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Operator: Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Sam Ullrich, Vice President, Investor Relations. Sam Ullrich: Thank you, Andrew. Good morning, and welcome to our fourth quarter 2025 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2025 fourth quarter business results were released yesterday afternoon. A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by Regulation G, is available at the section of the company's website titled News, located at churchilldownsincorporated.com as well as in the website's Investors section. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent reports on Form 10-Q and Form 10-K. Any forward-looking statements that we make are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in yesterday's earnings press release. The press release and Form 10-K are available on our website at churchilldownsincorporated.com. And now I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen. William C. Carstanjen: Thanks, Sam. Good morning, everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer; Marcia Dall, our Chief Financial Officer; and Brad Blackwell, our General Counsel. I will begin with a review of our 2025 performance and key accomplishments and then discuss our strategic priorities and growth plans. Marcia will follow up with the details on our financial results and capital management strategy. After her remarks, we will take your questions. First, let's recap last year. 2025 was another very strong year for Churchill Downs. We delivered record net revenue and record adjusted EBITDA, exceeding our prior record set in 2024. We also delivered record adjusted EBITDA in both our live and historical racing segment and our Wagering Services and Solutions segment. Our regional gaming portfolio delivered a solid performance as well. Importantly, we advanced several key strategic and operational initiatives during the year. We hosted another highly successful Kentucky Derby following the milestone 150th Derby in 2024. Despite facing a challenging comparison and economic uncertainty early in 2025, including tariff-related volatility during the later part of our sales cycle, our team executed exceptionally well. We generated record handle for the Kentucky Derby race, the Derby Day program and Derby Week overall, along with the highest television ratings in nearly 40 years. We were just below the prior year's record earnings level, but we expect to return to consistent and meaningful growth across all metrics, including adjusted EBITDA this year. Our guests experienced the first year of our newly renovated starting gate Pavilion in Courtyard, which now offers improved seating, elevated amenities and a more upscale social environment for approximately 8,100 guests. 2025 was the second year of operations for our redesigned Paddock. This project significantly enhanced the on-track experience and strengthened both the in-person and broadcast presentation of our racing product and overall event. The Paddock and related investments provide a long-term foundation for accelerated continued growth at Churchill Downs Racetrack. While the Kentucky Derby is the longest continuously run sporting event in the United States, we believe there remains substantial opportunity to further expand its reach and impact. During the past year, we have also grown our HRM footprint. In Kentucky, we opened our Owensboro venue last February. And just yesterday, we held the grand opening of Marshall Yards Racing and Gaming in Calvert City, Kentucky. In Virginia, we expanded our Richmond property and opened Roseshire Gaming Parlor in Henrico County. We also made significant progress growing the Rose in Northern Virginia in its first full year of operations. In addition, we announced plans to invest $180 million to $200 million to develop Rockingham Casino in Salem, New Hampshire. We also received regulatory approval in Kentucky to introduce electronic table games based on historical horse racing. In early February of this year, we introduced our first roulette electronic table games in our Kentucky HRM facilities. All of this was accomplished while maintaining prudent leverage levels and preserving financial flexibility for future growth. We have laid the foundation for many more years of growth. As we look to 2026 and beyond, we are more excited than ever about our strategic plans that we believe will create significant shareholder value over the long term. Our strategy centers on 5 key priorities. First, continue to grow the Kentucky Derby. For this year's Derby, we will unveil the newly renovated Mansion, which is one of the most prestigious and desired areas of Churchill Downs Racetrack. We will also complete the renovations of the Finish Line Suites, our most exclusive and valuable suite product, which will include a number of new and unique amenities for the enjoyment of our guests. Both projects are on time and on budget. Looking further ahead, we will finish the Victory Run project in time for the 2028 Kentucky Derby. This new structure located just past the finish line will feature premium suites, box seatings and multiple high-end dining experiences, growing our net seating capacity in this area by 1,400 people or 22% and improving the experience for close to 8,000 of our guests. For the 2027 Derby, Derby 153, we will offer an interim covered upgraded seating product in the Victory Run section with stadium seating boxes and enhanced amenities. More broadly, we will continue to evaluate long-term investments that will maintain and broaden the Derby's global appeal while elevating the guest experience. We are also expanding Derby Week itself. In 2025, we welcomed 375 guests -- 75,000 guests across the week, the equivalent of 5 Super Bowls. This year, we are adding racing on Sunday, April 26, marking the first Sunday racing during Derby Week in over 15 years, expanding our festival of racing to 7 live race dates across the 8 calendar days. This year, the Kentucky Oaks will move to prime time on NBC and Peacock between 80 and 90 p.m. Eastern Standard Time. The Oaks is already the fourth highest betting race in the United States behind only the Kentucky Derby itself, the Preakness and the Belmont steaks. This national prime time placement further validates the Oaks as a nationally prestigious event and strengthens Derby Week as a multi-day platform. This is the day we celebrate high fashion and women's health advocacy, while everyone adds at least a splash of pink to their outfits and watches the Thoroughbred Racing's Best 3-year-old fillies race. On Saturday, May 2, Derby Week culminates with the running of the 152nd Kentucky Derby. The Derby is America's greatest day of racing by every possible metric and arguably the world's as well. The second component of our strategic plan is to grow our HRM portfolio. We will continue expanding our HRM venues in Kentucky and Virginia, supporting the funding of racing purses and local agricultural industries while generating attractive economic returns. Construction of Rockingham Grand Casino in Salem, New Hampshire will continue through 2026 and 2027 with an expected mid-2027 opening. This property is located in a highly attractive market, including more than 800,000 adults within a 20-mile radius and over 4.9 million people in the Greater Boston MSA. As I mentioned previously, investment in this facility is expected to be in the $180 million to $200 million. We also retain rights to the Chasers HRM license and we will pursue appropriate development opportunities for that license in the future. Third, we will expand Exacta, our HRM technology business within our owned HRM venues as well as with other third-party HRM properties, both in the United States and internationally. Our vertical integration through the purchase of Exacta in 2024 has provided significant support and margin improvement for the growth of our HRM businesses in Kentucky and Virginia. Exacta will also be the cornerstone of our technology in our upcoming Rockingham venue in New Hampshire. The recent introduction of Roulette Electronic table games or ETGs in Kentucky allows us to further leverage this platform. As we develop additional HRM-based ETGs, including potential offerings such as Craps and Blackjack, we expect continued benefits for our shareholders. Additionally, we are expanding our B2B business in both the U.S. and internationally. In December, a third-party HRM property in Wichita, Kansas opened with a significant portion of their gaming floor utilizing our technology. We are also providing Exacta technology in Alabama and continue to explore international opportunities. Fourth, we will grow our TwinSpires horse racing business. We see continued opportunity in our TwinSpires platform on both the B2C and B2B sides of the business. Wagering on premier events such as the Kentucky Oats and the Kentucky Derby has grown meaningfully in recent years, and we believe the broader market opportunity remains attractive as consumers continue to migrate online. Finally, we remain focused on disciplined investments across our portfolio. We will continue refining operations within our regional gaming assets and selectively investing where returns are compelling. We believe that our regional gaming assets will enjoy a nice tailwind in 2026 and beyond from our consumers receiving higher tax refunds because of the new federal tax laws. Across initiatives, we prioritize sustainable long-term growth aligned with our core competencies and disciplined capital allocation. In summary, 2025 was a record year for Churchill Downs. We enter 2026 with strong momentum from our flagship asset, the Kentucky Derby as well as from our HRM and technology initiatives. We maintain a strong balance sheet and remain focused on driving adjusted EBITDA growth, free cash flow and long-term total shareholder returns through consistent execution. We will also pursue disciplined growth with ancillary or adjacent opportunities aligned with our long-term strategic plans. We see a bright future based on these principles. Finally, the 152nd Kentucky Derby is now 65 days away. Demand is strong, and we are pacing ahead of prior years, including ahead of the milestone 150th Kentucky Derby. If you have not purchased your tickets yet, I would encourage you to do so as we anticipate being fully sold out. With that, I'll turn the call over to Marcia, and then we will take your questions. Marcia? Marcia Dall: Thanks, Bill, and good morning, everyone. Our team delivered record fourth quarter net revenue and adjusted EBITDA from our diversified portfolio, continued organic growth and returns from our recent property investments. As Bill mentioned, 2025 marked another record year for our company. Excluding 2020, we have now achieved 9 consecutive years of record revenue and record adjusted EBITDA, a clear reflection of the durability of our strategy and the consistency of our execution. Today, I'll provide highlights on our financial performance and then discuss capital management. Churchill Downs Racetrack delivered record full year adjusted EBITDA. Our growth continues to be fueled by disciplined capital investments, expanded sponsorships and record wagering activity. At the same time, our team's focus on operational efficiency has driven strong top line growth and sustained high margins from this iconic asset. Looking ahead, we expect the Derby to generate $15 million to $20 million of incremental adjusted EBITDA in 2026. The combination of the new NBC broadcast contract renewal, the expansion of Derby Week race days, strong ticket sales, increased sponsorship interest and continued wagering growth provides the foundation for another record-setting year. We are very pleased with the performance of our HRM venues in both Kentucky and Virginia and remain confident in their long-term high-margin growth potential as we continue to successfully penetrate these high potential markets. In Kentucky, our HRM properties generated record adjusted EBITDA in 2025, supported by the successful opening of Owensboro in February and strong performance across the portfolio. Despite significant January weather events this year, reported statewide GGR grew at a double-digit rate year-over-year, demonstrating the strength of underlying demand and our competitive positioning. In Virginia, our HRM venues also delivered record adjusted EBITDA. The Rose continues to ramp as we expand -- as expected, as we expand our presence in Northern Virginia. Importantly, the Roads delivered sequential growth in GGR per unit in every quarter of 2025. We are still in the early stages of this property's growth and given the attractive demographics and strong local leadership, we see meaningful runway ahead. Although Virginia experienced weather disruptions in January of this year, our same-store HRM properties performed in line with the prior year on a GGR basis, reflecting the resilience of our customer base. Regarding our Wagering Services and Solutions segment, adjusted EBITDA in this segment increased 7% in 2025, primarily driven by continued growth in our Exacta business. Our vertical integration strategy is delivering tangible benefits as we expand in existing locations and enter new markets. This segment remains an important strategic lever that enhances both growth and operating efficiency across our broader HRM business. And regarding our Gaming segment, our regional gaming properties demonstrated resilience throughout 2025 despite temporary headwinds, including roadwork and local curfews in Mississippi and minor weather impacts in December. Our full year 2025 same-store wholly owned casino margins, excluding racing, declined modestly by 0.8 points compared to 2024, primarily reflecting performance in Mississippi. Importantly, overall regional gaming consumer behavior in the fourth quarter remained consistent with recent trends, reinforcing the stability of our core customer base. We also believe the recently enacted federal tax legislation may provide a meaningful tailwind to both our regional gaming and HRM businesses. provisions such as the elimination of taxes on tips up to $25,000, elimination of taxes on overtime, enhanced deductions for individuals 65 and older and expanded state and local tax deduction limits could increase income for many of our customers in the months ahead. Our capital allocation strategy continues to support disciplined growth with a focus on shareholder returns. In 2025, we generated a record $700 million of free cash flow or $9.75 per share, following a record year in 2024. This consistent free cash flow generation demonstrates the strength and scalability of our portfolio. Maintenance capital was $70 million in 2025, and we expect to invest between $90 million and $110 million in 2026. These investments include incremental HRM-related capital in Kentucky and Virginia, including new ETGs in Kentucky as well as the continued enhancements of the iconic Churchill Downs Racetrack. Project capital was $205 million in 2025, and we expect to invest between $180 million and $220 million in 2026. The updated range reflects the timing of expected spend related to our Kentucky Derby capital projects and the Rockingham Grand Casino development in Salem, New Hampshire. We remain confident that these investments will generate attractive long-term returns. We also continue to return significant capital to our shareholders. In 2025, we repurchased more than 4.2 million shares and returned over $456 million through share repurchases and dividends. The dividend paid in January of this year marked our 15th consecutive year of dividends per share increases, a strong signal of our confidence in the company's future cash flow generation. At the end of December 2025, our bank covenant net leverage was 4.1x. Based on our expected EBITDA growth and the timing of new facility openings, we expect our bank covenant net leverage to decrease below 4x during 2026. In closing, as Bill said, 2025 was a strong year for our company with record financial results. We entered 2026 with strong momentum, multiple growth drivers and a unique portfolio of high-quality assets positioned for continued expansion. We remain focused on disciplined capital allocation, operational excellence and delivering sustainable long-term shareholder value. With that, I'll turn the call back over to Bill to open the line for questions. Bill? William C. Carstanjen: Thank you, Marcia. We're ready now to take your questions. Operator: [Operator Instructions] And our first question comes from the line of Barry Jonas with Truist. Barry Jonas: I wanted to talk about the Derby. Any more color, Bill, you can give on early pricing and demand trends you're seeing so far for Derby 152 as well as the Derby Week. And I think, Marcia, your comments about $15 million to $20 million are extremely helpful. Just curious like what is the differential between the high and low end and the opportunities to exceed that would be helpful. William C. Carstanjen: Thanks, Barry. So the Derby is firing on all cylinders. Certainly, when it comes to ticket sales, we've been pleased. We're in the latter stages of our sales process now. So we just plan on finishing strong and rolling that up as we get to the Derby Day itself. But so far, throughout the cycle, it's been very, very encouraging. And you heard Marcia give the $15 million to $20 million number that she gave. So sponsorships look good. Wagering, we won't know until the day of itself. But certainly, if you look at the trends that we've seen, those have been overwhelmingly positive as we head into 2026. So we have good expectations, strong expectations for that. And then I'm personally excited to add the additional day of racing. We have the interest, we have the horse stock. We have the customer base. We have the fan interest and the global interest. So we need to give our fans and our guests more of what they're asking for. So adding the extra day, I'm excited about that as well. So as we head through the end of February, all systems are go. And now it's about clear execution and just giving the team the resources they need to execute their jobs. And so I expect they'll do so. Operator: And our next question comes from the line of David Katz with Jefferies. David Katz: I wanted to focus on Kentucky HRMs, which were kind of a standout in the quarter or noted as a standout growth. Just some more perspective on it. How much of it is being aided by ETGs? Where is that process and how far along it is? And when we look at Kentucky holistically over the long term, how much growth do you think there is still ahead to be had, if you can put some qualitative parameters around that? William C. Carstanjen: Happy to do that, David. Thank you. So first, we're just rolling those out as we are into February. So ETGs aren't a part of the story from the prior quarter in any way. I think what you're seeing in Kentucky is the continued evolution of the product and the building of those markets, whether you look at Louisville or Northern Kentucky or Southwestern Kentucky, which services the Clarksville and Nashville markets. The product keeps getting better, the teams keep getting better, and we keep finding avenues to grow. So I think we have more in the hopper there. And certainly, going forward, as we look at the introduction of ETGs as a product, that's going to take place over a period of time. Right now, we're just rolling out, beginning the experiments with Roulette. That's the first product. And so that's something that will add to our offering, add to sort of the holistic experience of what our facilities offer and we'll build on those over the course of this year and the years to come. But I think what you're seeing is a powerful product that keeps improving and a team that keeps getting better and finding ways to harvest the market in Kentucky and surrounding Kentucky. Operator: And our next question comes from the line of Chad Beynon with Macquarie Capital. Chad Beynon: I wanted to ask about wagering growth, I guess, for this year's Derby and then for the future. Prediction markets have cut into some of the other sorts of mobile and digital online wagering. Curious if you've seen anything kind of in your segment thus far and if you think there could be any impact coming. William C. Carstanjen: Thanks for the question, Chad. Sure. Happy to address that. So first, I'd say, in general, we see gravitation towards the bigger events. The Derby just getting bigger. The Oaks, I think a lot of people are surprised to realize that's the fourth most bet race in the United States, just getting bigger. So I think there's a flight to quality. I think good content is increasingly important. And that's why as a company, we focus more on that. We focus on building around Derby Day, building our big days, delivering content to our customers. With respect to the second half of your question, which was prediction markets, we operate under a different legal paradigm than other sports offerings in the United States. Pari-mutuel wagering on horse racing is conducted under the Interstate Horse Racing Act, which is a federal umbrella statute that essentially gives us a series of rights, call them intellectual property rights in our content. So to take wagers across any form, whether it be a sports wagering platform, another horse racing platform such as an ADW or a prediction markets platform, you need our express consent. You can't just do it without that. So we haven't agreed to provide our content to prediction markets. We feel like we have plenty of distribution, and we like the terms of our distribution. So that's our focus for delivering access to our content to the customer base out there. And for the time being, that's how we expect to proceed. And that's what's best for our customers and our constituents, including the horsemen. So fiction markets are not a part of the pari-mutuel wagering on horse racing story nor would I expect it to be any time in the future. Operator: Our next question comes from the line of Jordan Bender with Citizens. Jordan Bender: Bill, legislative processes are often harder to understand than not. So can you maybe just talk about what you're hearing in Virginia on the ground in terms of the iGaming bill of what might happen or might not happen in the state? William C. Carstanjen: Legislative processes happen every year when the states are in session. So every year, we're heavily engaged and we monitor them and certainly participate to the extent that we can. So iGaming is bad news for Virginia. It's not law. It's something that's been discussed. And there are 2 different bills in the House and the Senate that have gone through. I don't think it's good for the environment in Virginia. We certainly have made that point clear. And I think a lot of legislators and certainly, when you see the polling, that's what the people think as well. So I would say that when you look at any legislative process, including the one in Virginia, there's lots of noise and there are lots of back and forth during the throes of it. But we firmly believe that iGaming is a bad construct for Virginia. We think many legislators there believe that as well. We continue to share our views and certainly listen to others. So I think it's important that folks don't react to the ebbs and flows of the legislative process and wait to see what the end of that process is. And we remain confident that the legislature and the Governor of Virginia will get it right in Virginia. Operator: Your next question comes from the line of Dan Politzer with JPMorgan. Daniel Politzer: Bill, maybe a high level, we tended to think of Churchill as a sum of the parts story for some time. And I think that you mentioned some of the benefits or aspects of the portfolio where you do have vertical integration and cost synergies there. Can you maybe talk about high level how you think about the parts of the portfolio fitting together? Are there any elements where you feel like that you get inbounds on or that you feel like might not be natural fits over the longer term? William C. Carstanjen: Sure, Dan. Thanks for the question. Always great to talk to you again. So we've built a really interesting collection of businesses. And we found ways to link those businesses and improve those businesses by focusing on a couple of key attributes. One is we look for growth margins, growth businesses, and then we focus with great vigor on margins. So as we've built our ADW business, we focused on margins. As we've expanded the track, same. As we got into HRMs, we looked at the technology services required to deliver that product, and we decided to vertically integrate there. So across the portfolio, we constantly evaluate what we can improve, where we see the most opportunity to improve and how all these businesses can fit together synergistically over time to drive improvements in margins. So I think that question is never answered for good or forever. I think it's constantly an evolving landscape under which we evaluate our businesses, and it's always an exciting part of what we do, do what we do well, grow our businesses, improve our margins and then see where these businesses fit within our company and within our industries as a whole. So that's part of our challenge. That's something we focus on a lot. And I think the answer today could be a different answer than tomorrow. It's a constantly evolving landscape with lots of opportunities for us. Operator: And our next question comes from the line of Daniel Guglielmo with Capital One Securities. Daniel Guglielmo: In your remarks, you mentioned Kansas and Alabama as having Exacta customers. Are there additional U.S. states that could add historical racing down the road where you all can use your integrated platform and know-how for medium-term growth? William C. Carstanjen: Well, we've been -- Dan, thanks for that question. We've been really thrilled with the results that we've demonstrated in Virginia, in Kentucky, in New Hampshire, now in Kansas, Alabama, et cetera. So we think that when legislators look across different jurisdictions, when they look at what HRM has delivered for the states that have implemented it, it's a really good story. It's a story that creates lots of jobs. It creates lots of capital investment. It ties in most of the time into key agricultural industries in the state. So it's a really good story that's really delivered for the states that have done it. So part of the challenge going forward now, part of the opportunity going forward is to get that message out into other states and tell the story because unlike other industries out there, we've delivered on our promises. We've delivered on the expectations. And really, it's time to explain that to states that consider it. So there are numerous states out there that at some level have looked at HRMs and it's percolating at some level. And our job and the job of our team is to help that story along and develop those relationships in other states so that we can see opportunities like we've seen in the states so far. Operator: And next question comes from the line of Jeff Stantial with Stifel. Jeffrey Stantial: Bill, could you just talk a little bit on sort of what's been executed so far on early implementation of AI into your team's processes? Where have you seen the most success so far? And what's the road map look like here for further implementation in '26? William C. Carstanjen: Sure, Jeff. Thanks for that question. I really divide AI into 2 categories in terms of how it can help our company. First, how does it make our customers better? That's -- for us, pari-mutuel wagering, we're not the house. We're not on the other end of the wager. We're there to help our customers. The customers play amongst themselves and all the other pari-mutuel customers who are playing in a pool across the world. So we are incented in every way to make our customers better. So for those -- so examples of how AI can help our business and help our customers, for those of you with TwinSpires account, you'll see the little button in the right-hand corner, and that's an AI product that gives you an analysis of each race, gives you some of the attributes and some of the indicators to look on -- look for in each race. We've rolled that out to 5 tracks, and we plan on expanding it and improving it and making it even more robust. But that's a general tool that will give you a nice leg up on any race you're looking at to give you a sense of what you need to pay attention to and why. We're also working on another tool that we expect will be delivered at some point in the future, which is completely interactive, and you can talk and ask any questions that you have on a specific race or a specific horse. So those are big priorities for our business and things we think we can deliver to our customers to make them better, and we have every incentive to want to do that. In terms of as a business as a whole, we're looking forward to what vendors and what providers can do out there to make us better at marketing, to make us better at cost management, to make us better at acquisition of everything that goes into our business. So we embrace AI. We think it's incumbent on us to find ways that it can help our business, and we'll continue to do that. But we're a company that embraces it and thinks, first and foremost, how do we help our customers interact and enjoy our product better and then how do we make our business itself better and drive higher margins. Operator: And our next question comes from the line of Brandt Montour with Barclays. Brandt Montour: I wanted to circle back on the Derby. I mean it's well noted. your confidence in your prepared remarks and some of the answers earlier. But thinking about pacing and what you said this year versus last year, I think it might warrant just a little bit of extra color given I think last year at this time, you were pacing ahead and sort of this -- it seems like you're way more confident this year. But can you give us a little bit more in terms of KPIs? Do you have more cushion heading into the final couple of months of ticket sales? Do you have more pricing or revenue growth embedded in what you've sold so far? Anything like that would be helpful. William C. Carstanjen: Yes, Brandon, thanks for the question. So we've always had very good visibility to into the Derby, especially at this point in the process. I think last year, we were thrown off our game slightly because this is about when the tariffs were first introduced, and it disrupted our sales process for a period of time. This year, we're back on track. We're following our KPIs. We're watching ticket sales each week. We're comparing them to prior years. We're comparing them to plan. We're watching sponsorship and licensing. We're watching every avenue of our business. So generally, over the years, we've had great confidence based on prior track record on what to expect as we go along. And I think that's this year as well. And I think unlike last year where we might have seen some headwinds, especially with the sudden -- the shock of the tariffs when they were first started being discussed. This year, we feel like we're seeing tailwinds in particular tax bill benefits. We think something like that is only a material good guy for us. So to the extent we can predict the macro environment and how we think it impacts us, what we see out there looks more like tailwinds than headwinds for the remainder of the next 6 or 8 weeks. Operator: And our next question comes from the line of Shaun Kelley with Bank of America. Shaun Kelley: I think in the prepared remarks, you talked a little bit about some of the Virginia core trends you were seeing through January. Just wondering if you could elaborate a little bit on what your expectation is for the balance of the year just for the ramp-up at the Rose? And also any thoughts about Northern Virginia casino competition, which has come up a couple of times and I think continues to be around even though I think it requires a referendum. William C. Carstanjen: Thanks, Shaun. So yes, we've -- Marcia alluded to it in her comments. Certainly, the country has seen some disruptive weather, but our business has performed very strong in January, and she wanted to make a particular mention of that in her comments today. So Virginia is a story where particularly around the Rose, you can compare it with some of our properties in Virginia in terms of size and scope of facility. There should be a long runway, and we expect there to be a long runway of continued improvement and continued growth. It is about the most exciting market we could imagine in terms of the demographics, the size of the population, the wealth and the other attributes of the population. So we have a lot of work to do and a lot of growth to go get in Virginia. And the tail end of your question regarding another Northern Virginia casino or property, what I can say about that is that's something that we deal with every year in the legislature. It's something that gets talked about and discussed. It's a long way from happening. And also, it's a very big market. So there's plenty there for us, especially where we are in the Southern I-95 corridor of that market. That's where we're focused on. So we're going to be running our game plan to continue to build that. I think you can see from our numbers that we've demonstrated, we know how to do that in 2025. And in general, we have product improvement, product expansion and refinement of our models across Virginia, and that's what we're going to focus on in 2026. And I don't -- I guess I would clarify that I don't expect any competition in the Northern Virginia in the near term. And that's all I would -- I can ever comment on is what's going to happen now and in the near term. That's just legislative noise that we deal with every year. And right now, we just need to focus on building our business because that's where the opportunity for us is. Operator: And next question comes from the line of Trey Bowers with Wells Fargo. Raymond Bowers: I guess just related to -- Marcia brought up the high free cash flow generation that you guys saw last year. And I know historically, you guys have kind of utilized share repurchase during periods of dislocation. But just wondering, is the company now looks forward to a period of pretty significant free cash flow, it feels like going forward. Do you guys think maybe potentially become more formulaic with repurchase? And as you think about kind of capital allocation with the shares at a level like this, does that change some dynamics in terms of a new project? William C. Carstanjen: Yes, Trey, thank you. So yes, Marcia alluded to it, we're in a situation of strong cash flow. It's a reflection of how we've built our company and how we run it. And it's also a reflection of the changes in the tax law, which benefit us. So we're stronger than we've ever been. And certainly, it's a very positive outlook as we look forward. What we do with our free cash flow is something we talk about and think about every day, and we're very, very careful about it. You mentioned share repurchases. That's always and has been for a long time, an important element of our capital management and we value that or evaluate that against our other uses for cash. So as we look forward and plan the next number of years for our business, certainly, we will look at share repurchases and balance it against other things we want to spend our money on. And all is for your benefit, it's for the benefit of the shareholders. We're trying to make sure that we do things that generate the highest and best returns for our shareholders, and it's good to have options. So we balance that against leverage, against investment, share repurchases, et cetera. It all goes into the hopper, and we try to make the best decisions that we can. And it's good to have the option and it's good to have the cash to do so. Operator: And our next question comes from the line of Joe Stauff with Susquehanna. Joseph Stauff: Bill, just a quick follow-up on electronic table games in Kentucky. Just wondering what the bottleneck is on your ability to increase the availability of those units in Kentucky. And then my larger question is really going back to the Derby. And just thinking about how well you've done strategically about on the event side of the business and ticket revenue and upgrading, getting returns on that. But just wondering, in a world clearly where sports rights and sponsorship demand is really skyrocketing, how you think about the opportunities both for media rights and sponsorship. I know you just renewed with NBC, but sponsorships. I mean, I'm sure they're like mega sponsors out of the Middle East and Japan and so forth. Just wondering how to think about that. William C. Carstanjen: Thanks for the question, Joe. So first, ETGs. This is a new product. It's a thrill to be involved in something like this, just like I feel the same way I felt as we were developing HRMs. It's a thrill to be a part of something like this, and you need to do it right. So Roulette was the first game we got developed and through the Kentucky regulatory process, and we need to go demonstrate responsible rolling out and growth of that. And as we do that, we're working on other products. And I think as a team, we move as fast as we responsibly can, but it's important to do this right. So this is all good stuff to come. This is about doing this right, doing it in a way where the regulators are comfortable where the customer understands what we're doing, where we create the space on the floor, where we get the volume on the floor correct in terms of units versus other games in demand. So this is the beginning of that process. This is the beginning of a wonderful mountain to climb, and I'm excited to climb and it's going to take us time as we introduce new products and grow out the products as we introduce them. So all good stuff on that. No bottleneck, all just responsible, careful, thoughtful rolling out of something that's new. With respect to the Derby, yes, we've been flattered and very much increasingly focused on international, the Middle East, you may have seen we've introduced 3 new road to the Derby races that are based in the Middle East. So we have a total of 4 now. So lots and lots of interest from other parts of the world, particularly in the Middle East. And that's all good as we build our sponsorship and we build all the different avenues of how we grow the Derby. But certainly, we're privileged to stand on those that came before us. The Derby has a significant international component to its brand, but it's never been harvested. And this is the team that's now charged with harvesting that and growing it. And it starts with selling them the dream, the ability to get their horses to this race to get their participation directly with the rooting interest in this race. So I think you'll see focus and I think you'll see growth and development on that avenue for our company, and that's part of how we drive sponsorships going forward, high-end attendance going forward and other avenues, too, licensing, wagering potentially. Those are all payoffs for thoughtfully and successfully growing international participation. Operator: I'll now hand the call back over to CEO, Bill Carstanjen, for any closing remarks. William C. Carstanjen: Thanks, Andrew. Everyone, thank you for those great questions. Thank you for participating in the call today. We're always happy to have these calls and get a chance to talk about what we do here. We're proud of what we do. And now we're going to go back to our offices, put our heads down and get ready for the next big couple of things to come, including getting ready for the Kentucky Derby. So thanks, and we'll talk to you again soon. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Unknown Executive: Good afternoon, everyone, and welcome to Nickel Asia Corporation's briefing for our financial and operational results for 2025. My name is [indiscernible 00:00:12], Nickel Asia Corporation's Senior Manager for Investor Relations. Joining me today are our Group President and CEO, Mr. Dennis Zamora; our Chief Commercial Officer for Nickel Asia's Mining Business, Mr. Koichi Ishihara; our VP of Finance and our CFO, Mr. Andre Lu Dy; Director of our Geothermal business, [ Mr. Joseph Novos ]; and President of Cordillera Exploration Company, Dr. G. Yumul [Operator Instructions] This video will be recorded and the presentation materials. [Operator Instructions] Unknown Executive: So let's begin with our financial highlight. The last most set of bar charts here indicates our top line performance for the period and historically over the last 3 years. For 2025, our revenues, which are comprised of the sale of ore and other services increased by 33% year-on-year to PHP 29.6 billion from PHP 22.3 billion in 2024. Last year saw a marked increase in nickel ore prices for saprolite ore exports. The second bar chart in the center showcases our consolidated EBITDA for the period, which totaled PHP 13.7 billion, 56% growth from the PHP 8.8 billion reported in 2024. The right most set of bar chart shows our attributable net income for 2025 and this surged to PHP 6.3 billion, or a 91% increase from the 2024 net income figure here of PHP 3.3 billion. It should be noted, however, that the PHP 3.3 billion here is representative of core net income and attributable net income. Improvement in our bottom line performance was primarily included 2 things. The first is the higher direct shipping ore prices, which were up by 32%. And the second is the onetime income of PHP 800 million generated from the sale of our stake in Coral Bay earlier this year. If you refer to the table below the right most column indicates additional metrics on our performance for the year. The first row summarizes our gross profit margins, which stood at 63% for 2025. EBITDA margins also improved 46%. Despite operating expenses increasing by about 24%, operating income grew by about 69% year-on-year. We'll provide more details on the revenue and cost and expense variances in the subsequent slide. Next slide. So moving on to the mining highlights for this period. The first set of bar charts that we have on the left shows us nickel ore sales volume for the period in millions of wet metric tons. The green portion represent saprolite ore exports, while the orange part represents limonite exports. So in 2025, our mining sales volumes increased by 9%, totaling 18.56 million wet metric tons. Ore exports, which comprised nearly 60% of total mining sales volumes amounted to 10.93 wet metric tons, up 13% from 2024. H1 deliveries on the other hand, totaled 7.64 million wet metric tons or an increase of 4% from 2021. In the middle set of bar charts, we see the movement in average ore prices for the period in U.S. dollars per wet metric ton. For ore exports, which is seen in green, the average prices registered a higher value of $36.14 per wet metric ton or a 32% increase from last year's average price of $27.34 per wet metric ton. For limonite HPAL prices, there was a marginal increase of 2% to $10.66 per wet metric ton from 2024 $10.50 per wet metric ton. So due to these more favorable saprolite export prices, we can see in the right bar chart that combined ore revenue rose by 39% to PHP 27.5 billion from PHP 19.6 billion. If you place your attention to the table below, this will give us additional context on nickel prices. The first column indicates average nickel LME price per pound in U.S. dollars. So for 2025, this amounted to $6.86 per wet metric ton lower compared to $7.66 per wet metric ton in 2024. The chart also gives us a summary of the nickel pay factor of our ore exports in HPAL deliveries. So nickel payability for ore exports was notably higher in 2025 at 26.93% from last year's 18.03%. So despite the weaker nickel LME price, the payability for raw nickel ore exports was quite high. So the reasons for this are the tightness in nickel supply from Indonesia due to mining both the permit issues, while the demand for ore for processing still continues to be strong from Indonesia and China. Nickel factor for HPAL deliveries, however, increased from 9.87% from 9.24% last year. The reason for this is for the renegotiated prices that we have with Sumitomo Metal Mining. Next slide, please. This slide shows the revenue variance analysis. Total revenues for 2024, this is also inclusive of our renewable energy performance amounted to approximately PHP 29.6 billion, which represents a 33% increase from 2024. So as you can see here, the primary driver of top line growth was the increase in realized nickel prices. Higher saprolite ore export prices gave us about PHP 5.6 billion in revenues versus 2024. So apart from this, there was an improved nickel payability for our Rio Tuba mine for each past sales due to renegotiated prices. So nickel sales volumes grew by approximately PHP 2.2 billion in 2025. This was largely due to an increase in off-season shipments that we had from our mine in Rio Tuba and Palawan, increased exports from our Cagdianao mine and added shipments from our U.S. mines in Manicani in Eastern Samar. So these additional shipments offset the operational impacts of certain weather disruptions we had at the beginning of last year. The foreign exchange rates also had a modest impact on our revenues. The average exchange rate in 2025 declined to PHP 57.22 per U.S. dollar from PHP 57.36 in the previous year, resulting in a revenue reduction of approximately PHP 62 million. Apart from this, lower WESM spot prices also had a marginal effect on our top line figures, which resulted in a decrease of about PHP 51 million in 2024. Next slide. So this slide summarizes our cost and operating expenses in 2025 versus 2024. Cost and expenses increased by approximately 17% to PHP 18.1 billion from PHP 15.5 billion in 2024. The increase was primarily driven by mining costs, which grew by PHP 1.5 billion in 2025. Specifically mining costs in this case pertains to spending related to higher volume of nickel ore, second would be the preparation of new mining areas like in our Manicani mine. And the third was due to longer hauling distances and increased road maintenance activities due to certain weather conditions in seasonal parts of last year. The next major contributor to the year-on-year increase in costs was excise tax and royalties, reflecting the impact of higher realized ore prices. So this is higher by PHP 666 million versus 2024. Additional costs also stemmed from the ramp-up of operations at our new Manicani mine, which completed 11 shipments at the end of 2025 versus only 4 shipments in 2024. So finally, another contributor to the higher expenses was depreciation primarily due to newly acquired equipment following any capital expenditure increases. So this slide essentially show updates on HPAL. So in February of last year, we completed the sale of our 15% stake in Coral Bay to Sumitomo Mining, with the goal to strengthen our financial position and focus on resources for core projects. Year-on-year results indicate that the strategic decision to divest has reduced the drag significantly. And as shown in this slide, total losses from our equity investments have decreased by 72% year-on-year and it's now down to PHP 249 million. Next slide. So let me walk you through our balance sheet highlights for 2025. As of December 31, 2025, total assets reached PHP 70.2 billion up from PHP 61.7 billion in December 31, 2024 or up 14% increase. So the increase was driven by higher and improved collections from operations and the general increase in noncurrent assets was driven by our renewable energy projects, particularly in San Isidro, Leyte and Subic-Cawag. With respect to our liabilities, total liabilities increased by 30% to PHP 22.3 billion from PHP 17.2 billion in 2024. Short-term debt declined by 20% to PHP 5 billion in 2025 from PHP 6.9 billion in 2024. Current liabilities in general decreased primarily due to payments on short-term loans after accounting for any loan developments drawdowns during the year. Long-term debt as seen here, however, rose notably up 285% from PHP 2.43 billion to PHP 9.36 billion. So the rise is largely due to project financing of EPI, our renewable energy arm, particularly also for the construction of the solar projects in Subic-Cawag and San Isidro, Leyte. So regarding the updates to our renewable energy business and future rollout plans, we will provide a more detailed discussion of this later in the presentation. Equity at the end of 2025 remains solid, increasing 8% year-on-year. Equity net of noncontrolling interest grew to PHP 39.7 billion or an 8% increase from PHP 36.6 billion influenced by our earnings, dividend payments and reduction in cumulative transection adjustment. So as to the end of 2025, our balance sheet remains healthy and relative conservatively managed. Our debt ratio increased modestly to 0.32x from 0.28x in 2024, reflecting -- leverage to support ongoing operational and growth initiatives. So despite this, our debt-equity ratio remains comfortable at 0.47x, up from 0.89x in the prior year, indicating that we continue to operate with a strong equity base relative to our borrowings. Net debt to equity ratio in here improved to 0.05x compare to 0.07x in 2024. Next slide please. With a strong balance sheet and healthy liquidity position, we're able to train value to our shareholders this slide indicates our most recent cash dividend declaration. Yesterday, our Board of Directors approved the declaration of a cash dividend of PHP 0.14 per share of common stock. The dividend is payable on March 25, 2026 to shareholders of record as of March 12, 2026. Next slide. So for the renewable energy update and outlook, our Director for Geothermal business, Mr. Joseph, will take you through it. Unknown Executive: Thank you, [indiscernible]. Good afternoon, everyone. Moving on to our renewable energy business. This first slide is a visual of our fully operational solar power plant in Mount Santa Rita situated within Subic Bay Freeport Zone in Zambales. This is run by our main operating asset, JSI. Santa Rita has an installed capacity -- an operational capacity of 172 megawatts, making it one of the largest in the country coming from a single solar power generation plant. The table indicates the current offtake profile of Santa Rita. As of the end of 2025, 86% of the energy sales mix was from power supply agreements or PSAs with the remaining 14% from exposure to the WESM. Moving forward, the direction is to fully contract energy via PSA. Next slide, please. Here are the comparative financial highlights from JSI for 2025 as against 2024. Generation for 2025 was relatively flat, only increasing 1% versus the previous year at 226,897 megawatt hours. EBITDA for 2025 was down 16% to PHP 788 million due to lower effective tariff rates. However, because JSI sales are predominantly secured through PSAs, the decline in WESM prices during the period was mitigated by these contracts. Next slide, please. Moving on to our renewable energy pipeline. Let us go through the projects we have. First, under Green Light Renewable Holdings, Inc., our joint venture with Shell Overseas Investments BV. Next slide, please. Santa Rita project is our first project under GRHI, which is divided into 2 phases. Each phase will contribute an additional 120 megawatts peak or attributable 72 megawatts San Isidro Leyte to EPI portfolio. This project is already fully contracted. Phase 1 of San Isidro Leyte solar project achieved energization in October 2024, adding 120 megawatts peak or an attributable 72 megawatt peak to EPI's installed capacity. Commercial operations are targeted for the second quarter of 2026. For fourth quarter 2025, Phase 1 of the Leyte project already generated 15,172 megawatt hours, which translated to $66.9 million in revenues for the quarter. We anticipate that this will contribute more revenues for the renewable energy business moving forward. For Leyte Phase 2, construction of 120 megawatt peak is ongoing with testing and commissioning targeted for the second quarter of 2026. Next slide, please. San Juan Botolan is another project which we have under joint venture with Shell with a total adding capacity of 59 megawatts peak or an attributable capacity of 35.4 megawatts peak for Phase 1 and 2. As seen in the photo, the Botolan project is in its early stages. Predevelopment activities have already been completed and rights have been secured. Last October, the notice to proceed was issued, and we are targeting energization for both phases to be by the fourth quarter of 2026 and the notice to proceed for Phase 2 to be issued by the second half of this year. Okay. Moving on to projects under OCI, our wholly-owned subsidiaries. So here's a visual of our solar project in Subic, Cawag. Here, we are developing 145-megawatt peak facility divided into 2 phases. Phase 1, 70 megawatts peak. Construction is currently underway. The testing and commissioning time line for Phase 1 Subic, Cawag has moved to the first half of 2027. Phase 2 of this project is scheduled to begin construction in the first quarter of 2026. Next slide. Finally, we have our project located in Nazareno, Bataan. This is a 50-megawatt project that is currently under predevelopment activities with land based resources already secured and the EPC bidding completed. Construction is targeted to commence by the third quarter of this year. In the next slide, we will see a summary of the previous updates and outlines the expected progression of our renewable energy projects over the next few years. In the past, we have disclosed that we have -- that we wanted to reach a gross installed capacity of 1 gigawatt by 2027. If you can compare this updated bar chart from our last briefing, there is a notable decrease in the targeted gross installed capacity for 2027 and 2028, which stood at 1,109 megawatts peak and 1,289 megawatts peak, respectively. Our primary message regarding the future of our renewable energy business is that we are transitioning from volume-driven to value-focused expansion. This is in response to the changing market dynamics and to optimize its pipeline of solar power. Our plan is to integrate battery energy storage systems or BES, across our portfolio, particularly for the JSI facility, Cawag Phase 2 and Najran projects to enhance operational efficiency. Our renewable energy business is broadening its development strategy to include run-of-river hydropower projects, hybrid diesel, solar and battery systems tailored for island grid operations. These efforts are focused on flexible generation solutions capable of delivering bar supply to meet the market demand. Unknown Executive: Thank you, Joseph. Moving on to updates regarding our gold and copper exploration projects. I give the floor to Dr. Yumul, President of Cordillera Exploration Company. Dr. Graciano P. Yumul, Jr.: Cordillera Exploration Co. Inc, or CExCI, our joint venture with Sumitomo Mining continues to receive significant copper gold mineralization results in its drilling program at the Cordon project in Isabela. This slide is a summary of the work undertaken in 2025 as well as forward-looking plans regarding our gold and copper exploration effort. Unknown Executive: That's the drilling campaign that which consisted of 21 drill holes last year. So the results essentially delineated the mineralized zone. And for our 2026 plans, essentially, the goal is to build upon this. So in the first part of the year from Jan to April to complete 4,000 meters of drilling and from May to December to have an additional 6,000 meters to upgrade on this. To the next slide please. So with respect to our CapEx updates from performance and project details, we're giving you now a high-level view of last year's capital expenditures and initial guidance that we have for 2026. The figures are categorized into 3 key areas of our business, namely mining operations, renewable energy projects and exploration activities under Cordillera Exploration Company. So for CapEx mining, particularly, we spent approximately PHP 1.5 billion in 2025. Last year's mining CapEx was primarily focused on 3 main things, which are, firstly, the re-fleeting or replacing and upgrading of equipment in our Rio Tuba mine. Second is the build-out and expansion of our new mine in Manicani. And third is the construction of a new causeway in our Dinapigue Mining in Isabela, which supported better logistics and operational efficiency. Looking ahead to the rest of the year with respect to CapEx expenditure, we anticipate spending less than last year, approximately PHP 300 million less or PHP 1.2 billion with the bulk of this again being earmarked for replacement CapEx and additional fleet for Manicani. With respect to CapEx for renewable energy, CapEx last year was approximately PHP 7.7 billion. The bulk of renewable energy CapEx last year was from Subic, Cawag and San Isidro, Leyte. So to break this down for Subic, Cawag about PHP 4 billion out of the PHP 7.7 billion includes milestone payments for Cawag Phase 1, offshore and onshore contracts and milestone payments for Cawag Phase 2. For San Isidro, Leyte approximately about PHP 2.8 billion out of the PHP 7.7 billion was for milestone payments of Leyte Phase 1 and other development costs such as right acquisitions, project permits, et cetera. For renewable energy CapEx guidance in 2026, expected spend is about PHP 10.3 billion. So this is mostly spread throughout the San Isidro, Subic, Cawag, as well as Nazareno, Bataan projects. So I'll give you an initial breakdown of what the PHP 10.3 billion is going to be. So about PHP 3.8 billion for the expense for this year for our -- for the San Isidro, Leyte project. So this is largely coming from milestone payments for Phase 2 and any retention fees we have for Phase 1 of Leyte. About PHP 2.5 billion out of the PHP 10.3 billion will be for the Subic, Cawag project, mostly for construction payments. And any other unpaid costs we have for Phase 1 and any other development and construction overhead might need. Additionally to this, about PHP 3 billion out of the PHP 10.3 billion will be allocated for Nazareno in Bataan. So bulk of the payments will come in this year for those projects while for Nazareno, plan to issue an NPP by more or less midyear 2026. With respect to CapEx for Cordillera Exploration, last year we had mining exploration cost CapEx at about PHP 159 million. So for this year, we've allocated about PHP 221 million for gold and copper. Nex slide. So this concludes our formal presentation for today. Unknown Executive: [Operator Instructions] We'll now open the floor for questions. But before we entertain questions from the audience, we like to go through the questions sent in by our registration form. [Operator Instructions] The first question that we have is from Klein of Regis. Her question is, how are sales volumes and ASPs trending so far in 2026? Unknown Executive: Yes. Thanks for the question, Klein. To answer that, the market prices on a dollar per metric ton have remained elevated. I would say it's still on an uptrend given the tightness in ore that's in Indonesia. The approved quotas have still been limited. So that's still driving a lot of concern on the supply end. And then the Philippines as a country is now still closed in terms of mining. There are only a few mines. So supply is quite tight from the Philippines and with limited quotas, we expect the ore prices to remain elevated. So ASPs so far are still trending upward. Now, for volumes, we cannot comment on that yet because, as I mentioned, most of the Philippine mines will open by April. So we'll have a better feel of where volumes are once second quarter is in. But 1Q is too early to tell in terms of the volume trends. Unknown Executive: The next question is [ Philip ]. He asks, can you discuss the progress of renewable energy projects in terms of how it is connected to the grid and what project needs to be with this? Dr. Graciano P. Yumul, Jr.: Thanks for the question, Philip. So we have 2 projects that are under right now. So starting with Cawag Phase 1 work on the substation and interconnection facilities have commenced. And so this is now going to be connected to the grid for its testing and commissioning later this year. For the San Isidro projects, we are also connected. In fact, we've conducted our preliminary testing and commissioning for this project. And we hope to be able to finalize connection arrangement with NGCP as soon as we reach our maximum. We're just waiting for better weather to achieve that. Now to your question on which project needs to be with BES. But generally, most solar power projects now would really have to start seriously considering the integration of energy storage for them to be more marketable. So for the EPI projects, we are considering the integration of BES in our projects in Cawag Phase 2 as well as JSI and Cawag Phase 1. The projects in Leyte for specifically San Isidro, they are currently fully contracted as pure solar and will remain as such until the expiration of the contracts. Unknown Executive: So our next question is from Carl from S&P Global. He asks, how will Nickel Asia respond to the expected surge in demand from Indonesia following the nation's nickel ore production cuts? Unknown Executive: Yes. Carl, thank you for the question. Given that Indonesia is cutting nickel ore production for 2026, smelters are really relying on external suppliers coming from the Philippines to be able to fill the gap. Of course, New Caledonia would also play a role, but production from New Caledonia is quite limited also, but being able to ramp up and supply to China will provide some relief. But overall, even the Philippines and New Caledonia trying to fill the gap, the production cuts that were introduced in Indonesia are quite daunting. But it's -- but Philippine miners and Nickel Asia will be ready to try to take advantage of that opportunity. So we continue to focus on how we will be able to increase the tonnage that we've guided by ramping up our Manicani and Dinapigue mines and again, try to just do it at a more efficient manner. So we will be ready to be able to take advantage of this opportunity. Unknown Executive: Next question is from Franco Fernandez of Evercore ISI Securities. Given Indonesia's production cuts and the recent recovery in nickel prices, how should we think about the growth and sustainability of dividends over the next year? Unknown Executive: Yes. Thank you for that question, Franco. If you've seen our recent declaration at the minimum, our policy is 30% of previous year's earnings. And the earnings is largely driven by the average selling price of the ore and the volumes that we generate. That being said that prices are on the uptrend, I would expect that we will be able to continue to fulfill shareholders' return by rewarding them with that 30% payout. But it's also common for us to declare special dividends -- and if you've seen in the previous years, we've been able to declare special dividends also more often than not. So I would think given the situation of ASPs and our ramp-up of the new mines, one would expect that we will continue to be in a position to reward shareholders both for the regular and special dividends in the upcoming quarters. Unknown Executive: The next question is from Geraldine. Geraldine, he asks, can you share the company's income and production outlook -- and perhaps the company can disclose new investments in mining or renewable energy, if any. Unknown Executive: Geraldine for Nickel Asia, we do not give guidance for our earnings. But what we do is we give an indication of our target tonnage. And for this full year, we're targeting 20 million metric tons. We don't have any specific investments to report as of now with respect to the mining business. Dr. Graciano P. Yumul, Jr.: Thank you for the question, Geraldine. For the renewable energy business, we are in the process of shifting our focus from pure solar to a more diversified and well-managed generation mix that would be targeting mid-barage supply as well as baseload supply. So frankly, the focus of the company is to undertake all the preliminary development activities with a view of rolling out these projects progressively later this year and next year within our 5-year development time frame. Unknown Executive: So the next question is from [ Jed ]. Can net share its projected total megawatt capacity of its power generation by the end of 2026? And if you can share updates on ongoing energy project development? I seen in renewable energy gross capacity summary side that we had earlier that projected operational capacity for the end of 2026 is 450 megawatts. I'm not sure if Joseph had more of this. You want to share. Unknown Executive: I can. As I mentioned earlier, the focus of the company is to diversify its power generation portfolio. And so much of the work that we will be doing this year is to continue with the execution and construction of our existing solar projects with a view of integrating solar battery energy storage systems, the solar projects as appropriate and also to develop other sources of energy such as hydro and looking at also scale energy projects to complement our energy mix with clean nonrenewable energy sources. So much of the work that we will be doing this year, Jed, is to develop these projects with the view of completing most of them within the next 3 to 5 years. Unknown Executive: So the last 4 questions that were sent in from [ Rachin ]from Union Bank from First Metro and Alexis from AJCG Securities. All have to do with the nickel price outlook as well as any catalyst sustain the momentum. So we'll try and answer that all at once. Unknown Executive: Yes. So for these questions on nickel price outlook, I think it's more impacted now because on the supply side. So because of the Indonesia policy, and the tighter nickel ore supply, we're seeing these ASPs coming up. It started early this year. And we also saw nickel LME up as a result of this. Now on the demand side, the demand for stainless steel continues to be steady. So last year, it grew 2% as an industry. The growth continues to be dependent on, of course, China economy and the global economy, which we all know are also facing challenges. So we expect stainless steel to grow modestly around the low single-digit range. And then for the battery market, for battery materials, we expect this to grow modestly. And there will be some stabilization and normalization in battery materials growth. So putting these together, we do expect nickel to prices to remain elevated and to be on an uptrend, more impacted because of the supply side. Unknown Executive: One question we have here is, are we expecting a continuation of the previous year's bad weather patterns for Q1, which typically results in operational slowdown? Unknown Executive: Yes. That's difficult to tell. But despite the bad weather, I can tell you, Jed, that we