling $34.5 million for the quarter and recognized a gain on sale of $5.3 million, for the year, we had disposition proceeds totaling $168.3 million and recognized a gain on sale of $39.5 million as we continue to make progress reducing our investments in theater and education properties and recycling those proceeds into other experiential assets. Note that these gains are excluded from FFO adjusted and AFFO. Now moving to the key variances. Total revenue for the quarter was $183 million versus $177.2 million in the prior year. Within total revenue, rental revenue increased $7.9 million versus the prior year, mostly due to the impact of investment spending, rent and interest bumps and higher percentage rents and participating interest. Percentage rents and participating interest for the quarter were $7.8 million versus $4.9 million in the prior year, and the increase was due primarily to higher percentage rent recognized from our attraction and cultural properties as well as from one of our early childhood education tenants. We also had higher participating interest related to our Northeast Ski property. Both other income and other expense relate primarily to our consolidated operating properties, including the Kartrite Hotel & Indoor Water Park and our 4 operating theaters. The decrease in other income and other expense versus prior year is due primarily to the sale of 3 operating theater properties in the first half of 2025. On the expense side, G&A expense for the quarter increased to $14.6 million versus $12.2 million in the prior year due primarily to higher payroll and benefit expense, particularly incentive compensation. Equity and loss from joint ventures for the quarter was $2.4 million compared to $3.4 million in the prior year. This better performance is due to our decision to exit our joint venture in Breaux Bridge, Louisiana in late 2024 as well as improved results at our 2 remaining RV Park joint ventures. Shifting to full year results, FFO as adjusted was $5.12 per share at the high end of guidance versus $4.87 in the prior year, an increase of 5.1% and AFFO was $5.14 per share compared to $4.84 in the prior year, an increase of 6.2%. Turning to the next slide, I'll review some of the company's key credit ratios. As you can see, our coverage ratios continue to be very strong with fixed charge coverage at 3.4x and both interest and debt service coverage ratios at 4x. Our net debt to annualized adjusted EBITDAre was 4.9x at year-end, which is below the lower end of our targeted range. Additionally, our net debt to gross assets was 39% on a book basis at year-end, and our common dividend continues to be very well covered with an AFFO payout ratio of 68% for the fourth quarter and the full year. Now let's move on to our capital market activities and balance sheet, which is in great shape to support our expected growth. At year-end, we had consolidated debt of $2.9 billion of which all is either fixed rate debt or debt that has been fixed through interest rate swaps with an overall blended coupon of approximately 4.4%. In November, we closed on $550 million of new 5-year senior unsecured notes at a coupon of 4.75%. And at year-end, we had $90.6 million of cash on hand and no balance drawn on our $1 billion revolver. Additionally, in December, we finalized our new ATM program. While no equity issuance is required to fund our plan for 2026, given that we project to be below the midpoint of our target leverage range at year-end without any such issuance. This program provides us with an additional tool in our toolbox to issue equity opportunistically, including forward sales. We are introducing our 2026 FFO as adjusted per share guidance of $5.28 to $5.48, representing an increase versus the prior year of 5.1% at the midpoint. We expect a similar percentage increase in AFFO per share. Note that due primarily to the timing of expected percentage rents, which are heavily weighted to the last 3 quarters of the year, as well as the fact that the first quarter is off-season for our operating properties, we expect results for the first quarter of '26 to be lower than the full year divided by 4 by about $0.11 per share. We are also providing our 2026 guidance for investment spending of $400 million to $500 million and disposition proceeds of $25 million to $75 million. We expect percentage rent and participating interest of $18.5 million to $22.5 million. As you can see on the slide, I have provided a reconciliation of the prior year amount to the midpoint of this guidance. The changes include out-of-period percentage rents and participating interest of $3.5 million recognized in 2025 that does not repeat lower projected percentage rents in 2026 of $1.1 million related to our Northern California ski property due to delayed snowfall for the season and lower projected percentage rents of $0.4 million related to certain properties having base rent increases in '26, causing the breakpoint for percentage rents to increase. These decreases were offset by a projected net increase of $1 million in percentage rent for other tenants, including Regal. We expect G&A expense of $56 million to $59 million. In addition, guidance for our consolidated operating properties is provided by giving a range for other income and other expense. Guidance details can be found on Page 23 of our supplemental. Finally, based on our expected 2026 performance, we are pleased to announce a 5.1% increase in our monthly dividend, beginning with the dividend payable April 15 to shareholders of record as of March 31. We expect our 2026 dividend to be well covered with an AFFO per share payout continuing to be about 70% based on the midpoint of guidance. Now with that, I'll turn it back over to Greg for his closing remarks. Gregory Silvers: Thank you, Mark. 2025 was a very solid year as we delivered strong per share earnings and our portfolio delivered the resilience that we anticipated. In 2026, we expect to increase our investment spending materially over the levels we achieved in 2025, which should result in another year of strong per share earnings growth. As we begin the year, we are excited about our investment pipeline, our balance sheet and the team to create value out of this combination. I would also like to take a minute to express my sincere appreciation to Greg Zimmerman, who is participating in his last earnings call as he is retiring from EPR. Greg provided leadership and a steady hand as we navigated COVID and then emerged on the other side. He is my business partner, colleague and friend, and he will be missed. Ben Fox will now officially take over the role of Chief Investment Officer, and we are excited about his leadership and vision for our future. With that, why don't I open it up for questions? Jenny? Operator: [Operator Instructions]. Our first question will come from Michael Goldsmith with UBS. [Operator Instructions]. Michael Goldsmith with UBS, you may ask your question. Michael Goldsmith: Consistent with last quarter, where you pointed to $400 million to $500 million in acquisitions, you put this out formally with your guidance. Can you just talk a little bit about what you're targeting, what you have line of sight in because it represents an acceleration. So just trying to get a sense of what you're looking at, what you have line of sight and just your confidence level of hitting that $400 million to $500 million in acquisitions? Gregory Silvers: Clearly, I think line of sight or anything, while we don't want to comment on specific. We wouldn't put it out there if we didn't have great confidence in it. Again, if you look historically, we've been successful in not only hitting our numbers, but raising those throughout the year. So I think -- and I'll let Greg comment that we feel really good about where we're positioning for the beginning of the year. I think we're looking at opportunities across most, if not all of our sectors. I think, again, we feel like we have particular unique access to the areas that we invest in. But let Greg talk about... Gregory Zimmerman: No, I agree, Greg. And I would also say that developing a pipeline is usually a multiyear process. So we've been building up to this with line of sight to the fact that we turn on investment spending this year. So again, as Greg mentioned, we're very confident about it, and that's why we're... Michael Goldsmith: Got it. And then second question, just Topgolf is one of your top tenants and they've been taken private by private equity. Have you had conversations with Leonard Green and just trying to get an understanding of what they're going to do with the company now that they have their hands on it and just the path and your comfort level with your specific locations that you own? Gregory Silvers: Yes. Michael, and we've had multiple conversations with them. So as you can imagine, both as they were evaluating it as an opportunity and now subsequently I think the thing that we're encouraged is, in fact, what they've told us is they're very much aligned with what we have said that the growth pattern needs to slow down to 3 to 5 units a year where they can hit kind of the demographic and location requirements that we kind of agree with them. As we said all along, our units continue to demonstrate very, very strong coverage I think it's an integral part of the value equation that they saw. I think there are opportunities that they're going to very much look at being -- they have a long history of multi-unit retail and even in the fitness and wellness space. So I think they're very, very focused on kind of the food and beverage and promotional opportunity sets. And you've seen that those early impacts of the second half of last year, where Topgolf was already addressing some of those and saw some very, very positive numbers going into the second half of the year and the fourth quarter. Gregory Zimmerman: And I would also add, Michael, they're going to -- we're very pleased they're going to continue their refresh program, which benefits us greatly. They do a handful of our units every year with a nice refresh to keep them up. Operator: Our next question will come from John Kilichowski with Wells Fargo. [Operator Instructions]. John Kilichowski with Wells Fargo. You may ask your question. John Kilichowski: My first question is just on where you see your cost of capital today. You're trading back close to a range where we were end of the third quarter. When does it start making sense to tap the ATM. Gregory Silvers: Sure, John. Great question. I'll join in and I'll ask Mark. I think we probably see it now in the kind of upper 50s or low 60s at kind of low 7s, low mid-7s. I think that works. We can make that work. we're doing things in the low to mid-8s. So there's 100 basis points of spread. I think it's important for us to let people know that we can execute that way and get back on that flywheel of issuing equity. As Mark talked about in his comments, we don't need to. And in fact, we'll still be not even near the midpoint of our leverage range doing the plan that we have executed. But what it does mean is maybe we can do more, maybe we could even further delever. I think it gives us a lot of options, and we are clearly entering the zone where it makes sense, but Mark? Mark Peterson: I think, as Greg said, I think we'll be kind of opportunistic about it, particularly if we're headed to the higher end of spending, investment spending. As Greg said, I think as you get to the high 50s, low 60s, you're low to mid-7s type of cost of capital. And as Greg said, you get nearly 100 basis points out of the gate. And then, of course, on an IRR basis, it's quite a bit higher than that. when you factor in our rent bumps. So I feel good about that and the opportunity that lies ahead. John Kilichowski: That was very helpful. And maybe just along the same lines, if we could do sort of a sensitivity analysis, let's say, if your cost of capital got 50 bps better from here on a blended basis, where does that take maybe the high end of your investment guide, if this is a better buying opportunity here. I'm just curious how much more you think you could do if you just had a little bit of improvement on that cost of capital? Gregory Silvers: Yes. Clearly, there's -- we think there's opportunity out there, John, I think, again, it's probably not as linear as we're laying it out that it's 50 basis points. It's really about are the right opportunities in the risk and reward. I think overall, you're hearing our excitement about the opportunity set out there. I think there are there continues to be good opportunities. I think we're excited about those. We're excited about where our cost of equity seems to be trending. And so hopefully, that combination will allow us to continue to grow and grow that base. But to speculate on a kind of a sensitivity table would probably be not productive for us right now. Operator: Our next question will come from Smedes Rose with Citi Global Markets. [Operator Instructions]. Smedes Rose from Citi Global Markets, you may ask your question. Bennett Rose: I was just wondering if you had any updates on what's going on in Sullivan County in terms of the ability to sell the ground lease that kind of came up a while ago? That would be my first question. Gregory Silvers: Thanks, Smedes. I would say we've not had really any meaningful conversations with them. I mean, again, this is the -- when I say that, meaning our operator. It's their call on how they want to proceed. It's not built into our plan. Our plan is utilizing our existing kind of cash flow dispositions, things that we've done. But the easiest thing to say, Smedes, is no, we've not had any meaningful conversations with the operator. Bennett Rose: Okay. And then I was just wondering, when we look in a sort of theme park world, there seems to be I guess, a certain amount of disruption going on and some new management changes. I'm just wondering, are they kind of showing up on your radar screen as a possible solution to some of the issues they might be facing? Gregory Silvers: I think that's a very reasonable approach. I mean if you think about the names that are being dropped around we partner with many, if not all, of those names that are being dropped around. So I think it's something -- we think that business is actually very, very -- if you look over time, very stable cash cow kind of business. It needs to be a smart, thoughtful, well-covered kind of thoughtful business. But again, we play in that field. I don't know, Greg, if you want to. Gregory Zimmerman: Well, I agree. And as we announced, we acquired something in the fourth quarter. So yes, we're enthusiastic about the attraction space. Bennett Rose: All right. Thank you. And best wishes to you, Greg, going forward. Operator: Our next question comes from Anthony Paolone with JPMorgan. [Operator Instructions]. Anthony Paolone with JPMorgan. You may ask your question. Anthony Paolone: Just, Greg, going back to the opportunity set that you talked about, can you be a little bit more specific and maybe how much of it is development, redevelopment versus buying existing assets? And maybe kind of the range of cap rates and like what would take you into the 8s versus where you'd probably be maybe in the 7s if something is perhaps a bit higher quality or different? Gregory Silvers: Sure. And I think it's going to gear at least early part of this year, going to be more on the acquisition side. So I would say, and I'm looking at Greg and Ben, probably 70-30 acquisitions. Right now, I think, again, where you would look at most of our stuff has been in the 8s where you would look at something below that potentially would be a much lower advance rate. It's really going to be risk return or if you had a credit, you had a much, much higher credit scenario to where you would think lower 7s, but better growth profile. But I would say most of our stuff are -- right now that we're looking at has at least an initial 8 handle on it. Gregory Zimmerman: And Tony, obviously, development deals are going to carry a higher cap rate because there's more risk adjusted, there's more risk. So that's kind of what we look at... Anthony Paolone: Okay. Got it. And then my only other question, maybe for Mark and just on the spending here. If I look at Page 19 of the supplemental, there's about $63 million of spending outlined there. Is that different than the $85 million that you guys talked about in the presentation? Or do you put those together? Gregory Silvers: The $63 million is only related to those projects that have been started at the end of the year. So and then the difference between that and the $85 million is projects that haven't been started, but that we have commitments and line of sight to. So if you're looking at kind of spending sort of what's spoken for kind of heading into the year, $85 million is the number to use. And then if you add, for example, the VITAL Climbing Gym that we did, we're sort of sitting at around $119 million right now and sort of spoken for spending. And as Greg said, I think the amounts that we will add to get to the midpoint of guidance of $450 million will be mostly acquisition-oriented. Operator: Our next question comes from Michael Carroll with RBC Capital Markets. [Operator Instructions]. Michael Carroll of RBC Capital Markets. You may ask your question. Michael Carroll: I guess, Mark, just sticking with the guidance ranges that you provided in the investment. With that remaining investments to get back up to that $450 million with guidance, when do you assume that gets completed? Is it just kind of ratably throughout the year? Or do you kind of have a back-end weighted? What's kind of implied in that guidance range? Gregory Silvers: Yes, it's actually, frankly, weighted more towards the first half of the year, the way we see things kind of laying out. Michael Carroll: Okay. And then on the Regal percentage rents what you put in guidance, what did you assume would be the box office, at least for the Regal lease year ended July 2026 versus the prior year? Is it kind of a similar box office, so we're expecting percentage rents for Regal to be kind of in line with what it was last year? Gregory Silvers: No, I think it's slightly up, consistent with kind of analysts. But as you can see, it's probably kind of up 2% over where they were last year as our number is up slightly over there. Gregory Zimmerman: Yes. When we lay out that percentage rent slide, you can see once you cut through the prior period and so forth, you get to about $1 million of net growth amongst all our tenants and a good chunk of that is Regal because we do expect box office to be higher next year. And again, Mike, the Regal lease year ends in July. So you're not going to have the advantage of the fall season. Michael Carroll: Yes. And then just last one for me. I know, Greg, you mentioned and talked a little bit about the investment opportunities you have across all your property types. I mean are there any specific property types where you're seeing bigger opportunities or other types of activity that you could pursue? Gregory Silvers: I think as we've talked about, we've hit several things. I would say the top 3 continue to be fitness and wellness attractions and Eat & play. Again, when you look at those, we're still seeing an occasional opportunity in gaming, but not as much. Ski is more opportunistic. So those other 3, I think, are going to be where the anchor part of what our investment is going to come from. Gregory Zimmerman: And Mike, again, I would -- when we say fitness and wellness, that's a very broad category for us. So obviously, we've done a couple of golf deals now. We did a climbing gym deal this quarter. We did a regular fitness deal last quarter, and we have done hot springs deals. So we see a lot of opportunity to expand the aperture in that space. Operator: Our next question comes from Upal Rana with KeyBanc Capital Markets. [Operator Instructions]. Upal Rana with KeyBanc Capital Markets. You may ask your question. Upal Rana: Just curious on how the transaction market looks like in terms of larger deals. Are you seeing more or less out there? Gregory Silvers: Again, I think we're starting to see, as we said, I don't know we're seeing more. We're seeing our ability to participate in larger deals more. And, Upal, I think -- so that's beneficial to us. But I think it feeds into what -- when you look at what we've done, we're talking about 2 years in a row of delivering 5% plus kind of earnings growth. It's getting back into what is our kind of normal trajectory of delivering outsized value for our shareholders. And now we're going to be able, as we, A, one, generated a lot of proceeds from dispositions or, two, getting close to our ability to issue equity through our ATM program, it's going to allow us to participate in some of these deals, which will further that growth so that the idea that we've been done -- we did 5% last year, we're doing 5% this year. Let's get on that track of what we delivered 20 years before COVID. Upal Rana: Great. That was helpful. And then it looks like negotiations start to begin to start up again on SAG-AFTRA with the contracts that were negotiated in '23, expiring in May for writers and in tune for the actors. So the environment is certainly much different today than it was 3 years ago. So I just wanted to get your take on those negotiations and how that could play out? Gregory Silvers: Again, I think we think it's still really early, but I think you're correct. I think the -- it's really early. I think it's going to still be about AI and the ability to do that, but they set a nice framework to deal with that. And everybody, I think, at this point, saw how negatively the market was impacted by a strike. And much like what we've seen in some other areas like baseball, people have tried to avoid strikes because they have long-lasting effects and everybody is saying the right thing about wanting to avoid that. Operator: Our last question comes from Upal Rana -- apologies that is Jana Galan with Bank of America Merrill Lynch. [Operator Instructions]. Jana Galan with Bank of America Merrill Lynch. Jana Galan: I know this is a much smaller part of your portfolio, but curious if you could just provide an update on the education portfolio and kind of any changing trends there between early childhood and the private school. Gregory Silvers: Again, I think if anything, the strength of that portfolio has continued to be demonstrated over the last several years. I think one area that as we think about dispositions this year, maybe an area that we start to think about. I mean last year was all about kind of cleaning up the theater portfolio and getting through that I think the strength of that will allow us to capture good value if we want to do that and could be another lever that we pull to accelerate growth. Jana Galan: Great. And also wanted to congratulate Greg. Operator: There are no more questions. So I will now turn the call back over to Greg Silvers, Chairman and CEO, for any closing remarks. Gregory Silvers: I just want to thank you all. As we said, we're excited about the year. I look forward to talking through the year and look forward to delivering on the guidance that we've set forth. Thanks, everyone. Thank you.
Natalie Davis: Good morning, and welcome to Ramsay Healthcare's financial results for the 6 months to 31st of December 2025. My name is Natalie Davis, and I'm joined today by Anthony Neilson, our Group CFO, who commenced with Ramsay in late November. After 12 months in the role, I'm pleased to report that we're making good progress on our key priorities. The refresh of our group executive is now complete, strengthening capability and supporting the acceleration of our multiyear transformation program. We remain focused on delivery against the 3 priorities I first outlined this time last year that are shown on Slide 3. First, disciplined execution of the transformation of our market-leading Australian hospital business. In the half, we've improved patients, people and doctor NPS, grown admissions with a focus on higher acuity and have lifted our theater utilization. Our second priority is strengthening capital allocation and improving returns across the portfolio. You will have seen last week's announcement regarding the proposed distribution of Ramsay's investment in Ramsay Sante to Ramsay shareholders. Subject to obtaining the relevant approvals, we believe this will simplify the group and enable focus on the transformation of the core Australian hospital business. We have also progressed the turnaround of Elysium by rightsizing the business for the current environment through site closures and reducing available beds. With Joe O'Connor joining as CEO in January, we expect the turnaround to continue to gain traction. Our third priority is evolving our culture to innovate and accelerate delivery. I'm pleased to say that our group leadership team is in place, strengthening capability and our patient and people NPS scores remain high across the group, reflecting the commitment of our teams and clinicians and the quality of the care we provide. Turning to the half year results on Slide 5. We reported 7.3% growth in underlying EBIT and 8.1% growth in underlying NPAT and that was driven by Australia. The Board has determined a fully franked dividend of $0.425 per share, up 6.3% and representing a 60% payout ratio of underlying earnings. Slide 6 shows the underlying performance across each region and the contribution to the funding group and the consolidated group results. Australia was the key driver, reporting underlying EBIT growth of 7.1%, supported by good activity growth, higher acuity, improved PHI indexation and cost management, which together helped offset the impact of the new funding mechanism at Joondalup Health Campus. The team at Joondalup have progressed a range of operational programs, including a focus on reducing agency usage, which has also helped to partially mitigate this impact. A lower underlying net loss from Ramsay Sante supported the results, reflecting growth in Sweden and performance actions in France that partially offset the government funding pressures in that market. Turning to the performance of each region and starting with Australia. Slide 8 lays out our 2030 strategy, where our vision is to innovate to be Australia's most trusted leading health care provider and to deliver long-term value for our shareholders through the 5 pillars of our strategy. Our strategy will innovate Ramsay. We will lead in local catchments, growing our services, patient care and relationships with specialists and GPs in communities around our strategically located hospitals; differentiate ourselves in priority therapeutic areas, including cardiology, orthopedics and cancer care; create One Ramsay advantages powered by digital and AI to capture the synergies enabled by our market-leading scale; connect patient and doctor journeys from hospital care to community-based care and work with our communities and partners to shape Australia's leading health care system for the future. We will measure progress with clear financial and nonfinancial metrics and early indicators include our patient, doctor and people NPS metrics, growth in admissions, cost efficiencies through One Ramsay advantages and revenue indexation that better matches cumulative cost growth. Turning to Slide 9 and through all the change underway, it's important to reinforce that our patients, people and clinical excellence remain at the heart of what we do and how we operate. We've leveraged Ramsay's strong reputation in clinical trials to launch a national Ramsay research and development network, supporting 23% growth in clinical trials activity in the first half. Growth in admitting VMOs and strong theater utilization contributed to good activity and market share gains. The changing environment in the delivery of private health care is creating opportunities for us given our strong and stable reputation and portfolio of strategically located and owned facilities. The proposed acquisition of National Capital Private Hospital is a clear example of this, delivering us access to an attractive catchment area where we're not currently represented and a hospital with a strong reputation for clinical excellence. Our focus on utilization across catchment areas has also seen some development projects postponed or reshaped with development spend now expected to be below the bottom end of the guidance range. We continue to drive cost efficiencies and maintain capital discipline through our Big 5 hospital initiatives, supported by pilot programs across the business. Following last year's review, digital and data OpEx remains on track to be at or below FY '25 spend. Turning to the Australian results on Slide 10. The business delivered top line and profit growth despite the impact of the new funding mechanism at Joondalup. Revenue from customers increased 8.2%, driven by a 3.1% increase in hospital admissions and improved indexation. Revenue from our private hospital portfolio grew 8.7%. EBIT margins, excluding Joondalup, improved by 40 basis points on the prior period, driven by higher activity levels and case acuity, increased theater utilization and improved PHI indexation relative to wage inflation. Looking at activity in more detail on Slide 11. Our core surgical admissions grew 5.7% with day admissions growing more strongly than overnight admissions. However, a higher acuity mix resulted in inpatient IPDAs increasing at a faster rate than inpatient admissions. We remain disciplined with our CapEx spend in Australia, where it's focused on projects with good returns and strategic value. On Slide 12, the major development projects in the half were the completion of Ramsay Private at Joondalup campus and the final phase of the expansion of Warringal in Melbourne due to be completed in the second quarter of financial year '27. We have 23 new theaters and procedure rooms scheduled to open in financial year '26, concentrated in major hospitals in key catchment areas. Development CapEx for the full year is now expected to be in the range of $170 million to $190 million, below our previously guided range, reflecting our disciplined approach to utilization and capital allocation. Turning to the outlook for Australia on Slide 13. In the second half, we'll continue to advance our multiyear transformation program in Australia. We aim to finalize negotiations on the Victorian and Queensland nurse EBAs by the end of this financial year. We will continue to work with our payers to recover both the gap created by cumulative revenue indexation below cost indexation and future wage inflation as well as innovating our funding to better support innovation in care models. We have one major PHI contract renewal due in the second half. We expect EBIT growth momentum in Australia to continue in the second half, driven by growth in activity in our priority therapeutic areas, revenue indexation, cost focus and partial mitigation of the impact of the new funding mechanism at Joondalup. We will continue to progress the proposed acquisition of National Capital Hospital, which is expected to transition into the Ramsay portfolio in the first quarter of financial year '27 and be EPS accretive in the first 12 months of ownership. Turning to the U.K. region on Slide 14. Both businesses operating in challenging conditions. The U.K. acute hospital business was impacted by NHS budgetary restrictions towards the end of the period. This was mitigated by a focus on high acuity and private work as well as operational initiatives. Elysium continues to face weak market demand from local authorities. The turnaround plan is underway and beginning to gain traction, including central cost reduction, agency reductions, site optimization and fee negotiation. Turning to the acute hospital business results on Slide 15. The business delivered 3.5% revenue growth in constant currency, driven by a higher acuity case mix, increased private pay admissions and tariff indexation. NHS admissions slowed and declined in quarter 2 as NHS budgetary constraints began to impact activity. Our continued focus on managing complexity and consistent operational excellence helped to mitigate the impact of lower NHS volumes. The result included backdated indexation. Excluding this impact, underlying EBIT margins improved 30 basis points to 9.3%. Turning to the outlook for the acute business on Slide 16. NHS activity outlook for the third quarter financial year '26 is expected to remain negative compared to the prior period. The U.K. hospital business will continue to focus on growing private volumes and driving operational excellence to help offset the NHS funding uncertainty, which we expect to prevail until the new NHS fiscal year. As the leading private provider to the NHS, Ramsay U.K. remains well positioned to support the U.K. government's objective to reduce elective surgery, outpatient and diagnostic waitlist when additional funding is anticipated to be made available in the new NHS fiscal year from the 1st of April with a strong pipeline of patients through its outpatient clinics. On Slide 17, Elysium has remained focused on its turnaround program informed by the recommendations of the performance diagnostic completed in the second half of financial year '25. Key priorities include site optimization, cost reduction and fee negotiation that better reflects the complexity of services we provide. This resulted in the closure of 163 beds at underperforming sites in the first half with 5 sites expected to be closed in the second half. A number of these properties have been put to market for sale. Turning to the outlook on Slide 18. Elysium's new CEO, Joe O'Connor, commenced in January and is leading the performance improvement plan. We expect the ongoing focus on the plan and the initiatives already taken in 2025 will see the turnaround continue to gain traction. Turning to Ramsay Sante on Slide 19. As announced last week, we are progressing the proposed demerger of Ramsay Sante via an in-specie distribution of our 52.8% investment to Ramsay shareholders. While this process continues, we remain focused on the performance improvement programs across the European business and particularly in France, which continues to face funding headwinds and broader market uncertainty. In the Nordics, the focus remains on continuing the performance momentum of the Swedish business and the turnaround programs in Denmark and Norway. Turning to Ramsay Sante's results on Slide 20 and the business delivered a 4.4% increase in underlying EBIT in constant currency, driven by a strong result from the Nordics region, in particular, the performance in Sweden. This was partially offset by weaker results in France, where the reduction in subsidies of EUR 20 million compared to the prior period and the inadequacy of tariff indexation continue to pressure earnings. Turning to the outlook for Ramsay Sante on Slide 21. Across Europe, the focus remains on cost control, efficiency and cash generation as well as continuing the performance momentum of the Swedish business. Activity growth in Europe is expected to continue in the second half, driven by day admissions, partially offset by the impact of a 3-day French doctor strike in January. The new contract at St. Goran commenced 5th of January 2026 for 8 plus 4 additional years on improved terms, which will assist the Nordics results. As outlined in detail in last week's announcement on Slide 22, we believe that the proposed demerger of Ramsay Sante through in-specie distribution will simplify Ramsay and enable both organizations to focus on transforming their respective businesses. We will update the market as we work towards the release of the demerger booklet and subject to receiving necessary approvals, currently expect to complete the in-specie distribution in December 2026. I'll now hand you over to Anthony to run through the financials in more detail. Anthony Neilson: Thanks, Natalie. Good morning, everyone. Natalie has already covered much of Slide 24. So I'll just highlight a few points, noting currency translation has impacted some of the movements on the P&L and balance sheet for this half. In this result, we have focused on underlying numbers given the large nonrecurring items in the U.K. region and Ramsay Sante in the first half of last year. Items excluded from underlying profit this half were $11 million negative impact on net profit and primarily relates to transaction and restructuring costs. There is a detailed reconciliation shown in the appendix. Underlying NPAT showed strong growth for the half of 8.1%, driven by activity growth across Australia and Europe, combined with higher acuity across Australia and U.K. and revenue indexation in Australia. There continues to be a focus on operational efficiencies across all regions to mitigate cost pressures. The underlying NPAT tax rate was 36%, slightly higher than last year. This reflects the impact of CVAE taxes in France, which calculated on turnover despite France being in a pretax loss position in the first half. The full year tax rate is forecast to be approximately 35%, reflecting a higher rate in Ramsay Sante. Operating cash flow on Slide 25 improved 16.9% to $350 million for the period, driven by the performance of Australia and lower tax paid than the previous corresponding period, which included the sale of Ramsay Sime Darby. Improving our cash conversion is one of our key priorities in all regions and we are all investing in systems and processes to strengthen cash collection and drive cost out and efficiency programs across all businesses. CapEx cash outflow increased from prior period, mainly due to development projects in Australia. I will touch on CapEx in more detail on Slide 31. Dividends paid increased 20%, reflecting the suspension of the dividend reinvestment plan for fiscal year '25 final dividend. Turning to Slide 26. Currency translation had a significant impact on the face of the balance sheet for this period to the tune of $84 million. Movements in working capital primarily related to Ramsay Sante and the timing of periodic true-up payments with the French government with advances repaid, reducing payables. Consolidated net debt is $5.1 billion and I'll show a separate breakdown between the funding group and Ramsay Sante on the coming slides. 67% of the consolidated group's floating rate debt in the second half of this fiscal year '26 is hedged at an average base rate of 3%. We have provided both the funding group and Ramsay Sante summary balance sheets in the appendix, so you can see the group results, excluding Sante. Turning to the Funding Group performance on Slide 27. Underlying NPAT grew 5%, which was driven by good growth in Australia, partly offset by a lower contribution from the U.K. U.K. margins were impacted by higher costs and lower occupancy at Elysium. Elysium cost efficiency initiatives began to gain momentum late in the half with continued focus on these initiatives in the second half. Total financing costs, including lease costs, increased 1.3% in constant currency due to higher average base rates and a small increase in drawn debt during the half. Moving to the Funding Group debt and leverage on Slide 28. Given the separate funding arrangements of the Funding Group and Ramsay Sante, looking at the group's consolidated leverage is not a meaningful metric. The Funding Group shows leverage, excluding Sante and is 2.22x, within our target range of less than 2.5x and interest cover remains strong. Fitch has recently reaffirmed its BBB- investment-grade rating for the Funding Group. We have adequate liquidity in place for the purchase of the National Capital Hospital in FY '27 and leverage is expected to remain within our target range of less than 2.5x. During the period, we successfully refinanced our key syndicated debt facilities, extending tenure and reducing our margin by 30 basis points. While base rates are increasing, our weighted average cost of debt has declined 20 basis points since 30th of June 2025, reflecting the refinancing of our facilities at these lower margins. We remain reasonably well hedged with 65% of our debt hedged at an average base rate of 3.65%, which is below current spot rates for the second half of the year. Moving to Ramsay Sante's debt position on Slide 29 and it remains well supported by its own separate funding arrangements with tenure extended significantly over the last 12 months. The business has EUR 391 million of liquidity available with leverage of 5.3x and the company is focused on improving cash flows and driving cost out and efficiency programs to reduce leverage over time. Turning to Slide 30 and our focus is on improving capital management, cost discipline and cash flows across the group. First, we are improving capital allocation and returns. A range of programs are underway to recycle capital into higher returning projects of the business and lift utilization of existing facilities and assets. In the overseas business, we will drive capital discipline and focus on maintenance projects and the optimization of service and assets. Second, we need to strengthen both operating and investing cash flow. We have multiple initiatives in place to improve working capital with revenue cycle management, cost out and efficiency programs being a key focus. We are also reviewing capital spend and we'll be pushing all these initiatives harder. In the near term, our priority is maintaining our leverage and our credit rating at current levels. Looking at capital expenditure in more detail on Slide 31. Our focus is on capital discipline with CapEx modified for the current environment with both U.K. and Ramsay Sante spend lower in local currency. Group CapEx increased $27 million between periods in constant currency terms due to higher Australian development CapEx with focus on development projects increasing procedural capacity in Joondalup and Warringal. We have reduced the full year CapEx range to between $755 million to $795 million, which is $40 million below the previous range to reflect the lower spend. I will now hand you back to Natalie to talk about the outlook. Natalie Davis: Thanks, Anthony. So to recap briefly, our strategic priorities remain clear: transforming our market-leading Australian hospital business, strengthening our capital discipline and improving capital returns across the portfolio and evolving our culture of people caring for people to innovate and drive performance. Our financial year '26 full year results are expected to reflect the following: in Australia, we expect continued EBIT growth momentum, driven by increased activity in priority therapeutic areas, revenue indexation, cost focus and partial mitigation of the impact of the new Joondalup funding mechanism. In our U.K. hospital business, we expect NHS activity in the third quarter to remain negative compared to prior period due to NHS budget constraints for the remainder of the U.K. fiscal year ending 31st of March. Ramsay U.K. remains well positioned to support the U.K. government's objectives to reduce waiting list and has a strong pipeline of patients through its outpatient clinics when anticipated additional funding is made available in the new NHS fiscal year from the 1st of April. For Elysium, we'll remain focused on improving performance and expect the turnaround to continue to gain traction over the second half. In Europe, we expect activity growth to continue in the second half, driven by day admissions, partially offset by the impact of the French 3-day doctor strike in January. Our net financing costs are forecast to be $590 million to $610 million and our underlying effective tax rate is expected to be approximately 35%, given the higher tax rate in Ramsay Sante. Group CapEx guidance has been reduced with spend in the second half to be lower than the first half. Finally, the dividend payout ratio for the year is expected to be 60% to 70% of underlying net profit after tax and noncontrolling interest. Overall, I'm very proud of the progress we have made and the commitment of our team members to providing excellent care for our patients while we transform and strengthen the business for the future. And with that, I'll open up to questions. Operator: [Operator Instructions] Your first question comes from Lyanne Harrison of Bank of America. Lyanne Harrison: Congratulations on a very strong result for Australia. What we saw compared to the results, the first quarter results that you mentioned at the AGM, we certainly saw an acceleration of growth, both at revenue and EBIT in the second quarter. What are your expectations as we are in third quarter now and then for the fourth quarter as well? Can we expect that revenue growth and that EBIT growth to continue to grow at a faster rate? And what would be supporting those? Natalie Davis: Thank you, Lyanne, and thank you very much to the whole team in Australia for really focusing on growth and performance momentum over the half. I think what we've guided to today is really looking at year-on-year EBIT growth momentum continuing throughout the year. I think it's important to remember that there is seasonality in Australia in some of our businesses, it works the other way. So we do tend to have a lower EBIT result in the second half because of January when a lot of doctors are on holidays and we don't do as many surgeries in the business as well as Easter has a smaller effect. So what we're guiding to is the year-on-year EBIT growth momentum will continue and we're not saying anything more specific than that. Lyanne Harrison: Okay. And as a follow-up, you've renegotiated some of your PHI contracts over the last few months and with some good fee increases. Can you comment on -- we've seen PHI premium increases in the vicinity of -- it's going to be about 4% or a little bit more from April of this year. How will those increases be captured in the fee terms on the contracts you've already negotiated? Natalie Davis: Thank you for the question. And it's been very pleasing to see that Australians have kept up their private health insurance coverage even through significant cost of living pressures. I think the minister when he approved the latest round of premium increases acknowledged the very significant cost increases and cost pressures that the private hospital sector is facing. And we would expect those premium increases to be passed along to private hospitals to cover those cost pressures. And the minister has talked about the benefits payout ratio having decreased over time since COVID and his expectation that, that would increase. And so we will be talking to all our private health insurer partners to ensure that the revenue indexation we receive on an ongoing basis reflects our genuine cost pressures. And those pressures are real and they will continue into the medium term. Operator: The next question comes from Andrew Goodsall at MST Marquee. Andrew Goodsall: Just a focus on the U.K., if I may. I guess just with Elysium, just obviously, you're doing some performance improvement there. But just wondering whether you can see that as a permanent resolution to something that might be more structural? And then secondly, on U.K., just I saw that the NHS has got this idea of a sprint to the end of the financial year with additional elective surgery, but that's not reflected in your comments. So just wondering what your thoughts were there as well. Natalie Davis: Thank you for those questions. So focusing on the U.K. and I'll take each business separately. With Elysium, we completed last year a very significant performance diagnostic and the team has gone about implementing that under the, first of all, the leadership of Nick Costa and now Joe O'Connor since he joined in January. We see a very significant improvement potential for Elysium from the current performance, which is very weak. We have focused a lot over the last 6 months on cost reduction. So central cost reduction. We've now done 2 phases of reducing FTE in that business. We've focused on reducing agency costs. And importantly, we focused on decreasing the number of available beds. And the demand that I think we've experienced throughout the half has probably been weaker than we originally expected. And so you see we've closed 163 beds in the half and we will continue to look at potentially site closures and putting properties up for sale to make sure that the services we provide really match the demand from the sector. However, having said all that, we see significant potential for us to turn around the performance and to continue focusing on both the top line through providing high-quality services for very complex patients and making sure that our fees reflect the quality and the complexity of the service we provide, improving our conversion rates, which we have improved in the half, but there's more opportunities to do that when we get a referral to making sure that we convert all of those referrals and continuing to focus on costs and we continue to see more potential for that. So we continue to be confident that, that turnaround is continuing to gain traction and we saw an improvement in performance towards the end of the first half. On the U.K. and what's happening with the NHS, we're certainly seeing -- from the end of the first half, we're certainly seeing a step back in activity across our hospitals. A number of our hospitals have activity management plans in place. In some cases, where those plans have been in place, we have managed to get effectively separate contracts to fund further activity above that activity plan level. But overall, as we said, we expect negative NHS activity in quarter 3 and then we're well positioned when we anticipate there'll be more funding provided from April to grow our business over there. Andrew Goodsall: And just a quick one for Anthony. I appreciate you breaking up the Funding Group debt. But just with the refis, just if you had any sort of separate costs associated with that and if they were taken through the P&L? Anthony Neilson: Anything was small was in the nonrecurring items for that. And we did take some items capitalized into the balance sheet. Operator: The next question is from David Low at UBS. David Low: Natalie, if I could just start with Joondalup. So you're quite specific as to the headwind there. We can back calculate from the comment about 40 basis points better. But just wondering relative to your expectations there in terms of the headwind, whether anything has changed, whether you've been able to mitigate it more than expected. Natalie Davis: Yes. So last year, we talked about the new funding mechanism at Joondalup Public and the expected impact that would have. We also said we would partially mitigate that impact on the campus itself. And we have continued to do that. And I would say that the mitigation is in line with what we're expecting. And there's a number of things we've done there. We've worked to increase activity with the government. WA like many states across Australia, experienced a very strong flu season. And so we had additional capacity that has been funded at the beginning of the financial year in that flu season. But we're also continuing to work on our operational initiatives and there's been a big focus, in particular, on reducing agency at Joondalup, which we successfully at the end of the half, ran what we call a professional pathways program. And that program attracts nurses out of nonhospital sectors, so sectors like aged care into the hospital system. We had a very successful recruitment drive. And I think around 50 nurses have started with us at the hospital, which will enable us to reduce agency at that hospital. We also -- last week, we also had the pleasure of opening Joondalup Private. So that's the expansion of the private facilities. It's a very significant expansion. It creates for the first time, dedicated private theaters in that campus. And we're now focusing on ramping up the growth in the private part of that hospital. So overall, I'd say the mitigation that we expected is on track and as we thought. David Low: Okay. Perfect. Look, the other question I had was, I think certainly, the revenue growth in Australia was a positive surprise. Just wondering, we can see the activity that you've broken out there and back calculate price increase. But within the activity, is mix a positive driver there? And can that trend continue on into this calendar year? Natalie Davis: Yes. I think what we saw in the half was pleasingly a focus by our teams on higher acuity work. And you can see that in the activity numbers, so not just in admissions, but in EBITDA growth. And the fact that our EBITDA growth was in line with admissions growth, I think, has driven that positive mix benefit. It came through on both surgery, but it also came through on some of our medical admissions. And so that's something that continues to be a focus for us. We're very focused on utilizing our theaters as much as we can and thinking about our theater utilization in terms of catchments so that our major hospitals are very much focused on attracting high acuity work. And then some of our smaller day centers and smaller hospitals can then attract the lower acuity work. And so we're trying to really optimize the way we're thinking about our portfolio within catchments to focus on mix. David Low: Okay. Great. So it sounds like that can continue as a positive trend second half... Natalie Davis: It will continue to be a focus for us. Operator: The next question is from Craig Wong-Pan at RBC. Craig Wong-Pan: Just wanted to understand about the Australian CapEx. The guidance there has been revised and your comments about being disciplined on CapEx. Just wanted to see if you could provide any comments about how we should think about the run rate of CapEx going forward? Natalie Davis: Thank you. So what we're really doing and I just explained, I think the catchment thinking that Stuart Winters, in particular, who's our new Chief Operating Officer, is bringing to the business. We're continuing to really focus on existing theater utilization, but we're also really thinking through our portfolio and how do we -- for example, in Lake Macquarie catchments, we opened Charlestown, which is a day surgery that was operationally separately managed to Lake Macquarie, which is our big hospital there. They're now all under the same leadership, and we're now developing a catchment strategy across that. The other thing that Stuart is really focused on is thinking through how do we better use the physical infrastructure that we have in our existing hospitals to be able to add procedural capacity effectively and efficiently. And I think St. George is a good example of this where we're doing a development and we're effectively taking existing space within the hospital that's an ICU and converting that into theater space, which is linked to the existing theater complex. And we're moving ICU into an area that was full of beds that were not being utilized. So what we're trying to do is, as we've said over the last year is focus very much on procedural capacity, adding beds by exception and utilizing the existing assets that we have within a catchment fully before we're increasing procedural capacity. So you'll see very selective and strategic developments from us going forward. We're not yet guiding to next year on that. Craig Wong-Pan: Okay. And then I just wanted to move to the clinical trials research and development network that you talked about. Could you just provide some more details around that and specifically the benefits that the Ramsay Group gets from having that network? Natalie Davis: Yes. Thank you. It's a small part of our business, but it's one that we're all incredibly excited about. So with clinical trials, we have traditionally run a site-by-site model and we had around about 20 sites that were providing capacity to doctors who wanted to do research in our hospitals. To give you an example, it's very common and important in cancer care. So a lot of patients when they're coming for treatment to their doctors are looking for the latest chemotherapy drugs and treatment. And if we can provide access to clinical trials, we can provide actually leading treatment for patients. And we can also ensure that we're attracting doctors. And we can actually see that doctors who do clinical trials with us actually have a higher NPS with Ramsay. So it's a small part of the business at the moment. I think it has a significant potential and it's important to reinforcing our core hospital business because it does mean that we can provide leading care to patients and also attract more doctors to working with Ramsay. Craig Wong-Pan: Okay. Makes sense. And then just my last question, one for Anthony. The comments you made about improve or having cash conversion as a key priority. Just trying to understand what you're focused on here just about faster collections or something about like claims? Yes, could you just give some color on what you're trying to do there? Anthony Neilson: Yes. Thanks, Craig. Yes, look, definitely, receivables improvement is a big driver that we have there in the revenue cycle management, looking at all of our systems and processes, both from an Australia and an international perspective to get the days debtors down and the improvement through the billing cycle and cash collection, accuracy of billings, all of those sorts of things are a big driver that flows straight through to the bottom line if we can improve that working capital position. Operator: The next question comes from David Stanton at Jefferies. David Stanton: Impressive 5.7% growth in Australia in surgical admissions. Firstly, bottom line, what's driving that? Is it the market growth at that level? Or do you think you're taking share? And if so, how is that happening? Natalie Davis: Thank you, David, for the question. We think we're probably taking market share at the moment when we look at our growth relative to the market. I don't know if there's more market statistics coming out tomorrow, so we'll see how that goes. I've spoken previously about the focus we're doing on growth across our hospitals. So over the last 12 months, we've been providing to all of our hospital CEOs data that's very easy for them to use, which enables them to do a few things. First of all, it looks at every therapeutic area by doctor and it looks at theater utilization. It gives an indication of profitability of that work. It also gives an indication of to what extent is that doctor canceling lists and what period of time do they let us know if they are canceling a list because the more time we have, obviously, the more we can then fill that theater with other work with other doctors. The other data set that we're giving to our hospitals is around catchments and more data around the specialists in that catchment that do work with us and don't do work with us as well as the GPs and the ones that are referring to specialists who work in our hospitals and other GP practices that are not. So that's been new. It's all in one place and it enables our team, therefore, to go and have conversations with doctors where we know we need to increase their utilization. And it also enables us in terms of our business development managers and our GP liaison offices to be much more targeted around where they're spending their time to be able to attract new doctors to come and work with Ramsay. And I think the other thing that's been helping us over the last 6 months is obviously this very strong clinical reputation that we have, but also our stability as a very strong business with ownership of our hospitals. And I think that's also been helping in the current environment to attract more doctors to come and work with Ramsay. And we're continuing to really focus on how do we improve and strengthen our doctor proposition and our proposition in our therapeutic areas that we're focusing on. David Stanton: Understood. And is it fair to say, given your previous commentary that with these upcoming EBAs, you believe that they'll more than likely be covered by the increases in PHI premiums? Or what should we be thinking there? Natalie Davis: So we continue to see wage pressure out into the medium term and that's coming through from public sector nursing EBAs and we have to be competitive to be able to attract the nursing workforce that we need in every state. The one that we are negotiating at the moment is in Victoria and that's obviously against the backdrop of a very significant public sector EBA increase of 28% over 4 years, but significantly backdated to November, December 2027 calendar year. So we expect continued pressure on wages across Australia. And we will continue as we negotiate with private health insurers to cover that cost pressure and it's very genuine it's being experienced by the whole sector in terms of the revenue indexation that we're receiving. In some cases, we have now got dynamic -- what we call dynamic indexation in place. There's 3 contracts where we do this and we're talking to more health insurers about this. And what that basically does is once we agree the first year indexation, the second and the third year indexation in the contract are linked to externally referenced cost benchmarks. So that those cost pressures when they're genuine and they're sector-wide will be reflected in our revenue indexation. And the importance of that apart from ensuring that we're paid fairly is also freeing up management time to actually look at the structure of these funding agreements, the way we're providing care and innovating our care models and innovating the funding to support that. So that's the opportunity for us to work with our private health insurer partners to really innovate the proposition for Australians for private health care. David Stanton: Very clear. And finally from me, we've talked to -- or you talked -- or the company talked to digital upgrades. Can you give us sort of an update on spending options and timing potentially? Natalie Davis: Thank you. So we've been in a bit of a reset, I think, on digital and data transformation. And as we said last year, while we did that, we focused on effectively maintaining and even possibly reducing the spend in that team. We've now got Dr. John Doulis, who's joined us as our Chief Technology Officer. John comes from HCA hospitals in the U.S., which I would say is one of the leading hospital health systems when it comes to thinking through how to really use technology and digital technology to drive better patient experience, team experience and business outcomes. So John joined in early November. He's now at the point where he's got some very clear priorities for where he's going to work with the team on. And they're very much aligned with the Big 5 initiatives that we've been talking about in our hospitals. So they're very much linked to operational improvement. The top 3 are really around revenue cycle management and in particular, upgrading our patient admin system or PAS, which is very outdated. That will enable us to speed up our revenue cycle management system and also improve accuracy in that system. The second one is around workforce and introducing a smart rostering system. That's something that will free up a lot of time around nurse unit managers who spend a lot of time on rostering at the moment with 3 legacy systems. It's a pretty manual process. It will also give our team more flexibility. And the third one is thinking through how do we use technology to really track prosthesis and consumables as they're being sourced into our hospitals and used in our hospitals and then charged to private health insurers. So very clear priorities and we'll continue to keep everyone updated as to our technology road map. Operator: The next question comes from Davin Thillainathan at Goldman Sachs. Davinthra Thillainathan: Just wanted to think through the Australian business and your revenue growth that you're demonstrating there. I think in the first quarter, you did a growth that was about 6.5%. And then in the half, that stepped up to 8.2%. So clearly, some better momentum happening in that second quarter. Now my understanding was in the first quarter, you had benefited from some high flu admissions and I wouldn't have expected that to continue. So perhaps could you talk through any sort of material changes that occurred over the second quarter to allow that level of growth to step up, please? Natalie Davis: Yes. So that is true. So we do benefit in that July to August period from winter flu season and that was a particularly serious flu in terms of the impact it had on Australians right around the country. So we did see more medical admissions and longer length of stay associated with those admissions. But as I've said, we continue to experience good growth through the half. And I think that really was a continued focus by our hospital teams on recruiting doctors and utilizing theaters. And you also would have seen in the results, we also shared that our public work increased a little bit. Some of that was at Joondalup, but some of that also was in New South Wales. So that continues to also be an area of focus. So I don't think there was one thing I can point to, to say it was due to that. It's a focus for us and we really continue to focus on that going forward in every major hospital and catchment that we have. Davinthra Thillainathan: Great. And my next question is on your CapEx, which you have lowered in Australia. I understand part of that is clearly you're utilizing your existing facilities better. But just thinking about other changes you've made with CapEx delivery. As an example, I noticed that your Joondalup CapEx was also lower than your budget. Could you perhaps talk through any other changes you're making on the actual delivery of all these sort of growth initiatives? And perhaps is that what's sort of helping that CapEx lower as well? Natalie Davis: Yes. I think Joondalup was a very well-delivered project. We had a good delivery partner there and it was delivered on time and on budget, actually slightly earlier and that's hard to do. So I think that was a really good example of working well with a delivery partner. But most of the decrease in our guidance on CapEx is really about us as a leadership team, myself and Anthony, who are in the capital forum that we've described in the document, really stress testing with the teams around do we need to do this development proposal and do we need to do it right now and really encouraging the teams to, first of all, focus on utilization before bringing business cases to us. So it really is more that rigor around the way we're approving capital projects. Davinthra Thillainathan: Yes. And my last one, just trying to understand the sort of digital and data spend in your P&L. I think you had about $90 million in FY '25. Can you sort of help us understand what was spent in the first half and what the expectation is for FY '26, please? Natalie Davis: Yes. I think we've said before that digital and data spend will be at or below, if we can, that level of last year and we've said that we're on track. We're not going to split that between halves. Operator: The next question is from Laura Sutcliffe at Citi. Laura Sutcliffe: Firstly, on the U.K., is the volume headwind that you've seen in the third quarter enough that you could potentially end up with revenue in the second half being flat or going backwards versus the first half? Or do you still expect that revenue to grow in the second half over the first half in the U.K.? Natalie Davis: So we're not guiding to revenue in the U.K., but I will make a few comments. We do -- as we've said in the release, we do see NHS activity being negative in the third quarter. And then we're well prepared as we anticipate new funding to come in, in quarter 4 to grow NHS activity. But we're also focusing on acuity. So acuity EBIT, and that's supporting the results that you've seen in the first half. And the team is also focusing on growing private and that includes both self-pay and our agreements with private health insurers. So all of those factors we'll be focusing on. And of course, remembering seasonality in the U.K. is the opposite to Australia. So we see a weaker summer over there, which impacts the first half. Laura Sutcliffe: Are those activities you just mentioned the mitigation activities that you were mentioning earlier? Or is there a bit more to the mitigation piece? Natalie Davis: Yes. So the mitigation is around growing our private work. So we focus very much on NHS work in that business, but we are putting more and more focus on private work, which you can imagine is more profitable for us than NHS work. We are focusing on acuity of mix and we're also focusing on operational efficiencies and cost mitigation. We'll be stepping up the cost focus as well given the uncertainty on the NHS funding front. Laura Sutcliffe: Okay. That's clear. And then secondly, looking at some of Sante's reporting and the proposed distribution, could you tell us if any of the mechanics around change of control there would potentially leave you in a position where you had to make payments to Sante or others? Natalie Davis: So as Anthony explained today, the Sante debt is nonrecourse to Ramsay Health Care. And so the debt that we hold as the Funding Group relates to Australia and the U.K. businesses. So when you think about the separation of Ramsay Sante from Ramsay Health Care, in this case, Ramsay Sante is already a separate listed entity on the Euronext. It already has its own governance structure. It has its own debt structure. And so the approvals will be happening mostly in the Australian context around our shareholders and putting proposals to them through a scheme of arrangement around thinking through whether there's value to Ramsay Health Care shareholders from effectively holding these 2 entities separately. And we do think that there is a strategic logic and it's quite strong logic around effectively Ramsay Sante is an independent entity focusing on their strategy of integrated health care in European markets and Ramsay Health Care really focusing on the priorities that we've laid out today and in particular, the continued transformation of the Australian business. So I think it's important just to understand that there's -- the debt of Sante is nonrecourse and there's no guarantees from Ramsay Health Care. Laura Sutcliffe: Okay. I just thought I would clarify because the potential amount they mentioned in their documents is quite large. Operator: The next question is from Steve Wheen at Jarden. Steven Wheen: I just had a question with regards to the Victorian EBA. We've seen your offer that you've provided to the nurses. Just trying to understand what the reaction to that offer has been and whether or not you're getting recognition from the PHIs as to that step-up that happens sort of in the back end, I think, of '28, where you're mimicking what happened in the public EBA in Victoria? Natalie Davis: So we're in the process at the moment of negotiating the Victorian EBA with the unions and with our team. And so I won't be commenting today on how that negotiation is going. Steven Wheen: Okay. Then can I ask a bit of an extension of the EBA question, which is you've mentioned in your presentation from an outlook perspective that you're attempting to close the funding gap from payers from the cumulative gap from payers versus the cost inflation. Can you talk to how that is possible? I mean, I can see with the arrangements that you've got in place already that you're covering current inflationary pressures in FY '26, but how do you claw back some of those historical underpayments from the insurers? Natalie Davis: Yes. So I think the discussion that we have with our private health insurer partners and this is a discussion that's really happening, you can see at a sector level in regards to private hospital viability. But overall, the premium increases that have been approved for private health insurers over the last 5 years since COVID have not fully been passed through to private hospitals and that benefit payout ratio has decreased over time. Now we believe that those premiums that Australians pay should be passed on to hospitals and the hospital sector is experiencing very genuine cost pressures. And so that is the discussion that we have with our private health insurer partners. And we've experienced, as I've described, an improved level of revenue indexation, but we haven't yet managed to achieve that closure of that cumulative historic gap. And that is a challenging discussion, but we will continue to strive to achieve that. And quite often, as we're entering into new contract renewals for a number of years and looking at partnership opportunities and talking about dynamic indexation in the outer years, that is the opportunity for us to work through that cumulative gap because you can't really agree to dynamic indexation unless the base is correct or the base is corrected over time. So it's a challenging discussion, but it's one that we continue to have. Steven Wheen: Okay. Great. And just some points to confirm. The coverage that you're getting from the insurers at the moment in FY '26, how much line of sight do you have for that coverage to extend beyond FY '26 relative to the EBAs that you've put in place? Natalie Davis: So we always -- when we negotiate with private health insurers, we always look at the -- effectively the cost pressures that have been effectively locked in through EBA arrangements, but we also do forecast out what we expect EBA pressure to be. And if for some reason, the EBAs end up being at a higher level, we will always go back to the private health insurers to discuss that. I think the dynamic indexation that I was describing is a way that, that becomes a very fair discussion because it's referenced to external benchmarks, which really do show whether there is genuine industry-wide cost pressure in the system. Steven Wheen: Okay. So knowing what you know now, you can still say that your PHI coverage extends into FY '27? Natalie Davis: No, that's not what I'm saying. I'm saying there's a series of contracts that we have with private health insurer partners. We're in the process of negotiating one at the moment in the second half. And so it's a rolling process. In some cases, we have existing contracts in place, but the 3 examples I've given on dynamic indexation that's in place in the outer years. But in others, we have contracts that will come up for renewal in the next year or 2 and we'll have to renegotiate that as well. So it's a dynamic process. Steven Wheen: All right. Maybe could you indicate how many of the insurers are on these -- I mean, you said 3, but are they the big ones? Or are they the more smaller ones? Natalie Davis: Yes. We've said before that the 3 that we've got at the moment are not the major insurers. Steven Wheen: Okay. Last one for me. Just with regards to the Joondalup offsets, was there any evidence of that in first half? Or are we expecting that sort of more second half and beyond? And then in addition, is there any way we could sort of get a better understanding of the sequencing of data and digital because obviously, the key point for the stock at the moment is the turnaround in margins in Australia and that can be a bit distorting unless we know what that sequencing looks like between first half and second half? Natalie Davis: So the Joondalup mitigation, I've described in, I think, a previous question. So we're on track in terms of what we planned for Joondalup. In the first half, there was a benefit from public activity, which was due to the flu season and the pressure that was putting on the health system in WA. We then obviously, over the half, focused on putting in cost and operational initiatives, including that focus on agency reduction, which we recruited that group of nurses into Joondalup around November, December, takes a period of time, obviously, for them to be trained so that we can reduce agency spend. So we're continuing to focus on it and the flu impact won't be repeated in the second half, but you'll see other operational initiatives having more impacts like the one I've just described. The digital and data OpEx, I think what we've said is this year is really one of a reset. We're keeping that spend in line with the current year or less. We're very much -- John is really focused on his priorities and developing that road map going forward. We're on track overall for the year. And we really do understand as a management team that we're aiming here to get year-on-year margin growth in the Australian business. And so we will think about very much the digital and data investments we make, ensuring that they're connected to operational initiatives that have payoffs so that we can then reinvest in further digital investment as it's required. But understanding that over time we are all focused on improving the performance of the Australian business. Operator: The next question comes from Saul Hadassin at Barrenjoey. Saul Hadassin: I'll try and stick to 2 questions. First one, Natalie, just you mentioned, I think, at the AGM that theater utilization had improved by about 1% in the first quarter of fiscal '26. I'm just wondering if you had any comments about where that went in the second quarter of the fiscal year? Natalie Davis: Yes. I thought we had given you that number and it was -- we've given you a 12-month rolling number. 130%, so 1.3% in the last 12 months in terms of theater utilization. So that's on Slide 9. Saul Hadassin: Sure. So the assumption being that it's improved into the second quarter versus the first? Natalie Davis: So we're seeing overall improvement in theater utilization and that's including the impact of new theaters that we've opened over that time. So obviously, as we increase admissions and IPDAs, that fills the existing theaters, but then we open capacity and we have to fill up that new capacity as well. So the 1.3% improvement over the last 12 months, I think, was a very strong result given that there was a very large number of new theaters opened in that time, 16 new theaters. Saul Hadassin: Sure. And then just a follow-up. I note in the presentation of the wholly owned funding group result that labor costs and contracted costs on a constant currency basis was up 6%. I just wanted to see whether there was any disparate growth rates between the U.K. and Australia in that? Or is that reflective of sort of both regions in terms of their labor cost inflation? Natalie Davis: I'm going to pass that one to Anthony. Anthony Neilson: Yes. Thanks, Saul. Look, there's nothing materially different. It's largely reflected between both regions with similar numbers, give or take, in the wages. Operator: The next question comes from Sacha Krien at Evans & Partners. Sacha Krien: Just a bit of an extension to one of the earlier questions. It looks like you've removed the reference to revenue indexation being greater than or equal to labor cost inflation. I'm just wondering if anything has changed on that front. And I think your labor cost growth in Australia was circa 7.8 or something like that? Natalie Davis: Yes. So the 7.8, I think you're referring to is the growth in the total labor dollars. And so that includes both activity and wage inflation as well as any mix impact. And activity was in the region of 3.1, excluding the impact of Peel. So you can get a sense from that as to what's happened with wage inflation and similarly on the revenue line in terms of Australian revenue and that level of implied indexation, noting that there's always a mix impact as well. Sacha Krien: Yes. But does that previous statement around '26 and '27 still stand? Natalie Davis: So I think what we said in the last statement was saying is a leading indicator that the revenue indexation was in line with cost indexation and that continues to be the case in the half. So we're definitely experiencing improved revenue indexation relative to both what we paid historically and relative to cost indexation. But as I've described on the call, it's an ongoing focus for us and we need to continue to make sure as we renew contracts that we're taking that. Sacha Krien: Yes. I guess I'm just wondering, I think that statement previously applied to '27 and I can't see it unless I'm missing it. So I mean, are you suggesting it's maybe been a little bit harder to close the gap than expected? I'm just trying to [indiscernible] if anything has changed. Natalie Davis: I think you're reading into something that wasn't there in the first place. So that comment at the AGM was in relation to the performance in the first quarter. It wasn't an outlook statement into F '27. Sacha Krien: Okay. And then second question, just on the U.K. I'm just wondering the proposed NHS tariff increase, I'm just wondering if there's any scope for that to be increased as we've seen in previous years given some of the award wage increases that have come through? Natalie Davis: Yes. So I think that is a good question. So we saw effectively the tariffs being guided to 0%, 0.03% in the U.K. That reflected broadly speaking, a 2% assumption on wages in the U.K. in the health sector, offset by an efficiency assumption of about 2%. I think a few weeks ago, we've seen a wage number come out of the NHS that's more likely to be around 3%. And so historically, when that's happened, at least over the past 2 years, we have seen effectively a backdating tariff increase. It may not be the full amount of the difference. It's not guaranteed. So Nick Costa would say that there have been some years where that hasn't been played back and backdated. So we have to wait and see. But in the past 2 years, there has been an adjustment if wages have been higher than what has been assumed, but we don't know yet. Sacha Krien: Okay. Can I sneak one more quick one in on the U.K.? Just in terms of the NHS activity, are you expecting a full rebound into '27 given some of the -- I mean, I guess, the government's recommitment to sort of closing or reducing the waitlist and using private hospitals to do that? Natalie Davis: I think it's very hard for all of us to really know. It depends very much on the budget in the U.K., therefore, the budget that gets given to the NHS. As you know, this government has previously been very clear that their election priority is to reduce waitlist and that there's a very important role for the private sector to play in doing that. And we are the largest provider of NHS services in the U.K. So we are well positioned, but it's very hard for us at this point, I think as it is for everyone in the U.K. to be certain of what will happen. It really does depend on budget outcomes and political outcomes in the U.K. Operator: The next question comes from Andrew Paine at CLSA. Andrew Paine: Congrats on the results. Just wanted to circle back to Elysium. Really just wanting to know if you think the current performance there is leading to a shift in your longer-term plans for that business? Or do you think you continue to focus on adjusting cost base and keep things like growth CapEx on hold? Natalie Davis: So for the moment, the posture is that the focus is on performance improvement. So any growth CapEx is on hold, continues to be on hold. And the focus very much is on making sure that we're managing costs and managing the services we provide to the local levels of demand. There's also a focus in the turnaround around thinking through how we actually improve the offers that we're providing into the market. So we've previously called out neuro as an area where we think we need to reposition our services towards a slightly lower complexity, lower acuity cohort where there's a bigger demand pool. The team is also focused at the moment on bespoke packages. And this really is, I think, somewhat unique to Elysium because we have a very, very good reputation of providing care to very complex individuals. And so in a number of locations, we are talking to local authorities to take individual patients with very highly complex needs. And those packages are developed with pricing that's commensurate to the effort that we need to put and the care that we need to put around those individuals. So I think we have more work to do in the future around thinking through how do we strategically position our services in the market. But very much at the moment, the focus is on turning around the business and continuing to gain momentum from that in the results. Andrew Paine: That's great. Yes, that makes sense. And just another quick one. Just any numbers you can give us around the expected contribution of National Capital. I know you said it's expected to be EPS-accretive in the first 12 months, but if you can give us any numbers, that would help. Natalie Davis: Yes. At this point, we're not giving out any numbers. So we're very excited about welcoming the NatCap team to the Ramsay family. That will happen, we think, around the end of July. At the moment, we're in the transition planning period, but it's a very attractive catchment area with high rates of private health insurance. It has a great leadership team in place. They have a good reputation with doctors and they have -- they do work in the complex therapeutic areas that we do and they have a very strong relationship with the Canberra Health Service. And so NatCap is very much a hospital which is very akin to some of our major and very successful hospitals around the country. Operator: The next question comes from David Bailey at Morgan Stanley. David Bailey: The Joondalup headwind was about $14 million. So I'll just touch on an earlier question. How much was the benefit from lower digital and data spend in the first half? Natalie Davis: So as I've said, we're not giving any half guidance on our spend. So we're on track to basically maintain or slightly lower our spend on digital and data for the year, but we're not providing any specific guidance on the half. David Bailey: Okay. But it says in the pack that it was lower. How much lower was it? Natalie Davis: I'm not providing any specific numbers on digital and data. David Bailey: Okay. Fair enough. Okay. In terms of the commentary around PHI increases, it sounds like it's offsetting wage inflation at the moment. You made the comment that participation is still holding up, but there is a significant increase in the proportion of exclusionary policies, which looks to be a drag on utilization. If we think into fiscal '27, if price is matching your cost inflation and there is potential for lower utilization on the fact that people are downgrading their policies, do you see a situation whereby you can grow your EBIT margins at 60 basis points implied by guidance and potentially 100 basis points at the top end? Natalie Davis: Thank you for the very detailed question. I think when we look at private health insurance coverage in Australia, what we have seen is downgrading, as you've just mentioned, particularly from gold into silver and bronze policies. But the overall rate of hospital level coverage is staying at around about the 45% level. Now the significant impacts of that downgrading are being felt in particular in maternity and mental health that are only available on that gold level coverage. And that has probably a very significant impact, particularly for younger people looking at whether to take up private health insurance because those 2 features are important. And so we're very much a strong participant in the sector-wide discussion that is going on around how do we maintain the proposition for Australians around affordable private mental health and maternity level coverage. And I won't be going on specific -- any specific guidance on margin in the outer years apart from saying that it's our focus as a management team and we're making progress. The transformation is underway and we will continue to focus on lifting the performance in the Australian business with all the challenges that we're facing, but also the opportunities that we have as Australia's largest private health care company. David Bailey: And just one final one for me. Just the Fair Work Commission work value case, just the status of that and expectations around potential further wage increases duration and from when they could potentially be implemented as well? Natalie Davis: So that at the moment, the fair work value case is before the Fair Work Commission. So we're also waiting to see where that eventuates. We are expecting, I think, a level of phasing to any increase that is approved in there. So -- and I previously said at the moment, when you look at our wages, we are above award wages. And we, therefore, expect that and the combination of phasing really to mean that the pressure from that in terms of sector-wide and our wage pressure will be more in the outer years rather than in the short term. So I think that might be the last question. Operator: And it was the last question, if you'd like to make any closing remarks. Natalie Davis: Thank you. Well, I wanted to thank you all for joining the call and for a really great set of in-depth questions on our business. As you've seen in the results, I laid out 3 very clear priorities for Ramsay Health Care and we are well underway in terms of the work we're doing as new group executive leadership team to really capture the potential of Ramsay Health Care and we look forward to engaging with you all on that journey. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to Kodiak Gas Services Conference Call and Webcast to review fourth quarter and full year 2025 results. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Graham Sones, Vice President, Investor Relations. Thank you. You may begin. Graham Sones: Good morning, and thank you for joining us for the Kodiak Gas Services webcast to review fourth quarter and full year 2025 results. Participating from the company today are Mickey McKee, President and Chief Executive Officer; and John Griggs, Executive Vice President and Chief Financial Officer. Following my remarks, Mickey and John will review recent developments, discuss our financial results and 2026 outlook, and then we'll open the call for Q&A. There will be a replay of today's call available via webcast and also by phone until March 12, 2026. Information on how to access the replay can be found on the Investors tab of our website at kodiakgas.com. Please note that information reported on this call speaks only as of today, February 26, 2026, and therefore, you're advised that such information may no longer be accurate as of the time of any replay listening or transcript reading. Comments made by management during this call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views, beliefs and assumptions of Kodiak's management based on information currently available. Although we believe the expectations referenced in these forward-looking statements are reasonable, various risks, uncertainties and contingencies could cause the company's actual results, performance or achievements to differ materially from those expressed in the statements made by management, and management can give no assurance that such statements or expectations will prove to be correct. The comments today will also include certain non-GAAP financial measures. Details and reconciliations to the most comparable GAAP measures are included in yesterday's earnings release, which can be found on our website. And now I'd like to turn the call over to Kodiak's President and CEO, Mr. Mickey McKee. Mickey? Robert McKee: Thanks, Graham, and thank you all for joining us today. I'd like to begin today's call, as we do with all meetings at Kodiak by discussing safety. I've said this before, but our goal is for each of our employees to return home safely to their families at the end of every day. We made great strides in our safety performance in 2025, but our goal remains 0 work-related injuries. I want to thank our safety and training teams who work hard to equip our employees with the knowledge and tools to do their job safely, our customers for embracing our safety culture; and lastly, our technicians who embody our safety-first mindset. 2025 was another record-setting year for Kodiak. We entered the year with a plan to continue to high-grade our compression fleet by divesting underutilized nonstrategic small horsepower units and to exit operations in noncore areas, allowing us to focus on our core large horsepower operations. I'm proud to say that we ended 2025 with 100% of our operations located in the U.S. and with the largest average horsepower fleet in the industry. The work we did high-grading our fleet also allowed us to deliver strong increases in fleet utilization, adjusted gross margins and free cash flow. Given the high margins and stable operations, our core compression business generates predictable, growing contracted cash flows that we reinvest both in our compression fleet and in tools and technologies that set us up for future success. Some of our highlights from the last year include: successfully implementing a new ERP system to provide us enterprise-wide, real-time information in order to make more informed business decisions. Our team did an amazing job with the rollout of the new software. We've been operating in the new system without issue since August 1. And at year-end, we closed our accounting books in record time, an extraordinary execution by Kodiak. Investing further in AI and machine learning technologies to drive operational excellence and better customer outcomes. We've deployed our custom large language model to help our technicians quickly diagnose issues encountered in the field and are using agentic AI to source repair parts across our system. Our technology road map for 2026 includes wearable devices and autonomous solutions to enhance our technicians capabilities, collect more data on our fleet, reduce risk and allow our people to focus on high-value activities. And we also broke ground on a new state-of-the-art training and operations facility in Midland. The new industry-leading facility is expected to be the largest of its kind, allowing us to continue to train and develop the best workforce in the industry. We plan to move in, in May. Financially, we successfully managed the exit of our former private equity sponsor, eliminating any perceived equity overhang. As a recap, EQT owned approximately 76% of our shares after we went public in 2023. Over the last 1.5 years, through a series of secondary offerings, EQT completely exited its Kodiak investment, much earlier than originally expected. We appreciate everyone who participated in the stock offerings. Additionally, we overhauled our balance sheet, terming out a large portion of our ABL. This further reduced our reliance on secured bank debt, increased liquidity and extended our weighted average debt maturity, providing us with enhanced balance sheet strength and financial flexibility. Also at year-end, I'm proud to say that we delivered on the promise we made at IPO and achieved our leverage target of 3.5x. Lastly, we maintained our commitment to return capital to shareholders. We increased our dividend with Q4's declared dividend up 20% year-over-year, and we bought back over $100 million in common stock at an average price of $33.79 per share. In total, we returned over $260 million to our shareholders this year. By all measures, 2025 was a great year for Kodiak. And with the recently announced acquisition of Distributed Power Solutions, we're starting 2026 with a lot of positive momentum. We'll give more details after we close, but I can say that we've received a lot of inbound interest in our new distributed power offerings since the announcement and are already working to procure additional power generation capacity through our existing network of vendors to deploy this year after we close. We think the market will continue to move in our direction as large power consumers are increasingly looking to lock in 10-year plus deals for base power. On to Contract Services, as we have said before, we are really excited about compression. Compression and power are very synergistic and align well for our customers and ongoing relationships. We ended 2025 with $4.35 million revenue generating horsepower. Average horsepower per revenue generating unit was 970, a figure that continues to lead the industry and has increased each quarter since we closed the CSI acquisition. For the year, we added approximately 150,000 new large horsepower to our fleet. Our investments to grow our fleet along with strategic divestitures of noncore units drove our fleet utilization to 98%, another industry-leading metrics. As we will discuss later in our outlook for 2026, despite slowing oil production growth, the outlook for natural gas supply growth remains highly visible. Last year, Permian natural gas production grew 10% or roughly 2 Bcf per day. Keep in mind, this production growth happened in a limited takeaway environment with negative pricing in West Texas for most of the year. Given the increasing gas-to-oil ratios, we expect sustainable gas growth out of the Permian Basin even in a flat oil environment. This favorable backdrop is driving strong compression demand, one of the many reasons why I'm excited about our 2026 capital spending program, which I'll discuss later. Yesterday, we released our fourth quarter and full year 2025 financial results. I'll hit the highlights and let John provide more details. For the year, Kodiak set new records in total revenue, adjusted EBITDA, discretionary cash flow and free cash flow. Total revenue grew by 13% to $1.3 billion and adjusted EBITDA grew by 17%, $715 million. The growth was driven by the outstanding execution of our core strategy by Kodiak personnel and our ongoing investment in organic large horsepower growth and the deployment of our technology and AI initiatives. Our technology advances are the result of several years of development, and we are just starting to see the efficiency improvement of our investment. We've significantly reduced the cost of media repairs to our fleet by using data to identify abnormal operating conditions and address them before they turn into expensive component failures. These early wins give us confidence to continue to invest in technology, allowing us to increase equipment availability and reduce mechanical failures, driving additional value to our customers, and increasing our operating margins. We generated $230 million of free cash flow in 2025 after investing to grow our large horsepower fleet and high grading our overall fleet. Our strong free cash flow led to an industry-leading free cash flow yield and allowed us to reduce outstanding debt and achieve our stated leverage ratio goal of 3.5x at year-end. Now diving into fourth quarter results. We once again delivered year-over-year growth in contract services revenues and adjusted gross margin. Impressively, our Contract Services adjusted gross margin percentage increased 247 basis points year-over-year to 69.2%, exceeding the high end of our guidance. Adjusted EBITDA for the quarter was up 9% year-over-year to $184 million, setting a new company record. Given strong customer demand, historically high industry-wide utilization, and capital discipline in a contract compression industry, pricing conversations with customers continue to be constructive. During 2025, we recontracted approximately 40% of our fleet and exited the year with only 10% of our contracts on a month-to-month basis with the rest under multiyear contracts. While we have a smaller percentage of our horsepower up for recontracting in 2026, the compression market remains tight with horsepower pricing continuing to increase. In our Other Services segment, fourth quarter results reflected a sequential pickup in activity as we had a positive uptick in shop services and station construction revenues. Overall, this segment generates free cash flow with minimal capital investment. Next, I'd like to discuss the evolving natural gas market and increasing lead times for large horsepower engines. Over the next 3 quarters, approximately 4.5 Bcf per day of incremental Permian gas pipeline takeaway capacity is expected to come online. And there's another 7 Bcf per day of additional Permian takeaway pipelines expected by the end of the decade. What's more, we have seen estimates from research firms of more than 2 Bcf per day of in-basin gas consumption for power generation by the end of the decade, including distributed power like DPS and major power plants. This is on top of the highly visible increase in feed gas required for U.S. LNG. After ramping up by roughly 3 Bcf per day in 2025, LNG export capacity is set to increase by another 2 Bcf per day in 2026, with an additional 13 Bcf per day of LNG export capacity expected by the end of 2035. These developments will have a resoundingly positive impact on gas pricing and production in the Permian Basin. A combination of higher in-basin demand, increased takeaway capacity, better pricing and ever-increasing gas to oil ratio is expected to lead to substantial Permian gas volume growth in the back half of this decade. The significant step-up in midstream and compression capacity needed to support the gas growth in the Permian Basin, in addition to the rapidly growing demand for distributed power generation has driven lead times for new large horsepower compression equipment to greater than 100 weeks. The combination of extended lead times and highly visible compression demand has required our commercial team to engage with customers about longer-term plans. We've already begun receiving commitments from customers for new compression equipment in 2027 and 2028. On the supply chain side, we're using our buying power and leading position in the industry to secure new compression equipment and are confident we'll be able to hit our long-term horsepower growth targets despite historically high lead times as we've already secured engine deliveries and shop space into 2028. In total, we expect to deploy over 750,000 new large horsepower compression between now and the end of 2030. Now turning to our outlook for 2026. We have a lot of positive momentum heading into the year. Despite the increased lead times for new equipment, we plan on delivering approximately 150,000 new unit horsepower in 2026 with an average horsepower per unit of approximately 1,700 horsepower, further solidifying our position as the industry leader in large horsepower compression. We're also in discussions with a handful of our customers about purchase leaseback opportunities and expect to announce one soon. We view purchase leaseback transactions as low-risk acquisitions, they have the benefit of accelerating our growth and compelling returns on invested capital without adding additional compression capacity to the market. The strong pricing environment we've seen for the last several years continues, and we expect to deliver further margin increases as we capture operating efficiencies. And we're seeing positive signs in the station construction business, part sales and our Other Services segment. In summary, we had a great year. Our adjusted EBITDA significantly exceeded both our initial guidance for the year and our latest update, driven by operational efficiency and cost management. We high-graded our fleet, exited international operations and achieved our leverage target of 3.5x. We have numerous tailwinds heading into 2026 as demand for contract compression remains strong and utilization rates continue to be at record highs. We're extremely excited to add distributed power to our business offerings and believe the outlook for that business will allow us to increase our underlying growth rate and drive higher margins. And now I'll pass the call to John Griggs, to further discuss our financial results and our outlook for 2026. John? John Griggs: Thank you. At the risk of sounding like a broken record, 2025 was an outstanding year. There's just no other way to say it. From a financial perspective, we exited the year with the lowest leverage, most liquidity and highest EBITDA free cash flow and contract services adjusted gross margin in our company's history. Our new enterprise-wide business system meaningfully reduces SOX-related risk and is increasingly providing us with enhanced visibility into our operating and financial performance, giving our company's leaders far better data and insights to ultimately make faster and better business decisions. Our financial strength has never been better equipped to capture all of the growth opportunities that are in front of us today. Before I tackle the financial highlights, I'd like to give a shout out to my team. I am so proud of everything they've accomplished over the past couple of years, an IPO and all of that entails, the CSI acquisition and integration, several capital markets transactions, more than $2 billion in bond issuances and ERP implementation and more recently, moving to full SOX compliance. It's been a big, big, big lift, but they've risen the occasion time to time again. I'm privileged to lead them, and I look forward to seeing them continue to do great things as we move forward. Let's turn to the financial highlights. For the year, we reported total revenue of approximately $1.3 billion, a 13% increase over 2024. The growth was primarily driven by the addition of new horsepower, price increases from recontracting activity and solid operational execution. We reported adjusted net income of $139 million and adjusted EBITDA of approximately $715 million, up 51% and 17%, respectively, from the prior year. For the fourth quarter, total revenues were nearly $333 million, up 3% sequentially as we benefited from a large amount of recontracting that happened around the beginning of the fourth quarter. Revenue for ending horsepower was $23.10 at year-end, a 2% increase from the previous quarter and up approximately 5% from the previous year's quarter. As we discussed last quarter, the fourth quarter sequential increase in dollars for revenue-generating horsepower was driven by the combination of less overall new horsepower being set in Q4 in conjunction with solid pricing for new units set during the third quarter plus recontracting during Q4 at ever higher rates. Our Contract Services adjusted gross margin percentage for the fourth quarter exceeded 69%. That's up 90 basis points sequentially and 247 basis points year-over-year. The margin improvement is a reflection of the success we've realized in achieving higher average pricing for horsepower alongside lower operating expense for horsepower, which itself was a function of new technology, process and training initiatives that either reduce costs, defer spend or improve labor productivity or some combination of all 3. In our Other Services segment, revenues were just over $31 million in Q4 with an adjusted gross margin percentage of 13%. The sequential increase in revenues was driven primarily by an increase in shop services and station construction revenues. Reported SG&A for the quarter was $38.9 million, and after adjusting for nonrecurring or noncash items, it was $29.7 million, down nearly 6% in the prior quarter. Net income attributable to common shareholders for the fourth quarter was almost $25 million or $0.28 per diluted share. Excluding asset impairment, severance and transaction expenses and other onetime items, adjusted net income was $35 million or $0.40 per diluted share. Now let's turn to capital expenditures. Maintenance CapEx for the quarter was approximately $22 million, and it was $76 million for the year, which was at the low end of our annual guidance range. The same investments in technology and the insights we're gaining from them are also allowing us to extend overhaul intervals and thereby defer associated spend on a major portion of our fleet. As expected, growth CapEx declined sharply this quarter to approximately $25 million. For the year, we added approximately $150,000 in new unit horsepower, in line with previous expectations. Other CapEx was just under $12 million for the quarter, slightly down from the prior quarter. Discretionary cash flow came in at $113 million, an increase of approximately $5 million versus the comparable quarter from last year. Free cash flow, which we define as discretionary cash flow less growth in other CapEx plus the proceeds from asset sales was $79 million, a new quarterly company record. For the year, we generated approximately $462 million in discretionary cash flow. Our discretionary cash flow is one of our most important business metrics. It drives our growth, and it funds the return of capital to shareholders. The long-term growth of our core compression business, and therefore, our discretionary cash flow is directly correlated with the nearly irrefutable secular growth in domestic natural gas production, and our cash flows are heavily contracted under take-or-pay contracts with inflation escalators. As a result, we tend to produce growing but stable discretionary cash flow, even in times of severe commodity price volatility, which is something we can't emphasize enough. With regard to the balance sheet, as Mickey highlighted earlier, we delivered on the promise we made to investors at the time of our IPO that we get our leverage down to 3.5x by the time we exited 2025. We exited the year with the strongest balance sheet we've ever had with approximately $1.5 billion in undrawn liquidity and over 3 years before our first debt maturity. To recap, in 2025, we termed out $1.4 billion for of our bank debt in the bond market, including the first issuance of the 10-year bond in the compression sector, when we amended our ABL to reduce interest rate spreads and enhance financial flexibility. Last, our Board declared, and we paid last week a dividend of $0.49 per share, even with 2 increases totaling nearly 20% in 2025, our dividend was well covered for the quarter at 2.6x. Let's turn to our '26 guidance. We provided our customary metrics in yesterday's release. Keep in mind, our guidance metrics don't include the recently announced DPS acquisition. We plan on revising our guidance for the inclusion of that business after we close the transaction, which we would expect to occur around the beginning of the second quarter. For the year, we expect overall revenue to range between $1.37 billion and $1.43 billion. We expect the adjusted gross margin percentage within the Contract Services segment to range between 67.5% and 69.5%. Our 2026 adjusted EBITDA guidance range is around $750 million to $780 million, with the midpoint representing annual growth of approximately 8%, directly in line with the upper single-digit percentage annual growth rate that we believe is possible in our core compression business for the foreseeable future. We expect maintenance CapEx to be in the range of $75 million to $85 million, essentially flat with last year, something that would not have been possible had we not been investing in the people, process and systems that allowed us to meaningfully defer maintenance spend without harming our assets or their long-term performance. We see growth capital expenditures landing between $235 million and $265 million. The vast majority of our growth CapEx goes towards buying and installing new units. While the balance gets invested in things like fleet-oriented enhancements and conversions, emissions-related projects and operation-centric technology. Other capital expenditures, which includes fleet upgrades, make rate expenditures, rolling stock, real estate, capitalized aspects of our training programs are expected to range between $40 million and $50 million. In terms of capital allocation, returning capital to shareholders is important to us. We expect to grow our dividend annually and opportunistically repurchase stock. Prior to the acquisition of DPS, our stated goal is to invest organically at a level that allowed us to deliver long-term annual growth in adjusted EBITDA in the upper single-digit percentage range. Following the acquisition of DPS, we believe we can grow faster than that and have similar or better returns on invested capital. To wrap it up, '25 was another record-setting year at Kodiak. We're extremely proud of all that we accomplished and the work we did to lay the foundation for future growth. The outlook for contract compression related services is stronger than ever. By our estimation, it looks like it will remain that way for a while, and we're in the process of further increasing our earnings growth rate with the pending acquisition of Distributed Power Solutions. With that, I'll hand it back to Mickey. Robert McKee: Thanks, John. It's an exciting time to be at Kodiak. Our business model, which generates highly visible, stable and recurring cash flows is performing well. The demand outlook for contract compression remains robust, demonstrated by our ability to maintain strong pricing and continued growth in our industry-leading horsepower utilization. Our new unit horsepower order book is fully contracted for 2026 and into 2027, and we're actively working on finishing 2027 and 2028 as we capitalize on the robust outlook for growth in natural gas. Besides the top line growth, we took steps to increase margins by divesting noncore units and investing in technology to reduce costs and increase uptime. The pending DPS acquisition will further increase our earnings potential and growth outlook, enhancing our ability to return capital and drive ongoing value for Kodiak shareholders. Needless to say, we're excited about our future. Thanks for your participation today, and now we're happy to open up the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from Jim Rollyson with Raymond James. James Rollyson: Mickey, maybe just starting with the lead time comments, obviously, all you guys are seeing the same thing. And I'm curious, it's great to see the CapEx commitment on the compression side that just underscores, I think, your view there. But as you think about '27, '28 and where lead times have escalated to here pretty rapidly, how are customers thinking about that? How are you guys planning for that? Because I'm imagining that not only impacts your ability to grow on the compression side, but it's also on the power side once you get that closed. So maybe just some kind of color how you navigate that. Robert McKee: Jim, thanks for joining us today. Yes, it's been a challenge and it's a very fluid environment right now. We've been working really hard over the last couple of weeks to make sure that we secure our supply chain. And we -- like I said in my prepared comments, we've got -- we've got shop space and engines actually secured right now throughout 2027 and into 2028 and doing our best to stay ahead of that and make sure that we have adequate supply for what was the amount that we want to grow in the compression segment here. So I think, as you know, most of our customers also own their own compression equipment partially in their fleets. And so all of our customers already understand the tightness in the supply in the market and are willing to engage in those conversations well ahead of time for us to make sure that we have their needs covered. So our commercial team is doing a great job of staying ahead of it, and we're making sure that we're monitoring that situation on a real-time basis because I can tell you, it is changing by the hour. James Rollyson: Understood. And the other thing, you guys have had a slide in your deck since you IPO-ed kind of about the cost of equipment up 50%, let's say, pre-COVID to relative today. And obviously, that's driven a lot of pricing growth over time as you price new units and mark your fleet up over time. Curious with recent conversation with Caterpillar, given their lead times today, are they talking about more material pricing increases? And if so, wouldn't that allow you over time to kind of reap the same benefits going forward at some point? Robert McKee: Yes. I mean 2 parts to that question, right? I mean, I would expect that going forward that we'll have some pricing power and to be able to have constructive conversations with our customers there because the cost of replacement equipment, naturally, I would think with 100-plus lead times with Caterpillar, would increase. So like I said, the -- our customer base is all very cognizant of what's going on there in that pricing dynamic there. So we haven't heard of significant price increases coming out of Caterpillar yet, but it's something that I would probably expect. Operator: Our next question comes from John Mackay with Goldman Sachs. John Mackay: Maybe I'll pick up on that first question from earlier. Could you talk a little bit more about what is driving the tightness in the market right now kind of specifically. I think we understand some of the broader trends, but would love to hear a little bit more from you on kind of why we've gotten so tight so quickly here. Robert McKee: John, thanks for joining us this morning. Yes, it's really a pretty interesting discussion that we've had with Caterpillar over the last several months on what's driving the tightness in the market here. And I think a lot of people would assume that it is power that is driving kind of the increased lead times here. And it really is a power discussion. But a lot of the Permian power processing plants for rich natural gas that are going in, in the Permian Basin right now, which there's a lot of them being built, they don't have the access to grid power. So traditionally, in those power plants, you'd see 75,000 horsepower worth of electric motor-driven units for inlet compression for propane compression for residue compression in those plants within the 4 walls because of the limited access to power that these guys have out there, specifically in the Permian. They're having to turn those electric motors within the 4 walls of those plants into large horsepower natural gas-driven engines to drive those -- to drive that compression within those plants. So I think that, that's a dynamic that really nobody saw coming towards us and is really a driver from the limited access to grid power that people have today and the extended lead times to get hooked up to the grid, which we've heard it can be 7 to 8 years at some point in time. So like I said, these midstream guys and the people that are building these plants out here are having to turn to gas-driven engines versus electric motor-driven -- electric motors in those plants. So it's creating a kind of a new level of demand that we haven't seen previously. John Mackay: That's interesting. It sounds like a good time to get into the power business, but we can talk about that more in April. Second one for me is just on gross margins. Fourth quarter is really strong. You guys have been generally doing very well on that front. I think the '26 guide points to it being a little flatter. Would love just to hear your general comments on the trajectory there, maybe some conservatism baked in maybe some of the cost savings you've talked about in the past on the AI side. Can you walk us through that? John Griggs: Yes, sure. So John, I'll take it. This is John Griggs. So we thought a lot about that as we put the guide out, we anticipated we'd get some questions. And one thing that we know is the fourth quarter was a really clean quarter. Our business is highly predictable, but you're always going to have some gremlins that happen within your cost of goods sold, and we really just didn't see many of those, whether that's a lot of hard work, a lot of technology, a lot of planning, great operations and a little bit of luck, we're not exactly sure, but it happened. And when I look at everybody kind of focuses on our dollar per ending horsepower, we also study our $1 per our Contract Services cost of operations for ending horsepower. And it's been really flat until the fourth quarter would have dropped meaningfully. So I think we probably have a little bit of conservatism in case it gets back on trend to where it was for the prior 3 quarters. Now with that said, I think you hit the nail on the head in that. Pricing continues to be strong and all the