managed to still deliver our tonnage. So that shouldn't be a thing to worry about. If you look at last year, despite the difficult weather, we were able to deliver much more exports, close to 11 million wet metric tons. So even with the same -- face with the same challenges, we'd be able to -- I have no doubt that the target of 20 million tons is possible for us to do. It's nothing to worry about really. So from Raymond, 3 questions. Excluding the one-offs, what were the income figures for 2025? Okay. The one-offs for 2025 are really from the Coral base sale. So that amounts to around PHP 800 million onetime gain. So if you deduct that, we'll have a net of around PHP 5.4 billion, PHP 5.5 billion in core. So if you look at it core-to-core, it's PHP 5.5 billion against 2024's PHP 3.3 billion if you add back that geothermal write-off. So from a core-to-core basis, it's still a big gain. And then your number 2 is on ore volumes in Q4 were quite high. Yes. Actually, what happened was there's a spillover of Q3 shipments that we delivered in Q4. So we were shipping out. We were very busy in October, November. Yes, you're right. Seasonally, we kind of slowed down by October, November, but we really had targets to reach. And like I said, the challenging weather patterns, our company has always an opportunity to adjust. And we saw weather improved in October, November, and we took advantage. So we were able to continue our shipments all the way up to November. So you would notice that 4Q had also contributed to that. And lastly, what was the split in ore sales to China and Indonesia last year? In 2025, I don't have the exact figure, but Indonesia shipments have grown. So the demand from Indonesia has been growing. And it represents about 1/3 to 1/4 of deposit 20%. It represents about 30% of our total exports. So since exports have grown totally 9% year-on-year, even the share of Indonesia for 30% of that has grown on an absolute amount. Where do we see it in 2025? Well, if Indonesia is cutting permits, they really need to buy the Philippine nickel ore. So that share might possibly go up. And then another question from RJ. Do we have plans to build our own metal manufacturing facility? I guess for the processing plants, there's always the ambition for a miner to add value and become integrated. But at the moment, we are focused on our upstream investments where we are good at and we specialize at. For downstream opportunities, I will leave it to our last disclosure on studying with DMCI mining. So that remains a project that is being studied. And we have no new updates on that. A question from [ Othel ]. Can you share your insights and feedback on the recently signed critical minerals partnership with the U.S.? And how will this benefit the Philippines? And what can we expect from the U.S. and Japan as partners? Unknown Executive: I think this is a good project for the Philippines. But I think we need to see the details of what will come out of this. So for example, if the U.S. will favor Philippine supply of materials such as battery materials, which could mean that they will pay a higher price. Then possibly it could encourage development of downstream nickel in the Philippines. But fortunately, I think this is just a framework that was signed. And I think we need to wait for the details before we can comment on whether or not it would be good for the Philippines. Unknown Executive: Are there any other questions? Would anyone like to ask a question? [Operator Instructions] Let's unmute Amos. Amos Ong: Congrats on the earnings. I just have 3 questions. My first one is if you could give a production target for Manicani this year? And do we expect to see, given the high grades of Manicani versus your other mines, any significant impact to the ore export prices? Unknown Executive: Okay. Two questions, Amos, now? Amos Ong: Yes. Unknown Executive: Okay. For Manicani mine, our permit, our ECC is up to 3 million tons. So we're doing our best to reach that this year to wrap it up. So we will try to get close to 3 million tons. Now just to give your assumptions more color, half of that shipments will be saprolite ore and half of that shipments will be limonite ore, right? So the ASPs would differ, if you assume that. The limonite ore that we will be able to produce from Manicani will be the ones in high iron. So there is a separate pricing for that, and that goes to the China market. And then while the saprolite ore can go both to Indonesia and Chinese customers. And then the grades, the grades of the saprolite ore in Manicani would range between 1.3% to as high as 1.5% nickel ore, generally higher than the other mine sites that we have today. Amos Ong: Sorry, I still have 2 more questions. My second one is on the HPAL equity earnings. From my understanding, it seems like the losses narrowed for full year versus 9 months. So that would imply a positive or HPAL equity income for 4Q. So should we expect equity income or earnings moving forward, especially in 2026? Unknown Executive: Yes. I think with the recent improvement in nickel LME prices, our HPAL losses -- our HPAL performance should continue to improve, plus the higher cobalt prices have been able to offset some of our costs better. So there are some drivers to -- there are some opportunities for the HPAL equity earnings for this year to improve. But again, it will really depend on the market will continue, whether cobalt prices can stay where they are and whether nickel LME will stay where it is. But our belief is that nickel LME is still on an uptrend. Even if it has risen to these levels, we think that there is still room for it to rerate given the situation of the supply/demand in the market, yes. Amos Ong: And then one last question for me. So in the press release, it seems like there's some initial grades on the Cordon project. I think there were some initial grades on the drill holes like 0.71% copper, 0.34 grams per ton for Baltic. Would you say this would be like the general grades of the resources for this tenement area? Or like how should we interpret these initial results? Unknown Executive: Yes. Normally, in the Philippines, the average grade copper grade will be around 0.35, 0.4. So for Cordon, I think we're doing good. If you're going to compare general Philippine copper grade. Amos Ong: Got it. And then sorry, just a follow-up on that. When do we expect for you to release the reserves and resources for the Cordon... Unknown Executive: We're still in the step-out drilling. So when we start doing the drilling, that's the time that we elevate our inferred to indicated. So 2, 3, 4 years... Unknown Executive: [Operator Instructions] Unknown Executive: We have a question from Christy, inquiring about margin trajectory given strong shipment and selling price. That is on an upward trend. So I think our margins, we can keep doing better year-on-year, especially where ASPs are today and where they look to be headed. And then in terms of volumes, like I said, our ECC for Manicani is up to 3 million. We'll do our very best to get you -- to get ourselves that figure. So margins could be in for a better year. Secondly, what has been the net effect of your effective tax rate on the new tax regime? Well, we're still waiting for the implementing rules and regulations for the IRR. So once we get that, we'll be able to file accordingly for 2027. So you're talking about full year 2026 effect. So at least for 2025, the new fiscal regime taxes or these windfall profit taxes won't be applied yet. So that may come into effect next year. And then any update on exploration, proven reserves? I think it is what Dr. Yumul had told you. We're very positive about the drilling results we've had. The common copper mines would give you 0.35. But if you look at our results, it's much better than that. So give us another few more years, and we'll be able to translate these inferred resources into to standard, which will be better valued by the market. So that's for Christy's questions. And then from Francis, are export prices have decoupled from LME prices? Right now, because of the uptick in LME prices, there is some correlation, but the reasons are separate Francis. The reasons are separate for them moving up. But I believe if you look at the raw ore prices on -- by itself, really on the ground is -- there's really no supply to work with for the smelters. So that's causing a very tight prices. Now for the nickel LME, there is still a global oversupply in nickel, but the market is forward-looking and the market prices everything ahead. And the expectation is with the tight nickel ore supply, the global oversupply will soon vanish. So it is really a forward-looking mechanism. And at this point in time, there is some correlation in both rebound in nickel LME price. From Christy, inquiring about evolving mix of overall limonite, saprolite-based production. Okay. So last year, we did 18.5 million tons. We were able to ship out close to 11 million. And then the remainder, which is 7.6 million was limonite. So that would be around a 60% to 40% split between limonite. And that should continue, Christy. Unknown Executive: Klien had a question. Unknown Analyst: Can you hear me? Unknown Executive: Yes. Unknown Analyst: So my first question is -- so I just want to make sure that I know the entire business and your assets. Do you have other mining assets apart from the ones that you're mining now as well as the ones that you're exploring CExCI, you have other mining assets that you could potentially explore and develop in the future? Unknown Executive: Klien, in our portfolio, for the nickel assets, that's it, once we've disclosed with Manicani and Dinapigue. And then for our gold copper assets, it's all under CExCI. The Cordon project is the one that we're focusing on. There are predevelopment activities for a couple of projects under CExCI. Unknown Executive: Can I add a bit? In gold and copper, we have several projects under exploration. But most -- in this industry, it's very hard to find a very good site. So normally, we don't disclose anything. And that's the reason why we started making disclosures on this Cordon project because it's something worth disclosing. So I guess that's the answer to your -- we're working on several, a handful. But we cannot say that there's a likelihood that any of them will reach the stage of development of production. Unknown Analyst: Understood. I heard that the DENR or the government plans to privatize some idle mining assets. Have you heard the same? Or is there any movement that you're seeing on the government side regarding, I guess, the privatization? Unknown Executive: I think it's always in the interest of government to maximize their assets, and they would like to give it to operators that could do it time and not wait for decades. So we've always received inquiry or feedback on whether there are assets that Nickel Asia would like to participate in. We're very much open to that. And we cannot confirm whether we've talked to the government about this. But yes, definitely, there's interest between government and private miners to be able to develop projects together to increase government and private enterprises revenues. Unknown Analyst: Okay. And also last -- well, sorry, I have another question before this. So -- after this. So just sticking to the same topic, I'm wondering if you've seen any, I guess, changes in the behavior of local government, local government, I guess, participation in mining or whatever after the passage of the fiscal regime law basically because they're supposed to get their royalties immediately already. Do you think that they're now more incentivized to issue more permits to miners and all that? Unknown Executive: I think it's a bit too early. So I personally can't say that I've witnessed any change. But your logic is correct that moving forward, it should align their interests more with the company. But I think most of the permits we need are not from the local governments. They're from the DENR, the MGB and the national government. But similarly, since the taxes will go up, they would be presumably more incentivized to support us. Unknown Analyst: And my last question is on your dividend outlook. So you declared dividend -- regular dividends today, which -- but you didn't declare special dividends. So I'm wondering if there's still a chance that you could pay a special dividend later on this year? Unknown Executive: Klien, we don't guarantee the special, the regular review. But if you look at the previous dividend declarations, we can very much do so over the course of the year. So for as long as the business is doing well and the CapEx requirements are not that substantial, then we rationalize and we also do recognize the merits of declaring dividends to give back to the shareholders. [ Technical Difficulty ] highest risk would be policy regulation in Indonesia. So while Indonesia has maintained a tight policy stance, of course, they could be flexible if the market needs some adjustments in the quota. So you need to be -- we need to watch out for that. Right now, the declaration is 250 million to 260 million tons, while the demand is 300 million to 310 million. So any change in policy to meet that 300 million will definitely shift ASP prices. So that's something to look out to. Other than that, for us, I don't think weather is a big disruptor because with the challenging weather, we were able to overcome last year. So it's really the things that are beyond our control, which is Indonesia policy on nickel. Unknown Executive: Thank you very much for joining us this afternoon. Feel free to send additional questions you might have when the final results of the year out. We also appreciate the IR team, would appreciate if you answered the survey, so we know best how to get the information. So there, thank you very much. Have a good rest of the day.
Operator: Good morning, and welcome to the conference call for Tate & Lyle's Q3 Trading Statement. Your speakers today are Nick Hampton, Chief Executive; and Sarah Kuijlaars, Chief Financial Officer. I will now hand you over to Nick Hampton for some opening remarks. Nick Hampton: Thank you, operator. Good morning, everyone, and thank you for joining this third-quarter conference call. I will start by making a few remarks on our performance and strategic progress, and then we'll open it up to Q&A. Trading in the third quarter was in line with our expectations and consistent with the first half. Our guidance for the full year remains unchanged. On a pro forma basis and in constant currency, revenue was 2% lower in the quarter, reflecting continued muted market demand with performance in all regions broadly in line with the first half. On a reported basis, which includes CP Kelco from the date of acquisition on the 15th of November 2024, group revenue was 15% higher. For the 9 months to the 31st of December 2025, on a pro forma basis, revenue in the Americas was 2% lower, with modestly higher pricing more than offset by lower volume. In Europe, Middle East, and Africa, lower pricing resulted in 5% lower revenue. While in Asia Pacific, revenue was up 1%, driven by higher volumes. Turning to the renewal of customer framework agreements for the 2026 calendar year, which is well advanced. With our #1 priority returning the business to top-line growth, we have selectively chosen to invest to drive volume and revenue growth. This is the right thing to do for the business, giving us a stronger platform for future growth, and we are pleased with the engagement from customers to our expanded offering. We are making good progress on the series of actions we set out at our interim results to drive top-line growth and improve performance. Let me give you 1 or 2 examples of progress. We continue to accelerate the rollout of our solutions chassis program with a focus on mouthfeel. We launched 2 new mouthfeel chassis in the quarter, one to improve the stability of portable salad dressings and another to support egg reduction. The level of customer engagement on our enlarged portfolio remains high, with the value of cross-selling opportunities in our new business pipeline increasing by more than 1/3 in the quarter. Revenue synergies from the CP Kelco combination are growing in line with our expectations, and we remain confident that run-rate cost synergies will exceed our target of $50 million by the end of the 2027 financial year. And finally, our 5-year $200 million productivity program continues to operate well, with further savings delivered in the quarter. Overall, then, I am pleased with the progress we are making. There is a real determination and focus across the business to deliver on the actions we are taking, and I am confident that in the near term, they will improve the top-line performance of the business. We will give you more detail of our progress when we announce our full-year results in May. At that time, as usual, we will also provide guidance for the 2027 financial year. To conclude, with our leading positions in sweetening, mouth and [indiscernible], we remain well placed to benefit from the global trends towards healthier and more nutritious food and drink. With the breadth of our portfolio, our formulation expertise, and the targeted investments we are making to accelerate customer wins in key growth areas, we are well-positioned to drive profitable revenue growth over time. With that, Sarah and I will be happy to take any questions. Operator: [Operator Instructions] We will now take our first question from Karel Zoete from Kepler Cheuvreux. Karel Zoete: I have 2 questions. The first one is in regards to the price investment you mentioned to sustain volume growth or to improve volume growth. Can you be a bit more specific which markets you decided to invest and what that might mean for pricing going forward? And the other question is around fiber. So I think more and more evidence or discussions in the public domain about fiber, fiber being the new protein, et cetera. What kind of engagement do you see with your customers on the fiber ingredients you sell? Nick Hampton: Okay. Karel, let me pick up on the fiber question first. I think it's an important one, and I'll let Sarah handle the selective view on pricing. But I mean, fiber clearly is a big global trend. In fact, there was an article yesterday in Bloomberg about fiber maxing. And we're seeing very encouraging progress with customers on our fiber portfolio, both products going into market, notably in the U.S. market, where in both beverages and dairy, we're seeing fiber fortification as a trend, and increasing the pipeline for fiber is growing. But it's a global trend as well, and we're seeing that trend across Europe and Asia, too. And I expect that to continue as we think about the continued desire to create more nutritious processed food, especially in a world where people have a significant shortfall of fiber in their diets, and all of the nutritional trends we're seeing point towards fiber addition as a strong growth opportunity for us going forward. Sarah Kuijlaars: Thanks, Nick. So when we think about our framework agreements, I think it's worth taking a step back, and we're all very aware that market demand remains muted. And as we stated, our #1 priority is to deliver the top-line growth. So that's volume and mix-driven top-line growth. So we've taken the decision to set our business up stronger for the future is that we're selectively investing to drive that volume momentum and the revenue growth. So we think about this is we're being very selective. So by product, by customer, by region, to ensure that we're setting ourselves up for that growth, given we now have the broader portfolio following the acquisition of [ Kelco ]. Operator: Our next question is from Ranulf Orr from Citi. Ranulf Orr: Just one for me. I mean you talked a bit in the past about the sort of 4Q improvement. Could you just provide a bit of an update on that? What's going well and where you have visibility on some of those sort of factors coming through? Nick Hampton: You mean in the fourth quarter? Ranulf Orr: Yes, yes. Nick Hampton: I just want to get clarity on the question. Look, so I mean, I think we're seeing encouraging signs of increased customer engagement on reformulation. It's very clear the sentiment in the market is our customers at least increasingly thinking about the need to put price back in to drive momentum. But we're not assuming any improvement in market outlook in the fourth quarter in our underlying guidance for this financial year. What we saw in the third quarter was consistent performance from the first half and very clearly in line with our expectations. And so far, as we've entered the fourth quarter, we'd say the same. Always as you go from Q3 to Q4 across the calendar year, you can get some kind of pluses and minuses between December and January from a phasing perspective. But we're seeing the kind of customer demand that we would be expecting, given the underlying guidance given for this year. Ranulf Orr: And just one more, if I may. On the price investments for the year ahead, can you give any kind of quantification or indication of the scale of those, maybe in relation to the current year? Nick Hampton: Look, I mean I think we haven't finished yet because we're still closing out the renewal agreements for this calendar year. And we'll give you a precise view on that when we get to our May results, as things have settled down. But I think it's fair to say that a little bit more this year than we did in this calendar year than we did in the last calendar year to ensure that we're really driving momentum with key customers. And you're obviously offsetting that with real focus on productivity and the benefits of the combination coming through in both cost synergies and the revenue synergies, of course, let's not forget, this is now the second year of the new business. And this is the first year we're entering as one combined business. Operator: We'll move to our next question from Joan Lim from BNP Paribas. Yuan Lim: Quite a few of my questions have been asked, but maybe just could you provide more color on trends by regions and category, like for example, which category has been doing well, or you're seeing more uptake with customers. So you mentioned a bit about fiber. Is that more driven by innovation in beverages, for example, and supported by GLP-1 users taking more fiber? My second question is, do you have any indication of how FX will be like for the next year? And lastly, maybe an update on CP Kelco's volume and margin recovery, please? Nick Hampton: Okay. So let me give you some headlines on the overall shape of what we're seeing in the market, and then maybe Sarah can pick up on the ForEx and the CPK question. I mean, overall, what we saw in the third quarter was quite consistent with the first half. In the Americas, we're seeing modestly higher pricing more than offset by lower volume. And that's very consistent with the Nielsen volume data that we saw in the first half, where you saw volume down and value driven by pricing, which was in part the pass-through of tariffs at the time, as you remember. And that's been pretty consistent. In Europe, volume pretty flattish volume mix with the pricing investment driving lower revenue. And then in Asia, encouragingly, some revenue growth driven by higher volumes, so some signs of momentum. I think underlying that, though, I think it's important to say what we're seeing with customers in terms of trends is some clear benefits of the combination flowing through. So in the quarter, the cross-selling pipeline was up over 1/3, having been strong at the first half. And we're seeing double-digit growth in our innovation pipeline to customers. And that's driven by some key themes. So as we've already talked on the call, we're clearly seeing a focus on fiber fortification across many categories. And I think it may well be driven by this need for nutritional density, driven by nutritional needs for processed food and the GLP-1 point you made. We're seeing that especially in beverages and dairy in the U.S. In EMEA, we're seeing dairy and beverages being more resilient, Baker and snacks a bit softer. And in Asia, actually, overall robust category performance. We talked about recovery in China at the half driven by CPK. Beyond fiber fortification, the other trends we're seeing is renovation for value. So cost efficiency and product renovation. We're also seeing continued focus on sugar reduction, and that linked to mouthfeel that we talked about at the half, where as you take sugar out, being able to control the texture mouthfeel of product is really important. And that's where the combination is really helping us build a stronger pipeline, which we expect to build as we go into next year. Sarah Kuijlaars: Thanks, Nick. And the next question is about ForEx. So indeed, we saw a headwind of -- given the U.S. in the first 9 months, which is approximately 2% to 3% of revenue, and that we expect to continue. That is partly offset by the strength in euro. Remember, with the acquisition of CPK, we have a broader footprint. So there's also some impact of the Danish krona, et cetera. But overall, you expect a headwind in the sort of the 2% to 3% on the top line. That's a slightly higher impact on EBITDA given the important contribution from the North American and the profitable North American business. Turning to CPK. So clearly, the integration continues to go well. cost synergies well in hand. And as Nick has spoken about now, obviously, the attention on the pipeline growth of those cross-sells. And it's been really powerful going into the conversations this year as a combined portfolio, punching up the combined commercial staff, really demonstrating the ability and the strengthening capability of the portfolio and the stronger [indiscernible]. Operator: Our next question is from [indiscernible] from Barclays. Unknown Analyst: So my question is on the selective investments. How should we think about the margin impact of these investments as we move into FY '27? Are you viewing this as a 1-year reset to drive volume recovery or a more structural change in pricing intensity? And my second question would be, regarding like to what extent can with the ongoing productivity program and CP Kelco cost and revenue synergies can offset the margin impact of these investments? Should we expect net margin pressure or stability as we bridge from FY '26 into FY '27? Nick Hampton: Okay. So I think let me start by saying we'll give very clear guidance on fiscal '27 when we get to full year results. So we need to complete our planning process for next year and see how trading evolves in quarter 1 of the calendar year. But the way I think about it is if you think about the building blocks going to next year, we're clearly because of the market demand remaining muted, putting some selective investments into price to drive the top line, both volume and revenue. Alongside that, we've got clear offsets from productivity delivery and accelerating the benefits of the CP Kelco combination. And different to last year, we've also got the benefits of the combination flowing through in terms of the pipeline and the cross-selling opportunities to support the framework agreement renewals. So we're confident that that builds a strong platform for growth. Where that leads us to on overall earnings delivery and margins, will be much clearer about when we get to our full year results. But the key here is the quality of the portfolio to build a growing pipeline of business with customers, as we see markets start to improve and the trends that are our friend from a positioning of the business perspective, we fully expect to drive growth going forward and into the medium term. And we'll give very clear guidance on the nearer term when we get to our results. Unknown Analyst: Just a follow-up on the fiber thing. Thanks for giving some color on that. So are you seeing a meaningful increase in customer briefs or RFP activity linked to high fiber formulations? And how does the current pipeline compare with the time last year? Nick Hampton: So if you think about our pipeline in the last quarter, it grew double-digit overall. And that is driven by a focus on things like fiber fortification. I think the question always is at what pace of those pipeline projects convert into innovation in the market. And as you know, we've probably seen -- we haven't really seen an increase in innovation pace yet, but we're anticipating that coming as these projects start to flow through. Sarah Kuijlaars: And Nick, maybe I'll just add, it's not simply just adding fiber to a product. With fiber, you really need the mouthfeel. And that's really where our sweet spot because you really need the appealing mouthfeel for the fortified product to be successful in the market. Operator: We'll now move to our next question from Samantha Lavishire from Goldman Sachs. Samantha Lavishire: I just kind of wanted to talk about some of the themes you're seeing in the market longer term. So we heard a lot of feedback at CAGNY last week about clean label reformulation, including away from artificial sweeteners like sucralose and several emulsifiers, some of which I think are in your portfolio. What proportion of products are being reformulated this way? And is the increased customer opportunity that you're seeing with CP Kelcos from fortification and protein and fiber, is that enough to offset this headwind? Are you still seeing structural growth in the way that customers are reformulating with your ingredients? Nick Hampton: So thanks for the question. I mean all of those trends that we talked about at CAGNY this month actually play to the reshaping of the portfolio. And I think it's important to say that sucralose clearly is an important part of our portfolio as an artificial sweetener of choice, but it's growing in demand. And we're selling every kilo sucralose that we can make because it's the best-tasting artificial sweetener out there. It is also important to say that if there was a shift away from artificial sweeteners, we've got lots of non-nutritive natural sweeteners in the portfolio, everything from stevia, we're the only company with an all-American supply chain for stevia, for example, through to monk fruit and allulose. So we're well placed for the reformulation to more natural and clean label. The emulsifiers actually are part of our portfolio. We do a lot of replacement of emulsifiers, and that's where the CP calc portfolio comes in as well. So one of the trends that we're seeing people talk about the trends we really believe the combination of our 3 core platforms can help customers win because that sugar replacement or artificial sweetener replacement that we talked about also comes with the need for modulation as Sarah just talked about. So the things that we heard from CAGNY are precisely the reason that we've repositioned the business the way we have done in the last 5 years. Operator: We'll now move to our next question from Matthew Abraham from Joh. Berenberg. Matthew Abraham: Just first one relates to the fiber fortification services you touched on. Just wondering if you can provide a sense of the margins from those services relative to the rest of the group. If fiber demand does accelerate meaningfully, could there be a broader impact on overall group margins? And then the second question just relates to the price investment commentary that you provided. Is that a reflection of a perception of improved demand elasticity? Or is it more a reflection that demand is such that it requires stimulation through price investment? Nick Hampton: So on your first question on fiber, our fiber portfolio generates very nice margins for us. And obviously, it depends on a customer-by-customer basis, how much fiber we're using, what other components we're putting in to help with that solution. But I think the key is the fiber fortification trend is driving a solutions model where typically that business is stickier business and good margin business. So it's certainly helpful in that regard. In terms of your question on price and price elasticity, we're clearly in a world where consumers are more challenged. Food is 20% to 30% more expensive than it was pre-pandemic because of all of the geopolitical challenges we've seen over the last 3 or 4 years. And there clearly is a requirement for some price stimulation to drive demand. But more importantly, for us, we're trying to balance the way we think about growing our business to make sure we're well-positioned for growth through the cycle. And in a cycle where demand is more muted, we want to make sure we're stimulating growth so that we're well positioned as markets start to grow. Operator: [Operator Instructions] The next question is from Lisa De Neve from Morgan Stanley. Lisa Hortense De Neve: I have 2. First, can we talk a little bit about what you're seeing in APAC? Various players in this reporting season have noted an improvement in China specifically. And I believe your sequential local currency growth is modestly better in APAC. So any color on that would be great. That's one. And secondly, can you provide us a little bit of color on how your raw materials are trending into this year on average? How should we think about the direction for cost input inflation or deflation? Nick Hampton: So maybe let me pick up the APAC question. Sarah can pick up the input cost one. Look, I mean, we're encouraged by the progress we're seeing in Asia. As you mentioned, we did see some improvement in China in the first half, and that continued through the third quarter. I mean it's difficult to talk about Asia as one region because it's such a vast area, but we're seeing good progress in China, solid demand in North Asia, across Japan and Korea. And that gives us some encouragement for the future. And if I look at APAC in the broader suite, we've grown that business significantly over the last 5 years. We're now a $500 million business revenue when we were around about $100 million 5 years ago. And it's a huge growth opportunity for us still because it's 60% of the world's population, and a lot of the trends we talked about on the call are true in Asia as well. So the opportunity there is very clear. And the fact that we're starting to see some stability and improvement is very encouraging as we go into the next 12 months. Sarah Kuijlaars: Thanks, Nick. And then Lisa, on the raw materials, I think it's worth reminding you that we've now got a much broader array of raw materials, CPK, it's not just corn, [indiscernible], et cetera. And broadly, it's a more benign environment. There's not a strong inflationary push coming through there. So it's more benign, and we're well diversified. Nick Hampton: I think it's fair to say we're seeing pretty flat year-on-year costs overall. I mean, with some ups and downs, but nothing significant. Operator: We have a follow-up question from Joan Lim from BNP Paribas. Yuan Lim: Sorry, just squeezing in one more question because everyone seems to be asking about margins. Nick, you've historically talked about how important it is to protect unit margins. Has this changed? Are you confident of maintaining unit margins this year? Nick Hampton: No, I think the focus on unit margins hasn't changed at all. I think in the near term, we're trying to balance all the levers we have to get the business back into top-line growth. And doing that in an environment where markets are more sluggish means we're having to make some choices about where we invest and what choices you make. But fundamentally, over time, we expect to focus on maintaining unit margins and using mix to improve margins to the quality of the portfolio. We're in a cycle at the moment where we're having to make some choices. Yuan Lim: It's reassuring to hear that you are confident of maintaining the margins. Operator: With this, I'd like to hand the call back over to Nick Hampton for any closing remarks. Nick Hampton: Thank you, operator, and thank you, everybody, for your questions. So just to summarize, trading in the third quarter was in line with our expectations and consistent with the first half. And importantly, our guidance for the full year remains unchanged. As we talked a lot about on the call, our #1 priority is returning the business to top-line growth. And we're clear on the actions we're going to take to improve top line performance of the business in the near term. We remain focused on top-line growth, execution, and delivering for our customers. So thank you for your time and questions, and I wish you all a very good day. Operator: Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.
Operator: Good morning, everyone. Welcome to the TD Bank Group First Quarter 2026 Earnings Conference Call. I would now like to turn the meeting over to Ms. Brooke Hales, Head of Investor Relations. Please go ahead, Ms. Hales. Brooke Hales: Thank you, operator. Good morning, and welcome to TD Bank Group's First Quarter 2026 Results Presentation. We will begin today's presentation with remarks from Raymond Chun, the bank's CEO; followed by Leo Salom, Group Head, U.S. Banking, after which Kelvin Tran, the bank's CFO, will present our first quarter operating results. Ajai Bambawale, Chief Risk Officer, will then offer comments on credit quality, after which we will invite questions from analysts on the phone. Also present today to answer your questions are Sona Mehta, Group Head, Canadian Personal Banking; Barbara Hooper, Group Head, Canadian Business Banking; Paul Clark, Group Head, Wealth Management and Insurance; and Tim Wiggan, Group Head, Wholesale Banking. Please turn to the next slide. Our comments during this call may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. The bank believes that adjusted results provided readers with a better understanding of how management views the bank's performance. Ray, Leo and Kelvin will be referring to adjusted results in their remarks. Additional information about non-GAAP measures and material factors and assumptions is available in our Q1 2026 MD&A. I would also like to note that effective this quarter, the bank renamed its U.S. Retail segment to U.S. Banking to better reflect the segment's financial products and services. With that, let me turn the presentation over to Ray. Raymond Chun: Thank you, Brooke, and good morning, everyone. Thanks for joining us. We had another strong quarter as we continue to demonstrate momentum across our strategic priorities. In Q1, the bank delivered a strong quarter with record earnings of $4.2 billion and EPS of $2.44, powering an ROE of 4.2%, up 100 basis points year-over-year. We saw robust trading and fee income growth in our markets-driven businesses, volume growth in Canadian P&C Banking and margin expansion. Impaired PCLs ticked up quarter-over-quarter in wholesale and U.S. commercial, reflecting a small number of borrowers across various industries. Overall, credit performance was in line with our expectations. We continue to expect fiscal 2026 PCLs to fall within a range of 40 to 50 basis points. Ajai will share more details shortly in his remarks. Our year-over-year expense growth continued to moderate this quarter, and we delivered positive operating leverage for the third consecutive quarter. We are on track to achieve our 3% to 4% expense growth target for fiscal 2026. The bank's Q1 CET1 ratio was 14.5% with strong organic capital accretion in the quarter. In January, we completed our $8 billion share buyback and launched our new $7 billion share buyback. As of the end of Q1, we had bought back approximately 84 million shares across these 2 buyback programs. We remain committed to consistently returning excess capital to our shareholders. We have conviction that TD's current share price does not fully reflect the bank's intrinsic value. TD has strong momentum, and we see considerable upside from here. Even with significant share buybacks, TD's robust organic capital accretion means it will take time for the bank to reach a 13% CET1 ratio. This is an enviable position for any bank and a unique advantage for TD. We are managing towards a 13% CET1 ratio by the second half of fiscal 2027. Overall, we have momentum across our businesses as we continue to deliver on our strategies to deepen relationships, make TD simpler and faster and execute with discipline. We continue to see potential upside to our 6% to 8% EPS growth and 13% ROE targets for fiscal 2026, provided that positive macroeconomic conditions continue. Please turn to Slide 3. Canadian Personal and Commercial Banking delivered record revenue, PTPP, earnings, deposit and loan volumes. In real estate secured lending, loans were up 5% year-over-year, and we continue to achieve sequential origination margin expansion. In addition, we saw record Q1 originations in our proprietary channels. In cards, we delivered the highest quarterly acquisition in a decade, driven by record pre-approvals for our existing clients and record point-of-sale deepening in our branches. We saw continued acceleration in the business bank with loans and non-term deposits up 6% and 7% year-over-year, respectively. At Investor Day, we laid out our strategy to capture deepening opportunities, including frontline expansion. We have added over 300 business bankers, an increase of 10% since the end of fiscal 2024, and we are seeing the benefits of that strategy play through. In U.S. Banking, we saw continued momentum across our core business lines as we deepen relationships with our clients. Mid-market lending balances were up 4% year-over-year, and we saw strong pipeline growth with commitments up 15% over the same period. U.S. proprietary credit card balances were up 15% year-over-year with record digital acquisition. Earlier this month, we completed the conversion of Nordstrom's card clients onto our servicing platform. This is an important strategic milestone that provides scale as we build out our credit card franchise. In our U.S. wealth business, total client assets were up 12% year-over-year with mass affluent client assets up 18% year-over-year. Wealth Management and Insurance delivered record earnings and assets. Let me start by congratulating the direct investing team. Last week, our leadership in the market was once again recognized when personal finance expert, Rob Carrick, said TD Direct investing is still king among Canadians online trading platforms. As we saw in Canadian business banking, our frontline expansion strategy is also delivering results in wealth. We added almost 200 financial planners and advisers since the end of fiscal 2024. In the most recent data, TD took 19 basis points of market share in financial planning with newly hired planners delivering strong growth. This month, we successfully combined our discretionary business in private wealth management. This simplifies our business model, enhances our value proposition to clients and helps position us for outsized growth. It is expected to unlock $40 million in platform and operational efficiencies as outlined at Investor Day. And in insurance, we continue to build on our position as Canada's leading digital direct insurer with almost 80% of our clients digitally engaged, strong progress to our Investor Day target of 90% plus. We have significant growth aspirations for our insurance business, and we are mitigating the volatility that comes with that growth. This quarter, we issued another innovative cat bond in the Canadian market, the first that offers protection against aggregate losses of small- and medium-sized cat events. Wholesale Banking delivered record revenue and earnings, supported by strong client activities across Global Markets and Corporate Investment Banking. The team continued to make progress on disciplined execution, achieving improved ROE and moderated year-over-year expense growth this quarter. Reflecting continued momentum, TD Cowen ranked in the top 10 in 10 categories in the 2025 Extel Global Fixed Income Survey and TD Securities was awarded the Best Trade Finance Bank in North America by Trade Treasury Payments. Please turn to Slide 4. This quarter, we continue to make progress against our strategy to deepen relationships, make TD simpler and faster and execute with discipline. As we shared at Investor Day, TD has significant opportunities to grow franchise relationships across the bank. This quarter, we drove increased penetration rates in both consumer and small business credit cards in Canada and in our proprietary bank card in the U.S. We are also making progress on our deepening targets in TD Securities. We launched Synthetic Prime in the U.S. and Europe. Our clients have told us they want to diversify their prime providers and our robust balance sheet and capabilities position us well for this opportunity. Our target of $1 billion in value from AI over the medium term reflects both our progress to date and our confidence in what's ahead. A core tenet of our AI strategy is to build once and use many times, scaling AI through repeatable patterns that lead to faster AI deployments and reduced cost of delivery. We saw the benefits of this approach with our GenAI knowledge management solution, which we first introduced in our contact centers last year and have now deployed across our over 1,000 branches in Canada. Questions that used to have colleagues jumping through screens are now answered in seconds. We are taking the same approach with agentic AI. We launched the initial scaling of an agentic AI solution to simplify the RESL pre-adjudication process. This provides the foundation for broader agentic AI adoption across RESL and other businesses. We are executing with discipline across the bank. Kelvin will share more details on our efforts to deliver structural cost reduction in his remarks. We have a clear strategy that is driving higher ROE with 4 consecutive quarters of ROE improvement in U.S. Banking and ROE up over 400 basis points year-over-year in Wholesale Banking. I remain confident that we will achieve the medium-term targets that we laid out at Investor Day. In fact, for ROE, we may get there faster than we expected. At our current earnings, achieving a 13% CET1 ratio through share repurchases translates into approximately 100 basis points of ROE. Delivering on our $2 billion to $2.5 billion cost takeout would yield an additional 150 basis points of ROE. And all our businesses are laser-focused on driving ROE to their Investor Day targets. With these levers and our strong performance in Q1, I am confident in our path to 16% ROE. Please turn to Slide 5. TD is the only Canadian company ranked in the top 100 most valuable brands in the world by brand finance, and we continue to invest to extend this leadership and deepen our client relationships. Earlier this month, we launched our new brand, reinforcing that in this complex digital-first world, TD will always be more human by delivering simpler, more intuitive and more connected banking experiences in every interaction and in every channel. Thank you to our colleagues across the bank for your dedication and commitment. TD is back to winning because of you. With that, I will hand it over to Leo. Leo Salom: Thank you very much, Ray, and good morning, everyone. Please turn to Slide 6. As we enter into 2026, we remain focused on our #1 priority and continue to make good progress as expected against our U.S. AML remediation program. This quarter, we continued to improve the efficiency, the efficacy and the accuracy of our program. This month, our new KYC platform went live to our business users. This is an important milestone as it delivers a centralized platform that enables the collection and maintenance of customer information in a single know your customer profile. As we complete the full implementation of this new system in the coming months, we will gain better insights about our customers, establishing an important building block of a strong AML program. In addition, as we've spoken about previously, we are continuing to work on additional AI and machine learning capabilities. We implemented machine learning models in our transaction monitoring system last year and additional models will be deployed in our program over the coming quarters. Finally, we rolled out an enhanced financial crime risk assessment methodology that is data-driven, resulting in a more sophisticated assessment of the bank's financial crimes risk. I'm pleased with the work that our teams have been able to accomplish, and I'm certain that we are building a sustainable program that will serve us well into the future. From a financial perspective, while investments will fluctuate from quarter-to-quarter, we continue to expect our AML remediation spend to be $500 million in fiscal 2026. That said, the composition of our spend will gradually change towards validation work and look-back costs as we complete our remaining management remediation actions. With that, I'll turn it over to Kelvin. Kelvin Vi Tran: Thank you, Leo. Please turn to Slide 7. Driven by robust top line momentum, coupled with disciplined execution, TD delivered a strong quarter with record earnings. Total bank PTPP was up 19% year-over-year after removing the impact of the U.S. strategic card portfolio, FX and insurance service expenses. We've shared the details on Slide 23. Revenue grew 11% year-over-year, reflecting growth across all of our businesses. At 43 basis points, total PCLs were within our guided range. Expenses increased 7% year-over-year with approximately 1% driven by variable compensation, foreign exchange and the impact of the U.S. strategic card portfolio. We delivered our third consecutive quarter of positive operating leverage. Please turn to Slide 8. This quarter, we incurred restructuring charges of $200 million pretax driven by further workforce optimization. We have now concluded the restructuring program with total charges of $886 million pretax. We expect fully realized annual cost savings of $775 million pretax. Our restructuring program is one part of our broader efforts to drive structural cost reduction across the bank. As you heard at Investor Day, we are targeting $2 billion to $2.5 billion in annualized cost savings over the medium term. AI is helping power these savings as we scale through repeatable patterns driving faster deployment and reduce cost of delivery. Strong cost management and a deeper understanding of unit costs are also critical components of this effort. In insurance, we expect to deliver over $150 million of claims cost reductions over the medium term through vendor optimization and AI deployment and fraud detection and process reengineering. This will drive reduced time lines for claims fraud detection and increase speed and accuracy for claims resolution, further enhancing the client experience. We're also making progress in wealth. Investments in process improvement, digital and AI capabilities are expected to reduce the time it takes to complete a financial plan by 50%, creating capacity for higher-value advisory and business development activities. This is just the beginning. We look forward to providing further updates as this work progresses. Please turn to Slide 9. Canadian Personal and Commercial Banking delivered record revenue, PTPP, earnings, deposit and loan volumes. Average deposits rose 3% year-over-year, reflecting 3% growth in personal deposits and 5% growth in business deposits. Average loan volumes rose 5% year-over-year with 5% growth in personal volumes and 6% growth in business volumes. NIM was stable, up 1 basis point quarter-over-quarter. With good revenue and disciplined expense management, we delivered over 200 basis points of operating leverage. We made strategic investments to deepen relationships such as adding business bankers in priority markets and equally to create simpler and faster client experiences that also reduce structural unit costs, including our launch of the RESL pre-adjudication agentic AI capability that Ray shared. Going forward, we will take the opportunity to invest in our strategic priorities while continuing with disciplined execution. As we look forward to Q2, we again expect net interest margin to be relatively stable. Please turn to Slide 10. In U.S. Banking, year-over-year, earnings were up 22%, PTPP was up 7% and ROTCE expanded by 330 basis points to 14.7%. Excluding sweeps and targeted runoff in our government banking business, deposits were up 1% year-over-year. Core loans grew 2% year-over-year, reflecting continued strength in bank card, home equity and middle market. Net interest margin was 3.38%, up 13 basis points quarter-over-quarter, driven by an adjustment for client deposit rates in the prior quarter and higher loan margins from improved product mix. As we look forward to Q2, we expect NIM to modestly increase. Expenses increased 8% year-over-year, reflecting higher governance and control costs and employee-related expenses. As Ray mentioned, earlier this month, we completed the conversion of Nordstrom card clients onto our servicing platform. Going forward, for Nordstrom, TD will have a higher share of revenue and expected losses. Slide 22 provides an illustrative example of the accounting for our strategic card partnerships. As a result of the Nordstrom change and consistent with similar transactions, we expect the receivable adjustment of USD 145 million to be treated as an item of note in Q2. The Nordstrom conversion was fully reflected in the guidance that we provided at Investor Day. U.S. Banking is on track to achieve our target of USD 2.9 billion in earnings in fiscal 2026. In addition, I wanted to highlight a change in the presentation of our financials for U.S. Banking. TD invests in tax advantaged entities to support the communities in which we operate while generating income tax benefits. Previously, losses on these investments were recognized in noninterest income, while the related tax benefits were recognized in provision for income taxes. Effective this quarter, to promote comparability with U.S. peers, we reclassified the losses from noninterest income to provision for income taxes in U.S. banking. In accordance with IFRS, we made offsetting adjustment in corporate segment so that there is no change in noninterest income or provision for income taxes at the total bank level. This change lowers the efficiency ratio in U.S. banking. As a result, we updated our medium-term target and now expect U.S. Banking to deliver an efficiency ratio in the mid-50s by fiscal 2029. Please turn to Slide 11. In Q1, Wealth Management and Insurance delivered record earnings and assets. We saw market share gains across our businesses, led by 97 basis points of revenue share growth year-over-year in direct investing. Trades per day were up 10% year-over-year, driven by new client growth and deeper relationships. ETF assets surpassed $31 billion, up from $17 billion at the end of fiscal 2024 and well on our way to our medium-term target of $54 billion. In Insurance, we continue to focus on profitable growth, increasing ROE by 80 basis points year-over-year. Sequentially, expenses for the segment, excluding variable compensation, were down 2%, reflecting disciplined expense management. We are driving structural cost savings while investing for the future, including unifying our discretionary private wealth businesses and our new TD Easy Trade app. Please turn to Slide 12. Wholesale Banking delivered record revenue and earnings driven by broad-based performance across Global Markets and Corporate and Investment Banking with strength in commodities, global equity derivative and advisory fees and equity underwriting. Overall, performance reflects the depth and diversification of the platform, combined with high levels of client activity and constructive market conditions. Impaired PCLs increased, reflecting a small number of borrowers across various industries. Ajai will share more detail shortly in his remarks. Expenses increased 5% year-over-year as we continue to invest in technology and front-office capabilities, spending to support business growth and higher variable compensation. Return on equity for the quarter was 12.6%, driven by strong revenue growth, moderating expense growth and disciplined capital management. Please turn to Slide 13. Corporate net loss for the quarter was $153 million, a smaller loss than the same quarter last year, reflecting higher revenue from treasury and balance sheet management activities, partially offset by higher net corporate expenses. Please turn to Slide 14. The common equity Tier 1 ratio ended the quarter at 14.5%, down 15 basis points sequentially. We delivered strong organic capital accretion this quarter. The bank repurchased 19 million common shares under its previous and current share buyback programs in Q1, which reduced CET1 by 38 basis points. As Ray said, TD's capital position is a competitive advantage. We remain committed to consistently returning excess capital to our shareholders. And with that, I will turn it over to Ajai. Ajai Bambawale: Okay. Well, thank you, Kelvin, and good morning, everyone. I was pleased with the bank's overall credit performance this quarter. Now let me turn to the results, starting on Slide 15. Gross impaired loan formations were 27 basis points, an increase of 4 basis points quarter-over-quarter. The increase was largely recorded across the wholesale banking and U.S. commercial lending portfolios related to a small number of borrowers across a range of industries, partially offset by lower formations in the Canadian commercial lending portfolio. Please turn to Slide 16. Gross impaired loans increased 2 basis points quarter-over-quarter to 58 basis points or $5.59 billion. The increase was reflected in the U.S. commercial and Canadian consumer portfolios, partially offset by lower impairments in Canadian commercial. Please turn to Slide 17. Recall that our presentation reports PCL ratios, both gross and net of the partner share of the U.S. strategic card PCLs. We remind you that U.S. card PCLs recorded in the corporate segment are fully absorbed by our partners and do not impact the bank's net income. The bank's provision for credit losses was 43 basis points, an increase of $57 million or 2 basis points quarter-over-quarter, driven by the Wholesale Banking segment, partially offset by lower provisions in Canadian Personal and Commercial Banking. Please turn to Slide 18. Impaired PCLs were $1.16 billion, increasing $221 million quarter-over-quarter, largely as a result of credit migration in the wholesale and U.S. commercial lending portfolios related to a small number of borrowers across a range of industries, partially offset by lower provisions in Canadian commercial. More than half of the increase in the bank's impaired PCLs this quarter was due to a single borrower in the wholesale segment. We do not expect the level of impaired provisions in wholesale this quarter to be reflective of a typical run rate moving forward. The bank recorded a performing PCL recovery of $125 million, reflecting improvement in the macroeconomic forecast and migration from performing to impaired in the wholesale and U.S. commercial lending portfolios. The performing PCL recovery was primarily recorded in the U.S. Banking and Wholesale segments. Please turn to Slide 19. The allowance for credit losses decreased $144 million quarter-over-quarter related to a $156 million impact from foreign exchange, improvement in the Canadian and U.S. economic forecasts, partially offset by higher impaired allowance in the wholesale and U.S. commercial lending portfolios. Now to summarize, the bank exhibited strong credit performance this quarter as PCLs were within the guidance offered at the end of last year. Additionally, we remain prudently provisioned with allowance coverage of gross loans at 99 basis points, including more than $500 million in reserves set aside for ongoing elevated policy and trade uncertainty. Looking forward, while results may vary by quarter and are subject to changes to economic conditions, we continue to expect fiscal 2026 PCLs to fall within a range of 40 to 50 basis points. TD is well positioned to operate through a variety of economic scenarios, considering our prudent provisioning, broad diversification across products and geographies, our strong capital position and our through-the-cycle underwriting standards. With that, operator, we are now ready to begin the Q&A session. Operator: [Operator Instructions] The first question comes from Matthew Lee with Canaccord Genuity. Matthew Lee: If we assume you reach 13% CET1 ratio by the end of 2027 and your cost savings continue to improve and you achieve the earnings growth in your targets, I think my math suggests that you can get to that 16% ROE by the exit of 2027. Can you maybe talk about factors might prevent you from getting there or whether it's just a matter of accounting for the unknowns? Raymond Chun: Thanks, Matt. It's Ray. Thanks for the question. As I said at the end of our Q4 results, I mean, we are definitely seeing good momentum coming out of, first and foremost, fiscal 2025, and you saw that momentum carry through. And you're seeing that play through on our ROE at 14.2% after the first quarter. The way I would think about it, Matt, is on some of the things that we control. If you think about our CET1 ratio getting down to the 13% by the second half of 2026 -- 2027, as I commented in my comments, that gives us another 100 basis points. We are well on pace on our $2 billion to $2.5 billion expense takeout and the discipline and the structural cost reduction. We're actually a bit ahead of schedule, I would say, on the things that we're focused on. That gives us another 150 basis points pickup on that. And so -- and if you look across our businesses for the quarter, every business at TD improved their ROE as per our Investor Day commitment. So, what I would say is that we're certainly -- as I said even in our Q4 comments, we are ahead of pace as to what we thought during Investor Day, and our confidence is high on getting to the 16% ROE that the guidance that we gave. That's the way I would think about it. Matthew Lee: Okay. That's helpful. And then maybe just a quick one on the U.S. loan book. Total loans were down 9%, but core loans were up 2%. Can you just maybe help us understand what the areas of focus are in terms of growing that book in the U.S.? And when we should start thinking about core loan growth being to outpace the identified sales and runoffs? Leo Salom: So Matt, thanks for the question. So if you look at the core loan growth for the quarter, it was 2%. If I can break that down for you, we saw really strong consumer lending growth. As I prioritized in our Investor Day discussion, our credit card book, particularly our bank card book is a major area of focus for us. So just to give you a sense of the momentum that we've got in that segment, we saw 15% balance growth for the quarter. Unit sales were up 33% on a year-on-year basis. We use the term penetration rate as a critical indicator of the cards portfolio success, and we saw a 200 basis point increase in the penetration of credit cards to our deposit client base on a year-on-year basis. So we're making progress towards that plus 30% figure that we gave at Investor Day. And sales activities were strong coming out of the seasonal Christmas rush. So you put all those things together, we are pleased about our consumer lending growth anchored by that cards performance. On the commercial side, a bit more of a tale of 2 cities. at the higher end, at the corporate mid-market business, we're seeing relatively good activity and loan demand. So our mid-market business, we saw 4% growth. And Ray, I think, commented in his comments, we saw 15% growth in actual commitments. So the pipelines look good at the top end of the -- at the larger corporate end of the market. Likewise, in our specialty business, higher education, which is a really important segment for us, we saw loan growth of about 5%. So at the higher end, we're seeing good loan demand and the economic momentum in the U.S. is translating into good loan growth. Where we're seeing a little bit of sluggishness in the U.S. market broadly is at the small business and sort of the lower-end community banking level. That segment is growing a little slower. And I think that those businesses are just more susceptible to the trade uncertainty, the supply chain disruptions and just the current state of interest rates. So I think there, we're still seeing some muted growth. But when you take everything as a whole, I'm quite pleased with the 2% growth on balance. I would expect that growth rate to moderately accelerate over the next couple of quarters. And we should -- to your point around when should the entire portfolio switch over to a net growth position. We are targeting that in the third quarter, total loans, so that would include the -- those loans that have been identified for runoff, we would actually post net loan growth at the aggregate bank level in the U.S. Operator: The next question comes from Gabriel Dechaine with National Bank Financial. Gabriel Dechaine: Yes. I just got a quick one here on credit performance because we saw the impaired going and performing going in a different direction here, and you did a good job explaining the -- what was going on in the impaired book and your expectations going forward. Just wondering about the performing release. I guess part of it is the U.S. some runoff, but what macro changes did you make that might have resulted in these pretty material releases? Ajai Bambawale: Yes. Thanks, Gabe, for the question. So again, I'll start by saying our performance release, it's well founded, and it's been through all our governance processes. And there are really 2 drivers of that release. One is the macro changes. And if you go and look at our disclosures, you'll see the unemployment numbers have improved both Canada and the United States, and you'll see the GDP numbers have also improved. That drove part of the release, okay? The second part, actually don't even think about it as a release, okay? We built performing against names that were migrating. When that loan moves from performing to impaired, I have to reverse the performance and add it to the impaired. So those are the 2 component parts. But again, as I said, it's well founded. Operator: The next question comes from Paul Holden with CIBC Capital Markets. Paul Holden: Two questions related to Leo's business. I guess, first is with respect to the NIM expansion, 13 basis points this quarter, guidance for modest expansion next quarter. I think that was the same guidance we got this quarter. So what drove the upside this quarter and the potential it follows through next quarter? And then second part of the question, with that good NIM expansion with you talking about loan growth starting to improve and crossing over to positive in Q3 and what I'm seeing good expense discipline, can we start to expect to see positive operating leverage and lower efficiency ratio out of the U.S. Bank in 2026? Leo Salom: So Paul, let me take both of those, and then maybe I'll give you a sort of a summary view on the aggregate U.S. performance. Let me start with the NIM. We delivered NIM of 338 basis points, up 13 basis points quarter-on-quarter, 52 basis points on a year-on-year basis. So obviously, a strong print. Really 3 factors. One, the remaining impact of all the loan repositioning work that we did last year, which obviously gave us a strong tailwind. Second, selective repricing activities across both the deposit and loan book as we adjust the overall balance sheet to its new size. And third, the tailwinds that we're enjoying from tractor on rates. So those were the 3 primary drivers. And that was offset ever so slightly by the repricing by the Fed rate cut. As we look at the next period, I won't have quite as much tailwind from the bond repositioning activity because that's already reflected in our NII. But I till think that we'll have margin expansion opportunities that'll be more modest in nature. And then as we think about the rest of the year, obviously, that tractor tailwind will still be there, but we'll have to absorb the Fed rate cuts that are planned for the second half of the year. So that's basically in a nutshell where we think overall NII is going to be. But as you saw, the net interest income number on an absolute basis from a revenue perspective was up 10% year-on-year. So we're really pleased with the momentum that we're seeing there in aggregate. With regards to overall loan performance or the state of the business broadly, I couldn't be more pleased with the quarter. NIA $723, up 22% on a year-on-year basis and driven by both top line revenue growth and sound credit performance. I think it was a good solid profile. We are seeing acceleration in those critical loan areas that you mentioned, and I would expect that to continue over the next few quarters. But I do want to hit your expense point. A lot of effort is going into our expense strategies, expense -- strategic cost management strategies. As you would have seen this quarter, we did close 51 stores as we announced in the Investor Day. So we are going to see distribution savings. We continue to lean into our vendor management programs with a sizable win this past quarter, which certainly will contribute to our expense run rate profile going forward. AI and some of the process automation work is still front and center. And we are beginning to see some degree of opportunities to at least change the resourcing mix associated with our remediation programs, all of which should create some downward pressure on expenses for the balance of the year. So you put the revenue momentum that we're enjoying now, the pricing discipline we've put in place, the expense focus that we have and will continue to materialize over the rest of the year, I feel quite confident with regards to the outlook for the rest of the year. Paul Holden: Okay. That's good. One follow-up, if you don't mind. Just looking at the quarter-over-quarter change in branch count down roughly 5%, but FTE up roughly 2.5%. Maybe you can just talk quickly into in terms of where you're adding headcount, and then I'll stop there. Leo Salom: Paul, I'm glad you brought it up because I should have mentioned it before, but we had a really important transaction that we closed. We successfully converted the Nordstrom portfolio onto our platform. So effective this past weekend, we are now servicing all of Nordstrom onto our platform. So the FTE increase that you saw was essentially additional call center representatives, our collection staff and fraud to be able to manage that expanded volume flow that now we'll be managing directly. Previously, it was managed in Nordstrom. So we've taken -- we've expanded our staffing to be able to support that portfolio. Operator: The next question comes from Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: I just wanted to -- a question for Sona. If I remember correctly, I think at the Investor Day, the medium-term type of targets for your business would have had efficiency ratios, which I think you're at right now and ROEs around, I think, where you're at right now or at least where in this quarter. So is this as good as it gets for your business from those sorts of metrics? Or is there still room for improvement here, Sona? Sona Mehta: Thanks, Sohrab, for the question. Yes, you're referencing our Investor Day targets. So both on efficiency ratio and ROE, we're targeting the 40% range. Sohrab, maybe if I just step back and look at both of those. So our efficiency ratio, obviously, this quarter, both from a revenue and an expense perspective, we're pleased with the performance this quarter. As I look at what we talked about at Investor Day, there's a number of levers that we have to manage efficiency ratio and improve efficiency ratio. We talked about distribution optimization. We talked about tech platforms and procurement. But what has become an even greater driver, I would say, since Investor Day is how we will deploy AI to favor efficiency ratio. Maybe I'll just spend a few seconds on that. Our approach there is really to drive simple and fast experiences, but they come with real P&L outcomes. One example I would share with you. So you heard me talk a lot at Investor Day about speed and specialization. It's absolutely core to our RESL strategy. And so we recently deployed and started to scale agentic AI into the RESL workflow. That's taking pre-adjudication processes from 15 hours down to minutes. So it's delivering speed to decision. As we said, speed was a big strategy, a better colleague experience that helps us win more business. And of course, it takes out structural cost as well. So I think what you will see is a number of things that we will do will benefit efficiency ratio and will benefit ROE over the long term. And these are short-cycle cases that we get up and down and deliver real value. So back to your point, I think we're very pleased with the performance, and we'll continue to lead in, and we're making very good progress on our Investor Day targets across the board. Sohrab Movahedi: And I think if I heard you correctly, but correct me if I'm wrong, since Investor Day, you would have -- you would move these targets higher basically, lower expense ratio and higher ROE just because of the traction on AI. Is that fair? Sona Mehta: Not quite. I think you will see us lean heavily in. Our targets, we hold on our specific targets, but the momentum and progress is incredible. We just see an engine that is humming and we see lots of possibilities. Raymond Chun: Maybe I'll just jump in for a second also. What I would add is that the benefits that we think we will get now from an AI perspective, how we put out the $1 billion, $500 million in revenue, $500 million in expenses, as Sona outlined with one example with the agentic. We now see how much that can be scaled across the organization across every business line. So if you think about this mortgage example, it can be applied in credit cards, can be applied in small business banking, can be applied in commercial banking in the U.S. And so I do think we're going to get more from the value from an AI perspective beyond the $1 billion that Sona commented on. And then again, we're seeing good momentum, better momentum than what we had thought during Investor Day as -- which was only 6 months ago. So I think a great start to the year and lots of momentum. And then if the macro environment continues, we do think we have upside both to our ROE at the enterprise level and to the EPS guidance that we provided. Operator: There are no more questions in the queue at this time. I would now like to return the call to Mr. Raymond Chun for closing remarks. Raymond Chun: Well, thank you, operator, and thank you, everyone, for joining us today. We appreciate your questions and comments. In Q1, we continued our strong momentum, delivering robust top line growth, positive operating leverage and record earnings. ROE was 14.2%, up 100 basis points year-over-year as we continue to execute against the strategies and targets that we've shared with you. Fiscal 2026 is off to a strong start, and I'm confident TD will continue to deliver for its shareholders. I look forward to connecting with all of you again next quarter. Thank you. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Greetings, and welcome to TopBuild's Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to P.I. Aquino, Vice President of Investor Relations. Thank you. You may begin. P.I. Aquino: Good morning and thanks for joining us. With me today are Robert Buck, our President and CEO; John Achille, our COO; and Rob Kuhns, our CFO. Our earnings release, senior management's formal remarks and a deck summarizing our comments can be found on our website at topbuild.com. Many of our remarks today will include forward-looking statements which are subject to known and unknown risks and uncertainties, including those set forth in this morning's press release and in the company's SEC filings. The company assumes no obligation to update any forward-looking statements because of new information, future events or otherwise. Please note that some of the financial measures to be discussed during this call will be on a non-GAAP basis. These non-GAAP measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. We have provided a reconciliation of these financial measures to the most comparable GAAP measures in today's press release and in our presentation, both of which are available on our website. Let me now turn the call over to our President and CEO, Robert Buck. Robert Buck: Thanks, and good morning, everyone. We appreciate you being with us. As P.I. mentioned, Rob and I are joined by John Achille, our COO. I've asked John to start joining us so he can share his business insights, including our ongoing efforts to drive operational excellence across the organization. Many of you will remember meeting John at our Investor Day a few months ago. We were really pleased to see many of you at our Investor Day in December, and if you weren't able to attend in person, I hope you've taken the opportunity to watch the replay on our website. I'd like to start my comments today by reiterating a couple of the key themes and messages that we shared in December. First, we have a clear, profitable growth strategy and a proven track record of delivering compounded growth and strong shareholder returns. Second, we have significant growth opportunities across our $95 billion total addressable market, which has increased non-cyclical and non-discretionary revenue drivers. We generate very strong free cash flow and we're disciplined in deploying capital both organically and through M&A. Third, we have a differentiated business model and we will continue to leverage our connected technology platform to continue driving growth and operational excellence to improve the customer experience. Finally, we have a cycle-tested leadership team. We're proud of the people-first culture we've built at TopBuild and we're grateful for the commitment of our nearly 15,000 employees to growing our business and to working safely every day. Let me now transition to discussing the operating environment at a high level. In the fourth quarter, weakness in the residential and light commercial end markets persisted. Consumer confidence remains low, interest rates are still elevated, and affordability continues to be an issue, all drivers of muted demand in the current environment. We continue to believe the underlying fundamentals are strong, supported by household formations and an underbuilt housing market, and this means there is great long-term opportunity for new residential construction. The commercial and industrial end markets remain solid. We continue to see expansion across a variety of verticals. Bidding and backlogs are healthy, and we're well positioned to capitalize on that growth both in the insulation and commercial roofing space. Turning now to our results, fourth quarter sales rose 13.2% to $1.49 billion, fueled by the 7 acquisitions we completed last year including SPI in the fourth quarter. We finished the year with over $5.4 billion in revenue and adjusted EBITDA of $1.04 billion, or margin of 19.2%. Rob will discuss the financials in more detail later in todays call. Acquisitions continue to be our top priority for capital allocation. Last year, we deployed $1.9 billion in capital across the business, adding approximately $1.2 billion in annual revenue. Our M&A pipeline continues to be very healthy; the environment is active and we're off to a solid start this year, having recently closed the acquisitions of Applied Coatings and Upstate Spray Foam. We also announced our second commercial roofing acquisition earlier this week, Johnson Roofing. Last year, we returned approximately $434 million to shareholders through our share repurchase program, demonstrating our ongoing confidence in our business and long-term strategy. Now let me hand it over to John to cover operations and Rob will follow to discuss the results and guidance, and I'll come back at the end with some closing thoughts. John Achille: Thanks, Robert. I'm glad to be here with you today. I'd like to cover two key areas, the supply chain environment and our ongoing efforts to drive operational excellence across the business. As housing demand has softened, we've seen the supply of building insulation and more specifically fiberglass loosen and become more available. In the second half of 2025, we saw a couple of fiberglass lines come down for extended maintenance as manufacturers work to balance supply with demand and stabilize pricing. We have strong relationships with our suppliers and our conversations are ongoing. Importantly we are leveraging our tools and technology platform to manage inventory across the branch network. On the spray foam side, we continue to see plenty of availability. For mechanical insulation, fiberglass pipe insulation remains on allocation, and we continue to work closely with our supplier partners to ensure that we receive our fair share of existing supply. Turning to operational excellence, we have great control of our business. You'll remember that in the first quarter of 2025, we were able to quickly take actions to align our cost structure with the demand outlook. Our work here continues as we navigate changes in the macro environment. We talked at Investor Day about how we leverage technology and take information from our businesses to share best practices, be more efficient and further optimize the network, everything from installer productivity to job site routing to shipments. Our field teams are doing a great job managing profitability. As soft demand has persisted, we are responding appropriately and making disciplined pricing and volume decisions at the local level. Our efforts to optimize our cost structure across the business are ongoing, and ops leadership continues to focus on the bottom quartile of our branches to improve performance. On the Specialty Distribution side of the business, we are making great progress on integrating SPI. Late last year, we realigned Specialty Distribution field leadership to better serve our customers, and we've identified several cross-selling opportunities we expect to realize over time. On the supply chain side, we're capturing rebates and building on existing supplier relationships. Finally, our teams are working diligently to transition the SPI business to our technology platform and importantly, do so in a way that is seamless for our customers. We expect the IT integration to be completed by the end of the second quarter. As we move forward, we're confident that we'll meet or exceed our original synergy targets. Let me also say a few words about our commercial roofing business. Nick Hadden and the team continue to do a great job. As Robert mentioned, we announced the acquisition of Johnson Roofing this week and expect it to close later in the first quarter. Johnson Roofing generates about $29 million in annual sales and is based in Waco, serving the Texas, Louisiana and Oklahoma markets. The acquisition will enable us to maximize many of our relationships with general contractors in the area that serve the technology, industrial manufacturing and education verticals. We're really excited to continue expanding our commercial roofing platform in a very large and highly fragmented space, which looks a lot like insulation did 20 years ago. Finally, I want to echo my thanks to our employees across the network. We appreciate your hard work to lead your business, work safely and drive operational excellence in everything you do. With that, I'll turn it over to Rob. Robert Kuhns: Thanks, John. 2025 marked our 10th year as a standalone public company and so I thought I would take a quick second to reflect back on our growth. Over the past decade, we have grown our sales and adjusted earnings per share at compounded annual rates of 13% and 31% respectively. This extraordinary growth has been the result of our unique business model that is driven by our people and culture. I want to take this opportunity to thank our teams in the field and at our branch support center for their efforts in delivering these results. And while we are proud of TopBuild's past successes, we are even more excited about the growth opportunities that lie ahead, which we detailed at our Investor Day in December. Before I dive into the numbers, I wanted to point out that we've provided a little more detail in our presentation this quarter to split out our same branch results versus M&A results. Given the sizable impact of the Progressive and SPI acquisitions that we closed last year, we thought that would be useful. Shifting to our fourth quarter results, total net sales were $1.49 billion, up 13.2% to prior year. Acquisitions contributed 23.0%, as both Progressive and SPI had solid quarters and exceeded our expectations. Pricing added 0.7% as positive price on gutters and mechanical insulation was partially offset by lower pricing on residential insulation products. Volume declined 10.5% driven by ongoing weakness in the residential and light commercial end markets. Turning to our segments, Installation Services sales of $798 million rose 1.2% compared to last year. The M&A contribution of 16.3% more than offset the volume decline of 14.5% and pricing decline of 0.5%. Specialty Distribution sales totaled $755 million in the quarter, up 25.5% versus last year. Acquisitions added 28.9% and pricing rose 2.2%. This was partially offset by a volume decline of 5.5%. Fourth quarter adjusted gross profit was $416 million with a margin of 28%, down 190 basis points to prior year. 100 basis points of the decline in margin was driven by a higher mix of distribution versus installation sales as a result of the SPI acquisition and weaker sales volumes in the legacy Installation Services segment. The remainder of the gross margin decline was driven by price/cost pressure and deleveraging on lower sales volumes. Adjusted SG&A as a percentage of sales in the fourth quarter was 14.1%, compared to 13.2% last year. The increase in SG&A was driven by acquisitions, including amortization of customer lists and trade names. On a same branch basis, SG&A was down $19 million or 20 basis points due to cost reduction actions taken during the year. TopBuild adjusted EBITDA in the quarter totaled $265 million, or a margin of 17.9%, down 180 basis points compared to prior year. The drivers of the EBITDA decline were the same as discussed with gross margin. Installation Services adjusted EBITDA margin was 21% in the fourth quarter, down 40 basis points year-over-year. Specialty Distribution adjusted EBITDA margin was 15.4%, down 230 basis points to last year's fourth quarter. Excluding the impact of M&A, EBITDA margins were down 80 basis points to prior year. Fourth quarter interest and other expense rose to $36 million due to the expansion of our credit facilities and the addition of the $750 million bonds due in 2034. Fourth quarter adjusted earnings totaled $4.50 per diluted share as compared to $5.13 in 2024. Moving to our balance sheet and cash flow, total liquidity was $1.1 billion at the end of the year. Cash was $185 million and availability under our revolver totaled $934 million. We ended the quarter with net debt of $2.7 billion, and our net debt leverage was 2.35x trailing 12 months adjusted EBITDA. Working capital was $959 million or 15.4% of sales. For the full year 2025 we generated $697 million in free cash flow. We deployed $1.9 billion for acquisitions and returned $434 million to shareholders via share buybacks. Turning now to our 2026 guidance, while there are signs for cautious optimism in our end markets, significant near-term uncertainty remains as the residential market continues to deal with challenges from consumer confidence and affordability. We remain highly confident around the long-term demand fundamentals and the 2030 projections we shared at our Investor Day in December. As we worked through our guidance for 2026, our overall philosophy at the midpoint was to assume no significant change in end market conditions. Under that lens, our 2026 guidance is for sales of $5.925 billion to $6.225 billion and adjusted EBITDA of $1.005 billion to $1.155 billion. The midpoint of our revenue guidance at $6.075 billion is based on the following key assumptions: Overall, we expect volume and price to each be down low-single digits in 2026. From an end market perspective, residential sales, which account for roughly 52% of our total sales, will be down mid-single digits, inclusive of both volume and price. Commercial and industrial, approximately 48% of our total sales, is expected to grow low single digits, inclusive of volume and price. We expect M&A, which we have closed in the last 12 months, to contribute $800 million to $850 million of revenue. The midpoint of our adjusted EBITDA guidance at $1.08 billion assumes the following: an EBITDA decremental of approximately 27% on lower volumes; $55 million of price/cost headwinds; and EBITDA margin on M&A in the mid-teens, inclusive of $15 million of Progressive and SPI synergies that will impact 2026. Those synergies are in line with our initial projections, and we remain highly confident in delivering at or above the high-end of our 2-year synergies targets. With regard to the quarters, we expect quarterly sales to range between $1.4 billion and $1.6 billion and our EBITDA margins to range between 16.5% and 18.5%, with the first quarter being the weakest and the third quarter being the strongest. Finally, let me give you a few additional inputs for your models. We expect the combination of interest and other will be $143 million to $149 million. Our tax rate will be approximately 26%. CapEx will be between 1% and 2% and we expect working capital to be in the range of 15% to 17% of sales. With that, I'll turn it back over to Robert. Robert Buck: Thanks, Rob. Let me close with a couple of thoughts on our outlook. On the residential side of the business, external forecasts vary with some optimism for the back half of the year. And while we expect demand will improve, its not yet clear what that timing will be and it is too early in the year to bank on a second half recovery. This uncertainty is baked into our guidance as Rob discussed. Should the environment improve over the course of the year, we are very well positioned to capitalize. On the commercial and industrial front, bidding activity and backlog are solid and we are poised to capture growth in those verticals that are expanding. So, while near-term uncertainty exists, we remain bullish about the underlying fundamentals of our industry, our $95 billion total addressable market and our ability to capitalize on both organic and inorganic growth opportunities. We have a proven track record of success fueled by our unique, flexible and capital-efficient business model. We are well diversified between residential and commercial/industrial, between Installation Services and Distribution, as well as between cyclical and non-cyclical revenue. We have great control over our business, and we have demonstrated the ability to adapt quickly and navigate broader changes in the environment. Finally, we're disciplined stewards of capital. We have an active and robust M&A pipeline, and we'll continue to focus on compounding returns and delivering increased shareholder value. With that, operator, let's open up the line for questions. Operator: [Operator Instructions] And our first question comes from the line of Sam Reid with Wells Fargo. Richard Reid: Maybe starting off with a big picture question. I wanted to dig a little bit deeper into the guide path for single-family starts as we move through the year. It sounds like you're rightfully embedding really no recovery here, which I think is probably the right call. We obviously do have a lot of detail from the public builders, especially on the production side on their outlook for starts. But just curious kind of what you're hearing from the private builders and perhaps any differences in what those private builder conversations sound like versus what the public sound like? Robert Buck: Sam, this is Robert. So you're right. You get a lot of color from the public builders, which I'm sure you've seen in their guides as well as discussions came out of the Builders' Show last week. I'd say the regional builders, the private regional builders are keeping very cost competitive there, pushing to make sure that they get their volumes and maintain their own compared to the publics. And then I'd say on the smaller custom builders, they're probably the least impacted. So they seem to definitely be holding their own relative to demand when you think about their customer base as well. That's some of the color we see regional privates as well as the custom privates. Richard Reid: All helpful color there. And then maybe switching gears. It does sound like you're seeing some relatively solid backlogs on the commercial industrial side. But I did perhaps pick up on a little bit of a delineation between light versus heavy commercial. Would just love to hear kind of where we are on the light commercial side and maybe just talk through kind of how a recovery on the light side could potentially work. Robert Buck: Yes. I think we typically see the light follow residential. I think we see some positive trending in some of our backlogs on the light side. As we talk about backlogs relative to commercial industrial, as we think about mechanical insulation, as we think about roofing, we see those probably trending at a faster clip. But typically, lighter commercial does follow residential. But we see some trending there in the right direction, we believe. But again, more optimism on the mechanical and the commercial roofing side. Operator: And our next question comes from the line of Michael Rehaut with JPMorgan. Michael Rehaut: First wanted to also kind of delve in a little bit to the outlook and really focusing around the pricing trends. You mentioned that embedded in your outlook is $55 million in price/cost headwinds and also that your mid-single-digit decline for resi is inclusive of pricing. So I guess it's more of a revenue type of number. Just wanted to get a better sense for when you think about the $55 million, how much of that is negative price or if all of that is negative price? And how you would expect that to flow through and impact the results throughout the year, if it's going to be more first quarter or first half weighted? Just trying to get a sense of the degree of impact, particularly as we start out the year. Robert Kuhns: Yes, Mike, this is Rob. So similar to last year, we started talking about these price cost headwinds, definitely something we started seeing pockets of in different markets as certain markets slowed, pressure picks up around that side of things. We obviously were pretty successful last year doing a lot to take cost out, both through negotiations with our suppliers, but also a lot of costs we took out in the business to help maintain margins. And certainly, that's going to be the focus and the things that we can control in 2026. But since the main tenet of our guidance was really around, hey, the environment here from a macro standpoint, we're not going to forecast it improving dramatically. We do think we'll continue to see those headwinds similar to what we saw last year. It pops up in different pockets and different markets as you go through the year. I'd say, just like we said last year, it probably progressively gets a little worse as the year goes on. But we definitely saw some of that pressure in the fourth quarter, not quite as much as we had thought in our guidance, but we thought it was prudent to continue that given the macro environment we're in right now. [Audio Gap] We did some branch rationalization in the first quarter that's helped take cost out. We have realigned our headcount given the volumes we're seeing right now. And we continue to do all the same things we've done in the past around focus on bottom quartile and focus on operational excellence, and those things have helped offset some of the price cost headwinds we've seen in the markets. Robert Buck: I would say, Mike, this is Robert. I'd say the teams in the field did a nice job. I mean they remain very disciplined. They were driving where they could the operational excellence piece that Rob talked about. But they did a nice job staying very disciplined during the year and to announce Johnson Roofing earlier this week. So we spent time in the first 6 months with Progressive, working the M&A process, working the integration of the M&A process. So we're in a really good space there relative to how our process works and even front end of identifying deals to diligence to the back-end integration. So we've made a lot of progress there. Very active on the front, I would say, smaller deals to bigger chunkier deals. And I would say, given the relationships that the Progressive team have on some of the smaller deals and some of the relationships we have in the industry, I'd say we're not competing right now in those [Audio Gap] be disciplined. We're looking for good quality companies, and we're definitely building some relationships and evaluating several right now. Michael Rehaut: Great. That's super helpful. And then switching topics here a little bit. On the prepared remarks, I think you mentioned the realignment in the specialty distribution field leadership. Can you talk about that a little bit more and kind of what the intention was there? John Achille: Yes. This is John. As far as the changes that we made, when you think of 3 distinct businesses that we have on the specialty distribution side, just making sure we have the right leadership in place. And I think coming off the SPI acquisition, we got some nice talent there that was able to accent with our existing talent. So just really good experience that we have leading those businesses today, driving the operational excellence that we expect of those teams. So that was really the biggest change there. Robert Buck: I think its really speaks to the pace at which John and the team have really worked the integration piece. So really quickly getting the right leadership team in place, which, by the way, some of that was SPI folks from the SPI side, some of our folks from the DI side. So a nice mix of the team, which we think is driving buy-in and integration pretty aggressively here. And I think we said in our prepared remarks, highly confident in the top end or exceeding our synergy number that we talked about whenever we announced that deal. Robert Kuhns: Yes. And just one more comment on that just around guidance, right? In terms of we've included the run rate that we signed up for, for year 1 around synergies. And if there's anything we see opportunity in this year in terms of overachieving the midpoint of our guidance, it's definitely around the synergies, right? And so that's why when we think about what we can do, we're about controlling the controllables. The macro is going to be what it's going to be, but we're focused 100% on driving these synergies and getting the results that we can control there. Operator: And the next question comes from the line of Susan Maklari with Goldman Sachs. Susan Maklari: My first question is on the cross-selling opportunities that you highlighted in your prepared remarks as you're working on the integration of SPI. Can you give a bit more color on what those are and how we should think about them coming through? John Achille: Yes, Susan, this is John. Yes, so I would say today, cross-selling for us is very -- it's very much just people talking to other people within our business, right? So we could have a DI customer that we have a great relationship with that happens to be working on a job where we can also offer that customer an installed service. So today, it's really just connecting our sales teams and our managers. But we do plan on putting some digital resources behind that in the future and really making that kind of just leveraging another one of our strengths where we touch all these different types of projects through different businesses that we have. So it's an exciting opportunity for us, and we plan on investing to make it even seamless for our internal staff. Susan Maklari: Okay. That's helpful. And then as we do enter another year that seems like it could be fairly challenged as we think about the outlook for housing and the macro. Can you talk a bit about the cost structure across the business? How you're thinking about your positioning? Are there opportunities to perhaps make further adjustments in there? And what you're watching to determine if that needs to happen? Robert Kuhns: Yes. I mean, Susan, this is Rob. That's something we're constantly monitoring, certainly something we have an advantage given a common ERP across our footprint, our ability to see activity going on in the business on a daily basis and make adjustments. Last year was a great example as we saw things begin to slow early in the year, we quickly took action. And we'll be doing the same thing this year, right? We're going to continue to monitor the macro situation, continue to monitor what's going on. More than 70% of our costs are variable. So we can adjust quickly and make changes where we need to. Operator: And our next question comes from the line of Phil Ng with Jefferies. Margaret Grady: This is Maggie on for Phil. First, I wanted to dig into the pricing outlook. I mean pricing held up pretty well in the quarter and even stepped up in distribution, maybe a function of the end market exposure. But how should we think about that guide for down low single-digit pricing in the outlook between the 2 segments and how the $55 million price/cost headwind is split? And I think you also said 4Q or maybe it was 2025 total, you saw some inflation in gutters and spray foam and fiberglass saw some pressure. Any color on how that's trending into 2026? Robert Kuhns: Yes, Maggie, this is Rob. So that price cost bucket, it's obviously a mixed bag of products, some with price inflation, some with price pressure and price deflation. And it's one of the good things about the diversification we have in our model now, right? And you can see that coming through on the -- particularly on the specialty distribution side, where, as you pointed out, pricing actually increased in the fourth quarter on the distribution side, and that's because of the heavier exposure to the commercial products on that side, the mechanical insulation and also a heavier concentration of gutters on distribution than what we have on the install side. So when you think about that mixed bag of products, we -- throughout last year, I'd say we started the year with some carryover pricing in fiberglass that was favorable, but definitely as the year progressed, saw that get pressured and saw prices go down a bit in the back half of the year. Pretty similar on spray foam. Mechanical, we saw good price increases throughout the year. Commercial projects were strong, particularly on the mechanical side and had really good pricing there. Gutters because of tariffs saw some pricing. So when you put that all together for the year, we netted out to positive sales price. I'd say it was still a drag on margins when you netted everything out from a cost perspective, roughly about 10 basis points when you net everything we were able to do from a cost perspective, so not terribly impactful. But -- as we look out, like I said earlier, we expect a similar environment. We expect pricing on mechanical to be strong given the strong demand there. The pricing on fiberglass and spray foam, we continue to -- we think we'll continue to see pressure as we did the back half of this year, and that's really the biggest driver of the price pressure that we're talking about in 2026. Margaret Grady: Okay. Got it. That was all really helpful. And next, on the margin guidance, the pressure makes sense with volume deleverage and the price cost headwinds you've outlined. But -- you're always doing stuff on the bottom quintile branches and the special ops teams to drive margins. Wondering if the outlook incorporates any of those productivity initiatives or if that could be upside to the guide? And then maybe just walk us through some different levers you have if demand is weaker than the outlook currently. Robert Kuhns: Yes, Maggie, this is Rob. So in the prepared remarks, we tried to give you some bookends around where EBITDA margins will be throughout the year. I'd say like we said in the prepared remarks, the strongest quarter will be Q3, probably in the neighborhood of 18.5% or call it, 18% to 19% and Q1 more in that 16.5%. And so we're definitely seeing the -- we've talked a lot already about kind of some of the price cost pressure. And we -- like we've said, we've done a really good job of offsetting a lot of that with cost reductions, and we plan to continue to do that. But the other thing that's really impacting margins, too, is M&A, particularly the SPI transaction with that being a 10% EBITDA business that we acquired in the fourth quarter, still running around 10% today. But obviously, like we talked about, we see a lot of opportunities on the synergy side. We're moving quickly there. And with synergies, the goal would be to get that to the mid-teens this year. So we'll see that improve as the year goes on, on that piece. So that's definitely a big lever in terms of what we can do this year. And then like I said earlier, I mean, the other levers are around our cost structure, and we're going to continue to monitor the environment. We feel like we made the adjustments necessary for the current volume environment we're in, but we'll make -- if that does get worse from here, we'll adjust and take more action. So that volume guide we talked about and saying, hey, we expect volume down low single digits for the year, but talked about a decremental of 27%. I mean that includes us taking cost out to get to that 27%. So definitely something we're -- we've done in the past and something we're comfortable we'll be able to do this year. Operator: And our next question comes from the line of Ken Zener with Seaport Research. Kenneth Zener: Can you guys talk to -- it is going to be more residential focused. The guidance for res is down mid-single digit. Can you bridge the dynamics between kind of on the install side, the 15% decline we see, realizing some res is rolling through specialty distribution, which is down 6%. And then talk to the persistence or the dynamics why on the install side, the volume down. And if you see an equivalent decline, I guess, in the same residential products that you're not installing. Robert Kuhns: Yes, Ken, this is Rob. So from a volume perspective, on the install side in the fourth quarter, we definitely saw residential down single-family and multifamily as we've seen throughout the year, we would definitely say particularly December slowed down significantly. We were well ahead of our expectations at the end of November and then December slowed significantly on the resi side. And on the install side, our commercial business, as we've talked about throughout the year, about half of that business on the install insulation side is light commercial work. That's been slow throughout the year. So that also has been a drag on volumes on that side. So that's -- the resi side and light commercial side, really driven by the slower starts environment. On the specialty distribution side, because of the diversification of our end markets there, right, and now that being a much heavier commercial focused business, you're not seeing as big an impact. We definitely have the resi products down, and that's why volumes overall were down, but we were able to offset a good portion of that with a really good year in mechanical insulation and also on some of the other commercial products we move through the Service Partners side of things and through our metal building business. Kenneth Zener: Okay. And then given that you guys have a very -- probably the best -- amongst the best visibility on what builders -- what you're bidding on, the mid-single-digit decline, could you comment on Florida, Texas, if you would feel comfortable kind of talking about the dynamics you're seeing given that those markets were certainly impacted by COVID. It seems like we're kind of coming through that more in Florida versus Texas. But could you talk to how that is impacting your business, if you would? John Achille: Yes, Ken, it's John. So on the resi side, Florida, you hit on it. It's a bit optimistic down there. We're seeing things start to recover. I would say there's a good story coming there versus Texas, probably still a little flat to slow. So we're seeing a little mixed bag between those 2. But maybe just take the opportunity to take you around the country a little bit. The Northeast off to a bit of a flat start, but I would say there's a good story coming there, probably impacted by weather as that area just got hammered again this past week. So nothing surprising there. Midwest, a bit flat. But really down the middle of the country, we see some good optimism through Arkansas, Missouri, Iowa, some probably nice story going to shape up there. And then as you work out west a little bit, Colorado is still a little slow out of the gate. Just west of that, some of the Northwestern -- the Pacific Northwest, we've got probably a good story coming there, Montana, Utah. And really, the only one that's not showing signs of improvement is more around California. So that's the only one that I've marked as probably hasn't necessarily bottomed out yet. Operator: And our next question comes from the line of Mike Dahl with RBC Capital Markets. Michael Dahl: Sorry to belabor the pricing point. I just want to make sure we understand kind of the out-the-door pricing versus the cost you're taking. Our sense has been that on the resi fiberglass side, there is kind of low single-digit price pressure that the OEMs are also seeing. So if you're looking for down low singles on price out the door, is that worse for you in the resi insulation and that's why you're seeing the price cost pressure? Or just maybe a little more color on that kind of differential and what's actually driving that? And I think, Maggie you asked this, but also maybe just another clarification on how much is assumed within the install versus distribution side? Robert Kuhns: Yes. So this is Rob, Mike. So we don't break out the guidance by segment. But to give you -- try to give a little more color on the pricing. I mean, we have seen -- there is price pressure, obviously, in the market. The builders are dealing with affordability challenges, demand challenges. So there's been price pressure on that side. Like you said, the manufacturers are definitely feeling that as well. And so there have been price reductions. I mean, for us, what I have to always remind folks is, I mean, pricing is a local decision in our business, right? It's a local -- the builders are making local decisions. So it's literally thousands of decisions being made around pricing. And so we think we do a really good job of adjusting to local markets and controlling that and putting guardrails around it with our ERP system. But just given the macro environment, we saw it in the fourth quarter. We do see markets where things are getting more competitive, prices are picking up. We're going to do what we can to recover that. But even if we recover dollar for dollar with what we're seeing there, that can be a margin headwind for us as well. So we're going to do our best to offset it. But like we said in the midpoint of our guidance, we've got a headwind baked in there. Robert Buck: Mike, this is Robert. Just to build upon that. I mean, I think we've done exactly what we said, right? We talked about being disciplined in 2025, but volumes have stayed slower for longer. And so as they stay slower for longer, you get the things that John talked about in his prepared remarks where we're making some good disciplined decisions at the local level, which is what Rob just talked about. So disciplined. And then as things stay slower for longer, then we appropriately stay disciplined but pivot appropriately as well. Michael Dahl: Okay. Got it. Yes, that's helpful. I appreciate it. My second question, just on the commercial roofing dynamics. Can you -- I appreciate some of the high-level commentary. Since that business has some today pretty concentrated geographic exposures, can you help us understand at a market level, what you're seeing on the commercial roofing kind of end market volume growth and then maybe then the outgrowth that Progressive is seeing and what you're assuming versus the market in '26? Robert Buck: Yes. So maybe I'll -- this is Robert. So I'll start looking backwards a little bit. Progressive had a great 2025, some nice organic growth in the business, really strong execution in Q4. And if we look at back half of the year, our ownership of Progressive. So great job in '25. As we look at '26, I think I mentioned a while ago, those backlogs are growing at a steeper clip. And you're right, I mean, great footprint in the Southwest in Arizona, Texas, those areas. Johnson, obviously, we just purchased is focused Texas, but also did some work in Oklahoma and Louisiana as well. So we've got a nice footprint down there. But we do quite a bit of travel in that work. I know we just picked up a major project in Idaho. We're doing some projects up in Utah as well. So we'll travel for some of the bigger projects. But as we do M&A, as you think about the future, we'll build out that footprint. And that's part of -- as we're looking at companies, looking at where we want to be, that type of thing, part of it is building out that footprint. So we think a great 2026 coming on the commercial roofing side and the leading indicator of that is backlogs and obviously staying close to the Progressive team. And as John said, they're doing a fabulous job. And again, a platform that we see building upon here with a high level of confidence. Operator: And our next question comes from the line of Trey Grooms with Stephens Inc. Trey Grooms: So you guys have been realigning headcount and some other actions you've taken. When we get back into an eventual kind of recovery mode, I guess the question is, how much of these cost outs do you see as sustainable versus kind of what you need to bring back pretty quickly as you look at the different levers you guys have been pulling? Robert Kuhns: Yes, Trey, this is Rob. I'll start. From a cost perspective, there's definitely a portion of what we did last year that we think will stick, right? I mean some of the facility consolidations, that rent cost isn't going to come back on us. Some of the back office fixed costs, we like to try to move on. We're trying to do things in the back office to automate and do things more efficiently. So our hope there would be to not have to add back as much on that side. And then obviously, the installer side, we're going to need to add back to adjust to the volumes as they go. But that's where our recruiting practices and our skill at doing that comes into play, and we've always outperformed at that. So we're confident we'll be able to adjust and get labor back as volume comes back. Trey Grooms: All right. And then I know you touched on this a little bit. But as we're looking at the guide on the margins, the puts and takes there, you mentioned synergies as an area where there may could possibly be some upside there. You seem pretty confident in that. But as we think about the high end of the margin range versus the low end, again, we're specifically asking about the margins. So where -- what would be the other swing factors there, in your opinion, to get us to the high end versus the low end outside of the synergies? Is that going to be more volume related? Or could there be some swings in price cost? Or where are the more likely kind of swing factors there? Robert Kuhns: Yes. I mean you kind of hit on the 2 key ones there. I mean, for sure, the higher end of our range assumes higher volumes. And if that comes, we'll definitely -- like we typically say, we expect our incrementals to be in that 22% to 27% type range, and we're going to increase margins by putting volume in at that level. If demand is stronger, we would expect the price/cost situation to improve as well. So that's the second piece of that. So those are really the 2 other things. I mean the other piece is what we can do with the cost structure, which is like what I referenced earlier in terms of our focus, we're focused on what we can control there. And so we're doing all the things we always do around operational excellence. And this year, we have the unique opportunity with the synergies to outperform on that piece as well. Operator: And our next question comes from the line of Adam Baumgarten with Vertical Research Partners. Adam Baumgarten: Just back to the price/cost outlook. I guess is it fair to headwinds, you noted that $55 million will be felt more acutely in installation than specialty distribution given the competitive behavior that you guys mentioned earlier? Robert Kuhns: It will -- so I'd say, I mean, the price cost pressure on the residential products, we've seen more of it in distribution, right? Because of the labor component on install, it's less pressure there. It doesn't mean we don't have any pressure there, but we've seen less. But the distribution side, it doesn't show up as much in the P&L because of the diversification of the business on that side. So from a pure impact of what you'll see, yes, more than likely, I'd say more of it would be on the install side just because of the business mix piece of it. Adam Baumgarten: Okay. Got it. And then just since John brought it up when he was through the markets, just any kind of sizing you could do on the weather impact you've seen in 1Q so far given the couple of storms... Robert Kuhns: Yes, really hard at this point, given we're still shoveling out in certain parts of the country. So it's definitely significant and definitely baked into kind of that -- or at least what we know as of today baked into kind of that bookend we gave around quarterly revenue. Operator: And our next question comes from the line of Reuben Garner with Benchmark Company. Reuben Garner: Most of my questions have been answered. I just have one on the commercial business and outlook. I was wondering, data centers have been a pretty big focus of late, but I was wondering if you could go into a little more detail on some of the other areas that you're seeing that are driving growth in your mechanical and commercial segment. And what kind of -- if you had to pick, is this -- is the mechanical side where you see the most upside to your outlook at this point this year? Robert Buck: Yes. This is Robert, Reuben. So I would say, as we think about some of the other verticals here, so obviously, data centers is -- you hear everybody talking about that. But I think the one thing is we look across the verticals, make sure we're bidding across the verticals, so you don't become too heavily reliant on one. So I would say education is big right now. Health care for sure. We're seeing manufacturing as well. So we're seeing it really across the board, even some things, food and beverage on the mechanical side. So really diverse, several of them growing there, and we're making sure that we're bidding across all the different verticals from that. And that's why we talk about -- we do think there's upside there. There's going to be growth. Rob talked about in the guidance of commercial industrial growth. So we do see upside potential there. We think both top line and bottom line. We talked about how we're going to lean in on the synergies, highly confident in our synergy number around the SPI [indiscernible] but also the Progressive synergies. It was a smaller number, but we're highly confident in that. And then I talked about how the outlook is on commercial roofing for '26 as we look at backlogs and work that we're securing there. So definitely commercial, industrial, mechanical and roofing, we would say those are upsides and really across the different verticals. Operator: And our next question comes from the line of Collin Verron with Deutsche Bank. Collin Verron: Just one for me. You talked about pricing in some of your categories, but I don't think you mentioned commercial roofing. I know it's a smaller piece of the pie right now, but it's growing. So I'd just be curious as to how prices are tracking there and if the price cost expectations differ from the consolidated company at all in 2026. Robert Kuhns: Yes. So obviously, for -- in our guide right now, any pricing related to roofing or at least for half of the year is baked into the M&A number. But overall, I'd say, in general, pricing is flattish on the commercial roofing side from what we're seeing. They can get a little bit different pricing depending on their mix of business from new roof to reroof -- and depending on new roofs, what end market it goes into. So there's a little bit of a mix element there. But from an overall pricing perspective with the suppliers, I'd say it's an overall flattish environment right now. P.I. Aquino: Operator, do we have anyone else in the queue? Operator: No. With that, that was the last question. So I would like to pass the floor back to Robert Buck for any closing comments. Robert Buck: Okay. Thanks, everyone, for joining us today. We look forward to seeing many of you at the upcoming conferences. Thank you. Operator: Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time, and have a wonderful day.
Operator: Good day, and welcome to the Carlyle Credit Income Fund's First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Joseph Castilla. Please go ahead. Joseph Castilla: Good morning, and welcome to Carlyle Credit Income Fund's First Quarter 2026 Earnings Call. With me on the call today is Nishil Mehta, CCIF Principal Executive Officer and President; Lauren Basmadjian, CCIF's Chair; and Carlyle's Global Head of Liquid Credit; and Nelson Joseph, CCIF's Principal Financial Officer. Last night, we issued our Q1 financial statements and a corresponding press release and earnings presentation discussing our results, which are available on the Investor Relations section of our website. Following our remarks today, we will hold a question-and-answer session for analysts and institutional investors. This call is being webcast, and a replay will be available on our website. Any forward-looking statements made today do not guarantee future performance and any undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on the Form N-CSR. These risks and uncertainties could cause actual results to differ materially from those indicated. Carlyle Credit Income Fund assumes no obligation to update any forward-looking statements at any time. During the conference call, we may discuss adjusted net investment income per common share and core net investment income per common share, which are calculated and presented on a basis other than in accordance with GAAP. We use these non-GAAP financial measures internally to analyze and evaluate financial results and performance, and we believe these non-GAAP financial measures are useful to investors gauging the quality of the Fund's financial performance identifying trends in its results and providing meaningful period-to-period comparisons. The presentation of this non-GAAP measure is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation. With that, I'll turn the call over to Nishil. Nishil Mehta: Thanks, Joe. Good morning, everyone, and thank you all for joining CCIF's quarterly earnings call. The CLO equity class faced challenges in 2025, including continued loan repricings and bear sentiment, which weighed on returns for both CLO equity market and CCIF. However, credit fundamentals remained strong and default rates continue to decline. To mitigate this market-wide weakness, we continue to focus on optimizing the portfolio, including completing accretive refinancings and resets and defensively positioning the portfolio with experienced CLO managers. I'd like to highlight the Fund's activities over the last quarter and key stats on the portfolio as of December 31. CCIF's underlying CLO investments generated an annualized cash-on-cash yield of 22.67% for the quarter, which resulted in $0.48 of recurring cash flows for the quarter at the fund level. New CLO investments during the quarter totaled $13.1 million with a weighted average GAAP yield of 13.6%. We rotated out of 2 CLOs investments for total proceeds of $4.4 million as part of our continued optimization process. Within CCIF's portfolio, we completed 3 resets in the first quarter of 2026, resulting in 26 refinancings and resets in calendar year 2025, reducing the cost of liabilities by 31 basis points on average. We expect refinancing and reset activity to continue taking advantage of historically tight CLO liability spreads. We refinanced $52 million of the Series A Term Preferred Shares with a coupon of 8.75% with lower cost preferred shares with a weighted average coupon of 7.33%. The weighted average years left in reinvestment increased slightly from 3.3 years to 3.4 years. This provides CLOs mangers the opportunity to capitalize on periods of volatility through active management. There are also 0 CLOs in the portfolio that are post reinvestment period. We believe a portfolio weighted average junior overcollateralization cushion of 4.48% is healthy and offsets potential default and losses in the underlying loan portfolios. The average percentage of loans rated CCC by S&P was 4.2%, below the 7.5% CCC limit in CLOs. And the percentage of loans trading below 80 is 3.8% below the market average. The weighted average spread of the underlying loan portfolio was 3.06%, a 6 basis point decline from the prior quarter. This decline is consistent with the broader market and is driven by a record repricing wave and the loan market over the past 2 years. This has significantly impacted the earnings power of CLO equity as CLO resets and refinancings have not been able to fully offset the spread compression. Within CCIF's portfolio, the excess spread and the underling CLOs has declined approximately 32% since December 31, 2023, resulting in GAAP yield to further decline to 13.6%. Following discussion with our Board of Directors, we have revised our monthly dividend to $0.06 per share. When revising the dividend level, our Board considered CCIF's current and expected GAAP yields while also focusing on our objective to support net asset value. The revised dividend level of $0.06 per share results in an annualized dividend of 20% based on the closing share price as of February 23, 2026. The loan spread compression has also resulted in a decline in demand for CLO equity, causing a decline in valuations across the market and CCIF. Notwithstanding the decline in loan spreads, CLO equity benefits from historically low funding costs secured during a period of tight liability spreads, which provides a strong foundation for forward returns. As discussed last quarter, loan spreads have historically followed multiyear cycles. Current levels are similar to those observed in 2018 and was followed by a meaningful spread widening in the following 2.5 years due to a better supply-demand balance and market volatility. We believe CLO equity today is positioned to benefit from potential spread widening. Loan supply increased in the fourth quarter of 2025, and we expect loan supply to remain elevated in the first half of 2026 based on the current pipeline and discussions we have with our internal capital markets and private equity teams. A sustained increase in volumes would help rebalance market technicals and support wider performing loan spreads. The recent volatility related to concerns on AI disintermediation may further dampen repricing volumes and conversely increase loan spreads. With funding costs locked in at attractive levels, any normalization of loan spreads could meaningfully enhance excess spread, particularly for deals with longer reinvestment runway. As a result, we expect equity outcomes to increasingly reflect vintage, structure and manager execution, reinforcing the importance of selectivity. With that, I will now hand the call over to Lauren to discuss the current market environment. Lauren Basmadjian: Thank you, Nishil. I'd now like to provide an update on the recent developments across both the loan and CLO markets. CLO issuance totaled $53 billion for the quarter, bringing 2025 issuance to a record $211 billion. Including resets and refinancings, total gross CLO activity reached an all-time high of $538 billion, surpassing the prior annual record set in 2024. CLO liability spreads tightened across the capital stack over the course of the year, approaching the post-great financial tight, we witnessed in the first quarter of 2025. This tightening only partially offset the impact of loan spread compression and CLOs that were in their non-call periods could not take advantage of tightening liability spreads. Reset and refinancing activity remained robust, with $52 billion of refinancings and $20 billion of resets pricing during the quarter, as managers extended reinvestment periods and lower financing costs. The share of U.S. CLOs out of their reinvestment period has declined to roughly 11%, down from about 40% in 2023, reflecting a market with expanded reinvestment capacity. Turning to the loan market. Leveraged loans delivered resilient performance in 2025 despite rate cuts and concerns related to tariff implementation. In 2025, the LSTA leveraged loan index returned 5.9%, and in the fourth quarter, the index returned approximately 1.2%. Similar to prior quarters, issuance activity was driven largely by repricing as borrowers took advantage of the lack of loan supply and lowered their interest expense. Credit fundamentals within Carlyle's U.S. loan portfolio of more than 550 borrowers remain encouraging based on the most recent quarter of reporting. Free cash flow generation continues to be a key focus, with over 70% of borrowers producing free cash flow in the third quarter, the highest level we've seen over the past year. Revenue and EBITDA growth remained healthy at 6% and 7% year-over-year. Overall, borrower performance and credit quality remains broadly resilient, though we are seeing pockets of fundamental weakness in building products and chemicals. While software companies have recently traded down on the fear of AI threats, we have not yet seen this result in worsening sales or earnings growth for most of these companies. The broadly syndicated loan default rate inclusive of LMEs has declined from a peak of 4.5% at the end of 2024 to 2.9% by year-end 2025, moving closer to historical averages. We could see this pickup during 2026 as more loans are trading under 80 due to recent fears around AI, but we don't expect it to hit the peak witnessed in the fourth quarter of 2024. CCIF's underlying loan portfolio experienced a default rate of 1.1%, inclusive of out-of-court restructuring. CCIF has been able to achieve a lower default rate by leveraging our in-house credit expertise from over 20 U.S. credit analysts to complete bottom-up fundamental analysis on underlying loan portfolio. We are increasingly focused on the evolving implications of AI-driven disruption across leveraged finance. We believe AI risk, specifically in software companies, it's currently less about near-term operating deterioration and more about compressing valuations, potentially slowing growth in sales, and the need to invest behind an AI solution to defend incumbent positions. We think it will take time to see who the winners and losers will be in the sector, but we view the fourth quarter 2025 earnings season as an important checkpoint to further evaluate AI's impact on demand trends, margins and business model resilience at the borrower level. I will now turn the call back to Nelson, our CFO, to discuss financial results. Nelson Joseph: Thank you, Lauren. Today, I will begin with a review of our first quarter earnings. Total investment income for the first quarter was $7.1 million or $0.34 per share. Total expenses for the quarter were $5.2 million. Total net investment income for the first quarter was $2 million or $0.09 per share, compared to $0.15 in the prior quarter, driven by $0.06 per share of interest expense from the amortization of deferred offering costs associated with the redemption of the Fund's Series A Term Preferred Shares. Adjusted net investment income for the first quarter was $3.7 million or $0.17 per share in line with the prior quarter. Adjusted NII adjusts for the $0.08 per share impact from the amortization of the OID and issuance costs for the Fund's preferred shares and credit facility. Core net investment income for the first quarter was $0.32 per share, also in line with the prior quarter. $0.32 of core net investment income provides dividend coverage of 178% on our revised monthly dividend of $0.06 per share. We believe core net investment income is a more accurate representation of CCIF distribution requirement. Net asset value as of December 31 was $5.17 per share. Our net asset value and valuations are based on bid side mark we received from a third party on 100% of the CLO portfolio. We continue to hold one legacy real estate asset in the portfolio. The fair market value of the loan is $2.2 million. The third-party we engage to sell our position continues to work through the sales process. Now turning to the funding side of CCIF. During the quarter, we refinanced $52 million 8.75% Series A Term Preferred Shares through the issuance of $30 million of 7.375% Series D Term Preferred Shares and a private placement of 5-year 7.25% Series E Convertible Preferred Shares that generated net proceeds before expenses of approximately $16.3 million. The Series B Term Preferred Shares are listed on the New York Stock Exchange under the symbol CCID. The holders of the Series E Convertible Preferred Shares have the option after 6 months to convert the shares into common stock at the greater of NAV or the average closing price of the 5 previous trading days. This resulted in a reduction in the cost of capital by approximately 1.42%. With that, I will turn it back to Nishil. Nishil Mehta: Thanks, Nelson. We remain confident in the fundamentals of CCIF's portfolio, which remains defensively positioned. We remain focused on experienced managers and transactions that demonstrate durable par build and disciplined credit underwriting. We are deploying capital selectively, prioritizing opportunities that offer attractive relative value across both new issue and seasoned transactions. We continue to leverage the depth of the Carlyle Liquid Credit platform and our collaborative One Carlyle platform to source and invest in high-quality CLO portfolios through a disciplined bottom-up 15-step investment process. I would like to now turn it over to the operator to answer any questions. Operator: [Operator Instructions] And our first question will come from the line of Gaurav Mehta with Alliance Global Partners. Gaurav Mehta: I wanted to maybe ask you on some of the trends that you're seeing in the market as far as loan repricing and the yields and the spreads. I know in the prepared remarks, you said you saw an increase in loan supply in 4Q '25, and it seems like it may remain high in Q1 '26. So just wondering if you could just comment on what you guys are expecting as far as demand and supply and where yields and spreads are heading? Lauren Basmadjian: Sure. So I'd say that, generally speaking, the repricings have stopped. The volatility in the market around AI fears have led to loan prices trading down and about 20% of the market now is trading over par which has stopped -- generally stopped the repricing. There is a decent sized backlog of announced deals that will come to market in the first quarter, maybe into the second quarter, though, I do worry or wonder if we'll see that slow down again after we get through all the announced deals, as there's been more uncertainty and volatility in the loan market, there may be a slowdown in M&A transactions. Gaurav Mehta: Okay. Maybe following up on your comments around AI-driven disruptions. How is that impacting your investment thesis and how you're approaching your investments in the CLO market? Nishil Mehta: Yes. Gaurav, it's Nishil. So maybe I'll talk about it in a couple of different ways. One, you're seeing more of an immediate impact, which is really just the volatility, Lauren just mentioned regarding loan prices. That is, as a result, creating some volatility in the valuations of CLOs. But that's really more of the near-term impact. I think longer term, the impact that AI will have on these companies and borrowers is kind of to be determined, given this is not a concern that's tomorrow or the next day. It's really a multiyear potential impact. But also to Lauren's point, the one positive is the volatility has really created a market where you're not seeing loan repricings. We saw a fairly large wave of loan repricing in January. That has definitely declined. And we are in the middle of fourth quarter earnings, which continue to remain strong. So as we mentioned in the prepared remarks, the fundamentals of the overall portfolio continues to remain strong. Operator: And that will come from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: In Nishil's prepared comments, he mentioned some optimism that maybe there are some factors that can contribute to spread widening here in 2026. And kind of maybe a two-part question. One, are you seeing any actual signs in the market that, that are starting to happen? And two, if they were to widen materially, how much does that impact your ability to have additional resets and refis in the portfolio? Lauren Basmadjian: Yes. So the discount margins have definitely widened over the last month in the loan market. Loan spreads don't reprice automatically as the risk premium changes. So really, the price adjustment is the loan price versus the spread. The way that we'll start to add spread back to portfolios and CLOs will be with new issues coming at wider spreads, which we do anticipate. There isn't a lot of new issue in market. But as I said, there is a real pipeline ahead of us. So I would expect those loans to come with higher spreads than what we've seen over the last couple of quarters. Nishil Mehta: And then just on the refinancing and resetting front when it comes to CLOs. Look, the market in January and even earlier this month, probably hit post GFC tights when it came to liability spreads. We are seeing some widening given the reflective of what's going on in the broader loan market and fixed income markets. But from -- on a historical basis, the liability spreads are still relatively tight. So our expectation, at least based on the market today, is there will still be opportunities to refinance -- to complete refinancings and resets within the portfolio. Erik Zwick: That's very helpful. And I guess, positive to hear that seeing some loan spread widening there, which would -- that's been a large driver of the impact to NAV over the past year. So it seems like there's some potential here that the majority of the kind of decline in NAV for this cycle has hopefully been realized at this point. I realize you don't have a crystal ball, but is that the right way to think about it? Nishil Mehta: Yes. Look, obviously, the market is dynamic, and it's hard to predict what's going to happen in the future. But as Lauren mentioned, with the repricings kind of fading away and the discount margin within loans increasing. If we start to see continued supply and M&A activity, that should result in an increase in loan spreads and overall widening. Lauren Basmadjian: And the one other thing, though, it's not a gigantic part of our market, but it's worth mentioning that there are still loans that are maturing in 2027, 2028. Even into 2029, where I would assume management teams want to push out maturities. When we had seen these extensions before, you were not seeing an increase in coupon. In fact, sometimes you were seeing a decrease in coupon. I would imagine that's another way to capture spread in this market is as we see borrowers come back to push out maturities, they may have to offer more spread on the loans. Erik Zwick: And one last one for me and then I'll step aside. Just given the impact on the fair value of the portfolio that the spread tightening has had. Just kind of give you our overall thoughts on leverage in the portfolio today and how you think to manage it from here? Nishil Mehta: Yes. So as you can see in our earnings presentation, leverage is at the high end of our target. And so that's something that we're mindful of. And so I think over time, we'll look to bring that back to kind of historical target. Operator: [Operator Instructions] Our next question comes from the line of Timothy D'Agostino with B. Riley. Timothy D'Agostino: I guess just one quick one for me. You've mentioned that loan repricings have pretty much kind of all been done, and you did see some in January. I guess, it'd be interesting to like hear a little bit more and just get a little more color on how the market for you all looks different in February than in January, just given everything around software. And I don't know, just maybe some color on what you're seeing. Lauren Basmadjian: Yes. I'd say that performing credit that doesn't have sort of an AI fear around it is down maybe 0.5 point to 0.75 point. And then names that have some AI fear could be down more significantly. We've seen some real volatility in software names. But it's also spread to other areas like asset managers, insurance brokers and anything that really you see an AI headline around. So it's created opportunity where there's finally volatility in the market, you could source loans and build par because most of the market is trading under par. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Castilla for any closing remarks. Joseph Castilla: Thank you all for joining. We look forward to speaking to everyone next quarter, if not sooner. Please feel free to reach out if you have any questions, and thank you all again for your support. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Juan Cases: Good morning, everyone, and thank you for attending the 2025 Results Call of ACS Group. I'm joined by our Corporate General Manager, Angel Garcia Altozano; and our Chief Financial Officer, Emilio Grande. As usual, after the presentation, we'll host a Q&A session to provide you with any clarification that you may need. Those who are connected via our website can ask their questions through the established channel. So let's start with the first slide of our presentation. In 2025, the group delivered very strong operational and financial results with solid growth in sales, backlog and net profit, backed by robust cash flow generation. We're making solid progress in executing our strategy, increasingly leveraging our global footprint and engineering expertise to drive sustainable growth. We continue to actively pursue highly attractive equity investments opportunities across both traditional and next-generation markets, generating long-term value for all our stakeholders. Let me give another view of the key highlights for the period. Ordinary net profit reached EUR 857 million, up 25.3% or 32.4% FX adjusted, exceeding our top end of our revised guidance. On a reported basis, net profit stood at EUR 950 million. Sales and EBITDA were up by 20% and 20%, respectively, driven by the robust momentum across all our segments. Operating margins improved as well across the group. Net operating cash flow reached EUR 2.2 billion in the last 12 months. This is up EUR 320 million adjusted for factoring variations, highlighting the quality of our profit growth. As a result of this strong cash flow generation, the group achieved a net cash position of EUR 17 million at the end of 2025. This is after allocating EUR 2.1 billion to strategic investments and shareholder remuneration. Strategic investments include EUR 564 million in data center projects, EUR 436 million of the Dornan acquisition and EUR 200 million of the capital contribution to Abertis. In addition, EUR 448 million were allocated to shareholder remuneration. New orders during the year of EUR 62.5 billion, showing an accelerating growth trend up approximately 27% FX adjusted, resulting in a higher book-to-bill ratio of 1.3x. Within the outstanding new orders figure, digital infrastructure represented approximately 28% or EUR 17.6 billion with growth of around 130% year-on-year FX adjusted. The order backlog grew by 14.6% FX adjusted, reaching EUR 92.9 billion, supported by sustained demand in biopharma, defense, critical minerals and data centers. Looking ahead, we remain very confident in the group's outlook and set our ordinary net profit growth target of 20% to 25% for 2026 up to EUR 1.070 billion underpinned by strong fundamentals. Let's take a closer look at the group's consolidated performance for the period. Sales rose by 19.7% to EUR 49.8 billion, driven by the exceptional performance of Turner, which achieved approximately 34% organic growth or 40.3% FX adjusted, particularly supported by digital infrastructure, health care and education projects. This momentum was further enhanced by the integration of Dornan and the full consolidation of this since second quarter of 2024. EBITDA increased by 25% to EUR 3.1 billion, with margin expansions across all segments and at overall group level. Profit before tax amounted to EUR 1.7 billion, up 67.3%. On a comparable basis, PBT grew by 24.8%, particularly fueled by Turner's outperformance and the solid evolution of Flatiron Dragados. We delivered a strong ordinary net profit growth of 25.3% year-on-year on a comparable basis, reaching EUR 857 million, above the top end of our full year guidance. Turning now to the ordinary net profit split. I would like to highlight the following: Turner delivered an outstanding performance with its contribution rising 66.6% to EUR 549 million, driven by the strong growth in high-tech markets and improved margins. CIMIC contributed EUR 199 million, supported by the strong growth in data centers, biopharma, health care and education, but also the natural resources. Engineering & Construction recorded a very strong result, growing 35.7% year-on-year, reflecting a higher contribution from Flatiron Dragados and solid results in HOCHTIEF Europe. Abertis delivered a resilient operational performance during that period despite nonoperational impacts. During the year, the group implemented efficiency measures involving EUR 32 million in restructuring costs, aimed at streamlining operations and unlocking synergies that will enhance performance in the coming years. Slide 5 highlights the group's strong and consistent cash flow generation. Net operating cash flow amounted to EUR 2.2 billion, supported by a robust EBITDA, uplift of 25% and outstanding level of cash conversion. Adjusted for factoring variations, the net operating cash flow increased by EUR 320 million. Building on this, the acceleration of cash flow generation in the fourth quarter further improved the previous quarter last 12 months figure of EUR 2 billion. We reached a net cash position as of December 2025 of EUR 17 million, showing an improvement of EUR 719 million since December 2024. This performance is primarily the result of the group's strong net operating cash flow, facilitating significant strategic capital allocation initiatives. In the period, we have executed EUR 1.7 billion in financial investments, including EUR 564 million in data center projects, EUR 436 million for the Dornan acquisition, EUR 316 million of M&A, EUR 207 million in other net infrastructure equity investments and EUR 200 million for the Abertis capital contribution. Financial divestments of EUR 1 billion, including the 50% sales of UGL Transport, the data center platform 50% divestment and the final settlement of ACS Industrial. Additionally, EUR 448 million of cash were allocated to shareholders' remuneration. Our disciplined approach to capital deployment supports our long-term growth strategy while maintaining a solid financial position. Moving on to Slide 7. Our order backlog stands at an all-time high of EUR 92.9 billion as of December 2025. This growth was underpinned by a very strong order intake of EUR 62.5 billion, up 26.6% FX adjusted, resulting in an improved book-to-bill ratio of 1.3x. This very positive performance reflects the group's continued success in securing high-quality projects across strategic growth markets, particularly in data centers, defense, biopharma, critical minerals and nuclear. Notably, digital infrastructure now accounts for approximately 28% of new orders, up circa 130% year-on-year FX adjusted, driven by the strong sustainable demand in data centers. We're also seeing strong traction in Germany, where positioning allow us to benefit from the country's increased focus on infrastructure investment. New awards in Germany grew by approximately 41% year-on-year, reinforcing our ability to capture opportunities in these key markets. In the following slide, we can see a selection of recent awards. It is worth placing these projects in the broader context of the ACS Group strategy, where we have continued advancing to become a leader in rapidly expanding strategic growth verticals, including artificial intelligence, digital and tech sector, energy, including nuclear, critical minerals and defense. This momentum builds on a long established locally embedded presence in core infrastructure markets in North America, Australia and Europe, which remains the foundation of our competitive strength and our ability to scale into these next-generation markets as a life cycle partner. Let's start with the digital infrastructure and advanced tech sector, where we command a leading position. Growth in the global data center market remains extremely strong. Soaring demand for cloud services and AI is expected to quadruple DC and compute CapEx by 2035, boosted by the growth of generative AI and further cloud migration. The group has the resources and capabilities as a firmly established global end-to-end solutions provider to meet this rising demand. During the period, we have been awarded several new large-scale data center projects. Among these new awards we can find. The announcement of the construction of the 902-megawatt data center complex in Wisconsin, which is part of the $500 billion Stargate program. Most recently, Turner was awarded a role in the delivery of the $10 billion 1-gigawatt data center companies for Meta in India. In Europe, Turner was awarded the construction of a 160-megawatt data center in the Netherlands. This is the result of Turner's expansion strategy into Europe with Dornan executing a project for recurring Turner client. We'll also be building a 58-megawatt data center in Malaysia for a long-standing repeat client. Construction has already started for a data center in Alcal , a joint collaboration with Dragados, Iridium, Turner, ensures with participation in the context of the data center platform. Additionally, we have solid medium-term visibility via our order book and our expanding product pipeline in North America, Europe and Asia Pacific. Energy-related infrastructure represents another strategic growth vector for the group, with structurally rising demand driven by the global energy and security of supply. ACS is strategically positioned across the full energy value chain from generation and storage to transmission and advanced technologies, with strong end-to-end capabilities and global engineering expertise. With several decades of experience designing and building nuclear power plants and complex energy facilities worldwide for leading utilities, the group is well placed to support the deployment of the next-generation technologies, including small modular reactors or SMRs as well as new build storage and decommissioning projects. This positions us in a market expected to exceed EUR 500 billion investment in Europe by 2050. At the beginning of 2026, an important spreading milestone was reached when we were selected as part of the Amentum's global project delivery team for the Rolls-Royce SMR nuclear program. And during the final quarter of 2025, we secured a major nuclear and civil works framework contract worth up to EUR 685 million, lasting up to 15 years involving civil infrastructure works at the Sellafield nuclear site in the U.K. Turning to renewables. We continue to strengthen our market presence, particularly in Australia, where our companies have delivered more than 20 major renewable and storage projects. Reflecting this momentum in new awards, CIMIC subsidiary UGL was selected for the Western Downs Stage 3 Battery project in Queensland, Australia to construct a major renewable energy storage facility with energy storage capacity of 1,220 megawatts hour. Let me turn now to Critical Minerals and Natural Resources, another strategic growth market for us. We're capitalizing on accelerating demand for critical minerals, driven by clean energy technologies, digital infrastructure and defense modernization. Leveraging the combined capabilities of Sedgman and Thiess, we have established a global position in minerals, processing and sustainable mining services across key commodities such as lithium, copper, rare earth, nickel, vanadium, uranium and zinc. In December, the group expanded its partnership with Vulcan Energy through a significant cornerstone equity investment, while securing an end-to-end role in the development of its lithium production and processing infrastructure in Germany. Under the agreement, we have also been appointed as EPCM contractor and named preferred supplier for the project's civil works. In addition, we have been awarded contract by Hindustan Zinc to support the delivery of India's first zinc tailing recycling facility. We're recently awarded the Mount Pleasant operation contract extension in New South Wales, Australia to provide full mining services. Moving now to Defense, where infrastructure investment is expected to increase substantially worldwide. In Europe, major multiyear defense investment plans, including in Germany, present substantial opportunities in defense-related capital works and potentially via the public-private partnership model. And in the U.S. and Australia, governments are also planning major increases in defense spending over the next decade. At the end of 2025, the group's defense backlog stood at EUR 3.5 billion, which included a recently secured involvement in a major 10-year collaborative contract for the German armed forces in Hamburg with a total project value of EUR 1 billion. Our North American civil business, Flatiron Dragados being selected as one of the companies for a 10-year construction contract for the U.S. Air Force Civil Engineering Center. And other projects, including the construction of a major dry dock at Pearl Harbor for the U.S. Navy, works for the Royal Australian Air Force base in Queensland and defense infrastructure upgrades in Australia. In biopharma, health and social infrastructure, we continue to hold in positions with several significant new orders such as: First, the New York Public Health Laboratory, consolidating the largest and most advanced state public health laboratory in the U.S. under one roof, the Regional One Health Hospital campus, a once-in-a-generation investment to expand critical services and strengthen community access to care in Memphis. The Philadelphia arena, including the construction management for the new state-of-the-art arena in the South Philadelphia sports complex. Two major building contracts in Germany, a hospital newbuild project in Flensburg, the first one in Germany using integrated project delivery and a PPP project for a research and administration building in Kiel. Finally, the group is also a global leader in transport and sustainable infrastructure with a very positive outlook driven by several infrastructure stimulus packages. In Australia, we were awarded the Perth Airport, new runway construction as well as the Queensland's Gateway to Bruce upgrade. We secured the I-59, I-40 highway upgrade in Duisburg, Germany. Recently, we won the Battery Park Resiliency project, a $1.7 billion construction in New York. And in Sweden, we secured a EUR 1 billion high-speed rail project under collaborative model delivery, part of the East Link program. Let us now move into the performance by segment. On Slide 10, we begin with Turner, which is delivering exceptional results, consolidating its leadership in strategic sectors. Sales grew by 33.9%, reaching EUR 25.8 billion, mainly driven by organic growth across data center projects as well as solid growth in areas such as health care, education, sports and airports. This solid performance was further supported by the contribution from Dornan, whose exceptional performance was up 70% in the year. Profit before tax increased to EUR 921 million, representing an outstanding increase of more than 61%. This was supported by continued margin expansion of approximately 80 basis points to 3.6%, reflecting Turner's successful strategy, focused on advanced technology projects in line with the group's strategic objectives. Net operating cash flow increased by EUR 523 million to an exceptional EUR 1.2 billion. Net cash as of December '25 was EUR 3.3 billion, up EUR 179 million even after the acquisition of Dornan. Turner's commercial strength are demonstrated by its new orders of EUR 33.6 billion in the year, an increase of 44.2% FX-adjusted driving record order backlog to EUR 37.7 billion. Moving on to our operations in the Asia Pacific region, we turn to CIMIC, where sales registered strong growth in the strategic areas such as advanced technology, health care and defense and were 11.2% higher, supported by the full consolidation of this and despite the winding down of large transport infrastructure projects. EBITDA margins grew by approximately 30 basis points underpinned by strong contribution from high-tech jobs across both UGL and Leighton Asia. Ordinary profit before tax increased by 12.3% year-on-year, FX adjusted to EUR 473 million. Attributable net profit grew by 1.4% FX adjusted year-on-year. Net operating cash flow before factoring grew by EUR 43 million, supporting a strong EUR 366 million net cash improvement, which also includes divestment of 50% of UGL Transport and the data center project. Our order backlog was solid, reaching EUR 21.8 billion, up 6% year-on-year adjusted on a comparable basis. New orders were up 5.6% FX adjusted, with particularly strong growth in data center, defense and critical minerals. Turning now to Engineering & Construction segment on Slide 12. We can see solid growth with consolidated sales increasing 15.1% year-on-year FX adjusted to over EUR 10.6 billion, driven by the strong performance in North America and the robust contributions from both Dragados and HOCHTIEF Engineering & Construction. EBITDA margin increased by 53 basis points to 5.9%, supported by significant contribution from Flatiron Dragados. Ordinary profit before tax grew significantly by 45.2% FX adjusted to EUR 275 million. and a strong cash conversion with net cash position up EUR 118 million. Engineering & Construction backlog rose by 10% FX adjusted to EUR 30.1 billion, reflecting a strong order intake of EUR 13.6 billion with notable momentum in sustainable mobility and transportation infrastructure. Looking ahead, the outlook remains very positive. And as I highlighted, we are particularly well positioned to benefit from the infrastructure investment plan in Germany. Continuing now with the Infrastructure segment on Slide 13. Iridium's increased its sales by 45%, driven by the additional contribution of the A13, the financial close of the SR-400 in Georgia and general positive performance across operating entities. Also, as you might know, we have been recently prequalified for the I-77 in North Carolina. This adds to the previous 2 prequalifications of the I-25 in Georgia and I-24 in Tennessee. Abertis' recurring business showed growth above 6%, although financial contribution was impacted by nonoperating results. Abertis distributed a dividend of approximately EUR 600 million in the second quarter of 2025. In the next slide, we provide for your reference, a breakdown of the invested capital and valuation as of December '25 for the portfolio of all assets in our greenfield platforms. Among others, we are now including the valuation of our stake in the data center platform as well as the average value that research analysts are assigning to our SR-400 project. On the next slide, we take a more detailed look at the Abertis numbers. Traffic grew by 2.1%, supported by a strong performance of heavy vehicle traffic. And we saw strong results particularly in Spain, Chile and France. On a like-for-like basis, the company delivered robust revenue and EBITDA growth of 4.5% and 6.2%, respectively, underpinned by the geographical diversification of the portfolio and inflation-linked tariffs. Regarding portfolio development, as you know, Abertis acquired 51.2% stake in the A63 toll road in France. Additionally, Abertis was awarded a 21-year extension and tariff-adjusted of Fluminense and acquired the remaining 49.9% stake in Tunels de Vallvidrera and Cadi. In Chile, the Santiago-Los Vilos concession began operations. Abertis has improved its liquidity and financial strength with net debt set at EUR 22.7 billion. On Slide 16, we show the breakdown of key figures by country for Abertis portfolio. Next, as we do every year, we dedicate a brief section to reviewing some strategic updates. This slide highlights the progress we are making across our strategic growth verticals, both from a developer and a contractor perspective. We have already discussed many of these key milestones in earlier slides. So let me quickly go over the key points. In digital, we continue leading in data centers. The backlog has grown at circa 70% CAGR over the past 3 years. Some important recent awards include the 1 gigawatt project from Meta in India announced only a few weeks ago. As a developer, 100 of our data center platform sites are now grid-connected with around 80% power supply already secured. We are in advanced negotiations for lease agreements covering 150 megawatts IT in the first instance, and we're targeting to sign the first lease in the first half of the year. In Defense, we are on track to deliver the 2030 revenue ambition of EUR 10 billion, driven by major wins like the German Armed Forces campus and the long-term contract for the U.S. Air Force. We're also seeing strong progress in critical metals. We recently acquired an engineering company in the U.S. Additionally, our participation in Vulcan is another crucial strategic step. Lastly, let me stress again the delivery partner role of our consortium with Amentum on Rolls-Royce Nuclear SMR program. Overall, these wins reflect our decisive progress in reinforcing our end-to-end leadership and leveraging our investment opportunities. On Slide 19, we take a deeper look at the outlook for AI-driven data center growth. ACS is strongly positioned to benefit from rising data center infrastructure investment underpinned by sustained structural demand. Market fundamentals continue to accelerate and hyperscaler demand provides multibillion, multiyear visibility. Our global data center intake has more than doubled in '25, up to EUR 17 billion. And finally, AI evolution is not only strengthening our backlog growth prospects, it's also enhancing our core capabilities and opening new growth avenues for ACS. And before we move to the conclusion, this slide delivers a simple yet powerful message. We have already achieved in 2025, our key 2024 CMD goals for '26, 1 year ahead of schedule. Revenue and NPAT have both reached or exceeded the goals we set for 2026, while the net operating cash flow generated between '24 and '25 exceeds the target set for the full 3-year period. To conclude our review of the full year 2025 results, let me highlight the key achievements of the group. First, we delivered a strong operational performance with sales reaching EUR 49.8 billion, up 19.7% year-on-year and ordinary net profit of EUR 857 million, up 25.3% and exceeding the top end of our guidance. The group demonstrated outstanding cash generation with net operating cash flow of EUR 2.2 billion, which in turn supported net financial investments of EUR 1.7 billion. Our order backlog stands at record high of EUR 92.9 million, underpinned by EUR 62.5 billion in new orders, up 26.9% FX adjusted, including EUR 17.6 billion in digital infra order intake. It's also worth highlighting the progress of our data center development platform, our partnership with BlackRock GIP to develop more than 1.7 gigawatt worldwide was a major milestone that reinforced our leadership in one of the fastest-growing global markets. And finally, we remain confident in our ability to continue executing our proven strategy. For '26, we're setting an ordinary net profit growth target of 20%, 25% up to EUR 1.070 billion. Looking ahead to 2026, we remain focused on our strategic growth markets and disciplined capital allocation. As discussed, we see significant infrastructure investment opportunities and continue to pursue bolt-on acquisitions to strengthen our engineering capabilities and long-term growth prospects. We're well positioned to continue delivering sustainable growth and attractive shareholder returns. Thank you again for joining us today. And now we look forward to your questions. Luis Prieto: Luis Prieto from Kepler Chevreux. I had 3 questions, if I could, please. The first one is we've seen the share prices of both stocks do beautifully. And I just wanted to ask you, to what extent it would be tempting for you to maybe reduce the stake in Turner through a listing in order to upstream monies and pay for development and investments at ACS level or, for example, do a reduction in the HOCHTIEF stake and with the same purpose and increase investments. The second question, we're seeing the same assets held for sale on the balance sheet in energy. They've been there for a while now. Any updates of how those disposals are evolving and when we should expect outcomes, news? And then finally, referring to one of the things you were commenting before, you have visibility in your order book until some point in 2028, but you make reference to another -- to a pipeline beyond that, which is obviously essential to sustain the valuations and the expectations that you have for earnings in data centers. Can you give us an order of magnitude of that pipeline beyond the order book that you might have over the today to 2030 period? Juan Cases: Thank you so much, Luis. So let me start. We do not have plans to reduce our shareholding in Turner so far right now or to reduce in HOCHTIEF. And let me take the chance to speak about the way we see the valuation of our share. And I get back to our Investors Day at the end of last year. First of all, we have 2 main businesses, right? The one that is visible through our EBITDA and that's supported by the growth of Turner, our future growth in Germany and HOCHTIEF and the performance of CIMIC. And what we are seeing is 2 main things, without getting into a lot of the details. A Turner that continues growing, a Turner that before 2020 was giving EUR 350 million PBT. And right now this year has delivered EUR 1.45 billion, but with a guidance of up to 30%, which would be around EUR 1.34 million in '26, which we consider very conservative, right? And the reason why we kind of increase is obviously before we are taking into account a lot of the planning, we rely on hyperscalers, we rely on clients, and we are in that planning mode, and we need to land on something before reaching a resolution. And also the U.S. dollars with all our assumptions imply that it will continue to go in the devaluation mode. So that's on the business, right? Now -- so Turner has multiplied by around 3.5x in a few years. But we believe that will continue growing at a very significant path. So not only has grown 70% in U.S. dollars, '25, and we're already giving a guidance of 30%. And we believe that we can double Turner. Now the question is in how many years, but certainly in a reasonable short to medium-term time. Then we do have the multipliers of Turner, right? Turner has a significant portion of its backlog in data centers. We are seeing that our peers in data center space are at more than 30x EBITDA between 20 to more than 30x. Average consensus for Turner is way below that, right? And the rest of the business in Turner goes through semiconductors, batteries, biopharma and other sectors that will continue improving margins. In data centers, we gave a feature for Turner of reaching revenue just in data centers around EUR 25 billion by 2030. So that's a business, right? Then we see Germany growing and defense growing, and we're not including any of these -- the verticals that we're working right now because we do consider that the real value will be seen medium to long term, nuclear, critical metals, et cetera. So we believe on the share and the share valuation. But what the share is not reflecting for obvious reasons is the assets because that's not reflected in the EBITDA. And a lot of what we're doing right now, it's investing in the assets, right? Data center platform, the edge data center platform, additional to the big one with BlackRock, greenfield, Abertis growth and not Abertis growth just inorganic M&A, but the organic M&A and the renegotiation of the contracts that we will provide some visibility this year, right? And then what we're doing in critical metals, industrial energy, et cetera. So we believe that the share will continue to reflect the value of all of this. So right now, we are not taking the view that it's the right time to sell anything basically. Two, asset for sales, I mean, we -- the reality is that there is a combination of facts here, right? One is from an operating net cash flow basis in the Capital Markets Day, we were always talking about approximately EUR 1.5 billion net operating cash flow, post dividend, EUR 600 million in dividends or shareholder remuneration, we had EUR 900 million net for acquisitions, basically or investment. Now that EUR 1.5 billion has ended up being EUR 2.2 billion this year, EUR 2.1 billion last year. So basically, we're talking about EUR 1.4 billion to EUR 1.5 billion firepower per year net of shareholders' remuneration, right? If you multiply that by 5 from now to 2030, there are significant firepower for investments. So there's a strategic piece that we're not so much in a hurry to divest some of the industrial assets. Plus, we want to make sure that they perform in the right way to maximize value, right? So there's a combination of both things. Now your third question was about the pipeline ambition. So you saw on the screen, we are close to EUR 93 billion backlog. Most of our projects, and this has been the real change of strategy in the last 4 years, by moving from being a commodity in construction to being an end-to-end service provider, most of our contracts are not low-price lump sum RFPs. They come at the back of a long negotiating process, design, planning and working with our clients. So there's approximately EUR 25 billion that are not reflected in the backlog, but we are currently working with our clients. Out of the EUR 25 billion, there's EUR 18 billion in Turner, approximately USD 22 billion, at Turner and out of which there's approximately a little bit more than half of it that is data centers. So all of that contribute to our visibility in the medium term and how comfortable we are with our potentially -- I mean our potential guidance that we believe not only at HOCHTIEF, but ACS is conservative, but we need to see how a lot of these projects land and when they do land. Unknown Analyst: This is [ Salvador Lindse ] from Alantra Equities. The first one is on Turner. I see you reported over EUR 3 billion in net cash. I was just wondering whether Turner needs so much cash to operate? And what would your policy on business cross-financing each other or are you moving cash flow to the headquarters in the future could be just to understand how your reported group net cash position is fully available for investments. And the second question would be on the timing and magnitude of the new cycles. Just wondering whether you see something like defense or nuclear reactors or critical minerals potentially becoming as big as the data center investment cycle is likely going to be? Or if it's just long term, but probably more spaced out and not as big as the current investment is? Juan Cases: So starting with Turner. The reason why Turner holds so much cash, and we're not taking it out of Turner is we have 2 reasons. The first one is bonding needs, right, in order to operate. I mean, Turner is reaching the USD 30 billion revenues just in the U.S., and that requires bonding and require security and making sure that you have the right collateral indemnity in the U.S. So that is a big driver of keeping that cash in Turner. But obviously, it's -- I mean, above what they need. The other thing is, for us, it's very important that Turner continues growing. And for Turner to continue growing, there's a few strategies that we're going to put in place. The first one is we need to continue adding engineering capabilities to Turner, number one. The good thing is that right now, with AI, you can escalate that very, very fast, but it will require some investments. The other one is the modularization strategy at Turner because that's the future of construction. So there's additional investments that we're going to be doing in that space. So let's preserve the cash because Turner will need some of that for investments to continue to grow. The good thing about Turner is what they have demonstrated with Dornan is that they can multiply it by 3, the value one company in almost a year, right? So we're quite confident that it's a very good place to allocate capital. Your second question was about the new cycle. So let's go through each one of them. Nuclear. Yes, Nuclear will be like data centers, but more long term, right? We are not expecting to see. But if we want to be in the long term and creating another cycle like data centers, we'll need to wait, right? But it's a long term. It's very high tech oriented. You need a lot of engineering and you need to be from the very beginning, developing that part, right? So it's a long term. We won't see anything in the P&L probably in the short term, but certainly, we are creating a lot of value. And nuclear, it's a very important part of the future not just of AI, but in global of energy. Defense. So defense 2 things can happen. The first one is we keep a Defense 1.0, which is basically infrastructure, and we expect that to continue growing, right? The EUR 800 billion of Germany starts being allocated. Last year, they spent EUR 74 billion. 2026, we're expecting EUR 127 billion, but they start allocating. And you start seeing that. I mean, HOCHTIEF has doubled, now tripling backlog and we will continue growing at the back of that. Same thing in Australia. We need to still see how it's going to develop some of the U.K., U.S., Australia initiatives they have in Australia. They are allocating like around EUR 40 billion in the next 5 years. but hasn't been allocated yet. And then we have North America, where we continue. Now Infrastructure 1.0 will not generate a cycle like data centers, right? It will allow us to grow at a very good pace, but it will not be a data center cycle unless we jump into Defense 2.0. And that's something that without getting into the more radical part of defense, but the dual use technology. That's something we're analyzing, and we haven't made any decision yet. It's easy for us as we do the infrastructure and client request for the full integration, not just the civil building component of it, but we're analyzing what to do with that. Critical metals, I do think that it can be a good cycle. I don't dare to say as good as data centers. It pretty much depends on right now, the rare earth initiatives of the U.S., how serious is it, a very important part. A lot of the copper projects in South America that they are going to initiate. So we are going to track. And then obviously, lithium and batteries evolvement, right? So depending on those 3 variables, it can be a very good cycle as well. And right now, we're not seeing that reflect in our balance sheet because it's pure engineering what we're doing at this stage. Once we have engineering that, we jump into the PCM part of it, which is where the revenues and the EBITDA is, not in engineering. So that's what is now reflected in our P&L. Ãlvaro Navarro: Alvaro Navarro from Bestinver. I have 2 questions. The first one about the dividend policy. After the strong results release and following that HOCHTIEF increase by 26% its dividend. Are you considering to revisit your dividend policy and go up from the around EUR 2 per share right now? And the second one is about this. I think that this year, you have the possibility to execute the put option over the remaining 40%. Is this a possibility? Or are you managing other alternatives? Juan Cases: Thank you, Alvaro. Starting with the dividend policy. I mean, we're always proud of being a yield plus growth company, right? We offer the 2 of those. The yield because traditionally, we have always had a very good dividend policy traditionally. But in growth because right now, we are in other vertical with high growth and high tech, and we want to make sure that we take advantage of being or becoming a leader in those verticals. That's why we are cautious with the dividend policy. Having said that, it's true. We are growing a lot. And yes, there's cash available. So we haven't landed in any conclusion, but most likely we'll increase our dividend policy up above the EUR 2 per share this year. To how much we are analyzing. On the Thiess, we cannot execute the put until the end of this year 2026, with the cash flow being paid in January '27. If there was an opportunity to acquire in advance, we would take it. But that doesn't depend on us. It depends on our partner. Unknown Analyst: It's Victor from Investing. Congrats for the results. I have 3 questions. The first one is on CIMIC. When do you expect a revamp on the cash flows at CIMIC after derisking of the backlog? The second one is going to be if you can confirm at the end of the year, a Capital Market Day in order to provide 3 years guidance for the group? And finally, what is your expectations about the data centers to be commissioned in the half of the year in the initial conversations? How do you feel about that? Juan Cases: Okay. So starting with CIMIC. What's happening in CIMIC, and that's a difference versus North America, Europe and the rest of the geographies is that a lot of the high-tech projects, energy projects, industrial projects are replacing civil and more traditional projects, right? We are building a lot of the additional backlog in Europe on top of the civil that hasn't been reduced -- hasn't been reduced. And in the case of North America, in the case of Turner, residential has disappeared. Commercial office space has gone down significantly in the last 4 years, but the high tech, it's so big and advanced technology, which account right now for 60% of the backlog of Turner, that, I mean, has replaced part of the old market but has exceeded well in advance and above. In the case of CIMIC, New South Wales, Victoria, Queensland has reduced significantly, tremendously the amount of expenditure in transport and civil, right, which were the big jobs. West Gate coming to an end, Cross River Rail coming to an end, all the WestConnex', the North West Rail, the Western Sydney project, all the rail level crossing programs in Victoria and so on and on and on, right? All of them are gone. Each one of these deals were like $5 billion. right? So it's very difficult to replace with transmission line, substations, energy plants, renewables, data centers, all that plant. So the problem is that we are growing and all those areas, CIMIC, UGL, Leighton Asia, they are growing significantly even Thiess, but not to the extent that they can replace those projects. Plus, those projects, they are collaborative. They do not have big advance payments. And right now, we are -- as we finalize those projects, we've been contributing. That 10% advanced payment that we took 5 years ago, we are pretty much spending right now. So you see that winding off cash at CIMIC not being replaced by the new project, right? So that's the issue. Now eventually, those projects will finally be done and which we are not far away. I mean, there's only 2 to go, out of 9, right? So it's a very good position to be. But I mean, so it will happen soon. Will that be in '26 or '27? I mean we'll see. Then on the Capital Markets Day, yes, we're going to have a Capital Markets Day like the one we had in '24, not like the Investor Day we had at the end of last year. We haven't confirmed the date. Don't take me on the month, most likely at the end of October, but not -- but it will be confirmed eventually. And then on Alcal de Henares, I'm going to take the chance to give an update on the data center platform, okay? So Alcal de Henares, which is around 20 megawatts utility like 14, 18 megawatts. That will be commercialized and in operations or at least service to commence operations by -- before the end of the year, Alcal . We will have additional 250 megawatts, before the end of the year, commercialized, probably North America, beginning of construction. And I think that's a reasonable number. And then obviously, that will -- only those once they are commercialized, that will justify in excess of the value of the price paid by our partner for the platform. Unknown Executive: Thank you. That's time for the questions from the other side. Let's start because some of the analysts and investors that have asked about clarification on the guidance. Regarding the guidance, one is, are we using exchange for dollar stable or devaluation of dollar or what it? And regarding also the guidance, what about the free cash flow? The operating free cash flow has been significantly higher. Marcin Wojtal from BofA is asking us if this EUR 1.5 billion free cash flow per annum could be in the lower side, and we could upgrade that. Juan Cases: Okay. So on the U.S. dollar revaluation, one of the reasons why our guidance is conservative. One of the reasons is because we are assuming that the U.S. dollar will continue to go south, and that's reflected in our guidance for the year. That's the most logical and unreasonable assumption in this stage. On the free cash flow, we prefer to be prudent when it comes to free cash flow. It's true that we -- in the Capital Markets Day, we spoke about the EUR 1.5 billion that has ended up being EUR 2.1 billion and EUR 2.2 billion, respectively. And if the market continues to grow, I mean, we certainly, those are the kind of levels that we can expect. But all our plan, all our capital allocation, all our firepower is based on EUR 1.5 billion, right, to make sure because we want to have also -- I mean more conservative approach to factoring, to confirming to that, I mean, we want to make sure that we are cautious in keeping our cash flow as clean as possible. So basically, I don't dare to give a forecast about the net operating cash flow. Obviously, growth typically drives a high net operating cash flows. But again, our firepower is based on a lower amount of the EUR 1.5 billion. Unknown Executive: And regarding that, there are some questions about our capital allocation strategy, especially on the infra assets, particularly Dario Maglione from BNP Paribas is asking us about an update on the status of SR-400, the project the managed lane in Atlanta, but also what is the overview on our capital allocation strategy in this particular assets? Juan Cases: So I get back to the Investor Day at the end of last year, right? Let's assume that we are able to generate the EUR 1.5 billion. Again, we are way above that at this stage, but all our numbers have been run with that scenario. That post shareholders' remuneration, we would have a net of EUR 900 million. From now to 2030, we multiply by 5, so that's EUR 4.5 billion. And we're still, out of the EUR 3 billion, the 1 -- the EUR 2 billion to EUR 3 billion noncore assets that we could divest that we did announce in 2024 in our Capital Markets Day, we have divested EUR 1.5 billion, there's EUR 1.5 billion left. So all of that comes up to EUR 6 billion. What do we want to do with those EUR 6 billion, right? And there's upside because -- I mean, this year, we had EUR 700 million upside to that amount. First, we want to spend in greenfield projects, managed lanes. So EUR 400 million. We got prequalified in the 25 in Georgia, we got prequalified in I-24 Tennessee. We recently got prequalified in the I-77 in North Carolina. There's 2 projects to go, the 285 West in Georgia, and the other one in Virginia. So that's an important part. The other part is data centers. We have the first platform that we signed with BlackRock GIP. We have the edge data center platform, and we are -- and we do have assets, big assets out of the first platform that we are working on them to secure the power and to pursue commercialization. We're looking at opportunities like in critical metals, like we did in Vulcan in Europe, and other potential opportunities in critical metals but also in the energy space. So I mean, a big part of that is going to greenfield. We have another EUR 1.5 billion that probably will go to M&A. And that M&A could bring Abertis, could bring bolt-on acquisitions for some of the things that I said before to enforce Turner engineering and our capabilities. So we are comfortable in general in the capital allocation. Unknown Executive: This question from Marcin as well from BofA regarding Abertis. Do you consider Abertis EUR 600 million annual dividend to be sustainable for the next 5 to 10 years? What is your idea on Abertis strategy? Juan Cases: Abertis is, if everything goes as per the plan, we hope to give a very good picture of the organization. First of all, let's get back to a few numbers of Abertis. Back in 2018, the EBITDA of Abertis was around EUR 3.5 billion, but we lost EUR 1 billion in PPPs that expired, right? So that's basically -- it was EUR 2.5 billion. This year, we have EUR 4.4 billion EBITDA. And our prospects post France, post France are right now between EUR 4.4 billion and EUR 4.9 billion post Sanef? When you look at some of the ratios, and I think we have given some of these ratios in the past, the net debt ratio pretty much versus EBITDA, I think that has gone from 6.6 to 5.2. I think we gave that figure. But our backlog EBITDA versus the net debt has gone up from 3.4 to 5.8, right? So that gives you a view of how we are managing Abertis in the last years. The most important thing in Abertis that there's 3 things going on right now, or 2, the renegotiation of further contracts, and we will give transparency this year, but very important increases of the overall EBITDA of Abertis at the back of these renegotiations and a couple of transactions that we're pursuing with Abertis. We hope that these transactions, the combination of these transactions will give enough visibility not just to the market, but the rating agencies that our FFO versus net debt ratio that has been increasingly from 7 to very high numbers. That is the main restriction to the dividend distribution will be unlocked and we'll get back to normal dividends. And that, yes, will confirm that not only that EUR 600 million is sustainable on time, but we'll have growth to the future and will increase the valuation of Abertis significantly, which right now is like the ugly duck for all the analysts, right? So that will be a nice one eventually. Unknown Executive: I'll change the topic as Graham Hunt from Jefferies is asking about the environment we have in data centers market, the competitive environment you're encountering as you assess additional data center development opportunities. Are you seeing any difference by region, Europe, Australia, of course, U.S. market? What is our position on that front? How we can be as competitive as we are demonstrating? Juan Cases: So different answers to this question, which is a very important topic. In general terms, we continue seeing huge investment. And we do see very important investments in CapEx, but more importantly, the hyperscalers because they need to plan the next 3 to 5 years ahead, they are giving a lot of visibility of what's coming. From the EUR 420 billion that were spent in data centers in '24, they are expecting altogether to reach EUR 1.1 trillion per year '29, right? So that's the kind of amount we're talking about in the market. There's pros and cons in terms of competitiveness, right? The pro is that right now, we believe we're more competitive than before because before, we were -- for every 20-megawatt data center, we were competing with 14 consortiums. For the 2 gigawatts to 4 gigawatts, there's no competition, right? There's little competition. it's more open book. It's more about the hyperscalers know exactly the price of these things and what competitive looks like, right? They don't need to put long-term RFPs. That's a waste of time for them. right? So what we need to make sure is we compete against ourselves and what hyperscalers can do, which is the bar, which is a very high bar, by the way, because they have a tremendous capability. They could do it themselves. If they use us or another contractor company is because they can do it in the same way or better than what they can, right? So that competition is that's one factor. On the other side, what we are seeing is that time is of the essence, but every year is more of the essence. So hyperscalers want to see is a huge reduction in the timing of construction of these data centers. So that's why we are investing in modular construction, and that's why we continue to increase the timing and therefore, making us more competitive. In terms of U.S. versus Europe versus Australia, completely different markets. U.S. is dominated by the fact that they use is a superpower in AI, that they are training the models, that they have all kind of data storage and most of the American companies, they rule the world when it comes to data, right? So that's why you're seeing the 2 gigawatts, the 4 gigawatts. Anything you do in the U.S., you commercialize very quick, right? There's a huge, very liquid market for this from hyperscalers but also medium companies, small companies. There's a lot of AI processing inference. There's a lot of AI training. There's a lot of data storage. And there's a race to become the most powerful data storage hyperscaler. Europe is very slow. And Europe is very slow because right now, there's a debate about what a data center can provide. And there's always a mismatch between direct and indirect value. Direct value. There's always a combination of high energy, high water, low employment. Indirectly, every time you have megawatts of AI process interference, or ecosystem, you build a huge ecosystem of start-ups around data center. And some example, like Virginia, when they got to the 2.7, 2.4 gigawatt capacity, I think that they brought -- they created 10,000 new start-ups as a consequence. Even some of the big operations in the U.S. moved into Virginia, but the same thing in other places. Something similar happened in Ireland, that plus tax incentives a few years ago. And you will be seeing that in Europe. So more and more and more countries, they see data centers as strategic national investments. But that takes time to get to that conclusion, right? Plus once you -- so that delays things a little bit, but it will come. Having said that, Europe is not training AI models yet. Europe doesn't have big hyperscalers yet. They are the American ones, mainly investing in Europe. And the power in Europe is very much intervened and has some restrictions, different country to country, but in the same line, right? So that doesn't help to the development of more data centers in the short term. But it will come, not as big, but it certainly will come and the industry will come to Europe. Asia Pacific, we've seen that booming, but obviously, they are not trained -- except China that -- I exclude China for now. They are not training big AI models, and they do not have that storage, but certainly Leighton Asia has been super active. Out of the backlog we currently have, there's like EUR 2 billion just in Asia Pacific without including Australia. And then Australia, it's going slow moving into data centers, but we're seeing progress in the country towards data centers. Unknown Executive: In that sense, Dario Maglione is asking about the data centers in Spain outlook because he asked that as we plan to have around 800 megawatts of data centers through our JV platform by 2032, how strong is the demand for data centers in Spain? Enough to absorb this amount? Juan Cases: Potentially, yes. potential, yes. That depends. In Spain, what I do think is going to happen is hyperscalers first will fold their demand with their current development. Once they go beyond that, then they will start asking for additional capacity, and that's where a lot of that excess capacity will be used, on a large scale. I'm not talking about ours. I'm talking about Spain, the countries in general, right? But there's demand for a medium companies that right now, they are not doing their own development, but they are looking for, I mean, megawatts of data centers available. I do think that the restriction is not so much on the demand. The restriction is more on the power. When we speak about AI or inference demand, that's different, right? Because that's a very more unique energy demand. It's not like pure data storage. It's more about inference. It's more about AI processing. I think that, that will take more time in Spain versus the rest of Europe or the U.S. Unknown Executive: Final question is coming from Filipe Leite from CaixaBank BPI. Regarding the platform, the data centers platform, he has 2 specific questions. One is regarding the commercialization? Any news about the commercialization on data centers for this year? And the second is much more technical. He's asking about why the cash in from the recent agreement with BlackRock GIP, sorry, is lower than the EUR 500 million we announced, which has been accounted for EUR 428 million? Juan Cases: Okay. I'll start with the first one, and then I will add to this, and I will ask Emilio to add anything he considers. Well, on the first one, I already said before, before 2026, we expect to have in Spain, 14 megawatts IT, which is basically 20 commercialized and built, in the U.S. like 250. And I believe that those could be conservative figures, and then we'll continue adding that every year. When it comes to the platform, I think that is just the inflow versus the outflow net. Emilio, if you want to add? Emilio Grande: Yes, correct. So the net number was estimated to be EUR 500 million is when we announced the transaction last year. It's slightly below that. The net number, EUR 860 million, minus EUR 400 million something. And the only reason is because of the terms of the agreement and the exact amount of investment as of the date of closing. So that's the gap or the difference between the EUR 500 million and the actual cash in net. Unknown Executive: Final question is regarding, as you mentioned, we are pursuing some managed lanes opportunities in U.S. Could you clarify why the consortium structure for the different bids are different from what we have been doing in the past? Or why the first? What is the reason that we have different partners? Juan Cases: No. I mean, we have only 2 consortiums. The main one with Meridiam, Acciona. I mean, we won with them 400 and were prequalified in the 285 and A24 with them in Georgia and Tennessee, respectively. In the case of North Carolina, Kiewit has been a traditional partner of Flatiron in North Carolina. I mean as you know, in terms of macro figures, Kiewit is the largest civil contractor company in the U.S. We are the second largest. But in North Carolina, in particular, we are both very, very strong in the lead positions, and we have been traditional partners. So some of these conversations were back before our consortium with Acciona. So it's just a specific situation in North Carolina. Unknown Executive: There's no more questions from the web. Juan Cases: Any further questions? Okay. Excellent. So thank you very much, everyone, for coming and joining on the phone. Look forward to any questions on an ongoing basis with the next days or weeks. Thanks a lot.