investments we've made in, let's say, 2 big buckets, technology, the operational technology, we're starting to see a return on those investments during '25, and we expect to continue to see it in '26. And all the investment we've made in our people around training, those absolutely have an impact on that cost of goods sold, and we expected to see it. So hopefully, as the year goes on, we'll be able to walk that number up. But that does explain kind of where we guided. Operator: Our next question is from Doug Irwin with Citi. Douglas Irwin: Maybe to add one more on lead times to start. Great to hear that customers are already having conversations out into 2028. But curious just in the context of potential 2-year lead times, if that changes just your general risk appetite to potentially look to maybe orders and capacity on spec, just to be able to make sure you're able to secure it in advance. Robert McKee: Doug, this is Mickey. Yes. I mean, look, it's a different conversation that we're having with our Board today than it was 6 months ago to where we were looking at capacity and lead times that were inside of a year and having contracts to back those up. So we're having to do a little bit more of spec ordering today and making sure that we've got some shop space locked up and engines locked up, so we are having to take a little bit more risk there. However, I would say that, that is mitigated a little bit by the fact that we don't have to commit to 100% of that CapEx cost 2 years out. We might have some engines, some extra engines and that kind of thing that are there. If the demand doesn't come through like we fully expect it to, but -- so there is a little bit more risk appetite to order some equipment on spec out a little bit farther out right now. But again, like I said, that's not for 100% of that cost. It's for a portion of that cost. John Griggs: And I do want to add on there, too. I think it's really important. As we think about this, a, we have like a macro view of the future where we think production levels are going to be. And we've stated over and over and over again, really since IPO that we think we can grow our fleet volumetrically by that 3% to 5% per year. So everything -- and I should say we have really, really like sophisticated customers today with long-term development plans, and we're in close communication with them. We view them as partners. So virtually everything that we're buying that is ahead of that commitment. We think it's completely in line with kind of our base case on where that market is headed and where our customers will be. So it feels like a really low-risk proposition to us. Douglas Irwin: Got it. That's helpful. And then maybe a quick one on Power. Realize you haven't given guidance there, but just curious in the context of the guidance you just gave for the base business, just how you're thinking about your capacity to invest in power here over the near term? Robert McKee: Yes, Doug. I mean, look, we bought the DPS platform because we've been looking at the power business for over a year now looking for the right entry point. We want to make sure that we could pair up our operational expertise with high-quality commercial and engineering expertise on the power side, and we settled on the DPS acquisition because they really checked all those boxes. It's a really high-quality platform that we think we can put a strong operational platform behind as well as a strong balance sheet behind. And our full intention is to grow that business. And we'll come back after we close and give a little bit better guidance on kind of what we think the growth opportunity looks like. But we fully intend to grow that business, and we think that there's some opportunities to acquire some megawatts of power even this year to be able to deploy this year. And we're leveraging our relationships that we have with existing vendors and our Caterpillar network to make sure that we can secure some of that equipment and put it to work this year and then come back to you after close with kind of a more fulsome view of what we think the long-term growth outlook looks like for that business. But we fully plan on growing it starting this year and putting some significant growth capital behind that side of the business as well. Operator: Our next question is from [ Gaby Cerny ] with William Blair. Neal Dingmann: This is Neal Dingmann. Guys, can you just talk about -- Mickey, you've always talked about just external growth. And I know, again, you have the backlog right now with compression. So I'm just wondering, would you approach some of your customers more aggressively to try to add that way? Robert McKee: Yes, Neal, you kind of broke up a little bit on us there. Can you -- do you mind repeating the question? Well, you might have lost. Yes, are you there, Neal? Well, I think that the gist of the question -- sorry about that. I think the gist of the question was kind of approaching our customers with kind of a two-pronged approach on compression and as well as power needs. And we certainly think that, that is an opportunity for us going forward. We've got a lot of customers, specifically in the Permian that are looking at microgrid development and establishing their own power out there in the Permian, and we definitely are having those conversations with them already. And definitely think we can leverage those relationships and the operational expertise to grow that business with our existing customer base as well. Neal Dingmann: That was exactly it, Mickey. And then just secondly, on the LNG. Mickey, you've always talked about kind of a formula -- I think early in the IPO process, you even talked about a formula for potential LNG demand. Does that formula still exist? And can you kind of remind me about where potential is around maybe the LNG upside demand? Robert McKee: Yes, absolutely. Look, we think that there's a significant amount of LNG feed gas that's going to be required throughout the United States. And as you know, we talk about the Permian a lot, but we're also in every major oil and gas producing region in the United States with commercial and operational presence there. So we're positioned well to provide compression for no matter where that gas is going to come from. We know there's going to be a significant amount of gas production for both behind-the-meter power and for LNG destock. So we think we're in a great position to be able to be there. I think you're referencing -- we're significantly in the Permian Basin. You're probably referencing the compression intensity metrics that we talk about. One of the reasons why the last 5 years of our business have been so robust is because of the amount of compression it takes to produce one molecule of natural gas out of the Permian Basin because there's compression needed for gas lift. There's compression needed within the 4 walls of processing plants, gathering all those things. So we still firmly believe that the Permian Basin with oil prices being relatively resilient over $60, that there's great economics for our customer base to not only continue to, at a minimum, keep oil production flat, but given gas to oil ratio increases and that kind of thing -- there's going to be significant gas growth out of the Permian, which is going to require a ton of compression to produce that, especially with these new takeaway capacity lines coming into play in the Permian Basin. So we're really excited about the opportunity. We think it's going to be a massive amount of natural gas growth over the next -- throughout the end of the decade and into the 2030s, and we're positioned well to take advantage of that, both on the compression and the power side. Operator: Our next question comes from Elias Jossen with JPMorgan Chase. Elias Jossen: Maybe just wanted to start on the visibility you're seeing in the contract compression business. You talked a little bit about seeing 750,000 horsepower through 2030. Maybe just the conversations you're having with customers that kind of support that? And then it seems that would support sort of this mid-single-digit EBITDA growth in just the contract compression business alone based on your historical execution. Is that a fair way to think about it, just continuing the strong growth that we've seen? Robert McKee: Elias, good to hear from you this morning. Yes, that is absolutely our intent is to continue that up into the right trajectory in the compression business and then layer the power business on top of that. We've got very high visibility into our growth. Like I said, we're engaging in conversations with customers right now for 2028 capacity. And there's a very large appetite for multiple of our customers that we're in discussions with right now for multiyear contracting and renewals of the existing equipment that we're seeing elongated types of renewal time frames right there. We're in discussions with multiple customers about 7- and 10-year renewals on that stuff, which is a really great development for our business and the visibility of our existing asset base and the growth of that over time. So we've never really given multiple year kind of guidance or indications of what we expect for horsepower growth, but we feel pretty good about it right now, and that's why we brought it into this call in our prepared remarks today that we really do see a multiyear growth case that is going to underpin kind of our cash flows and stable earnings for a long, long time. Elias Jossen: That's awesome. And maybe just sticking with the Contract Services business. I know you guys talked a bit about sort of operational execution driving gross margins higher, and you did give us a guide there. But maybe just on the overall pricing outlook. I think previously, you've talked about exiting this year at around $24 per horsepower per month. Any reason to think that would be different or higher or just high level, what you're seeing right now on the overall sort of fleet pricing? Robert McKee: Yes. As we said, conversations with customers have been very constructive and continue to be. We're not seeing any significant change in pricing on equipment going forward. I think John did mention it in his prepared remarks, we do have less of a percentage of our fleet that's up for recontracting this year. I think last year, we recontracted 40% of the fleet. This year, it's kind of in the low 20%. So I would say that our ability to raise prices on the existing fleet is just as strong as it ever has, albeit it might be a little bit more muted of a contribution this year because of the limited amount of equipment that we have kind of coming up for recontracting. That being said, our goal is still to reach that $24 of horsepower by the end of the year, and we feel pretty good that we're going to get there by the end of the year and feel good about that target. Operator: Our next question comes from [ Nate Pendleton ] with Texas Capital Bank. Unknown Analyst: Congrats on the quarter. I wanted to dive a bit deeper into your prepared remarks regarding applying AI and machine learning to improve the business. Can you provide your view on how these developments can further improve financials from here? And perhaps how well those technologies can apply to the newly acquired power assets? Robert McKee: Nate, thanks for joining us. Yes, we're really excited about what we've done in the technology space. We think we've got some first mover type of advantages there. We've really done a great job through our technology group and our operations group in adopting that kind of stuff. And we've already rolled out kind of conditions-based maintenances to where we're not just saying, hey, you need to change this oil in this equipment every 90 days, but we're letting the equipment tell us today when that oil needs to be changed based on kind of operating conditions and oil sampling and that kind of stuff. And we're able to recognize when that equipment is operating outside of the bounds of kind of where it should be. And that's provided a pretty significant uplift in our gross margins because we're able to kind of extend maintenance intervals based on the health of the machine, not necessarily based on time. I've said it many, many times before, we used to change the oil in our cars every 3,000 miles. Now, we're going 10,000 miles in our cars and trucks, and they tell us when they need the oil change in them. So that's a result of technology and looking at the status of the equipment rather than how it is actually -- rather than a time-based type of an interval. We're also applying that on our major maintenance cycles as well and extending those major maintenance cycles, which is why you've seen a growth in the fleet, but our maintenance capital line item staying flat throughout the year, the last couple of years, and we're happy to see that. The upside that we have there is we haven't applied those -- that stuff across the whole fleet yet. We've tested it in '24 and '25. We've rolled it out to a much larger portion of the fleet now. And now we have the ability to roll it out to an even larger portion of the fleet going forward. So we should see continued impact on technology through deploying that technology and then looking at how that applies to the power world, we think that we have a long, long history of operating cat equipment. We've got -- we're acquiring a business that has a significant amount of power that's driven by 3516 Caterpillar engines. And we think we can apply the same metrics to -- on the power side and apply our technology there. So we're really excited to be kind of first movers in that space, too, as kind of one of the first companies that had significant operating history in Caterpillar equipment to be able to apply that expertise and operating kind of regimen to really the same engines that are just driving power generators versus gas compressors. So we're excited about that, and we think we'll be able to have the same kind of impact there on that operation. Unknown Analyst: Thanks for the detail there. And then as my follow-up, I guess, going to the DPS acquisition. I know there is limited you can say at this point, but can you provide any high-level details about the inbound interest since announcing the deal that you alluded to in the prepared remarks? Robert McKee: Yes. I can't talk a ton about it obviously yet, but we have to stay a little bit at arm's length with DPS right now on the commercial side, just for antitrust issues and that kind of thing. I think everybody understands that. However, independent of our discussions with DPS, we have had inbound calls from multiple data centers and multiple customers that have recognized the fact that we're bringing an operational expertise into a world that is -- there's a lot of competition out there. And however, that competition doesn't have nearly the experience that we do in operating large horsepower equipment. And the customer base out there is really starting to take notice of the -- of the ability that we'll have to apply that operational expertise in the power world as well. I said it a little bit earlier, we really were hunting for a company that really had a significant commercial expertise in the power division as well as engineering expertise DPS is one of the only companies that has a multiyear contract and has been operating for multiple years already on a data center project, right? So they have experience. They understand AI load management that is required for some of the challenges that go along with powering a data center, and we feel like we've got a really, really great opportunity to make a big impact in that business by combining the commercial and engineering expertise of DPS with Kodiak's operational expertise. Operator: Our next question is from Selman Akyol with Stifel. Selman Akyol: Two quick ones for me and just more little follow-ups. In your previous question, I think you referenced sort of 40% of contracts recontracted and then 10% in your opening comments for '26. The question is this, how much of recontracting for 2027? Robert McKee: That's a good question. I actually haven't run those numbers, Selman. Thanks for joining us. Sorry, -- to be honest with you, I don't have that number at my fingertips. It's something that we'll be looking at. But I can tell you that kind of on average, we expect 25% to 30% of our fleet recontracts every year, and we would expect that to be in the in the 2027 outlook. To be honest with you though, we actually are having some really constructive conversations with customers right now about pulling forward some of those recontracting efforts. I mentioned earlier, we've -- we're in conversations with some customers about some 7- and 10-year renewals right now. And quite frankly, some of that stuff is -- stuff that's not even up for recontracting in 2026, and it would be pulling that forward from '27 and '28 in some cases, too. So we're really excited about that. And so it's kind of a moving target a little bit right now. But for argument's sake, really 25% to 30% of our contracts in any given year would come due, and that's our full expectation for '27. Selman Akyol: Okay. Great. I mean repricing into a stronger environment. Then the other one, just real quick. So you talked about potentially ordering some engines on spec and then you said you wouldn't have to commit 100% of the capital. But could those engines be swapped over to DPS if you didn't have a need for them? Robert McKee: Yes, we think they can. So we definitely can -- we'll be looking at how we do that and how we manage that supply chain, but we can definitely would be able to kind of by some of those slots and maybe hopefully be able to kind of manage whether they support compression or power. Operator: We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Kodiak's CEO, Mickey McKee. Robert McKee: Thank you, operator, and thank you for everyone participating in today's call. We look forward to speaking with you again after we report our results for the first quarter. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and good evening. First of all, thank you all for joining this conference. And now we will begin the conference of the fiscal year 2025 fourth quarter earnings resulted by KEPCO. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2025 fourth quarter earnings resulted by KEPCO. Si-young Yang: [Interpreted] Good afternoon. This is Siyung Yang, Head of Finance Department of KEPCO. I'd like to thank you all for participating in today's conference call for the business results of the fourth quarter of 2025 despite your busy schedule. Today's call will be conducted in both Korean and English. We will begin with a brief presentation of the earnings results, which will be followed by a Q&A session. Please note that the financial information to be disclosed today is preliminary consolidated IFRS figures and all comparison is on a year-over-year basis unless stated otherwise. Also, business plans, targets, financial estimates and other forward-looking statements mentioned today are based on our current targets and forecasts. Please be noted that such statements may involve investment risks and uncertainties. Now we will begin with an overview of the earnings results for the fourth quarter of 2025 in Korean, which will be then consecutively translated into English. [Interpreted] I will first go over the operating items. The consolidated operating income in 2025 stood at KRW 13,524.8 billion. Revenue increased by 4.3% to KRW 97,434.5 billion. Power sales increased by 4.6% to KRW [indiscernible] billion. Overseas business and other revenue decreased by 1.8% to KRW 4,429.9 billion. Cost of goods sold and SG&A decreased by 1.3% to KRW 83,909.7 billion. Fuel costs decreased by 13.8% to KRW 19,036.4 billion and purchase power costs decreased by 1.8% to KRW 34,052.7 billion. Depreciation expense increased by 2.3% to KRW 11,667.8 billion. Next, I will go over the nonoperating items. Interest expense decreased by KRW 325.6 billion Y-o-Y to KRW 4,339.5 billion. As a result of the foregoing, the 2025 consolidated annual operating income stood at KRW 13,524.8 billion, and net income was KRW 8,007.2 billion. Taeseop Eom: [Interpreted] Good afternoon. I am Taeseop Eom, Head of IR team. Now I will go over the matters of interest. First, I will talk about the performance of power sales and its outlook for the remainder of the year. Annual power sales volume due to economic downturn and as a result of that, given the industrial demand has decreased. The total sales volume was 549.4 terawatt hour, which is a 0.1% decrease Y-o-Y. In 2026, the economic growth rate and number of operating days increase should lead to a slight increase in the total sales volume. [Interpreted] Next, I will go over the fuel price by fuel source and S&P trends. In 2025, if you look at the annual trend of the fuel prices for bituminous coal Australia, the price was around $105.7 per ton. For LNG, JKM was KRW 980,000 per ton and the S&P was around KRW 112.7 per kilowatt hour. [Interpreted] Next, I will go over the [indiscernible] company. If you look at the annual 2025 generation mix, the capacity factor of nuclear power increased and thus, its contribution to the mix increased as well. For coal, the capacity factor increased and thus, the contribution in the generation mix increased. For LNG, the installed capacity decreased. And due to the increase of baseload power generation, the contribution to the mix decreased. For 2026 on annual basis, we expect the contribution of nuclear power to increase, coal to decrease and LNG should largely remain flat. In 2026, the capacity factor for each fuel source should be as follows: nuclear power around mid- to high 80%, coal around mid-40% and LNG should be around early to mid-20%. [Interpreted] Next, I will go over the RPS cost. In 2025, annual RPS expense on a consolidated basis was KRW 3,989.7 billion. And on a stand-alone basis, it was KRW 4,818.8 billion. Last, I will go over the funding situation. As of 2025 Q4, consolidated total borrowings was KRW 129.8 trillion. And on a stand-alone basis, it was KRW 84.9 billion. [Interpreted] Now we will move on to the Q&A session. Since we will be conducting the Q&A session in both Korean and English, please make your questions and answers clear and brief. Operator: [Interpreted] [Operator Instructions] The first question will be given by Jong Hwa Sung from Securities. Jong Hwa Sung: [Interpreted] I am from LS Securities and my name is Jong Hwa Sung. Please understand my sore throat today. I have 2 questions. Number one, it's about the contribution of the nuclear power generation in the generation mix. So I think largely fuel cost and power purchase cost was in line with expectations. But nevertheless, the operating income was underperforming expectations by around KRW 1 trillion. I think this is largely because of other costs. I think other cost was around KRW 1.2 trillion higher than what we expected. I believe this is mainly coming from the recovery of nuclear power generation sites and costs associated to carbon and greenhouse gases. it seems that these cost items were concentrated in Q4 in 2025. However, if you look at other years, sometimes it's booked in Q2, sometimes it's booked in Q4. And so the seasonality is not stable. So on an annual basis, how much do you expect these other cost items to be generated or incurred every year? And then second is about the contribution of the nuclear power generation. So in Q4 2025, on a Y-o-Y basis, I think the nuclear power generation contribution went down by around 6%, which is unusual given that for the first 3 quarters of 2025, nuclear power generation contribution was higher than that. So when you say -- or you said in your keynote that the contribution of nuclear power will probably increase in 2026. Is it compared to Q4 2025? Or is it compared to the first 3 quarters of 2025? In other words, in Q4 2026, will nuclear power generation contribution be slightly higher or significantly higher than 2025 Q4? Unknown Executive: [Interpreted] Yes. So I will first address your first question regarding the other cost. So the provisions related to greenhouse gas emissions went up by around KRW 120.6 billion to KRW 340.6 billion. As for the provisions regarding the nuclear -- provisions regarding the recovery of the nuclear power generation sites, it went up by KRW 411.2 billion, resulting in a negative KRW 4.6 billion. So there was actually write-backs. As to the exact timing of when we book these type of provisions and costs, I think we will discuss internally, and I'll get back to you later on. Unknown Executive: [Interpreted] Yes. Regarding your second question, we mentioned that the capacity factor for nuclear power should be around mid- high 80% on an annual basis. So maybe towards the end or early part of the year, the capacity factor may seem lower than that. But on an annual basis, I believe that it will be higher, especially given that we have nuclear power plants who are going through and completing its preventive maintenance process, which should come back online. And also the addition of new power plants should add to the higher capacity factor of nuclear power in 2026. Operator: [Interpreted] The following question is by Kyeong Won Moon from Meritz Securities. Kyung-Won Moon: [Interpreted] My name is Kyeong Won Moon from Meritz Securities, and I have 3 questions today. One, if you compare the consolidated operating income of Q3 and Q4 and the stand-alone operating of the 2 quarters, I believe that the stand-alone operating income is relatively higher numbers or relatively better -- showed better performance. I believe this is largely driven by the adjustment coefficient. So is that the main reason? What is the main reason behind this? And what would be your expected adjustment coefficient for Q1 2026? My second question is regarding the before tax profit. So compared to the operating income, the before tax profit seemed to have performed quite strongly, both for consolidated and stand-alone numbers. What would be the reason behind this? Were there any one-off P&L items in other categories like the finance and other businesses? My third question is related to the dividends. So I believe that -- so the dividend was just announced. And if you look at the dividend payout on the stand-alone net income basis, it seems that it actually decreased compared to last year. So how did you come to this DPS number? What is the logic behind that? And what would be your expectation or outlook for the dividend payout of 2026? Do you think it will be higher than 2024 and 2025? Unknown Executive: [Interpreted] Yes. So regarding your first question, it may seem that the stand-alone profits are stronger than the consolidated numbers because there are some costs associated with our subsidiaries, which is booked under consolidated financial statements, but not on our stand-alone numbers. [Interpreted] Regarding the adjustment coefficient, in Q4 last year, the numbers were slightly higher than previous average quarters. [Interpreted] And the coefficient for 2026, we expect to be slightly higher than 2025. Unknown Executive: [Interpreted] And regarding your question comparing the operating income and the before tax income. So for our subsidiaries, there were some lease liabilities that could not be hedged due to the decrease in the FX rates. And so because of the FX -- in the process of the FX conversion, there were some valuation losses and gains that needed to be booked that impacted the numbers. Unknown Executive: [Interpreted] And regarding your question on dividends. So last year, the payout was 16.5%. And this year, it was 13.65%. So like you mentioned, it did decrease. However, I'd like to note that the size of the net income on a stand-alone basis increased significantly. So the absolute amount of dividends that were paid out will increase. And DPS also increased to around KRW 1,541 per share. As for 2026, as you know, we are subject -- we are a public corporation and subject to the relevant legislations, we need to discuss the dividend strategy with government departments. So at this point, unfortunately, we are not able to comment on the direction of 2026 dividends. Operator: [Interpreted] The following question is by Jaeseon Yoo from Hana Securities. Jaeseon Yoo: [Interpreted] I am Jaeseon Yoo from Hana Securities, and I have 4 questions. My first question is provisional liabilities related to used fuel -- used nuclear fuel. So in January, I read news that the unit price has gone up. And so maybe can you give us a little bit more color on this topic? And my second question is also related to this as well. What was the total amount of the used nuclear fuel-related provisional liabilities booked by KHNP in Q4 2025? And third, there was a 15% decrease -- price decrease that was subject to a grace period, and that grace period is coming to an end. I believe, therefore, the bituminous coal price can go up. So what would be the associated cost that you are expecting in regards to the end of the grace period? And fourth is related to the bond issuance limit. So what would be the outstanding amount of bonds issued? And how much room do you have in comparison to the cap? Unknown Executive: [Interpreted] I'll try to address your first 2 questions at once. So the provisional liabilities that were booked for the recovery of nuclear power sites was KRW 904.5 billion -- increased by KRW 904.5 billion to KRW 24,769 billion. As for the used nuclear fuel, it decreased by KRW 178.4 billion to KRW 2,745.3 billion. And as for the mid- and low level nuclear waste associated provisions and liabilities, it went up by KRW 10.2 billion to KRW 1,077.2 billion. Unknown Executive: [Interpreted] As for your third question regarding the grace period of the individual consumption tax coming to an end and how that would impact our cost. So we do have an internal estimate, but unfortunately, we are not able to disclose those numbers to the public in the market. So we ask for your understanding. Unknown Executive: [Interpreted] Yes. And regarding your final question on the bond issuance cap. So that can -- the final exact number can be calculated after the dividend is finalized at the Board and shareholders' meeting. But we believe that it will be something around just over 3x once all of those dividend-related activities are finalized. Operator: [Interpreted] Currently, there are no participants with questions. [Operator Instructions] The following question is by Jong Hwa Sung from LS Securities. Jong Hwa Sung: [Interpreted] I have 2 questions. First is regarding the nuclear power generation export strategy. So I believe that there is a process currently ongoing to streamline the Korean nuclear power generation export strategy. So maybe can you elaborate a little bit on how that is moving forward? And second, I believe that there is some court case in the international mediation courts by KHNP regarding the additional KRW 1.4 trillion construction cost that was incurred during the BNPP construction project. Has that been already reflected in the financial statement? And if so, if KHNP is able to recover the cost from the UAE government, will that have impact on the financial statements? Unknown Executive: [Interpreted] Yes. I will address your first question regarding the export of nuclear power plants of Korea. And so we are -- I believe that the research project has been outsourced by the Ministry of Industry, and they are currently waiting for the results. KEPCO, of course, will be closely cooperating with the government to ensure that high-quality nuclear power plant export strategy can be developed to maximize and satisfy the global customers. Unknown Executive: [Interpreted] Yes. And your second question regarding the dispute between KEPCO and KHNP. So we are currently in conversation and negotiation with them. And I think both parties are making utmost effort to resolve this conflict in a stable manner. However, please understand that we are not able to disclose any specific numbers. Operator: [Interpreted] The following question is by Yoon Cho from UBS. Yoon Cho: [Interpreted] I have 3 questions. One is regarding the tariff. So the press recently has reported that there may be some differentiated price scheme applied to industrial power. And currently, you are thinking of, for example, different pricing per time or offering weekend discounts for the industrial use. There are also talks about regional pricing schemes for the industrial power. And these elements have been mentioned by the Minister of Climate, Energy and Environment. So can you elaborate or give us a little bit more color on these schemes? How do you think it will impact the average unit price of power, overall? And when do you think that these new schemes can be introduced? My second question is regarding to your comments earlier today. You mentioned that in Q4, there were some cost associated subsidiaries that were booked. Were there any unusual one-offs that we should be aware of? And my third question is about the SG&A cost. What was the exact amount consolidated basis for Q4? Unknown Executive: [Interpreted] Regarding your first question, with the increase of the solar PV power generation, the overall load patterns are changing. And to reflect this change, we are currently developing seasonal and -- seasonal pricing schemes and also different pricing schemes for time period. We are also considering the balanced growth of the overall national economy and regions and also working to distribute or disperse the power demand nationwide. And these are the reasons why we are also developing a new pricing scheme that can better reflect the regional situations and regional demand. We are working closely with the central government to develop a reasonable and rationable new pricing scheme, reflecting all of these elements. However, as to its impact on unit price and the exact time line, I believe it's a little bit early. We are also listening to the opinion of the corporates and overall business and industry community as well. So once we have a better idea on the specifics of this matter, then I think we can disclose some other information. But currently, we are under close negotiation and discussion with the government. [Interpreted] And regarding your second question, I think all we can say at this point about the cost booked by subsidiary is that it is related to overseas businesses. Unknown Executive: And as for your final question regarding consolidated SG&A cost. So currently, we are in the process of closing the books. And so we do not have the final exact numbers right now. But once the audit report is released, the number will be included in the financial statements. Operator: [Interpreted] The following question is by [indiscernible] from JPMorgan. Unknown Analyst: [Interpreted] I only have one question. I believe that in the past, there were some discussions on reflecting the individual elements in the fuel cost of the ASP. So have you continued those discussions? Do you have any updates that you can share with us? Unknown Executive: [Interpreted] Can you please elaborate on that question, please? Unknown Analyst: [Interpreted] Yes, I believe currently, when the tariffs are determined, KEPCO would make a proposal to the government, maybe around plus/minus 51. And ultimately, the government would make the decision. However, I believe that there were some discussions on finding the legal mechanism to ensure that the cost pass-through system can work like other utility companies outside of Korea. And so if the fuel cost would go up, this would naturally be reflected in the tariffs through the cost pass-through mechanism. So I was wondering if there were any progress in those discussions with the government. Unknown Executive: [Interpreted] Yes. So currently, we have implemented -- we have in place the cost pass-through system. So on a quarterly basis, the fuel prices are reflected in the tariffs. But we are also working to improve how it is being implemented. We are discussing with the government and listening to the voices of the related parties and industries to find ways to further improve the cost pass-through system going forward. Operator: [Interpreted] Currently, there are no participants with questions. [Operator Instructions] [Interpreted] As there are no further questions, we will now end the Q&A session. If you have any questions -- additional inquiries, please contact our IR department. This concludes the fiscal year 2025 fourth quarter earnings resulted by KEPCO. Thanks for the participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Arcutis Biotherapeutics, Inc. Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Brian Schoelkopf, Head of Investor Relations. Please go ahead. Brian Schoelkopf: Thank you, Michelle. Good afternoon, everyone, and thank you for joining us today to review our fourth quarter and full year 2025 financial results and business update. Slides for today's call are available on the Investors section of the Arcutis' website. Joining me on the call today are Frank Watanabe, President and CEO of Arcutis; Todd Edwards, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Latha Vairavan, Chief Financial Officer. I'd like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all of the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand it over to Frank to begin today's call. Todd Watanabe: Thanks, Brian, and thanks, everyone, for joining us today. I want to start out today's call by reviewing some key highlights and achievements from 2025, a year that was characterized by tremendous growth and progress for Arcutis as we pursue our mission of serving individuals living with chronic inflammatory skin conditions. We'll then transition to Todd for a commercial update and then Patrick for an R&D update and Latha for a review of our financial results. So in 2025, we made significant strides to solidify Arcutis' position as one of the industry's foremost leaders in delivering meaningful innovation in medical dermatology. Throughout the year, we saw robust net product sales revenue growth, steady prescription growth and a strong market share growth across all of our approved indications and formulations of ZORYVE, or topical roflumilast. We are incredibly humbled by the increasing number of healthcare practitioners and patients who are placing their trust in ZORYVE as an innovative, safe and effective treatment option for chronic inflammatory skin conditions, an important and welcome alternative to topical steroids. In 2025, we saw explosive revenue growth for ZORYVE, strengthening its position as the #1 branded nonsteroidal topical treatment across all of our approved indications, psoriasis, seborrheic dermatitis and atopic dermatitis. There hasn't previously been a drug for chronic inflammatory conditions with a profile or the reach of ZORYVE, an advanced topical -- targeted topical that can be used safely and effectively for any duration, anywhere in the body, across multiple indications and age groups. This unique profile of ZORYVE -- and at a moment in time when there's increasing calls by both providers and patients for innovative safe alternatives to topical steroids, has really fueled ZORYVE's robust commercial growth and success. So in 2025, net product revenues grew to $372 million, representing a 123% year-on-year increase versus 2024. This revenue growth was driven by year-on-year doubling in total prescription volume and has been further -- and has further cemented our leadership position in the branded nonsteroidal topical segment, where we now hold roughly 45% and a growing share of prescription volume across our approved indications. ZORYVE's commercial growth in 2025 was bolstered by FDA approvals of ZORYVE foam 0.3% for patients with psoriasis of the scalp and body, 12 years of age and older as well as the approval of ZORYVE cream 0.05% for the treatment of atopic dermatitis in children ages, 2 to 5 years of age. These approvals, which mark our fifth and sixth ZORYVE approvals, respectively, demonstrate our commitment to ensuring that we can bring the benefits of ZORYVE to as broad a group of patients with psoriasis, seb derm and AD as possible. The approval of ZORYVE foam's expanded indication offered an important new option for individuals who struggle with psoriasis of the scalp and other sensitive areas. These patients now have a formulation that can be used anywhere in their body, affording them a new level of convenience to manage their chronic skin condition. And we're particularly proud of the approval of ZORYVE cream 0.05% in young children with AD, given the frequent early onset of this disease and the meaningful number of patients in this age group. For far too long, there has been a significant unmet need, and we are proud now to be in a position to address it with ZORYVE. In 2025, we also submitted a supplemental NDA for ZORYVE cream 0.3% for psoriasis in children ages 2 to 5 with a target action date of June 29 of this year. And if approved, this will mark another critical step in serving the unmet needs of this pediatric demographic and their parents and caregivers. On the clinical development front, in 2025, we completed enrollment in the Phase II INTEGUMENT-INFANT trial, evaluating ZORYVE cream 0.05% in infants ages 3 to 24 months with atopic dermatitis. And earlier this month, we were delighted to report positive top line results from that study, which Patrick will review later on the call. And we're now preparing to submit this data to the FDA for a further label expansion. This is another important milestone as we work diligently to ensure that we can serve this youngest and most vulnerable population who have nearly no FDA-approved treatment options. In 2025, we also initiated Phase II proof-of-concept studies with ZORYVE foam 0.3% in vitiligo and hidradenitis suppurativa, or HS, marking an important step as we explore potential new indications that would enable us to expand the benefits of ZORYVE to additional individuals in need of effective treatment options and further maximize the pipeline in a molecule opportunity that ZORYVE represents. Finally, last year, we submitted an IND application for ARQ-234, our novel biologic with best-in-class potential to address a large unmet need in atopic dermatitis as we look to expand our pipeline and extend our mission to deliver meaningful innovation to patients with chronic inflammatory skin conditions. In short, we have had a tremendous year of progress, and we are confident that these accomplishments have set the stage for a successful 2026 and well beyond. None of this, of course, would be possible without the incredible talent, hard work and persistence of the Arcutis team. So I'd like to take a moment to acknowledge and thank each and every one of our team members for their deep and continued dedication to our company's mission and above all, to the patients that we serve. Moving to Slide 6. To frame the rest of today's discussion, I'd like to recap the 3-pillar corporate strategy that we introduced a few months ago to describe how we will sustain both near- and long-term growth for Arcutis. We have already made progress across all 3 of these pillars. On the growth front, I just mentioned the compelling data from the INTEGUMENT-INFANT trial and our plans to pursue a label expansion based on that data. And as you'll hear more from Todd in just a minute, we've recently announced an expansion of our dermatology specialty sales force to drive further ZORYVE growth as well as our decision to take over promotion of ZORYVE to primary care physicians and pediatricians. In terms of the expand pillar, as Patrick will expound on shortly, we continue to progress our Phase II POCs in HS and vitiligo and look forward to sharing data from these trials later this year or early next, and we are evaluating additional POC studies for other diseases. Finally, we look forward to enrolling the first patients in the Phase I study of ARQ-234 shortly and eventually sharing data from that study with the investment community. These concrete steps in realizing our strategy are evidence of our dedicated and disciplined strategic approach to ensuring Arcutis is well positioned for both the near- and long-term success. Before turning the call over to Todd and Latha to review our fourth quarter results in more detail, I want to give an update on some key points about the revenue guidance that we gave during our Investor Day in November of last year. First, we are raising our 2026 full year net product revenue guidance range from originally the $455 million to $470 million to now $480 million to $495 million to reflect both the strong momentum for ZORYVE as demonstrated by our fourth quarter results and also the investments that we continue to make in the franchise that the team will detail further today. We will evaluate our revenue guidance throughout the year and may update that when appropriate. Second, not only did we achieve positive cash flow in Q4 as promised, but we are reaffirming that we will maintain positive cash flow on a quarterly basis throughout 2026 even as we continue to increase our investment in ZORYVE's growth in our pipeline. And with that, I'll hand the call over to Todd for a Q4 commercial update. L. Edwards: Thank you, Frank, and good afternoon, everyone. Turning to Slide 8. As Frank noted, the strong momentum of ZORYVE's growth continued in the final quarter of 2025, where we generated sustained revenue growth driven by the increased adoption of ZORYVE across our approved indications. In the fourth quarter, net product revenues were $127.5 million. This reflects 84% year-over-year growth and 29% sequential growth from the third quarter of 2025. This sequential revenue growth was primarily fueled by sustained increases in prescription volume of 19%. This reflects the increasing confidence clinicians and patients have in ZORYVE as a trusted treatment across a broad spectrum of inflammatory diseases. And while still in the early days of launch, we are encouraged by the initial uptake of ZORYVE cream 0.05%, the treatment of atopic dermatitis in children aged 2 to 5 years old following the approval in the fourth quarter of 2025. There was also a very small contribution from a channel inventory build during the period, accounting for approximately 2%, or $2.5 million of revenue in the fourth quarter, which we anticipate will unwind in Q1. We also saw stronger-than-anticipated price improvement in the fourth quarter, driven by a continued reduction of co-pay card utilization as more patients met their deductibles and out-of-pocket maximums, contributing to the remainder of our quarter-over-quarter growth. Our gross to net remains stable in the 50s, and we anticipate it will remain in the same range in 2026. Unlike some of our competitors in the branded topical space, we did not see any gross to net erosion last year, and we do not anticipate any significant gross to net erosion as we progress through 2026. We do anticipate a typical reduction in net product revenues in the first quarter of 2026 as compared to the fourth quarter of 2025. The sequential decrease in sales will primarily be driven by typical seasonality resulting from patient deductible resets leading to higher co-pay usage. This will lead to an increase in our gross to net rate to the high 50s in the first quarter, which will then gradually improve throughout the year and end with the lowest gross to net in the fourth quarter as we experienced in 2025. Additionally, we did see demand across a couple of weeks in January, was impacted by winter storm burn, as expected from a storm of this magnitude. These factors in aggregate will lead to a more pronounced step down in quarter-on-quarter total product revenue Q4 versus Q1 than we experienced in 2025 when we saw increased quarter-on-quarter demand driven by our launch in AD that offset the typical seasonal headwinds. This is only a Q1 dynamic. As you heard from Frank earlier, our conviction in ZORYVE's continued growth and momentum in 2026 is strong and increasing, giving us the confidence to raise our guidance range at this early point in the year. As you can see from Slide 9, weekly prescriptions on a rolling 4-week average were approximately 22,000 scripts, another record high for the ZORYVE franchise. Over the next year, we anticipate robust and sustained demand from the primary driver of ZORYVE's revenue expansion. The factor that will contribute to the sustained volume growth in 2026 is the recent market access improvements that we have made with multiple national PBMs and health plans. On the commercial side, several plans improved ZORYVE's access by expanding coverage and improving utilization management criteria to a single step to a topical steroid. Furthermore, we were successful in obtaining coverage with several Medicare Part D plans effective January 1, with roughly 1/3 of all Medicare Part D recipients now having access to ZORYVE to their insurance plan. This makes ZORYVE the only branded nonsteroidal topical included on these Medicare formularies and helps us open the door to access for patients served by Medicare. This has been a key objective for Arcutis from day 1, and these formulary wins are clear validation of our differentiated pricing and access strategy. Because Medicare formularies favor generic therapeutics such as topical corticosteroids, ZORYVE has been assigned to the non-preferred drug tier, which is associated with higher co-pays or co-insurance costs and preferred tier drugs. While we're delighted to expand access to ZORYVE because of this achievement, we anticipate that the impact of demand may be tempered due to ZORYVE's non-preferred position. Turning to Slide 10. Our sustained momentum in Q4 and throughout 2025 highlights ZORYVE's exceptional utility. The growing confidence in our brand among both clinicians and patients and the broader shift in the treatment of inflammatory skin diseases away from topical corticosteroids. The 3 charts on this slide demonstrate important factors shaping the treatment paradigm for inflammatory skin diseases. The chart on the left illustrates that the branded nonsteroidal topical segment continues to grow meaningfully, gaining share from topical corticosteroids where usage remains flat or declining. Within the branded nonsteroidal category, ZORYVE is driving the majority of that growth. The pie chart in the center highlights the share shift driven by faster growth in advanced targeted topicals versus topical steroids. As a result, branded nonsteroidal topicals now account for 7% of total topical prescriptions against a sizable 2025 base of 24 million prescriptions. This represents meaningful progress. As volume continues to shift from topical corticosteroids to branded nonsteroidal topicals, growth should accelerate. Each 1 point share shift from topical corticosteroids translates to approximately 15% volume growth for the branded nonsteroidal topical segment. And finally, the chart on the right-hand side of the slide makes clear that ZORYVE is positioned to overwhelmingly benefit from this trend of topical corticosteroid displacement as we hold a strong and expanding share of branded nonsteroidal volume at 45%. At our Investor Day last October, we shared our peak sales guidance and reaffirmed our conviction that ZORYVE could become a multibillion-dollar brand. This confidence is rooted in the ongoing shift of a meaningful portion of the topical steroid market toward advanced targeted topical therapies like ZORYVE. For every 1 point of share we capture in the corticosteroid-dominated topical market, we estimate approximately $150 million in incremental revenue. Evidence that this shift is underway is strong and growing as we enter 2026. Demand from both providers and patients for safer nonsteroidal options to manage chronic inflammatory skin diseases continues to build. At the major dermatology conferences held in the first quarter of this year, a consistent theme from the podium was the need to move beyond topical steroids and adopt advanced targeted topicals. We remain well positioned to provide a safe and effective alternative for those seeking one. Now moving to Slide 11. I'd like to spend some time providing further detail on our recently announced dermatology sales force expansion and the benefits we anticipate gaining from it. In January, we announced that we would expand our dermatology sales force by approximately 20% to roughly 160 sales personnel. The primary intent of this expansion is to increase our call frequency with mid-decile prescribers without impacting or diluting the level of engagement we have with our most productive top decile dermatology clinicians. Said another way, the intent of the investment is to optimize the frequency of our sales force touch points in dermatology as we already have sufficient breadth of coverage in this provider setting. To further illustrate our strategy, with this expansion, we have detailed prescribing behaviors across different provider categories. High-decile prescribers are relatively few in number, but as you can see, have the highest volume of potential ZORYVE patients. And it is important to note that we evaluate activity based on total topical prescription writing, including topical corticosteroids, not ZORYVE writing or nonsteroidal topical writing. These healthcare providers have an outsized impact on prescriptions, they write a year, and have been our primary focus to date. With our sales force expansion in mid-2024 on approval in atopic dermatitis, we had already optimized our coverage of these highest value clinicians, briefly engaging them on the potential benefits ZORYVE can offer their patients. The mid-decile prescriber group is more numerous and frequently see patients in ZORYVE's target indications, albeit not the same very high volume as the high-decile group. To date, we have also been engaging at least these clinicians, but to focus our efforts on the highest potential prescribers, the frequency of the sales team's interaction within them has been lower than optimal and less than high prescribers. With the expansion of our sales force, we will be able to increase our call frequency among mid-decile prescribers to an optimal level, driving increased awareness and adoption of ZORYVE within this group. And to round out the picture, there's a final category of low-decile prescribers who far more -- who are far more numerous than the other groups based on their low prescription writing, are lower priority for our sales efforts. We are already in the process of hiring these additional reps to strengthen our sales force and are enthusiastic about the level of talent we are bringing to the team and the impact they will have once in the field. We anticipate beginning to see the impact of this investment in the second half of the year and expect it to be accretive in the first year as the team ramps up. Turning to Slide 12. Expanding Arcutis' commercial presence into primary care physician and pediatricians is a key component of our growth pillar. As announced in January, we have begun building a targeted sales force focused exclusively on these clinicians. In earlier stages of ZORYVE's commercialization, while executing our new product launches and building our operational leverage, the partnership model provided an effective approach to this segment of the market that reduced our financial exposure. We now have the opportunity to combine what we have learned through the initial partnership with our core commercial capabilities to create a targeted accretive opportunity that can scale with time as we further expand our operating leverage. Importantly, this initial deployment is focused not on whether to pursue the opportunity, but on how best to execute it. We are taking a disciplined stepwise approach, starting with a limited pilot to refine our go-to-market strategy. Then we'll scale thoughtfully while maintaining a highly targeted focus on the highest value PCPs and pediatricians. The initial sales team that we are putting in place for this will be compromised with approximately 30 sales reps and supporting personnel. This effort is distinct from and additive to our dermatology sales force expansion, which remains exclusively focused on driving growth within dermatology practices. As we expand in primary care and pediatrics, we do so with 4 distinct competitive advantages that position us to execute effectively and drive meaningful impact. First, a highly targeted approach focused on high-volume early adopter PCPs and pediatricians, positioning this investment to be accretive from the outset. Second, proven reimbursement support capabilities, including our patient access infrastructure to help ensure written prescriptions translate into reimbursed prescriptions. And third, the ability to leverage the core commercial model that has driven our success in dermatology. And fourth, strong dermatologist advocacy, which provides important specialist validation for PCPs and pediatricians. ZORYVE's differentiated profile as a safe, nonsteroid topical suitable for use anywhere on the body and for any duration offers primary care clinicians a level of confidence not typically associated with topical steroids. As the shift away from topical steroids expands beyond dermatology, we are well positioned to benefit. While we began with a focused pilot with early adopters, we believe ZORYVE's profile has the potential to resonate broadly over time across both primary care and pediatricians. I am now on Slide 13. Yesterday, we are excited to announce that Max Homa has joined our Free to Be Me awareness campaign, sharing his experience in managing seborrheic dermatitis with ZORYVE foam. Max joins Tori Spelling, who, along with her daughter, Stella, have shared their experience with atopic dermatitis and seborrheic dermatitis and advocating for individuals with inflammatory skin diseases to initiate conversations with their healthcare providers about ZORYVE, a safe, effective long-term treatment for these chronic diseases. The range of impact that Tori and Stella have had in driving awareness around treatment options for atopic dermatitis and seb derm have been wide and impactful with coverage in over 60 traditional news outlets and thousands of broadcast and radio TV airings to achieve close to 5 billion media impressions and social media reaching millions on Instagram and TikTok. We look forward to Max further contributing to these efforts. And based on the media and social media coverage in the last 24 hours, it's off to a great start, with over 25 original articles achieving over 400 million impressions. And with that, I'll turn it over to Patrick. Patrick Burnett: Thank you, Todd. I'm now on Slide 15. Ensuring that we can deliver ZORYVE to as broad a number of individuals with psoriasis, seborrheic dermatitis and atopic dermatitis as possible, thereby benefiting from the unique profile of this drug, remains a top priority for us. Our ongoing efforts to support young children with plaque psoriasis and infants suffering from atopic dermatitis are central to this goal. I'd like to start off today by highlighting the positive top line results from the INTEGUMENT-INFANT Phase II trial of ZORYVE cream 0.05% in infants aged 3 to less than 24 months with mild to moderate atopic dermatitis, which we announced earlier this month. 58% of participants achieved a 75% improvement in Eczema Area and Severity Index, also known as an EASI-75, with ZORYVE cream 0.05% at week 4. And notably, 1/3 of patients reached EASI-75 already after only 2 weeks of treatment, demonstrating a very rapid and robust result and one that has already garnered highly positive feedback from clinicians. Turning to safety. We saw no treatment-emergent serious adverse events and only 1 patient discontinuing the study due to an adverse event, reinforcing the consistency of the safety and tolerability profile of ZORYVE cream 0.05% already seen in the 4-week pivotal INTEGUMENT-PED clinical trial in children ages 2 to 5 years. Finally, and still on Slide 15, we have photographs of a 10-month-old Latino child from the study who achieved an EASI-75 at week 4. We can see clearly he has significant atopic dermatitis at baseline on the arms and the legs as well as a facial involvement, which is really characteristic of infants with atopic dermatitis. As a practicing dermatologist, seeing this type of rapid and meaningful clearance in patients at this young age who have historically been difficult to treat given very limited available therapeutic options is really encouraging. Of note, enrollment in the trial for this age range was very brisk and exceeded typical enrollment patterns and our expectations, confirming that there is significant interest in nonsteroidal treatment options for these most vulnerable patients. These results of the INTEGUMENT-INFANT trial are extremely promising as infant atopic dermatitis patients urgently need innovative alternatives to topical steroids, with vanishing few FDA-approved treatment options for this segment. And unlike other inflammatory skin conditions, atopic dermatitis often presents at an early age. Nearly 10 million children in the U.S. are impacted by atopic dermatitis with roughly 60% developing symptoms in their first year of life. And within just the study age range here, infants 3 to 24 months old, there are nearly 1 million prescription topically treated patients in need of better therapeutic options. AD presents unique challenges in these younger age groups, not only because the skin is more sensitive, but also because the condition often covers a greater percentage of their total body surface area compared to adolescents and adults. This raises the risk of greater systemic absorption. Therefore, parents of these young infants are particularly sensitive to potential negative side effects of topical steroids. These concerns range from the impact of chronic steroid use on the child's growth and bone development to more immediate concerns like application to the child's face where contact with the eyes and mouth can be difficult to control. Given the size of the patient population and the acute need for safe and tolerable therapeutic interventions, we've been methodically pursuing label expansion for ZORYVE to younger ages of children with atopic dermatitis. Notable about the INTEGUMENT-INFANT data is that we're moving closer to having a marketed product that can be used to treat individuals with chronic inflammatory skin conditions, like atopic dermatitis, across the lifetime continuum from infant to adult. This means that there will be a nonsteroidal treatment option that spares patients from the youngest stage onwards from exposure to steroids while effectively treating their skin conditions. Moving on to Slide 16. We're already engaging pediatricians on our currently approved indication for 2- to 5-year-old atopic dermatitis patients and the INTEGUMENT-INFANT data, combined with our pending PDUFA date for 2- to 5-year-olds in psoriasis, if approved, all support further outreach to pediatricians by our internal sales force. With the treatment alternative to steroids that is now demonstrated to be safe and effective, once approved for infants and as pediatricians gain familiarity with prescribing ZORYVE to, for example, a 12-month-old infant with atopic dermatitis, they'll be more likely and more inclined to then prescribe it for an older child or an adolescent as well. As Todd noted, we've been encouraged by our initial launch of ZORYVE cream 0.05% for the treatment of children ages 2 to 5 years old with atopic dermatitis, a population of about 1.8 million patients. We're excited to continue our introduction of this important new therapeutic option to clinicians and most importantly, to pediatric patients and their caregivers. We plan to report the full results of the INTEGUMENT-INFANT trial at a future medical conference. And based on these data, we plan to submit an sNDA for ZORYVE cream 0.05% in infants in the second quarter of this year. In addition to atopic dermatitis, we're also pursuing a label expansion to treat pediatric plaque psoriasis patients. While this patient population is smaller than that of pediatric AD patients, there's still an acute need for better therapeutic interventions that we are working to address. In quarter 3 of last year, we announced that we submitted a supplemental NDA for ZORYVE cream 0.3% to expand its indication to the treatment of plaque psoriasis in ages 2 to 5. We've been assigned a PDUFA date of June 29 and look forward to the FDA's decision. If approved, ZORYVE cream would be the first and only topical PDE4 inhibitor indicated for plaque psoriasis in children as young as 2, offering patients and caregivers an important alternative to topical steroids and vitamin D analogs. As we potentially gain label expansions for these younger patient populations across atopic dermatitis and plaque psoriasis, having an internal sales force dedicated to primary care and importantly, pediatric clinicians will be of great value in our efforts to educate healthcare providers on ZORYVE as an alternative therapeutic option to topical corticosteroids. Beyond our clinical development efforts to make ZORYVE available to more pediatric patients, we also continue to evaluate incremental data generation opportunities to further bolster our currently approved indications. At our Investor Day, we highlighted a case report that demonstrated the effectiveness of ZORYVE in treating nail psoriasis. This is a good example of where incremental data generation could further strengthen our current indications, and we look forward to providing further updates throughout the year. Turning to Slide 17. Pursuing a new patient populations that may benefit from ZORYVE has been a principal focus for our clinical development strategy from the outset. This is evidenced by the 5 approvals we've secured since our initial plaque psoriasis approval in 2022. These have expanded our indications to include seborrheic dermatitis and atopic dermatitis and lowered the approved ages for psoriasis and AD patients. We have good reason to believe that there are additional skin diseases that may respond to, and more patients who may benefit from ZORYVE, represented by the expand pillar of our strategy that Frank highlighted at the outset of today's call. This belief is supported by our understanding of ZORYVE's broadly applicable anti-inflammatory and antipruritic properties as well as its potential impact on protecting melanocytes and by the direct and ongoing feedback we've received from healthcare providers in the field on their real-world ZORYVE experiences. To that end, we continue to make progress with our Phase II proof-of-concept studies with ZORYVE foam 0.3% in vitiligo and hidradenitis suppurativa, or HS, with subjects continuing to enroll. Vitiligo and HS both represent chronic inflammatory skin conditions with significant unmet patient needs. These are just 2 examples of multiple indications in which ZORYVE has demonstrated encouraging early evidence as promising treatment. Based on that evidence, we initiated the ongoing proof-of-concept studies in vitiligo and HS. We continue to evaluate additional diseases where ZORYVE might be a good therapeutic option. And as we decide to initiate additional POC studies, we will inform the investment community of those developments. We anticipate reporting a decision whether to advance vitiligo, including the Phase II proof-of-concept data, in the fourth quarter of 2026 and an advancement decision in HS, including the HS Phase II data in the first quarter of 2027. On Slide 18, as a reminder, there are 3 cases that typify the sort of case reports and case series that we receive and that are informing our ZORYVE expansion efforts. The 2 patients on the left are both children with recalcitrant facial vitiligo. The girl on the upper left has previously failed multiple topical therapies, including both topical steroids and topical JAK inhibitors, and you can see meaningful repigmentation after only 7 months of ZORYVE treatment. The boy on the lower left also previously failed topical steroid treatment and shows good response after only 5 months of ZORYVE treatment. On the right-hand side of the slide, you see a 31-year-old woman with Hurley Stage 1 HS who exhibited complete clearance of her HS, including pain and itch, in only 4 weeks of treatment with ZORYVE, in conjunction with 2 non-inflammatory medications. In the lower right, you also see details from 2 other mild HS patients who had similarly impressive results following ZORYVE treatment. It's clear to see what's driving the enthusiasm that we are hearing from clinicians who are independently exploring these novel applications of ZORYVE. Now on Slide 19. As I've touched upon today and as represented on the slide, we're looking forward to multiple near-term clinical catalysts in the coming year. Importantly, among these clinical activities is the advancement of ARQ-234, our novel biologic targeting CD200R with best-in-class potential to address a large unmet need in atopic dermatitis and potentially additional inflammatory skin diseases. With excitement around other emerging AD mechanisms, such as OX40, recently coming under more scrutiny, we look forward to moving ARQ-234 into the clinic to validate what has the potential to be a meaningful therapeutic advancement for AD patients with more severe disease. This program has come to our third pillar, build, encompassing our efforts to expand our clinical pipeline beyond ZORYVE. We expect to begin dosing patients in the Phase I trial for ARQ-234 very soon. And with that, I'll turn it over -- turn the call over to Latha for the financial update. Latha Vairavan: Thank you, Patrick. I'm now on Slide 21, showing financial results both year-over-year and quarter-over-quarter for the fourth quarter. We generated net product revenues in the fourth quarter of $127.5 million, which is up 84% from the fourth quarter of 2024 and 29% from the third quarter of 2025. We generated $2 million of other revenue in the fourth quarter from a Huadong milestone payment. Cost of sales in the fourth quarter were $11.7 million compared to $6.9 million in the fourth quarter of 2024, primarily driven by increased ZORYVE sales volume. For the fourth quarter, our R&D expenses were $20.5 million, which is a $6 million increase from $14.5 million in the fourth quarter of 2024, when a clinical trial credit of $3.3 million lowered our R&D expenses for that period. Looking ahead to 2026, we expect an increase in our R&D expenses as we continue to advance ZORYVE life cycle management clinical development activities and initiate the Phase I trial of ARQ-234. SG&A expenses were $79 million for the fourth quarter of 2025 versus $57.6 million in the same period last year, a 37% increase attributable to investments in our continued commercialization efforts for ZORYVE. In 2026, we expect to see an increase in SG&A expense as we continue to make incremental investments in ZORYVE commercialization efforts, including the expansion of our dermatology sales force and the initial build of our internal primary care and pediatric sales team as detailed by Todd earlier. Net income for the quarter was $17.4 million compared to a net loss of $10.8 million for the same period last year and net income of $7.4 million for the third quarter of 2025. While we continue to expect positive cash flow on a quarterly basis throughout 2026, we may fluctuate between an operating income and operating loss position quarter-to-quarter driven by noncash expenses such as stock compensation and milestone payments. As anticipated and reported in our Q3 financial update, the continued momentum of ZORYVE net sales growth, combined with our expense discipline, allowed us cash flow positive position in the fourth quarter of 2025, which was earlier than expected and an important milestone and achievement for our company. Our cash and marketable securities balance as of December 31, 2025, was $221.3 million, with a positive cash flow from operations of $26.2 million for the period. We have total debt of $108 million and have the option to withdraw another $100 million in whole or in part at our discretion through the middle of 2026, providing us with operational flexibility. The success of the ZORYVE franchise and the economies of scale we are generating will permit us to invest in the business for sustained growth over the years ahead. Now turning to our full year 2025 results. I'm on Slide 22. For the full year 2025, net product revenues were $372.1 million, an increase of 123%, or $205.5 million versus 2024. This meaningful year-over-year increase in product revenues was primarily driven by increasing demand across the ZORYVE products. Other revenue in 2025 was $4 million compared to $30 million in 2024, when we received a $25 million upfront payment in connection with the Sato Japan license agreement. Cost of sales for 2025 were $36.7 million compared to $19.1 million the prior year, driven by increased ZORYVE unit volume. R&D expenses remained consistent year-over-year with $77.1 million expense in 2025, compared to $76.4 million in 2024, as increased development costs for roflumilast in pediatric atopic dermatitis were largely offset by a decrease in preclinical development costs. SG&A costs increased 20% in 2025 to $274.6 million. This year-over-year increase was primarily driven by our continued and increasing investments in sales and marketing activities related to our commercialization efforts for ZORYVE. Our net loss in 2025 was $16.1 million compared to $140 million net loss in 2024. This reduction in our net loss of $123.9 million was driven by an increase in net product sales that substantially outpaced the increase in our expense base. While expenses continue to grow due to strategic ROI positive and accretive investments, the considerably faster growth of our top line revenue is an indicator of the growing operating leverage we expect to benefit from going forward as ZORYVE continues its growth trajectory. Now moving to Slide 23. As we touched upon earlier, across this business, we have multiple near-term value-driving catalysts. Adding to Patrick's summary of expected clinical and regulatory developments, we anticipate continued commercial progress in 2026. This year, we anticipate full year net product sales to be in the range of $480 million to $495 million. This represents an increase of $25 million on the top and bottom end of our guidance range announced as part of our Investor Day in October of last year. Our confidence in increasing our sales guidance for the year is informed both by the sustained momentum in our ZORYVE business as demonstrated in the Q4 results discussed today as well as the investments we are making in the franchise, such as the dermatology sales force expansion Todd reviewed earlier. I will note that the effect of this particular investment will take some time to materialize and will be evident in the back half of the year, but will likely have no meaningful impact in quarters 1 and 2. We are confident that we will be able to fund the investments we've described today to grow, build and expand our business with the capital produced from our core ZORYVE business while maintaining positive cash flow. We will continue to be protective of shareholder capital and attentive to managing our capital allocation to ensure that this dynamic plays out. We are fortunate to have a portfolio of high ROI investment opportunities paired with a cash flow generating franchise like ZORYVE. I will now hand the call back to Frank for some closing remarks. Todd Watanabe: Okay. Thanks, Latha, and thanks to all of you for joining us today. Based on our expansive progress and achievements in 2025 and our multiple anticipated value-driving catalysts across the business in 2026, we are more energized than ever about the future of ZORYVE, of our company overall, our ability to grow shareholder value and most importantly, of our ability to amplify the impact we can have on individuals impacted by chronic inflammatory skin diseases. We look forward to providing you with more updates throughout the year, and we thank you for your continued interest in the unfolding Arcutis story. And with that, we'll open things up to Q&A. Operator: [Operator Instructions] And the first question will come from Seamus Fernandez with Guggenheim. Seamus Fernandez: Congrats on the great results. Frank, I really wanted to just kind of tackle the update that we got from one of the potential competitors in the market. I think Incyte was commenting on some challenges or need to lower OPZELURA pricing in order to improve access. It sounds like access isn't really a problem for ZORYVE. So just wanted to get your thoughts and commentary around the dynamics that are occurring in the market today within both the AD marketplace, but also your broader efforts to continue to take share against topical steroids. Todd Watanabe: Seamus, thanks. Great question again. Not a surprise after this morning. It's a little funny to be talking in different parts of the hotel. I think maybe for a different perspective, I'll ask Todd to comment on that since you heard my answer earlier today. L. Edwards: Yes, I'm happy to answer that. Seamus, thank you for the question. So first, we do not anticipate any material erosion of our gross to net resulting from actions to increase our access in 2026. As previously mentioned, we were able to achieve significant improved access in 2025. If you look at our commercial access, more than 80% of patients insured by commercial insurance have access to ZORYVE, and it's high-quality access, meaning that it's a single-step edit through a steroid. As mentioned earlier, too, we have exceptional Medicaid access, with more than half of the patient population in Medicaid having access to ZORYVE with a single-step edit or less. And then just announced, was our Medicare Part D wins, effective January 1. And so we've had optimal access, and we don't anticipate having to give any additional rebates in 2026 that would adversely impact our gross to net to be able to maintain that. And then I just want to also remind that our pricing strategy has been designed to facilitate this kind of reimbursement that allows for meaningful patient access. Our strategic pricing has made a difference, and now we can see that within access across both commercial insurance and government insurance. Todd Watanabe: Yes. So maybe I'll just chime in and take a little bit of a victory lap here. As I mentioned earlier, I think when we launched, there were a lot of investors who were questioning our access strategy and why we were taking such a different approach than other players in the branded topical space. And I would make a strong case that the last 3 years has proven out the wisdom of the strategy that we adopted. As Todd has just summarized, we've really achieved outstanding access across commercial Medicare and Medicaid now. And that's come with a very reasonable and stable gross to net, in the 50s, and we expect it to remain there. And so I think, really, the marketplace has proven that we took the right strategy from the outset, and it's paying off not only for our investors, but also for patients. Seamus Fernandez: Great. And if I could just ask one quick follow-up question. It's actually more related to some of the decisions and -- federal court decisions around rebate dynamics and also some labor law dynamics that are calling into question, I think, some rebate structure. But we've also heard that it's going to be really challenging to kind of change the dynamics of the current marketplace as it relates to the presence that the GPOs have. So as you guys look at some of the dynamics in the marketplace, do you see potential positive changes from an access perspective emerging from some of these recent updates and changes? Todd Watanabe: Yes. So Seamus, that's also a really interesting question. I think that there's a lot of discussion going on right now in Washington about our current reimbursement environment. We saw in the budget bill that was passed last month, I think the first steps in some meaningful reforms to the current payer system, but those were pretty limited steps. There continues to be a lot of discussion in Congress as well as in the administration about changes to the PBM environment -- or to the reimbursement environment, excuse me, more broadly. And I think it's really too early to say what Washington is going to do on that front. We remain confident that regardless of how the situation evolves, Arcutis is well positioned to continue to both make ZORYVE widely available to patients and to be able to generate a reasonable return for our investors. But I, for one, think it's much too early to say how this is all going to shake out in terms of a meaningful reform to the insurance system in the U.S. Operator: And our next question is going to come from Tyler Van Buren with TD Cowen. Unknown Analyst: This is [ Ekeno O'Connor ] on for Tyler. Congrats guys on the quarter. We noticed that in your presentation, you guys didn't break out sales for each one of the SKUs. I wonder if you can comment on that and any growth trends that you expect for the different SKUs going into 2026? Todd Watanabe: Yes, sure. Todd, do you want to take that one? L. Edwards: Yes, I will. Yes, we had -- as mentioned before, we had growth across the portfolio and had meaningful growth within each of the SKUs. If you look at the growth across those SKUs, we see an increased demand more so with the ZORYVE foam, given that we have the 2 indications, seborrheic dermatitis, but also the scalp and body psoriasis, but nonetheless, very positive growth across the products. And we do anticipate to continue to have growth across the portfolio as we enter into 2026 and throughout 2026. Across these products, they're all highly differentiated, relative to the vehicle itself, but also relative to the patient being that you can -- it's once a day dosing, you can put it anywhere for any duration on the body and is exceptional relative to long-term disease control with these inflammatory skin conditions. So we look forward to continued growth across the portfolio as we continue to roll through 2026. Todd Watanabe: Yes. I might just add, I do think for investors, looking at the Rx split data since we have different SKUs is a pretty accurate depiction of the split, right? The gross to nets are effectively the same across the SKUs. There's a little bit of a lag when we first launch a product like 0.05%, but that very quickly catches up to the other SKUs. So you can look at the SKU split and get a pretty good sense of what's happening. The one exception is the foam where we have 2 different indications. And frankly, we don't even have enough data at this point to tease out what's seb derm versus what scalp psoriasis. I think as time goes on, we might get a better sense of an estimate of that, and we'll share that with the investment community. But we're never going to have complete transparency since it is the same SKU. Latha Vairavan: [ Ekeno ], I'll just add that we have the breakout of net sales in our reported financial statements, and we're happy to send you those details, but the net sales are broken out by SKU, as Frank just said, in the financial statements, and you can look at those. Operator: And the next question is going to come from Judah Frommer with MS. Judah Frommer: Congrats on the progress. Just curious to get a little more color on the confidence to raise the full year guide. Obviously, a strong Q4, but heading into what sounds like a seasonality affected Q1. So maybe if you could just break out between formulary access, confidence in the additions to the sales force and anything else that underscored changes to the inputs in your model? Todd Watanabe: Yes. So Todd, not to wear out my welcome, but I think I'll probably turn that one over to you, too. L. Edwards: Yes, yes. So we -- I want to kind of frame this. One, we -- first is the exceptional momentum that we have in Q4. That to be coupled with the investment that we're making in the franchise, one, the dermatology field sales force expansion, which we will see that impact in the second half of the year. In addition to that, the investment in primary care pediatricians and the launch into that space, once again, have an impact in the second half of the year. But in reference to formulary access, as mentioned, we continue to have exceptional formulary access. We didn't -- the previous year, we will carry that forward into 2026 as we go forward. So in reference to the Q1 dynamic, I mean, this is typical seasonality that you see with any pharmaceutical product to include nonsteroidal branded topicals. As mentioned, it's partly because of the deductible reset that happens at the beginning of the year. And also patients are changing insurance plans effective the first of the year, which results into higher increased co-pay usage and therefore, higher gross to net rate within the first quarter, which, we mentioned, will be in the high 50s. But from the first quarter, that gross to net rate will continue to trend down, as we saw in 2025, to the lowest rate in Q4. We raised the guidance. We're very confident in our performance. It's going to happen in 2026, and we expect to have sequential quarter-over-quarter growth as we roll through out of Q1 to Q4 aligned with the restated guidance, once again, taking note that the investments in the dermatology expansion and PCP expansion will have an impact in the second half of the year. Operator: And the next question is going to come from Uy Ear with Mizuho. Uy Ear: Congrats on the good quarter. Maybe a couple of questions, if I may. First question is, I think in the fourth quarter, you indicated that quarter-over-quarter growth was 29% and about 19% of that came from Rx and 2% contributed to inventory. So that sort of implies that about 8% came from price. Just wondering how -- do you expect this sort of benefit to continue through the year and particularly next -- in the fourth quarter of next year as well? That's the first question. And the second question is, you indicated that you have about 1/3 of Part D. Maybe just help us understand what is it -- like, why you're able to get this 1/3 and when would you be able to get the remaining? And what was it about this particular 1/3 that made -- that facilitate, I guess, access? Todd Watanabe: Todd? L. Edwards: Yes, no problem. Yes. Relative to the fourth quarter dynamics, you are accurate relative to the 29% with 19% of that being attributed to volume, the 2%, which was the -- an inventory build that we had, once again, 2%, or $2.5 million that we expect to unwind in Q1. And then the other was the price upside, which was a result of patients moving quicker through their deductibles, which lowered our co-pay card expenses. We will see the seasonality in Q1 that we mentioned. But then also, as mentioned, the gross to net will continue to improve through the quarters through Q4 as patients start to achieve their out-of-pocket maximum, which reduces our co-pay card expenditures and that typically starts at the highest in Q1 and then levels down quarter-by-quarter to a lower expense to us, which lowers our gross to net in Q4. Relative to the Medicare Part D and the 1/3, how and why were we able to achieve this? It's 2 reasons. One is our strategic pricing. We price ZORYVE so that we could have access across both government and commercial payers and PBMs. And the other is that ZORYVE is highly differentiated. One is the portfolio that we have, which no other branded topical company can offer, a portfolio of products across the disease indications that we can. Other is the significant volume uptake that we've had within our commercial business, is duly noted by the Part D plans, realizing that there's a demand from Medicare Part D beneficiaries to have access to this type of product, which has resulted in us picking up that 1/3 of the Part Ds. Relative to the remainder of Medicare Part D, we will continue to work with the remaining plans and PBMs, but don't anticipate picking that up until likely the first part of 2027, but work diligently to try to pull that forward if possible. Todd Watanabe: I do think it's worth dwelling on just how big a deal this is to gain Medicare access, Part D access, right? It's very rare for patients to be able to get branded products on the Part D formularies. And I think Todd mentioned in the call, we're the only branded topical on formulary. These are your grandmothers, your mothers. These are people who deserve access to medical innovation as much as anyone else, if not more so. And we're really proud of our success so far in gaining Medicare coverage and are looking forward to getting the remaining Part D formularies on board. I would also just remind investors that Part D, unlike Medicaid, looks a little bit more like commercial markets where there's multiple commercial plans managing the Part D plans. And so you have to gain formulary access to each individual Part D provider, which is why it's lumpy the way commercial coverage is. Operator: And the next question is going to come from Andrew Tsai with Jefferies. Unknown Analyst: Brian on here for Andrew. Just on HS and vitiligo, can you just remind us on the primary endpoints for both of those as well as the outcomes that you'd like to see to take them both to Phase III? Todd Watanabe: Sure. Patrick, do you want to take that one? Patrick Burnett: Yes. I think what we're looking to focus on as we move into the fourth quarter for vitiligo, for a decision and presenting those data, and then the first quarter for HS is to really be able to get an understanding of what does this kind of the kinetic response of patients look like, because I think here, timing of the response is really important in both of these diseases. They've been challenging with regard to how long it's taken for patients to get to a response that is meaningful to them. So we're really going to be focused on that. And then as well, for us, it's -- it will be important for us to understand kind of what is that fraction of the patients that are being treated, given that these are open-label studies, who are showing a meaningful clinical improvement over that time point, so that we would be able to kind of make an educated guess as to what the expectation for a pivotal trial would look like as we revert then to kind of the characteristic endpoints that you would expect for a pivotal in vitiligo and HS. But I think that the profile that we've seen of excellent tolerability once-a-day treatment and rapid response, which is kind of characterized our efficacy patterns -- and safety patterns across all 3 indications, is what we'd be hoping to replicate here. Operator: And the next question will come from Serge Belanger with Needham. Serge Belanger: Congrats on a strong end to 2025. First question regarding the pediatric opportunity. I think you've been on the market now with a 0.05% cream product for nearly 4 months. So can you provide more color on the level of awareness and the willingness to prescribe the product in this market segment? And then secondly, you now have an expanding sales force on 2 fronts and a growing cash balance with positive cash flows. So does that change your appetite to add a commercial asset to the bag of the sales force? Todd Watanabe: Maybe I'll take the first one -- or second question, and then I'll turn the first question over to Todd to give him a little bit of a break. I would say that a commercial stage asset is probably not our highest priority right now. And I think the major reason for that is just the wealth of new opportunities that we have around ZORYVE, right? We've had 6 approvals in the last roughly 3 years. We expect at least one more approval this year, possibly 2, depending on the speed with which the FDA reviews the 3 to 24 months. But we still have a lot of work to do to optimize ZORYVE promotion. And what I don't want to do is put products in the bag that end up distracting us from what is the highest margin commercial opportunity we have, which is driving ZORYVE growth. So I think really, that's probably not a very high priority for us. Where I think the real opportunity for us to create shareholder value is, quite frankly, is in more development stage assets, especially probably mid-stage development. Patrick and his team and Bethany and her team, I think, have demonstrated that they are an exceptionally strong development organization. And we have, what, 6 FDA approvals under our belt, 4 Health Canada approvals under our belt. For a small company, that's a pretty amazing track record, all of them on time, no CRLs. And so taking a strong asset and putting it in our development team's hands, I think, is the best opportunity for us to create value beyond continuing to drive the growth of ZORYVE and continuing to advance ARQ-234. And then, Todd, do you want to just comment on what we're seeing on the pediatrics? L. Edwards: Yes. Relative to the 0.05% atopic dermatitis for 2 to 5 years old, there is a strong willingness to prescribe this product, and we're seeing robust uptake of the product since the launch. This is a great product relative to that patient population. offering, once again, once a day, a very soothing, moisturizing vehicle. It's highly effective. That can be put anywhere on the body for any duration. This is a product that drives long-term disease control and is a great option for replacing steroids. Caregivers and pediatricians and dermatologists prefer not to use steroids in this patient population at this age. And that's where ZORYVE offers a significant value proposition, both to the caregiver patient and to the provider. So we're very encouraged with the uptake and continue to get very positive feedback, not only from providers but from patients. Operator: And the next question is going to come from Rich Law with GS. Jin Law: Congrats on the progress. A couple of questions here. How much of that new 2026 guidance factors in the potential sales improvement in that primary care and pediatric setting now that you're moving those efforts in-house and then -- and you're also kicking off these pilot programs? So I mean, just based on that minimal contribution from Kowa, I think that's why you guys terminated that contract. Is there an opportunity for 2026 sales to go even higher just based on what you guided if you're able to make improvement in that PCP and pediatrics segment? Todd Watanabe: I think it's probably a little early to speculate on the magnitude of the primary care contribution. That's something that we'll continue to guide. As Todd mentioned in this call, we're taking a very methodical and stepwise approach to primary care. We're going to start with a very small team focused on the highest value customers so that we can really fine-tune our go-to-market strategy and figure out what's the right way to access this very large but very diffused opportunity in primary care and pediatrics, and then we'll scale that as we figure that out. So the rate that we scale that and also the rate that it starts to inflect the top line, I think, is probably premature for us to speculate on. Jin Law: Okay. Got it. And then just a follow-up on the Medicare patients. What's the OOP expense for these patients as that non-preferred branded category? L. Edwards: Yes, I can go ahead and get that one, Frank. So you're talking relative to the out-of-pocket expense for the Medicare beneficiaries, what's the maximum limit on the cap? If that's the question, it would be in 2026, the cap is now $2,100. So a patient needs to pay the co-pay or coinsurance that's aligned with the product up to the maximum out-of-pocket expense at $2,100, and then the products are covered thereafter by the Part D plan. Todd Watanabe: Yes. I would just add to Todd's point, just a reminder, that $2,100 is total out-of-pocket for all drugs, right? So for an elderly patient who's maybe on multiple medications, their total out-of-pocket expense for the year is capped at $2,100. And patients can also opt in for smoothing, which means that they pay -- their maximum out-of-pocket in any month is 1/12 of $2,100. So it's very manageable. For ZORYVE prescription, it really depends on the patient's plan, what the actual dollar amount is going to be. It varies depending on both the insurance company, but also on what plan the patient has bought. Operator: And the next question is going to come from Douglas Tsao with H.C. Wainwright. Douglas Tsao: Frank, maybe just a follow-up on the Kowa and the primary care opportunity. I guess, obviously, as you put it, it's a very large opportunity as well as diverse. Was it simply a function that you didn't think that they were taking the right approach and that you sort of saw a different way forward? Or was it just simply just capturing all the economics for yourself? Todd Watanabe: I wouldn't say it was either. When we signed this deal with Kowa, I guess it's been about 1.5 years ago, we weren't in a financial position where we could build our own primary care team. We're in a very different place today. And Kowa is a perfectly fine company. But when something really matters to you, it's often best to do it yourself, right? So given that we're in the financial position to do this ourselves, we felt that the best way to maximize shareholder returns was for us to drive primary care and pediatric promotion ourselves. I will say, as you pointed out, we do keep all the economics on that, but there are some expenses associated with it, too. But we feel very confident that we're going to be able to do this in a way that will be accretive very quickly to our shareholders. Douglas Tsao: And Frank, if I can, as a follow-up, I mean, is it also just given the momentum that you've seen with ZORYVE that it just bolsters your confidence that this is sort of dual role from the company? Todd Watanabe: Yes, absolutely. And I think I would add to that, that some of the early experience with Kowa added to our conviction around this. There's a very high level of excitement, I would say, in primary care and pediatrics around ZORYVE for doctors who they had called on. They started running speaker programs at the end of 2025. And for those of you who haven't been in the business, speaker programs are very difficult to run these days. The response, the attendance of those programs, frankly, astounded us and I think really speaks to the very high level of interest in the primary care and pediatric communities. And I think that's only going to build as we continue to expand our pediatric indications to 2 to 5 in psoriasis and eventually 3 to 24 months in atopic dermatitis as well. So that added to our conviction that this is a real opportunity. The other thing I think that's really important is, to remind everyone, we talked about this on the investor call that there's something like 300,000 primary care providers in the United States, right? That's a colossal number for any company, but certainly for a smaller company like us. But -- and we talked about this in the investor call, about 5% of those providers are writing about 1/3 of all topical scripts. So there's actually a very, very high-value concentrated pocket of primary care and pediatricians. And really, where we're going to focus our efforts is on that very concentrated high productivity segment of the market. We may pick up some volume in the other portions of the market, too, but we're not looking to build a massive primary care sales force that's calling on tens of thousands or hundreds of thousands of primary care providers. That just doesn't make sense for us. So we're really going to focus on the tip of the spear where there are very, very high-volume primary care doctors for topical therapies. Operator: I am showing no further questions in the queue at this time. I will now turn the call back over to Frank for closing remarks. Todd Watanabe: Okay. Well, I will keep it short. As always, thank you for the great questions. Thank you for making the time to call in and listen to our discussion today, and we look forward to talking to you all in another 90 days to update you on the first quarter. Thanks a lot. Bye-bye. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Ian Michael McLaughlin: Good morning, everyone. Thank you for joining us for Vanquis Banking Group's Full Year 2025 Results. I'm Ian McLaughlin, the Chief Executive Officer of Vanquis, and I'm joined this morning by our Chief Financial Officer, Dave Watts. Dave, good morning. David Watts: Good morning. Ian Michael McLaughlin: I'll start with an overview of our performance in 2025. Dave will then take you through the financial results in more detail, and I will then come back to talk about the strategic priorities, and Dave will then end by covering our financial guidance through to full year 2027. After that, as usual, we'll be happy to take your questions. If I can take you to Slide 4. You can see how our full year performance compares against both the prior year and against the guidance that we set out at the start of 2025. And the headline here is simple. We delivered a performance that was at or better than all of our key commitments for the year. Most importantly, after the turnaround of the business in 2024, where we delivered a loss before tax of GBP 138 million, we returned to profitability in 2025 with a profit before tax of GBP 8.3 million. During the year, we also took the opportunity to deploy capital to accelerate balance growth, which will support our future profitability. And you can see that in our customer interest-earning balances, which ended the year at GBP 2.8 billion, ahead of our guidance of greater than GBP 2.7 billion and therefore, well ahead of our original 2025 goal of greater than GBP 2.6 billion. Net interest margin was 16.8%, reflecting a deliberate shift in mix towards lower-risk secured lending in Second Charge Mortgages, as we've signaled previously. Excluding this, NIM actually increased by 50 bps, reflecting our continued pricing discipline in Cards and Vehicle Finance. Our cost-to-income ratio was in the high 50s, so again, in line with guidance and reflecting our improving operating efficiency. And return on tangible equity was 2.3%, so consistent with our guidance for a low-single digit return. Following the AT1 capital issuance in the second half of the year, our Tier 1 ratio increased to 19.3%, putting us in a strong position to support the next phase of our strategy. So while there's always more to do, we have delivered what we said we would in 2025, growing in a resilient and sustainable manner with margins and costs under tight control. After what is now 5 quarters of consecutive book growth and 4 quarters of consecutive profitability, you can see that the actions that we've been taking over the past 2 years are translating into more predictable and sustainable financial outcomes. Slide 5 sets out the underlying actions we've taken to deliver the results that I've just discussed. Now I'll step through a few of these. Firstly, as I've already mentioned, we accelerated our balance growth, but we did so with discipline, actively managing mix to maximize returns on deployed capital. Secondly, we continue to make strong progress on Gateway, our technology transformation program. The fundamentals of Gateway are now substantively delivered and the program will complete this year. We also delivered further transformation cost savings with efficiency gains creating positive operating leverage as the business continued to scale. Credit quality remains robust, reflecting continued customer resilience and responsible lending across all our portfolios. And we continued to develop our customer proposition, a bit more on that in a moment. Taken together, these actions will allow us to continue to transform the bank. Slide 6 then highlights the progress we made across our customer proposition and on risk management during 2025. We continue to strengthen all our product offerings, balancing growth, risk discipline and good customer outcomes, and we got busy. In Credit Cards, for example, we launched 66 new product variants, including credit builder, balance transfer and other promotional offers. We also expanded our retail savings range, including new ISAs and the Snoop-branded easy access account, strengthening deposit growth, product flexibility and cost-efficient funding. And Snoop continues to play an increasingly important role in our ecosystem, helping customers with their money management. Active users were up 12%, to 328,000, including 43,000 Vanquis customers. We also grew our partnership with Fair Finance. In 2025, this helped 20,000 applicants to identify around GBP 34 million in potential annual benefit entitlements. That's an average of over GBP 1,750 per annum per person. So genuinely helping people transform their financial lives for the better. We also delivered a profile raising campaign to refresh and relaunch the Vanquis brand with our target customers, including our successful partnership with the Professional Darts Corporation. We also introduced a new consistent customer satisfaction measure across the group during the year, giving us a more data-driven view of customer experience. And our overall CSI customer satisfaction score averaged 83.7 in 2025, and this is supported by consistently excellent Trustpilot ratings across both Vanquis and Moneybarn brands. Fundamentally, of course, Vanquis is a risk management business. We have, therefore, prioritized making meaningful improvements to our risk management capabilities. In Vehicle Finance, we developed a new credit decisioning platform, improving the speed, consistency, and quality of our lending decisions, and this contributed to the improved risk-adjusted margin performance in the business. In Credit Cards, we made many improvements to our credit risk scorecards through the year and to our affordability assessments. And we are upgrading the decisioning platform alongside other technology improvements, which I'll turn to in more detail on Slide 7. We launched our new mobile app as part of an enhanced digital onboarding journey, underpinning our clear focus on improving customer engagement, conversion and retention. Last February, we centralized around 30 billion rows of customer product and decisioning data onto a single modern platform, significantly strengthening analytics, insight, and decision-making capabilities. In Operations, we expanded the use of digital tools, AI and self-service functionality across key processes, again, significantly improving efficiency. And the impact here is tangible. Complaint handling costs, for example, were down 10% and fraud losses fell by 25% in 2025, as a result of these improved processes. And we're applying this disciplined approach across every aspect of our business. A good example, we've reviewed our property footprint and reduced space at our Bradford headquarters by over 70%, 7-0 percent, as we modernize and right-size to align with current and future workplace needs. Finally, all we have delivered is down to the engagement and efforts of our fantastic people, and we were pleased to see that colleague engagement improved significantly through the year, up 13 points, to 73%. And that improvement reflects growing confidence in the direction and performance of our business and resulted in Vanquis being certified as a Great Place to Work, for the first time ever. As I said earlier, there's more to do, and we are not finished yet. But hopefully, you can see that the progress made in 2025 is tangible, and we are seeing a positive response from colleagues and from customers. Alongside this internal progress, I should note that the external headwinds of 2024 and 2025 have also largely receded, for example, elevated FOS fees from unmerited CMC complaints, Dave will touch on that shortly. And I'd remind you that our exposure to motor finance commissions is differentiated and any potential liability remains limited for Vanquis. Overall, the 2 words I've used most to describe 2025 are discipline and delivery. Both of these will serve us well as we take this business forward from here. With that, I'll now hand over to Dave to take you through the financials in more detail. Dave, over to you. David Watts: Thank you, Ian. I'm pleased to present our results today, given the significant progress we have made in 2025. Slide 9 summarizes our headlines before I go into more detail. Our return to profitability was achieved by growing income, reducing costs, and importantly, the nonrepeat of the notable items that we reported in 2024. This is evidence that the financial impact of the business turnaround is firmly behind us, and we were able to focus on sustainable, profitable growth in 2025. With this backdrop, we accelerated balanced growth to build scale and drive long-term profitability. This was aided by our first AT1 issuance in October last year, which freed up additional capital to redeploy for growth. This growth comes with upfront IFRS 9 impairment charges, although credit quality remained strong and write-offs decreased. We maintained our cost discipline, delivering ongoing cost savings in excess of our commitment for the year. At the same time, we continue to invest in improving the fundamentals of the business, including our technology capabilities by the Gateway transformation program. Following the new FOS fee charging structure implemented in April last year, we saw a material reduction in CMC claims to FOS, resulting in much lower complaint costs in 2025. We also continue to dynamically manage liquidity and funding. We diversified our liquid asset buffer investments to generate higher returns. We introduced new savings products to provide more stability and flexibility while lowering our cost of funds. As a reminder, our exposure to motor finance commissions is differentiated and any potential liability is limited. While the final scope and mechanics of the FCA compensation scheme remains subject to change, we did recognize a GBP 3 million provision in 3Q '25. You can find further details on why our exposure is differentiated in the appendix. Going into more detail, Slide 10 summarizes the group's performance for 2025. We generated a profit from continuing operations of GBP 8.3 million, supported by a 5% growth in risk-adjusted income and a 33% reduction in operating costs. Excluding notable items, costs were down 9%, meaning the group generated 11% positive cost/income jaws. After factoring in tax, the profit from discontinued operations related to the sale of personal loans business and AT1 coupon costs, profit attributable to shareholders was GBP 8.2 million. At the same time, we grew customer interest-earning balances by 22%, to over GBP 2.8 billion. On Slide 11, you can see what this meant for our financial KPIs. GBP 8.2 million of bottom line profits translated into a return on tangible equity of 2.3%, in line with our guidance. This was driven by an improvement in the cost/income ratio to 58.4%, again, in line with guidance. As we previously guided to, asset yield, NIM and total income margin, all reduced, driven by the deliberate growth in lower margin, lower risk Second Charge Mortgages. Reduction in risk-adjusted margin to 11% was smaller, only 80 basis points, reflecting 110 basis points reduction in the cost of risk. With greater clarity on the cost of risk across our products, we intend to focus on risk-adjusted margin as a core metric going forward. The NIM drivers are set out on Slide 12. A small 20 basis points reduction in asset yield was more than offset by 50 basis points improvement from lower funding costs. This net positive outcome was more than offset by 170 basis points dilution due to a shift in mix towards Second Charge Mortgages and a 30 basis points reduction from a larger liquid asset buffer. As a result, NIM decreased at 16.8%. However, to highlight the group's pricing discipline, excluding Second Charge Mortgages, NIM increased 50 basis points year-on-year, to 19.4%. After factoring balance growth, net interest income rose by 3% in 2025. And importantly, it rose by 6% in the second half of the year. Slide 13 details our customer interest-earning balances, which increased to over GBP 2.8 billion. Credit Card balances increased 19%. This reflected both new customer acquisitions and increased card utilization by existing customers. Vehicle Finance balances reduced by 8% as we manage new business growth while we develop the new onboarding and servicing platform. Second Charge Mortgages continue to grow strongly, increasing by over GBP 380 million. Gross and net receivables increased by 21% and 25%, respectively. Importantly, we now have established debt sale programs in both Credit Cards and Vehicle Finance with the Vehicle Finance post charge-off asset continuing to reduce following the completion of a number of debt sales. Further details are set out in the appendix. Slide 14 summarizes the year-on-year impairment charge movement. Bottom line, impairment reduced by 2%, driven by a 5% reduction in gross charge-offs. Within this, Credit Card gross charge-offs reduced by 19% to a gross charge-off rate of 12.7%. This highlights the improving quality of the portfolio. Back-book credit risk improved with fewer negative stage migrations and lower impairment releases from write-offs and debt sales. In summary, the overall group cost of risk has reduced to 7.3% with all products coming within guided expectations, reflecting our responsible approach to lending. As you would expect, we anticipate impairment will increase in 2026, in line with balanced growth and have slightly refined the cost of risk guidance by product on this slide. In the appendix, we have included a slide on expected credit losses and coverage ratios. ECLs reduced 7% despite a 21% increase in gross receivables, reflecting increased Stage 1 and Stage 2 balances and a reduction in Stage 3. As a result of this improving credit quality, the group coverage ratio reduced to 8.4%. We remain comfortable with the current coverage ratio based on a clear understanding of the credit risk of our portfolios. Turning to operating costs on Slide 15. Total operating costs fell 33%, primarily due to the absence of 2024's notable items. Costs, excluding notable items, reduced 9% with transformation savings and lower complaint costs more than offsetting growth and inflation rate increases. We delivered GBP 28.8 million of transformation cost savings in 2025, well above the GBP 15 million we committed to. This included an acceleration of some Gateway technology-driven savings into 2025. Complaint costs reduced 44%, to GBP 26.6 million. This amount includes a GBP 3 million provision for motor finance redress. Excluding this provision, total complaint costs reduced to GBP 7.5 million in the second half, a much lower run rate than previously. As set out in the appendix, the material drop in FOS referrals from CMCs from the introduction of the new FOS charging structure in April was the main driver of the reduction. We did accrue discretionary staff costs, having not paid bonuses to colleagues for the last 2 years. This, alongside a 10% increase in customer-focused FTE drove a 2% increase in staff and outsourced people costs, albeit outsourced FTE reduced by 28% in the year. We have embedded cost discipline across the business. We expect operating costs to reduce further in 2026 and in 2027, driven by both Gateway and broader operating efficiency enhancements. Let me now touch upon the performance of each of the lending products, starting with Credit Cards on Slide 16. The business delivered a profit of GBP 38.2 million, up 27%. This is while growing interest-earning balances by 19%, which drove a 13% increase in impairment charges due to the expected IFRS 9 impairment provision on origination. At 10.2%, the cost of risk was at the lower end of the guided range, with 19% lower gross charge-offs as mentioned earlier, highlighting the improved quality of the book. With the portfolio having reduced 10% in 2024, balances at the end of 2025 were 7% higher than 2 years ago. The improved quality has been driven by the actions taken by the new experienced Cards management team, following the granular vintage analysis review. Asset yield declined 80 basis points, to 27.1%. This was driven by the weighted average APR of the portfolio reducing to 33.7% due to the increased take-up of balance transfers and 0% promotional offers, which increased to 15% of the portfolio. These offers are effective acquisition tools that are expected to drive further interest income over time. Excluding these offers, the weighted average APR increased to 39.6%, reflecting our disciplined risk-based pricing strategy. Combined with lower funding costs, NIM only reduced 50 basis points to 23.3%, while risk-adjusted margin was 15.6%. Overall, we are well positioned for continued profitable growth. We would, however, expect balances to grow at more moderate levels in 2026 and beyond. Slide 17 covers Vehicle Finance. Balances reduced by 8% as we manage new business volumes ahead of the new platform launch, which will be delivered by Gateway in the second half of 2026. The business remained loss-making, although the loss reduced materially year-on-year to GBP 12.7 million. Repricing actions lifted the weighted average APR to 29.1%, boosting both asset yield and NIM by 0.7%. Combined with a reduction in the cost of risk to 5.6%, risk-adjusted margin increased to 7.4%, driving a 31% increase in risk-adjusted income to GBP 54.2 million. Operating costs reduced by 17% to GBP 66.9 million. However, the resulting cost/income ratio of 69.9% remains far too high. Post the launch of the new platform, building scale and automated processes will be the key to improving efficiency. Second Charge Mortgages continued their strong growth as shown on Slide 18. Balances reached just under GBP 600 million. Risk-adjusted margin increased to 2.8%, and the business delivered a profit of GBP 5.4 million. With a weighted average loan-to-value on the combined First and Second Charge Mortgages of just over 70%, the cost of risk remains low. As a secured product, Second Charge Mortgages have a low RWA density, driving attractive returns on capital. We have rapidly become a market leader in this space. Through strong origination partnerships, we remain excited about its growth potential with the overall market originations growing annually at mid-teens percentages in recent years. Slide 19 shows the streamlined corporate center following the reallocation of both funding and operating costs of product lines. Excluding notable items, the corporate center has reported a loss of circa GBP 20 million in each of the last 2 years. It includes returns on the liquid asset buffer, interest costs on unallocated Tier 2 capital, and operating costs from retail savings and Snoop. Liquidity and funding remain core strengths, as shown on Slide 20. At year-end, we held GBP 653 million of excess high-quality liquid assets over the regulatory minimum. We continue to improve returns from the liquid asset buffer with GBP 250 million now invested in U.K. gilts. Retail deposits have grown to nearly GBP 3 billion, representing close to 90% of total funding. We have diversified our deposit mix, introducing both fixed and easy-access ISAs, as well as Snoop branded easy-access accounts. The former provides increased stability in the retail funding base, while the growth in easy-access accounts provides more pricing flexibility and has contributed to the reduction in the cost of funds over the last 12 months. We also tendered GBP 58.5 million of our outstanding Tier 2 capital. This further reduced funding costs and was part of a broader capital optimization transaction, which is summarized on Slide 21. At the end of the third quarter, we successfully issued GBP 60 million of AT1 capital and concurrently executed a Tier 2 tender. This transaction had no impact on the total capital ratio as the Tier 2 capital was replaced with AT1. The group retains a significant total capital surplus above