Operator: Hello, and welcome to the Montrose Environmental 4Q '25 Earnings Call. [Operator Instructions] Now I would like to turn the call over to Adrianne Griffin, Senior Vice President of Investor Relations and Treasury. You may begin. Adrianne Griffin: Thank you, operator. Welcome to our fourth quarter 2025 earnings call. Joining me today are Vijay Manthripragada, our President and Chief Executive Officer; and Allan Dicks, our Chief Financial Officer. During our prepared remarks today, we will refer to our earnings presentation, which is available on the Investors section of our website. Our earnings release is also available on the website. Moving to Slide 2. I would like to remind everyone that today's call includes forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when evaluating our operating performance and financial outlook. We refer you to our recent SEC filings, including our yet-to-be filed annual report on Form 10-K for the fiscal year ended December 31, 2025, which identifies the principal risks and uncertainties that could affect any forward-looking statements and our future performance. We assume no obligation to update any forward-looking statements. On today's call, we will discuss or provide certain non-GAAP financial measures, such as consolidated adjusted EBITDA, adjusted net income, adjusted net income per share, and free cash flow. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. Please see the appendix to the earnings presentation or our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures, and a reconciliation of their most directly comparable GAAP measure. With that, I would now like to turn the call over to Vijay. Vijay Manthripragada: Thank you, Adrienne, and welcome to everyone joining us today. I will start with an update on our record 2025 results, provide 2026 guidance, and speak generally about the earnings presentation shared on our website. Allan will then provide the financial highlights, and following our prepared remarks, we will host the question-and-answer session. Before we get into the numbers, I want to acknowledge the extraordinary work of our approximately 3,500 colleagues around the world. 2025 was a record year across every key dimension: revenue, EBITDA, and cash flow. The reason we win quarter after quarter and year after year isn't luck or timing. It's because we bring science, field expertise, and urgency to the problems our clients need solved right now. Our results continue to demonstrate that environmental stewardship, human development, and shareholder value creation are not intention. At Montrose, we are for planet and for progress. As we have noted each quarter, our business is best assessed on an annual basis as demand for environmental science-based solutions does not follow consistent quarterly patterns. We manage our operations on an annual basis, and we recommend you similarly view our performance that way. With that context, I'm extremely pleased to report that 2025 was the strongest year in Montrose's history. We delivered full year revenue of $830.5 million and consolidated adjusted EBITDA of $116.2 million, both record highs and both well above the initial guidance we provided at the start of 2025. Let me put that record performance in context. Revenue grew 19.3% versus 2024, driven by organic growth of 12.7%, which meaningfully exceeded our long-term organic growth target of 7% to 9%. All 3 segments delivered solid organic revenue growth, thriving despite the ongoing regulatory uncertainty from the U.S. federal government. Consolidated adjusted EBITDA grew 21.3% year-over-year, and our consolidated adjusted EBITDA margin expanded for the third consecutive year, reaching 14% in 2025, representing 180 basis points of improvement since 2022. And importantly, we did not just grow the top and bottom line. We delivered record cash flow and exceeded every major strategic objective we set for ourselves in 2025, which Allan will expand upon in his remarks. Montrose has now delivered approximately 20% revenue CAGR from 2020 through 2025, outpacing the Russell 2000 constituent average, driven by roughly 13% average annual organic growth and resilient demand tailwinds across our diversified end markets. I am very proud of this team for delivering these exceptional results while maintaining their focus on our mission and on our clients. I also want to take a moment to address something directly because we continue to hear questions about it from investors. There is a persistent narrative in the market that U.S. regulatory volatility and uncertainty creates meaningful headwinds for Montrose. Let me be direct. The macro and regulatory backdrop for environmental services and solutions remains as constructive as we have seen, and the performance we delivered in 2025 is the clearest possible evidence of that. In 2025, approximately 90% of our clients operated in a diverse subset of private sector industries, including energy, utilities, transportation, industrial manufacturing, chemicals, and technology. Our work creates more efficient operations, reduces their environmental impact, and derisks their growth. We achieved this by delivering environmental consulting, measurement, and treatment through a unified service model. The real economy still needs a reliable environmental partner, and this demand doesn't stop for a new headline cycle. As industrial activity picks up in our key markets in the U.S., Australia, and Canada, we are seeing increased demand from the mining industry, pharmaceutical companies, particularly the GLP-1 manufacturers, the semiconductor industry, and technology companies building data centers. The air monitoring or water treatment needs for our clients in these sectors has picked up materially and were not part of our outlook 18 months ago. We expect these dynamics to support strong organic growth well into the foreseeable future. Despite the strong demand tailwinds across the majority of our business, 2 regulatory dynamics, in particular, have garnered a fair amount of recent attention. On methane, the market perception is that recent EPA framework changes, such as the Endangerment Finding repeal, threaten our business. The reality is there is no material impact on our services expected in the near term. Even though the essence of U.S. EPA changes haven't altered the regulations underpinning our work, more importantly, our methane services work is concentrated with large operators in states with independent stringent regulations, including states like Colorado, Texas, California, and Pennsylvania, states that have implemented their own monitoring frameworks and continue to set expectations that require credible monitoring and abatement. Meanwhile, the EU methane regulation extends the market for emissions monitoring, reporting, verification, and abatement to exporters, including U.S. LNG and oil producers. Because Montrose invested early in advanced monitoring and verification-ready technologies, our energy clients can achieve better, faster, and more cost-effective outcomes. With global deadlines phasing through 2030, demand is now more predictable. And on PFAS, while the market remains focused on headlines, PFAS is already a high-margin growth driver across our segments. U.S. EPA and White House actions continue to elevate PFAS as a priority. In Q2 2025, the U.S. EPA provided clarity on national PFAS standards, which expanded our pipeline. Ongoing state actions around maximum contaminant levels, AFFF remediation, and industrial discharge standards are also driving long-term demand for our services. States and utilities are tightening expectations around landfill leachate, for example. And as a result, pretreatment and full-scale opportunities increased for Montrose in 2025, and we expect elevated accretive organic growth in water treatment through 2026 and beyond. We are seeing similar demand increases in our Australian market. On broader regulatory uncertainty, again, our track record speaks for itself. We have delivered consistent organic growth across multiple administrations and regulatory cycles. This is not a coincidence. It is a function of our business model. Our business is predominantly private sector, with U.S. federal government exposure of less than 3% of revenue. The private sector clients that represent 90% of our work are not waiting on Washington. They have their own environmental obligations, their own sustainability commitments, and their own operational needs that drive sustained, predictable demand for our services. It is important to note that our addressable market for water treatment extends well beyond PFAS itself. Our water treatment total addressable market exceeds $250 billion. Ours is a water technology business, not just a PFAS business. Our IP and process expertise are solving challenges across contaminants and industries, from pharma and semiconductors to waste and industrial clients. PFAS is a tailwind, but the larger story is scalable, trusted water technology solutions. The short answer for Montrose is this: macro and regulatory drivers are tailwinds that endure. The backdrop is familiar, economic volatility, policy fluctuations, and evolving regulatory frameworks drive complexity that creates demand for the various services where we choose to compete and where we have built capability. Our private sector clients tell us 3 things consistently: their long-term outlook has not changed, domestic industrial activity is a net positive, and they remain committed to state regulations and international rules because compliance is a license to grow. With more than 6,000 clients, we've seen very few material changes to operating policies. That durability underpins our confidence. We expect to publish a study with the Financial Times around Q2 2026 that demonstrates how the private sector is responding to U.S. environmental policy volatility. By and large, the data shows that the private sector, Montrose's clients, are staying the course and that steadiness is manifesting in our numbers. These dynamics are a meaningful part of our confidence as we launch our 2026 guidance. Transitioning first to our priorities for 2026. Our strategic focus is clear and consistent with what you have heard from us. Let me take this in 3 pieces. First, organic revenue growth and margin expansion. Our go-to-market strategy, anchored by cross-selling our unique portfolio of services to private sector clients, coupled with regulatory and policy tailwinds across our key markets, and broad increases in industrial activity, continues to demonstrate the resilience and compounding power of our integrated platform. We have exited 2025 with strong momentum in all 3 segments, and we see broad-based demand across the private sector clients in 2026. As one data point, the percent of revenue from cross-selling increased from 53% to 62%. Our growth is not dependent on acquiring any more customers, but rather on deepening the relationship with our existing customers. Second, strong cash flow generation. We have consistently prioritized working capital discipline and operational efficiency. The 93% operating cash conversion we delivered in 2025 was extraordinary. While we do not expect to sustain that exact level, we remain confident in achieving 60% operating cash conversion in 2026, which exceeds our long-term 50%-plus operating cash flow to consolidated adjusted EBITDA target. Free cash flow is also expected to remain robust in 2026, providing the foundation for our capital allocation strategy. Third, strategic capital allocation. Now that we have completed the balance sheet simplification we committed to in 2025, we have expanded flexibility to deploy capital in ways that enhance the shareholder value, including through organic investments, M&A, and share repurchases. I will come back to each of these in a moment. Turning to our 2026 outlook. We are introducing guidance of $840 million to $900 million in revenue and $125 million to $130 million in consolidated adjusted EBITDA. At the midpoint, that represents approximately 10% EBITDA growth compared to 2025. This guidance does not assume any acquisition impact. We are targeting approximately 15% consolidated adjusted EBITDA margins in 2026, reflecting the operating leverage inherent in our model, ongoing efficiency gains, and the benefit of our higher-margin service mix. This is an important signpost for us and one I want to clearly anchor on for the investment community. Organic revenue growth of 7% to 9% remains our long-term expectation. And for 2026, we expect to be at the high end of that range. Revenue in the second half of 2026 is expected to be higher than the first half, with the second half contributing approximately 60% of full year consolidated adjusted EBITDA given the timing of current projects. Our 2026 environmental emergency response revenue assumption is in the range of $50 million to $70 million, consistent with our long-term framework. As always, our formal guidance assumes no impact from future acquisitions. I also want to highlight a milestone that is easy to overlook, but tells a powerful story about the compounding cash generation power of this business. Between 2025 and 2026, we expect to generate approximately $180 million in cumulative operating cash flow. We achieved record operating cash flow of $107 million in 2025 alone, a 93% conversion rate. We expect sustained strong conversion in 2026, supported by ongoing margin expansion and working capital discipline. This trajectory positions Montrose to continue enhancing cash flow and driving shareholder value. Before I hand the call over to Allan, I want to reaffirm the framework that underpins our capital allocation philosophy and our ability to create long-term shareholder value. On organic investments, we will continue allocating 1% to 2% of revenue annually to high-return investments in proprietary technology, software development, patents, R&D, and growth capital expenditures. These are the innovations that expand our applications and strengthen our competitive position over time. And they are a large part of why our organic growth has averaged 13% for the past 5 years. On balance sheet strength, our strong liquidity provides flexibility for strategic initiatives while we maintain a disciplined and balanced approach. On share repurchases, I am pleased to announce that we are in a strong position to begin returning capital directly to shareholders through our existing $40 million share repurchase authorization. Considering the ongoing disconnect between the company's strong financial and operating performance, our near- and long-term optimistic outlook, and our current public stock valuation, the program reflects our confidence in Montrose's business trajectory. The confidence we have in our performance, our 2026 outlook, and the macro tailwinds supporting this business makes this the right moment to begin this program in a systematic and ongoing way. On acquisitions, having delivered on every objective we set when we announced the acquisition pause in late 2024, including full balance sheet simplification, record cash flow and continued margin expansion, we are now in a strong position to return to accretive acquisitions in 2026. Acquisitions remain a key part of our long-term strategy, our growth algorithm, and our investment thesis, and our pipeline today is as robust as we've seen in recent years. As we have said before, we will remain prudent on leverage. We remain focused on highly strategic, accretive tuck-ins that enhance cross-selling opportunities, expand market presence, and optimize our service mix for continued margin enhancement. In summary, 2025 was a record year for Montrose in every meaningful sense. We delivered record revenue, record EBITDA, record cash flow, and record margins. We exceeded every key strategic objective we set for ourselves. We enter 2026 with a simplified balance sheet, strong liquidity position, and clear strategic momentum. Demand remains very strong in all of our key markets, the United States, Australia, and Canada. I am extremely proud of the Montrose team and everything they have accomplished, and I remain deeply optimistic about what lies ahead. Thank you for your continued interest in Montrose. And with that, I will hand it over to Allan. Allan Dicks: Thanks, Vijay. Our record 2025 results demonstrate our ability to deliver for our clients, shareholders, and employees. These results included robust organic growth driven by ongoing cross-selling success, a third consecutive year of profitability improvement, driven by our focus on higher-margin services and operational efficiency, simplification of our balance sheet ahead of schedule, and lower-than-expected leverage due to record cash flow and earnings. Beginning with a discussion of our revenue performance. Fourth quarter revenue increased to $193.3 million compared to $189.1 million in the prior year period. Full year 2025 revenues increased by 19.3% versus 2024, totaling $830.5 million, well above our initial guidance. The primary drivers of full year revenue growth were strong organic growth across all 3 segments, totaling $81.8 million, or 12.7%, stronger-than-expected environmental emergency response revenue, and contributions from acquisitions closed in 2024. Turning to profitability. Fourth quarter consolidated adjusted EBITDA was $23.9 million, or 12.4% of revenue, compared to $27.2 million, or 14.4% of revenue, in the prior year quarter. Fourth quarter results benefited from improved margins in consulting and advisory services, offset by lower margins in the Measurement and Analysis and Remediation and Reuse segments, and expenses related to the wind down of our renewables business. For the full year, consolidated adjusted EBITDA increased 21.3% to $116.2 million, or 14% of revenue, resulting in our third consecutive year of margin expansion and 180 basis points of improvements since 2022. Turning to GAAP results. Net loss in the fourth quarter improved to $8.2 million, or $0.23 loss per diluted share attributable to common shareholders compared to a net loss of $28.2 million, or $0.90 net loss per diluted share in the prior year. This $20 million year-over-year improvement in net loss primarily resulted from lower stock-based compensation expense following the cancellation of stock appreciation rights in the prior year and lower income tax expense in the current year. The $0.67 comparative period improvement in loss per share was primarily due to the improved net loss and the elimination of Series A-2 dividends following the full redemption of the remaining preferred equity instrument on July 1, 2025. For the full year 2025, net loss improved to $0.8 million, or $0.14 loss per diluted share compared to a net loss of $62.3 million, or $2.22 net loss per diluted share in 2024. This $61.5 million year-over-year improvement in net loss primarily resulted from the increase in income from operations and the $20.2 million fair value gain related to the Series A-2 preferred stock redemption, partially offset by higher interest and income tax expenses. The $2.08 comparative period improvement in loss per share primarily resulted from lower net loss, lower Series A-2 dividends, and an increase in weighted average diluted common shares outstanding. On an adjusted basis, fourth quarter adjusted net income and diluted earnings per share were $13.5 million and $0.35, respectively, compared to $14.7 million and $0.29 in the prior year quarter. Adjusted net income decreased due to lower operating margins in the current period, while diluted adjusted earnings per share benefited from the elimination of the Series A-2 dividend and lower fully diluted shares outstanding. For the full year 2025, adjusted net income and diluted EPS were $60.7 million and $1.36, respectively, compared to $55.8 million and $1.08 in the prior year. The year-over-year increase in adjusted net income reflects higher revenues and improved margins, partially offset by higher interest and income tax expenses. Diluted adjusted EPS benefited from the elimination of the Series A-2 dividend following the full redemption in 2025. I will note that the increase in interest expense was partially attributable to the incremental borrowings to redeem the Series A-2 preferred. The year-over-year incremental interest expense of $3.7 million was more than offset by the reduction in Series A-2 dividends of $6.9 million. And with the Series A-2 now fully redeemed, this cash flow benefit will continue to be realized. Please note that our diluted adjusted EPS is calculated using adjusted net income attributable to stockholders divided by fully diluted shares, which we believe is currently the most helpful net income per share metric for Montrose and common equity investors. I will now discuss our performance by segment, focusing my comments on the full year. In our Assessment, Permitting and Response segment, full year revenue increased 43%, or $92.6 million, to $307.4 million. The primary drivers were organic growth of $57.8 million in nonresponse consulting and advisory services, including remediation consulting work cross-sold from the large environmental incident response in the second quarter, environmental emergency response growth of $29 million, and 2024 acquisition contributions of $5.8 million. This segment is a strong illustration of the power of our integrated platform and our ability to convert an emergency response into a long-term remediation consulting engagement and is precisely the cross-selling model we have been building. Full year segment adjusted EBITDA was $68.5 million, up from $48 million in the prior year. Adjusted EBITDA margin was 22.3% of revenue, essentially flat with the prior year. We expect margins in the segment to strengthen in 2026 due to strong expected demand, pricing discipline, and operational efficiency. Turning to our Measurement and Analysis segment. During 2025, this segment significantly outperformed the prior year, as utilization drove efficiency gains and our team enhanced operating performance. Full year revenue grew 9.6% to $245.9 million from $224.4 million in the prior year, driven by organic growth of $12 million from increased demand for air quality and laboratory services, as well as 2024 acquisition contributions of $11.6 million. The most compelling story for this segment is the margin performance. Full year segment adjusted EBITDA was $64.4 million, or 26.2% of revenue compared to $50.5 million, or 22.5% of revenue in the prior year, a 370 basis point margin expansion. This improvement reflects improved operating discipline, growth in higher-margin laboratory services, and operating leverage across air quality services. We expect segment margins to remain elevated and well ahead of our long-term guidance and as compared to 2024, although modestly lower than 2025. In our Remediation and Reuse segment, full year revenue grew 7.8% to $277.3 million from $257.2 million in the prior year. Revenue growth was driven by organic growth of $12 million, primarily in water treatment services, and 2024 acquisition contributions of $8.1 million, partially offset by $9.8 million of lower revenues from renewable services as part of the strategic wind-down and exit of that business. Full year segment adjusted EBITDA was $36.3 million, or 13.1% of revenue, compared to $38.3 million, or 14.9% of revenue in the prior year, primarily driven by the $4.4 million loss associated with the strategic wind-down of our renewable energy operations. In 2026, segment margins are expected to improve as our water treatment business continues to benefit from organic growth and operating leverage. Importantly, we did not just deliver record top and bottom line results. We also delivered record cash flow. We achieved $107 million in operating cash flow, representing an extraordinary 93% conversion of consolidated adjusted EBITDA, well above our 50%-plus long-term target. We also generated record free cash flow of $87 million, or 75% of consolidated adjusted EBITDA. Beyond these financial results, we exceeded every major strategic objective we set for ourselves in 2025. We fully redeemed the remaining $122 million of our Series A-2 preferred stock 6 months ahead of schedule, permanently simplifying our capital structure and eliminating all future Series A-2 dividends. We exited the year with a leverage ratio of 2.5x, exceeding our year-end target of below 3x and had substantial available liquidity of $225 million, which demonstrates the balance sheet strength that positions us well for the next phase of our growth strategy. In short, 2025 was a record year across every major financial metric: revenue, EBITDA, cash flow, and balance sheet strength. We enter 2026 with strong momentum, a clear strategy, and a team that has earned the right to be confident. We look forward to demonstrating continued progress throughout the year. Operator, we are ready to open the lines for questions. Operator: [Operator Instructions] And our first question comes from the line of Tim Mulrooney with William Blair. Timothy Mulrooney: Congrats on capping off a strong year of execution here in 2025. I wanted to start out with a guidance question, just a simple one. You provided full year revenue and EBITDA outlook. But look, I know you're not a quarterly company, but I'm hoping you could provide just a little bit more color on how to think about your expectations for the cadence as we move through the year. Allan Dicks: Yes. Tim, let me take that. It's a good question. You're right, this is not a quarterly business, but there are some interesting comparisons to '25 given some of the timing of the emergency response revenue. So at a high level, we expect revenues to be split roughly 50-50 front half/back half. And then within the front half, about 40% Q1, 60% Q2, okay? On EBITDA, we expect a split of -- just the first half, second half, 40% first half, 60% second half. And then within the first half, about 1/3 is Q1 and 2/3 Q2. Timothy Mulrooney: If I go back, Allan, and I go back and look at your EBITDA breakdown, it's actually not that different than what we've seen in some prior years. So... Allan Dicks: That's right. Yes. Q1 is just a very seasonally slow quarter. Obviously, the timing of emergency response, which is impossible to predict, can move that around quite significantly. We always assume the midpoint of that $50 million to $70 million, and roughly apportion it with $15 million a quarter. So there could be a light quarter, there could be a heavy quarter. So that's certainly going to move those percentages around. But those numbers I just gave you assume an even distribution of that $60 million ER revenue, guidance midpoint. Timothy Mulrooney: You know what, another thing I wanted to ask, about switching gears completely, is this topic of AI. We saw a broad sell-off in engineering and design firms over the last couple of weeks due to concerns about disruption from AI and Montrose has occasionally comped against some of these companies. How do you think about the net impact from AI on your business, and more specifically, your engineering and design work? Vijay Manthripragada: Let me take that, Tim. Look, these are exceptional firms. Many of these firms you reference are our clients. And so I'll speak generically, Tim. You know the space as well as anyone, right? I think a lot of the concerns there seem to be tied to AI's ability to disrupt the more formulaic and algorithmic tasks that some of these firms do. Our work is much more bespoke, and I'm happy to expand into that further to the extent it's of interest. But as we think about a simple example is the complexity of the water treatment and how that's constantly changing or the field-based nature of our work. The gist of it is we are not an A&E firm, and Montrose is much more insulated from those dynamics than are some of the firms that you referenced, Tim. But look, we're not being Pollyannish about this. I mean, prior to my life at Montrose, I came from a technology firm. So I'm acutely sensitive to both the risks and opportunities that AI and large language models present. And I would frame it in the context of 3 frameworks that we look at. One is there is absolutely an opportunity for us to drive efficiency with the type of work that we do. And we are already in the process of doing that. And so what I mean by that is using large language model-based technologies to make ourselves more efficient, which should drive margins and create upside opportunity into the future. The second is on the revenue side as a large data aggregator. We are already in the early stages of harnessing some of this technology to work with our clients, so for example, with our sensor networks and real-time air monitoring. So there's a revenue stream opportunity that's new that we are pretty excited about. And then, independent of what we're doing internally, Tim, the technology companies that are driving a lot of this activity are Montrose's clients. And so it is early days. We have been careful not to talk about this too much until we really are ready to be very precise about exactly what we're doing. But it is already manifesting in our revenue, meaning the environmental work we're doing for technology companies, and specifically around data centers and AI, saw some really nice growth last year off of, again, a small base. And then we expect to continue to see that really nice growth into the foreseeable future. None of that is in our numbers in terms of our 7% to 9% organic growth today. We want to be careful about not overpromising. But there's clearly some really nice tailwinds and opportunity for Montrose as we look at this more broadly. Does that answer your question? Timothy Mulrooney: Yes, it does and makes a lot of sense, so thank you. Maybe I'll just wrap it up with one more, if you don't mind, if I squeeze one more in because I did hear you make that comment in your prepared remarks, Vijay, about some of these emerging thematics, these nascent opportunities that weren't necessarily around 18 months ago, whether it's -- I think you listed mining, pharma, semi, data center. Allan Dicks: Yes. Timothy Mulrooney: And it goes to your commentary of seeing more tailwinds than headwinds. I'm just curious, as you think about these opportunities, which ones you're most excited about, I guess, as we move through 2026 and 2027. Vijay Manthripragada: Yes. We -- so a lot of these are already our clients, Tim. So some of them are growing opportunities as we speak, and some of the others are pipeline opportunities that have popped up. So just to explain what I mean, within the pharma space, the GLP-1 manufacturers, there are PFAS byproducts that come through the manufacturing process. And so they have been working with us to determine, given some of our unique IP and technology, to how to extract some of the short-chain PFAS that come out of that process. So that's a new set of opportunities. We haven't really addressed that before. That's in our pipeline now. I'm pretty excited about what that looks like, you call it, into the '27 onwards time frame. Contrasted with the data center work that I referenced earlier, that is already in a small way in our revenue and our revenue growth profile, and I expect that to expand further. As we think about the semiconductor industry, a lot of those have been clients of Montrose. As activity picks up and they start to build out some of these centers and manufacturing capabilities, there's a host of opportunities for us as we think about our integrated environmental platform that are opening up that didn't exist before. So we're quite excited about that. A lot of this is tied to our water technology business, Tim, which we expect to grow double digits in '26 compared to '25. And as we think about the long-term or even medium-term, this represents incremental upside to what we saw even 18 months ago. So that's what we meant in the commentary, and hopefully, that adds some more color. Operator: And your next question comes from the line of Jim Ricchiuti with Needham & Co. James Ricchiuti: I appreciate the additional color, Allan, by the way, in response to Tim's question about thinking about the year. So thank you for that. You've touched on some of this in the question I have coming up is just where you see the biggest opportunities from an organic growth standpoint. And I think you highlighted, Vijay, some of the end markets, some of the -- but I'm curious how that might translate down to some of the business lines and where you see the biggest opportunity for organic growth. Vijay Manthripragada: Yes. There's a couple of areas where we're quite optimistic about what the future looks like, Jim. So one area, as I just alluded to, is our water technology business, which we expect to grow really nicely into the foreseeable future. It's going to be accretive to our growth trajectory over time. It certainly will be to our numbers in 2026. So that's a particular area of focus. We remain quite optimistic with our core business around testing and consulting as well. Despite all of the volatility, the uncertainty that's in the market right now is creating tailwinds for us. And so we're seeing ongoing demand for our testing business, both field-based and lab-based. And we're also seeing really nice demand tailwinds for our consulting business -- environmental consulting business. And there's been some really nice opportunities for us that have come up. As Tim asked about earlier, we've seen in Australia, for example, with our mining clients. In the Canadian market, we've seen a really nice uptick in activity tied to Prime Minister Carney's initiatives around Canadian infrastructure build-out. And then here at our home market in the U.S., the increased industrial activity is driving really nice demand tailwinds for us. And so as we look out into 2026, the type of business that we're seeing and the mix is a little different than we've seen in the past. But all of those areas excite me, and there's ways for us to harvest those opportunities, both organically and inorganically, which we're excited to jump on. James Ricchiuti: You guys are making some nice progress on cross-selling. Any particular areas or verticals that's been driving that improvement that we're seeing? Vijay Manthripragada: It's largely just execution, Jim. We alluded to this before. Our response business is a spectacular cross-sell engine. And strategically, it represents really nice opportunities post response to drive testing work and remediation work, specifically around soil and water remediation. And so a lot of the improvement you saw in 2025 was tied to ongoing execution against that original plan. So it's more of the same blocking and tackling. We've made investments in our commercial infrastructure. We've brought in some incredible talent, some very seasoned leaders that are sector leaders and well-known names in the industry. And so a lot of that has been the reason why we're seeing improvements on that metric, and we expect to see that into the foreseeable future. James Ricchiuti: One quick final question for me. You sound optimistic on the PFAS side of the business. Can you say what the PFAS revenues -- and you may have. I may have missed it -- represented in 2025 and what the growth rate was? Vijay Manthripragada: Yes. It remains about 10% to 15% of our business, Jim. And I think we've historically -- and this is really something we should have done a better job at -- but we've historically talked about our water technology business primarily in the context of PFAS. And what we're seeing now is that our water technology business is getting pulled into PFAS demand cycles, but it's more a family or a group of contaminants, including PFAS that we're treating. So for example, when we're dealing with landfill leachate, which has been a really nice growth market for us, the waste industry that is, we're removing all kinds of contaminants in addition to PFAS, not just PFAS. So as we look at it in aggregate, that's part of the reason why we see so much -- why we have so much optimism in what the future looks like, because it's now become embedded in the set of contaminants that folks want to remove. And so the numbers are still very similar to what we talked about before, Jim, 10% to 15% of revenue with double-digit growth expected into 2026. Operator: [Operator Instructions] And our next question comes from the line of Tami Zakaria with J.P. Morgan. Tami Zakaria: Congrats on the wonderful results. Question on M&A. Good to see you're planning on doing M&A. Could you elaborate on the potential size of the deals in terms of maybe revenue or EBITDA that you're looking at, which segments you're focused on, any sense of the timing, first half versus back half? Any color would be helpful. Vijay Manthripragada: Yes, Tami, let me start with that, and Allan, you should certainly jump in. There is nothing imminent. And so as you look out to Q1 or even the first part of Q2, it is unlikely we're going to do anything there from an acquisition perspective. We're going to be very measured. We're talking about small, bolt-on acquisitions. We are very sensitive to leverage. As you know, we've talked about that, and we think about this in the context of broader capital allocation strategies to maximize returns. So with that background and with that underpinning, we see some really nice opportunities on the testing side of our business, Tami, and we see some really nice opportunities across the Australian, Canadian, and U.S. markets on the consulting side of our business. And so we will likely start to, in a measured way, bolt on some really accretive assets, both strategically accretive and financially accretive, sometime in the back half of the year. As you know, we don't control deal timing, so that may fluctuate a little bit. But with what we see in the pipeline today, from a timing perspective, should we close transactions, and we may not close any, but we certainly expect to close some, we will likely do it in the back half of this year. Tami Zakaria: And a follow-up on the quarterly color you gave, which was very helpful. I just wanted to understand 1Q in particular. It seems like it's going to start off a little lighter before things pick up. So is it just emergency response revenues being lumpy? Or is there headwinds in some other segments as well that's making 1Q smaller and then we expect to pick up as the year progresses. So what's driving the revenue outlook for the first quarter? Allan Dicks: Yes, I can take that. You're right. It is primarily lower emergency response. We're 2/3 of the way through Q1, and so we have visibility at least for that period of time into what emergency response has been. And then to a lesser extent, there is some project timing and tougher comparisons year-over-year in Q1 that lighten as we progress through the year. Operator: There's no further questions at this time, and that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and welcome to the Vericel Corporation Fourth Quarter 2025 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Eric Burns, Vericel's Vice President of Finance and Investor Relations. Please go ahead, sir. Eric Burns: Thank you, operator, and good morning, everyone. Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo; and our Chief Financial Officer, Joe Mara. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and are described more fully in our filings with the SEC. In addition, all forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Please note that a copy of our fourth quarter financial results press release and a short presentation with highlights from today's call are available in the Investor Relations section of our website. I will now turn the call over to Nick. Dominick C. Colangelo: Thank you, Eric, and good morning, everyone. As highlighted in our preliminary financial results release last month, the company had a strong close to the year and delivered outstanding financial and business results in the fourth quarter with significant revenue and profit growth and continued progress across a number of key business initiatives. From a financial perspective, the company generated record fourth quarter total revenue, which increased 23% over last year and exceeded our guidance for the quarter. This strong revenue performance drove significant margin expansion and profit growth as the company delivered record net income, gross margin of nearly 80% and adjusted EBITDA margin of 40% for the quarter. We also ended the year with approximately $200 million in cash and investments and no debt as we continue to elevate the company's top-tier financial profile. We also achieved several key business objectives in the quarter, including the successful completion of the MACI sales force expansion, and the initiation of the MACI Ankle clinical study and made substantial progress on other long-term growth initiatives as we remain on track to begin commercial manufacturing of MACI in our new facility this year and to potentially launch MACI outside the United States in 2027. MACI's second half momentum continued in the fourth quarter with record revenue of more than $84 million, representing 23% growth versus the prior year. This performance was driven by strong underlying fundamentals as we had the highest number of MACI implants, implanting surgeons, surgeons taking biopsies and biopsies in any quarter since launch. MACI's performance was particularly strong in December across all key performance metrics, including biopsy and implant procedures as our commercial and operations team executed exceptionally well to close the year. MACI's leadership position in the cartilage repair market has continued to strengthen since we launched the product in the U.S. in 2017. Over the past 9 years, MACI has generated compound annual revenue growth of 24% and has delivered revenue growth of 20% or more in each of the last 3 years. Notably, as of the end of 2025, more than 20,000 patients have now been treated with MACI. We believe that MACI's strong clinical profile, together with the surgeon and patient benefits of a simpler, less invasive surgery, have driven MACI's strong growth and will continue to do so moving forward. In addition, MACI's best-in-class pricing and reimbursement profile with prior authorization approval rates remaining over 95% for commercial patients in 2025, demonstrates the significant clinical value MACI represents to payors, hospitals, surgeons and patients. With this strong MACI foundation in place as we move into the new year, we're focused on executing on 3 strategic imperatives that we believe will position the company for sustained, strong revenue and profit growth in 2026 and the years ahead. First, we're focused on capitalizing on our larger MACI sales force, which will meaningfully increase our reach across the entire MACI customer base. Starting the year with a significantly larger footprint provides an opportunity to not only continue to drive the expansion of new MACI surgeons, but also to drive deeper penetration and increased utilization within our current MACI surgeon base. We're also implementing a number of important commercial excellence initiatives across the organization. We've made significant investments in new tools and additional resources to enhance our commercial analytics and standardize best practices across our larger sales team, which we believe will elevate execution across our commercial organization and drive deeper penetration within our surgeon user base, unlocking another key growth driver for MACI. Based on these initiatives and the quality of our entire expanded sales force, we expect that MACI sales rep productivity will return to 2025 levels as early as next year. Our second strategic priority is to leverage MACI Arthro to drive continued strong growth in smaller cartilage defects, principally on the femoral condyles, which represents the largest segment of MACI's addressable market. As we discussed throughout 2025, we've been very successful in training physicians on the MACI Arthro technique with approximately 1,000 surgeons trained to date. Importantly, MACI Arthro trained surgeons have continued to demonstrate a significant increase in biopsy and implant growth following training, and for those surgeons that have completed the MACI Arthro case, even higher biopsy and implant growth and higher conversion rates. With this foundation in place, our objective is to leverage MACI Arthro to drive significant growth in the treatment of small condyle defects, which historically have represented a smaller percentage of our overall patient volume and a lower growth segment for MACI. Notably, growth in the small condyle defect segment accelerated in MACI Arthro's first full year on the market in 2025 as this segment became one of the highest MACI implant growth segments along with the patella segment, which consistently has been our highest volume and fastest-growing segment. We believe that the positive trends are driven by the fact that MACI Arthro is a less invasive procedure with the potential for improved patient outcomes. Early data from ongoing investigator case series suggest a significant reduction in postsurgical pain, improved range of motion and a meaningful acceleration in the time line to achieving full weight bearing following MACI Arthro treatment. These initial results suggest very positive patient outcomes that could also lead to shorter overall rehab and recovery time lines. We expect these case series to be presented at upcoming industry meetings and in publications, and we continue to work with additional surgeons as they complete MACI Arthro cases to collect prospective outcomes data in our MACI clinical registry. Our third strategic imperative is to leverage our life cycle management initiatives to position the company for sustained longer-term growth. To that end, we initiated the Phase III MACI Ankle MASCOT clinical study in the fourth quarter. A potential MACI Ankle indication represents a substantial growth opportunity with an estimated addressable market of more than $1 billion and would also enable the company to expand into other areas of the orthopedics market. We also remain on track to initiate commercial manufacturing for MACI in our new facility this year, which will allow the company to potentially commercialize MACI outside the United States. We're taking a staged approach to MACI OUS expansion with the first phase targeting a planned launch in the U.K. The U.K. represents an ideal first step for MACI OUS expansion as there's clearly defined expedited approval and reimbursement pathways, a high level of awareness and surgeon advocacy given that MACI was previously on the market in the U.K. and concentrated points of care with a dozen or so centers of excellence for the treatment of cartilage injuries. We expect to submit a marketing authorization application to the U.K. MHRA in the middle of this year and potentially launch MACI in the U.K. in 2027 as we seek to expand the long-term growth and value creation opportunities for the company. In summary, the company executed extremely well in the fourth quarter, generated record revenue and financial results, while achieving a number of key objectives that help position the company for continued growth in 2026 and beyond. I'll now turn the call over to Joe to discuss our financial results and 2026 guidance in more detail. Joseph Mara: Thank you, Nick, and good morning, everyone. As Nick referenced, the company had an outstanding close to the year with record fourth quarter revenue of $92.9 million and 23% growth versus the prior year. For the full year, total revenue increased to $276.3 million, which was above the high end of our guidance range for the year. MACI also had a strong close to the year with record fourth quarter revenue of $84.1 million, representing 23% growth versus the prior year and 51% sequential growth versus the third quarter. For the full year, MACI revenue increased 21% to $239.5 million, and Burn Care fourth quarter revenue was $8.8 million, which was above our guidance range for the quarter. For the full year, Burn Care revenue was $36.8 million, consisting of $32.1 million of Epicel revenue and $4.7 million of NexoBrid revenue. The company's substantial growth in the fourth quarter translated into significant margin expansion with gross profit of more than $73 million in the quarter or 79% of revenue and adjusted EBITDA of more than $37 million or 40% of revenue, representing the company's highest quarterly margins in any quarter to date. On a full year basis, the company also delivered meaningful margin expansion with 74% gross margin, an increase of nearly 200 basis points compared to the prior year and 26% adjusted EBITDA margin, an increase of over 300 basis points versus the prior year, which were both above our guidance to start the year despite the incremental investments in 2025 for our new facility and the MACI's sales force expansion. GAAP net income also grew nearly 60% to $16.5 million for the full year as the company's profit growth continues to significantly outpace our strong revenue growth. Finally, the company generated full year operating cash flow of $52 million and ended the year with approximately $200 million in cash and investments, an increase of $35 million during the second half of the year as the expected inflection in our cash generation following the completion of our new manufacturing facility is now being realized. Turning to our financial guidance. We are entering 2026 with a great deal of momentum and have gotten off to a very strong start of the year in the first quarter. Consistent with our commentary on our prior earnings call regarding 2026 revenue for both franchises, we expect total company revenue this year of approximately $316 million to $326 million. For MACI, we expect another year of strong revenue growth. And as a starting point for our guidance, we expect MACI revenue of approximately $280 million to $286 million for the full year. Our initial guidance reflects a continuation of current MACI key growth driver trends, including surgeon growth, biopsies per surgeon, conversion rate and price to start the year, recognizing that there is an opportunity for outperformance based on the momentum in our key performance indicators, our expanded sales force and the commercial initiatives that we have put in place. As part of our initial framework, we expect a similar quarterly mix of MACI full year revenue as last year and importantly, a similar growth rate for MACI each quarter this year versus the prior year. For Burn Care, we are maintaining our run rate approach to guidance with revenue of approximately $9 million to $10 million per quarter, recognizing that revenue can vary on a quarterly basis. For the full year, this points to approximately $36 million to $40 million of total Burn Care revenue. Of note, we are not assuming any additional NexoBrid revenue in our initial guidance related to a potential BARDA award, although there is a reasonable possibility for incremental NexoBrid BARDA revenue during the year. For the first quarter, we are on track to exceed 20% total company revenue growth as we are off to a very strong start to the year for both franchises. MACI's fourth quarter momentum has continued into this year with MACI performance trending toward higher first quarter growth than in recent years and Burn Care performance trends have also been strong to start the year. As such, we expect MACI revenue of approximately $54 million to $55 million and Burn Care revenue of $9 million to $10 million for the first quarter. Moving down the P&L. For the full year, we expect gross margin of approximately 75% and adjusted EBITDA margin of approximately 27%, which accounts for additional costs related to our new Burlington manufacturing facility, the incremental investments related to our MACI sales force expansion and increased MACI Ankle MASCOT clinical trial expense as patient enrollment begins. We expect total operating expenses to be approximately $220 million for the full year and anticipate a similar level of spend each quarter. For the first quarter, we expect gross margin of approximately 70% and adjusted EBITDA margin of approximately 10%. Overall, 2026 is set up to be another positive year for the company with strong top-line revenue growth as well as continued margin expansion and profit growth. As we look ahead, we believe that the durable growth of our portfolio positions the company to sustain strong top-line growth in the years ahead and supports our midterm revenue and profitability targets. This concludes our prepared remarks. We will now open the call to your questions. Operator: [Operator Instructions] We'll move to our first question, Ryan Zimmerman with BTIG. Ryan Zimmerman: Busy morning for a lot of us, so I'll try and squeeze in both questions. But I think there was a number of price increases on MACI that were taken in 2025. Correct me if I'm wrong on that, Joe. But how do you think about kind of the mix of price versus volume? If you reflect back on 2025, particularly on volume, I think, investors are rightly concerned that price drove some of the growth. And then as you look ahead to '26, how do you think about that balance as well? Joseph Mara: All right. I'll start -- do you want to ask your second question or just start there? Ryan Zimmerman: Sorry, let's just start there. Sorry, Joe. Keeping me honest. Joseph Mara: Yes. So look, from a pricing perspective, obviously, that remains a key growth driver for us. Nick talked about in his prepared remarks, our kind of access position remains very strong. I think over 95% of our commercial cases from a prior authorization perspective are approved. So kind of looking back historically, and I would say looking forward, certainly, pricing kind of has been and will remain part of our growth algorithm. If you look at the second half of last year, obviously, there was a significant improvement in the MACI performance. I'd say that step-up was volume driven, although, of course, I would say both price and volume play a part in the growth. Ryan Zimmerman: Yes. Okay. And then one of the other key, I think, variables to the algorithm is new doctor growth. And so as you think about kind of who is adopting Arthro, I'm curious if you could reflect on maybe kind of existing or same-store sales dynamics relative to kind of new doctor growth. And appreciate the comments you gave about those adopting Arthro certainly being more robust. But is that a reflection of your existing customer base or potentially new doctor growth? Dominick C. Colangelo: Ryan, I'll start. It's Nick. I think the sort of ratio of trained surgeons that we talked about previously has held throughout the year. So about 2/3 come from existing MACI users split between kind of former patella users and patella and condyle users and then about 1/3 from sort of either prior open targets who had not adopted MACI at that time and then obviously, the new arthro-only surgeons. So that's kind of remained relatively consistent. And I'd say the dynamics that we see once the surgeons are trained regardless of which bucket they come out of sort of hold true in terms of obviously increasing if they're new, but even sort of former users increasing both biopsy and growth rates. And then particularly when they start doing Arthro cases, their growth rates for both biopsies and implants are even higher, and their conversion rate was higher for the year as well. So all obviously very encouraging trends for us as we move forward. Operator: We'll go next to Mike Kratky with Leerink Partners. Samuil-Hrabar Gatev: This is Sam on for Mike. So just during your 3Q '25 earnings call, I think, you had mentioned that 20% growth for MACI would kind of be a good starting point for fiscal 2026. But the current guidance kind of implies growth slightly below that at roughly 18% at the midpoint. Is this just a function of kind of 4Q being a little bit better than expected? And is there anything that materially changed from then versus now when you issued the new guidance here? Joseph Mara: Yes. So I'll start. I mean I'll just give a quick update on the guidance maybe overall. And I would say just on that last part, I mean nothing certainly materially changed. I think if anything, we probably really ended the year a bit stronger across the business, which was great. So just in terms of the guidance framework, to your question, I would say, if you look at both franchises, it's really consistent with the commentary we gave in the last call. So on the MACI side, the guidance is kind of in that low to mid $280 million range. That's consistent, I think, right on top of consensus or very close. We talked about in the last call, having that similar year-over-year incremental growth, which I think accomplishes as well kind of the midpoint of that range and the $282 million or $283 million is right in line with last year, which is about a $42 million increase. I'd say on the specific question around the 20%, I mean, obviously, there's a range around MACI. We want to be prudent to start the year. But what we said in the last call, in addition to having that similar incremental growth was, I think coming into the call, there were analysts kind of on either side of that number. And I think we were comfortable with something at that range, but I think we try to be clear that we were not going to guide above that. So I think more than anything, it's probably just being prudent on the MACI side, but we feel really good about the start of the year on MACI and the full year. And then just quickly on Burn Care, I think that's important as well. So that one is pretty straightforward. We said last quarter, we're going to maintain this run rate framework, which I think has worked well in the last couple of quarters, in particular, call it, $9 million to $10 million per quarter, get to $36 million to $40 million or $38 million at the midpoint. One thing that is probably a bit off coming into the call is we referenced the high 30s last quarter, but if you actually look at external estimates, they're kind of more into the lower 40s. So that's obviously impacting both Burn Care and the total company external starting point. So I do want to point that out. So you put that together, I think we have a nice balanced guide, something around, call it, mid-280 or middle of that range rather and high 30s in Burn Care, you're probably around 320 or so at the midpoint, which we think is a very balanced starting point. And then just briefly on Q1, because I think, that's important as well in the context of the guide. So just to reiterate what we said in the call, we think we're off to a great start on track to exceed 20% as a company for the quarter. The MACI metrics have been really strong, and we are guiding Q1 higher than we've trended and certainly higher than we've guided in the last couple of years. So obviously, feel good about MACI. Burn Care has had a strong start as well. So very much on track to that run rate for Q1. So we think that sets us up well. And then lastly, just on the MACI question and just generally, I think as we talked about in the last call, I'd say we just want a very, I would say, prudent and disciplined start of the year in our initial guide. So MACI has a ton of momentum, we have a number of initiatives, including the increased sales force. We did see some inflection in some of our growth drivers in the second half, but we're not baking any of that in. We're assuming pretty similar trends on a full year basis. And similarly, I would say, on the Burn Care side, there's certainly an opportunity for incremental BARDA revenue. I think that's a reasonable possibility, but we're not baking that in. So I think it's prudent on both franchises. And just one last point on MACI. We did make the comments. If you look at the full year growth rate at the midpoint of that range, it's actually right in line with our Q1 guide. And so we felt like starting the year with not only a similar mix of business because we know our business is seasonal, but pretty -- or essentially consistent growth rates, really the same growth rate across all 4 quarters was a good way to start the year, and I think positions us really well to potentially outperform on that if we execute well. But I think it's a prudent way to start the year, again, just given the seasonality of our business. Operator: We'll go next to Richard Newitter with Truist Securities. Felipe Lamar: This is Felipe on for Rich. So just on the sales force expansion, you guys pretty quickly expanded your territories about 30% in the last couple of months. So I'm just wondering like just talk me through like rep adds and the strategy for the year and I guess, how you expect those new territories to ramp? And then just a second question, if you could give some guidance and expectations for free cash flow ramp for the year, that would be helpful. Dominick C. Colangelo: It's Nick. I'll start with the sales force expansion one. And obviously, we're really excited about the expansion. As you will recall from last year, we decided to accelerate the expansion into Q4 because we wanted to support what we knew were going to be significantly higher volumes in Q4 and make sure that we were positioned to take advantage of this momentum in MACI for the entire year and not kind of have the sales force expansion in the first third of the year. So really excited about that. Obviously, the larger footprint, as I mentioned on my prepared remarks, will increase our reach across the surgeon base and really gives us an opportunity to drive expansion of surgeons and deeper penetration in our existing surgeons. And I would just say, I think the team executed flawlessly on the expansion. Obviously, people outside of the company can worry about disruption when you're expanding the sales force in your largest quarter. So great job by our sales and commercial leadership team to execute and put a plan in place, great job by both the new and existing reps in the fourth quarter to not only drive our highest quarter ever, but to position us well as we come into 2026. As we mentioned earlier, these are extremely experienced and talented reps that we think, together with our existing sales force are going to drive strong performance as we move forward through the year. So that's an important piece of it. I mentioned on the call that we expect our rep productivity to kind of get back to last year's level as quickly as next year. So really excited about the opportunity for the sales force expansion and what it's going to mean for our business. Joseph Mara: Yes. And then in terms of kind of the sort of cash flow question, I think probably the best way to think about -- we're not guiding to that specifically, but obviously, we think we are in an inflecting cash flow position, which is great. Generally, I think what we talk about is our adjusted EBITDA is a good proxy for operating cash flow. It doesn't always line up because there could be collections at the end of the year and some timing differences. But kind of over time, that tends to be a pretty good proxy for the most part. And then you kind of look at our run rate on the CapEx side in the last couple of quarters, it's been in the low single-digit millions, obviously, much lower as we've gotten back to more of a steady state after getting through the building projects. So that's probably the right way to think about it, but we don't have a specific number we've guided to there. Operator: And we'll move next to Mason Carrico with Stephens. Mason Carrico: In the context of your MACI outlook for this year and recognizing your comments, Joe, that leaves some room for upside, how should we think about what's baked in, in terms of the larger sales force conversion rates, maybe surgeon growth that's in the guide today? Joseph Mara: Yes. So again, from a MACI perspective, I think we wanted to start the year with a very balanced view. Obviously, Q1 is off to a good start. And so I think as you think about the key growth drivers there, as I said, I would say you can think of those as similar on a full year basis, whether you're talking about kind of some of the key biopsy drivers or whatnot. I wouldn't say there's anything specific or kind of baking in, in terms of the new sales force. I think it's probably more just overall looking at the overall trends. To kind of Nick's earlier point, I think we have pretty high expectations of our new adds and are excited about just the increased reach and frequency we're going to have. So we do think that can be impactful over time, but we're actually not really baking anything into the guide. And obviously, it's a long sales cycle, so you want to have a little bit of patience there. But obviously, at the same time, we expect that to kind of get back to our rep productivity rates pretty quickly. So I think there's certainly an opportunity if the teams can do a good job to help drive that outperformance, but nothing specific that we've baked in, assuming kind of any sort of inflection in trends. Mason Carrico: Okay. Would you be able to share any thoughts or anything you can point us to on how conversion rates for MACI tracked over the course of 2025? What proof are you seeing that Arthro might be able to improve the conversion rates and really shorten that time from biopsy to implant? Dominick C. Colangelo: Yes. So I think on an overall basis, as Joe mentioned, that conversion rates were relatively stable for the year. But as I mentioned, within that segment of MACI Arthro trained surgeons that actually performed a case, again, we see higher biopsy and implant growth rates than MACI Arthro trained surgeons generally, which are higher than the overall average. And then we do see higher conversion rates for those MACI Arthro implanting surgeons as well. So that's the evidence, as I mentioned on my earlier remarks. Operator: And we'll move next to Jeffrey Cohen with Ladenburg Thalmann. Jeffrey Cohen: So in particular, could you unpack OpEx a little bit for your '26 guide? And curious on the sales force expansion from last year, if there's any pull-through or any anticipated expansion for this year in R&D as well? Joseph Mara: Yes. So I think we gave guidance at the total company level. So we said approximately $220 million on a full year basis in OpEx. Probably the easy way to think about that is, call it, $55 million a quarter, pretty consistent, including the first quarter. I think to your kind of question and point, I mean, one thing we've been talking about is as we move into '26, there are some incremental costs that are going to flow through the P&L, including on the OpEx side. So to your question on the SG&A side, certainly, it's the expansion of the sales force. So it's roughly 30 people. You can think of that as probably something in the $10 million range on an annual basis. And then I'd say a pretty meaningful increase on the R&D side as well as part of that, where you can think about, obviously, the Ankle trial, which was kind of in a start-up phase is now thinking of kind of more sites, and patient enrollment and whatnot. So those are really the 2 key drivers from an OpEx perspective that we baked in on a full year basis. Jeffrey Cohen: Okay. And then as a follow-up, with the Arthro surgeons out there, the anticipation for '26 is being driven by new surgeons or repeat surgeons? Are there 1,000 more surgeons to reach this year, or are you seeing more drive from existing physicians? Dominick C. Colangelo: Jeff, it's Nick. As I mentioned in my remarks, I mean, the sales force and MACI Arthro combined, give us a greater reach on the sales force side. And then with MACI Arthro, we expect to continue to train surgeons, but we're really focused given the dynamics you see with those trained and implanting surgeons on sort of the depth of penetration that you can achieve with those surgeons in their practice. And so that is a meaningful piece of what we're doing. We've already trained a good portion of our existing MACI users. Again, I think we'll continue to do that, and it will bring new surgeons into the fold with MACI Arthro. But again, getting depth into those practices is really a key growth driver and the subject of a lot of our commercial excellence initiatives that we referenced earlier on the call. Operator: We'll move next to Caitlin Roberts with Canaccord Genuity. Unknown Analyst: It's [ Michaela ] on for Caitlin. Our first one is, are you continuing to see dormant Epicel accounts reactivated given NexoBrid? And what does the next stage of NexoBrid adoption look like, if you can give any more color there? Dominick C. Colangelo: So we definitely see more Epicel dormant accounts. So that has continued as we've sort of, I think, just by way of reference, we now have our entire Burn Care team of 17 territories cross-selling both products. So you certainly see additional dormant accounts each year coming on board. Again, it's a pretty sporadic patient base. And so you can have hospitals that may or may not see a patient in that particular year, but we definitely are bringing on additional Epicel accounts. And then on NexoBrid, obviously, changing the standard of care takes time, but we're continuing to see progress there. We launched the product with about 90 target accounts. To date, over 70 accounts have actually placed orders for NexoBrid. So good penetration on the overall number of accounts. And as we've talked about on prior calls, it's really about how do you move all of the accounts up the curve to be consistent users, which is what we're in the process of doing. So we remain sort of optimistic on what NexoBrid can do as we move forward. And as Joe mentioned, while we're not baking any sort of BARDA award revenue into our guidance, we think that is a strong possibility for the year. And if so, that will reinforce NexoBrid as a standard of care in addition to sort of some important financial enhancements for the company as well. Unknown Analyst: And then maybe just another quick one from us. Do you have any updates on when the MACI Arthro 2.0 instruments will be launched and maybe what improvements you're making? Dominick C. Colangelo: Yes. So that's an ongoing process. We wanted to have MACI Arthro instruments on the market for a sufficient period of time in the first year and then gather feedback on enhancements that would be most important to continue sort of a journey of making MACI Arthro a simpler, less invasive procedure. So I'd say we're kind of gathering up that market input now depending on changes, these things can be by the time you develop new instruments, go through the sort of validation process, the approval process, et cetera, it's, call it, an 18-month or more process. So that would suggest maybe next year, probably at the earliest that we would have additional enhancements. Operator: We'll move next to RK with H.C. Wainwright. Swayampakula Ramakanth: Just a quick question on gross margin. So you recorded 79% gross margin in the fourth quarter, but the 2026 guidance calls for a margin of 75%. So I'm just trying to understand the 400 basis point compression. Is that coming from trying to get the manufacturing start-up activities going? Or is it some amount of depreciation baked into it? And when all is said and done and the MACI manufacturing is completely transitioned into the Burlington facility, what could be the steady-state margin profile? Joseph Mara: And thanks for the question. I would say, just a reminder, when we talked about the 79% margin, that's based on our Q4 performance in 2025. And so we do see some seasonality in terms of margins and just because our business, particularly MACI is so Q4 driven, of course, in terms of the mix of the year, we do tend to see our margins scale up in that quarter. So when you look on a kind of more apples and apples, I would say, full year basis, last year, on a full year basis, we did 74% next year for 2026, rather, we're guiding to 75%. So some increase on a year-over-year basis. Broadly, I would say there are kind of some additional costs that we are absorbing as we move into the new facility here in Burlington and now have kind of multiple facilities that we're operating, but I still feel like that's the right guidance assumption for the year. And then longer-term, just a reminder, we said on the gross margin side and we think we can get into the high 70s by the end of the decade. And I would say just generally kind of already being on a full year basis in the mid-70s and trending that way this year to start the year, I think we're pretty well positioned in terms of that kind of long-term target that's out there. And then maybe just to bring your Q4 data point back, I think Q4 is helpful when you look at those margins because we tend to grow into similar margins over time as the company grows more on an annual basis. So it is a good marker to look at. But again, I think on a full year basis, it is an increase on the gross margin side. It's just comparing Q4 to full year. Swayampakula Ramakanth: One quick question on the ex-U.S. business. So as you were stating, Nick, that you're planning to submit to the U.K. regulatory authorities in mid-2026 or in 2026. So how are you planning the commercial infrastructure there? Is this going to be a direct launch by you, or do you plan to enter into some sort of a partnership to initiate that business? Dominick C. Colangelo: Yes. Thanks RK. So as I mentioned on -- in my prepared remarks, the U.K. is a very attractive first step for us for MACI OUS expansion because I mean it is an expedited approval pathway, mutual recognition pathway. So that is very attractive as well as established reimbursement pathways. And I also mentioned there's a concentrated call point. So there's a dozen or so centers of excellence where patients in the U.K. with cartilage injuries are treated, which means it doesn't require a big commercial footprint. So we would absolutely plan to commercialize on our own in the U.K. Operator: We'll take our next question from Josh Jennings with TD Cowen. Joshua Jennings: I know you're not breaking out MACI Arthro contributions directly and we're thinking about the MACI franchise holistically. But I was hoping maybe qualitative, you can just share with us just whether the MACI Arthro launch in 2025 exceeded your internal expectations or in line with your external expectations, but it seems like it's exceeded it and including what's going on in this first quarter of 2026, where you're combating historical, seasonal trends and you're going to -- thinking you're going to deliver 20% growth or forecasting 20% growth of that MACI franchise here in 1Q '26. Dominick C. Colangelo: Yes, thanks Josh. So yes, I mean -- I think when you look at different dimensions of the MACI Arthro launch, I mean, surgeon training, as we said, we've now trained a meaningful portion of our surgeon base, which is great. Their behavior, as you mentioned, and I've mentioned a couple of times, is exactly what you'd want to see in terms of increasing growth rates and now for MACI Arthro implanters having higher conversion rates. I'd say when you look at MACI growth overall, we had nearly a couple of hundred basis points of growth. And when you look at that in the context of the increased growth rate in our small condyle defect segment, it clearly accounted essentially for that accelerated growth for the year for MACI. So yes, from that perspective, we're very pleased. Obviously, we entered last year with 150 trained surgeons. We enter this year with kind of more like 900, as we mentioned early in the year that's now grown since that time. And so there's an opportunity if those trends continue to really sort of meaningfully impact the business as we move through 2026 and beyond. Joshua Jennings: And then I know -- I was just hoping if you could share some details on this BARDA RFP, it sounds like the team is more optimistic that will come through. But what's left? Is it just administrative sign-off? And then I think this is in the public domain, but maybe just help us think about if that does come through, what type of revenue contributions in 2026 and beyond could this BARDA RFP deliver for Vericel? Dominick C. Colangelo: Yes. So as you're aware, there were kind of 3 components to the RFP from BARDA. One was kind of strategic stockpiling for national preparedness and procurement revenue that would result from that. There was a desire to add additional indications for blast trauma and funding for that and then for a room temperature stable formulation as well. So there were kind of 3 components to it that would flow through our income statement differently. That obviously was impacted by the government shutdown initially. As you're well aware, there were parts of funding for 2026 that were pushed out to the end of January, and that's still an ongoing issue. So while HHS was funded for the year as of the close of January, that's only a few weeks ago and so obviously, getting the machinery up and running takes a little time, it seems. But we do think there's a pretty strong possibility that we'll be able to get that award done this year, and it would have the impacts that we mentioned. The RFP obviously set forth the stockpiling numbers, starting with 2,750 units and then additional procurement down the line. The exact revenue that would come out of that, we're not prepared to share right now. It's obviously subject to the negotiations on pricing and so on, but as that moves forward, we can share more about that. Operator: And that will wrap our question-and-answer session. I will now turn the call back over to CEO, Nick Colangelo, for any additional or closing remarks. Dominick C. Colangelo: Okay. Well, thanks, everyone, for joining us this morning. As we've mentioned, the company had an outstanding fourth quarter and is very well positioned to continue to deliver on what we believe is a unique combination of sustained high revenue growth and profitability in 2026 and the years ahead. We look forward to providing further updates on our progress on our next call. So thanks again, and have a great day. Operator: Thank you. That will conclude today's conference. Ladies and gentlemen, we thank you for your participation. You may disconnect at this time.