its regulatory minimum. The key to the transaction was that we were able to improve the efficiency of our Tier 1 capital stack, increasing the surplus above the regulatory minimum, which is previously all held in CET1 capital. With this transaction, the binding capital measure for the group is now the CET1 ratio. With the regulatory minimum 230 basis points lower than the Tier 1 minimum, this transaction has freed up additional capital to deploy for profitable growth, which we accelerated in 2025 as can be seen on Slide 22. The CET1 capital ratio reduced by 2.3%, to 16.5%, as a 25% increase in net receivables equated to GBP 304 million of RWA growth. This was partially offset by the capital benefit from the statutory profit in 2025 and the personal loan sale. We expect profits to become a more significant positive contributor to the ratio in future years. At 16.5%, the group retains a surplus of 5.2% above our 11.3% regulatory minimum. This equates to GBP 107 million of surplus CET1 capital. The group's disclosed and undisclosed capital requirements were also reviewed by the regulator in the second half of last year, which gives us confidence to reduce our target ratio to greater than 14.5%, which I will cover later. Ultimately, our capital strength and the expectation of increased future profits supports our continued growth plans and the execution of our strategy. Finally, before I hand you back to Ian, given that bank is now a cleaner, more stable and predictable business, I would expect the level of detail required in our content to reduce in future presentations. Ian will now take you through our strategic priorities before I return to summarize our financial guidance. Ian Michael McLaughlin: Dave, thank you. I'd now like to take you through the market opportunity and how we will complete what is years 3 of our current strategic plan that will take us through to 2027. So Slide 24 shows how we frame our strategy in terms of our purpose and our ambition. Vanquis, as you know, is a specialist bank with a clear social purpose, focused on serving customers who are underserved by mainstream lenders. Our purpose is to deliver caring banking so our customers can make the most of life's opportunities. Now that means different things to different people. It might be accessing credit when it matters most, improving your credit profile to unlock better options or simply feeling more in control of your money. Caring banking is about how we show up for our customers whatever stage of their financial journey that they happen to be at. And it means understanding customers' needs, earning their trust, supporting them to make healthy financial choices, and being there for them when it matters most and when they need us most. Our ambition then builds upon that purpose. We aim to be the U.K.'s most trusted and inclusive specialist bank, unlocking financial opportunity for underserved customers and helping them thrive. And that ambition is very deliberate. It recognizes the scale of the market we serve and the responsibility that comes with serving these customers. This brings me to our strategy on Slide 25. And this is deliberately simple and practical, built around a new 3-pillar framework: serve more, serve responsibly, and scale profitably. And this is not a change in direction for us. It's just a clearer articulation of how we run and grow the business as we continue to move from turnaround towards sustainable growth. To give some more depth to these 3 pillars, serve more is about widening access to responsible affordable credit and deepening long-term customer relationships. Serve responsibly ensures that growth is predictable, well controlled with strong affordability, disciplined risk decisions and consistently good customer outcomes delivered. And scale profitably is how we turn that growth into returns through the disciplined cost control, capital allocation, and margin management that you are seeing us to deliver, and as Dave has just discussed in detail. Gateway underpins all 3 of these pillars by providing a modern, efficient technology platform to grow on and supports a lower run rate cost base. And together, these pillars link growth, control, and returns, and provide the framework that guides the decisions that we make and execute day by day. Looking now at Slide 26. This addresses one of the questions that I'm most regularly asked, which is what is the total market opportunity that Vanquis is focused on delivering to? And what this shows you is the U.K. has a large and persistent underserved adult population. Our research indicates that over 24 million U.K. adults face barriers to accessing mainstream credit. This is, therefore, not a niche segment. It represents more than half of the adult population who have an active credit profile. And importantly, this is a structural feature of the U.K. market rather than a cyclical one. At Vanquis, we exist to serve this segment responsibly, providing access to credit where it's affordable, appropriate and introducing customers to other solutions if we can't immediately serve them. Our existing product set allows us to address a large proportion of this market within our current risk appetite within Credit Cards, Vehicle Finance and Second Charge Mortgages, as Dave has just described. On Slide 27, you can see how we think about the market opportunity through to 2027 and how importantly we will grow within it in a disciplined way. We plan to grow balances across all our asset products, but that growth will be deliberate and phased. Credit Cards will continue to grow, but at a moderated pace compared to the 19% in 2025. Vehicle Finance growth is more back-ended, linked to the completion of our new onboarding and servicing platform under Gateway. From the second half of 2026, Vehicle Finance will become an increasingly cost-efficient line of growth, facilitated through the strong broker relationship that we have retained. Second Charge Mortgages plays a different role in our mix. As you know, this is a secured product with a lower risk weight density. It's become very successful for us, and we expect the rate of growth to continue at broadly similar levels. As this drives a mix shift over time, our group risk-adjusted margins will naturally change to reflect this, but the business we are writing remains attractive across all products and consistent with our return targets. Overall, what you're seeing us do is about balance, growing but managing mix and quality carefully so that we convert that growth into sustainable returns. Slide 28 is where serve responsibly underpins our ability to deliver the strategy with that discipline. And responsible lending is not a constraint on growth for us. It's actually what ensures that our growth is sustainable and predictable. In Credit Cards, more granular risk-based pricing allows us to widen access to credit while ensuring pricing accurately reflects individual risk and affordability, and that allows us to grow the book while maintaining credit quality and customer outcomes. In Vehicle Finance, you can see we've rebalanced the APR mix and tightened alignment between risk, pricing, and returns. And again, this will support controlled growth as the platform scales. And the Second Charge Mortgage product is primarily used for debt consolidation, enabling customers who have lower monthly outgoings and resulting in improved financial resilience for them. Loan-to-value ratios remain well controlled, as Dave mentioned, and that underpins the strong returns as this portfolio continues to grow. And these disciplines support responsible growth, protect customer outcomes and deliver predictable performance across credit cycles. Slide 29 shows how we support customers to improve their financial health, and Snoop is central to this, as I've mentioned. It acts as a key enabler of our inclusion strategy and long-term growth model. Using open banking data and AI, Snoop helps customers manage everyday money, helps them build confidence, and develop healthier financial behaviors. And for many users, this translates into meaningful savings over time through better bill management, smarter spending, and easier supplier switching. For those customers who are not yet ready, or we're able to offer credit right now, the program we've delivered with Fair Finance provides a responsible alternative for them. And the Vanquis Foundation and our community partners extend this support, investing in financial education, inclusion initiatives, and accessible debt advice to build capability with customers earlier and reduce long-term financial exclusion. Turning to Slide 30, and again, building on Dave's earlier comments, our banking license gives us a clear and durable funding advantage. Retail deposits provide a stable, low-cost funding that many specialist lenders do not have access to. And through 2025, as you've seen, our deposit costs reduced steadily. This reflects a combination of lower interest rates and the shift towards lower cost savings products. You can see this clearly in the funding mix on the slide. This has allowed us to price competitively, protecting margins and improving overall funding efficiency. We will continue to diversify and optimize our deposit base as we look ahead, expanding flexible savings products, and using Snoop as a scalable distribution channel to support efficient, low-cost deposit-led growth. In short, our funding advantage strengthens our margins, improves resilience across the cycle, and underpins our ability to grow profitably over time. Now coming back to Gateway on Slide 31. It's been an underlying theme of my remarks as it is the catalyst that underpins our long-term growth and innovation agenda. It's a fundamental reset to address the previous underinvestment in technology, which this business was suffering from. It will enable us to operate as a modern, efficient and digital-first bank and to scale. Importantly, as you can see on the left-hand side of the slide, the majority of Gateway's core capabilities have already been delivered with clear progress across customer experience, control, and resilience. Gateway is now an operational platform with regular feature releases and improvements. For example, we've already launched a chat channel for customers and are deploying agentic AI agents to improve service quality and to reduce our costs. Looking ahead, the last major components of Gateway complete in 2026, and the benefits then become structural through fewer systems, streamlined processes, and improved automation, which in turn means improved resilience, lower run rate costs, and better operating leverage. In short, Gateway is the strategic enabler of our business, allowing us to complete those 3 pillars of serve more, serve responsibly, and scale profitably. Let me pause there as we'll come back to expand further on our next 3-year strategic cycle at a future date. Our focus for now remains on disciplined execution and delivering 2026 as planned. With that, I'll now hand back to Dave to talk through our guidance. David Watts: Thanks, Ian. Slide 33 summarizes the guidance we have laid out this morning. Importantly, we remain on track to deliver our statutory ROTE guidance of low double-digits for 2026 and mid-teens for 2027. However, we expect profit to be higher in the second half of the year compared to the first half as balances mature and interest income builds. We now expect balances in 2026 to exceed GBP 3.3 billion and to increase to greater than GBP 3.7 billion by the end of 2027, as we balance growth with the improved profits required to deliver the higher ROTEs we are targeting. The balanced base and the deliberate change in product mix that Ian has talked about, including a greater proportion of Second Charge Mortgages, is expected to result in a continued reduction in NIM, to around 15.5% in 2026 and 14.5% in 2027. Now that we have a greater clarity on the cost of risk across our products and to better align to how we assess the performance of the respective products, we've also introduced risk-adjusted margin guidance. This is expected to reduce both in 2026 and in 2027, but remain above 9.5% and 9% in the respective years. Again, this is driven by the increasing proportion of Second Charge Mortgages. Alongside income growth, continued cost discipline will be a key lever of the improving profit trajectory over the next 2 years. This will drive cost/income ratio down from the high 50s in 2025 to the high 40s in 2026 and the mid-40s in 2027. Turning to Slide 34. The bridge on the left-hand side provides an indicative view of how we expect to deliver mid-teens ROTE by 2027. As you can see, risk-adjusted income growth is a meaningful contributor, but continued cost takeout is also a significant lever. This will be achieved through ongoing transformation savings, including an additional GBP 23 million to GBP 28 million from the completion of Gateway and an ongoing focus on cost discipline, driving further operational efficiencies across the group. At the same time, we will continue to invest in our business. As set out on Slide 35, we will continue to deploy capital for growth near term. As I have mentioned, we are now comfortable operating with a CET1 ratio guidance of greater than 14.5%. This follows the capital optimization transaction that we executed last year, the reducing risk profile of the business and the outcome of the recent regulatory review of the group's capital requirements. The existing capital capacity alongside the capital accretion we expect to generate from increased profits over the next 2 years means that we are well positioned to deliver the growth we are targeting. Having achieved what we said we'd do in 2025, we remain laser-focused on the execution of our plan and are fully committed to delivering sustainable long-term value for our shareholders. And with that, I'll hand you back to Ian. Ian Michael McLaughlin: Thank you, Dave. Turning to Slide 37. Let me close by bringing together our key messages from today. Vanquis is built on a set of clear and durable strengths. We operate in a large and structurally underserved U.K. market with persistent demand for responsible credit. We have a customer proposition designed to help them to build better financial resilience. Our banking license provides a cost-effective, deposit-led funding model and Gateway gives us a modern, efficient, and scalable technology platform. And these strengths are brought together through a clear and practical strategy, as I've described, with serve more, serve responsibly, and scale profitably. The strategic framework that we now have in place will allow us to build on the progress that you can see in these 2025 results. We can continue to grow sustainably, strengthening our franchise and delivering attractive long-term returns. That is how we will create long-term value for customers, colleagues, and our shareholders. Thank you for listening. I will now hand back to the operator to open the line for questions. Operator: [Operator Instructions] Our first question is from Gary Greenwood from Shore Capital. Gary Greenwood: I've got 3, hopefully not too long ones. So the first one was on 2CM and the sort of strong growth you put in on there. So just trying to get a better understanding of what your secret sauce there is in terms of how you're taking market share? Are you just pricing more aggressively? Or is there something else that's allowing you to grow faster than the market? Second one on Vehicle Finance is, when you're expecting that business to move into profit, I presume, when sort of Gateway is being fully delivered, but does that mean profitability full year '26? Or are we looking at full year '27? And then lastly, on costs, I think you said costs would come down in each of the next 2 years, just looking at consensus that's got costs coming down in '26, but going up in '27. So it looks like costs forecasting to come down in 2027. I'm just wondering where you think the sort of absolute base the costs will be, because I'm guessing they'll probably grow beyond 2027. I'm just trying to get an idea of the trough level. Ian Michael McLaughlin: All right, thanks Gary. First out of door with a question as always, so much appreciated. Let me take the first one on Second Charge Mortgages. As you said, it's been a really good growth story for us, and we expect that to continue. We've got 2 forward flow agreements in place that are covering nearly 20% of the market now, and it's a growing market. So we're being very careful about pricing. So we're not pricing to win business. In fact, we're quite -- we monitor that on a very regular basis, and we're holding that very firm. But it is a growing market. There are some new competitors coming in that create a bit of price pressure. But overall, we are growing in a growing market, and we're very happy with the way that's going for us. And about 75% of the customers that we've taken on are using it for some proportion of debt consolidation. So it fits really nicely with the purpose that I've just talked about. So Dave, anything you want to add on Second Charge? David Watts: Nothing else really. Ian Michael McLaughlin: Yes. So we're onwards and upwards with that. But there is a really important point here. We'll allocate our capital to where we think we're going to get the best return. So it's a balance between the asset products on an ongoing basis. And that then brings me to Vehicle Finance. As you've seen, we've moderated our growth quite carefully through 2025 in advance of that Gateway platform build that I talked about in my remarks a little while ago. That will really be the catalyst for scalable profitable growth, but we are looking -- you can see in our numbers that we did price up a little bit in that market even through 2025. So we're looking at how quickly can we get it to profitability through this year. And then there's a real step-up that happens when the cost to serve those customers and process that business through our lovely brokers comes down as we get Gateway's Vehicle Finance platform in place. But again, Dave, anything you want to add on that one? David Watts: Yes. Couple of things to add there, Ian. You've seen balances came down by 8% in 2025 as we managed our new customer business. That will continue that same sort of rate in the first half of this year, 2026, but that should stop at that point and start as the new Gateway application comes on board, start growing towards the tail end of 2026 and grow further into 2027, which will be the real catalyst for growth in our profitability in the Vehicle Finance business. Ian Michael McLaughlin: But, Gary, there's a really important point here that all of our products should be profitable on a standalone individual basis. So that's what we're aiming for. So if we're not actually there already as we are with Cards and Second Charge Mortgages, we've certainly got a plan to get there as soon as possible. So I think that probably covers that one. Dave, do you want to do costs? Obviously, that's been a big feature of our results over the last couple of years. David Watts: Yes. So as we covered in the presentation in 2025, we delivered over GBP 28.8 million worth of cost savings, which exceeded our GBP 15 million of commitment in 2025. Now part of that's going to roll through into '26 numbers. We're also committed to delivering another GBP 23 million to GBP 28 million of Gateway savings in 2026. The complaints numbers you saw have come down in the second half year to GBP 7.5 million. We'd like that to be at that level or slightly lower as we go through into 2026. There's other aspects of operational efficiency we're still looking at. whilst at the same time, we are still continuing to invest in the business as we go further forward. So as we've laid out, we expect '26 cost to come down from '25. '27 also be lower than '26, but we're not going to guide on an absolute amount of cost. Ian Michael McLaughlin: And all I'd add to that one, Gary, is, look, there's that old adage about you can't cut yourself to greatness. So there is definitely opportunity for us to take some costs out of the business, and we've done that and done that in a very disciplined way. I think we've beaten every single cost objective that we've put out since Dave and I started. And so you can -- that's something that we're good at, but it's not something we particularly enjoy. We want to get into a cycle where we're investing into the business. But how we invest will be much more around areas like data, like credit risk and into technology with benefits from AI will flow through over the next couple of years as well. So I think we're in a good place on costs, but we will continue that discipline of making sure we're investing where it generates a return. Gary Greenwood: Just to clarify, will '27 be the sort of trough for costs and costs will grow thereafter? David Watts: Gary, I'm going to stick to what we said so far, at '27 will be lower than '26. It comes down to what our forward-looking strategy would be. So I think we'll come back to the market probably next year. Ian Michael McLaughlin: Thank you, Gary. [ Gabriel ], have we other questions? Operator: Our next question is from Rae Maile from Panmure Liberum. Rae Maile: Rae Maile from Panmure Liberum. Two rather bigger-natured questions. Firstly, can you talk a little bit about the regulatory environment these days? Obviously, shareholders will know that regulation has been the bugbear of the non-standard market for many years. I wonder how has the regulatory environment developed over a period of time? And certainly, how has the company's relationship with the regulator changed over the last couple of years? And then secondly, Ian, you touched on the question of competition in Second Charge Mortgages. Could you talk more generally about the competitive environment that the business is facing, please? Ian Michael McLaughlin: Thank you, Rae. Two really good questions. Let me take the regulatory one first, as I probably with our Chief Risk Officer and Dave, again, who spend more time in front of regulators than anyone else in the business and rightly so. Look, my view is we've got a very supportive relationship. It's challenging, as you'd expect. I'm a firm believer and I've said this for decades of my career that you get the regulation that you deserve in the end. And I think regulators are seeing that what we're doing is well grounded in good customer outcomes, that we're trying to serve a market that we define. As you've just seen the numbers that we presented, there's a big underserved base out there that need help and that supply/demand equation is out of whack at the minute. There's more customer demand for less standard credit than there is supply into that market. So that's what underpins our investment thesis. And our purpose, which as I've described, is grounded in helping those customers when they often struggle to get help from other places. I would comment on as well as FCA, it's PRA and then Treasury have been incredibly supportive as well. So there's a big government agenda, obviously, behind this, which I think is in our favor, too. And you've seen tangible outcomes from those relationships. They're not just a nice fluffy thing in itself. It's actually about what changes as a result. Dave might want to comment on PRA and the Prudential Regulation in a second. But we certainly saw FOS changes and CMC charging changes, which were, I think, a very tangible outcome of very constructive conversations that we and other banks had been having with Treasury. So I'm very pleased about that as well. So I think so far, so good. It's -- but the relationships are incredibly important to us going forward, hence, I guess, your question. And we'll continue to invest in them and be open and transparent and do the right things for customers, as you'd expect. Dave, do you want to comment on PRA? David Watts: Yes. Look, we have a good working relationship with PRA over the last 2 years. I think you get some productive outcomes from opening up to your regulators and be clear with great clarity of how the business is operating, what it's doing. I think that was recognized in terms of a sort of positive triennial C-SREP review with PRA at the tail end of 2025, which I commented on earlier on. So yes, I expect to have a good productive relationship with them going forward. Ian Michael McLaughlin: Rae, if I could turn then to your question on competition, and thank you, as you described it for the 2 sort of higher-level questions. I mean, back to my point about supply and demand, we've got less than 2 million customers, and there's an opportunity pool of over 20 million, say, 24 million, as we've just described. So there's a lot of room here. So there is a really good target addressable market available to us. In Cards, if I just take the product, it's pretty stable. We haven't seen anything dramatic in terms of new competitors coming in. We watch that on a daily basis. And obviously, our pricing reflects what other activity is going on around us too. But you've seen in our NIM numbers and our risk-adjusted NIM, in particular, that we're very disciplined on our pricing, and there are times that we will pull back a little bit if we do believe we're getting squeezed. 2CM, I mentioned earlier on that. But broadly, we see that there's plenty of room for us to grow. Vehicle Finance is probably the watch one because, obviously, we've got the FCA redress scheme. We'll get the details on that towards the end of March based on current plans. And we'll see what happens to that market. I would expect there to be some people will choose not to participate. As that market gets through redress and cleans up, then there may be other people that will choose to come in. We'll keep an eye on that. But as I said, the key message for us is we've got a sort of 10x customer demand opportunity for Vanquis, and that's very exciting, and that's what we're focused on delivering to. Operator: Our next question is from James Allen from Berenberg. James Allen: Three questions for me, if I can. First one, you're clearly making good strides on improving return on tangible equity. I was just wondering where you would like to get to on a steady-state basis on that metric beyond FY '27. Second question, the rationale for the AT1 being excluded in the ROTE calc. Presumably, that's just to preserve the focus on returns for common equity shareholders when looking at that metric. And then final question, my understanding is you can't necessarily promote Vanquis products over other banks on Snoop at the moment. But is there any kind of potential change in regulation that may be coming in at some point that maybe would allow you to direct more customers into Vanquis products via Snoop? Ian Michael McLaughlin: James, thank you. I'll leave the AT1 ROTE calculation one to Dave in a second, but if I start with what's our ROTE trajectory. I think what you're seeing with Dave and I and the Board and our management teams is when we commit to something, we really commit to it. So we committed to getting to low-single digit ROTE in 2025. That's exactly what we've done. We've got a clear commitment for low double-digit ROTE for this year. And then we've got a mid-teens ROTE commitment for 2027. So that's as far as we're going in terms of our commitments. Underneath that, of course, we're looking at, as we go through every day, week and month quarter of this business, we're learning as we go and we're spotting new opportunities. So we will keep that all under review. And we, as Dave mentioned earlier, I think to Gary's question, we'll come back sort of this time or early in 2027 to talk about that next strategic cycle, that next sort of 3-year phase, and we'll update on ROTE and that. But what you can expect from us for this year is an absolute focus on delivering what we've committed in terms of our ROTE guidance. And Dave, anything you want to add on that one? David Watts: No, I think you've covered it in detail, Ian. Ian Michael McLaughlin: Do you want to do the AT1 calculations, ROTE... David Watts: So James, you're correct on your understanding that part there. So I'm glad that the character we've given in the presentation has enabled you to get to that position. Yes, it's the focus on the equity shareholders. Ian Michael McLaughlin: I wouldn't add anything to that. Then on Snoop and Vanquis. Look, Snoop has been a fantastic acquisition for us on a range of levels, but the quality of the customer proposition and how we're tangibly able to show customers how to manage their money better is perfect for Vanquis, and we're seeing that penetration into our customer base grow very nicely. Snoop itself is continuing to grow, as you can see from our numbers as well. So that works well. I think your question is a very good one about what more can we do to combine those 2 things. We are in the midst of rolling out a new mobile app for our customers at the minute. And what that will allow us to do is take some of those facilities and functionality that live in Snoop at the minute and begin to get that through into the wider Vanquis customer base, which we're very excited about. Now there's all sorts of things about Ts and Cs and permissions and so on that sit behind that, that are more complicated than anyone could imagine, but we are working our way through that very well. And that -- Snoop remains as a great example of how we help customers even if they can't access credit for us. So very similar to what we're doing with Fair Finance, it sits in that "Not Yet" proposition bucket that I talked about earlier and is critical. We also brought in an amazing management team with Snoop, who we've deployed across many senior roles over the -- across the bank rather than just in Snoop, and also a fantastic data insight engine where we're able to package up insights to our customers and present them as we do quarterly. But actually, they're very useful to other businesses as to what the buying habits of this customer base look like. So Snoop continues to be a very important part of our proposition. Again, Dave, anything that you want to add? David Watts: Yes. I think as you said, Ian, the integration of the staff has been excellent for Vanquis Group. As a whole as we go further forward in the near term and the medium-term greater integration of Snoop into the Vanquis banking app is going to be one of our priorities as we look forward. Ian Michael McLaughlin: Thank you, James. Hopefully that answer your questions. James Allen: That's very clear. Operator: Our next question is from Edward Firth from Keefe, Bruyette, & Woods. Edward Hugo Firth: [Technical Difficulty] if I looked on, I think it was Slide 15, you talked -- I think last year, there were around GBP 26 million of costs related to complaint handling. I mean, over time, is that like a 0 number? Or can you give us some idea of where you think that number will fall to on a sort of annualized basis, what you think is a reasonable number? That would be my first question. The second question was -- and I guess it's slightly a Snoop related question, but a lot of the growth at the moment is coming through from Second Charge Mortgages, which is a new product that you introduced, and that sort of massively exceeded expectations or certainly my expectations anyway. Do you still look for other products? Are you still looking at other areas that you could see potential for a sort of similar startup product line? And I guess that's particularly related to Snoop, where I guess you must have very good visibility on Snoop customers and the sort of products that they may or may not need. And I'm just wondering, are you still looking at other areas where we can perhaps get a similar performance that we've seen on the Second Charge Mortgages? And then I guess the final question, and they're all sort of broadly related. I mean Snoop is doing well [Technical Difficulty] looks like it got still GBP 15 million to GBP 20 million a year, something like that. You didn't give us precisely, but I guess that's the biggest driver of centrals. Can you give us [Technical Difficulty] at some point? Or what would be needed to get us to profitability for that business? Ian Michael McLaughlin: Ed, thank you. Your line cut in and out a little bit there. So let me just repeat the questions to make sure that everyone heard them. I think I caught them. First one, costs on complaints and what's the steady state. So I'll maybe let Dave pick that up. Second one, on Second Charge Mortgages and are there other products like that? We've obviously shown that we can launch a new product into a new market and do very well very quickly. So what else are we thinking about? And then I think the third one, if I caught it right, was about Snoop costs and central costs and Snoop profitability. So I'll maybe come to Dave on that one as well. But Dave, do you want to start with the complaints? David Watts: Yes. So Ed, thanks for the question. So on Slide 43 gives a more in-depth viewpoint looking at complaints in place there. And what you will see -- I think you asked the question specifically about resource handling costs. And Ian touched earlier on in his presentation about a 10% reduction from some of the technology we've introduced through the Gateway program there. So we're making progress. We talked about the second half of the year having an overall cost of complaints, excluding the Vehicle Finance FCA commission provision in place of about GBP 7.5 million. And with better customer outcomes delivered as part of our technology upgrades, we hope that number to come down, but that will be a number we'd hope to beat in the first half of next year and the second half of next year, so that's complaint costs there. Hopefully, that's covered. Anything else to add on that, Ian? Ian Michael McLaughlin: No. I think obviously, you want every customer to be completely happy all the time. Any good business would aim for that, but there is a practical reality that there will always be a level of customer interaction, and we will always stand up and do that as well as we possibly can. So that's part of our customer focus and our proposition. So nothing more on that from me. If we take the Second Charge Mortgage example, Ed, of -- there's a market that we weren't in a couple of years ago that we're now with those 2 forward flow arrangements I mentioned, if not market-leading, certainly in the top 3. So that has gone very well for us. We've learned a lot from that. We are always looking at what our customers spend or our analysis of what their needs may be and what does that mean for other things that we could expand our proposition into. You've seen us expand into "Not Yet" as we describe it. So where do we hit our credit -- our ability to offer credit that limit and then how do we help the customers if they sit at that point in time outside that limit, so hence, the Fair Finance and Snoop conversations that we've already had. But yes, we are looking at a range of other things. We've got plenty of room to grow though in the current product set as it stands. So don't expect anything immediate in terms of next steps. This is about maturing and settling our tech platform and our new operating model that we've spent the last sort of year or 2 building and growing where we can see the demand is today as well as understanding where we might expand to in the future. So I'll not say any more on that. I don't think there's anything from you, Dave? David Watts: Just to reiterate, there is significant market opportunity in the products we actually offer to our customers at this point in time. Ian Michael McLaughlin: Agreed. And then the Snoop costs and central costs, Dave, do you want to take that? David Watts: So we've got the corporate center, which contains a number of items. You know at half year, we did a sort of recutting of our product portfolio profitability, which did move some costs from the corporate center to give a greater clarity of our Vehicle Finance, Second Charge Mortgages and Credit Cards profitability, which I think it's landed quite well. What we've got this in the corporate center is not just Snoop income and costs. It's got the -- some unallocated Treasury results. It's got the costs associated with our retail savings business and some other sort of almost immaterial central items in place there. So I wouldn't just read that as pure Snoop. It's got a bundle of items in there. As Ian covered it on the previous question, Snoop has delivered more than just purely the revenues that come with the actual business per se as a management team and how they're helping out drive the overall bank further forwards on its digitization. So hope that's helpful. But Ed, if you've got any further questions, I'm happy to take them offline with you at a later date. Operator: Our next question is from Jackie Ineke from Spring Investments. Jackie Ineke: So I'm from the credit side. We're very happy holders of your AT1s and Tier 2s, and thanks for the good results. I have a couple of questions. First of all, just in terms of capital management, you have your Tier 2 outstanding. It's got an October call date. I understand from the change in regulations that you can tender those Tier 2s before the call date. I was just wondering if you're giving that any consideration. Obviously, it's trading well above par, so it might not work in terms of economics. But if you could give me your thoughts on that, that would be great. The second question is very much bigger picture, and you've talked about the competitive environment and the opportunities. But comparing you guys to the bigger U.K. banks, you have a very differentiated strategy. And I was just wondering if there had been any approaches or any talks with any of the larger banks? I know that's not what you want to do now and you're in the middle of a very strongly performing strategy. But have you been approached? And what's going on there? Ian Michael McLaughlin: I will let you cover the Tier 2, Dave, while I think about the second question. David Watts: Thanks, Ian. Jackie, thanks for your question. You'd understand we can't speculate on such tender offers at this point in time. We do note the call date. I think what's worthwhile bringing out is we did a big capital optimization transaction at the end of last year, where we issued GBP 60 million of AT1 and bought back GBP 58.5 million of Tier 2, bringing down the level down to GBP 141.5 million. That is dealt with quite a lot of the excess Tier 2 capital we had issued in the marketplace. We still have some excess at this time, which obviously will be considered as part of what we may do later on this year. I can't add any more at this stage. Ian Michael McLaughlin: But I'm glad you're a happy holder, Jackie. That's very good to hear. On the what's going on around us in the market, we don't spend a huge amount of time sort of thinking about this really, Jackie. I mean our job, and I think hopefully, it's been very clear from previous presentations and this one is to make Vanquis into the very best entity that we can make it for our customers and our colleagues and our investors, and that's what we're absolutely focused on. Do conversations come around every now and then? Yes, if there's anything reportable at any stage, obviously, we know our responsibilities. But for now, our absolute focus is delivering to the opportunity that we've got right in front of us. Operator: I will now hand over to James Cranstoun, Head of Investor Relations. James Cranstoun: There's actually no further questions on the webcast. So I think we can hand back to Ian and Dave to close. Ian Michael McLaughlin: Okay. Well, look, thank you, everybody, for your attention this morning and for your very good questions. We always enjoy that. I know we'll see many of you over the next couple of days, so we look forward to those conversations as well. Just as I end, I'll go back to what I said in my remarks earlier, I'd really like to just thank our customers for their -- enjoying the support that we're trying to give them, and they are the lifeblood of our business, as I described. I would also like to thank everyone in the organization. It has been a torrid couple of years. We are definitely back on the path that we wanted to be on now, and that's down to the efforts of our colleagues, the support of our Board. And I'd like to thank our investors as well. Their patience, understanding, and support has been fantastic through this. And to the question earlier also to our regulators and Treasury, who've also been very helpful. So look, we're on a good path now. There's a lot of work still to do, but it's a much better position than this business was in previously. So I'm delighted about that and very grateful for the hard work. On that basis, Gabriel, I think we will end the call there. Operator: Thank you, everyone. This concludes today's Vanquis Banking Group full year results 2025. Thank you for joining. You may now disconnect your lines.
Operator: Hello, and welcome to Intellia Therapeutics, Inc.'s fourth quarter and full year 2025 conference call. My name is Drew, and I will be your conference operator today. Please be advised that today's call is being recorded. I will now turn the call over to Jason Fredette, Vice President of Investor Relations and Corporate Communications at Intellia Therapeutics, Inc. Please proceed. Jason Fredette: Thank you, operator. Hello, everyone. Earlier this morning, we issued a press release outlining recent business updates in our fourth quarter and full year financial results. This document can be found on the Investors and Media section of Intellia Therapeutics, Inc.'s website at intelliatx.com. At this time, I would like to take a minute to remind listeners that during this call, Intellia Therapeutics, Inc. management may make certain forward-looking statements. We ask that you refer to our SEC filings available at sec.gov for a discussion of potential risks and uncertainties. All information presented on this call is current as of today. Intellia Therapeutics, Inc. undertakes no duty to update this information unless required by law. Joining me on this call are John Leonard, our Chief Executive Officer, and Ed Dulac, our Chief Financial Officer. With that, I'll turn the call now over to John to begin our business discussion. John Leonard: Thank you, Jason. Thanks to all of you who have tuned in for today's call. We'll begin with a brief recap of our 2025 accomplishments, and we'll then review the status of our nex-z program in ATTR amyloidosis. After that, we'll provide updates on the significant progress we've made with lonvo-z, which is being developed as a potential one-time treatment for patients with hereditary angioedema, or HAE, and we will close with Ed's financial review. First, let's take a step back to the origins of Intellia Therapeutics, Inc. This company was formed over a decade ago based on the belief that we could help revolutionize medicine utilizing CRISPR gene editing. From the outset, we designed our gene editing product candidates to reset the treatment standard in our disease areas of interest. This new standard would raise the bar by conferring highly competitive and durable efficacy for patients via a one-time treatment that is administered in an outpatient setting. We believe our two lead candidates, lonvo-z and nex-z, fit this profile. With up to three years of patient follow-up, we have yet to see any waning of effect in serum kallikrein or TTR levels in the extended follow-up of our phase 1 and 2 trials. Even more encouraging, the observations of improvement in clinical and disease measures that we track in the phase 1 and 2 trials also have not waned. Given these clinical data and our preclinical work showing the edits we make are permanent in edited cells and in all subsequent generations of those cells, we expect patients to benefit for many, many years, if not their entire lives. and nex-z are administered in an outpatient setting. After a simple prophylaxis regimen to reduce the risk of infusion-related reactions, patients visit a clinic where they receive an IV infusion over the course of two to four hours, and then they go home. A decade plus after our founding, it's for good reason that our excitement is building as we approach the world's first phase 3 data readout for an in vivo gene editing candidate by mid this year. Now for some reflections on 2025. Simply put, it was a time of both accomplishment and resiliency for Intellia Therapeutics, Inc. With lonvo-z, we rapidly enrolled HAELO, our phase 3 clinical trial in HAE, and we did this well ahead of schedule. Until the clinical hold in October, we achieved similar enrollment success with nex-z. At the start of the year, we were expecting to have enrolled about 550 patients with ATTR amyloidosis with cardiomyopathy in our MAGNITUDE Phase 3 clinical trial by year-end, and we had not yet begun enrollment in MAGNITUDE-2, our Phase 3 trial for patients with polyneuropathy. By October, just 10 months later, we'd enrolled more than 650 patients in MAGNITUDE, and we're already approaching full enrollment in MAGNITUDE-2. In late October, after elevated liver transaminases and total bilirubin were observed in a MAGNITUDE patient that met the trial's protocol-defined pausing criteria, we suspended enrollment in MAGNITUDE and MAGNITUDE-2. Shortly thereafter, the trials were placed on clinical hold by the FDA. Our team immediately took action to address the hold, working in concert with external experts, our clinical sites, investigators, and regulatory authorities. In late January, we were pleased to announce that the FDA lifted the clinical hold on MAGNITUDE-2. We aligned with the agency on certain study modifications. These include addition of supplementary liver laboratory tests in the weeks following patients' enrollment and dosing, and guidance that patients receive a short-term steroid regimen if elevated liver transaminases are detected in the weeks immediately following dosing. The rationale for this is that the LFT elevations appear to be consistent with an immune-mediated reaction. We also have modified our screening criteria to exclude the enrollment of patients who may be the most susceptible to a potential liver injury. These include patients with significantly elevated liver enzymes at screening and those with a history of MASH or autoimmune hepatitis. We expect these new criteria will help to safeguard patients while also having a minimal impact on our screen failure rate. As a reminder, we've already enrolled 47 patients in MAGNITUDE-2. As part of the protocol amendment, we also proposed, and the agency accepted, that we increase the trial's target enrollment from 50 patients to approximately 60 patients. This allows us to accommodate patients who had already been identified for screening prior to the hold. Since MAGNITUDE-2 is being enrolled outside the U.S., we are now working through the relevant local regulatory processes to resume patient screening. We're confident we can complete enrollment in the second half of this year. At the same time, our FDA engagement is ongoing as it relates to MAGNITUDE. As we've mentioned in the past, MAGNITUDE and MAGNITUDE-2 are very different trials, enrolling very different patient populations, we're considering these factors in our ongoing work. While nothing is done until it's done, we've made a lot of progress in our effort on this front. Given the positive phase 1 data that's been presented for nex-z, including the encouraging post-hoc mortality data derived from a contemporaneous and well-matched cohort of nearly 1,800 patients that we shared at AHA this past November, we continue to believe strongly in this candidate's potential to benefit patients with ATTR amyloidosis. Now let's move on to lonvo-z and HAE. We completed enrollment in the HAELO phase 3 clinical trial with 80 patients in September, just nine months after we dosed our first patient in the trial. This is due in large part to the tremendous amount of interest we have seen in lonvo-z among those with HAE and their treating physicians. This interest is also reflected in market research we recently conducted and shared at J.P. Morgan in January. In late 2025, 104 U.S. patients and caregivers were surveyed by a third party. They were shown a target product profile based on data from our phase 1 and 2 trials on a blinded basis, and were told the data was from a gene-editing candidate. They were asked if they would be likely to take the treatment if it were to be approved. 99% of the patients responded they would at least be somewhat likely, and nearly two-thirds said that they would be extremely or very likely to take it. The interest also carried over to prescribing physicians. 151 US healthcare providers were presented the same target product profile and asked if they could identify a patient in their practice to whom they would prescribe the drug. 92% of them said yes. These HCPs reported they were managing the care of more than 4,000 patients collectively, which would represent about 60% of the entire treated patient population in the United States. When asked how many of these patients would they prescribe lonvo-z to, that number came out to about 2,200 patients, or 54% of the patients under their care. What's driving this interest? Well, it's because a substantial unmet need still exists despite today's available HAE therapies. At ACAAI in November, we presented data from another 100 patients who were surveyed, about 90% of whom were on long-term prophylaxis therapies, otherwise known as LTPs. The results shed further light on the burdens that many patients continue to face, the burden of their disease and the burden of their chronic treatment. The results showed that nearly 70% of patients were concerned about having to take LTP and/or on-demand medications for the rest of their lives. Nearly 60% were concerned about the unpredictable nature of their HAE, and most patients also are concerned about the logistical and financial burdens of the disease. Also striking was the fact that only 20% of surveyed patients reported they were attack-free for the past 12 months. This 20% figure contrasts with the clinical data we presented in November from our phase 1 to pooled analysis, showing that 76% of patients who were at least a year beyond a 50-milligram dose of lonvo-z were free from both attacks and ongoing therapy for at least 12 months. We're looking forward to presenting more insights from this patient burden study at the AAAAI meeting that is taking place this weekend in Philadelphia. Our march continues toward top-line data by the middle of this year and a planned BLA submission in the second half of this year. We've been asked from time to time what our expectations are for this readout. When looking at the phase three data for approved LTPs, the best attack reduction rates have been in the eighties, and the very best attack-free rate we have seen from an LTP is approximately 60% of patients. Of course, these results were achieved only with chronic therapy. In our placebo-controlled HAELO trial, we believe the lonvo-z arm will be highly competitive with those numbers, with the added and unique benefit that it is a one-time therapy. As was shown in the pooled analysis that was presented at AAAAI, lonvo-z could perform even better outside of a placebo-controlled trial and in the real-world setting, where patients know they are on active treatment. As I've laid out, it's going to be a big year for Intellia Therapeutics, Inc. with many meaningful milestones. We look forward to updating you on our progress along the way. I'll now hand the call over to Ed, our Chief Financial Officer, who will provide an update on our financial results for the fourth quarter of 2025. Ed Dulac: Thank you, John. We do indeed have a big year ahead, particularly as it relates to lonvo-z and what will be the world's first pivotal readout for an in vivo CRISPR-based gene-editing therapy. As we look toward a potential launch of a product that we believe would have a highly attractive profile for patients suffering from HAE, we've made a lot of headway with our team and our thinking in terms of commercial readiness. We have scaled our field medical team, ramped up our engagement with treating physicians and patient advocacy groups, engaged with payers, and developed our launch strategy. This year, we plan to continue building out our sales and reimbursement field teams, finalize our distribution models, identify our U.S. treatment centers, and finalize our pricing and contracting strategy. It is, of course, premature to get into any specifics about our plan to go-to-market strategy or pricing. However, those of you who know the HAE space are well aware that LTPs carry ultra-orphan price tags. Given the average U.S. patient with Type 1 or Type 2 HAE is diagnosed at about age 20, and that patients also tend to require on-demand prescriptions, the cost of lifetime treatment tends to be measured in the $multi-millions. Given this backdrop, we believe a one-time treatment like lonvo-z could deliver significant savings to patients and payers, greatly reduce or eliminate many of the social, emotional, treatment, and quality of life burdens that are experienced by patients, and reduce burden on physicians, given their need to repeatedly process time-consuming prior authorizations that are required for patients to remain on today's available therapies. From a broader company standpoint, if approved, the commercial success of lonvo-z could fundamentally change the future capital needs of the company. With about 7,000 patients receiving treatment for HAE in the U.S., lonvo-z's anticipated margin profile and our overall expected cost structure, if we were to achieve a mid-single digit market share in a given year, the resulting cash flows would likely enable us to fully fund our entire operations. More on that topic when we get to BLA submission and potential approval. I'll now review the Q4 financials. Cash, cash equivalents, and marketable securities were $605.1 million as of December 31, 2025, compared to $861.7 million as of December 31, 2024. We believe this cash balance will be sufficient to get us into the second half of 2027 and beyond several important milestones, including the restart of enrollment in MAGNITUDE and the completion of enrollment in MAGNITUDE-2 this year and the launch of lonvo-z next year. Collaboration revenue was $23 million for the fourth quarter of 2025, compared to $12.9 million for the prior year quarter. The increase was mainly driven by revenue that was recognized related to the termination of our license and collaboration agreement with SparingVision and an increase in cost reimbursement related to our collaboration with Regeneron. R&D expenses were $88.7 million for the fourth quarter of 2025, compared to $116.9 million during the prior year quarter. The decrease was primarily driven by reduced employee-related expenses, stock-based compensation, research materials, and contracted services, partially offset by an increase in clinical trial expenses related to lonvo-z. Stock-based compensation expense included with the R&D was $10.5 million for the fourth quarter of 2025. G&A expenses were $33.1 million during the fourth quarter of 2025, roughly flat from the $32.4 million spent during the prior-year quarter. Stock-based compensation expense included within G&A was $6.2 million for the fourth quarter of 2025. Finally, net loss for the fourth quarter of 2025 was $95.8 million, down significantly from $128.9 million for the prior-year quarter. With that, we are ready to begin our question-and-answer session. Operator, would you please open the line for questions? Operator: We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit yourself to 1 question, if you have additional questions, you may rejoin the queue. At this time, we will pause momentarily to assemble our roster. The first question comes from Maury Raycroft with Jefferies. Please go ahead. Maury Raycroft: Hi, good morning. Congrats on the progress, thanks for taking my question. I'm going to focus on HAE. A lot of questions on how the study could read out. The phase 1/2 data was generated primarily ex-U.S., whereas the phase 3 trial includes U.S. patients. Do you anticipate any differences in baseline patient characteristics, such as BMI or background prophy use, that could impact the reproducibility of results, especially as it relates to the control arm? I guess, how should we think about what to see in the control arm? Ed Dulac: Morning, Maury. Thanks for the question. It's correct that the phase two work and phase one work was done, outside the United States. The phase three trial is done globally. John Leonard: In some of those same countries, especially in the United States. As we look at the patient populations, in the phase 3 group versus the phase 2 group, they're largely overlapping. It's not skewed in any way towards one demographic or particular characteristic. In fact, it was designed to represent what is a pretty standard patient population for patients suffering from HAE, with a range of severities and a variety of different drugs. In fact, many of them taking the market-leading drugs. I think it's important to note that, especially when you think about the United States, patients to come into the trial needed to stop taking whatever drugs they were, wash out, get a baseline, read on their attack rate, and then go on to a placebo double-blind phase of the study. We think that that's indicative of patient interest, that they're willing to go through all of that, to participate in the trial. From a comparability of data, perspective, or at least from a patient population, point of view, what you're seeing for the phase 2 patients is largely representative of what we expect to see demographically for U.S., for the phase 3 trial. Maury Raycroft: Got it. Okay, that's helpful. Thanks for taking my question. Operator: The next question comes from Mani Foroohar and Leerink. Please go ahead. Lidiya Rizova: Hi. Good morning. This is Lidiya Rizova on for Manny. Maybe just 2 questions from us. One, on HAE, can you maybe give us a little more color in terms of how you think about the commercial strategy there, especially as it relates to the type of patients that you expect to be the most amenable to gene therapy, meaning, the ones that are the youngest or the ones that are the sickest? If you could give us a little color there. 