Luca Pfeifer: Hello, everyone, and welcome to our fourth quarter 2025 results call. This event is being recorded. Our speakers today will be our CEO, Marcelo Benitez; and Bart Vanhaeren, CFO of the company. The slides for today's presentation are available on our website, along with the earnings release and our financial statements. Now please turn to Slide 2 for the safe harbor disclosure. We will be making forward-looking statements, which involve risks and uncertainties, which could have a material impact on our results. On Slide 3, we define the non-IFRS metrics that we will reference throughout this presentation, and you can find reconciliation tables in the back of our earnings release and on our website. With those disclaimers out of the way, let me turn the call over to our CEO, Marcelo Benitez. Marcelo? Marcelo Benitez: Thank you, Luca, and good day to everyone. We closed 2025 with strong operational and financial performance and a clear top line acceleration. During the year, we successfully integrated Ecuador and Uruguay, expanding to 11 countries. This footprint diversifies our revenue base and supported robust sustainable free cash flow generation going forward. Two weeks ago, alongside NJJ, we expanded further to Chile, our 12 markets, which we will address further in the sections that follow. In addition to the expansion to Chile, we have moved quickly to stabilize and integrate the newly acquired business in Uruguay and Ecuador. On the first day of the acquisition, we appointed a new General Manager, a new CFO and a new CTO. Within the first week, we redesigned the executive team and their direct reports. And within the first month, we applied our playbook with discipline, including 30% reduction in headcount. I'm pleased to share that today, we already consider these operations business as usual, reflecting the speed and effectiveness of our integration approach. Turning to our operations. Our pre-to-post strategy continues to deliver. We added more than 200,000 postpaid customers in the quarter and 1.8 million customers if we include Ecuador and Uruguay. This is not just growth. It's a structural upgrade of our postpaid base. We also made meaningful progress in Home, adding 40,000 net new homes, reinforcing our ambition to be a full mobile and fixed operator across the region. Financially, execution translated into results. Adjusted EBITDA reached $778 million for the year. EBITDA margin stood at a strong 47%. We delivered $278 million of equity free cash flow in Q4, taking full year eFCF to $916 million or $864 million, excluding tower sales proceeds. This performance exceeded our guidance even after absorbing onetime impact such as DOJ and other legal settlements. As we close 2025, I want to recognize our Tigo team. Thank you for an exceptional year. This was not easy. We integrated new markets, accelerated growth, strengthened cash flow, all while maintaining financial discipline. This combination only happens with focus, teamwork and ownership across the organization. Because of your work, we entered 2026 stronger, more diversified and with a real momentum. Thank you. Now let's move to our Mobile business. The engine is strengthening, and Mobile delivered another strong quarter. Service revenue totaled $954 million, including $112 million from Ecuador and Uruguay. Excluding perimeter effects, mobile service revenue grew 5.7% or $43 million year-over-year, a clear acceleration. This performance reflects disciplined execution across 3 core strategies: network investment. We continue to deliver the best connectivity experience through a disciplined deleveraging strategy and highly granular return-focused CapEx allocation. Our investments are targeted where they create measurable impact to customers and drive long-term value. Second, pre- to post migration. Postpaid customers reached 9.1 million, up 12.6% year-over-year when excluding the perimeter expansion. Only 22% of our 49 million customers are postpaid. The runway remains long. Third, prepaid base management. Revenue grew 3%. We are preserving scale through strong commercial execution and increasing ARPU with a simple, easy-to-understand more-for-more value proposition. Now let's move to our Home business. During the quarter, we added 40,000 home customers, and our Home customer base increased 5.1% year-over-year. We are focused on expanding high-speed broadband to low penetrated areas while accelerated fixed mobile convergence, which delivers materially lower churn versus non-FMC customers. As a result, Home service revenues declined a marginal 0.3% year-over-year, marking a second consecutive quarter of essentially flat performance. Given our ongoing commercial efforts and simplified pricing strategy, we are confident in a return to home revenue growth in 2026. Next, I will review our B2B business. Digital service revenues increased 40.7% year-over-year to $79 million in the quarter, excluding the perimeter expansion. This growth reflects a combination of onetime government projects in Colombia and Panama, alongside strong underlying momentum in our digital portfolio. Beyond digital, we continue to see solid performance across the broader B2B segment. Mobile service revenues growth in B2B was 7%, while the SME segment is accelerating, reaching 5% growth after starting the year with low single-digit growth. Overall, this demonstrates improving execution, stronger commercial traction and increasing relevance of our digital solutions across enterprise customers. Let's turn to Guatemala, our best-in-class operation. Postpaid grew 20% year-over-year. Mobile service revenue increased 5.9%. Operating cash flow grew over 17% in the quarter. Full year operating cash flow reached a record of $791 million. Even from a leadership position, the team continues to excel in performance, outstanding execution. Congratulations to the Guatemala team. Colombia is another clear success story. We delivered strong results across all business lines with postpaid mobile and home customer bases, both expanding 10% year-on-year. Our value proposition of best-in-class mobile coverage and broadband speeds continue to drive share gains and monetization. In line with this momentum, service revenue growth increased 6.9% year-on-year and adjusted EBITDA reached a record quarterly margin of 44%. This is a remarkable outcome given the fragmented nature of the Colombian telecom market. My thanks go to the Colombia team for delivering such strong results. As recently announced, we have acquired EPM 50% stake in Tigo UNE and now own 100% of our Colombia operation. With full ownership, we are well positioned to consolidate our market presence and further optimize our operations. This also places us in an excellent position to begin the integration of Coltel, a strategic initiative on which I will share more in a moment. Turning to Panama. We see encouraging signs of top line acceleration. Our postpaid customer base expanded 14.6% year-on-year and mobile service revenue grew 4.5% year-on-year, reaching $84 million in the quarter. On the right side of the slide, you will note that adjusted EBITDA reached $94 million or 49.8%, primarily due to several onetime items that impacted Q4 profitability. Panama remains in our Club 50 in full year performance, and we are confident that they will remain so in 2026. Before handling the call over to Bart, let me update you on our key strategic projects. As noted earlier, our Colombia operation is performing at its best, setting a strong foundation for market consolidation. As announced in February 5, we acquired 2/3 stake of Coltel from Telefonica, gaining operational control. Our management teams are already on the ground, taking initial steps to strengthen the business. Regarding the 33% stake from La Nacion, as you know, there is a formal privatization process with a time line that sets the potential closing of the transaction for La Nacion stake in April 2026. On February 10, we announced a transaction with NJJ to acquire Telefonica operations in Chile, a strategically important balance sheet protected move for Millicom. Together with NJJ, we are acquiring 100% of Telefonica stake in its Chilean business through a joint venture vehicle with NJJ acquiring 51% and Millicom, the remaining 49%. The upfront payment is $50 million. Telefonica may receive up to $150 million in earn-out considerations, fully funded by the acquired company's own cash. None of the transactions obligations, including existing debt, are recourse to Millicom. At closing, Telefonica also contributed approximately $92 million to ensure balance sheet stability. This structure allows us to strengthen the business from day 1 and provides a clear path to full ownership. In years 5 and 6, we have the option to acquire NJJ's stake at a valuation based on Millicom trading multiples less a 10% discount. If we do not exercise, NJJ can acquire our stake on the same terms. This creates a meaningful long-term upside with limited upfront risk. Chile is a sophisticated market with clear operational upside. Applying our proven playbook, we see a path to stabilization and performance improvement. This transaction expands our South America presence while preserving flexibility and leverage discipline. With that, let me turn the call over to Bart. Bart Vanhaeren: Thank you, Marcelo. Let's now take a deeper look at our financial performance for the quarter and the full year. Service revenues for the quarter reached $1.55 billion, up 15.9% year-on-year. Excluding $131 million contributions from our newly acquired operations in Ecuador and Uruguay, service revenues increased 5.2% year-on-year organically. We are very pleased with this performance. It's a direct result of our strategy, delivering the best network experience, maintaining a commercial focus on the pre to post migration and fixed mobile convergence. These efforts continue to reduce churn and support healthy ARPU expansion. At the same time, a little word of caution. We have $16 million in B2B government projects in Panama and Colombia, boosting revenues this quarter but are not necessarily recurring in nature. Adjusted EBITDA for the quarter increased 25.9% year-on-year, reaching $778 million, representing an EBITDA margin of 47.1%. Here again, Ecuador and Uruguay contributed meaningfully, adding approximately $45 million to adjusted EBITDA. Excluding this effect, adjusted EBITDA still grew 18% year-on-year to $732 million. Three key factors drove this robust year-on-year improvement. One, outstanding operational performance, particularly in Colombia, Guatemala and Paraguay; two, relentless focus on margin enhancement, both in our local operations and across HQ expenditures. three, positive FX impacts, which for the first time in 2025 supported EBITDA growth. Finally, equity free cash flow grew $139 million or 17.9% over the last 12 months, reaching $916 million. Excluding infrastructure sales, we reached $864 million equity free cash flow this year, which is a number we measure ourselves against. As Marcelo highlighted earlier, we are proud to have exceeded both our own guidance and market expectations despite currency headwinds for much of the year, particularly in Bolivia alongside $118 million DOJ settlement and other cleanups as disclosed in our Q3 results. With favorable currency evolution, including in Bolivia, this positions us very well for the entry point of 2026. Let me now turn to service revenue performance by country. I will briefly reference Guatemala, Colombia and Panama, as Marcelo already addressed the main dynamics. Guatemala delivered solid growth with stable market share in our strongest market. Colombia, exceptional commercial execution and favorable FX tailwinds produced an outstanding year with Home business now contributing to growth. We are excited and ready to execute on the upcoming in-market consolidation opportunity. Panama returned to solid growth, up 4.9% year-on-year, supported by an expanding postpaid base as well as some one-off governmental projects mentioned earlier. Paraguay, revenue growth was flat year-on-year in constant currency but reached $154 million for the quarter in real USD. Underlying, though, we have real growth driven by postpaid subscriber growth and ARPU increases, which were offset by one-offs that benefited Q4 2024, without which we would have seen a 2% organic growth. Bolivia service revenue returned to triple-digit territory for the first time in 2025, up 5.5% year-on-year to $105 million. The Boliviano has strengthened significantly since the elections and shows signs of stabilization in Q4 of this year. We are now converting Bolivianos to USD around 9 Boliviano per USD. In the other countries, which includes Ecuador and Uruguay for this quarter, in addition to Costa Rica, Nicaragua and El Salvador grew 6% organically or 69%, including inorganic growth. Let's now turn to the next slide, reviewing EBITDA. As highlighted in my opening remarks, we are very pleased with the strong profitability delivered this quarter with group adjusted EBITDA reaching a robust margin of 47.1%, including below average margins coming from Ecuador and Uruguay that include restructuring costs. As shown on Slide 16, all of our major operations contributed to this performance, each delivering meaningful year-over-year margin expansion. Let's now review the performance of each country in more detail. Our strongest operation, Guatemala, reached $241 million in adjusted EBITDA for the quarter, up 11.3% year-on-year in local currency, driven by improved revenue performance, particularly in postpaid and continued disciplined cost control. Colombia delivered another exceptional quarter with adjusted EBITDA reaching a record $174 million, up 24.6% year-on-year. Strong postpaid ARPU and disciplined cost management leave this operation in an excellent shape as we assume control of Coltel. Two points of attention here. One, we expect the margin to come down in Q1 due to material increase in minimum wages by the government; and two, although having control over Coltel, we expect to run the company a couple of months independently until we buy out the government. This is expected for April, assuming the time lines of the privatization process doesn't change. In Panama, adjusted EBITDA grew 4.5% year-on-year, reaching $94 million, benefiting from the revenue momentum mentioned earlier. Paraguay reported another strong quarter with adjusted EBITDA up 11.8% in local currency to $83 million and a margin of 52.1% we are encouraged by this margin expansion as we keep costs in check while our customer base continues to grow. In Bolivia, FX rates stabilized during the fourth quarter, combined with disciplined ARPU growth and strong cost control, leading to a margin of 53%. This places Bolivia as our newest and sixth member of our Club 50, which is our countries with an EBITDA margin above 50%. Congratulations to the team for this outstanding result. And as Marcelo says, a very exclusive club where you can get in but never get out. Turning to other countries. Excluding the new operations in Uruguay and Ecuador, adjusted EBITDA in Nicaragua, El Salvador and Costa Rica increased 13.1% to $106 million. The new operations contributed $45 million to our EBITDA even as we began initial headcount-related efficiency programs. In Q3, we told you that we focused on solving a lot of the corporate matters with settlements with DOJ, Telefonica, getting our 2026 budget so that in Q4, we could concentrate on the business, the entry point of 2026 and the integration of Uruguay and Ecuador. As Marcelo mentioned in his opening remarks, we hit the ground running and captured efficiencies from day 1. Are there more low-hanging fruit compared to other countries? Sure. But I was just looking at preliminary unaudited adjusted EBITDA numbers for January and was very pleased to see both countries already achieving mid-40s adjusted EBITDA margin levels. Let's now turn to Slide 17 for a review of our fourth quarter equity free cash flow. We began the quarter with strong operational momentum, resulting in a $163 million year-over-year uplift in adjusted EBITDA. This was the single largest contributor to our equity free cash flow expansion for the period. Working capital and other payments decreased by $94 million year-on-year, largely driven by $180 million DOJ settlement we disclosed during our Q3 results in November. This extraordinary impact was partially offset by favorable timing in payables. Taxes paid increased $33 million consistent with higher profitability across the group and the settlement of certain tax litigations during the quarter. As expected, lease payments increased $48 million year-on-year, reflecting the full quarter impact of our tower sale and leaseback transaction as well as the incremental leases from our newly acquired operations in Ecuador and Uruguay. Finally, we recorded a $30 million increase in repatriation from our joint venture in Honduras following the infrastructure transaction. Putting all these items together, equity free cash flow increased by $42 million year-on-year, reaching $278 million. Now please turn to the next slide for a look at our equity free cash flow and leverage for the full year 2025. I won't go over each of these points individually, and I will simply highlight that most of the improvement came from a mix of higher EBITDA for $284 million, lower spectrum charges for $63 million and about $74 million in finance charges. These effects were partly offset by an increase in taxes paid of $96 million that included settlements, cash CapEx increase of $82 million and working capital and other charges of $75 million. In summary, for the year, equity free cash flow increased $139 million to $916 million or $864 million, excluding Lati, our strongest performance to date. Let me now walk you through the net debt bridge and resulting leverage at year-end. We began the quarter with $4.6 billion in net debt, corresponding to 2.09 leverage as disclosed in Q3. We generated $278 million equity free cash flow in the quarter, and we received the cash proceeds of $236 million from tower sales executed at the end of Q3. During the quarter, we distributed $0.75 per share in ordinary dividends and $1.25 per share in extraordinary dividends tied to the tower sale proceeds. In total, we distributed $334 million to our shareholders, increasing leverage by 0.14. Adding the operations of Ecuador and Uruguay increased our leverage by approximately 0.35. Bringing these factors together, quarter end leverage was 2.31, comfortably below our target of below 2.5. even after absorbing the additional perimeter. This is a remarkable achievement. Lastly, on a pro forma basis, including last 12 months adjusted EBITDA from Uruguay and Ecuador, leverage would have been 2.17. This reinforces our confidence that we will reduce leverage further as we enhance profitability in the acquired operations. Let's now have a look at our financial targets. We are extremely proud of our 2025 results, which reflect both operational excellence and disciplined financial management. Our regional footprint continues to provide important diversification benefits, enabling us to offset volatility in individual markets, such as the FX devaluation in Bolivia this year through the performance of the broader portfolio. That said, we operate in Latin America, a region known for macro volatility, and we must factor in stabilization needs of Ecuador, Uruguay and the Coltel acquisition in Colombia. For 2026, we project an equity free cash flow of at least $900 million. Regarding leverage, we expect our leverage to increase a bit on the back of the different acquisitions in Colombia. We had about $570 million for the 50% stake in Tigo Colombia acquired from EPM. This is about $170 million more than anticipated due to FX, with about $220 million from the acquisitions of Telefonica shares in Coltel, and we expect another $220 million from the acquisition of La Nacion shares in Coltel. With all that, we see our leverage increase a little more than anticipated in the first half of 2026. But then in the second half of the year, we expect to bring leverage down again to around 2.5 by year-end to then land within our guided range of 2.0 to 2.5 in 2027. With that, let me turn the call back to Luca. Luca Pfeifer: We'll now begin our question-and-answer session. As a reminder, if you would like to ask a question, please let us know by e-mailing us at investors@millicom.com and we will add you to the queue. Our first question of the day comes from Leonardo Olmos from UBS. I think Leonardo has some technological issues. Since Leonardo has been able to ask his question, please continue with Livea Mizobata from JPMorgan. Leonardo? Leonardo Olmos: So 2 on our end. So the first one, regarding the acquisition of the operations in Chile, I just wanted to know your view on the current competitive environment and how you assess the operational and balance sheet conditions of the asset that you bought from Telefonica. That's the first one. And the second one, just a quick -- maybe more color on what is embedded in this equity free cash flow guidance for this year, especially regarding the impacts from the ongoing integrations. Marcelo Benitez: I will take the first one, Leonardo, and I will let Bart answer the second one. First of all, it's a luxury for us to be in Chile. Chile has a very strong macroeconomics, dollar stability -- currency stability and also it's an investment-grade country. So we do believe in the long-term prospect of Chile. If we go to the competitive environment, yes, it is a very fragmented market. We are nevertheless #1 in Home subscribers and our position in Mobile is #2. So we do believe that there is we can forecast long-term or midterm market consolidation but that is not the main reason why we got in Chile. Our playbook fits very well to the Chilean operation, and we are getting very good at executing it. In just 2 weeks, we appointed a new CEO, a new CTO and a new CFO. Then we -- in the first week, we appointed the [indiscernible]. And as we speak today, we are executing the downsize of the Chilean operation. So despite the fact that we are losing money every day in Chile today, we do think we can bring the operation this year to equity free cash flow neutral and from then, start looking and receiving the benefits of a new run rate with a new operating model. So that will be Chile. Bart? Bart Vanhaeren: For the equity free cash flow, Leonardo [indiscernible]. So we have, on an organic basis, $864 million equity free cash flow, right? So many people will add the $180 million for the DOJ that is embedded in those costs, $980 million, right, the 2 combined. And then going into 2026, we have Uruguay and Ecuador contributing a little bit to the equity free cash flow starting in the year. You can estimate low to mid-double-digit equity free cash flow from the 2 countries combined. So with that, you get to $1 billion starting the year but then you have to put a number of risks next year. The big one is Coltel. And also we did acquire Coltel now just a couple of weeks ago, which is on a negative run rate equity free cash flow, right? So we know how to turn around that business. We have done it in Colombia with our own Tigo business. But then you also have the restructuring costs and the acquisition that -- so all that together should be close to zero but there are risk on the execution if you go into the negatives. Besides Coltel, you get currency risk and macro risk in Lat Am, it's inherent to our region. Look where we started the year, where we are now, it's -- the good thing is we have now a platform that is diversified and can weather some storms. But it's risk that we need to take into account political risk, tax risk, legal risk but also upsides. We're starting the year with a very favorable currency. Will it sustain during the year? We don't know, but it's a good start, and then we could have extra growth. So all that together is how we get to this $900 million balanced view on equity free cash flow for 2026. Maybe in the same trend, we're not giving guidance beyond 2026, if you look in the medium term, we do hope that Uruguay, Ecuador and Colombia will align to the average equity free cash flow to revenue and profitability, which is this year around 15%. And so in run rate, that's why they all should converge to. That's our ambition, right? So on the $2.2 billion acquired revenue, 15% equity free cash flow would be a good ambition to have. Leonardo Olmos: Just a quick follow-up, if I may. You mentioned the equity cash flow impact expected for Colombia -- from Coltel, I'm sorry. What about the operations in Uruguay and Ecuador, if you could comment on that. Bart Vanhaeren: I mentioned at the beginning. So for 2026, low to mid-double-digit equity free cash flow. Operator: Thank you. Our next question comes from Livea Mizobata from JPMorgan. Livea? Livea Mizobata: So I have 2 topics that I would like to explore. The first one is, of course, margins. You have had consistently raising margins, have been consistently raising margins. And I feel like fourth quarter was like remarkable on that front. So congrats on that. The first thing that comes into our mind is how sustainable is that? And particularly, I would like to touch upon some operations. So the first one is Colombian operation. This has been particularly strong. So it was way above our expectations. And what we would like to know is like what have been done in this operation, particularly this quarter and what we can expect in 2026, given the deal process? And I would also like to know a little bit about your expectations for Ecuador and Uruguay, if the fourth quarter level is a good proxy for 2026. And then the second topic that I would like to ask you about is M&A, of course. So 2025 was an intense year. Something that we often receive as a question from investors is if Tigo would be willing to go to new countries and the ones that they always ask us about is particularly Brazil, Mexico, Venezuela and even Argentina now. So can you comment a little bit about your appetite for acquisitions? How are you thinking about capital allocation for this year given the recent moves? Marcelo Benitez: Thank you, Livea, for your questions, and thanks for your kind comments about our results. I will start with the margins question. So basically, the margins increase or expansion that we see that is consistent during the quarters has to do with 2 things. Number one is because our efficiencies programs are not onetime. These are part of our operating business. Still, we review every purchase order from $1. Still, we challenge each and -- every and each new contract. So our battle is against the inertia, and that's how we operate on a day-to-day basis. We can add that now -- we can add to that now the top line growth. As you can -- as you -- maybe you recall, we started the year with 0 top line growth, and we ended the year around 5%, a bit more than 5% growth. So that is bringing us more scale and also that scale is translated in a better operating leverage. If I -- when going to Colombia, when we talk about margins in Colombia, it's more or less the same story but in a larger volume. We are growing our mobile base and our home base by 10% year-over-year. So this expansion of our top line -- our customer base and top line growth is bringing us new scale, combined with the efficiency program that I already mentioned is what is translating into better margins. Where do we see Colombia is this sustainable and increasing in the future? The answer is yes. Of course, during the merger, you have some -- you need to transition through the integration and that brings some extra cost. But there is no reason why in Colombia, we cannot -- that Colombia cannot be part of our Club 50. And finally, Ecuador and Uruguay, we already are operating Ecuador and Uruguay as business as usual, and we already did a lot of the efficiencies that we call the efficiencies Phase 1, the one that we need to do the first 60, 90 days. We already did that last year. We start -- we took these operations with around 30% margin. We are above 40% already in these 2 countries. So we do believe this is absolutely sustainable. There is still a lot to do in the Phase 2 of these efficiency programs, and we should start looking at top line growth at the end of this year. So in 2027, we will have the full benefit of our playbook. But the Phase 1 that has to do with efficiency, we are looking at it right now. Bart Vanhaeren: And I think on the back of what Marcelo said, you see that quarter-on-quarter, the growth has been accelerating. So hence as well the operational leverage that comes from that through the margins down to the equity free cash flow. If we look at the M&A, so bigger picture, right, what's our M&A strategy? What are we looking at? Now first of all, we're focused on turning around the businesses that we acquired, right? So it went really quick. In Q4, we already did Uruguay and Ecuador, as Marcelo said, they're now on run rate in business as usual. We have now Coltel and Chile to deal with. So that's our main priority. If we look at the M&A strategy, first has always been in-market consolidation, right? And over the last few years, we did Panama, Nicaragua and now Colombia. And many of our markets are not 2-player markets with not a lot of immediate consolidation targets in the remaining. There are still 3 or 4 players in Costa Rica, but has been difficult to do something as our last transaction got canceled. Salvador, Paraguay and Uruguay, which are still 3 or 4 player markets. Adjacent markets, right? So we did Uruguay, Ecuador and now Chile. And what are the main sizable markets that remain would be Venezuela and Peru, basically, right, on the continent. I'm deliberately excluding Mexico and Brazil. It's not market for us. It's too big, too complicated. It's not something that we have immediately on the radar to enter. And as well Argentina, where the dice are already thrown, right? So the M&A already happened last year. There's nothing to go and do there. So the focus on adjacencies would then be mainly Peru and Venezuela should they when they come to the market. And then obviously, minorities. We did already Guatemala. We did already Panama. We did now Colombia. So what is remaining is Honduras. In Honduras, I kind of like to have a partner. It hedges us a little bit against the currency. Honduras, the lempira is one of our most volatile currencies this year next to the Boliviano. And then in Chile, we just did a JV. So we're thinking there more longer term. As you know, we have this option in year 5 and 6. So that's more a longer-term discussion to have. Livea Mizobata: That's very clear. And just back on the point of margins, I think soon we will stop discussing the 50 clubs and it will be the 60 clubs, right? Like from the level that you are delivering, this is totally achievable, I guess. Let's see. Luca Pfeifer: Thank you, Livea. The next question comes from Andreas Joelsson. I see he just dropped. Maybe let's give him another second if he reconnects. There he is. So next question from Andreas Joelsson from DNB. We cannot hear you, Andreas. Let's see. No, we -- unfortunately, we don't have any audio on your side, Andreas. Maybe let's give it another try later on. If we can then continue with Phani Kanumuri from HSBC, please. Phani Kumar Kanumuri: So my questions are on your shareholder remuneration. How are you looking at it in the light of the acquisition charges that you have? The second one is on Guatemala. We are seeing a strong increase in subscribers as well as accelerating revenue growth. What is driving that? Are you able to increase the prices in Guatemala in specific? And probably the third question is on the appetite for postpaid in your region. I mean the countries that you operate in are still very highly prepaid. So what is driving the increase and upgrade to postpaid in these regions? So those are the 3 questions. Bart Vanhaeren: You take the second one. Sorry, first question revenue growth, appetite for postpaid. Marcelo Benitez: I can take that and you take the dividend. So Revenue growth in Guatemala was the first question, Phani. Guatemala is our most, I would say, it's the example we have of excellent execution, brilliant execution. Guatemala started the process of pushing customers from prepaid to postpaid. They are growing that at a 20% month-over-month. They have only 12% of postpaid customers over the total customers. So the run rate -- the opportunity to expand is big. The other dimension is we invested in the network. So we have a very, very strong mobile network in Guatemala. And also, we expanded coverage. We have more than 200 sites with a vision of having at least 500 aggregated new sites in Guatemala. And finally, there is a very, very sharp base management in prepaid. So prepaid for the first time, we are being able to increase ARPU by increasing allowances and the size of the ticket. So in that combination, yes, the foundation is a solid network with a very granular dimensioning and way to allocate CapEx, migration from prepaid to postpaid at a rate of 20% quarter-over-quarter. And finally, prepaid base management. And this is brilliant execution from the Guatemala team. And congrats again, Guatemala. You are our north in terms of how to operate and become and open the Club 60 in the very near future. What is behind the migration from prepaid to postpaid? And this is very simple to understand, Phani, when you think -- when you see that the prepaid customer is only connected 15 days per month. Who wants to be connected only 15 days per month? So what are the drivers that makes this migration to accelerate in the group, I would say, in all the operations and has to do, number one, with the network investment and with this granular view on where to put the money is where the demand is. Number two, has to do with a very simple migration process, and that has 2 key elements. One is a very simple value proposition. We have no more than 3 to 4 plans to migrate prepaid customers to postpaid customers. And the second part is it has to be easy. Now you can migrate from your phone from prepaid to postpaid with 2 clicks. That's it. We are already profiled you. We already know that you are -- you have -- I mean, you are using -- your demand for data is higher than the allowance that the prepaid gives you. So they just need to put their names, names, some data and then you are activated. So these are the things that are making this migration a machinery to increase customer satisfaction, more days connected and more ARPU. So Bart on dividends? Bart Vanhaeren: Yes. So we are not giving guidance on dividends. So that's maybe an unfortunate question. But let me give some color on how we're thinking about this. I think I mentioned before that I'd like to distribute 2/3 of the equity free cash flow to shareholders. In 2025, this has been in the form of dividends and extraordinary dividends. And so yes, we go from $750 million guidance to $900 million guidance equity free cash flow. There is 20% uplift. But at the same time, I'm also triangulating with our net debt, right? And so on the back of these acquisitions, we're going to appear through temporarily through this 2.5x leverage. So ideally, I want to see the leverage come down again before really touching too much on the dividend. So sustain yes, grow is the question. So sustain yes, grow maybe. So give us a few more weeks until we get better views on the risk regarding to Coltel, how do we land, how do we executing against the current guidance? And then within our Q1 results, we'll give more color. There will also be around the time we have to call for the AGM. And so it will be more clearer in a few more weeks. So a little bit of patience on that. Luca Pfeifer: Thank you very much, Phani. Let's see if we can give Andreas another shot on his questions. If the audio doesn't work, I believe I have a good idea... Andreas Joelsson: Yes, we test. Can you hear me? Luca Pfeifer: Yes, loud and clear. Andreas Joelsson: Perfect. Two quite easy questions from my side. First of all, how much restructuring are you planning to do in 2026 in terms of costs? And secondly, if you can explain a little bit the quite good growth -- sequential growth in mobile ARPU during the quarter. I guess there is some FX element, but also there must be something else underlying. So it would be interesting to hear that and your thoughts on that going forward as well. Marcelo Benitez: Thank you, Andreas, for your question. I will take the second one, and Bart will take the first one. So on the second one, what's behind the ARPU increase? 50% of the ARPU increase comes from the positive or the currency appreciation of our countries. 50% of that comes from 2 things. One is pre to post migrations. So that is an uplift of ARPU more or less of 50% and ARPU price increases in prepaid through a very simple value proposition of more for more and give you more days connected or more allowances for a higher ticket. So those are the 2 things that organically are making the ARPU growth. Bart Vanhaeren: Yes. Regarding the restructuring costs, so far in Uruguay and Ecuador combined, we did about $20 million in 2025, and that then mostly relates to ERC restructuring. In 2026, I'm then looking more towards Coltel rather than Uruguay and Ecuador. And there, we probably are looking towards -- with all the restructuring that needs to be done there, more towards a triple-digit number to really to get the business back to a run rate that we are used to. Andreas Joelsson: Perfect. And just a follow-up on the ARPU. That growth that you related to, was that sequential or year-on-year? Marcelo Benitez: No, no. The growth is year-on-year. But also, you can see a sequential growth quarter-over-quarter but it's not 5%, 4.7%, I think it's ARPU growth. Luca Pfeifer: Thank you very much, Andreas. And our final question of the day will come from Eduardo Nieto from JPMorgan. Eduardo Nieto Leal: Just a quick one from my side. Thinking about the pending payments for M&A, it seems like most of it will be 1Q but I'm just curious where you see leverage peaking this year? And at what level kind of related to the question that Phani asked, at what level would you be comfortable stopping dividend payments if leverage gets a little bit higher than you would expect? Bart Vanhaeren: So payments on M&A. So Q4, we did Ecuador and Uruguay done, right? In Q1, we have the $570 million from the purchase of the EPM held shares in our Tigo operation. And we also have $220 million out of which about $60 million is deferred for the acquisition of the Telefonica shares in Coltel. So that's all done in Q1. And then as you saw, the minimum price in the privatization process done by La Nacion for their stake in Coltel is also about $220 million and that we expect in Q4, okay? Remember that we also have extraordinary dividends coming into Q4 of another $1.25 per share, which was part of the $2.50 that was announced last year payable in October and [indiscernible] 50%. So with that, yes, our leverage is going to increase in the first half of the year. So we're going to pierce through that 2.5x leverage. But then in line with the guidance, we hope by end of the year to be back around 2.5. And then in 2027, again, comfortably within the 2.0 to 2.5 range, in line with our policy. cutting dividend is not on the radar at all. We've been quite accurate with our forecasting. So at this moment, it's not even on the table. We're looking at sustaining it and potentially growing over time as our leverage comes back below the 2.5. Eduardo Nieto Leal: Got it. And just maybe a quick follow-up. You asked, is there a level at which leverage would make you uncomfortable as CFO here? Bart Vanhaeren: Well, any leverage makes me uncomfortable if you ask me but not uncomfortable but you want to have a strong balance sheet to be able to do things. And we have now been able to do things, thanks to our strong balance sheet. We add 4 operations in 1 year and also Uruguay, Ecuador, Colombia. And as you saw, we did some structuring around Chile exactly to protect the balance sheet. Do I believe we're going to do really good in Chile? Yes, absolutely. But I also don't want to bet the house on that. And so we said, okay, let's put a nonrecourse structure, 49%, we don't consolidate, let us do our work. And hopefully, we're talking about upsides in the future and not about risks on the balance sheet. So I think we're at the leverage where we feel comfortable, including the Coltel acquisition. And from there, I want to see deleveraging before doing other stuff on balance sheet. Luca Pfeifer: Thank you very much, Eduardo. That was our final question for today and concludes the question-and-answer session. Thank you so much for your time and for connecting, and we see you all for our first quarter results in May. Marcelo Benitez: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to the Hormel Foods Corporation First Quarter Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 26, 2026. I would now like to hand the conference over to Florence Makope. Florence Makope: Good morning. Welcome to the Hormel Foods conference call for the first quarter of fiscal 2026. We released results this morning before the market opened. If you did not receive a copy of the release, you can find it on our website, hormelfoods.com under the Investors section, along with supplemental slide materials. On our call today is Jeff Ettinger, Interim Chief Executive Officer; John Ghingo, President; and Paul Kuehneman, Interim Chief Financial Officer and Controller. Jeff, John and Paul will review the company's fiscal 2026 first quarter results and provide a perspective on the remainder of the year. We will conclude with the Q&A portion of the call. [Operator Instructions] At the conclusion of this morning's call, a webcast replay will be posted to the Investors section of our website and archived for 1 year. Before we get started this morning, I'd like to reference our safe harbor statement. Some of the comments we make today will be forward-looking, and actual results may differ materially from those expressed in or implied by the statements we will be making. Please refer to our most recent annual report, Form 10-K and quarterly reports on Form 10-Q, which can be accessed on our website under the Investors section. Additionally, please note, we will be discussing certain non-GAAP financial measures this morning. Management believes that doing so provides investors with a better understanding of the company's underlying operating performance. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Further information about our non-GAAP financial measures, including comparability items and reconciliations are detailed in our press release, which can be accessed on our website. I will now turn the call over to Jeff Ettinger. Jeffrey Ettinger: Thank you, Florence, and good morning, everyone. We are pleased to report solid results for the first quarter of fiscal 2026. We delivered organic net sales growth of 2%, which marks our fifth consecutive quarter of organic net sales growth. We also achieved adjusted diluted earnings per share of $0.34. This outcome was driven by the strength of our protein-centric portfolio that continues to resonate with consumers and operators. A highlight of the quarter was the results we delivered in both our Foodservice and International segments, both with high single-digit organic net sales growth, coupled with impressive segment profit growth. This strong performance was partially offset by the decline in our Retail segment. We will review segment performances in greater detail shortly. On our fourth quarter call, I outlined the key actions we are taking to strengthen our business and position Hormel Foods for both top line and bottom line growth in fiscal 2026. We have started to see the benefit of these efforts. Our protein-centric portfolio continues to demonstrate its advantage. In response to last year's persistent inflation and key commodity inputs, our pricing is now implemented as we have begun the second quarter. Our Transform and Modernize initiative remains beneficial, and our restructuring program is progressing as planned. The financial benefits from this program will start to materialize more meaningfully in the second quarter. Finally, we continue to enhance collaboration across the organization. Overall, the solid start to fiscal 2026 gives us conviction as we look ahead. For Q2, we expect to deliver another quarter of top line growth and adjusted diluted EPS that is in the range of flat to slightly up compared to last year. For the full year, we have also reaffirmed our organic net sales and adjusted diluted earnings per share guidance. Paul will discuss our financial results and guidance in more detail. Our success will be fueled by focusing on our core strength in protein solutions, while making the operational improvements necessary to drive long-term value creation. Before I hand the call over to John, I wanted to take a moment to recap our recently announced definitive agreement to sell our whole-bird turkey business to Life-Science Innovations. This transaction supports our goal of reducing our exposure to volatile commodity-driven businesses and sharpening our focus on our value-added protein portfolio. I also want to be clear about what this transaction does and does not include: the sale involves the hen side of our turkey complex, which are the female birds that you would typically enjoy during the holidays. Included with this transaction is our Melrose, Minnesota whole-bird production facility; our Swanville, Minnesota feed mill; and associated transportation assets. LSI will also assume supply contracts with dedicated third-party hen growers. The transaction is expected to close by the end of our fiscal Q2. So now let me emphasize what this transaction does not include: the sale will not affect our value-added turkey products, and we will continue to own and use the Jennie-O brand name; value-added turkey will remain a strategic and important part of our growth story; in addition, Hormel Foods will retain the right and ability to sell our Jennie-O Oven Ready whole birds and turkey breast. We will continue to own and operate all of our other turkey plants, feed mills, transportation assets and turkey barns associated with raising and processing the male or tom turkeys for our Jennie-O value-added turkey products. Another point I wanted to make clear is that the majority of Jennie-O's whole-bird sales for the 2026 holiday season will remain part of our reported results in fiscal 2026. Under the agreement, LSI will provide co-manufacturing services to Hormel through the end of fiscal 2026 to ensure uninterrupted fulfillment of customer orders during the transition. This strategic move creates a more focused turkey portfolio that enables increased investment in the value-added aspects of our Jennie-O business, where we can drive substantial margin expansion. We are committed to working with LSI to ensure a smooth transition for our team members, customers, consumers and suppliers. We began the year with strong execution from our team, and I am confident in our near- and long-term profitable growth opportunities. We are well positioned to continue delivering sustainable value. At the same time, we know there is more work ahead, and we are committed to executing with urgency and precision. With that, I will turn the call over to John. John Ghingo: Thank you, Jeff, and good morning, everyone. We had an encouraging start to fiscal 2026 with strong performance in both our Foodservice and International segments. This demonstrates the strength of our protein-centric portfolio and our strategic positioning, both at home and away from home across all dayparts. These results were achieved in a challenging consumer environment marked by industry-wide limited retail consumption growth, and notable headwinds in foodservice channels as operators and consumers remain cautious. In this backdrop, we are committed to creating and marketing compelling branded offerings for our consumers and a solutions-based portfolio that makes protein easy for our operators. Now let me go into the details of our segment performance, starting with Retail. First quarter organic volume and organic net sales for the Retail segment declined. While our branded portfolio performed fairly well, top line was meaningfully impacted by our strategic exit from select non-core private label snack nuts items. That said, Circana's latest 13-week data ending January 25 showed total Hormel dollar sales were up over 2%, indicating that our portfolio continues to resonate in today's consumer environment. Several of our priority brands delivered year-over-year dollar sales consumption growth, including Jennie-O ground turkey, Planters snack nuts, Hormel Gatherings party trays, Applegate meats, and Hormel entrées, among others. This adds yet another quarter to a long-running pattern of consistent dollar consumption growth across our priority brands. However, even with this encouraging consumption data, reported top line and profitability remained challenged in retail in the first quarter. In addition to lower net sales, profitability was further pressured by expected increases in raw material costs and unexpected increases in logistics expenses. As a reminder, the second wave of retail pricing went into effect at the beginning of Q2 aimed at offsetting some of the cost pressures. Revitalizing the Retail segment remains a major focus, and we have a solid foundation with leading brands and protein-centric offerings to support our plan. We have meaningful strategic actions underway to strengthen both top line performance and profitability, including investments in a number of critical capabilities needed to win in today's retail and consumer landscape. Our Foodservice segment performed well in the quarter, and this marked the segment's 10th consecutive quarter of organic net sales growth. This growth continues to be broad-based across channels and was driven by strong performance from premium prepared proteins and branded pepperoni. Our solutions-based portfolio continues to add value in a challenging overall foodservice environment where operators need solutions that help them deliver high-quality, delicious offerings with ease. It's no surprise that brands such as Austin Blues smoked meats, Hormel Fire Braised meats and Hormel Natural Choice meats delivered strong volume and net sales growth in the quarter. The segment profit growth was equally impressive as our pricing continues to align with market movements. Our International segment benefited from all 3 of our go-to-market models. Net sales growth in the segment was driven by our multinational businesses and branded exports, led once again by SPAM luncheon meat. We delivered strong segment profit growth for the International segment this quarter, reflecting the importance of our balanced model. When we look beyond segment performance, the larger trends in consumer behavior and protein demand strongly affirm both where we stand today and where we're going. I spoke to this extensively at the CAGNY conference last week. Our path forward continues to start with the consumer, and it's anchored in the unique position we've built in the protein space over the years. As we highlighted at CAGNY, protein isn't a passing trend. It's an enduring long-term movement. As we follow the consumer and sharpen our focus on protein-led growth, our strategy must also evolve. We are refreshing our purpose and mission to better reflect our direction and ambition. We have also rolled out 7 strategic priorities that are guiding our work, and I'd like to take a few minutes to tell you how each of these tie to our first quarter results. As we look at strengthening our protein-powered brands, the Planters brand delivered both consumption and net sales growth in the first quarter. We are leaning into the inherent power of nuts with sharper positioning and a stronger media campaign. Coupled with a steady stream of new and exciting varieties for consumers in search of flavorful satiating snacks, Planters is back on offense. A second brand to highlight is the SPAM brand. Our China-based innovation team continued to set the pace with the launch of SPAM chicken in the first quarter. This is an important evolution for this iconic brand. We launched both the canned and single-serve pouch in the Philippines, providing the familiar value and convenience of SPAM now in a highly penetrated protein format, chicken. We are also building enterprise-wide growth platforms that leverage our scale across markets and channels. Our Here For The Snacks campaign is a great example of this type of enterprise thinking. Now in its second year, this retail portfolio event brought together snacking solutions from priority brands, including Herdez, Hormel chili, Hormel Gatherings, Hormel pepperoni, Planters and Wholly Guacamole, all ahead of the big game. These efforts create meaningful lift. Hormel Gatherings, for example, delivered double-digit volume and dollar consumption growth in the latest 4-week period. Our renewed commitment to origination is equally important. Innovation allows us to solve real pain points and extend into new categories and eating occasions. A strong example is our Flash 180 chicken platform. After the strong performance of Flash 180 chicken breast, operators signaled demand for a high-quality crispy chicken solution. And with chicken tenders appearing on roughly 40% of menus, there was a clear opportunity to broaden our lineup. Flash 180 tenders launched late last fiscal year and in the first quarter are already demonstrating adoption rates consistent with some of our successful historical foodservice launches. A second innovation is Hormel Black Label oven-ready bacon, offering true convenience and driving increased household usage of bacon. Our team is focused on expanding distribution and building trial. And this convenient, mess-free disposable tray is already resonating strongly with younger consumers and 60% of its sales are being generated through e-commerce. All of this growth requires a strong foundation. Through our Transform and Modernize initiative, we continue to strengthen our supply chain end-to-end. In the first quarter, the Hormel production system progressed beyond its foundational phase and the facilities that have fully implemented the model are now driving continuous improvement, increasing efficiency and are freeing up capacity on our core manufacturing lines. At the same time, we are simplifying the company. In the first quarter, we finalized a new strategic partnership for the Justin's branded business. This partnership better aligns the business with an ownership model that can appropriately support and resource the Justin's growth plan. Regarding the pending whole-bird divestiture that Jeff covered, I'll simply add how energized I am about the opportunity this creates. This move allows us to sharpen our focus and accelerate growth in our value-added Jennie-O turkey business, an area where we're already seeing strong momentum. For example, our Jennie-O ground turkey dollar sales consumption was up double digits in the first quarter, and the brand is winning both in-store and through e-commerce with highly relevant occasion-based marketing. We're also modernizing our technology and data backbone so the organization can move faster, make better decisions and innovate more effectively. The team made great progress in the first quarter, completing another phase of our order-to-cash modernization and bringing us closer to retiring our legacy system. In addition, we are also leveraging technology more to drive our growth agenda. We have incorporated weather-driven demand intelligence into our advertising decisions for Hormel chili, allowing us to better align media spending with consumer buying patterns. And this targeted approach is already delivering stronger returns on investment. Our final priority is all about acceleration through our people, capabilities and our culture. After more than 130 years of operating, Hormel has built a rich culture and has developed strong institutional knowledge, especially as it relates to our understanding of proteins and how to solve pain points for consumers, customers and operators. The success that Hormel has enjoyed would not be possible without our people and culture. We are continuing to evolve as a company for the next generation of consumers. And what you've seen more recently is that we are complementing our homegrown strengths, by bringing in external leaders with world-class capabilities in areas such as marketing, analytics, technology, e-commerce, and supply chain transformation. This blended leadership team truly represents the best of both worlds, and their collective strength is what enables us to bring our purpose and strategic imperatives to life. With that said, I would like to highlight a few of our recent leadership appointments. We took an important step towards enterprise alignment with the recent creation of a new role, Group Vice President of Enterprise Business Performance and have appointed Jeff Baker to lead this critical function. With more than 35 years of experience across many parts of Hormel Foods, Jeff brings unparalleled company knowledge and a proven track record of delivering results. Jeff is working across all business units and our supply chain to strengthen decision-making and to ensure strong execution. We recently appointed Natosha Walsh as our new Group Vice President of Retail Sales. Throughout her more than 25 years with Hormel Foods, Natosha has distinguished herself as a strategic leader who understands every dimension of our business. Her extensive experience, unmatched knowledge of our brands and channels and the strong trusted relationships she has built with customers across the industry make her an exceptional choice for this role. To further support our growth strategy, we have created a new enterprise-wide marketing leadership role. We are excited to welcome Jason Levine as our new Enterprise Chief Marketing Officer. Jason brings more than 2 decades of consumer packaged goods experience, having led marketing, innovation and brand modernization for multiple organizations, including a multibillion-dollar portfolio. In just a few weeks, I've been energized by the insights that Jason has already brought to the leadership team and the marketing organization. And finally, I wanted to introduce Domenic Borrelli, who officially joined us this week as Executive Vice President of Retail. He brings a strong history of driving consumer-led growth within mature legacy brands and categories, and has a deep understanding of how to deliver results by staying closely connected to consumers, fostering strong customer relationships and guiding teams with clear strategic direction. Domenic is the right leader to build on the team's foundation, and many of you will have the opportunity to meet him as he begins engaging with our teams, customers and the investment community. When you put all focus areas together, you start to see a very clear picture of where we are headed. We're aligning our brands and platforms to the biggest consumer trends, modernizing the systems and structure that power our business and reinforcing our culture with the talent and capabilities to win. That's the journey we're on, and