2nd question on the PTR program. Thinking back about the resolution of the hold, how should we be thinking about timing, and has your understanding of the underlying event that led to the patient death evolved? Thank you. John Leonard: Thanks, Lydia. I'll start with some comments about the PTR program and then hand it over to Ed, who can speak about your questions with respect to HAE. With the PTR amyloidosis program, NTLA-2001, as you know, the polyneuropathy study is off clinical hold, and we're going through all the operational things to resume accrual. That's going very, very well. And as we've said, we expect to have that study fully accrued by the end of the year, and as we make progress there, we may be in a position to update guidance on that progress later this year. With respect to MAGNITUDE, which is the cardiomyopathy study, it's a bigger study. There's a lot more data. The patient population, although they have the same drug and the same underlying gene, there's just many other factors to take into consideration, and we've been working through that with the FDA. It's a long list. We've been making excellent progress. I think we're very, very far down that road. The hold's not lifted until the hold's not lifted. I want to make that point, but I think that, you know, the progress is substantial, that we've made. With respect to the patient that you referenced, I just want to remind you that this is a patient who had a very complicated clinical course. It's true that he had LFTs that increased to Grade 4 for transaminases and had a bilirubin increase. The patient ultimately died from a ruptured duodenal ulcer, which may or may not have been related to his treatment. It may or may not have been there, when the patient was originally coming to medical attention. He did present with abdominal pain, which is a little unusual for pure transaminase elevations. We're never gonna really know exactly what happened to him, but he's an outlier. As you might imagine, the work that we're doing with the FDA is to give the trial patient participants the best ability to receive the drug in the safest possible circumstances, and that's what we're working on. As we have more information, we will obviously update everybody and bring you up to speed. Ed, maybe you want to say a few words about how we're thinking about HAE. Ed Dulac: Yeah. Thanks, John. I think the question was more about the commercial strategy, and we'll be in a position, as we get through the year, to share increasingly more details. I would say, generally, we just start thinking about this market as not about the modality per se. You mentioned a question about gene therapy. We have a gene editing approach that so far to date has a very simple to administer profile and long-term durable effects. We think that will play very well. When we talk to patients, they're not really concerned about the modality. What they're really concerned about is the treatment effect and the outcomes from the product. As we look at our target product profile, we feel like we're playing from a position of strength. We've got this long-term durable effect. Quite frankly, we're the only therapy that can provide both freedom from attacks and freedom from drug therapy. We like the profile we're playing with, and we also see that, you know, as we think about going to market and the strategy there, we are looking for, you know, how do we make sure that physicians are educated? How do we input the infrastructure required to do that? We've been working for the past year or so, thinking about the commercial team that we have now in place. We've had field medical team for the last year or more, looking in the field, educating physicians on the therapy that we have, gene editing, the aspects that are important to the treating physicians. We've been engaged with payers for quite some time. We're encouraged by what we see there. We have our overall long strategy plan in place. We're already playing from a position of strength from an operational perspective. This year, the focus is really gonna be on scaling the field force and the reimbursement teams that we have at the company. We'll be looking to finalize the distribution model that we've been thinking carefully about, and we'll have identified a number of treatment centers that we think will be very relevant. Things like pricing will come with time. We feel like we have a very strong value proposition, and we'll be thinking about contracting strategy as well. We'll stay tuned for more information, particularly after the top line data. Overall, we feel really good about the prospects we have in HAE. Mani Foroohar: Very helpful. Thank you. Operator: The next question comes from Alec Stranahan in Bank of America. Please go ahead. Alec Stranahan: Hey, guys. Good morning, thanks for taking our question. Maybe on the PN study, now that that's restarting, do you think an interim analysis would be possible here? Curious what you think about the nine-month endpoint on NIS for the new eplontersen study. Thank you. John Leonard: I'm not gonna be in a position to comment on other people's studies. I would, you know, contrast the work that we're doing just based on our own extended follow-up from our phase 1 patients, and we've presented that data previously. What we've seen in that data, which I think was very encouraging, is that patients with these very, very deep PTR reductions largely do not progress, and many of them, in fact, there's a cohort of patients in that group that had failed patisiran, i.e., progressed on the drug, who actually improved relative to their baseline. That thinking goes into the design of the study and the patient number of the study. Remember, the target population was 50. We've increased that to 60, as I said in my comments, to accommodate some of these patients that were waiting, just as we meet, at the stopping criteria negative. An interim analysis is possible, and that's not part of our current thinking, but as the study progresses, et cetera, we can always reconsider, depending on how we're thinking about what we see within the behavior of the patients. Right now, it's the endpoint is set for 18 months. Operator: The next question comes from Joseph Thome and TD Cowen. Please go ahead. Joseph Thome: Hi there. Good morning. Congrats on the progress, and thank you for taking my question. Can you comment a little bit on your CMC readiness for the lonvo-z potential approval and launch, and if there were any manufacturing changes between the phase 2 and the phase 3? Maybe a little relatedly, have you aligned with ex US regulators that this package would also be sufficient for approval outside the US? Thank you. John Leonard: Thanks for the question. Let me make a comment overall with respect to BLA preparation and readiness for the lonvo-z program. As you might imagine, we've been working on that submission for some time now. The preclinical work has been completed, and that's being written up or has been written up in many circumstances. The CMC work, and here our team's just done a wonderful job of getting to readiness in a very, very robust fashion. We're in a position of complete preparation with respect to that and have completed the work necessary. I would point out that in our phase three trial for HAELO, we're actually using the material that will be the same sort of commercial material. There's no necessary comparability tests or things like that at the end of the study to change manufacturing sites or anything like that. The material we're using now is what you're gonna see in the marketplace. We feel that we're really in an excellent state of preparation. Really, what we're waiting for at this point is the maturation of the phase 3 study. As we said, we've completed enrollments. We over-enrolled substantially. We've said we'll share those top-line data here this year, and the team is ready to write that up and include it into the submission that will be going in the second half of this year. Ed Dulac: I'll do that, Joe. I mean, we have a network for lonvo-z CDMO providers that have been long established, primarily in Europe, for the product. These are all, as John mentioned, commercial scale processes that are all been validated. We are already operating at a very high level and very well equipped for commercial launch. Operator: The next question comes from Luca Issi with RBC Capital Markets. Please go ahead. Shelby (for Luca Issi): Oh, great. Hi, team. This is Shelby on for Luca, and thanks for taking the question. Maybe on HAE, did that program come up at all in your discussions with the FDA around the clinical hold? Then maybe also, in your conversations with payers so far, have they given you any sense of what the efficacy bar is to avoid any pushback on coverage? Any color there, much appreciated. Thanks. John Leonard: I can say a word about our dealings with the FDA. First of all, just to comment, the FDA has been super engaged. It's the same review team that we've been working with throughout the program, we're really appreciative of the work that they've been doing. They've been treating in their meetings with us, HAE and the PTR programs as distinct. In fact, largely the PN and the CM programs are, I think, viewed as somewhat distinct because of the patient populations there. That has not been a matter for discussions or submissions that we've made to the FDA. I don't know if you want to say a word about payers and lonvo-z. Ed Dulac: Yeah, I'll say generally, the discussions that we've been engaged with payers so far have been very encouraging. Payers appear to recognize the unmet need with the current therapies that are available in HAE. These are high-priced products, as we talked about in our prepared remarks, and they see the value of a one-time therapy like we're presenting with them in lonvo-z. We haven't talked price specifically, but we have had really good positive feedback. I mean, as we, as John mentioned, the current standard in terms of attack rate reductions is in the 80%, and we're looking at, you know, 60% as the largest number we've seen to date in terms of attack-free rate. That's kind of the efficacy bar. We expect to be very competitive on those figures. When we layer in the value proposition, broadly speaking, keeping in mind these patients are very young, they have many years, if not decades, of fairly high-priced, expensive drug therapy. This is a win for many different stakeholders. We see patients responding well to the profile. We see our physicians responding well to the profile, and we see that payers understand the value proposition that we will be bringing forward with lonvo-z. Operator: The next question comes from Jonathan Miller with Evercore ISI. Please go ahead. Jonathan Miller: Hi, guys. Thanks so much for taking my question. I want to go back to the mechanism of liver injury that you were talking about earlier. If it is immune-related or immune-mediated, is it reasonable to expect that affected patients are going to have ongoing liability for as long as the edited gene product is being translated? Sort of the same question, if you're excluding patients with liver risk, you know, that might reduce enzyme spikes, that makes sense. It likely doesn't reduce the rate of immune reaction to edited protein. Is that fair to say? If that's true, is it possible to screen patients for reactivity ahead for edited peptides ahead of dosing? John Leonard: Thanks for your question. As we've said in our comments, we do believe that the process is most consistent with an immune-mediated reaction. It has the hallmarks of that. The pattern resembles that. The patients that have seen this, which is, you know, a very small number of patients participating in the study, behave in a very stereotypical fashion in terms of timing, the appearance of LFTs, et cetera. That's why we've taken the approach of, in MAGNITUDE-2, and we'll see how it plays out for MAGNITUDE, of using steroids that would be triggered by an LFT rise that's, you know, something in, defined in the protocol. Steroids are well known to work with a broad set of immune-mediated processes. They're usually very well tolerated, and especially in this case, we would expect it to be a very, very short-term use of them. With respect to some long-term susceptibility, we just don't see that in the data. As we shared on prior calls, the patients that have had any of these rises have occurred within this window of three to five weeks, typically, and we do not see anything that resembles that subsequent. As far as long-term susceptibility, I don't think that's going to be an issue. As you might imagine, if we could identify patients in advance that are going to have this with a very, very high likelihood, we would take actions to probably screen them out or take other actions. We don't have that information just yet. The approach that we're taking is to make sure that we're carefully following the patients and intervening very, very quickly if something should arise. Remember that of all of the patients that experienced, with the exception of this gentleman who passed away from a very, very complicated, somewhat unrelated clinical course, every other patient has had a rapid decline in those LFTs and has recovered essentially with no therapy. In most cases, I think there's going to be just not a particularly meaningful concern in that number of cases in which we would actually use steroids, I think is going to be very low, single digits. Operator: The next question comes from Andy Chen with Wolfe Research. Please go ahead. Emma (for Andy Chen): Hi, this is Emma on for Andy. Thanks for taking our question. Can you elaborate a bit more on why the FDA was comfortable lifting the hold in PN but not CM, just given they're the same product, so we would think safety would be the same? Are there specific factors that differentiate the FDA's view across the two indications? Thank you. John Leonard: Well, I'm not going to be able to articulate all of the FDA's thinking because I'm not privy to it all, but I think I would summarize it as they view the patient populations as somewhat distinct. You, you're correct in that they're receiving the same drug and it's the same gene that is being edited, but the patient populations have different characteristics. The PN patient population tends to be younger, sometimes several decades younger than those with cardiomyopathy. The typical age of presentation for patients with cardiomyopathy is into the seventies or beyond.... Remembering cardiomyopathy tends to be a disease of aging, I would say, and most of these patients have a wild-type gene. The patients with cardiomyopathy have polypharmacy. Many of them have other ongoing medical problems, which tends not to be the case with the patients with peripheral neuropathy. I think that set of demographic characteristics is probably driving a lot of the thinking. Plus, we've had actually very good safety profile thus far in the patients treated in the PN study. As I said earlier, you know, there's a lot of data to go through in the cardiomyopathy patient population. We are very, very far down that road. The hold will be lifted when it's lifted, but I think we've made a lot of progress with respect to working with the FDA. Operator: The next question comes from Salveen Richter with Goldman Sachs. Please go ahead. Mark (for Salveen Richter): Hi, this is Mark on for Salveen. Thank you so much for taking our question, and congrats on the quarter. From your conversations with regulators, do you expect that additional mitigation strategies would be necessary beyond what you've already implemented in MAGNITUDE-2 in order to resolve the MAGNITUDE study clinical hold? Also, we just wanna confirm that in addition to the patient who passed away, there were only two other instances of liver enzyme elevations, or were there other patients who saw such elevations? Thanks. John Leonard: We've said previously that the incidence of Grade 4 elevations was less than 1% in the entire patient population of MAGNITUDE, I'd work with that number. That's part of the thinking that we're addressing with the FDA, we're thinking very, very broadly about how to deal with those patients, as I said in my prior remarks here. We're up and running with the polyneuropathy study going through the operational aspects to get the study accruing. With respect to MAGNITUDE, I think it's premature to say exactly where we're going to sort out, there's many, many points of commonality between the two patient populations and some of the assessments. When we get to a final readout here, we'll take everybody through exactly what's the same, and if there are differences, we'll point them out so that it's very, very clear. Operator: The next question comes from Yanan Zhu with Wells Fargo Securities. Please go ahead. Yanan Zhu: Hi. Thanks for taking our questions. I think maybe our question is a little similar to the prior one, maybe asked differently. Do you think this Grade 5 AE in a CM study, you know, how might that have been impacted with the mitigation strategies that you have proposed for the PN study? I understand you may have additional proposals for the CM, do you think those two proposals would have changed the course or prevented this Grade 5 AE case? Separately, I was wondering, Argo Biopharma issued a press release for their AAAAI presentation last night. I'm wondering your thoughts about that data, would that, you know, introduce any new considerations in a competitive landscape for ramucirumab? Thank you. John Leonard: Well, thanks for the questions. I'm not in a position now to comment on the Argo reference. With respect to the patient who passed away in the MAGNITUDE study, remember, we were working on the mitigation strategies for the CM study, and those are not yet finalized. You're asking me if what we're doing in the PN study would have either prevented that or changed, I think you said, the course of the patient's clinical course. It's not clear that the patient would have been screened out in advance, although I think knowing what we know now and investigators knowing, they may have will interrogate patients more carefully in terms of other medical issues that they have and somebody with also disease, if in fact it's active, would be something that we would not want to have come into the study. With respect to the actual LFT rise, what would be different is that it would be detected earlier, and the course of steroids would be begun, substantially earlier than having the patient develop the full-blown transaminase elevations that happened in the case of this particular individual. Would that have changed going to the hospital and the rest of the clinical course? We can only speculate, and I'm not gonna do that. Things would have been handled somewhat differently, and I think that's important. Operator: The next question comes from Brian Cheng with J.P. Morgan. Please go ahead. Brian Cheng: Hey, guys. Thanks for taking our question this morning. In the MAGNITUDE-2 trial, can you give us a bit more color on how frequent the added supplementary, liver blood test will take place after dosing? Is it fair to assume that, added liver blood test will also be part of the trial modification that will take place for the, MAGNITUDE trial? Thank you. John Leonard: I would start by saying that we already introduced some additional blood draws into MAGNITUDE-2 when we put the clinical trial on hold. It's important to remember, and I think this sometimes get lost, that these trials are ongoing. What we're not doing is actively accruing patients. That's the one part of the study that is on hold. In terms of ongoing clinical evaluations, clinic visits, all of the standard assessments that are part of the protocol, that's happening. We're collecting endpoints as we go from the 650+ patients that were enrolled in MAGNITUDE. Things are moving, and I just, I don't want that lost. You know, as we put the trial on hold, for those patients who had just been dosed and had not passed through that window yet, we did implement measures that included additional screening of LFT. That's already in the protocol. If that changes or not, we'll see, you know, when we finalize that any protocol modifications with the FDA. I, in terms of the number of assessments, think of it as a couple of additional assessments in the weeks immediately after dosing. Essentially weekly early on, and then biweekly, or I should say semiweekly, I guess, for weeks three, four, and five. We have a really good bin sampling through the time when patients are most at risk. Operator: The next question comes from Silvan Tuerkcan with Citizens. Please go ahead. Silvan Tuerkcan: Hey, good morning. Congrats on the quarter, and thanks for taking my question. I just wanna circle back to the prior question on maybe Argos data and ADARx. You know, I appreciate you can't comment without seeing the data, but maybe on a high level, what can you tell us about the delineation or how you would want to position this once and done gene editing versus some of these more spaced out, you know, potentially 6, or dosed every 6 months, silencing RNA technologies that may be coming to the market? Do doctors already appreciate the difference here? Thank you. John Leonard: That's an important question, and I think one part of this that gets lost is what is the so-called burden of care? The burden of care is not just getting an injection, whether it's every 2 weeks, every 4 weeks, every 6 months, et cetera. It's also what patients need to go through to get access to these drugs and how they constrain life choices to do that. Think of it this way, if a patient needs to get prior authorization once or twice a year, that is a burden. There's risk associated with it. There are sometimes delays associated with it. Then the next year, you do it all over again, and the year after that, you do it again. These doctors are also engaged in this. If you ask the patients how they feel about that, they view that as an inherent risk to get access to the drug and continued access to the drug. You know, it's attack rates are important, and attack-free rates are, you know, critical for the actual outcomes of these patients. As we've said, we think we have a very, very attractive profile that you can look at what we've seen from, you know, the pooled analysis. The ongoing constraints that patients deal with, including maybe not changing jobs because they'll lose their insurance, is something that gets lost in all of these data, but is top of mind for patients when you go and ask them. Ed Dulac: Yeah, I'll just add on top of that. I mean, we don't really talk about the emotional, social aspects. There's financial aspects to prior authorization. I mean, again, these patients are pretty young and have oftentimes decades of drug therapy that's required. When you speak to them, it's very clear they'd prefer not to have HAE, and they'd prefer not to have drug therapy. We are gonna be the solution for the market for that, and we like what we see in terms of the large market. It's a highly informed, well-educated patient population. There is a trend towards LNP use, and we do see it as a switchable population for the most part. We're, we've got a lot of tailwinds here. I would say, without knowing the data that people are referencing, I do want to remind folks that study design does matter. There's pre-phase 1 or phase 2, that depending on how patients have come on to the study, are they on LNP or are they not, in addition to the open label nature, really has a way of changing the numerical responses as people would report them. You know, we had our own pooled analysis going back to November of last year from our phase 1, 2 study. That's the benefit of patients knowing they're on therapy, and you see, you know, very different outcomes, you know, very high attack-free rates and very high attack rate reduction. That's not necessarily the case in a phase 3 study, as we've talked about before. When you're in a randomized, placebo-controlled study, patients are risking coming off their existing LTPs. They are risking going on to a study where they may or may not receive active treatment, and that can lead to behaviors often seen in HAE patients that lead to additional attack rates being reported in that primary observation period. I think we're very careful about how we think about our phase 3 data that we'll report out. As we said before, we're very encouraged by pooled analysis that we shared in November. We think that's the best representation of what the real-world profile of lonvo-z will look like in the market. Operator: The next question comes from Myles Minter with William Blair. Please go ahead. Jake (for Myles Minter): Hi, this is Jake on from Myles. Thanks for taking our question. Is it your current stance that the liver enzyme elevations you're seeing from nex-z are specific to the editing of the TTR gene with no read-through to the rest of your pipeline? Maybe could you sort of dig into the underlying biology that would lead to that hypothesis? Does the evidence of this liver enzyme elevations being immune-mediated sort of influence your analysis of that question? Thank you. John Leonard: Thanks for the question. It's not something that I'm going to be able to speculate on at this point. You know, you're essentially asking me what are the molecular events that might be driving this? The simple answer is, at this point, we really don't know. Of course, we edit the TTR gene. That's the entire therapeutic hypothesis here. Whether or not that by itself or some other factor is what's driving this is not clear. As you might imagine, we've looked extremely carefully at the patients in the trial for any threads of evidence that would help us sort that out. On a going-forward basis, we're gonna continue to look for clues that may help us sort this out. If we could identify some aspect of a patient that said, "This is the person who's going to have this," obviously we would take action to address that, but we don't know that yet. As we step back a click or two, we see all the hallmarks of something that's immunologic, and that's why we're proposing, well, implementing in the case of polyneuropathy, and we'll see how MAGNITUDE-2, sorry, how MAGNITUDE sorts out, the use of steroids, which is time-tested. It's well known to be broadly applicable for immunological processes, and physicians tend to have a lot of experience with those drugs, which they can use safely. When it's used, we would expect it to be a very, very short course, in most cases, probably substantially less than even a week. We'll see what we learn as we go forward. To your broader question, does it speak across the entire pipeline? We don't think so. There's different genes, different edits, different patient populations, different demographic characteristics. As we've reported elsewhere, whether you look at our phase one work or phase two work or the phase three work across the HAELO study, we just don't see this phenomenon. There's been no Grade threes or Grade fours that have been observed at any point in those studies. We think that we're dealing with something that's primarily playing out in the CM patient population. We hope to be off hold so we can test the strategies that we're putting in place, to get to what we think is a very, very attractive efficacy profile, when we complete the study. Myles Minter: Thanks for taking the question. I was just wondering if you can remind us on the payer mix in HAE, in terms of commercial versus Medicaid, then how to think about, you know, timing of any Medicaid coverage in the event of approval? Then on the expense side, you know, your comment about if you achieve mid-single-digit market share in a year, that the cash flow could fully fund your operations. Is that assuming expenses are at steady state, or is that assuming that expenses ramp from here? Just want to kind of understand what the underlying direction is for the expenses when you make that kind of a statement. Thank you so much. John Leonard: Maybe you can help us look down the road a little bit for how you think about the expense profile and then maybe speak to the commercial Medicaid mix of carriers. Ed Dulac: Yeah. Thanks, John. Thanks, Aaron. From a cost perspective, and we're not giving long-term cost guidance, but if you look at where the business is, and 2025 is a pretty good year. I mean, we undertook a restructuring with a very thoughtful plan. We kind of ratcheted back R&D, have become much more focused there, but still very active on the R&D front. We did that to create capacity for the build that we were gonna need to do on a commercialization. That started in 2025, so the mix of the business has already started to shift in that direction, and that will continue. As you heard in the prepared remarks, we've got still some final build-out capabilities that we need to do for 2026 to be prepared for a first half 2027 launch. Roughly speaking, we've been guiding for around $400 million in net cash use over the last 12 or 24 months, and I think that's a reasonable number to be thinking about going forward. We'll have a little bit more investments on the sales and marketing side, but we've got a really good handle on what the needs of the business are beyond that. We're not going to be substantially higher than where we are today, and that allows us to kind of feel really comfortable about. While we have much higher expectations for lonvo-z, a little bit goes a long way for a company our size, and from an operational perspective, this is an opportunity that, you know, we can definitely do ourselves. You know, we've been very thoughtful about the approach that we're taking. That's behind the commentary this morning. From a commercial split perspective, roughly 70% of the opportunity is commercial payers for lonvo-z. Operator: The next question comes from Mitchell Kapoor with H.C. Wainwright. Please go ahead. Mitchell Kapoor: Good morning. Congrats. Mike on for Mitchell. Congrats on the year and the quarter. What are the gating factors to get the ATTR studies back up and running? For ATTR-CM, what have you heard from regulators on the path forward? Thank you. John Leonard: The gating factors for PN are really local, operational issues at sites, and we're engaged in that currently. There may be IRB submissions or some local regulatory considerations. All of that is happening, and we would be expecting to be actively accruing patients in the not-so-distant future. As we've said, we expect to have the study fully accrued by the end of this year. And, yeah, as we make progress, we'll provide updates as appropriate. With CM, the gating factor is having receiving a letter from the FDA that says you're off hold. And, as we've said, we've been very, very actively engaged with respect to addressing any questions, supplying information, et cetera. I think that we are very, very far down that road. Until we receive a letter that we're off hold, we should just wait and see. As soon as we get that letter, should we receive it, we will bring everybody up to date as quickly as possible, and then we'll go through a similar process that we are with PN, where it's local operational issues, to make sure that if there's, outside the U.S., any additional regulatory submissions that may apply to any particular country. Once we're off hold, should we get off hold, we will tell everybody exactly Operator: The next question comes from Jack Allen with Baird. Please go ahead. Jack Allen: Great. Thanks so much for taking the questions, and congrats on the progress over the quarter. I wanted to ask on the MAGNITUDE-2 peripheral neuropathy protocol amendments. Have you discussed with the FDA any impact as it relates to the comparability of the dataset pre- and post- the implementation of those protocol amendments? Is there any risk that the FDA views the protocol amendment as creating a differentiated dataset, you know, given the change in protocol? John Leonard: I can't speak for the mind of the FDA, but I would point out that the interruption in time was actually quite brief. When you think about clinical holds, generally, we are at the upper end, by that I mean, the shorter timeframe to get off clinical hold. In the case of PN, it was 3 months. The evolution of the patient population, you know, things like new therapies, et cetera, really doesn't come into play. Remember that of the target patient population that we started with, which was 50 total patients, we already had 47 at the time that we went to hold. we are very, very close to the accrual finish line, and from the standpoint of, you know, patients who came in before the hold and after the hold, I think the differences, if any, are likely to be de minimis. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jason Fredette for any closing remarks. Jason Fredette: Well, thanks, Drew, and thanks, everyone, for joining us. We'll look forward to seeing many of you at the upcoming TD Cowen, Leerink and Barclays events that are taking place in Boston and Miami. That concludes the call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Preliminary Full Year 2025 Results Conference Call. I am Jota, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rafael Pérez, CFO. Please go ahead. Rafael Perez: Good morning, and welcome to the Preliminary Full Year 2025 Results Conference Call of Befesa. I am Rafael Pérez, CFO of Befesa. And this morning I'm joined by our Group CEO, Asier Zarraonandia. Asier will start with an executive summary of the period. Then we will cover the business highlights for the steel dust as well as aluminum salt slag recycling businesses. I will then review the preliminary full-year financials by business, and we'll cover the evolution of commodity prices, our hedging program, and finally, cash flow, net debt, and leverage and capital allocation. Asier will close this presentation, providing an update on the outlook for 2026 and an update on our growth plan. Finally, we will open the lines for the Q&A session. As always, this conference call is being webcasted live, and you can find the link in our website. Now let me turn this call over to our CEO, Asier, please. Asier Zarraonandia Ayo: Thank you, Rafael. Good morning all. Moving to Page 5 of the business highlights. We have delivered strong full results -- year results, continuing the solid trends seen in the first 9 months of the year. Our performance demonstrates once again the resilience of our business model and the benefits of our diversified operations. Adjusted EBITDA for the full year of 2025 reached $243 million, up 14% year-on-year. The EBITDA margin improved significantly to 21% in the full year '25 compared with 17% in '24, reflecting a strong operational efficiency and disciplined cost management. Financial leverage was further reduced to 2.27 in December 2025 compared to 2.19 a year ago, well below the 2.5 target, marking the seventh consecutive quarter of deleveraging. Net income and earnings per share also increased sharply. EPS rose 58% year-on-year to 2.01, reflecting a strong profitability and improved financial performance. In our steel dust business, we achieved resilient EAF dust volume across all markets despite adverse market conditions. Performance was further supported by lower zinc treatment charges and favorable zinc prices. Our salt slag operation delivered solid performance, while secondary aluminum has been impacted by persistent challenging environment, driven mainly by the weak automotive market in Europe, as well as the usual summer period maintenance activities in the auto industry. The Palmerton expansion project was completed as expected, with the second kiln successfully commissioned in July '25. We expect '23 to be another year of earnings growth, primarily driven by higher EAF steel dust volumes in the U.S. as well as some recovery in secondary aluminum. Our financial leverage is expected to remain at around 2x by year-end 2026, supported by solid cash generation and disciplined capital allocation. Growth CapEx will continue to focus on the Bernburg project. I will comment on the outlook in more detail later. Moving on to Page 6, business highlights for the steel dust business. In Europe, steel production in the full year of 2025 has remained depressed, down 3% year-on-year, mainly due to weak manufacturing activity and higher imports from China. Despite this, our steel dust deliveries from electric arc furnace steel customers continued in line with the 2024 average at very solid levels, demonstrating the resilience of the business model. Operationally, the European plants performed strongly, achieving a 94% load factor in the fourth quarter, showing a strong performance and no maintenance stoppages. In the U.S., steel production increases by 3.1% year-on-year, driven by overall economic growth. Our U.S. plants operated at a 71% load factor in Q4, continuing a gradual improvement year-on-year. The 2 new kilns in Palmerton have been fully operational since July 2025, and new electric arc furnace steel supply contracts are ramping up progressively through the Q4, following some initial start-up delays. At the same time, cost reduction measures in the U.S. Zinc refining plant continued to deliver the expected improvements in asset profitability. In Asia, volumes in Turkey increased by 11% year-on-year, recovering strongly after a weak second quarter affected by maintenance shutdowns. In Korea, the load factor reached 76% in 2025, up 6% year-on-year, driven by higher domestic deliveries and strong operational execution. In China, operation continued at low utilization level with earnings around breakeven, reflecting ongoing market weakness. Moving on to the Page 7, business highlights for the aluminum salt slag recycling business. In our aluminum business, performance has remained mixed in 2025. Starting with the salt slag recycling business, operations have continued to perform strongly, running in line with previous quarters. Utilization levels remained above 90% in 2025, demonstrating the robustness and efficiency of our assets. In our secondary Aluminium segment, the market environment continues to be very challenging. As we have been commenting during the year, the European secondary aluminum industry remains under pressure with tight metal margins and limited production activity, largely as a consequence of the ongoing weakness in the automotive sector. However, the performance in the fourth quarter of 2025 reinforces the view that the Q3 was the lowest point of the cycle and that the recovery should be underway. Despite these headwinds, we continue to focus on operational discipline, cost efficiency, and customer diversification to preserve profitability and position the business for recovery once market conditions improve. Now Rafael will explain the financials in more detail. Rafael Perez: Thank you, Asier. Moving on to Page 9, the financial results for the Steel dust segment. Steel dust delivered EUR 212 million of adjusted EBITDA in 2025, which represents a 25% year-on-year improvement. EBITDA margin improved from 21% to 27% in the period, mainly driven by better pricing environment on treatment charges and zinc hedging. The EUR 42 million EBITDA improvement has been driven by the following factors. The year-on-year impact from volume has practically no impact, with similar plant utilization at group level around 70%, similar to last year. As explained by Asier, we have been able to run our European assets at a high utilization despite a very challenging market environment. On price, strong positive EBITDA year-on-year impact of around EUR 35 million. With the 2 main price components being higher zinc hedging price, 3% higher year-on-year, and lower zinc treatment charges, which was set at $80 per ton for the full year 2025 versus $165 per ton in 2024. On cost and other, the net positive EUR 6 million impact is largely driven by the lower operating cost in the zinc smelter in the U.S., as well as lower average coke price. These 2 positive effects have been partially offset by higher inflation costs in the recycling business as well as unfavorable FX. Moving on to Page 10, financial results for our Aluminum segment. Aluminum salt slag delivered EUR 32 million of EBITDA in 2025, which represents a 27% year-on-year decrease compared to the EUR 43 million in the same period of last year. The year-on-year EUR 11 million negative EBITDA development was mainly due to the lower aluminum metal margin, as well as slightly higher operating costs and energy prices. On volumes, overall marginally negative EBITDA year-on-year, with a decrease of EUR 3 million. Our recycling volumes of salt slag remained pretty much in line with the previous year. With these volumes, we operated our plants at a strong capacity utilization rates of about 89% in salt slag and 75% in secondary aluminum. With regards to prices, negative EBITDA year-on-year impact of around EUR 5 million, mainly driven by the pressure aluminum metal margin versus the previous year. As commented by Asier, our view is that the industry has bottomed out already in Q3 last year, and we expect positive development from now on. This was partially offset by higher aluminum F&B price with an increase of 3%, averaging EUR 2,369 per tonne. On cost and other increased pressure from higher operating and energy-related expenses. Moving on to Page 11, zinc price and treatment charges. Regarding zinc LME prices during 2025, heat zinc has traded in the range of $2,521 to $3,351 per tonne, showing a particular positive trend in the last months of 2025. The average of zinc LME price in 2025 have been $2,867 per ton, which is 3% above the last year average. However, unfavorable evolution of the foreign exchange of the euro-dollar has resulted in a slightly lower zinc price in euros, down 1% at EUR 2,542. On the right-hand side of the slide on treatment charges, in 2025, treatment charges for zinc were set in April at $80 per tonne for the full year 2025, compared to the $165 of the previous year, marking an all-time low record level. Turning to Page 12 on hedging. We have taken the opportunity of the recent rally of the zinc price to be very active on our hedging program. Our hedging book has been extended to the first half of 2028 at all-time high levels of $3,100 per ton. For 2027, the hedge is set at $3,000 per ton. This provides stability and visibility over the coming quarters and years. Average hedge prices amounted to $2,923 in 2025 and $2,990 per 2026. Turning to Page 13, Befesa energy prices. The page shows the evolution of the 3 energy sources that we have in Befesa: coke, natural gas, and electricity. With regards to coke price, which today represents around 60% of the total energy bill, the normalization that started in the second quarter of 2023 continues throughout 2025. Average coke price in Q4 was around EUR 152 per ton, consolidated its downward trend compared to the previous quarters. Regarding electricity, which today accounts for 30% of the total energy expense, price are at similar levels than in Q3 2025 after significant correction in the second quarter of last year. Finally, gas prices continue its normalization throughout 2025 with a slight increase to EUR 45 per megawatt hour in the fourth quarter of last year. Turning to Page 14, the cash flow results. Operating cash flow in 2025 has reached a record of EUR 212 million, which represents an increase of 10% compared to the same period of last year, despite higher taxes, with EUR 21 million paid taxes in 2025 versus a positive tax impact in 2024. On the EBITDA to cash flow walk, starting with EUR 243 million adjusted EBITDA and to the left, working capital consumption amounted to EUR 10 million in 2025 with a strong end of the year recovery from previous level in the first quarter, reflecting the intra-year seasonality that we explained already in the first quarter. Taxes paid in 2025 came in at EUR 21 million as a result of the final tax assessment of the previous year, in comparison with a positive tax impact in 2024, resulting in an operating cash flow of EUR 212 million in the year, making a record in the history of Befesa. On CapEx, in 2025, we have invested EUR 50 million in regular maintenance CapEx across the company, EUR 26 million in growth CapEx related to the refurbishment of the Palmerton plant in Pennsylvania, which is now completed as well as the part of the Bernburg expansion project in Germany. In summary, total CapEx of EUR 76 million in the year, which is lower than the range of EUR 80 million to EUR 90 million that we initially provided, reflecting a strong discipline on capital allocation. Total interest paid amounted to EUR 34 million, and total bank borrowings amounted to EUR 34 million in the full year. For 2025, the EGM approved in June to pay a dividend of EUR 26 million in July, equivalent to EUR 0.63 per share or 50% of the net income. In summary, final cash flow amounted to EUR 40 million in 2025. Cash on hand stood at EUR 143 million, which together with our EUR 100 million undrawn revolving credit line, provides Befesa with more than EUR 240 million of liquidity. Gross debt at the end of December stood at EUR 695 million. Net debt was greatly reduced by 11% to EUR 552 million compared to EUR 619 million in the same period of last year, resulting in a net leverage of 2.27 at closing of December '25, a strong improvement compared to the 2.9 at December 2024 and well below our initial target of 2.5. Turning to Page 15, debt structure and leverage. Following the refinancing back in July 2024 and the repricing in March last year, 2025, Befesa today has a long-term capital structure with optimized financial cost. Net leverage improved significantly, as explained earlier, to 2.27 at the end of last year. This marks the seventh consecutive quarter of leverage reduction, as well as well below our company target. For 2026, net leverage is targeted around 2x and below 2x onwards, reflecting Befesa's continued commitment to disciplined capital management. We will prioritize the growth CapEx on those projects that will deliver immediate cash flow upon completion, like the approved project of Bembur and other market opportunities that may appear. Also, we will keep the annual regular maintenance CapEx around EUR 40 million to EUR 45 million over the coming years. On dividend, we are committed to maintain our dividend policy to pay between 40% to 50% of the net income to shareholders. For 2026, the Board will propose to the EGM to pay a dividend of EUR 40 million, equivalent to EUR 1 per share or 50% of the net income. This dividend is 37% higher than the dividend paid last year in 2025. Moving on to Page 16. Befesa is entering a new cycle of low CapEx and high earnings, resulting in a strong free cash flow generation and shareholder value creation. During the last years, we have gone through a high CapEx cycle, which has allowed us to expand our operations globally into the U.S. and China. Now that this cycle is completed, we enter a new cycle of limited total CapEx below 80% over the coming years, along with high earnings, resulting in a strong free cash flow. Total cash flow after 3 years of negative cash flow, 2025 has been marked at an inflection point, delivering strong final cash flow. Total cash flow is expected to follow a positive trajectory, reflecting the company's improving a stronger underlying cash generation profile. Finally, as we have already commented, leverage is expected to be kept below 2x for the coming years, allowing greater optionality in future capital allocation decisions. Now back to Asier on outlook and growth. Asier Zarraonandia Ayo: Thank you, Rafael. Moving on to Page 18, 2025 guidance. Befesa closed 2025 with solid delivery within the guidance provided, achieving $243 million in EBITDA and strong operating cash flows of $212 million and maintaining a strict CapEx discipline, spending $76 million. The company continued to deleverage, reducing net leverage to 2.27, supported by improved EBITDA and consistent cash generation. Earnings per share rose to $2.01, reflecting a strong underlying performance and enhanced financial efficiency. Overall, the result demonstrates disciplined execution and continuous focus on long-term value creation forareholders. Moving to Page 19 on '26 outlook. Looking ahead to '26, as in the past, we will provide guidance in the first quarter once the 2026 treatment charge has been announced. However, I can provide some comments about the year. We expect 2026 to be another year of earnings growth, strong cash flow generation, and continued deleverage. Steel volumes are expected to remain solid and stable in Europe, while the U.S. anticipates higher volumes driven by new contracts with the steelmakers. In China and the rest of Asia, stability is also expected to prevail. Salt slags operations are projected to maintain stable volumes compared with 2025, supported by higher collection fees. The metal margin for second aluminum is also expected to improve gradually through the year, particularly after having bottomed out in the third quarter of 2025. The smelter has benefited from a strong fixed cost reduction achieved in 2025, and further efficiencies are expected to be realized through 2026. On the other hand, energy costs are expected to evolve more moderately. The group anticipates a slightly lower to stable overall coke prices, while European natural gas and electricity prices are projected to rise in 2026. General inflation continues to impact maintenance, ancillary materials, and personnel costs across all regions, creating a negative pressure point in the cost structure. In the treatment charge environment, the benchmark TC settled at $80 in 2025, its lowest level in 15 years. Although the concentrate market remains tight, characterized by low spot treatment charges, TCs are expected to rise in '26 toward a range of $100 to $130. Hedging activity foreseen remains stable with the average '26 hedge price set at approximately EUR 2,990 per metric ton, consistent with 2025 levels, suggesting a neutral hedging position. Total CapEx for the year will be below EUR 70 million, with around EUR 45 million for regular maintenance and the remaining for growth in expansion of Bernburg. Net leverage will be around 2x by the end of the year. Moving on to Page 20 on Palmerton. In the United States, our Palmerton plant has been successfully refurbished, marking a key milestone in our strategic growth road map. Both kilns are now fully operational, positioning Befesa to capture the significant growth expected in the U.S. electric furnace steel dust market over the coming years. U.S. electrical furnace steel capacity is projected to increase by more than 20% by 2028, equivalent to around 18 million tons of new steelmaking capacity. This expansion translates into over 300,000 tons of additional steel dust, creating a substantial opportunity for Befesa's recycling operations. With a total installed capacity of 650,000 tons across our U.S. plants, we are now well-positioned to leverage this growth. Our goal is to progressively ramp up utilization from below 70% today to around 90% by 2028 as new electric arc furnace capacity comes online. The combination of our modernized departmental facility, long-term customer relationships, and strategic geographic footprint near key steel producers ensures that Befesa is ready to capture this next phase of growth in the U.S. market. Moving on to Page 21, our expansion project in Bernburg, Germany. This is another important milestone in Befesa's growth journey as we continue to strengthen our aluminum business and expand our recycling capacity in Europe. From a timing perspective, our permits have now been obtained, and our construction officially started in August '25. We expect a 12-month construction period followed by a 6-month ramp-up phase in the second half of '26. On the commercial side, we have already secured strong customer support. Overall, the Bernburg expansion is progressing fully in line with plan. Moving on to Page 22 about the European steel industry. Europe is accelerating its transition toward electric arc furnace steelmaking, largely driven by decarbonization targets and supportive policy frameworks. Between '26 and 2030, 12 new electric arc furnace projects have been announced to come online. This represents more than approximately 20 million tons of new EAF capacity, which means 23% increase compared to the 60 million, 90 million of electrical arc furnace capacity in Europe. As a result, EAF penetration is expected to rise from the current 45% over the next 5 to 10 years, supported both by this new project and the progressive replacement of blast furnaces. Given our strong market position, established customer relationships, and ongoing business development efforts, Befesa is strategically well positioned to capture the significant volume growth expected from this strong. We are already engaged in advanced negotiations with key customers to support this expansion phase in the coming years. Thank you very much. Rafael Perez: Thank you, Asier. We will now open the lines for your questions. Operator: [Operator Instructions] The first question comes from the line of Shashi Sekhar with Citi. Shashi Shekhar: So I have a couple of questions. So my first question is on capital allocation. I just wanted to understand what's the priority here? Is it deleveraging, dividend payment, or further expansion into European steel dust business, given improved outlook for European steel segment? My second question is on China. I believe one of the plants is still burning cash. So I just wanted to understand at what point you will consider either closing it or moving it to some other province? Rafael Perez: Thank you, Sashi. On capital allocation, I think we have tried to explain many times. We want to deliver a combination of keeping the leverage below 2x. I think this year, we have made -- last year, 2025, we made great progress in our deleveraging efforts, achieving a target which is below what we initially envisaged at 227. We are targeting around 2x for this year, 2026. And beyond 2026, we expect to keep the leverage below 2x, okay? Secondly, on dividend, yes, we want to keep the promise that we made at the IPO to pay 40% to 50% of the net income as a dividend to shareholders. And then on growth, obviously, as we have explained, we are coming from a high CapEx period where we have invested heavily in China and in the U.S., and that has enabled us to expand our operations. I think the focus at the moment is for this year in Bernburg, as Asier has explained. And then we also see a clear opportunity to deploy capital in Europe, as Asier explained at the end of his speech, to capture the growth of the EAF steel market in Europe, okay? We envisage to do that through a brownfield. We will provide all the relevant details about the project at the right time. But it's a combination of capturing the growth opportunities that we see in our main market, Europe, while keeping the leverage below 2x and keeping the commitment to pay dividend. Asier Zarraonandia Ayo: Yes. Sashi, and regarding the second question about China, well, yes, we have one plant running probably levels in 50%, 60% and the other one is just 10%, 20% depending on the availability. But it's not burning cash because basically, what we have is that plant stopped under control, and even when we run in periods where we have stopped the plant, moving the people to run the business. And basically, the cash is -- we are not negative cash in general in China for the whole business. So we are doing EBITDA positive and converting into cash positive for the year. So we have some confidence to be in that way until the market comes back. Possibilities for the future, well, you talk about. I mean, we are open to see if we can move in another province. And in that case, we consider even to transfer or translate the assets. We will see. The whole thing now is that China is in a situation that we don't see the need to invest in that so far more and wait for the recovery and as well because we are not, again, making cash negative, we have time to do that. Operator: The next question comes from the line of Adahna Ekoku with Morgan Stanley. Adahna Ekoku: I also have 2. So first of all, just on secondary aluminum, there was quite a strong margin improvement quarter-over-quarter, given the market backdrop. Is this a level we should expect to persist throughout 2026? Or were there any kind of specific positive effects in Q4 here? And second, just on the Q1 outlook, could you run through the kind of key moving parts to consider here, like volumes and margins? And are there any maintenance activities we should be aware of? Rafael Perez: Adahna, thank you for the question. Well, secondary aluminum, I think that -- well, yes, I think as I reference the last quarter margins, and probably we will see this, and we are starting to see this level in the first part of the year. But still, it's a little bit early to say this is going to be there, perhaps the level even is increasing, we will see. I mean it's a good reference because we see that the last part of the part has gone. In terms of the outlook and maintenance, I think that the reference could be the last year situation for maintenance stoppages, and probably the dust and the activity volumes are going to be in line with 2025, but we think that we can improve the figures. But in terms of activity, it could be a good reference, the first quarter of 2025. Operator: The next question comes from the line of Fabian Piasta with Jefferies. Fabian Piasta: I have 3 and one follow-up. So could you give us an indication what the EBITDA contribution from your U.S. smelting business is? Are we breakeven already this year? And what are you expecting for 2026? The second one is on the treatment charge outlook. Do you think that this is more driven by capacities or the recently increasing LME zinc price, basically making smelter compete for the zinc? And the third question would be you were referring to demand from data center verticals. Is there an end market split that you can share? How do you see that? What do you expect this growth to influence volumes in the U.S. And the last one was on maintenance. Did you say that the phasing is going to be similar like last year, so more maintenance shutdowns in the first half? Or did I get that right? Asier Zarraonandia Ayo: Thank you, Fabian. So many good questions. Well, regarding the U.S., refinery is where the plan is where we thought to be and is closing to the breakeven point, and the costs are under control. Now the operation depends on the volumes as well of material we can treat there, and it's basically a control of the cost already done. Even you can gain a little bit more efficiency cost for next year. Regarding the treatment charge, it's a good question about what is affecting the most is capacity demand of about concentrates market, and it's a little bit strange. But obviously, it's affected by the rest of the factors, which affects to the zinc price. Normally, the period is still in favor of the miners. The question is where it's going to be spot TC that is not -- has not to be a real election, but it's a little bit down again. So well, all the music sounds that it's going to be another year of favor of minus. The level could be in the range as we see more than $100 now, but it has to be confirmed, basically those days with a meeting for the International Zinc Association in U.S. those days. We will see. In terms of the steel demand and so on, I think that everywhere is an expectation about the general evolution looks positive because we can see the steel share prices of everyone. I think that the expectation is that a recovery, and because the tax and custom action they are taking for -- in Europe or U.S. could have an effect in the production. If this happens, we see positive outlook for the steel in general. And regarding the last point, as I said before, yes, when we -- maintenance stoppage is sometimes not easy to move from 6 months or a longer period because yearly basis is when we do the maintenance. So more or less, what we see now for '26 is the same level than '25 with the Q1 and Q2 and then Q3 and Q4 having more volumes. This is a little bit the view that we have now, no major changes. We try to move and to do longer periods before the maintenance, but no big changes are going to come in the short term. So again, the '25 maintenance stoppage reference is a good point of your expectations. Operator: The next question is from Olivier Calvet with UBS. Olivier Calvet: I have 3. Firstly, on volumes in the U.S., what's your expectation for additional volumes in 2026, and that if you could give us a sense of the range you're thinking about, depending on when your clients' volumes come through? The second question would be on the CapEx level. So I fully understand the message on sort of below EUR 80 million CapEx going forward. But I noticed slightly higher maintenance CapEx in '25 than I think you had indicated. So are you expecting a similar level of maintenance CapEx in '26? And just the growth CapEx part related to Berenberg, I had in mind the EUR 10 million to EUR 15 million. Is that fair? And the third one, just on the zinc hedges. So great to see you've been active on hedging. So what you've added in '27 and '28 is in USD, right? In '26, I think you had hedged in euros, right? And just if you could remind us what level of exchange rate you hedge '26? Asier Zarraonandia Ayo: Thank you, Olivier. I can get the first question about the U.S. volume, which is what we do expect, is partly the same that we were expecting in '25 with the new contract. So -- and then depending on the evolution of the steel production in general for the rest of the customer, but we see more or less in the range of 60,000 to 70,000 tonnes of more volume in U.S., more or less is a good reference for you to have. Rafael Perez: Regarding CapEx, Olivier, I think we have said very clear, obviously, it's not a fixed number, but maintenance CapEx will stay between EUR 45 million to EUR 50 million over the coming years. And then growth will be based on -- in this year, for 2026, on Bernburg. We are envisaging a maximum CapEx for this year of EUR 70 million. And for the coming years, we don't see any year of CapEx higher than EUR 80 million. So what I tried to explain is that we are entering into a new cycle of limited capital, limited CapEx, and high earnings resulting in strong free cash flow. And regarding the hedging, yes, we -- for 2026, we are hedged in euros for our European volumes, in dollars for our American volumes. And for '27 and '28, the hedging at the moment in U.S. dollars. Olivier Calvet: And just on the CapEx, so the growth part of the guidance for '26 is basically only Bernburg, or is it -- is there some headroom to do-- Rafael Perez: Yes. Operator: The next question is from the line of Jaime Grivanomayes with Banco Santander. Jaime Escribano: A couple of questions from my side. The first one on salt slag. So the EBITDA in '24 was close to EUR 32 million, around EUR 29.5 million in '25. What could we expect in 2026? Also, if you can comment on the margin of Salted slags in Q4, which was a little bit low at 21%, more or less. What could we expect? If you can give us some color on the dynamics in salt slags, basically? And second question on secondary aluminum would be very much of a similar question. So EUR 2 million in 2025, which seems to be a trough. What should we expect for 2026, a number that you feel comfortable? And maybe a final question on the guidance 2026, which I know you don't provide, but if we look to the consensus at EUR 260 million EBITDA, EUR 260 million EBITDA more or less, how comfortable you feel with this number? And building on this, if the treatment charge ends up being around 100 million, 110 million, and zinc price averages above 3,000. How do you see this 260, do you see upside risk, or you're still comfortable with this number? Asier Zarraonandia Ayo: Thank you, Jaime. Starting for the salt question, yes, we have -- I think it's a business which the current normal capacity of the secondary aluminium production in general in Europe is quite stable. We do hope this reference of EUR 32 million that we have in '25 could be a reference even to increase something in '26, because we have increased fees for aluminum producers. So we see that it is a good reference, even slightly higher. The '25 number has been affected by basically the volume that you have seen that is not better, and some more weight of the cost of production because you are not increasing or compensating with the volumes. But the dynamics of the business is clear. It's very similar to the steel dust. The volumes is the key because we have the plant almost full capacity. But the current aluminum producing -- secondary aluminum producing situation is putting some stress to the plant, and we are not so efficient like in the past because the full production is the best situation to absorb the cost. We see the '26, as I say, a stable business, but probably a little bit higher, 10% or something like that could be a good reference. With regards to secondary aluminum, what we can wait or we can expect for '26. Well, the 2 million of the Q4 is a good reference. I mean, just repeating the 2 million in every quarter, we will talk about $8 million or something like that. So well, it's not coming back to the years that we have even EUR 20 million in this business, but well, [ Sala's ] reference of EUR 8 billion to EUR 10 billion is something that will be very strange for us, right? We will see if it's going to be even better because we see very difficult to be back on the worst period like it was the Q3. So yes, the Q4 could be a good reference, perhaps conservative, but repeating this, as I say, could be a reference. And with regards with the guidance, I know you guys that you like the numbers and basically one number and an average in the range, whatever, EUR 260 million, something that is the current consensus. Well, we are comfortable with this figure, but we need a little bit more time to see the evolution of TC and put our estimations. But I think that is, in any case, will be in the range, this amount, and we are not -- we are comfortable, yes, really. Operator: The next question is from Bertran Palazuelo with DLTV. Beltran Palazuelo Barroso: Congratulations all of you and the team for the strong results. I have 2 questions. First of all, regarding capital allocation, I know you answered, but I will ask again. Clearly, seeing the dynamics you're seeing and you're stating and clearly also stating the visibility you start having with the zinc prices due to the hedges, and seeing that the spot price is higher than your hedges? Well, it looks like in the future, well, your balance sheet should get stronger and stronger. So my question is, apart from paying the dividend, what is making you not start buying a little bit of shares to show the market all your, let's say, improvements. We -- from us, we would like to see the share count decrease. In 2021, you increased it at a good price. Now we want to see it decrease because the balance sheet, it looks like it gets stronger and stronger. And then my second question is apart from the -- what growth opportunities now apart from the state do you see medium to long term to allocate capital accretively. Rafael Perez: Thank you, Beltran. I think we have discussed many times. I think, obviously, share buybacks is something that we have looked in the past, but the financial profile of the company was not adequate. It is true that we expect to generate a very healthy cash flow going forward. We want to keep the leverage slightly below 2x. And yes, if we don't see any growth opportunity, we will definitely consider share buybacks, considering also the share price and the valuation of the company. So always any time that we see that the valuation of the company or the share price doesn't reflect really the -- what we believe should be the fair value of the company, we will analyze share buybacks. I don't think that's something that you can expect this year. We have another project in the pipeline, which is going to explain to you, which is in Europe, as you know very well. So it's about balancing everything. But yes, I think share buybacks are something that we are looking at, not in the short term, but more in the midterm. Asier Zarraonandia Ayo: Yes, indeed, I think Beltran is a good question. And I think that we are starting to enter in a cycle that we are going to generate strong cash, and the massive growth opportunities that we have in the past are not coming so high. So probably those considerations are on the table, and we have to see what is better is to keep growing with the projects as you are asking, or yes, to some program of say buybacks or whatever, what is better for the shareholders at the end of the day. In this regard, the project that we have in the pipeline for the next years clearly is to finish the Berburg plan as we are indicating basically in '26, and the next one could be -- or it could be -- the question is when, but probably starting '27 is a good reference and to run in '29 is the European second kiln in our French plant going on hand-to-hand with the projects of the steelmakers. We have in the pipeline as well the slab plant in the East Europe. If and following the developing of the decarbonization and the evolution of the automotive sector that nowadays, I think that is not the time to do because everything is delayed and has to be confirmed. Out of those 2 projects, we have, of course, the idea to medium term for new geographies like India, or let's say, 4, 5 years, China is back at the end of the day to see opportunities, small M&As or whatever. But it's true that this is the reason, as Rafael said, that we have to evaluate the new projects against new ways of contribution to the sales holders clearly. But anyway, we are really interesting because I think there is a very good opportunity for the Befesa evolution on the growth of the European market, and then we will see what is going on with the rest of the geographies. Beltran Palazuelo Barroso: Okay. But also, as I said in the past, and I said it now publicly, I think you have demonstrated to the market that you're extremely good, let's say, operators. Now what you have to demonstrate to the market is that you are extremely well capital allocators. I think you demonstrated in 2021. Now you have to demonstrate it going forward because if you start a share buyback of EUR 10 million or EUR 20 million in the future when the stock is at EUR 60 million, that would make no sense. So I -- you don't have to make a big thing, but I think the balance sheet is getting stronger and the stock market is not reflecting it, and all the support. Rafael Perez: Fully agree, Beltran, you so much for your comments. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Perez for any closing remarks. Rafael Perez: Thank you all for your questions. Please don't hesitate to contact the Investor Relations team of Befesa for any further clarification. We will now conclude the conference call. Thank you for joining, and have a good day. Bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Wendel's Full Year 2025 Results Conference Call and Webcast. [Operator Instructions] Olivier Allot, Director of Financial Communication and Data Intelligence will read them. I must advise you that this conference is being recorded today. I would now like to hand the conference over to Mr. David Darmon, member of the Supervisory Board and Deputy CEO. Please go ahead, sir. David Darmon: Thank you, and good morning, everyone, for this 2025 full year results presentation. As always, we're going to make this presentation with several speakers today, including Jérôme Michiels, Benoit Drillaud, Cyril Marie and later, Laurent Mignon. So to start, let me comment the Slide #4 in the presentation, which is a recap of the 2030 ambitions that we present to you in last December. We showed you that we have a pretty ambitious portfolio rotation plan and the capital allocation plan. We do intend to get EUR 7 billion of committed cash flows through 2030 through asset rotation and FRE generation and to reinvest this amount and returning EUR 1.6 billion to the shareholders in the meantime. We also announced to you back in December some good organic growth target with a 15% growth organically for the asset management platform. And we mentioned to you that we intend to create value in the portfolio investment of our principal investment from 12% to 16% per annum with the new mandate that we have given to the IK Partners team, and we'll get back to that later in the presentation. So this is the background on which we are all working at Wendel, and I will give you more details on what we achieved in 2025 and in early 2026 to achieve those ambitions. I'm moving now to Page #5. And as you can see in 2025, we made progress on our 2 legs, I will start with the asset management, where you can see that the platform really ramped up in 2025. We did close the acquisition of Monroe Capital in March 2025. The 2 platforms that we had during the years, Monroe Capital and IK Partners had a very successful fundraising cycle. They both raised a combined EUR 11 billion in a market which you know was not so easy. In 2025, we also signed the acquisition of Committed Advisors. We announced the signing in October 2025, and we do intend to close this acquisition end of Q1 2026. We believe that we now have a platform at scale, we manage close to EUR 47 billion of assets under management, including pro forma creation of Committed Advisors. And we have a target for the year of over EUR 200 million of fee-related earnings with this platform. So in less than 3 years, you can see that we have built something of scale and pretty attractive and pretty unique. Now talking about the principal investments. 2025 was also a year of transformation. We've been very active in the portfolio. We are going to come back on the various divestitures that we made recently, the various bolt-on we did in the portfolio and the change in management that has happened. But the most important information is probably this IK Partners advisory mandate that I mentioned earlier, which is changing significantly the way we operate, and we believe it is going to create much more value in the future, but I will get back to that later in the presentation. Turning on Page 6. You can see that we had a pretty busy early 2026 with the announcements of the disposals of both Stahl and IHS. Those are investments that we had in the portfolio for quite a long time. You remember that we initially invested in Stahl in 2006. IHS was a 2013 investment. So they've been in the portfolio for quite a long time. And we're happy that in this pretty tough market, we managed to secure those liquidity options. For Stahl, we signed an acquisition with Henkel, and I will give more details later on. And with IHS, we did support the tender offer that MTN announced a couple of weeks ago. Those 2 divestitures should bring EUR 1.65 billion of proceeds for Wendel, so it's pretty significant. You will see later on that, that takes our leverage down quite significantly. So it brings us some strong capability to execute on our shareholder returns policy and also to deploy capital towards the both legs, I mentioned earlier, WPI and WIM. So those sales are pretty important in that we're going to execute our strategy. Moving to Slide 7 and a few numbers on our 2025 results. First, you can see on the left side of this slide for Wendel Investment Managers, some pretty strong growth. There is organic growth. You see the plus 13% organic growth in fee-paying AUM. And obviously, with the consolidation of Monroe Capital over the period, which we didn't have in 2024, we also have a scope effect. And so the increase of 200% is due to this scope change. But beyond the M&A, you can see that organically, the platforms are growing very, very nicely. On the right side, you can see that Wendel Principal Investments today account for over EUR 5.5 billion of gross asset value. It's growing with a positive impact of listed assets and which as of today is mainly -- is going to be mainly Bureau Veritas because we secured the public to private in December for Tarkett. And as I mentioned earlier, IHS should not be in this bucket by the end of 2026. The unlisted assets have been impacted by the market multiples, and I'll come back to that later on. We did value in those numbers and in 2025 Stahl at the Henkel offer price. We did not take into account the -- our share of cash flow between signing and closing, which are due to be paid to us. But as this amount is quite uncertain at this stage, we cautiously ignore this amount in our NAV. IHS is valued at the average share price in -- before the year-end and not at the MTN offer price. So we published a NAV per share of EUR 164.20 as of December 31, 2025, which is up 0.7% over the previous quarter and up 1.17% if you include the interim dividend that we paid in Q4 last year. I'm coming back to -- I'm moving now to Slide 8 and coming back to the performance over the last quarter of this fully diluted NAV, which has been growing 1.7%, as I mentioned, so EUR 2.7. So how did we grow this NAV? First, we had a negative impact on the investment manager side, the asset management part. We had some negative impact from the market multiples of our peers despite the positive growth of the aggregates that I mentioned earlier. The Wendel Principal Investments saw some growth in terms of NAV per share, EUR 4.9. This is obviously mainly Stahl because we sold Stahl above our NAV value, and I will get back to that later on. We -- as I mentioned, IHS was valued at the share price as of December 31. And last Tarkett is now in our bucket of private assets and not anymore in our listed assets bucket. You can see that the ForEx has been negligible over this quarter, which is very different from the first 3 quarters of 2025, where the impact was pretty strong in Q4, it was pretty remote. So plus EUR 2.7 over the quarter, fully diluted and plus EUR 1.2 when you take into account the interim dividend that we introduced last year, and we paid in November '25, EUR 1.5, which has already been paid to our shareholders. I'm moving now to Page 9 and give you a bit more details on the 2 earlier divestitures I mentioned, namely Stahl and IHS. The sale of Stahl is going to bring $1.2 billion of net proceeds to Wendel and the expected tender offer on IHS should bring $575 million for the shares that we own in IHS. The combined proceeds from those 2 divestitures should bring our pro forma loan-to-value under 10%. We should also note that this EUR 1.6 billion of proceeds account for over 27% of the portfolio rotation that we announced just a few weeks ago. So quite a strong start on this program. I'm moving now to Page 10 to give you a bit more insight on the return to shareholders. We do intend to distribute around EUR 500 million to our -- sorry, to return EUR 500 million to our shareholders, both through dividends and through buyback. In terms of dividends, we are raising our 2025 dividend to EUR 5.10, up 8.5% compared to last year. As we already paid an interim dividend in November, the additional dividend to be paid in May 2026 is going to be EUR 3.6. Those combined amounts of EUR 5.10 compared to the current share price generate a yield of 5.8% based on the spot price of February 25. So a strong dividend policy and yield, combined with the share buyback program that we mentioned end of December that we are going to launch, which is going to be around EUR 340 million in terms of size that we're going to return to shareholders. So above -- around EUR 0.5 billion to be returned to our shareholders during this year. I'm going to turn now the mic to Cyril Marie to present to you the development for the Wendel Investment Managers division. Cyril Marie: Thank you, David. So I will not comment on Page 12 because the key highlights have been presented by David already. Let's move directly to Page 13 where you have the roll forward of the assets under management. So here in this chart, you have at the extreme left and right, the AUM. As you know, the way we monitor our activity, we have the AUM and the fee-paying AUM. So let's start with the AUM. In '24, as David said, we had only IK with EUR 13.8 billion of AUM composed of the NAV of our fund plus the dry powder or the money available for new investment and the co-investment. Now at the end of '25, we are at EUR 41.2 billion. So it's EUR 15 billion for IK, plus 11% and $30 billion for Monroe, up 22%, which is, I think, a strong achievement in the current environment. And in the AUM, the last information is that the Wendel Sponsor money represents EUR 500 million. So it's around 1% of the total AUM. I think it's an important information. In the middle of this chart, what you have is the dynamic of the fee-paying AUM. So it means that the fees that are paying AUM that will have an impact in '25 on our P&L. So we started the year at EUR 10 billion. Then we had the impact of Monroe. But then what is very important is the EUR 9.2 billion and the minus EUR 5.2 billion. With this, you have the new fee-paying AUM. So for IK, it's the money raised over the year, so EUR 1.3 billion and the money invested because it's not the same business model for our 2 important GP, IK and Monroe, so close to EUR 8 billion for Monroe. So with that, you have the new fee-paying AUM. And then you have the exit and the payoff so because you know what is very important for these LPs also is to return capital. So if you sum the EUR 9.2 billion and the minus EUR 5.2 billion you get the 13%, and we believe it's a good indicator of the organic evolution of our business for '25. Then let's go on the following page, Page 14. Here, the idea is to give you really the more detail on the evolution of our business with 2 things: growth -- organic growth and two, diversification. I think that are the 2 key messages here. So let's start with private equity, IK Partners. In terms of fundraising first, it was the last part of their fundraising vintage started in '23, '24. As you know, already, they have reached the up cap in all their strategies, the mid-cap, the small cap, the partnership fund. And so the fundraising was at the beginning of '25 for EUR 1.3 billion. Now their priority is to invest the money raise and also to return capital to shareholders. In '25, it was a good year. As you can see, as always, they have returned more capital than they have invested for the LPs. It's very important. The dynamic of AUM plus 11% in '25. What is also very important for us is to maintain the organic growth of the businesses. And I will present to you later on that we have reached the target in terms of FRE. But despite this, we are still investing in the business and the FTE have grown by 8% because in private equity, as you know, it's very important to have local team to understand the businesses, to invest in the operating partner. So we maintain a high level of investment in order to pursue the growth of the business. Another very important point for IK, it's the development of the retail. As you know, in the development of a private asset platform, the retail is a new engine of growth for us, and it's still ahead of us. And we are -- we have now created the first evergreen vehicle for IK called IK Private Equity Solutions. It's now available for subscription. So if you want, you can get it through all the life insurance platform. '26 for private equity priority. Now the revenue are secured because we have raised the money. I think the priority is now to deploy and to return capital to shareholders. We have a strong ambition for '26. And also, we want to pursue the implementation of IK. As you know, IK is a pan-European private equity manager. They are very close to each of their markets. They have 7 implementation, and they have in mind to open a new office in Spain in '26. I think it's very important in order to maintain the quality of the deal flows for our LPs. So that's for private equity. Private credit, here also a very strong organic dynamic. Equity raised EUR 3.8 billion. As you know, post acquisition, it's always very important to see how the LPs will react and the signal was very positive with a lot of free-up, we have maintained the client base, and it's very positive for Monroe Capital. They have raised capital also with their retail evergreen vehicles during the year '25. And if we talk about the first 2 months of '26, the flows remain positive. So we are still gathering money on our retail evergreen vehicle for Monroe. Deployment, money invested EUR 8.3 billion, a very high level of investment. It's a record year for them. They remain relatively selective in terms of deployment. If you look at all the key KPIs of the private credit, LTV, leverage, diversification, Monroe is very well positioned. And also, if we -- just to give you one figure, if we look at the performance of the underlying companies of Monroe, the growth of the EBITDA is 12%. So private credit remains a very good asset class. And it's with Monroe, they invest, as you know, they lend money mainly to small and mid companies in the U.S. and the U.S. economy is still very strong. AUM grew 22%. Here, the same message regarding the workforce. We are still investing in the business to reinforce the diversification. And the last comment on Monroe, probably '26, 2 important message. The first one, we want to develop organically Monroe in Europe. So we are working on it. We hope to be in a position to execute something in '26. And also, we are pursuing the diversification with the launch of new strategies and evergreen strategies for Monroe Capital. Last strategy for us, even if it's not closed so far, as David said, it's Committed Advisors. We expect to close it in Q1 '26. They have started the new round of fundraising with their Vintage VI, and I can tell you the dynamic is very positive. The feedback from clients is positive. The cornerstone investors are there. So the dynamic is very good, and we hope that it will contribute to our growth in '26. Now if we turn to profitability, we have 2 slides. The first one, Page 15, it's the actual profitability. So here, you have, as David said, a very important scope effect because last year, you had only 8 months of IK in '24 and in '25, you have 12 months of IK and only 9 months of Monroe. So you have -- the growth rates are very high, 177% for the revenues, 150% for the profitability. What is important is to show you here that the profit contribution to Wendel is increasing significantly, and it shows you the execution of the strategy. But what is more important probably is to go to the next page on Page 16, just to have a more analytic view of the P&L. So let's take the second column, the pro forma. What pro forma means here? It's 12 months of IK and 12 months of Monroe. And for that, so if you look at the first line, the revenues, the recurring revenues, so excluding carrying interest, the revenues tied to the FRE. So above EUR 400 million for EUR 30 billion of fee-paying AUM on average, it means an average fee rate of 135 basis points. I think it's a very good level with our mix of business as of today. So IK is closer to 180 and Monroe remains above 100 basis points because, as you know, Monroe is really focused on Alpha. So they are not chasing AUM. The idea is really to focus on fees and performance for the LPs. Then the second indicator I would like to comment here is the margin, 38%. So it's a good margin because it's a good balance between our objective of profitability. But at the same time, we maintain investment in the business in order to have a sustainable growth. And the last comment on this slide for me is the EUR 159 million. When we have announced the Monroe acquisition last year in October '24, we gave you this objective of EUR 160 million. We have reached this objective despite the dollar effect. It means that IK and Monroe have been in a position to compensate the negative dollar effect. And we are today able to announce you that we have reached this target for the full 25 years. Then last page, so '26, it's a summary of what we said previously with David. So the organic growth is there. We have now also Committed Advisors part of the platform. We have reached EUR 47 billion. As said in December, we have a good level of diversification in terms of clients, geographic areas and products. So we can maintain this pace of growth. And as you can see, it will have a significant impact also in terms of FRE growth because we have in mind to reach EUR 200 million for '26. David Darmon: Thank you, Cyril. Now I'm going to turn to Slide 19 to talk about the activity during 2025 in our Wendel Principal Investments area. I will first cover the key highlights in 2025 and with this IK Partners mandate I mentioned earlier, which went effectively in operations on January 1, 2026. So from now on, all the past controlled private investments and the future investments in the controlled private equity made on Wendel balance sheet will be managed by the IK Partners team, which sits in the IK Partners ecosystem, and so we'll benefit from the expertise and resources of IK Partners, which we believe is going to be very helpful to create more value for the group. We also have been very active in 2025, including some leadership changes at Scalian, William Rozé joined us from Capgemini with a very strong experience in the industry. And we had as well a new CFO during the year. So a strong change of leadership at Scalian. At CPI, the long tenure CEO, Tony Jace, retired during the year, and Andee Harris joined as well during the summer. She's bringing a very strong tech and commercial background, which is exactly what CPI needs today. In 2025, we also invested roughly EUR 100 million in Scalian, both to support the M&A strategy and to strengthen the balance sheet. As I mentioned earlier, in 2025, we secured the public to private of Tarkett and Tarkett became a private company in late December 2025. We've been very active in our portfolio companies and financed 16 bolt-on acquisitions, 1 at Scalian, Tarkett and CPI each and 4 for Globeducate, which has been pretty active and 9 at Bureau Veritas. So a very active year for our portfolio companies. Last, I remind you the 2 disposals of shares that happened at Bureau Veritas in 2025 in March and September. And those gains flow through our balance sheet and not in our P&L, and Benoit will come back to that later in the presentation. I'm turning now to Page 20, where we are going to come back to the sales of Stahl and IHS and give you more details. So as I mentioned, the Stahl sale is expected to bring EUR 1.2 billion of proceeds to Wendel. This sale at EUR 2.1 billion enterprise value was secured with a 20% premium above the latest NAV published in Q3 2025. And it did generate a return above 15% per annum over the last 20 years. So a strong 6.6% cash-on-cash return when you include the previous dividends that we had over the years. So a very good return over a very long period. Beyond the financial results, on the right side, we wanted to give you a bit more insight on the value creation that happened on this investment. You can see that the revenues grew nicely over this period. The EBITDA grew actually at a higher pace because we increased the margin quite significantly over the years with a strong control of cost and some operational leverage, which was combined with an upscaling of our product portfolio where we moved to higher-margin products over the years. It has been a very thoughtful process to reposition Stahl to a more attractive asset under the leadership of Maarten Heijbroek. We -- over the last few years, we made some strategic acquisition in the specialty coatings business to make the company more attractive with the higher growth prospects. And at the same time, we worked on the carve-out of the wet-end business, now which is called Muno that is going to stay under our Wendel portfolio, which is having different market dynamics, and we thought will be not as attractive as the rest of the portfolio to potential buyers. So we've been quite active, and we are very pleased with the results that you can see here. I'm moving now to Slide 21 to give you some insight as well on our investment in IHS, which has been a long-term hold as well, slightly shorter because the initial investment was in 2013, but still 13 years is quite a long investment. This is our last investment in Africa. So we are closing this chapter with this sale. We expect $535 million of net proceeds, which is around 21% above the NAV that we used for this stake in Q3 2025. It is a 0.7 cash-on-cash net multiples for this investment. The financial return is not showing the actual operating performance that you can see on the right side because IHS has been a very strong organic growth and M&A growth success. We multiply by 10 the sales and by 21 the EBITDA. But this is not showing up in terms of financial return because we did suffer both from a volatile FX environment in naira, which is the main currency in Nigeria, was devaluated over 8x over that period. So that did impact us quite significantly. And the Towers business industry did suffer some strong derating as well. So the combination of an industry derating and FX actually made this growth story in terms of operational success, less attractive in terms of financial outcome, as you can see on the left side. I'm now going to cover on Page 22 and 23 the results of our listed assets and private asset portfolio. In the listed assets, I'm only going to comment on Bureau Veritas because once again, Tarkett is now in private assets, and we don't consolidate IHS. Bureau Veritas just announced its results yesterday. They published some strong results. You can see with some good organic growth, plus 6.5% and some improvement in the margin. So we are quite happy with those results. In terms of 2026 guidelines, we expect the results to be fully in line with the LEAP 21 -- sorry, the LEAP28 strategic plan. You can also see here that Bureau Veritas did announce a new EUR 200 million share buyback program yesterday as well, which is going to be completed over the year. Moving to Slide 23 to give you more details on the performance of our private assets, and I will be starting with ACAMS. ACAMS had a very good year last year. As you remember, in 2024, we made some significant investments, both in terms of talent, in terms of technology, and we can see that in 2025, we can see some early results of those changes. Both the top line were very strong. The margins were strong as well. And we did a refinancing as well of ACAMS at the end of the year. So we secured a longer maturity for the debt and a lower financial interest expenses as well. So across the board, it was a very good year for ACAMS. CPI had a soft year in 2025. We were used to much higher growth rate in the past, plus 2% in terms of sales, plus 2% in terms of EBITDA. It's mainly in the U.S. where we saw some softness. The rest of the portfolio had some good growth. But in the U.S., there was a lot of uncertainty in the federal budget, both for health care and education customers, and that did impact the company growth profile. Regarding Globeducate, you can see that the company has grew nicely in 2025. It's a combination of both on organic growth, the enrollment in terms of students and pricing, but also in terms of M&A, as I mentioned earlier, we did some acquisition in Cyprus, in the U.K. during the year. And so the company is on track to deliver some good growth in 2026 as well. Scalian had a tough year in 2025. It's a tale of 2 stories. We had some good resilience for the large accounts and for the core markets where Scalian is a very strong niche player, namely the aerospace, defense, energy and financial service industries. But at the same time, we did had a lot of softness in our smaller accounts and IT accounts, which did suffer from a market pullback. And so the combination is this minus 5.1% in terms of sales. The company had some fixed cost basis. So the EBITDA reduced by 8.2%. In 2026, we believe we're going to see a stronger growth from those large accounts and in our core markets. We are going to work to have those IT customers to decline at a lower level. So we expect some sort of stability. And we have some strong program to reorganize the business to improve our margins. So we expect to have a different trend in 2026. You can see that Tarkett had a year with some margin improvement, and we were happy to see a plus 4% growth in terms of EBITDA. On Slide 24 and 25, we wanted to quickly show you how the portfolio of Principal Investments is changing if we include the pro forma sale of IHS and Stahl, which are ongoing. So on 24, you can see the -- what we showed you at the Investor Day actualized with December 31, 2025. So this is a slide that you know. But interestingly, on Slide 25, we did the same description of our portfolio, assuming IHS and Scalian are sold and with the newcomer Muno, which is the name of the wet-end business of Stahl that we're going to keep. What you can see is that the industrial part of our portfolio is shrinking down to 5% and the business services part of our portfolio, Scalian and Bureau Veritas is growing in due proportion. So the principal investments, including those 2 asset disposals is down to EUR 3.9 billion in terms of gross asset values and with a more balanced education, training and tech on one side and business services sector exposure on the other side. So we thought it will be an interesting view for you. I'm going to turn the mic now to Benoit Drillaud to present you the financial results of 2025. Benoit Drillaud: Good morning. I'll start the presentation of the P&L with 2 significant profits that are not booked in the P&L. The first one relates to 2 significant events of 2025 in the development of our strategy, the forward sale of Bureau Veritas shares and the block sale of Bureau Veritas shares in September. They have translated in a profit of EUR 980 million booked in the equity, close to EUR 1 billion booked in the equity. And the second profit is the change in fair value of IHS. The share price of this company has doubled over the year and it has been booked in the equity. So EUR 1.2 billion booked directly in the equity in accordance with the applicable accounting principle. If we go through the detail of our P&L, you can see that Monroe has strongly contributed to the asset management platform from EUR 42 million that was 8 months of IK to EUR 127 million, 12 months of IK plus 9 months of Monroe. The contribution from the WPI portfolio is decreasing a little bit with the earnings of Stahl and Scalian. The operating expenses and taxes have decreased by 9%, demonstrating the good cost control. Last year, we benefited from a very exceptional level of income from cash and cash equivalent because the money market rates were close to 4%. And in 2025, they were a little bit above 2%. So this explained the level of the financial income in 2024. In 2025, it's more balanced. So globally, the net income from operations that is the most meaningful aggregate for Wendel is stable at EUR 753 million. Same in group share is lower because of the earnings of Stahl and Scalian and because the percentage of interest in the net income of Bureau Veritas is lower at the beginning of 2024, the percentage of interest was close to 35%. And at the end of 2025, this percentage was 15% with the 2 block sales we made in 2024 and 2025 and the forward sale. The nonrecurring cost mainly come from the portfolio companies with restructuring costs, M&A cost, the cost of the disposal project of Stahl, the carve-out cost of Muno. And last year, we had the very significant capital gain on Constantia. The impact from the acquisition entries have increased because we had the acquisition of IK last year. We had the acquisition of Globeducate of Monroe. So these acquisitions explain why this cost -- this accounting expenses have increased. And concerning the impairment, we have in 2025, the loss that Scalian booked in June. And we also have the reversal of the depreciation we had on Tarkett because the share price went from EUR 14, if I remember well, to the squeeze out price that was EUR 17. So the total net income is EUR 345 million. The net income group share is a loss of EUR 152 million, but if we take into account the 2 significant positive entries in the equity, we have a level of equity group shares that increased from EUR 3.2 billion to EUR 3.5 billion in 2025. If we turn to the following page, the Page 28, you have here the 3 main components of our very strong financial structure. First, liquidity with EUR 2.2 billion of cash and the undrawn credit line. You have, of course, the LTV ratio that is below 10%, well below the S&P ceiling for our current rating. And you have a very long maturity profile of our bonds after we'll have repaid in the next weeks, the exchangeable bonds and the 2026 bonds that are coming to maturity. So I now leave the floor to our CEO, Laurent Mignon, for the conclusion. Laurent Mignon: Thank you, [ Michiels ]. Thank you, Benoit. Thank you, David and Cyril. Just one point to add on that and then I'll make the conclusion. The LTV, the 9.6% include the pro forma of the share buyback that we have announced today. So it's a fully -- it's full. So what can we take away from this presentation? A very strong and tangible execution of what we have announced in December for the Investor Day. We've said at that time that we will do EUR 7 billion of asset sale and cash flow generation cumulated by 2030. We already have made 27% of that through the sale of Stahl and IHS in February this year. We've said that WIM will represent 50% -- more than 50% of the Wendel GAV, excluding cash by 2030. We are already at 38%, including the acquisition, obviously, of Committed Advisors. And we've said that we will return EUR 1.6 billion to shareholders. We're going to return in '26 more than EUR 500 million to our shareholders through the dividend and the share buyback. So I think that we have strong headroom for new investment and continue to move on our strategy, create some value by creating capital appreciation through WPI and create long-term value and recurring cash flow through the development of WIM, where we think we have a good way forward with a 15% potential growth per year, and a good development altogether, and that will be in line exactly with what we said, I think, in December, and that's it. So I think we are all here to answer your question, and I pass over to the moderator or to Olivier in order to decide how to organize the Q&A session. Thank you. Operator: [Operator Instructions] We will now take the first question from the line of Geoffroy Michalet from ODDO BHF. Geoffroy Michalet: I have one question is what is -- what will be your criteria of your, let's say, [indiscernible] before deciding any new investment in WPI or in WIM? What will be the trigger? Laurent Mignon: Well, thank you for the question. Well, first of all, we have a lot of headroom as we mentioned and as evidenced by our LTV. So the criteria, we would say that we will be investing, and I think that was presented during the Investor Day, the equivalent of, let's say, EUR 300 million plus per year in the WPI, and then we will make potentially more -- some investment in the WIM. So we're -- together with the mandate that we've given with IK, so with the IK teams, we're constantly looking to opportunity to invest in WPI. Our objective when we do this type of transaction is to make a transaction that we can generate 12% to 15%, let's say, 15% of targeted return on those investments with a view of investing it at least for 5 years and potentially for more if the asset is great and we want to keep it longer, which is a little bit of our characteristic. So we're reviewing the different thing. My priority in 2026 concerning WIM is to continue building the platform. We've done a lot already, but we are working on building the platform more. And we have, as was, I think, clearly explained by Cyril, we have a lot of internal growth objectives being product, being geography, for example, for Monroe, being a product for IK. And we've got for Monroe also of being the fundraising activity of Committed Advisors that is starting a new fundraising activity has already started a new fundraising activity. So our priority is to do that, create more -- a little bit more of the sales organization, develop that, develop the -- as was said by Cyril, the retail development. So that's really our top priority. However, if we see a good opportunity, we'll look at it. We have the headroom to do it. But my priority is the one I mentioned to you. So on WPI, to make it simple, we constantly look to opportunities and we'll take benefit of the ability of the IT teams to bring us good opportunities to make some investment. And on the other side, we'll first give the priority to internal development. If we see a great opportunity that fill the expertise needs that we have, we'll look at it. Operator: [Operator Instructions] We will now take the next question from the line of Alexandre Gerard from CIC CIB. Alexandre Gérard: I have 3 questions. So the first one is related to ACAMS and CPI. I just wanted to know to what extent AI might be a threat for the business model of these 2 companies. So that's my first question. Second question, it's a question related to the Scalian and the valuation of Scalian in your latest NAV. There are similar top-notch listed assets trading on 5 or 4x -- 4x EBITDA and Scalian is also very leveraged. So I just wanted to know to what extent you've been very conservative on the valuation of that asset. And the last question is related to private credit, of course, regarding the current bad buzz around that asset class. How can you be so confident that the bad buzz will not have any short-term impact on fundraisings or withdrawals? Laurent Mignon: Well, thank you for the 3 questions. I will start and Cyril will help me complement the last one. I will take the second one also. And probably, David, you will take the one on ACAMS and CPI. So I mean, those questions are absolutely relevant and crucial question. I'll start with the easiest one because it's the most factual, which is the Scalian valuation. Scalian is, as you can see on page whatever it is, Page 24, Scalian is based on listed peers multiple. So I think the fact that listed peer multiples are trading at lower multiple, we've taken that into account in valuing Scalian. I think that the profit we've been making on -- I mean, the up value in -- we've been making by selling Stahl show you that we have a conservative approach to the valuation. And we take comparable and when the comparable move down, that affects the thing. So Scalian, the value of Scalian since we bought it has had 2 negative impact, the negative impact linked to the EBITDA, which went down and two, obviously, the multiple. So yes, we take that -- we think that there is -- this is a period of the cycle. We think that the future is much brighter. But yes, we are working on the underlying asset, and we're pretty sure that the actions we're taking are the right one in order to valuate in long term. So -- but we are taking not a long-term value. It's listed peers value, if I answer well to that. The second one is private credit. A lot of noise about private credit. By the way, let me remind you something, which I think I said during the Investor Day, but I want to say it again, is credit is not a free lunch. I mean, doing credit means risk and everybody knows about it. You're getting a return for the credit, so you need to have some risk, and it's the next banker that talks to you. So we know that. However, we feel that the way Monroe do it business is a relatively good risk/return reward way to do the credit. They're doing that to lower middle market companies in the U.S., very much linked to the U.S. economy. I don't think they're doing so -- and the way they process, I think I already said that here in this audience about the way they do origination, underwriting and so on is a way to have the most professional approach to private credit. They've been in the market for 20 years. And their performance today are good. We see some element of -- you've got -- sometimes you've got bad news. But overall, the performance of the private credit sales is good because it's a portfolio. It's a very diversified portfolio also. They're doing more than per fund. Cyril, correct me if I'm wrong, but it's more than 100 lines per fund... Cyril Marie: Exactly. Laurent Mignon: That they have. So this is the basic. They have no concentration in sectors. They've got no concentration in lines in -- so they are diversifying, which I think is a very important element of the performance. The only element of concentration that they have is that they are on the lower middle market part of the U.S. industry, which, in fact, reflect the health of the U.S. industry, which is good, in fact. So that's why we are confident. There is bad buzz. So it is true that we see less natural inflows on the retail part because people are reading press and say, well, can we -- but we first see a lot of confidence and gaining new mandates on the institutional part with very sophisticated investors that do understand the business and are very confident in the skills of Monroe and are putting more Monroe to be managed by -- more money to be managed by Monroe. And on the retail side, we think that as long as the performance will be correct, we see less strong inflows, but we still see inflows. So it is -- I think it's -- we have to just go through that period of bad buzz, as you mentioned. And then it goes from bad buzz to specific. And whenever you go to specific, then it's fine. Cyril, do I have to -- do you want to add something to what I said on that? Cyril Marie: No, no, it's, okay to me. Laurent Mignon: I was clear. Okay. AI, and then I will leave the floor to David on that because we've worked a lot. I mean, AI is a big disruption in the market everywhere. Everybody is starting to say how much AI is impacting our business model. And obviously, we have the discussion with all our investment company. This is specifically the case for ACAMS and CPI. You want to say a word, David? David Darmon: Yes. Alexandre, before I answer directly your question on the threats from AI, just a quick word on the opportunities from AI because we do believe we -- there's a lot of upside on specifically on those 2 companies. We are working quite actively, especially on ACAMS to develop a new product, a new AI product, which we believe it could be very valuable to our customers, producing and giving access to the 150,000 pieces of proprietary content that we have in a very attractive way. So we are developing a very strong and attractive product. It's probably going to have an impact on the cost base to produce our content in terms of translation, delivery, organizing the travels for the trainers, for instance, for CPI. So there is still a lot of good positives to come from AI. But back to your question on the threats and how we believe that we have some boots here and to protect those businesses. I would say both of them have -- are regulated businesses and in most places, are mandatory by the regulators, it could be the state for CPI. It could be the financial supervisors for ACAMS. That's not something that you can shift, and if the regulator is asking you to have some CAM certified people or to have people trained by CPI. You can't answer, well, I pay like a Copilot license to my team. This is not going to work for the regulators. Two, the importance of the brand, ACAMS and CPI by far are the leaders in their industry with very, very strong market share and they are the references, and that's a very strong moat. Then each of them have some specific barriers. And ACAMS, remember, this is a certification business and a body which deliver a CAM certification. So that's pretty unique. And ACAMS is really based on assemblies and community, those anti-money laundering specialists. They gather together, obviously, in trade shows, but also in local assemblies that ACAMS organize and that's really unique. And CPI has a different barrier, which is the physical part of the training for roughly half of the sales of CPI. You need to have a physical presence to deliver the training. So there will no way to get understanding on how to restrain an agitated patient or students purely online. You need to have the physical training. So I know it's a long answer, and we're really, as Laurent was saying, putting a lot of efforts to understand the implication and there will be implication. But so far, we believe that the positive are going to be above the negative on those 2 assets. Operator: There are no further questions on the phone at this time. I would like to hand back over to Olivier Allot for webcast questions. Olivier Allot: We have 2 questions about shareholder return. Will the shares repurchased through the share buyback be canceled? Laurent Mignon: For the time being, we've said that we will allocate those shares to potentially pay the potential further paid of the puts and calls that we have in IK or be in front of the long-term incentive plan that is regularly given to the management, but it can be canceled. It's not a decision taken for the time being. We just announced before we do that late December that we've canceled how much -- how many shares did we cancel in late December, Benoit, I think 3.5%, 4% of the company. Benoit Drillaud: Yes. Laurent Mignon: 4%? Benoit Drillaud: Yes. Laurent Mignon: So we'll review. We do the share buyback, we see and then we'll make cancellation of shares whenever we need in order to give us more headroom to do share buybacks. Olivier Allot: Thank you. A question about the dividend. Just for the sake of clarity, should we expect EUR 3.6 of dividend to be paid in May and EUR 2.55 of interim dividend in November? Laurent Mignon: Well, this -- the EUR 3.6, everything will be related to the approval by the shareholder meeting, which is in May. I don't expect to have non approval. But should it agree with the EUR 5.1 dividend that we have announced that we're proposing, out of the EUR 5.1, EUR 1.5 has been paid. So the remaining EUR 3.6 will be paid then just after the AGM. And as I announced, we will pay 50% as an account interim dividend we will pay in November 50% of the dividend of 2025, which is EUR 5.1, which effectively make EUR 2.55, which then will be in payment somewhere in November. So the answer is -- long answer to say yes. Olivier Allot: Question about WPI. For how long time, do you expect to keep your shares in Bureau Veritas and the other larger unlisted assets? Laurent Mignon: Well, thank you. The question is when we invest in companies is because we want to create some value, and once we feel that our -- I mean, we have created the value we wanted and that we have to pass the company needs other means to do it, we pass it. So that's what happened for Stahl, for example. We've been Stahl for many years. So if I take the other unlisted assets, the -- as I mentioned, we always have an objective at 5 years. And after 5 years, we reassess the position to know whether we want to keep it or we want to sell it depending on what we see as a perspective. Bureau Veritas is a bit of a -- so it's really what we will do for the same for Scalian, for CPI, for ACAMS, for Globeducate or for Tarkett. The situation is for Bureau Veritas. We've been a shareholder for now 30 years. We've listed the company. Now the company is listed, and we have sold some of our shares during the last 2 or 3 years -- the last 3 years based on the fact that the exposure that we had not based on the fact that we didn't like the value creation potential of Bureau Veritas but the fact that the size of the concentration of Bureau Veritas was too high compared to their own portfolio and that we need to rebalance and use that to develop our new strategy, which is to develop the asset management strategy. Today, we've done more or so. So the question is only to know do we -- are we confident or not in the perspective of Bureau Veritas. And we are confident. So for time being, we are a happy shareholder of Bureau Veritas. And we will only reduce our shares into it. Whenever we feel that the value we have in mind is achieved. But for the same being, we think that the LEAP28 plan has a strong tailwind and that the team is doing a great job and that we can create more value with Bureau Veritas than the current share price today. Olivier Allot: A technical question about Stahl consolidation. Was it 100% consolidated into Wendel's account in 2025? Can you share the 2025 sales EBITDA and usual information you publish about the company? And can you do the same about Muno? Laurent Mignon: I think it's -- Benoit, you will confirm, we are on IFRS 5 now, So it's a discontinued activities? Benoit Drillaud: Yes. So it's consolidated, but classified under a specific account, but it's consolidated. Olivier Allot: What is Monroe exposure to software investment? Have you seen any drop off in flows into private credit focused wealth product, which has been quite clearly among the scaled U.S. players? Laurent Mignon: Well, I can leave Cyril to say that. I think I already answered partially to that. But Cyril, if you want to take that? Cyril Marie: No, no. Yes, for sure. Monroe is exposed to the software industry. If you look at -- it depends on the strategies and the various vehicles. But keep in mind that what they do, it's -- they do -- they are focused on the lower mid-market. So their companies are between EUR 20 million and EUR 50 million maximum of EBITDA. So most of their exposure to the digitalization of the U.S. economy is tied to businesses close to the firm to support the digitalization of the industry, the health segment. So for sure, as David said, in AI, you have challenges and opportunities, but we do believe that Monroe is very well positioned to go through that. And there is a risk and opportunities and the team, the underwriting team is really focused on that. They are always reassessing their exposure to software in order to be sure that they monitor their exposure. And the second question regarding the inflows, as I said, there was some reduction of the inflows on the BDCs, MCIP, the main one, but it's still -- we are still seeing inflows. And we do believe that over the long term, the allocation of private market for retirees and the 401(k), et cetera, will increase. For sure, it's a bumpy road because there was some noise now. But over the long term, we do believe that the potential is there in Europe and in the U.S. Laurent Mignon: But to rephrase what Cyril said, they don't have a specific tweaks to software and so on. So they have software, not more or less globally the market. Am I right saying so, Cyril? Cyril Marie: Yes, yes, for sure. Yes. Laurent Mignon: Yes. Just to be clear on that. Olivier Allot: We have a question about the execution of the share buyback. How the share buyback program will be executed, is there a certain percentage of traded volume that will be bought every day on the market? Or will it be more opportunistic? Laurent Mignon: I think -- I don't know what I can say. We will give a mandate to a bank that will execute that. And I think they will have -- they will execute that on a daily basis based on the mandate. So once we've given the mandate, it's not us doing it. They have a time frame, which is the end of the year. They have the amount, and they will execute that by respecting the rules of the AMF and whatever are the rules to be respected. So that's how it will be done. So it's -- am I saying it the right way, Benoit? Benoit Drillaud: Absolutely. Laurent Mignon: Good. Good. But basically, it's an everyday business. It's not like buying one day and be off the market. It's -- they have -- but again, we will not be interfering into that. We've given a mandate to buy that to a bank, and that will be executed by the bank following the rules as a mandate from us. The mandate will be starting tomorrow morning. Olivier Allot: A question about the discount to NAV. How do you explain the wide discount on the NAV? Is there any specific reaction to Wendel management and track record? Laurent Mignon: Sorry, I don't understand. Is there any -- you mean -- do we do well our job? I don't know. We're trying to change the company, make it evolve. I think there are severe discount to NAV to any other investment capital heavy firms that is publishing an NAV. Is the NAV the right way to look at us? Probably not because we are becoming more and more an asset management company. So we have to think about whether this is the right way to think about us because now the asset management is representing 38% of our total business, and it's not here up to sell. So it's a different approach. It's a long-term business and should be valued on the flows. So we have to think about the way we do it. Now -- each time I see somebody, he gives me a different reason from the discount to NAV, too much concentration on one stock, then it's too much listed assets, then it's too much nonlisted assets. So the other one is the value of listed, nonlisted assets is unclear, so people make discounts. So the others -- again, what we are trying is not to focus on that. We focus on long term. We focus on value creation. We want to demonstrate that we will create value through the WPI strategy and for sure that we are creating a lot of value by the WIM strategy. The growth will be there, return will be