it's one that positions us exceptionally well for long-term sustainable profitable growth. With that context on our strategic direction, I will turn the call over to Paul to review our first quarter financial results in more detail and discuss our 2026 guidance. Paul Kuehneman: Thank you, John. Let's take a closer look at our fiscal first quarter results. Q1 net sales were just over $3 billion, a 2% organic net sales increase compared to the prior year and our fifth consecutive quarter of organic net sales growth. Our Foodservice and International segments led the company's organic net sales growth and were partially offset by the decline in the Retail segment. Gross profit continued to be hampered in the first quarter with top line growth more than offset by higher input costs and higher-than-expected logistics expenses. As expected, commodity input costs, mainly for beef, pork trim and nuts were a headwind in the first quarter. For context, beef remained a significant inflationary pressure across the industry and pork trim increased 12% compared to last year. While remaining high from a historical perspective, we did see some relief on bellies. We are still expecting to see a modest improvement in most commodity markets in the back half of the fiscal year. During the first quarter, we observed freight capacity tightening, driven by severe winter weather and industry dynamics. This has created modest upward pressure on transportation costs. We continue to monitor this to assess whether these pressures persist for the remainder of the year. For the first quarter of fiscal 2026, adjusted SG&A and adjusted SG&A as a percent of net sales were comparable to the prior year. The reduction in marketing and advertising expenses was due to timing of investments and offset by higher employee-related and legal expenses. We continue to expect an increase in marketing and advertising spend for the full year compared to last year. As a reminder, due to the timing of our corporate restructuring, we expect the financial benefits we announced last quarter to flow through beginning in quarter 2. Also remember, these actions will result in savings to both cost of goods and SG&A and will be partially offset by strategic investments in technology, people and brands. Adjusted operating income for the first quarter was $247 million, and adjusted operating margin was 8.2%. The effective tax rate for the first quarter of 2026 was 22.4%. Our solid results in the first quarter led to diluted earnings per share of $0.33 and adjusted diluted earnings per share of $0.34. We continue to maintain a position of strong liquidity, supported by continued improvements in operating cash flow. Cash flow from operations was $349 million, up $26 million from last quarter. Capital expenditures were $69 million, with the largest projects this quarter related to the ambient meat snack facility in Jiaxing, China and continued investments in data and technology. We still expect the capital expenditures for fiscal 2026 to be in the range of $260 million to $290 million. Finally, we remain committed to the dividend, and we are proud of our Dividend Aristocrats status. We paid our 390th consecutive quarterly dividend, returning approximately $160 million to stockholders during the quarter through dividends. Turning now to guidance. We are reiterating our adjusted full year fiscal 2026 guidance. We continue to expect organic net sales growth of 1% to 4%. As John discussed, we believe our protein-centric portfolio puts us in an advantaged strategic position going forward. In fiscal 2026, we continue to expect adjusted operating income growth of 4% to 10%, and adjusted diluted earnings per share to be in the range of $1.43 to $1.51 per share. Regarding the pending whole-bird turkey transaction, we expect it to have a minimal impact on our adjusted financials in fiscal 2026. The majority of whole-bird turkey sales for fiscal 2026 will remain part of our reported results. We currently believe the impact to net sales in our fiscal 2026 results will be reduced by approximately $50 million. We expect the larger impact of this divestiture to be reflected in our results in 2027. On an annualized basis, this business typically generated net sales between $200 million and $275 million and has exhibited high volatility and low margins. Additional adjustments to our GAAP guidance will be provided after the close of the transaction, which we expect to occur by the end of the second quarter. Turning to key input cost assumptions in our outlook. We expect overall commodity costs to ease somewhat in the back half of fiscal 2026. Specifically, we expect pork input costs to decline compared to fiscal 2025, but still remain above the 5-year average. Beef costs remain high and are expected to be a headwind throughout fiscal 2026, and nut costs are anticipated to be elevated from the prior year. Gross margin expansion is expected to be driven by a variety of factors, including pricing benefits, mix improvements and productivity gains from our Transform and Modernize initiative. To reinforce Jeff's earlier commentary for Q2, we expect to deliver another quarter of top line growth and adjusted diluted earnings per share that is in the range of flat to slightly up compared to last year. We expect sequential improvement from the first quarter, benefiting from a full quarter of our restructuring actions and the second wave of retail pricing now implemented. This range also considers pressures from commodity input costs and elevated logistics expenses, we saw a rise in the latter half of the first quarter. To conclude our remarks, we are encouraged with the early success to start the year, and we remain confident in the plan we are executing to achieve our reaffirmed adjusted fiscal 2026 results. With that, I will turn the call over to the operator to begin our Q&A portion of the call. Operator: [Operator Instructions] Your first question comes from Tom with JPMorgan. Thomas Palmer: Maybe we could just start out on 2Q? You noted the expectation for EPS to be flat to slightly up year-over-year. Could we maybe unpack this outlook segment level expectations, for instance, or maybe when discussing the logistics headwinds, any details on kind of where this is coming from and when it might start to taper off? Jeffrey Ettinger: Yes. Thanks for the question, Tom. This is Jeff. Let me provide some added color on Paul's remarks, about Q2 a couple of minutes ago. So as we were heading into this year after a year of solid top line growth, but challenged bottom line results in fiscal '25, we tried to make it clear both to the Street and to our team that our goal for fiscal '26 was to return to bottom line growth consistent with our long-term algorithm. We also said that this recovery would likely come sequentially over the course of the year. And we're definitely pleased that our Q1 adjusted EPS turned out a little better than the minus $0.02 to $0.04 we had talked about on the last call, but we also recognize that the adjusted EPS was still $0.01 below last year. Heading into Q2, our expectation is continued sequential improvement. We should reap the benefits of the completion of the second wave of retail pricing, which was aimed at offsetting some of the cost pressures we've talked about for the last several quarters. And on top of that, we will now start having full quarters of benefit from our SG&A actions. But as you point out in your question, we are carefully watching the more challenging freight cost environment we referenced in our comments. And at this point, I mean, they've been going on for a couple of months, and it's kind of too early to tell whether they are a seasonal issue or whether they're something that will be with us for more of the year. So all told at this point, we believe we remain on a path to generate the sequential but modest bottom line improvement in Q2, hence, the comments that both Paul and I made about seeing adjusted EPS coming in at flat to slightly above last year, while we will continue to generate top line growth. And we do remain confident in the guidance we've provided for the full year. Thomas Palmer: Okay. Also wanted to just ask on the whole turkey divestiture. Maybe, one, just any added details on kind of the rationale? It was helpful to get some of the commentary about longer-term margin benefit and the annualized sales expectations, but also kind of where do we sit, I guess, when looking at the volatility of this business is -- should we look at 2026 as being perhaps a more favorable year for the whole turkey business? Yes, just any added details there. Jeffrey Ettinger: Yes. This is Jeff again. Let me talk about more of the kind of the financial side of it, but then I want -- I'd like John to be able to comment on where we saw this fitting in terms of our long-term view of this consumer landscape. As Paul pointed out in his comments, we not only said that, hey, we think the net sales impact for fiscal '26 will be roughly $50 million. We have most of our whole turkey sales booked already, and we have custom manufacturing arrangements with LSI to fulfill those. And then Paul gave you a kind of a generalized typical range of $200 million to $275 million. Obviously, that's in 2027. It will depend on how many whole turkey LSI decides to run through the plant. It will depend on what the pricing is and so forth. But that gives you an idea of what typically the sales of whole birds and bone-in and breast from the hen complex were in Hormel's results. In terms of the bottom line, we've said it's highly volatile and it's low margin. We have not previously provided specific margin breakout for the whole bird piece of the business. What we can tell you is that in a typical year, it is significantly dilutive to retail margins. There have been isolated years of more meaningful profitability, but those are outliers. John, do you want to comment on the more consumer side of our thinking? John Ghingo: Tom, and just to touch a little bit on the strategic rationale that part of your question. We continue to see an opportunity with turkey to accelerate our efforts, but really against, what I'll call, the value-added consumer opportunity. And if you look at turkey, it is on trend in so many ways with consumers and with our operator partners in Foodservice. So this transaction will really allow us to increase our focus and accelerate the efforts on that part of the business, in particular, from a Retail perspective or thriving ground turkey business, our turkey breast business, other value-added formats. These are all consumer opportunities. We continue to drive really strong growth behind those platforms. You can see the ground turkey business just this recent quarter was up over 15% for us in dollar consumption. So we want to continue to drive that. When I talk about Foodservice, turkey has become a critical part of our solution set for our operator partners across channels in Foodservice. If you think about formats like premium oven-roasted sliced Turkey, which we leverage across noncommercial and commercial foodservice outlets, it's really operators looking to deliver premium experience with less labor or another example of where we have really plugged turkey in quite well is in the K12 segment in schools. And if you think about really interesting alternatives for that K12 segment where we bring flavor and exciting formats to turkey through our Foodservice business, things like turkey taco meat, turkey jalapeño popper meatballs, turkey nuggets. There's just a lot of opportunity there for the poultry segment, and our leadership position in turkey gives us a lot of room. So whether it's Retail or Foodservice, accelerating -- increasing our focus, accelerating our efforts by -- through this transaction, what that looks like is really spending more of our time, the focus of our team, our resources, our energy and conversations with our customers, really driving against the value-added parts of the business and not as much on what I would call the whole-bird part of the business, which really is more commodity-driven, more relying on holiday demand. But certainly, to your point on volatility, very subject to those commodity fluctuations year-to-year. Operator: Your next call comes from Leah with Goldman Sachs. Leah Jordan: I wanted to ask about the Retail segment as it was a little light versus our expectations. And I know you called out some logistics headwinds, but we also still haven't seeing the full benefit of your recent pricing actions. So seeing if you could provide more detail on the key puts and takes for the Retail segment in the quarter? And then how we should think about them as we move throughout the year? John Ghingo: Great. Leah, it's John. I'll take that question. Obviously, a very good question. For me to talk about Retail, what I'll do is I'll start up at the top line and kind of work my way down to margins. I would say, overall, for Retail, we feel good about the consumer takeaway we're seeing across our branded portfolio. Despite what is a choppy environment, a strange consumer backdrop, we continue to feel good about the consumption on our branded portfolio. That being said, in the quarter, Retail top line net sales performance was down 2%. That year-over-year decline was driven by a strategic exit of certain private label nut items. The branded portfolio, on the other hand, continues to see fairly strong consumer takeaway. I mentioned in my remarks that Hormel's total dollar consumption was plus 2% on the quarter in the latest 13 weeks of Circana data. In fact, our priority brands drove that. They were up 3% on the quarter in terms of dollar consumption growth driven by Jennie-O, Planters, our Mexican brands, pretty broad-based growth, our Hormel Gatherings, Applegate continued to grow. So a nice cross-section of our priority brands really driving consumption growth, which I think does speak to the relevance of our protein-centric portfolio in this environment. That being said, profitability for the quarter, certainly below prior year. And if you kind of look at how things play out, a significant driver compared to prior year is certainly the commodities. And we're still experiencing the very high commodity markets that we saw soar on us late last year and those markets have us clearly facing increased COGS significantly above -- our COGS significantly above where they were prior year. And as we mentioned on the call last quarter, we announced 2 waves of retail pricing. The first one took effect in Q1; and the second wave, the one that we announced later in Q4, we mentioned we wouldn't expect to see the benefits of that second wave of pricing until Q2. And so overall, the way I would describe the pricing is, the actions have been well accepted. The elasticities where we've implemented the pricing actions are generally playing out in line with our expectations at this point, We will continue to get additional benefits from that second wave of pricing action in Q2 and beyond. And in general, on Retail to go to kind of the outlook part of your question, we're working on 3 primary aspects to improving our margins on that business. Pricing is one, as I mentioned, right, that's critical following the commodity increases we've seen. But our Transform and Modernize initiative is a second aspect. We continue to drive productivity and efficiency across our entire supply chain. That work is ongoing and is very important. And then the third aspect of improving margins on the Retail business is mix. And when I talk about distorting resources driving growth behind our priority brands, those are the businesses that tend to be margin favorable for us. So that's a part of it. But it also is a part of pulling back and at times exiting and walking away from certain businesses, which are in the lower margin part of our Retail portfolio. And you continue to see us doing that as well. So that's kind of the dynamics that they're playing out. What I will also say is in the first quarter, in addition to those high commodity markets, we began to experience unexpected increases in freight and logistics costs and that really popped up in the latter part of the first quarter. I'll ask Paul if you can comment a little bit, Paul, on what we're seeing unfold there. Paul Kuehneman: Yes. Thanks, John. So we did see, as Jeff and John pointed out, some significant tightening in the industry and specifically across the refrigerated sector in the back half of our first quarter. Spot rates began to increase as there were severe winter weather events and driver availability did tighten. These pressures have continued in early quarter 2. And obviously, we're still seeing some severe weather events across the United States. So we're continuing to closely monitor these conditions surrounding the industry dynamics such as carrier exits and driver shortages as we head into quarter 2. Operator: Your next call is from Ryan with Barclays. Ryan Edward Lavin: This is Ryan on for Ben. So we want to look a little bit more at Foodservice and understand. So volumes were essentially flat. And with that, are your pricing tools all implemented over in Foodservice? I know there's a little bit of delay on the Retail, but want to understand the dynamic of how Foodservice customers are responding to those price increases and what you're seeing from the top line and the margins there going forward? John Ghingo: Yes. Thank you for the question, Ryan. This is John. I'll take that. So we are very encouraged by the start to the year in our Foodservice segment. We did see that strong top line growth with 7% organic net sales growth, and that's 10 consecutive quarters, as we've mentioned in our prepared remarks. So the heart of our Foodservice model, we think, is really a differentiated advantage model, which has allowed us to continue to drive top line growth in what is still, I'll say, a challenging foodservice environment overall. We know traffic continues to be challenged in a number of the different aspects of foodservice. What we lean into there, the way we've been able to continue to drive the growth is 3 aspects. One is our direct sales team. We feel like this is a real competitive advantage for us. Our team is out on the street, working with operators, working with our partners every day and figuring out how we can help them in the challenging environment, right? So that's a critical aspect. The second piece is our portfolio of innovative solutions. We add value for the operators, and we do help them with pain points. We help them with efficiency. We help them with reducing labor. We help them get high-quality products on their menus in affordable ways. And so the solutions-based portfolio is important. And then finally, the critical aspect is we have a very diversified channel set on our Foodservice business. So even when overall, there are some headwinds in the industry, we can still work hard to find pockets of growth, which enable us to really sustain that. Now on a net sales basis, we were plus 7%. Our volume came in flat, which obviously, with prices going up, with protein markets going up and prices flat volume delivery is a good delivery, I would say. To your question on pricing, typically, there is a lag time on our Foodservice. The prices will follow the markets. And as we talked about in Q4, we saw a pretty dramatic rapid increases in the markets, and we knew we would take a little bit of time to catch up on that. First quarter, definitely, we did see our pricing coming back in line with the market movements, which did help us on the margin side, recover what we had basically lost in Q4. So that is the heart of what kind of is going on in terms of Foodservice, which is strong top line growth, pricing catching up with the markets that we saw explode on us late last year. Operator: Your next question comes from Heather with Heather Jones Research. Heather Jones: I just was wondering, first, a detailed question. If you could give us a sense of how much of the volume decline in retail was related to this snack nuts exit and it sounds like to a lesser degree, the deli, and how you all are thinking about that trajectory over the rest of the year? John Ghingo: Heather, yes, it's John. I'll take that question. So obviously, just stepping back on volume overall with rising protein markets, increasing prices, volume growth is more challenging. That said, we do feel good about flat volume delivery in Foodservice. We feel good about a little bit of volume growth in International, and Retail is clearly where we had our volume decline. And to answer your question, the way I would think about volume in the Retail segment is really in 3 buckets. The first bucket is what you're alluding to, which is the exit of that private label snack nuts business, which was, let's say, a less strategic business for us. That was one of the drivers of the volume decline. But there are two other aspects I would touch on. The second one is we did have a couple of declines, I'll say, on acute businesses with some soft consumption, SKIPPY being one of the areas where we have some volume softness right now. So there was some volume softness on a couple of businesses, including SKIPPY. And then the third one, maybe the most obvious, but certainly all of the pricing in the portfolio and the elasticity dynamics around that pricing, which we expected. And as I mentioned, elasticities are playing out in line with our expectations, but there is some volume coming out as a result of the pricing actions overall across the portfolio. So that said, looking forward, I do feel like we can continue to drive growth and volume growth on our Retail portfolio. If you look at our priority brands, even in the latest 13 weeks from a consumption standpoint, we do have volume growth in a number of spots on our priority brands: Planters, Hormel Gatherings, Applegate, our Mexican portfolio. So we are growing volumes in a number of places. We'll obviously continue to invest with consumers and drive increased volume in pockets. But the reality is in this environment with pricing, there will be some throttling of that volume. Heather Jones: Okay. And my follow-up is just as you all have taken a closer look at the business over these last few years -- sorry, these last few months, when I look at the Retail segment on profitability using just '25 has dropped roughly 1/3 since '21. Volumes are down some, but margins are down considerably. The Foodservice piece has grown nicely. But just as you've taken a look at the business, I was wondering if you could just sort of flesh out for us like the opportunity to return to the margin levels we saw in the past? Are there any structural changes that are going to limit that ability? How much do you think it's related to company-specific execution issues? And just how you're thinking about maybe the next few years and what that Retail business will look like? John Ghingo: Yes, sure. I'll comment a little bit on that, Heather, just to give you a little bit more depth around what I talked about earlier in Retail. Last week, I spoke extensively at the CAGNY conference about kind of our new lens on our opportunity as a company. And we believe we have a really strong opportunity with our brands and capabilities in the Retail segment to win with consumers. We're in the process of pivoting our brands into some big consumer opportunity spaces, modernizing and refreshing our brands, modernizing our capabilities as a company. I talked a lot about that in terms of some of the investments we're making in areas like data, technology, analytics, e-commerce. So there's a lot of pivot happening to make sure we can unlock those opportunities. But I will tell you, when I look at our portfolio, and I look at our roster of brands and what we call our top 8 priority brands, which I talked about at CAGNY, when I look at our next sources of growth, which are incredibly aligned with future consumer trends, we have a lot of opportunity to drive growth and profitable growth. So the lens we brought to that was a consumer lens, but it certainly was also a financial and strategic lens to say, how do we make sure we're driving the parts of our portfolio where we have strategic advantage, where we have strong margins, where we have consumer opportunity, so we can drive growth and favorable mix over time on the Retail business. And then the capability piece is what is it going to take to deliver all of that. So we feel very good about the outlook for our Retail business, our ability to do that over time. We feel like we're making the right investments now to continue to make that pivot. Operator: Your next question comes from Chris with Bank of America. Christopher Downing: It's Chris Downing on for Pete. Two quick ones on the whole bird business divestiture. One, how should we think about this transaction relative to the WholeStone Farms transition you went through in 2018 on the pork side? What would be some of the similarities and differences? And two, can you remind us what percent of the legacy Jennie-O portfolio whole bird was? I believe at last disclosure, it was around 20%, but I just wanted to double check that. Jeffrey Ettinger: Chris, this is Jeff. I'll tackle this one. So I mean, I would look at the turkey complex that Hormel has owned is differently than the pork complex. Hormel at its peak in the pork complex was like the #6 or 7 player. Another dynamic in it is in the Upper Midwest, there are anticorporate farming laws that apply to beef and pork. And so Hormel never had a vertical operation here in the Upper Midwest. We did own farms at Mountain Prairie out in the Western area for a while and with Farmer John. But again, it was a small percentage of the business. So I think in that case, the notion of having somebody else take over some of the deep verticality of that business made a lot of sense. On the turkey side, Jennie-O has been the big player, 1 of the 2 or 3 big players in the industry for a long time. We think we are an effective low-cost producer. We have substantial tom assets that we are retaining indeed, we talk about selling the Melrose plant, but we're actually keeping plants in Barron, Faribault, Willmar, Montevideo and Pelican Rapids. So I think they're different. I mean the mentality of ultimately, a, there may be opportunities to get closer to the consumer and not be as vertical. It's a logical question. We did ultimately identify the whole bird business as being less strategic and more volatile, and hence, thought it was better owned, frankly, by LSI. But otherwise, no, we're committed to the Tom aspect of the business, and we think it gives us an important continuity of supply and cost advantage ultimately for those value-added products. In terms of the percentage, I mean, I think we could follow up with you on that. I mean I don't think you're way off, but it's at the $200 million to $275 million. I mean it's been a while since obviously, we reported Jennie-O as its own segment, but I hope that gives you some ballpark. Operator: Your next question comes from Rupesh with Oppenheimer. Rupesh Parikh: So just going back to the full year guidance. So given your 2Q guide implies a pretty significant profit acceleration in the back half of this fiscal year. So just curious on your confidence in being able to drive that improvement as we get towards the back half of the year. Jeffrey Ettinger: Thanks, Rupesh. This is Jeff again, I'll tackle that. And we're pleased to be off to the solid start that we've talked about today. We're happy with our fifth consecutive quarter of organic net sales growth and glad to be $0.02 ahead of our bottom line target after Q1. In light of the logistics cost trend, we think our confirmation of both our top and bottom line annual guidance range should be seen as a prudent yet confident sign. And we would remind you that as we head through the year, we're expecting sequential profit improvement, and there's a number of levers or drivers to that. We should see benefit from the pricing actions. We should continue to see T&M benefits. We will benefit from ongoing SG&A savings. We expect modest improvements in many of the commodity markets in the back half. And frankly, in Q4, we had some onetime discrete events that hurt us last year that we don't expect to happen again, obviously. And so that should be a benefit as well. Rupesh Parikh: Great. And then maybe one follow-up question. Just on the Retail segment. I know you've gotten a number of questions so far on the call. As we think out maybe the exit rate from a top line perspective, would you be -- would you expect to be closer to flat on the organic net sales line for Retail as you get towards the end of this fiscal year? Just trying to get a sense of the exit rate. John Ghingo: I mean for our segment detailed guide in Retail, I think on net sales, we continue to -- you're right in terms of where the private label nuts business really has been and where it exists here for the first quarter. I do think that for volume, we expect modest declines just given the private label nuts and the elasticities related to pricing within the Retail segment. And as we stated back at the start of the fiscal year back in November, retail for segment, we're going to have modest declines in volume with net sales in low single digits to flat, and that's where we kind of think we're still going to be. Operator: [Operator Instructions]. Your next question comes from Pooran with Stephens. Pooran Sharma: I wanted to maybe start off with understanding what percent of your profits are now commodity? I think in your 2023 Investor Day, it was about 10%, but you've made some moves. You sold off Mountain Prairie. Now with the sale of commodity, I was just wondering how we should think of Hormel profits in terms of value-add and commodity? Paul Kuehneman: Yes. This is Paul, I'll try to answer that, but we really don't track that answer specifically. This could be something that Florence and the IR team follow up with you later. Obviously, as you know, we have had declines here with the sale of Mountain Prairie and then the definitive agreement here with the whole-bird turkey operation, which will limit some of our commodity growth as well as what we went through with the reorganization, and what we call Project Tower internally with looking at our turkey operation full and reducing some of the harvest levels a couple of years ago. So they can follow up with you more on that, but it definitely is down from where it was back in '23. Pooran Sharma: Okay. Appreciate the color there. I wanted to -- for my follow-up, I wanted to ask about whole bird, sorry to pile on here. But I know you had a procurement strategy for Jennie-O before where I believe you were an overall buyer of dark meat just given the prevalence of your ground turkey product. Does the sale of the whole-bird business because in your prepared comments, you mentioned breast in there as well. Does this change your procurement strategy at all at Jennie-O? Jeffrey Ettinger: This is Jeff. No, it really doesn't. I mean the tom complex, if you will, we mentioned the farms and feed mills and plants that we have related to that. But for many years, Jennie-O has also supplemented its own production with the purchase of certain raw materials that are key to many of our value-added items, and that will continue. There is an aspect of the contract whereby we can get a small amount of some of the dark meat products from LSI on the hens that they bone out. And so that would be one minor change, I guess, to the operation. John Ghingo: And I would just add also to what you heard in the call, we identified bone-in and breast as a product coming off of the hand. So that's not really breast me that's going into the value-added product coming off of tom turkey. So that is a finished good product that's coming off of a hen only. Operator: All right. Thank you so much. That concludes our Q&A session. I will turn the call over to Jeff. Please go ahead. Jeffrey Ettinger: Thank you very much. I appreciate everyone's questions today, and we thank you for joining us, particularly at this early hour. We are pleased with our solid start to fiscal 2026 and the momentum we are building across our business. The initiatives we have implemented are positioning our company for continued success, and we look forward to updating you on our progress throughout the year. Thanks very much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good morning, and welcome to Public Service Enterprise Group Incorporated's Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. Ladies and gentlemen, thank you for standing by. My name is Rob, and I will be your operator today. At this time, all participants will be in listen-only mode. Later, we will conduct a question-and-answer session for members of the financial community. At that time, if you have a question, you will need to press star then the number one on your telephone keypad. To withdraw your question, press star then the number two. If anyone should require operator assistance during the conference, please press star then zero. As a reminder, today's conference is being recorded today, February 26, 2026, and will be available for replay as an audio webcast on Public Service Enterprise Group Incorporated’s Investor Relations website at investors.pseg.com. I would now like to turn the call over to Carlotta Chan. Please go ahead. Carlotta Chan: Good morning, and welcome to Public Service Enterprise Group Incorporated's Fourth Quarter and Full Year 2025 Earnings Presentation. On today's call are Ralph LaRossa, Chair, President and CEO, and Daniel J. Cregg, Executive Vice President and CFO. During today's call, we will discuss non-GAAP operating earnings, which differ from net income as reported in accordance with generally accepted accounting principles (GAAP) in the United States. We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements on our IR website and in today's materials. Public Service Enterprise Group Incorporated's earnings release, attachments, and slides for today's discussion are posted on our IR website at investors.pseg.com. We will also discuss forward-looking statements and estimates that are subject to various risks and uncertainties. Our 10-Ks will be filed later today. Following our prepared remarks, we will conduct a 30-minute question-and-answer session. I will now turn the call over to Ralph LaRossa. Ralph LaRossa: Thank you, Carlotta. And thank you all for joining us to review Public Service Enterprise Group Incorporated's fourth quarter and full year 2025 financial and operating results and our financial outlook for the year ahead, and our long-term projections through 2030. But before I dive in, I would like to thank our employees who, once again this past week, prepared and restored our system from yet another intense combination of winter weather and single-digit temperatures that brought over two feet of heavy snow and 60-mile-per-hour winds to our service areas in New Jersey and Long Island. I cannot say enough about our crews' dedication throughout this entire winter season working in freezing conditions to keep the lights on and our customers warm. Now, starting with our financial results, Public Service Enterprise Group Incorporated reported net income of $0.63 per share for the fourth quarter and $4.22 per share for the full year of 2025. Our non-GAAP operating earnings were $0.72 per share for the fourth quarter and $4.05 per share for the full year of 2025. Also, earlier today, we announced our dividend declaration for 2026, setting the indicative annual rate at $2.68 per share. This is a $0.16 per share increase, an increase of approximately 6% over last year's dividend and higher than last year's increase of $0.12 per share, all reinforced by our confidence in our long-term projection. Starting with operations, on 02/07/2026, we had a seasonal gas send-out peak when temperatures dipped below 10 degrees Fahrenheit, registering the fifth-highest send-out in our history. During that same cold snap, PSE&G's appliance service business responded to nearly 2,000 no-heat calls per day compared to an average of 600 calls on a typical winter day, and our electrical systems also performed well, with a comparatively small group of customers affected, and PSE&G was able to restore service to virtually all customers within 24 hours. Beyond the storms seen in 2026 to date, Public Service Enterprise Group Incorporated's full year results for 2025 were achieved while facing multiple severe storms and extreme weather events throughout the year that stressed our electric and gas systems. PSE&G's response, guided by our operational excellence model, achieved excellent results in safety, reliability, and customer satisfaction measures. I am also very proud of the work Public Service Enterprise Group Incorporated is doing in support of New Jersey's efforts to minimize utility bill increases. Last July, we implemented several summer relief initiatives in cooperation with New Jersey regulators to help our customers manage the impact of PJM-related electric supply costs that PSE&G passes through to customers. The latest example of our efforts occurred on February 1 when PSE&G held its residential gas rate flat for the remainder of the winter 2025 through 2026 heating season. Extending the stability of our gas rates further highlights PSE&G's favorable residential gas bill profile, which is not only the lowest cost in the state, but also the lowest in the region. And there is more good news to report on the customer front. Earlier this month, the New Jersey Board of Public Utilities approved the results of the latest electric supply auction known as the Basic Generation Supply Auction, or BGS, which will result in a 1.8% reduction in the average monthly bill for PSE&G residential electric customers starting June 1 when seasonal electric use is at its highest. Over the next several months, we will introduce even more ways to help our customers manage and save on their utility bills with increased budget billing education, new time-of-use rates, and more energy efficiency solutions. PSE&G also received approval to extend the three-year GSMP II program, which will continue our efforts to reduce methane emissions, a powerful greenhouse gas. We know that our cumulative progress from these programs has reduced our methane emissions by over 30% systemwide from 2018 levels. And recent winter weather has validated how effective our gas system investments have been by reducing both the number of pipe breaks and low-pressure issues compared to similar low-temperature events in the past. Our operating performance continues to be a positive differentiator in the state and the region. PSE&G received the 2025 ReliabilityOne awards for Outstanding System Resiliency, Outstanding Customer Engagement, and, for the 24th year in a row, Outstanding Reliability Performance in the Mid-Atlantic region. PSE&G ranked number one in customer satisfaction among large electric utilities in the East Region, according to the J.D. Power 2025 U.S. Electric Utility Residential Customer Satisfaction Study. PSE&G ranked number one in customer satisfaction among large electric utilities in the East Region according to the J.D. Power 2025 U.S. Electric Utility Business Customer Satisfaction Study, marking the fourth consecutive year PSE&G has earned the top position in this segment. And PSEG Long Island, yes, PSEG Long Island ranked number one in customer satisfaction among large electric utilities in the East Region, capping an eleven-year rise from the bottom of the rankings since PSEG Long Island took over the operation of the electric grid on Long Island. And by the way, PSE&G was number two in that same study. Finally, PSEG Long Island was awarded a five-year contract extension to continue as the electric transmission and distribution operator on Long Island and the Rockaways through 2030. We look forward to continuing our constructive partnership with LIPA that has enabled us to become the best performing overhead electric service provider in New York State and, like PSE&G in New Jersey, a top performer nationally for reliability and safety. 2025 was a successful year for our company, both operationally and financially. 2025 was a successful year for our company, both operationally and financially. PSE&G executed on its capital plan, investing approximately $1 billion in the fourth quarter and approximately $3.7 billion in total for the year, in regulated capital spend. On the generating side, PSEG Nuclear posted a 91.2% capacity factor for the full year, producing approximately 30.9 terawatt-hours of 24-by-7 carbon-free baseload power for the grid, including during the intense June 2025 heat wave when New Jersey needed it most. Public Service Enterprise Group Incorporated's non-GAAP operating earnings for 2025 were at the high end of our narrowed guidance range of $4.00 to $4.06 per share, extending management's track record of delivering results that either met or exceeded our earnings guidance for the 21st consecutive year. Turning to our outlook for 2026. First, we initiated a non-GAAP operating earnings guidance in the range of $4.28 to $4.40 per share, an increase at the midpoint of 7% over 2025 results. Our 2026 guidance is based on our investment program at PSE&G and expected nuclear output realizing market prices that exceed the nuclear PTC threshold. And we are approximately 95% hedged for the remainder of 2026. We will also keep to our longstanding practice of stringent cost control and continuous improvement to support affordability and benefit our customers. Regulated capital spending is forecasted in the range of $22.5 billion to $25.5 billion over the same period and supports a rate base CAGR of 6% to 7.5%, with over 90% focused on regulated investments. For the 2026 to 2030 period, $24 billion to $28 billion of regulated capital spending is forecasted, and our solid balance sheet supports execution of this robust five-year capital plan without the need to issue equity or sell assets. Second, we updated Public Service Enterprise Group Incorporated's GAAP earnings growth outlook to 6% to 8% through 2030. With these updates, we are raising Public Service Enterprise Group Incorporated's long-term non-GAAP operating earnings CAGR to 6% to 8% through 2030. This higher growth rate is supported by our best-in-class utility operations executing on a customer-focused infrastructure modernization and energy efficiency investment program. This regulated growth is supported by nuclear generation ownership, a significant cash flow generator and therefore a differentiator among our peers. Potential growth beyond our forecasted 6% to 8% CAGR range could be achieved through opportunities to contract existing and additional generating output to provide for residential universal bill credits and through incremental regulated capital investments. We look forward to constructive dialogue with the BPU on these issues, including the exploration of regulatory reform to again offset electricity supply rate increases. Now turning to the legislative front, in the past few days, a bill was reintroduced in the state legislature to establish a new natural gas power plant procurement program at the BPU and incentivize development of new natural gas power plants in the state. This gas bill pairs with an earlier bill that established a new nuclear procurement program also within the BPU that was introduced at the start of this legislative session. We look forward to working with policymakers to advance energy strategies and resources that secure affordable, reliable, and diverse energy supplies, and support legislation that would increase competition for generation supply should New Jersey decide to pursue new in-state generation. The supply-demand dynamic we are seeing in New Jersey as prompted executive orders to be issued to explore supply options. The executive orders also direct the BPU to again offset electricity supply rate increases, provide for residential universal bill credits, and through incremental regulated capital investments, including the development of an additional 3,000 megawatts of community solar and battery storage. We have been cooperatively working with policymakers since last November, and we look to help New Jersey achieve the high-priority goals of these executive orders. We have sites with grid connection capability and pipeline supplies, as well as the in-house expertise to build new supply here in New Jersey with prevailing wage labor. And as we have previously mentioned, we are well positioned to help meet that need. I will now turn the call over to Daniel, who will walk you through our 2025 financial results and the outlook for 2026. And then I will rejoin the call for Q&A. Daniel J. Cregg: Thank you, Ralph. And good morning, everyone. Public Service Enterprise Group Incorporated reported net income of $4.22 per share for the full year of 2025, compared to net income of $3.54 per share for 2024. For the fourth quarter of 2025, net income was $0.63 per share, compared to $0.57 per share in 2024, and non-GAAP operating earnings were $0.72 per share for 2025, compared to $0.84 per share in 2024. Slides eight and ten detail the contribution to non-GAAP operating earnings per share by business segment for the fourth quarter and full year of 2025. PSE&G reported non-GAAP operating earnings of $352 million for 2025 compared to $378 million in 2024. Compared to 2024, distribution margin increased by $0.07 per share, mostly reflecting incremental gas margin from the third quarter GSMP II roll-in, an increase in the number of customers, and higher gas demand. Higher investment in energy efficiency also contributed to distribution margin in the quarter. On the expense side, distribution O&M increased $0.04 per share compared to 2024, primarily due to higher reserves related to bad debt and operational costs. Weather during the fourth quarter, measured by heating degree days, was 9% colder than normal and 23% colder than 2024. As a reminder, the Conservation Incentive Program, or CIP, decouples weather and other economic sales variances from a significant portion of our distribution margin, all while helping PSE&G promote the widespread adoption of energy conservation, including energy efficiency and solar programs. Under this CIP, the number of electric and gas customers drives margin, and the residential customer growth for both segments was approximately 1% in 2025. Depreciation and interest expense rose by $0.20 per share, reflecting higher levels of depreciable plant and long-term debt at higher interest rates. Lastly, distribution-related taxes were $0.05 per share higher compared to 2024 due to plant-related taxes and lower write-offs. On the capital front, as Ralph mentioned, PSE&G invested approximately $1 billion during the fourth quarter. And for the full year 2025, our capital spending totaled approximately $3.7 billion with continued investments in infrastructure modernization, energy efficiency, and distribution reliability and resiliency investments supporting growing customer demand. For 2026, our planned capital investment program for the regulated business is approximately $4.2 billion. Our 2026 to 2030 regulated capital investment plan amounts to $22.5 to $25.5 billion, which compares to our prior plan of $21 to $24 billion, and is expected to produce a compounded annual growth in PSE&G's rate base of 6% to 7.5% through 2030, starting from a year-end 2025 balance of approximately $36 billion, which includes construction work in progress. The $1.5 billion increase in regulated investments is primarily driven by anticipated load growth due to data centers and other new customers. We also rolled forward our five-year regulated capital plan through 2030, plus other incremental investments. These investments help us maintain our best-in-class reliability and customer service, as well as meet New Jersey's energy savings goals. Earlier this month, the BPU certified the results of the annual New Jersey BGS auction that was held to secure electricity for customers that have not selected a third-party supplier. Based on the competitive auction results, the cost of electricity supply on PSE&G residential electric bills will decline by 1.8% starting June 1, 2026. This decrease reflects the net impact of a lower overall 2026 BGS price that will replace the 2023 auction result that contained higher energy costs. Moving to 2025, PSEG Power & Other reported a net loss of $37 million for the fourth quarter compared to a net loss of $92 million in 2024. Non-GAAP operating earnings were $10 million for the fourth quarter compared to non-GAAP results of $43 million for 2024. PSEG Power & Other reported net income of $366 million in 2025, compared to $225 million in 2024, and non-GAAP operating earnings were $284 million in 2025, compared to $292 million in 2024. Referring to the fourth quarter waterfall on slide nine, net energy margin was flat compared to the prior-year quarter as higher gas operations were offset by the absence of zero-emission certificates at our 100% owned Hope Creek nuclear plant and lower generation volume due to the scheduled refueling. O&M was $0.04 per share higher during the Hope Creek refueling outage as we transitioned the unit from an 18-month to a 24-month refueling cycle going forward, which will yield additional megawatt-hours as well as O&M savings over the long term. Depreciation expense was $0.01 per share favorable compared to 2024, and taxes and other were $0.01 per share favorable compared to the year-earlier quarter, driven by a contribution to the PSEG Foundation. Interest expense rose by $0.04 per share, reflecting incremental debt at higher interest rates. Non-operating expenses were $0.02 per share higher compared to 2024. On the operating side, the nuclear fleet produced approximately 7.2 terawatt-hours during the fourth quarter of 2025, compared to approximately 7.3 terawatt-hours in 2024, mostly driven by the Hope Creek refueling outage, and for the full year 2025, nuclear generation was approximately 30.9 terawatt-hours, up slightly from 30.6 terawatt-hours in 2024. Capacity factors for the nuclear fleet were 83.7% and 91.2% for the quarter and full year of 2025, respectively. Touching on some recent financing activity, as of December 2025, PSEG total available liquidity remains strong at $2.8 billion, including approximately $130 million of cash on hand. On the financing front, in December, PSEG Power amended its existing $400 million, 364-day variable-rate term loan, which increased the balance to $500 million and extended its maturity to December 2026. Liquidity was supported by solid cash from operations during 2025, totaling more than $3 billion and higher working capital balances. As of December, PSEG's variable-rate debt consisted of the 364-day term loan at Power for $500 million, which matures in December, and our level of variable-rate debt represents approximately 6% of our total debt. Looking ahead, our balance sheet supports the execution of Public Service Enterprise Group Incorporated's five-year capital spending plan, which is dominated by regulated CapEx, without the need to sell new equity or assets through 2030 and provides the opportunity for continued dividend growth. Funds from operation to debt is projected to be in the mid-teens through 2030, comfortably above our minimum threshold. Now, before I conclude my remarks, let's review earnings drivers for 2026 as outlined on slide five. First, we are starting with a higher rate base of approximately $36 billion at year-end 2025, and that is up about 7% over year-end 2024. In addition, clause-based recoveries for investments in distribution infrastructure and CEF Energy Efficiency II are expected to contribute to utility margin. On the distribution side of the business, electric base rates for 2026 are projected to be stable. As we discussed on the third quarter call, PSE&G's annual FERC transmission formula filing was implemented on January 1, with an $82 million increase in annual transmission revenue subject to true-up. Like last year, we do not expect to book earned revenue on January 1, with an $82 million increase in annual transmission revenue subject to true-up. At PSEG Power & Other, the zero-emission certificate amounts earned by our New Jersey nuclear units concluded in May. And just as a reminder, expected generation output for 2026 is approximately 95% hedged. Our nuclear refueling cycle for 2026 includes a spring refueling at Salem Unit 2 and fall refuelings at Salem Unit 1 and Peach Bottom Unit 2. Hope Creek is scheduled for its next refueling in 2027 following the completion of fuel cycle extension work in 2025 and a shift to a 24-month refueling outage schedule. As we continue to stringently manage our controllable costs, we will see interest and depreciation expense that will rise with a higher investment balance at PSE&G and higher interest expense at PSEG Power and Parent related to refinancing maturities at higher current interest rates. In closing, we are proud to have delivered, for the 21st year in a row, on meeting or exceeding our earnings guidance, and we carry that confidence forward to our full year 2026 non-GAAP operating earnings guidance of $4.28 to $4.40 per share, 7% higher at the midpoint over 2025 results. We increased our dividend by over 6% and updated our long-term non-GAAP operating earnings CAGR to 6% to 8% using a higher baseline for the second year in a row. Earnings growth beyond our forecast is achievable through opportunities to contract our existing output and planned uprates, as well as from incremental regulated capital investment. That concludes our formal remarks. And we are ready to begin the question-and-answer session. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. If your question has been answered and you wish to withdraw your polling request, you may do so by pressing star then the number two. If you are on a speakerphone, please pick up your handset before entering your request. One moment, please, for the first question. The first question is from the line of Shahriar Pourreza with Wells Fargo. Shahriar Pourreza: Hey. Good morning. Hey, guys. Good morning. Good morning, Ralph. How are you doing? Ralph LaRossa: We are good. How are you? Shahriar Pourreza: Not too bad. Not too bad. Busy. Busy. Can you just maybe talk about the timing of the bill, so next steps, will there be, like, an IRP process? Could there be, like, a PPA where you earn a return on the PPA, assuming a generator wins the RFP? And how do we, like, work through things like air permits and turbine queue backlogs? I guess, how do you think about this whole process around this for some time around new gas? Ralph LaRossa: Yeah. Boy, there is a lot there. But you also answered your own question a little bit. That is your answer, Shar. Because, you know, much of it is in play, right? As you said. And many of those variables that you laid out are the exact variables that policymakers need to come to grips with. Right? So there are a couple of bills that are floating down in Trenton right now that will help enable new nuclear and potentially new gas. I think the governor already has the ability to move on a lot of solar and potentially battery storage. So the way we have been thinking about it is trying to help policymakers think through and then enable the opportunities for gas or for new nuclear. And that is really what we have been trying to do is help them think through that at this point. It does not drive the output. The IRP will make recommendations as policymakers will, in quite a few different settings, and they will be the ones that really own that as they go forward. But I think that process, again, just informs the output. We could help out with an IRP for New Jersey. We could help out with an IRP for PSEG. We do all the time on Long Island. But they are not going to be the decisions. They do not carry the word of law. Right? Shahriar Pourreza: Got it. And then just lastly, can you just maybe help us quantify, like, what level of hedges and upside versus the PTC you are kind of embedding in that 6% to 8%? Is the bottom end of that CAGR kind of anchored in PTC out years? Daniel J. Cregg: And so I think you are looking more at a market view to try to get you to what that out year looks like. I think that market view is supported by some of the fundamentals that you are seeing out there. And if and as that moves over time, which we would expect that it would, we will take that into account as we are making our comments and updating what is going on. But I think that is the way to think about it. Shahriar Pourreza: Got it. That is perfect. Thank you, guys, so much. Much appreciated. Daniel J. Cregg: Thanks, Shar. Operator: Our next question is from the line of Nick Campanella with Barclays. Nicholas Campanella: Good morning, everyone. Thanks for the updates. Ralph LaRossa: Good morning, Nick. Daniel J. Cregg: Thank you. Nicholas Campanella: You know, when you had a five to seven, you kind of talked about it being nonlinear. And now you have the six to eight, which is great to see. And I just recognize you have things like refueling outages and timing of rate case outcome at some point in this plan. So just maybe you can talk to whether this CAGR is linear or not? And you may fall within the CAGR 27, 28, and just the kind of critical drivers that people should be paying attention to here? Thank you. Daniel J. Cregg: Yeah. So, Nick, I think, you know, we have talked about for the last three years about being more predictable. And, yes, our goal remains to be as linear as possible. But we work really hard to do that. Right? There will be structural changes that happen where we have to modify, and right now, I think the structural change has been the supply-demand curve, and we have seen that. And it has taken us above the PTC floor. So we adjusted. Our goal remains the same, which is to be a predictable, delivering the results that we said we were going to deliver. And I think we have been able to achieve that by investment. So with that is our effort to be as linear as possible. That does not mean we will be 100% linear. But I think our, you know, effort is to continue to be as predictable as we can be. And we feel confident in the plan that we put forth today. Nicholas Campanella: Thank you. And I recognize that you forecasted the base off a higher midpoint of 26 as well. So, thank you for that. Maybe just, you also can talk about, you know, nuclear contracting. You talked about nuclear contracting to kind of put you above that range. Just maybe what is the latest thoughts on that at this point? I know the prior state administration was very focused on bringing data centers to the state. How is that kind of looking over this new administration? And just maybe anything you can offer, the most near-term things that you ought to be able to think about as this administration comes in and settles in on their views on this, and what your conversations have kind of been with customers on that? Thank you. Daniel J. Cregg: Yeah, Nick. And I think that the story is fairly consistent. I think that, obviously, the facilities that we do have in Pennsylvania, where I think there has been a more firm view over time and more stability with respect to who has been in the governor's office there, as well as some of the smaller opportunities that we have more locally within New Jersey. And we have talked about a lot of the applications that the utility has seen. And so there is, I think, less opportunity for something of a sizable scale in New Jersey just from the standpoint of where the administration has been. To the extent that that changes and the receptivity is increased there, there could be incremental opportunity. But I think for the time being, the more fertile ground right now would be Pennsylvania for something larger and some of the smaller New Jersey locations, and I think those discussions have progressed well. Ralph LaRossa: Yeah. And I would just add, Nick, just from a normal rhythm of transition for administration like this, in the way it works in New Jersey, there is a real focus now. First of all, let us staff up, and I think the governor has done a great job of getting a number of people in place not just in our industry, but in other areas that matter to the state run well. And I think the second thing they need to do is really focus on the budget for New Jersey. And so that is where my understanding from conversations we have had is the focus of the governor right now. When she gets through that process, I think economic development will be right behind that as an area of focus, and we are already having conversations on that. I chair, Choose New Jersey, about the role we will play in the organization and the areas of focus, but that has not been finalized yet. Nicholas Campanella: Understand that this RBA process is going on right now. And there are discussions around extending the RPM collar for another two years and extending, you know, a, a week or two ago, a $4.20 per megawatt-day number was kind of thrown out there. Just what are your kind of thoughts on that? Okay. And then if I could just throw in one follow-up on through 2030, and then what is kind of embedded at the current cap rate in the plan? Daniel J. Cregg: Look. I think embedded within your question, Nick, is the fact that you have got a market out there where you can see what things are looking like, but it will remain somewhat dynamic as you step through time. And that is the best information that we have as well. And so what we are doing is trying to look at what that looks like. I think we feel good about where we are and how it all fits together within the plan. But I think it is those same market signals that we see that you are seeing out there. I mean, a reminder, I would highlight the fact that the location of our facilities is in the PECO zone. So if you are thinking about pricing and trying to do math to figure out what this means in the out years, that zone is most highly correlated to the actual generator buses where we run. So West Hub trades north of that. We said it trades about 20% above what we would be seeing from where our generator bus is. And so it is those market points that we look at to try to derive where we are headed within the plan and what we put forth to you. And we think we are in a really good place against that backdrop, but that is what we look at as we go forward. Nicholas Campanella: Okay. I appreciate the thought. Thank you. Operator: Our next question is from the line of William Appicelli with UBS. Ralph LaRossa: Morning, Bill. Daniel J. Cregg: Rob, maybe you want to go to another one and see if Bill rejoins? Operator: Sure. The next question would be from the line of Julien Patrick Dumoulin-Smith with Jefferies. Julien Patrick Dumoulin-Smith: Hey, Julian. Hi, Julian. Hey. Good morning to you guys. Thanks for the time. I appreciate it. Look. Let me follow, and by the way, nicely done on the CAGR increase. Got to hand it to you guys. If I could, on the gist of what Shar and Nick were asking us about here. Let us talk about the overlap between the BPU here and what next steps are from both and how they might overlap. Right? Because clearly, there is a certain degree of legislative process of mutual alignment between the two in theory. Can you comment a little bit on timeline? I know Shar was kind of pressing at that as well here. Ralph LaRossa: Yeah. Look. I think you are going to have a little bit of give and take that will continue as people find their footing in this new legislative area and how the regulator is going to work. The administration is finding their footing, but the administration recently introduced these two bills that would kind of direct the BPU to do certain things. The BPU has the ability to do certain things today. You know, go out and procure gas, to go out and procure new nuclear. Right? We had the exact process in the past. But they are limited in what they can do. So they could use a little more direction to make the process a little cleaner for them by some legislative changes. So I think I cannot tell you it is going to happen in the next 30 days, and I cannot tell you it is going to happen in the next six months. And it all comes out of the back end of the last 12 months of discussions about the need for us to change that balance somehow. The scarcity is there, and we have got load increases that have taken place across PJM, even if we do not have a data center in New Jersey, and we do have higher electricity costs from a supply standpoint. The load increases are happening right across the river, and it is impacting the pricing here in New Jersey. So I think the BPU has recognized that they do not want to be in the same level of import that they are. I mean, policymakers feel the same way, and they want a little more control over the pricing of the product that ultimately residents of New Jersey hold us all accountable for. Julien Patrick Dumoulin-Smith: Got it. And if I can zero in a little bit, guys, on the 2026 guide here, and thanks again for your help earlier, how do you think about what the breakdown is between the regulated utility side of that year-over-year increase versus what is reflected in power? And then even within power, can you comment a little bit about where you guys are hedged? I know you said you are 95% for this year. Just comment a little bit about where you are relative to that floor, if you will. Want to make sure we are all on the same page here. Just as that starting point. Daniel J. Cregg: Yeah. I mean, obviously, we are north of it because that is how we described it and how we put it out there. I think to go much beyond that, we would start to break down the pieces beyond what our overall guidance is. And so I think, just maybe repeating a little bit what I said before, Julian, if you think about what the market signals are that are out there, that is what we are leaning on. I would say that 2026, we gave you a 95% hedge. 