there. Return to shareholders through dividend will be there, again, and through share buyback. So we've been very clear about where we want to go during the Investor Day, and we'll execute on what we say. And I think that the first 1.5 months of this year '26 show that when we say we will execute is that we are doing it. Olivier Allot: No more question on the web, but we turn back to question by phone. Operator, please? Operator: We have 1 more question on the line from Alexandre Gerard from CIC CIB. Alexandre Gérard: Yes, 2 follow-up questions, please. The first one on Tarkett. I mean, can you remind us what are your liquidity options on that investment? Could you trigger any put option? Or are you stuck with that stake for the long term. Second question also, it's on the FX impact on your NAV year-on-year. What was -- can you remind us what was the negative impact linked to the depreciation of the USD on your NAV? Laurent Mignon: So I'll leave that last one to Benoit. I think the impact of dollar because it's a dollar depreciation was quite [ null ] on the fourth quarter, but the full year, Benoit will give you the answer. For Tarkett, well, we are a minority investor in Tarkett alongside a family. So we're working with the family on improving the company making better developing the sports business in the U.S. -- well, not only in the U.S., but globally, improving the metrics of the company in terms of efficiency and a lot of work has been done in 2025. So we feel that Tarkett and the company and the family together with us is doing a good job. We have -- it is clear for them that we are here for -- to be on their side and to help them developing the thing and that one day we will need to find an exit, there is a clear agreement with them. I don't have to comment the legal environment to that, but I'm pretty sure that everybody, once we finalize the value creation plan that is ongoing and ongoing, we will be in a position to exit our participation in good conditions. Benoit, you have... Benoit Drillaud: Yes. The depreciation of the dollar resulted in a decrease of EUR 6.9 per share between the end of 2024 and the end of 2025, EUR 6.9. Operator: There are no further questions at this time. I would like to hand back over to the speakers for closing remarks. Laurent Mignon: Well, no, thank you very much. Not much in fact, in this. Most of what we're saying was already there. But the point I want to really stress is that we are on the move, and we're doing what we -- we are saying what we do and we're doing what we say. That's very important. And we have a lot of further things to do in '26. We're very optimistic about creating value there. And thank you for being with us today, and we'll meet you soon. David Darmon: Thank you, everyone. Laurent Mignon: Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Dwight Gardiner: Good morning, everyone, and thank you for joining us. Frank sends his apologies. He's not with us today due to personal medical reasons related to a cycling accident, and we expect him back shortly. So Mark Strafford, whom we all know well, and I will be hosting the call. Our plan is that I will provide an overview of 2025 and an update on the business before handing over to Mark to take you through the numbers. I'll then come back to talk about the progress we're making on our growth strategy. And we'll finish by opening up to questions, which you can either ask verbally or submit online. On to Page 3, please. You're all familiar with our purpose, which is to enable a zero carbon, lower-cost energy future. I'll start as I always do by reaffirming that that is our purpose, and it guides everything that we do. In terms of our strategy, which is to create value by investing in the U.K. energy transition, we're focused on a couple of things. First, we are preparing the group for the new running regime that the new low-carbon dispatchable CfD will require. That process is well underway, and that will underpin the earnings and cash flow, which I'll talk about later that we expect to earn between now and 2031. Second part of our strategy is investing that cash to grow our U.K. power business as the energy transition continues and AI drives electrification and growth in demand. And I'll talk more specifically about the investments we're making in BESS and the progress we're making on a data center. Finally, and most critically, our people are at the heart of Drax and their safety and well-being is an absolute priority for us. And while we've had to take some difficult but necessary steps to position our business effectively for its exciting future, it's more critical than ever at the times like this that everyone feels a valued member on a winning team with a worthwhile mission. Turning to Page 4. We've delivered a strong operational and underlying financial performance across the group, which is underpinned by a continued focus on safe and efficient operations. We produced a record level of renewable power, primarily from the Drax Power Station, which serves to emphasize its ongoing importance. We're a major provider of renewable power in the U.K. as well as flexibility, accounting for around 6% of overall power and 11% of renewables. And in certain periods of peak demand, we have been more than 50% of U.K. renewable power generation when there has been limited levels of wind. We've also delivered a record level of pellet production, while at the same time, reducing our costs in the U.S. South, which we see increasingly as highly integrated into our U.K. biomass generation operations. The signing of our low-carbon dispatchable CfD agreement for the Drax Power Station is a key inflection point for the group, enabling us to continue to support the U.K. system while investing for growth. As you know, we're committed to our plans to generate free cash flows of about GBP 3 billion between 2025 and 2031, of which we delivered about GBP 0.5 billion last year. And to be clear, this is from the current business before accounting for new cash flows associated with our growth plans. Of that GBP 3 billion, we expect to initially allocate over GBP 1 billion of free cash flow to shareholder returns. which is inclusive of the ongoing GBP 450 million 3-year share buyback program. And up to about GBP 2 billion of that then will be allocated to incremental investment in growth as we seek to enable the energy transition and support the growth of AI. And we're making great progress. First, at the Drax Power Station, we're developing plans for as much as 1 gigawatt or more of data center capacity, while at the same time, continuing to provide energy security for the U.K. Secondly, in our FlexGen business, we're developing a gigawatt scale BESS pipeline. And you will have seen that in the last 6 months, we have purchased or made agreements, which will give us operational control of over 700 megawatts of batteries across 5 different sites. We've also acquired a new optimization platform and one of the leading players in that space, Flexitricity. And third, we're continuing to assess further investment in flexible renewable energy, about which we would provide further updates later in the year. And finally and critically, we remain very much committed to disciplined capital allocation and delivering attractive returns for our shareholders. Turning to Page 5. So sustainability remains at the heart of what we do. And we've made excellent progress this year and have started to see that reflected in third-party ratings and accreditations. Of particular note, we received 2 A ratings for our CDP disclosures on climate and forestry. Only 4% of the 22,000 companies making CDP disclosures receive an A rating and even less received 2, which we believe demonstrates our commitment clearly to sustainability and, importantly, also to transparency. We are also A rated by MSCI. And in addition to that, during the course of the year, we undertook a significant number of new initiatives, including a new sustainability framework, our climate transition plan, and we continue to progress our reporting and alignment with both TCFD and TNFD as well as SBTi, which has recently validated our targets going out to 2040. And finally, in January, we launched a public tracking tool, our biomass tracker, which shows the provenance of our biomass supply chain, and I would encourage you all to have a look at that. Moving on to Page 6. I just want to reiterate, as we said at the beginning of last year that we have a target to deliver post 2027 adjusted EBITDA of GBP 600 million to GBP 700 million per annum across the combined pellet production, biomass generation and FlexGen and as we said before accounting for development expense. We're very much committed to that target, but as a reflection of the continued development of the U.K. power system, shifts in the Canadian pellet business and increasing value from the flexible generation, we now expect the FlexGen business to comprise a greater proportion of that mix over time. And if you take those targets, together with the strong contracted cash flows that we have up until 2027, we believe we will deliver free cash flow of about $3 billion between 2025 and 2031. And delivering this plan supports our options for growth and enhanced value creation. And my plan now is to go through each of the different parts of the business and explain how we are doing. On to Page 7. FlexGen, I'll start with pumped storage and hydro. So that portfolio has performed extremely well since we purchased it in 2018. And as a reminder, Cruachan represents about 1/3 of the total megawatt hours of long-duration storage in the U.K. It can run for up to 16 hours at full load and has the equivalent of over 7 gigawatt hours of stored energy. Under our ownership, Cruachan has seen an increase in its operating activity over the last 6 years from 20% to 60%, which reflects both its role in our portfolio and the growing need for system support across the U.K. The strong performance of these assets has provided an exceptionally good return on investment and a 5-year payback. And reflecting the value we see in these assets, we're investing in an ongoing upgrade at Cruachan to replace 2 of the 4 turbines with new larger machines. This is a major program of work for the team and an investment of GBP 80 million in U.K. energy security that's going to take place between 2025 and 2027. As you know, Units 3 and 4 of Cruachan are currently unavailable due to a grid connection failure in late December caused by assets owned by the Scottish network operator, SSEN. We're working with them to restore the connection, and they will provide a timetable for that repair shortly. We're taking advantage of that downtime to progress planned outage work on Unit 3 for minimizing the overall impact. Second piece of this business, the open cycles. We expect to take commercial control of the first of those shortly with the unit already receiving capacity market payments. The second and third sites are expected to commence commissioning in 2026. The earnings of the open cycles are underpinned by around GBP 270 million of capacity market payments, complemented by system support services, peak power generation and a low operating cost base. And again, we expect to retain these assets as a part of our FlexGen portfolio. The third piece, which we're getting increasingly excited about as demand side response becomes a more important piece of the puzzle, is the energy solutions business. So in addition to power sales to industrial customers, we're also an enabler of more renewables on the system as we provide a route to market for 2,000 embedded generators. Across our customer book, we offer demand side response, whereby we can reduce load to industrial customers at certain periods of high demand, creating value for our customers as well as for Drax. It's also of note that we had significant experience enabling customers to purchase power through both the wholesale market and through PPAs. Turning to Page 8 and the low-carbon dispatchable CfD. So the signing of a CfD for post 2027 is a key inflection point for our group and a significant endorsement of the contribution that biomass makes towards energy security as well as decarbonization and value for money, saving bill payers billions over the term of the agreement. Under the terms of the agreement, we will sell the equivalent of 6 terawatt hours per year or about 30% of the load of those units. The structure of the agreement allows us to constantly reprofile generation to the periods of greatest need and highest value. So in periods of high demand, we would expect to use all 4 units to produce and sell as much power as possible at the highest prices. And in periods of low demand, we'll add value by buying back forward sold baseload power at lower prices. And by operating this way, we support energy security, provide flexibility to the power system and earn a higher average price for our power. The agreement also includes the continued evolution of sustainability standards and a further reduction in supply chain emissions limits. We're very comfortable with that and supportive of those measures. As a reminder, we expect to use around 2 million tonnes of our own pellets from our operation in the U.S. South. Again, a further reminder, we've hedged all of the FX requirements associated with the deal as we have our logistics requirements for our own pellets, and we are progressing agreements to finalize biomass and logistics hedging from third parties. So the third piece, turning to Page 9, our sustainable biomass business. So this is a bit new. We're increasingly looking at our pellet business in a new way. Our U.K. business is fundamentally part of our U.K. supply chain. That business is doing very well with its current level of value supported by existing contractual arrangements. As you will have seen, our Canadian business is more challenged, and we've been talking about this for some time as margins have come down due to fiber costs rising in Canada more rapidly than indexed power prices in Asia. As we noted last year, this dynamic contributed to the decision we've made to close one of our pellet plants in Williams Lake towards the end of last year. So against this backdrop, we're not currently expecting to commit any more capital to this segment, and we are -- that includes the paused Longview project. Now overall, in the pellet market, while the market dynamics we expect to be challenging through the 2020s, as a company or as a group, we're largely insulated from that by the contracted nature of our book. Now if anything, we'll look to benefit from lower market pricing by accessing the spot market by pellets at attractive prices for Drax Power Station. And longer term, we continue to see opportunities for biomass to play a key role in energy transition and our Elimini business gives us an important capability and brand to continue exploring those opportunities in SAF, BESS and other areas. But again, as you will have seen, reflecting the current market environment, which we've seen for some time now and been talking about, we are reviewing strategic options for that Canadian business. And with that, I will hand it over to Mark. Mark Strafford: Thank you, Will, and good morning, everyone. I'll now take you through Frank's section of the presentation, starting on Page 10. We see tremendous value for the group in the delivery of our purpose and strategy through which we are supporting energy security, creating solutions for the energy transition in the U.K. and enabling AI growth. Unlocking that opportunity is a strategic puzzle, which the team are working through and, in doing so, creating value for shareholders and other stakeholders alike. We have a very strong business today with a strong balance sheet, and we are generating strong cash flows, which can support value-accretive growth and returns to shareholders. But we must operate well and safely and execute our plans diligently to realize this. Moving on to the financial summary on Page 11. Operationally, we performed well in 2025, generating GBP 947 million of adjusted EBITDA. This reflected a particularly strong December, where market conditions allowed us to generate additional volumes, leading to a record year for biomass power production, which totaled 15 terawatt hours. Adjusted earnings per share of 137.7p was an increase of 7% on 2024 and reflects the reduction in EBITDA, offset by the ongoing share buyback program and a lower net finance cost. Strong cash generation meant that net debt of GBP 784 million was 0.8x 2025 EBITDA. This is significantly below our long-term target of around 2x. Total cash and committed facilities was GBP 942 million, a strong position, which supports our plans for growth across the group. Our expected full year dividend of 29p per share is an 11.5% increase on 2024 and reflects the confidence we have in the business. We are committed to value and are pursuing this through disciplined capital allocation decisions. During 2025, we completed a GBP 300 million share buyback and commenced a further GBP 450 million program. So the 24th of February, we have purchased GBP 57 million of shares under the new program. Moving on to EBITDA by business unit on Page 12. I'll now take the performance of each business unit in turn, starting with pellet production and biomass generation, which, as Will mentioned, we see as increasingly interlinked through the vertical integration between our operations in the U.S. South and Drax Power Station. Pellet production's EBITDA reduced from GBP 143 million in 2024 to GBP 129 million in 2025. Let me explain this movement. Volumes produced increased in 2025 to 4.2 million tonnes, which is a new record. We also showed progress on cost reductions, reducing the cost per tonne of biomass produced. For internal sales, the reduction in cost is then passed through to the generation business at a lower cost of biomass as part of a well-established cost-plus transfer pricing methodology. To be clear, this is a positive outcome for the group. And if the price had remained at 2024 levels, pellet production EBITDA would have been over GBP 150 million in 2025. This is the rationale for why we see U.S. pellet operations and Drax Power Station as increasingly integrated. And accordingly, we are considering adjusting our reporting going forward to reflect this. Outside of EBITDA, against the backdrop of an expected softening in the global pellet market post 2027 and a constrained fiber supply in British Columbia and Alberta, we have reduced our expectations for the Canadian business and recognized a charge of GBP 198 million. We have also paused our development project at Longview in Washington State and have taken the decision to impair this asset with a charge of GBP 139 million. We retain the land and the option to progress this opportunity at a later date if market conditions become attractive. Moving on to biomass generation, which had another strong year. Despite an expected decrease in achieved power prices, the business produced record volumes of generation and had a particularly strong year-end, capturing value from meeting higher winter demand. As I mentioned, the business also benefited from cost reductions in the U.S. South and therefore, lower prices of internal pellet supply as well as a reduction in the electricity generator levy. This reinforces our view that Drax Power Station is a vital source of reliable renewable generation and energy security, both now and in the future. Below the line, reflecting the lack of progress in development of appropriate commercial and regulatory support for carbon removals in the U.K., we have booked an impairment of GBP 48 million in relation to BECCS at Drax Power Station. However, we continue to believe that carbon removals at scale remain vital for the U.K. to deliver its commitment to net zero by 2050. As such, we retain the option for future development, minimizing cost and maximizing optionality so that we could proceed if the opportunity develops. Moving on to FlexGen. Cruachan continued to perform well in 2025 and after adjusting for planned outages, maintained a high utilization rate, which is well above historic averages. EBITDA reduced from the previous year as planned outage works, including the Unit 3 and 4 upgrade program, progress. In energy solutions, our I&C business performed well, maintaining a broadly consistent margin on a smaller revenue base against the backdrop of lower power prices. The windup of Opus Energy is now largely complete with a small residual loss in 2025. Moving on to development expenditure. Elimini spend has reduced as we have been disciplined in allocating capital to that business against the market backdrop that does not currently support significant investment in carbon removals. Other DevEx, which includes a component of uncapitalized OCGT cost, is broadly flat. Turning to Page 13 and the balance sheet. Our balance sheet remains strong. During 2025, we repaid over GBP 230 million of debt, extended facilities and secured a new term loan. Our year-end cash and committed facilities position was strong. At 0.8x levered, we have significant headroom to fund our plans for growth through the investment cycle. Moving on to Page 14 and capital investment. We have continued to invest in growth and in our core business, including the OCGTs, our first battery acquisitions and the upgrade project at Cruachan. In addition to the acquisition of the Apatura battery project and Flexitricity, we have committed GBP 300 million to battery tolling agreements, which Will cover later in the presentation. These themes continue through 2026 as we commission the OCGTs and the enhancement work on Cruachan. Of the growth CapEx in 2026, we expect over half will be on batteries. Lastly, we will continue to invest in the maintenance of our asset base to deliver good operational availability and safe and efficient operations. We expect an increase in maintenance CapEx in 2026 to reflect a major planned outage on one biomass unit at Drage Power Station. Moving on to Page 15 and cost management. Our post 2027 EBITDA target requires us to be disciplined on costs, and we are making good progress towards putting in place the structures and cost base to allow us to succeed and deliver long-term value to stakeholders. Our targets are eminently achievable, and we are progressively taking actions to deliver significant cost reductions. By 2027, we expect to establish structural savings of over GBP 150 million per year compared to a 2024 base year. You are aware of several areas of efficiency already, including a reduction in output from Drax Power Station post 2027, which will drive a lower cost base, an appropriately sized corporate and core services structure and a focused external supplier cost reduction program. But to reiterate, these savings are already reflected in the GBP 600 million to GBP 700 million post 2027 EBITDA target and are not additional to that. Turning to Page 16 and capital allocation. Our capital allocation policy, which remains unchanged, is at the heart of the financial decisions we make and supports our focus on value creation and opportunities for growth. Our balance sheet is strong, and we remain committed to a long-term target of around 2x net debt to adjusted EBITDA. We will continue to invest judiciously in the core business to deliver safe and efficient operations and options for growth in flexible renewable energy. Since 2017, the dividend per share has grown on average by 11% per annum, including the expected 11.5% increase in 2025. Income returns to shareholders are an important part of our investment case, and we remain firmly committed to our policy to pay a sustainable and growing dividend. And lastly, to the extent there is a surplus of capital beyond our investment requirements, we will consider the best way to return this to shareholders. We see buybacks as an investment which we can make in the business to create value for shareholders alongside opportunities for growth. And with that, I'll hand back to Will. Dwight Gardiner: Thank you very much, Mark. Turning to Page 17. I'm not going to provide a wider strategy update here, but plan to do that later in the year. For today, I want to focus on the areas we're making the most progress in, Drax Power Station and batteries. Turning to Page 18. And before I get into the whole question of growth, let me share with you how we're preparing the company to run under the new CFD mechanism. We're putting in place the financial and operational structures, systems and performance culture, which will allow the company to succeed, and we call this program Future Focus. As a part of this, we recently announced a consultation process for the U.K., and we've announced changes to our North American businesses, which could see a reduction of 350-plus roles across the group. We have conviction that this is the right thing to do for the business, and we will complete the process in a respectful and considerate way as quickly as possible. So moving on to the Drax Power Station on Page 19. We believe that the size, flexibility and location of Drax Power Station making an important long-term part of the U.K. energy system, and we are focused on options to maximize value from the site. Options for a data center are a priority. But we could also utilize the site for multiple generation technologies, new system support services and, in the longer term, we're still excited about carbon removal. So on Page 20, let me talk a bit more about options for a data center. The site, which is located centrally in the U.K. and next to one of the country's largest substations, comprises over 1,000 acres and has 4 gigawatts of grid access, of which 2.6 gigawatts are flexible renewable generation. We also have cooling systems on a secure site with proximity to the U.K. fiber optic cable network. And this makes it ideal for the development of a data center. So we're discussing the potential for a data center with a developer. We don't have more details to share at this stage, but we'll update the market as soon as we do. What I can say is that we envisage development of the site in 3 phases. The first is for around 100 megawatts, utilizing existing infrastructure and transformers to import power directly from the grid, and we expect to submit a planning application shortly. The second and third phases are behind the meter. The second phase aims to utilize 500 megawatts of capacity before 2031. And since this is during the period under which the station is operating under the CfD, that development will be subject to agreement with the U.K. government. And the third phase would follow from 2031 onwards and add further 600 megawatts of capacity or more. So again, we believe that Drax Power Station is uniquely placed to do this in the U.K. and that the development could represent a multibillion-dollar foreign investment opportunity for the U.K., creating thousands of jobs while continuing to support energy security through the period of 2031 and beyond. And quite importantly, we have a very talented workforce who are experts in U.K. power in planning and in consenting. Turning to batteries on Page 21. I wanted to share some thoughts on the rationale for that market and why we're excited about it, how we see the market developing and the progress that we've made so far. NESO's future energy scenarios show power demand is likely to double in the U.K. over the next 25 years due to the electrification of heat, transport as well as new industrial demands like data centers. At the same time, intermittent renewables like offshore wind are expected to triple and flexibility will continue to fall, largely reflecting the removal of gas in the system. So as a result, there's likely to be either too little or too much power on the system at any one point in time. To help manage this, NESO's analysis suggests a requirement for over 30 gigawatts of BESS by 2030 compared to 7 gigawatts today. As you know, BESS can respond very quickly, capturing higher prices when available and then storing the power when the demand is low. BESS also nicely complements our existing portfolio, having super-fast response and short duration storage for our existing portfolio, meaning we are well placed to maximize value no matter what the needs are of the system. But again, having the right assets in the right location at the right time will be critical to success as well having the tools to manage that portfolio effectively. So what are we doing about it? If we look at Page 22, reflecting this demand, we're developing a gigawatt scale pipeline of BEV opportunities. And we're doing that in 2 ways. First, we're investing in the ownership of physical assets where we believe the locations are optimal and there are opportunities to invest in the sites in the long term. Secondly, many BESS assets will be developed by infrastructure funds who are looking to secure cash flows through floors and tolls. And that provides us with additional opportunities to access the BESS market and use our deep expertise in trading Flex assets. We believe that by acquiring development projects and tolling agreements with existing grid connections, we can benefit from a shorter time to power and at the same time, reduce our exposure to development risk. In addition, the recent acquisition of Flexitricity bolsters our ability to provide our own assets as well as third-party owners with best-in-class optimization services. Flexitricity's platform, combined with Drax's 24/7 trading capability, underpins our ability to maximize returns for flexible assets, both in front of and behind the meter. So again, we're making good progress. We've committed on the order of GBP 0.5 billion with a control of over 700 megawatts of capacity in addition to the acquisition of Flexitricity. Let me give you a little bit more detail on our progress. Turning to Page 23. In October of last year, we acquired 3 development projects for 260 megawatts under an agreement with the developer Apatura. It's a fixed price deal that's structured such that we have protection in the event of cost overruns. Two of the sites are located in the key England, Scotland transmission constraint corridor and a third is in East Yorkshire near the Drax Power Station. This deal also gives us option rights over an additional 289 megawatts of capacity. In addition to that, on Page 24, so in addition to physical ownership, we've entered into tolling agreements for 450 megawatts with the developers of Fidra and Zenobe. This model complements physical ownership, but differs in that there is no cash outlay or ongoing maintenance costs. We'll pay a tolling fee in return for which the developer is responsible for building, maintaining and making the asset available. We, on the other hand, have full operational control and keep all revenues from operation other than capacity payments and, for Zenobe, certain other immaterial ancillary revenues. And we expect this model to work well for both parties. The asset owner gets a predictable revenue stream, and we can access the value which we see from the energy market dynamics that I described previously, but with no capital outlay and a shorter time to power. And both of these projects are targeting FID this year. For the third leg of this approach on Page 25, was in January, we agreed a deal to acquire the asset optimization platform, which is Flexitricity for about GBP 36 million. Flexitricity provides front of and behind-the-meter solutions to third parties with a customer base of over 900 megawatts across a large number of sites, including Air Products and Severn Trent. The technology is an important component of managing the enlarged FlexGen business and the gigawatt scale BESS portfolio, which we are developing. If we didn't have this capability, we would have had to outsource it. But by retaining it within the group, we keep the IP and value associated with an end-to-end trading and optimization capability, and we expect the transaction to complete in March. Turning to Page 27. Our primary investment opportunities are currently in the U.K., where we are a leading provider of flexible renewable energy. Our expertise operating FlexGen and 24/7 operations makes us a good owner of these assets, and we believe we can create additional value through growing the portfolio. During this year and through 2028, we will start to add additional capacity from OCGTs and from BESS, providing a range of technologies, durations and dispatch feeds, which will enhance our capabilities. We also have options over additional BESS developments as well as the grid access we have at Drax Power Station. In addition to which we expect to have close to 2 gigawatts of route-to-market services for over 2,000 small renewable assets as well as grid scale assets by Drax Energy Solutions and Flexitricity. In total, 8 gigawatts of capacity we own, we toll or provide other route-to-market services for. So importantly, to wrap that all together, while the earnings from Drax Power Station will reduce next year with the new CfD, we are expecting to grow earnings in our FlexGen business and overall as a group as we bring these new generating assets on stream through the rest of the decade. Finally, on Page 28. So let me bring it all together. First, we have performed well again in 2025. And Drax is already a leading provider of flexible renewable generation in the U.K., as I have described. We see a great opportunity to grow that position. The first key underpin is the low-carbon CfD and the new operating regime that we are creating. The second one is we've already begun our investment program, as I've described, and look forward to growing our business through the rest of the decade and creating value by investing in the U.K. energy transition. We will be disciplined about how we approach these opportunities in line with our existing capital allocation policy, and we will be very focused on creating value and delivering excellent returns to shareholders. With that, I'll hand it back to the operator, and we are ready to take any questions that you may have. Operator: [Operator Instructions] Our first question comes from the line of Alex Wheeler from RBC. Alexander Wheeler: Two questions from me, please. Firstly, on the impairment in the Canadian pellets. Should we think about this as formalizing the messaging you've already given? Or is there an implication here that you think things are getting worse? Then if you could also give some color on the strategic options for that business, that would be great. And then secondly, just on the guidance, just interested in why you've not included the BESS assets within the current medium-term guidance and when you think you'll consider formally adding those? Dwight Gardiner: Great. Thank you, Alex. So in terms of the impairment, I think you described it well. We have been, I think, communicating over the last sort of probably 6 quarters, the weakness that we see in the Canadian market. It's really a long-term sort of structural issue related to the nature of our contracts and the shrinking fiber supply becoming more competitive and not driving up the cost of our inputs, right? So it's absolutely not -- it's not an indication that things are getting worse. It's just really a sort of formalization, I think, of where we have been, right? So -- and again, for the avoidance of doubt, the GBP 600 million to GBP 700 million that we've been talking about for some time, very much takes into account where we think the Canadian pellet business is and has been and will be. In terms of strategic options, I mean, we're working with our suppliers to sort of manage our costs as best we can. We're working with our customers, again, to manage the contracts as best we can to drive increased profitability. We have had to shut the Williams Lake facility. We will look at the best way to optimize where we're supplying pellets from relative to where they're going. So that's another piece of that puzzle. And again, disposal of the asset would also be an option we will explore. In terms of BESS, I mean the GBP 600 million to GBP 700 million, as we've said, is before those investments. And frankly, what we're planning to do is come back to the market sometime later in the year and sort of talk more completely about how the overall strategy fits together. And I think at that time, we would probably look to update our views of where we think numbers will be as we go through the rest of the decade. Operator: Our next question comes from the line of Pavan Mahbubani from JPMorgan. Pavan Mahbubani: I have 2, please. Firstly, on the EUR 3 billion of cash flow and the uses, you talk about EUR 2 billion of investments and you've given us visibility on batteries. Can you give a bit more flavor or color as to where you see the rest of that capital deployed? Do you see it all as going into batteries? Are you looking at gas or maybe some other investments? Would be great to hear how you're thinking high level about where this money is going to go if it all gets deployed? And my second question is, Will, on the confidence you have in the phasing of the data center opportunity as you laid it out in your slides, is this based on what you think your capacity is? Or is it based on the conversations you're actually having? I would appreciate any color around that as well. Those are my questions. Dwight Gardiner: Thanks, Pavan. So first, in terms of the allocation of capital, I think -- so again, to make sure it's clear, GBP 3 billion is what we expect to generate. Again, that includes '25. So that's sort of over the next -- last year plus the next 4. The uses of that, I think, again, we talked about GBP 1 billion or GBP 1 billion plus that goes back to shareholders. Again, that should be pretty transparent in what we've already described. And then the GBP 2 billion. So I think at this point in time, we've already allocated about GBP 0.5 billion to batteries as we've described. One of the things that give me a little bit of caution about investing a lot more in that now is that we haven't really seen the results of that investment yet. I mean those earnings will come on stream probably '27, '28, '29. So we need to watch how that develops to some extent. Although, again, we are excited about that market, and I could see plus or minus up to GBP 1 billion potentially of the GBP 2 billion moving into that space. I would call that a hard target. That's something that, again, we'll come back and sort of later in the year, give you more color. But the other area, I think, which is -- before I get to the other area, the other thing that's interesting is that the data center, we would expect largely to be a source of capital, i.e., the type of deal we would look to be doing is one where we would be selling the powered land and then providing a PPA to the end customer. We will be making some investment in that space as we get to the bigger pieces of it, and I'll come back to that in a second, but again, largely a source of capital. And so -- but again, other things we'd be looking at, I mean, we are still very much committed to our purpose, as we said, enabling a lower cost zero carbon energy future. Again, I think that ports probably more in the direction of more renewables, although I wouldn't rule out gas, as you know, we've got the open cycles, but more intermittent renewables is the area that I think we're exploring at the moment. And I guess, how do I see that? -- really, it needs to be -- well, the first thing I would say is it's very much consistent with our core business, right? We are a flexible renewable generator in the U.K. To add intermittent renewals to that portfolio would be a very logical extension of where we are today, right? It's the same trading environment, same regulatory environment, same grid environment, all of those things are very much part of our core competencies, right? Second thing is though, it would need to really meet a sort of set of criteria that we are working through now. So it clearly has to be -- the returns have to be attractive. And I think it's actually -- there is more potential for that than there would have been, let's say, 5 years ago when a lot of these assets were being built. It's likely to be at least in the initial piece through acquisition, something that's generating cash probably more interesting in the first instance than just a development asset. We have to be convinced, and I think we're getting convinced that there's interesting sort of commercial and industrial logic, i.e., the potential to create attractive products for customers. The third piece, which I think is one of the more interesting ones is that as we grow the FlexGen portfolio and given the characteristics of the bridge, our in-year earnings, we would expect to become more volatile. We're very much -- we're excited about the growth and volatility. But again, it does make our in-year earnings potentially more volatile and not as hedgeable as they would have been in the past, right? Adding longer-term contracted earnings, let's say, through intermittent renewables is quite an interesting sort of counterbalance to that. And that's one of the things that we think is quite an interesting thing to look at. So again, we're looking at those intermittent renewables. We haven't made any decisions. And again, we'll probably come back and make sure that we make a clear case for that as we look at it further. On the data center, I think -- I mean, I've highlighted sort of 3 different phases for a couple of important reasons. So the first one is that we think that our ability to use 100 megawatts of in-feed to the Drax Power station quite quickly is differentiating. There aren't many ways that you can build a data center, potentially be online next year without -- not many people have that 100 megawatts available. So that's one of the reasons we described that. Second reason we talk about the 500 is that very explicitly in our dispatchable CfD agreement with the government, we have effectively -- they've agreed that they will discuss with us. If we can -- and if we meet certain criteria, they would be very much open to us using that 500 megawatts for a data center. So that's the reason we discussed that. And then the third piece is, ultimately, we think we have enough biomass behind-the-meter generating capacity to do something in excess of 1 gigawatt. And the final point is the logic for that is both a function of what we think makes sense and a function of what we are discussing. One thing I want to be very clear, it would not be very -- I would much -- I would be very disappointed if we ended up with 100 megawatts and not more, right? So that's very much part of the thinking. Operator: Our next question comes from the line of Dominic Nash with Barclays. Dominic Nash: A couple of questions from me as well, please. I think the first one might have a couple of more parts in it, and it's following up from sort of the data center angle. On the first 100 megawatts, will you have the ability to switch that to behind the meter at a later date? Or will that permanently be in front of the meter? And secondly, on the economics of this, clearly, if you're in front of the meter that you've got no real competitive advantage, I presume, except the speed, which you mentioned. But when we then go to behind the meter, you've clearly got quite a high marginal cost of biomass. How are your conversations going with potential offtakers or what your thoughts are on, a, their desire to source power from biomass; and b, your relative economic position from behind the meter with biomass versus behind the meter from OCGTs? And of course, the follow-on question from that is, could you also provide gas from the Drax turbines at some point post 2031 or before? And the second question is on the biomass part, you're moving from 7 million tonnes of consumption to 3 million tonnes. I think more than 2 million tonnes are going to be from yourself. You're saying you're contracting with third parties. Can you just tell us what sort of scale and when do we expect to get the news flow on who you're going to contract from? And the follow-on question from here is that do you not think there's a bit of a risk if you end up contracting too much of your feedstock from the United States alone, particularly in light of a very sort of capricious trade issues between the U.S. and everyone else and whether or not you should have some sort of diversification for your biomass sourcing. Dwight Gardiner: Okay. I think there's probably about 7, Dominic, if I count them back. Thank you for the questions. I'm more than happy to respond, just kidding. So on the data center, the first one, I think, was could we switch to behind the meter later. And I would say, again, it's all -- we don't have a sort of negotiated deal. So that's obviously something we have to get to as we go. But I guess the key thing to think about from our perspective is that if you only have 100 megawatts of generation that's behind the meter, you don't have enough to effectively support a full unit at the full power station. So we will need to structure it in such a way that actually it manages that risk, right? Secondly, the economics, I think you've absolutely landed on it in the sense that the behind-the-meter cost of biomass power is well below the front of the meter power cost. So we're clearly highly competitive relative to something that you get off the transmission network. But clearly, again, someone who's got behind-the-meter gas would be more sort of competitive than we are, right? Now getting behind-the-meter gas and having that online between now and the rest of the end of the decade is not that straightforward. So again, we think we have advantages there. So again, all of this is something that we are and have been discussing with counterparties. And so again, the proof will be in the pudding. So when we come back and say, if and when we've got something done, I think that's probably the best way to answer that part of the question. Could we do gas? Again, as you well know, Dominic, we had a plan to do a repowering with gas at one point in time. I guess what I would say is that that's -- it's not a trivial activity. And basically, it's a new power station or a massive refurb it's a big activity. So it's not something that we could do, but we would have to consider that as effectively a new investment. And frankly, with 2.5 gigawatts of capacity available, I think that's definitely our first port of call. Just to be clear, the 2 million tonnes we have is effectively the capacity we have in the South. So we will be using all of those pellets. 7 million was a target. We never got to that. So the northern pellets again is about 2 million, and that's what the numbers are currently. Using another 1 million tonnes is something we're doing because of a combination of diversification. So yes, we clearly want to make sure we manage the geographical risk as we'll do that. Clearly, we want to manage price risk, so we want to make sure we can track that in the best possible way. And that's why as soon as we have something that is enunciable, we will do so. So that's all I will be saying at the moment. Again, it makes sense. I may have missed something, Dominic, I'm happy to come back if I have. Operator: Our next question comes from the line of Mark Freshney with UBS. Mark Freshney: Thanks for your presentation, but to summarize, half your pelletization capacity is in Canada. It's uneconomic. You can't source the fiber. You're looking at shutting it down because it's high cost and it will be squeezed out in the impending pellet oversupply as subsidies are cut. That seems to be the synopsis of what you're saying. So it's of that 2 million tonnes that you may shut down, what would be the additional impairments and onetime costs of shutting it down? Just secondly, on the cost-out plan, I think the 150, the existing one, mainly centered around Yorkshire. I think you only took a GBP 9.4 million charge below the line. So what would be additional -- are there any additional charges next year and the year after? And would they appear in the middle column or the left column? And my final question -- Dwight Gardiner: What are you referring to the second thing, Mark, I don't understand. Mark Freshney: The GBP 9.4 million charge for the cost reduction. So exceptional costs -- are there any additional such costs to come through? Or are you booking it in the middle line or in underlying, so it's within the EUR 600 million to EUR 700 million EBIT? And finally, just on the cabling issue with SPN, is there any compensation that you could get to the extent that you're not an outage? Dwight Gardiner: Thank you for your questions, Mark. I guess first thing I would say is that the Canadian pellet business is effectively in the same position it has been for some time. So I'm not sure there's much new news there. I mean we're not -- I think you are saying that we're going to shut it down. We're not saying we're going to shut it down. So I think we should be careful in the way you characterize it. We are looking at various different options for how we manage that well. We have contracts with customers, which we intend to deliver on. And so that's quite important, right? So just to make sure everyone else on the call understands what's happening here. We have contracts through the 2030s with customers in Japan, some in Korea, and we fully expect to deliver on those contracts. So we are not saying by any means that we are closing the Canadian business, right? And the value that remains there, we believe, is well underpinned by the assets that we have, right? So that's the first thing I'd say. Second thing is we have taken, as you mentioned, a part of that impairment or part of the exceptional charge associated with the Future Focus program, and that is what we're doing for now, and that's all there is there. And in terms of SPN, I mean, the key thing we're doing now is we're making sure we work closely with them to get those assets back online. That's our focus. Operator: Our next question comes from the line of Harrison Williams with Morgan Stanley. Harrison Williams: A couple from me. Firstly, coming back on the pellet division. You previously provided quite a useful EBITDA margin target of around GBP 50 per tonne, appreciating. Clearly, there's been some deterioration. Can you provide an update to that margin target now? The second question I had was on batteries. Clearly, quite an attractive investment opportunity as things currently stand in the U.K. market. But can I ask how you are thinking about maybe the risk of cannibalization as we think a few years out if we really do see as much battery capacity added to the grid as some of these forecasters expect? And then finally, can I just get one clarification. You mentioned the GBP 150 million cost saving plan is included in the medium-term guidance of GBP 600 million to GBP 700 million in EBITDA. Could you just confirm that was always the case, i.e., when you provided that medium-term guidance on EBITDA a few years ago? Dwight Gardiner: So maybe, yes, it was always the case. On batteries cannibalization, I mean, we see batteries as an attractive participant in the wholesale market and the balancing market. So it effectively still will be a small piece of the overall market. So we think that that's -- there's lots of room for those to sort of deliver good value over time. And in terms of pellets, I think what we've been talking about for some time now is the 600 to 700 combination of pellets, biomass generation and FlexGen, and that's very much in line with where we've been. And again, there's no new news in Canada other than the impairments. And so that's consistent with where we've been for some time. Mark Strafford: I was just going to add, Harry, I mean, that GBP 50 target that you mentioned there, I mean, that is well underpinned by operations in the U.S. South, that business is in a good place. And the point we're making today is that lower EBITDA in U.S. pellets maps across the higher EBITDA in generation. It's just where that value sits. Fundamentally reducing the cost of biomass is a good thing for the business. So that value, that target is captured within the U.S. business and Drax Power Station. Of course, Canada more challenged. Operator: Our next question comes from the line of Adam Forsyth with Longspur Research. Adam Forsyth: Just a couple of quick questions on the BESS opportunity. Do you see an ideal split between tolling and outright ownership? Or is that something that's really just likely to be driven by the opportunities that come up in the market? The last tolling deal you did for our non-escalating, is that the sort of agreement you would like to be seeing going forward or even into longer durations? And just on that longer duration opportunity, I mean, if we start to get a lot of assets coming -- being delivered through the cap and floor mechanism, do you see any opportunities for you there, either in maybe buying post-development assets? Or even perhaps I'm not sure if tooling really makes sense with cap and floor, but maybe it does. Is that something you've had to look at? Dwight Gardiner: Thanks, Adam. Can you tell me what was the second part of your question? Adam Forsyth: The second one, just about the last tolling deal for ours and non-escalating. Is that the typical sort of deal you would like to be seeing going forward? Mark Strafford: Yes. I mean I think having a mix of durations, Adam, is quite attractive, having that 2-hour and also 4-hour in the portfolio in addition to the longer duration storage we have at Cruachan. So having a mix of technologies and durations, I think, is helpful in terms of how we operate the portfolio. And in terms of the duration of the tolling agreements, 10 to 15 years, I mean, I think every deal is going to be slightly different, but something in that sort of range is something we're comfortable with. Dwight Gardiner: And I think in the first part of your question, Adam, if you think about the sort of differences between them, I mean, clearly, there's a different risk profile, right? So with the tolling agreement, we're not taking the development risk, i.e., we only have the obligations and get paid when they start operating, not taking the operating maintenance risk and then we get attractive returns. And so I think what we're doing for now as we build the portfolio, we will look at the relative returns and the relative risk on a case-by-case basis and see which we want and think are more attractive. But we think that there's value in having sort of both of them, but we haven't set a sort of explicit target as to how much we want to have of each in the portfolio. In terms of the cap and floor, I mean, I think my guess is that the cap and floor probably sort of makes a tolling or floor arrangement sort of less interesting because the government is effectively providing a lot of that for you already. And currently, we're focused much more -- we're actually focusing more on things that are actually on a merchant basis and, frankly, we're providing a lot of sort of stability in the earnings that maybe a cap and floor would otherwise provide. Operator: Our next question comes from the line of Charles Swabey from HSBC. Charles Swabey: Three for me. Just on -- back to battery storage, would you consider a move into markets outside of the U.K. for BESS to diversify some of the price risk there as you get more comfortable with the technology? Two, on data centers, when you're thinking about the pool of developers that are interested in using Drax Power Station, how has that changed over the last year in terms of the number of interested parties and the type and what they're looking to actually use the site for? And then three, with the dispatchable CfD in place, could you give any insight if there are any discussions with governments already about sort of plans for DPS post 2031? Dwight Gardiner: Okay. I got that. So in terms of moving outside the U.K., I would say we are very much focused on the U.K. for now, Charles. And I think that's quite an important piece of what we're trying to do here is extend our sort of -- extend our generating technologies, but sort of consistent with maintaining that within a market regulatory and framework that we're quite interested in. I would say that the strategy is very much a sort of M&A sort of given one, right? So if there was something that was super attractive and largely U.K. or vast majority of U.K. but had some other pieces outside, we might look at that. But the focus is very much on the U.K. In terms of parties, I mean, I think we've been quite clear we're working with a developer, and they've been talking to multiple parties. And I would say that, that group of parties, obviously, there are sort of people come in, people go out. But I guess I wouldn't say that there's a sort of a trend in the way that that's moved over time. I think there's still quite a few people that they are talking to. And then in terms of the dispatchable CfD, I mean, we're in very close contact with the government on this all the time. We're very focused right now on getting ready for the first part of the one we've got, right? So we haven't started any explicit discussions post '31. And frankly, we're also -- we need to talk to them first, I would say, about the data center carve-out. So that's probably the next item on our agenda with government. Operator: Our next question comes from the line of Mark [indiscernible] with Citi. Unknown Analyst: I've got one slightly around the edges for Drax, I suppose. But on the U.K. capacity market auction, the upcoming ones, can we get your views on how you think that will go? I mean we saw there's a lower capacity target requirement, potential greater headroom there. And if I look at your slide, I think your illustrative 60 kilowatt expansion [indiscernible] per kilowatt on that. Have your views -- or what are your views on how that might go in the next couple of weeks, please? Dwight Gardiner: I'm afraid I'm going to be deeply unhelpful. I mean, I guess maybe the best way to think about it is we will be putting a series of our assets that are price takers into that market. Effectively, we don't have any new significant projects we're putting in. So I haven't spent a lot of time sort of focused on where we think that will come out. And I think probably better for me not to give a forecast. Mark Strafford: And I was just going to add that the number in the presentation, Mark, that is purely illustrative and based on what it was historically, just to indicate that there is future value from the capacity market for existing assets when that current contracts under the scheme expire. Operator: As we have no further questions on the conference line, that concludes our Q&A session. And I would now like to turn the call back over to management for closing remarks. Dwight Gardiner: Okay. Well, I believe there are no questions in the webcast. So I guess I'll wrap up by saying I think the -- maybe I want to leave you with one thought, right, which is that I think where we're going to go from here is that we had a strong 2025. I was pleased with the way we overdelivered on our operating earnings there. Looking into 2026, again, we are comfortable with the consensus, and we're looking forward to delivering on that. When we get into 2027, I think we start to really become, in some ways, quite a different company, right? We'll have the new CfD, and we actually have a strong growth trajectory from there, right? We've got the battery transactions you've already seen. We expect to be investing more of that sort of GBP 2 billion of available cash flow going forward. So -- and also the sort of the mix of things will start to shift, right? We'll be sort of maybe 50% biomass, 60% FlexGen and, over time, FlexGen should grow, and we look forward to sort of developing that new business as a sort of a leading growing dispatchable renewable energy company in the U.K. So watch this space. Mark Strafford: Thanks, guys.