2027, I think it is fair to say that we are largely hedged for that year. And in 2028, I think if you think about a ratable approach over three years that we have talked about, we have leveraged that liquidity to be able to hedge up a fair bit of 2027–2028, but 2029 and 2030 remain more subject to market forces as we go forward. Well, let me try this differently. How do you think about earned returns in the current year here for the utility and or what is implied year over year in growth on an EPS basis? Yeah. Look, Julian, I think we have been pretty clear about the fact that where the structural changes will make changes. And when the changes are not structural, we will look at what opportunity sets we have for maintenance activities that might be in a four-year cycle and try to look at that from a predictability standpoint for the investment community. So we look at our plans every year. We adjust to that. And, again, I just want to reinforce that we are really happy with the pattern that we have talked about from an earnings standpoint. We were really happy with the top end of the five to seven we have been running for the last couple of years, but we thought the scarcity issue of power was enough to change our thought process to be in that six to eight, based upon where prices are, driven by both the capacity and the energy side. Julien Patrick Dumoulin-Smith: Excellent, guys. Thank you much. Operator: The next question is from the line of William Appicelli with UBS. William Appicelli: Yes. Hi, Ralph. Dan. Thank you. Apologies for that technical problem. Just maybe building on some of these other incremental regulated capital investments, and forgive me if you already addressed it and I missed it. But I guess, where in the spectrum would those fall? And what types of projects are we talking about there? Ralph LaRossa: I think they come in really two buckets. Right? There is incremental transmission that is in the PJM region. We have been active in that process, and we are successful, as we have talked about a bunch of times, in Maryland. And we continue to look at those opportunities when they present themselves. There is a very specific effort going on in the state of New Jersey right now about being ready for solar. And the need for us to make sure that our distribution system is ready, that has been an ongoing process to continue to make sure that this focus on solar and batteries at the Board of Public Utilities, and there were comments received on that in the last couple weeks down there, if I recall correctly, can be enabled by the distribution system that they are going to be interconnecting to. And then the third bucket is the opportunity for us to participate on the generation side again, depending upon where policymakers land on that front. So I would say all three of those are the areas that we talk about around the table on a regular basis. Daniel J. Cregg: And then on top of that, Bill, I would just add that, embedded within kind of the base plan that we have in front of us, things that Ralph mentioned could add to that. I would still characterize what we put out as the updated capital forecast as there is nothing in there that is a single project that is a huge part of the capital. It is all stuff that sits in front of us and is shorter term in nature, and we can kind of knock out without a whole lot of red tape that we have got to get through or challenges we have got to get through. It is just kind of a basic set of capital that we know we can achieve. Ralph LaRossa: No. It is a really good point that Dan is saying. I mean, everything I just said is above and beyond. We are not building in a percentage of any one of those buckets as we put out this capital forecast. These are small projects that are really, 90% of them are being based upon end of life on the regulated side. So, you know, I have kind of been telling my family anyway, if you think about what we do every day in replacing the infrastructure, it is just like the Portal Bridge. For those of you that are in the New Jersey region and see New Jersey Transit delays right now as they upgrade that, the infrastructure in New Jersey is old and we have an opportunity to make upgrades as a result of that. William Appicelli: Alright. No. That is very helpful. And then just one other one on the O&M side. I guess, what is embedded, you know, in the plan in the six to eight? On that front? Just to do at the utility level. Daniel J. Cregg: Yeah. As we build our plan, and Ralph has often described it this way, we take a look at what is in front of us and whatever kind of an inflationary assumption we have there, and then we look to the businesses to try to pull back on that to end up in a more reasonable place from a cost-cutting perspective and overall cost management perspective. So, if you have got a 3% inflationary assumption, you can pull that down to 2% to 2.25%. Everybody is looking for opportunities within those budgets to try to move to a better place. So that is kind of how we structure it and how we move forward on it. We know that we do have our labor agreements that are running out through 2027, and those will get re-upped and have an effect as well. But we kind of lay out a baseline plan and then pull back some efficiencies to get to where our final plan lands. Ralph LaRossa: Bill, it is relatively flat with some inflation, and then we back it off, as Dan said. I know some people think we talk about, you know, finding pennies in the couches, which I actually like. My wife and I still have a little bucket that we put our pennies in. So it is not the worst thing in the world to go looking for them because they all add up at some point. William Appicelli: Okay. But some assumption on the re-upping of those labor agreements is reflected in this plan? Daniel J. Cregg: Oh, yeah. That is all in there. There are no expectations of major dislocation there. William Appicelli: Okay. Alright. Thanks very much. Operator: The next question is from the line of Michael P. Sullivan with Wolfe Research. Proceed with your question. Michael P. Sullivan: Good morning, Michael. Hey, Ralph. I think for a while now, you all have had in your slide deck over the forecast period 90% regulated earnings. Is that still true under this updated plan? Or any sense you can give us of what the mix is over the forecast period? Daniel J. Cregg: No. I mean, what I would tell you, Michael, is I hope that number goes down a lot because that means power prices are going to go up. We are going to do better. I would think about the utility side of the business continuing to do what it does, and to the extent that we see some movement up from a power price perspective, given the demand-supply dynamic that you are seeing, you might see a modest shift there. And again, kind of the tongue-in-cheek way of saying it is I hope it goes down a lot because that means that we are doing better on the other side of the business. But I would not think about any major shifts compared to what we have seen in the past. It is going to be more modest as we step through time. Ralph LaRossa: Okay. Michael, I may even go a little bolder than that. We have said this also for a long time in our decks. The PTC floor is a regulated-type return. And so when we think about it from that perspective, you could argue that the merchant is only above the PTC floor. Right? Because the federal government has regulated that PTC floor as the return for the nuclear plants. So I know it is not traditional regulated, but when we think about it from a risk profile standpoint, it sure feels a lot like that. Michael P. Sullivan: Okay. No. That is totally fair. But it just sounds like you are not going to tell us what your merchant assumption is above, out in time. Daniel J. Cregg: Well, we are going to tell you what our earnings projections are, and we are going to meet them as we have done. Michael P. Sullivan: Okay. And then on the utility side, I just think, historically, the rate base kind of rebase of the CAGR has been a bit higher than we saw this past year. And anything to make of that? Or what is kind of driving that? Daniel J. Cregg: Oh, from the standpoint of the baseline? Look. I would think about that rate base as growing the 6% to 7.5% that we have put out for the past couple of years. And I think that that is still consistent. I would say, to our credit, that has been on a growing base that for some years has been above that. And so continuing to grow 6% to 7.5% has been a consistent CAGR growth. To the extent that what you are implying is correctly that that rate base has grown more than that the last few years, we have continued to grow 6% to 7.5% off of that higher base, which implies a little bit higher growth. Michael P. Sullivan: Okay. Great. Thank you. Operator: The next question is from the line of Anthony Crowdell with Mizuho Securities. Please proceed with your questions. Anthony Crowdell: Hey. Good morning, team. Hey, Ralph. You went to double game last night. I hear the opening ceremonies are really exciting. Was he the fan applauding in the beginning? I know there was some booing going on of some of the elected officials. That is awesome. Hey. I just have a cleanup question. I believe the BPU is in a 180-day pause right now coming from the governor's executive order. I believe it is a 180-day pause of no increase in rates. Just curious if that includes outcomes of any of the rate riders. And then also, if you could talk about what happens at the end of the 180-day pause, maybe some of the things changed by the prior administration. Ralph LaRossa: Our esteemed CFO did. We did not make it down there last night, but our esteemed CFO did. Daniel J. Cregg: It was fantastic. Anthony, all I heard was USA chants, and they were deafening. It was fantastic. No. So, the pause that they put in place was on regulations that were passed in the months leading up to the election. And so they paused them. I do not know if it is 180 days or 90 days, but they basically said, hey, listen. If we were going to change the speed limit on the Turnpike and that was a change that was put in place by the prior administration, it will not go into effect for another 90 or 180 days. And so there were a few things there that were on the fringes to our business, but nothing after we did the review that would impact our business. And I mean that from a labor-wage standpoint, from a benefit standpoint, from any of the above. So no impact on that as a change, but those regulations were regulations that were changed by the prior administration in the months leading up to the election. Anthony Crowdell: No. That is fine. I know you are looking for pennies in the couch, but do you know when the 90-day ends? Daniel J. Cregg: Yeah. No. It is 90 days after she took office. So I want to say it is April, May. I think she took office on January 12 if my memory is right. Anthony Crowdell: Perfect. Thanks so much. Daniel J. Cregg: Thanks, Anthony. Operator: Our next question is from the line of Jeremy Tonet with JPMorgan. Jeremy Tonet: Hi. Good morning. Daniel J. Cregg: Good morning, Jeremy. Jeremy Tonet: Alright. Thanks for all the color today. Just one last question for me. As we think about future generation in the state of New Jersey, you have talked about the ability to host SMRs in the past. I am just wondering any updated thoughts you might be able to provide on how likely that is to, I guess, come to fruition or just thoughts on the topic in general. Ralph LaRossa: Yeah. I would put our—look, if we were advocating, we are advocating on a nuclear front for big nuclear. We think that that makes the most sense based upon our property and our footprint. But there could be other places where it makes sense for people to put small SMRs and to try that technology out. I think also from a gas facility standpoint, we have said that we have a site that makes a ton of sense where we have pipes and wires ready to it as well. So, yeah, SMRs, from our standpoint, would not be the highest and best use of our property. Remember, our early site permit is technology agnostic. So we could go in any direction on that. But we would be open to people if that was really what folks wanted us to enable. Jeremy Tonet: Got it. That is helpful. I will leave it there. Thanks. Operator: Our next question is from the line of Nicholas Amicucci with Evercore ISI. Nicholas Amicucci: Hey, good morning, Ralph and Dan. How are you? Ralph LaRossa: Good morning, Nick. Daniel J. Cregg: I would hold on to those pennies because there is probably some scarcity value associated with that. Ralph LaRossa: Exactly. Exactly. They add up. Nicholas Amicucci: Yeah. So actually wanted to kind of continue down the nuclear rabbit hole here if we could for a little bit. Just as we think about, you know, kind of the nuclear fuel and how you guys are hedged out through, you know, over the course of the capital plan. Just knowing that, you know, Russia is kind of going offline in 2028. How are you guys kind of—are you guys kind of front-loading or kind of prebuying any type of nuclear fuel just to ensure that, you know, affordability kind of does not go too haywire? Daniel J. Cregg: Yeah. Look. When I start thinking about nuclear fuel, the first thing I think about is the fuel in the reactor because that is most of what we are going to be using for the next couple of years. Then I look to where we have contracted, and we are contracted out for the next few years for most of what we are going to need. I also think about what is going to be purchased from places where we are going to purchase from. And if I think about movements with respect to supply-demand pricing, you could see some modest movements in prices, but I do not think anything that is going to be all that dramatic. Prices that sit somewhere around $50 and fuel that sits somewhere around $78 on the overall scheme of things. The availability is a critical aspect for us, and I have no question that the fuel that is being produced is the fuel that is going to be produced. And if Russian fuel does not come here, Russian fuel will go somewhere, and that will displace fuel, and we are going to continue to see availability. It is only when you get to the tail end of that five-year period when things are going to change. And, not to get too deep into world markets, but I think conceptually, we are hedged out for the next couple of years in pretty good shape, and you could see some modest movement in prices. Nicholas Amicucci: Got it. Great. And then if I could as well, I know, Ralph, you have been kind of a big proponent on more large nuclear relative to SMRs. But I think if I understand correctly, Governor Sherrill is more—she is, just given her naval background, more in tune with SMRs. But is there anything, any kind of, I guess, appetite from her just given that, you know, we did have, a couple months ago, the DOE type of procurement of the 10 AP1000s. I mean, is there any opportunity for you guys to partake in those allocations, the Brookfield Westinghouse selection? Ralph LaRossa: Yeah. Look. I think we have said we will continue to educate and advocate on behalf of the state probably to a nauseam now. And so we will be there advocating that we want to help enable exactly that. I do not want to predetermine a selection for something like an AP1000. I think that is one that it appears that DOE is firmed up on, but I also hear that all the i’s are being dotted and t’s crossed. So we will be there advocating as far as we are going right now. And I think the education that is ongoing for the incoming administration is something that we are also trying to help with. Nicholas Amicucci: Perfect. Thanks, guys. Daniel J. Cregg: Thanks. Operator: Thank you. Our last question is from the line of David Arcaro with Morgan Stanley. David Arcaro: Hey. This is Amanda on for Dave. Thanks so much for taking my questions. Daniel J. Cregg: Hi, Amanda. David Arcaro: Hey. So maybe lastly, just on the executive orders, how are you thinking about the scope of the current BPU study? And are there any financial impacts currently contemplated in the long-term plan based on any potential changes? Or do you think it is still too early to assess those changes? Daniel J. Cregg: Yeah. I think it is too early right now. There are a lot of conversations going on. You can look across the country and see a number of different ways that things have changed from a regulatory standpoint and how utilities have been compensated for the utilities that have been involved. We have looked at many of those, and I think many of those at the end of the day have worked out. It is just a different way of thinking about things and providing those returns for those utilities. So we have not changed. We have not put any different regulatory process in place in the projections that we have made. But we fully expect that the outcome is going to be an outcome that makes sense for both us and for the customers. David Arcaro: Great. Thanks so much. And maybe just a quick follow-up. With the two new commissioners in the BPU, any initial comments on conversations with them, just based on the first few months of their appointment? Daniel J. Cregg: Yeah. No. Our team has continued to meet with folks, but our conversations have been limited to, I would basically put it, meet and greets at this point. David Arcaro: Got it. Thanks so much again. Operator: This is all the time we have for questions. I would like to turn the floor back to Mr. LaRossa for closing comments. Ralph LaRossa: Thank you, Rob. I had a couple of comments prepared, but I actually started this call, as you heard, talking about the great work of our team. During the last storm, our facilitator here today, Rob, actually started our morning off by thanking us for the work that was done and communicated during the storm. So I just want to reinforce the thank you to the team. We can talk all we want about finances and the outcomes that we have here, but if we do not deliver on our operational mandates day in and day out, no regulatory construct is going to matter for us, and our plants will not run. So I thank the employees every day. And when I get comments like we just received from Rob when we opened up this call, it makes it all worthwhile. So, Rob, thank you, not only for facilitating the call, but for reinforcing for all of us that what matters is the work that is being done day in and day out by our employees in the field. With that, thank you, Rob. We are going to be out quite a bit over the next month and a half and look forward to seeing you and the in-person conversations. Operator: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the Middleby Corporation's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] On today's call are Tim FitzGerald, CEO; Mark Salman, President of Middleby Food Processing Group; Bryan Mittelman, CFO; James Pool, CTO and COO; and Steve Spittle, Chief Commercial Officer. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tim FitzGerald. Please go ahead. Timothy FitzGerald: Good morning, and thank you for joining today's call. Over the past year, we have executed decisive actions to unlock significant value for our shareholders through the strategic optimization of our portfolio of industry-leading businesses across Commercial Foodservice, Food Processing and what was formerly our Residential Kitchen segment. Before we dive into our results for the quarter, let me start with our strategic accomplishments. In February, we announced the completion of the sale of a 51% stake in our Residential Kitchen business to 26North at $885 million total enterprise valuation, delivering approximately $565 million in immediate cash proceeds subject to future closing adjustments. This transaction represents a premium valuation while allowing us to retain meaningful upside through our 49% ownership stake. Following the close of the transaction, Middleby operates 2 highly focused industry-leading platforms, Commercial Foodservice and Food Processing. While we retain a 49% stake in the Residential JV, we are treating this as a non-core part of our operations, which is why you'll see it in discontinued operations in the fourth quarter and going forward will be excluded from our adjusted results. In anticipation of the proceeds from the deal, we will immediately put this capital to work for our shareholders. Combined with our ongoing share repurchase program, we reduced our overall share count in 2025 by approximately 9% through $710 million in buybacks, one of the most aggressive capital return programs in our industry. This reflects our conviction that Middleby shares remain significantly undervalued relative to our earnings power and growth prospects. In the second quarter, we plan to complete the separation of our Food Processing business, creating 2 independent pure-play industry leaders. Each business will emerge with enhanced focus, optimized capital structures and the resources to maximize growth in their respective markets. The financial impact is compelling. Following these transactions, Middleby will operate as a focused Commercial Foodservice leader with industry-leading 27% segment level EBITDA margins, while Food Processing becomes an independent growth platform with segment level EBITDA margins over 20% and significant expansion opportunities through both organic and acquisition growth initiatives. Turning to our fourth quarter results. Our total revenue of approximately $866 million for our remaining 2 segments exceeded our expectations. This strong top line performance drove adjusted EBITDA of approximately $197 million. Through a combination of these operational results and the substantial share repurchases we made in 2025. This translated to adjusted EPS of $2.14 for the quarter and $8.39 for the full year. For today's discussion on segment level results and trends, I will be discussing the Commercial Foodservice results and outlook, and I have asked Mark Salman, the current President of our Food Processing segment, and as we announced today, the CEO of Food Processing SpinCo upon completion of the spin-off, to discuss the Food Processing segment performance. Starting with Commercial Foodservice, we generated revenue of approximately $602 million, which exceeded our expectations during the fourth quarter. The outperformance was driven primarily by the general market with our dealer partners, which had double-digit growth in the quarter. We attribute the second half momentum to improve demand with independents and in the institutional market, along with continued growth with emerging chains. We are gaining share with our dealer partners as a result of investments to strategically align those relationships over the past several years. The broad-based strength we saw in the general market was offset by continued declines among our large QSRs and C-store customers who faced lower traffic and cost pressures throughout 2025. While the QSR market conditions remain challenging, we are encouraged by actions taken by our larger chain customers to better position themselves setting into 2026. We've seen our customers address menu pricing, returned to limited time offers and launch new beverage programs to reposition against the challenging backdrop with a focus to drive customer traffic. We are encouraged by the early traction we have with some of our largest customers with our new ice and beverage innovations. This is a targeted area of expansion for our Commercial Foodservice business and we are well positioned with exciting new solutions. As we think about the year ahead for Commercial Foodservice, we remain focused on building our business for long-term success, but are optimistic that the chain restaurant environment will stabilize and improve as we move through the upcoming year. Bryan will provide additional color, but our guidance assumes a relatively consistent environment relative to what we are currently experiencing as we await larger chain customers to firm up their plans for the year, particularly in the second half. More specifically, we have clear catalysts for accelerated growth with restaurant industry fundamentals stabilizing with early signs of traffic improvement. With our dealer partnerships generating strong momentum in the general market and institutional segments, in our ice and beverage platform, representing a significant growth opportunity that we're uniquely positioned to capture. As we think longer term, the investments we have made position us with unmatched competitive advantages, both now and in the future, with the industry's broadest portfolio of leading brands, the strongest innovation pipeline and leadership in automation and IoT capabilities that will drive market share gains for years to come. We still have work to do, but I'm excited for what the future holds for Middleby Commercial Foodservice. I would now like to turn the call over to Mark to discuss Food Processing. Mark Salman: Thanks, Tim. Before I discuss the segment results, I want to thank the Board of Directors for entrusting me with leading Food Processing SpinCo. Leading this company is the honor of a lifetime and I am excited for the opportunity ahead. I also want to thank you, Tim, for the partnership you've shown me over the past 10 years here at Middleby. I look forward to working with you even more closely through this process. Turning to the Food Processing segment. In the fourth quarter, we generated revenue of approximately $265 million, which outperformed our expectations. As I look at the business, I am proud of what we have accomplished in the fourth quarter, particularly our extreme strong order rate, but more excited about the strong foundation it creates as we enter 2026. 2025 was challenged with disruption from tariffs and high food costs, which delayed our customers' purchasing and investment in solutions in the first half. However, the latter part of the year, we saw our customers moving ahead. We had very strong orders in both the third and fourth quarters with a record backlog as we finish the year. This was driven by continued success with our Total Line Solution offering along with strategic expansion in international markets. We have a strong sales pipeline and continuing strong order intake. This all gives me great confidence in our position for not only next year, but the longer term. Taking a step what sets Middleby Food Processing a part is our comprehensive approach to serve individual protein, bakery and snack processors. Rather than creating a portfolio of disconnected brands, we have created a portfolio designed to deliver complete end-to-end total line solution offerings that optimize our customers' entire production lines and are committed to delivering the lowest total cost of ownership. Our success reflects a year of strategic investment in building these comprehensive customer solutions, and we are gaining momentum in the marketplace with a growing competitive advantage. Our decentralized culture promotes agility, innovation and speed. We have state-of-the-art innovation centers with the most recent one opened this fourth quarter outside Venice, Italy, where we can showcase our know-how in the most innovative and collaborative environment. This strategy is one of the key foundations that will drive our organic growth in the years to come. I am also very excited about the continued opportunities that exist as we expand the platform through targeted strategic acquisitions. We have built the Food Processing business through additions of brands and products, very specific to the food applications that we have targeted and that complement our Total Line Solutions. This has proven to be a very successful acquisition strategy, providing significant revenue and operating synergies. We have a consistent and proven track record of executing on our acquisition strategy over many years with our strategic approach and financial discipline. Although we have been executing our strategy for some time, we are still in early innings, and it's the right time for the separation into an independent company. We now have the proper scale, we can accelerate what has proven to be our unique and successful business model. I am excited for what lies ahead. With that, I'll turn the call back over to Tim. Timothy FitzGerald: Thanks, Mark. I'm looking forward to what is ahead for Food Processing. As you've already heard, we have 2 well-positioned segments for growth in 2026 and beyond. On top of this, at a corporate level, our capital allocation strategy remains aggressive and focused. We'll continue our share repurchasing program having allocated over $700 million in 2025, reducing our shares outstanding by approximately 9%. We continued this share buyback activity into the first quarter, expecting to repurchase approximately another $300 million in the first quarter of 2026. We plan to allocate the substantial portion of our free cash flow again to repurchases this year. But most importantly, we have a world-class team around the globe, whose commitment and execution continue to drive our success. 2026 represents a defining year for Middleby as we execute this strategic portfolio optimization and position both businesses for accelerated growth. We are planning an Investor Day on May 12 in New York City, ahead of the Food Processing Spin and look forward to providing greater level of information on profiles and growth strategies for each stand-alone company ahead of the separation in the second quarter. With that, now I'll turn it over to Bryan to discuss our financial performance in greater detail and guidance for the first quarter and 2026. Bryan Mittelman: Thanks, Tim. Our fourth quarter results showcased the strength of our execution and the quality of our business model. Let me walk through the key financial highlights and our outlook. For Commercial Foodservice, positive impacts we're seeing from general market, institutional and emerging chain customer segments. We delivered $602 million of revenue and a solid EBITDA margin of over 26%. This would have exceeded 27%, if not for tariff impacts. Customer engagement and interest in our leading technologies remain strong, especially in beverage dispense and ice products. At Food Processing, Q4 revenues were approximately $265 million, and our organic EBITDA margin was 23%. Organic revenue growth of 1.3% benefited from improvements in international markets. Margins were impacted by tariffs with higher costs and disruption in order timing impacting production efficiencies. We are experiencing a strengthening order rate and growing backlog. Q4 orders reached $322 million and backlog grew to $410 million with growth across most of our served markets and in our Total Line Solutions. Turning to Residential Kitchen. Our transaction to sell a 51% stake to 26North closed on February 2. Prior to the close of the sale, Residential Kitchen was treated as a discontinued operation. Following the close of the sale, our future balance sheets will include a minority interest investment reflecting our 49% ownership stake and a note receivable. Our income statement will reflect the impact from our noncontrolling interest on a quarter in arrears basis. Residential results are not included in our non-GAAP adjusted earnings and adjusted EPS calculations as they are no longer part of core operations. On a consolidated basis, total company adjusted EBITDA for Q4 was approximately $197 million and adjusted EPS was $2.14. Regarding tariffs, the adverse net impact to EBITDA in Q4 was approximately $7 million. We expect benefits of pricing and operational actions implemented in 2025 to offset the cost of tariffs in 2026, although we will continue to have margin dilution in the first half of the year. Q4 operating cash flow was approximately $178 million and free cash flow was approximately $165 million. Our leverage ratio per our credit agreement at year's end was 2.5x. Regarding capital allocation, last year, we communicated the decision to deploy the vast majority of our free cash flow to share repurchases. For the full year 2025, we repurchased 4.9 million shares for $710 million or an average purchase price of approximately $144.50 per share. In total, these repurchases reduced our share count by 9% during 2025. To start 2026, we have repurchased an additional 1.7 million shares for approximately $250 million at an average price of approximately $154 per share. I would like to provide some commentary on our capital structure overall. Our 1% convertible notes matured in Q3 of 2025, which now results in a higher interest expense of approximately $6 million a quarter. This is a $0.12 headwind to the fourth quarter earnings. For full year 2026, the interest rate headwind from the higher cost of debt is approximately $0.34. The 2026 EPS guidance reflects the benefit of share buybacks from the proceeds of the sale of the 51% of the Residential Kitchen business. We retain future upside through our ownership of the 49% of the business and the $135 million senior note. Turning to the rest of our outlook for 2026. For ease of communication, we provide this outlook on a current company basis, assuming that both Commercial Foodservice and Food Processing remain together for the full year. With that said, we still anticipate the separation of the 2 segments into separate public companies in the second quarter of the year, and we expect to provide updated guidance for the stand-alone companies at our Investor Day in advance of the separation of the divisions. For Q1, we expect to achieve the following: Total company revenue of $760 million to $788 million, which is comprised of Commercial Foodservice at $560 million to $578 million and Food Processing at $200 million to $210 million. Adjusted EBITDA is forecasted to be between $161 million and $173 million, which is comprised of Commercial Foodservice at $142 million to $152 million and Food Processing at $37 million to $41 million. Adjusted EPS is projected to be in the range of $1.90 to $2.02, assuming approximately 47.7 million weighted average shares outstanding. For the full year, we expect to achieve the following: Total revenues of $3.27 billion to $3.36 billion, which is comprised of Commercial Foodservice at $2.37 billion to $2.43 billion and Food Processing at $895 million to $925 million. Adjusted EBITDA of $745 million to $780 million is comprised of Commercial Foodservice at $632 million to $658 million and Food Processing at $186 million to $208 million. Adjusted EPS will be in a range of $9.20 to $9.36. Please refer to the presentation we have posted online at our Investor Relations website for full details. Please note this guidance does not include onetime costs associated with the completion of the Spin transaction, nor does it include a stand-alone public company costs for the Food Processing business. We will provide estimates and detail on stand-alone costs we expect to incur along with additional materials in connection with the upcoming Baird Food Processing Symposium in New York on March 5. I also want to provide some additional color on the shape of the year for Food Processing revenue. As a reminder, we typically see Q1 is our weakest quarter and Q4 is our strongest with Q2 and Q3 relatively equal in between. We expect 2026 to follow this general pattern. However, in 2026, we expect the sequential increase from Q1 to Q2 to be smaller than the $48 million step-up we saw in 2025. This reflects our expectation that Q1 2026 will be stronger relative to the rest of the year than Q1 2025 was, essentially returning to more normal seasonal patterns after an unusually weak Q1 of 2025. Before we conclude our prepared remarks and begin Q&A, I want to provide an update on the Food Processing spinoff. We remain confident in our ability to execute the necessary actions to have a successful transaction. Activities to ensure the spin company will be operating effectively, efficiently and independently at inception remain on track. We continue to expect to complete the spin-off by the end of the second quarter. Ahead of the joint Investor Day on May 12, we expect to file a publicly available registration statement, which will include annual audited financial statements in April. That concludes our prepared remarks, and we are now ready to take your questions. Operator: [Operator Instructions] The first question today comes from Mig Dobre with Baird. Mircea Dobre: I guess where I would like to start is with maybe a little more context on what you're seeing in the CFS segment. You talked about the quarter being better than guided and anticipated that it clearly was. And you mentioned improved activity from the general market and the dealers. And I guess, I'm sort of wondering here how much of that was just a return to sort of the normal behavior that we typically see in the fourth quarter from the dealers in the general market? Going back to the prior call, we are talking about how your guidance at the time didn't seem to reflect kind of the more normal stocking dynamics. I'm wondering if that's really what surprised here? And as you think about your outlook for 2026, how do you think about this general market specifically? Can it actually build some ongoing momentum? And -- we're really waiting for here is for the large QSR customers to sort of find bottom? Or is there something else that you're contemplating here? Timothy FitzGerald: Mig, I think I'll kick it off and then Steve will probably pick up. Yes, I mean, I think we've been -- we saw continued strength in the dealer market, as I mentioned, in the initial comments. I think some of that's fundamentally us gaining market share there, I think, to a certain extent, and then I would say kind of broad-based, we've seen improved replacement demand in the market. I think we -- that exceeded expectations in the fourth quarter because it was very strong in the third. So we didn't want to kind of bake that into an expectation of that continuing. But I think we feel pretty good about the backdrop of that continuing into next year. So really kind of the inflection is what happens with the change as we go through the year. They have -- we've seen improvement with the larger chains as we kind of went through the year. I think they've reset as they reacted to market dynamics and we've seen traffic improve, and that kind of gives us some level of improving confidence in that category of the market as we go through next year. And I think that's kind of the pivot point to move back into organic growth for the year. Steve Spittle: Mig, I would just add, this is Steve. Specific to the fourth quarter and dealer activity, we commented on prior calls that I don't believe this is the historical, hey, it's the fourth quarter, we're bringing in inventory chase year-end incentives, that is not what I believe happened. One of the big areas we've spent a lot of time leaning in with our dealer partners, whether it's training to the [ MIC ], online digital training has really been to get them to think outside of core Middleby products. So all our dealers historically know the Pitcos, the blocks, the South [ Bend ], where we're gaining market share specifically the back half of last year has been getting those dealer partners to start thinking of us for ice, right, pulling out follower at ice or pulling in Invoq combi, pulling in TurboChef, pulling in coffee and then starting to really package and wrap a full Middleby solution together. And that's more where I think we saw the positive impact in the fourth quarter, not necessarily the historical norm of stocking up in the fourth quarter. We just don't see that bringing in inventory to chase a year-end or chase -- or beat a price increase, it's just not the way the dealer market is operating right now. So we're very happy with, I think, the increased share we're taking in some of those new product categories for us. Mircea Dobre: Okay. Very helpful. And then my follow-up is related to your tariff comments on Slide 20 of your deck. If I understand this correctly, at least the way I read it, it looks like there's about $74 million at the midpoint of incremental tariff drag in '26 relative to '25, hopefully, I have that correct. I am wondering how that splits between the two remaining segments. And it appears that you're saying you're going to offset this with pricing, but there's a bit of a timing issue in terms of how that flows through. So I guess the question, how confident are you that you'll be able to offset this fully for the year? And is this the primary factor that is accounting for the margin ramp implied in the full year guidance relative to Q1? Steve Spittle: Mig, it's Steve again. So the split on the tariff impact between the two remaining companies in broad terms is, I'll say, 2/3 to 70% of the impact is coming from Commercial Foodservice, obviously, the remaining impact from Food Processing. The main split difference there is Food Processing doesn't quite have as large of a supply chain base coming from markets like Asia as we do in Commercial. So that's the reason for a little bit of a difference. We have said that pricing that we took in the back half of last year, specifically on July 1. And then we took another small to mid single-digit increase to start the year on January 1 this year that would cover the impact of the tariffs as we sit here today. We still believe that to be true. There is some vicious timing of when tariffs are hitting, when that pricing starts to or has been flowing through, and that's where you see a little bit of a drag in the first quarter, specifically in commercial and obviously improving as that pricing comes through and then you start to overlap the tariff impact in the back half of last year, which is why you see -- or one of the reasons you see margins improve throughout the year. So we do feel confident we've taken pricing. Again, July pricing has been in place already and now obviously, putting forth another increase to start the year and believe that, that will stick as the year unfolds. Operator: The next question comes from Jeff Hammond with KeyBanc. Jeffrey Hammond: Just wanted to come back on the QSR dynamic. One, I think you had some larger QSRs kind of take a CapEx strike in 4Q. I wondered if that played out? And what the -- was that kind of a one quarter event or does that linger? Two, what are they kind of telling you about store openings? It seems like the last couple of years, there was optimism and then deferrals and what's kind of the update there? And then just any -- as you see some of this value pricing, better traffic, some of the stimulus coming into the market like what's -- how is the dialogue changing or not changing around CapEx for your QSR customers? Timothy FitzGerald: So I think one of the things that we've seen is increasing confidence in the operators as we've come into the year. So I mean, I think there was a high level of uncertainty and certainly a lot of cost pressures, which caused them to hold up. So I mean I think one of the dynamics that we're seeing is people have a lot more visibility, they're in a better situation in terms of where they're at with menu pricing, profitability, et cetera. So I think that's a much better dynamic and I think that's going to start spurring the replacement cycle, which we saw some early signs of that in the fourth quarter. So I think that's part of the dynamic. We do still have chains that are on, I'll say, CapEx strike, so to speak, as you said. So as we kind of went through the fourth quarter, there were some that were still holding up plans. And I think that is still the case in the early part of the year, but I think we have some good decent visibility that, that probably will pick up as we go through the year, and I think that's reflected in our guidance. And then with the new store, Steve, maybe if you want to touch on that? Steve Spittle: Yes, Jeff. So you're exactly right. I mean, as we saw -- as we went through last year specifically, the new store plans for the bigger, say, top 25 chains definitely pushed out for a number of different reasons. It was slow traffic. It was being thoughtful around costs. I think as we move into this year, Tim said it correctly, I still think there is some pushout that is happening on new builds. And the positive side of that is I actually think it's causing them to go back and really look at their current operations, both from a replacement standpoint. But also, I talked about in prior calls, just making sure that they have a plan of attack to increase traffic through their current footprint, which comes back to increasing day parts. So again, that's been a big theme that we've really seen with the QSRs, which I think will continue through this year is, "Hey, how do I get more traffic through my existing footprint?" And a big trend has been obviously beverage. And you've seen that with some predominant QSRs coming out with beverage programs that they're launching that we're a big part of. And I think why we've been successful just in that aspect, Jeff, is just that they can come to us as a holistic solution, the full breadth of our beverage product, but also comes with the support globally to do installation, to do after sales, service and support. And I think as those chains start to take action on those beverage programs. Again, we're very well positioned. So to answer the question, new stores, I think there's still some push out as this year goes is focusing more back on the replacement cycle, and that's also adding in those day parts as the year progresses. Jeffrey Hammond: Okay. Very helpful. The Food Processing, I just want to go to this kind of eye-popping 66% order growth. And just kind of understand how much is just people pausing and now kind of coming back in? Is there some good lumpiness in there? And then just with the order strength against 4% to 6% growth, like why not -- why don't we see more of this order growth drop through to revenue? Mark Salman: Thanks for the question. This is Mark. So a number of factors has affected positively our order intake. The first hour strategy around Total Line Solutions customers are going that route, and we see it in the order intake. Another is what you mentioned. Some of the prior slowness of order intakes, especially in the first half of the year, balance itself with an increasing order intake in the second half of the year. And then the second part of your question is about the why don't we see that in the 2026 numbers, was that the question? Jeffrey Hammond: Yes. Bryan Mittelman: Yes, Mark, I'll jump in there on the growth. Jeff, let me know if I'm not -- this is Bryan, addressing your question. Obviously, we had a strong fourth quarter in orders. And as Mark noted, a lot of that is Total Line Solutions. Some of that has a little longer of a delivery tail on it. But we're excited that we're entering the year with a confident view on delivering growth after what's been a little bit of a slow period here. So based on the order trends, again, we're looking forward to being a growth year for us. Operator: The next question comes from Tami Zakaria with JPMorgan. Tami Zakaria: I wanted to ask about the backlog growth, which is quite impressive, I think, up 36% for Food Processing. Just curious, how much of that is deliverable this year? Bryan Mittelman: Yes, Tami, this is Bryan. A significant majority of it is deliverable this year, but there certainly is a minority portion of it that rolls out into the beginning of '27 as well. Tami Zakaria: Understood. Very helpful. And if you could comment about your thoughts on broader capital allocation and M&A, in particular, for the core CFS segment once the food processing split is done? Timothy FitzGerald: Yes. Tami, this is Tim. So reason for the split, obviously, as we said, there's quite a bit of M&A opportunity within Food Processing. Within Commercial Foodservice, I mean, I think the focus is going to continue to be on share repurchases, certainly in the near term. We're really focused on organic growth. We've made significant initiatives or investments over the last several years on innovation. Go-to-market strategies, a lot of that we're starting to see play out now, and we also expect it to take increasing traction as we go through next year. So that's really going to continue to be the focus. There is opportunities there. So I mean I think as you kind of look over the last few years, we focused on beverage, and we focused on technology, automation, IoT and areas like that. So -- there continues to be opportunities, so we'll be focused and kind of targeted in that -- those areas, which we think will help us accelerate some of the organic growth, but largely, the focus is going to be on organic growth kind of immediately after the separation. Operator: [Operator Instructions] The next question comes from Brian McNamara with Canaccord Genuity. Brian McNamara: First on Commercial Foodservice. Great to see the segment guided positively to both the quarter and the full year 2026 here. I was wondering if you could peel the onion back another layer a bit. To me, it sounds like this will be predominantly pricing-driven. And if so, what's the expectation to kind of get volumes moving in the right direction again? Timothy FitzGerald: Yes. Certainly, we'll have pricing benefit going into the year, but I don't necessarily think all of our expectation going forward is pricing driven. I mean, I think there are opportunities as the market stabilizes and recovers. I think we're very well positioned in our core cooking segment. And I think as we think about ice and beverage. And as Steve commented, there's really significant market share opportunities. So I mean, I think -- although it's a meaningful part of our platform today, we really are a new player. There's a lot of new products that have been launched. There's a lot that's in the pipeline. So I mean, I think we're anticipating some organic growth even without a big market turn up in the ice and beverage segment. So I think it's kind of a match of some pricing as well as some organic growth opportunities with volume. Steve Spittle: I mean, Brian, I would just add, as we think about the 3 or 4 big buckets of customers to piggyback on Tim's comments is we've commented already on the momentum. We feel like in the U.S. dealer general market institutional and emerging chain business, which I think that continues through the year. The fast casual segment, which I think has outpaced and certainly done better than the QSR segment in the last year or 2, which we're well positioned. We've talked a little bit more about international growth. I think, again, we're well positioned with a lot of the initiatives we've undertaken in the Europe -- in Europe and the Middle East. Asia had a better finish to the year for us, but obviously, still has some, I'll call geopolitical headwinds as we do in Latin America. But still, I think we're well positioned in those markets. So it really does come back to the QSR segment as to where the year potentially does inflect. And I think our approach to the guidance for the year has been to keep a conservative nature based on where that market is today. But also knowing we're well positioned in QSRs, especially when traffic picks up and things turn both with our core business and as we've talked about with the additional products around beverage and ice. Brian McNamara: Great. Just a follow-up on the QSR piece specifically. You had mentioned you're kind of waiting for some of the bigger players to firm up their plans, but they do have the big players that have reported so far, obviously, have CapEx plans, unit growth plans out there. So I'm assuming there's some give and take, I guess, as it relates to the equipment spend. Is that how we should think about it? And when do you -- would you expect clarity on that front? Steve Spittle: So what we're referencing there, Brian, really, I think of 2 things specifically is how do new builds progress throughout the year. And I think it is, yes, they all put out their projections that they're pretty open with us and obviously, what they share themselves. I think the concern there has just been the pushouts we've seen. So I think the firming up is when do we really see those stop being pushed out and actually turn into real builds. I think the bigger thing that we're waiting for is we have a number of exciting initiatives and projects with these big QSRs, again, around beverage, around new products that, again, I think we need to see traffic improve. We need to -- which, I think, trends to CapEx being freed up, which then, I think, greenlights a lot of the projects that we have in the work. So when we talk about, hey, firming up plans back half of the year, it's really those 2 areas, new store builds and just some of these key projects, getting the official green light to move forward. For us, it's not a matter of -- yes, they're moving forward and are we well positioned, but it's just -- it's a timing of when it actually starts to move forward. Operator: [Operator Instructions] The next question comes from Mig Dobre with Baird. Mircea Dobre: Just very quickly here. So the Investor Day on May 12, can you maybe give us a general framework in terms of what we should be expecting? It sounds like you're going to have both Food Processing and Commercial Foodservice present in this event. I'm kind of curious for Commercial Foodservice, maybe more specifically. Strategically, are you contemplating any portfolio simplification, 80/20, those kinds of actions? I mean over the years, you really acquired a lot of different brands? And I don't know if that you're reaching kind of the point of the stage, if you would, where simplification does make some sense. Or is there something else from a structural growth standpoint that we should be prepared to be hearing about? Timothy FitzGerald: Yes. Thanks, Mig. So it's still a ways off. So I think we'll provide a little bit more lead into what to expect on May 12 as we get closer. Certainly, we'll do a deeper dive into kind of the strategic initiatives, our portfolio, some of the operational execution that we've got planned. But certainly, there's a lot of exciting things going on in Commercial. So I mean, I think there's a great story to tell. And as we get closer to May 12 and certainly at May 12, we'll do a deeper dive into it. Yes, it will be both Commercial and Food Processing, presenting kind of adjacent to each other. Operator: The next question comes from Brian McNamara with Canaccord Genuity. Brian McNamara: Just a quick one on Food Processing. Can you remind us how long it typically takes in order to convert to revenues and what the typical range is? It's great to see the quantification on both there. You mentioned most being converted in 2026. Steve Spittle: Yes, Brian, it depends on the type of equipment and the type of solution the customer is buying. But by and large, I would say somewhere between 6 to 12 months. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tim FitzGerald for any closing remarks. Timothy FitzGerald: No. Thank you, everybody, for joining us today. So we've got an exciting year ahead. Looking forward to speaking to everybody on the next call. I also just mentioned -- as we said on the call, we're going to be at the Baird Food Processing Symposium next week. So looking forward to that. I'll let everybody know that we will be posting some materials publicly as well in conjunction with that to give a little bit more further information on our Food Processing segment. So thank you. Look forward to speaking to everybody next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Akebia's Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mercedes Carrasco, Senior Director of IR. Please go ahead. Mercedes Carrasco: Thank you, and welcome to Akebia's Fourth Quarter and Full Year 2025 Financial Results and Business Update Conference Call. Please note that a press release was issued earlier today, Thursday, February 26, detailing our fourth quarter and full year 2025 financial results, and that release is available on the Investors section of our website. For your convenience, a replay of today's call will be available on our website after we conclude. Joining me for today's call, we have John Butler, Chief Executive Officer; Nick Grund, Chief Commercial Officer; and Erik Ostrowski, Chief Financial and Chief Business Officer. Dr. Steven Burke, our Chief Medical Officer and Head of Research and Development, is available for Q&A dialing in from the Annual Dialysis Conference in Kansas City today, where Akebia will present data on Vafseo this weekend. I'd like to remind everyone that this call includes forward-looking statements. Each forward-looking statement on this call is subject to risks and uncertainties that could cause actual results to differ materially from those described in these statements. Additional information describing these risks is included in the financial results press release that we issued on February 26 as well in the Risk Factors and Management Discussion and Analysis section of our most recent annual report filed with the SEC. With that, I'd like to introduce our CEO, John Butler. John Butler: Thanks, Mercedes, and thanks to all of you for joining us this morning. 2025 was an important year for Akebia, marked by the commercial launch of Vafseo, vadadustat, our oral HIF-PH inhibitor for the treatment of anemia due to chronic kidney disease for patients on dialysis. Vafseo, along with our phosphate binder Auryxia, generated $227 million in net product revenue in 2025, during which time we also progressed multiple post-marketing clinical trials and advanced and enhanced our growing pipeline. Let's start with Vafseo. 2025 got off to a very fast start before a number of challenges flattened demand in the second half of the year. We addressed those challenges head on, and we believe today, we're starting to see the demand growth that we've expected. Most importantly, the body of evidence is growing that supports the potential for Vafseo to become standard of care in what is a $1 billion U.S. market opportunity after the TDAPA period ends when we expect Vafseo will be priced roughly in parity with ESA pricing. While we didn't see the growth we expected in the second half of 2025, we built real excitement for Vafseo. Today, just over a year into the launch, more than 1,000 prescribers at 24 different dialysis organizations have written a prescription for Vafseo and 290,000 patients have access to Vafseo in dialysis clinics with a protocol in place. I'm particularly encouraged by the shifting dynamics we began to see in Q4 that are continuing in Q1 that suggest greater breadth of prescribers as well as improving adherence rates. Nick will provide more detail on these very encouraging trends in his remarks. Now a key element of our strategy to have Vafseo become standard of care includes continuing to generate data supporting the benefits of managing anemia with a more physiologic approach compared to ESAs. At the ASN meeting in November, we presented a post-hoc hierarchical composite endpoint analysis of prospectively collected outcomes of death and hospitalization from our Phase III INNO2VATE program in dialysis. This analysis demonstrated that patients treated with Vafseo experienced a lower risk of dying or being hospitalized than patients treated with the ESA comparator. This coming weekend at the ADC in Kansas City, we're presenting a cost comparison of Vafseo versus darbepoetin based on INNO2VATE data. In this analysis, Vafseo showed a 7.7% lower annual hospitalization rate, 16% reduction in hospitalization days and based on Medicare cost data, approximately 15% lower Medicare hospitalization costs for patients treated with Vafseo versus darbepoetin. Reduced hospitalization translated into a cost savings of about $3,700 per patient per year, meaning a savings of almost $2 billion per year if all eligible patients were treated with Vafseo. These results are meaningful for dialysis providers, Medicare and other payers and, most importantly, for patients. Late this year, we'll have the results from the VOCAL study that we're conducting at DaVita clinics that's evaluating Vafseo's dose 3 times weekly. The trial also contains a substudy of red blood cell characteristics, which we believe could make a compelling argument for Vafseo. Fundamentally, when you manage hemoglobin levels with a more physiologic approach, you get a more physiologic and potentially better functioning red blood cell. The VOCAL data will be followed by results from the VOICE trial being run by USRC, evaluating Vafseo versus standard of care on a hierarchical composite of all-cause mortality and hospitalization rates, data expected in early 2027. In my experience, in order to make a drug standard of care, particularly with nephrologists, you have to continue to deliver data that demonstrates the benefit of the product for their patients versus current treatment. Now in addition to the launch of Vafseo in 2025, we introduced our rare kidney disease pipeline, which we believe will be an additional and important value driver for the company going forward. Strategically, this initiative is a natural extension for us as it leverages our expertise in kidney disease drug development, broadens our presence within the kidney disease community and fits squarely within our corporate mission. We will host an R&D Day for investors on April 2 to discuss our mid-stage assets in detail, namely praliciguat and AKB-097 as well as introduce our early HIF-PHI AKB-9090. Praliciguat is an oral once-daily soluble guanylate cyclase stimulator being evaluated in a Phase II clinical trial of focal segmental glomerulosclerosis or FSGS. We expect to enroll up to approximately 60 patients in this trial, which will evaluate change from baseline in urine protein to creatinine ratio, or UPCR, at 24 weeks as the primary endpoint. Both the extensive preclinical work in FSGS disease models as well as previous clinical results praliciguat in diabetic kidney disease give us confidence in the potential for the therapy to impact FSGS. AKB-097 is our tissue-targeted complement inhibitor that we acquired late last year. We believe this product candidate could have comparable efficacy to the most efficacious currently approved products in a well-characterized pathway. While the tissue targeting allows for the potential to: first, avoid the box warning for infection risk; and second, to deliver the drug in a more convenient dosing regimen. We believe this has best-in-class potential. We plan to initiate a Phase II open-label basket trial in the second half of this year. We will be looking at initial indications of IgA nephropathy, lupus nephritis and C3 glomerulopathy. These diseases represent a multibillion-dollar market opportunity in areas of high unmet need. As part of the basket study, we'll be evaluating safety, tolerability, pharmacokinetics, pharmacodynamics and effects on disease-relevant biomarkers such as proteinuria and kidney function. As this is an open-label basket study, we expect to begin to report initial data in 2027. And lastly, we plan to initiate a Phase I study in healthy volunteers of AKB-9090 in the first half of 2026 with top-line results later this year. Our initial target disease area for 9090 is acute kidney injury associated with cardiac surgery. Our research and development team is working hard to deliver these important catalysts as quickly as possible. But of course, all of this work will be built on the success of Vafseo. Now let me turn it over to Nick to give more granularity on the launch. Nicholas Grund: Thanks, John. Good morning, folks. Like John, I'm encouraged by the growth potential for Vafseo in 2026, which is supported by early Q1 data. But first, let me recap the quarter 4 2025. During the quarter, approximately 800 prescribers wrote a prescription for Vafseo, and each prescriber on average wrote approximately 10.3 prescriptions. Of note, 128 of those were new prescribers. During quarter 4, we were pleased to see our customer base expand and the number of new starts at dialysis organizations outside of USRC, specifically at DaVita and IRC, increased over Q3. Approximately 25% of new patients came from dialysis organizations other than USRC during the fourth quarter. That said, Vafseo demand in quarter 4 was slightly down versus quarter 3 as we reported $6.2 million in Vafseo net product revenue on about $11 million in demand. We believe the slight decrease in demand, specifically in quarter 4, was primarily a result of a lower number of patient starts at dialysis organizations deciding to transition to an observed in-center dosing protocol and thereby waiting until the observed dosing protocol was available. USRC, for example, began to transition in November in approximately 25% of clinics. By the end of Q1, we expect the vast majority of USRC in-center patients to be receiving Vafseo 3 times a week while receiving dialysis utilizing USRC's observed dosing protocol. Of note, USRC's decision to transition to an in-center observed dosing protocol did result in a reduction in their inventory as they shifted from shipping a bottle to a patient's home to stocking bottles at their centers. The distribution change resulted in a onetime inventory drawdown impact of about $4.8 million in the fourth quarter of 2025. Now let's turn to 2026. We begin the year on an optimistic note as we are already building momentum. At present, 290,000 patients have prescribing access as DCI has implemented a Vafseo protocol. With the almost fivefold increase in prescriber access since the end of Q3 2025 and our field teams actively calling on physicians with expanded access, we are seeing an expansion of brand awareness and a comfort prescribing Vafseo within the nephrology community. Additional commercial trends give us confidence in quarter 1 and the year ahead. First, we saw improved adherence from the beginning of 2025 through the end of the year and continuing into 2026. More importantly, the percentage of patients who got an initial refill rose from approximately 75% for all daily dosing patients in the first 9 months of 2025 to approximately 91% among the small subset of patients who were on observed dosing regimen. Looking at early patient data from January, we've continued to see an improvement in first refill adherence with approximately 87% among the now larger subset of patients on an observed dosing regimen. We're encouraged by this improvement, and we'll continue to monitor adherence rates in 2026 as centers implement their observed dosing protocols. Second, we are also seeing a nice pickup in utilization and broader adoption from IRC, the fourth largest dialysis center, after IRC Vafseo available in late August and implemented an observed dosing protocol late in quarter 4. In addition, ECI has started to put patients on therapy. We also see the number of prescribers within DaVita starting to increase with some physicians trialing Vafseo in their patients. This has led to a higher percentage of new patients being from non-USRC clinics than in 2025. The investment dialysis organizations continue to making Vafseo, taking the time and effort to integrate the therapy into protocols and care plans make me believe that providers and prescribers understand the clinical benefit Vafseo can deliver and are committed to using it long term. As prescribers continue to gain real-world experience as they transition patients on to Vafseo, I expect the momentum to continue to build. Our dedicated sales team is focused on increasing the breadth and depth of prescribing, a critical step to becoming standard of care for patients on dialysis. Let me now turn it over to Erik. Erik Ostrowski: Thanks, Nick. As John mentioned, we saw strong top line performance in calendar year '25 as net product revenues increased nearly 50% over calendar year '24, driven by the U.S. introduction of Vafseo and increased sales of Auryxia. Our continued careful expense management in 2025 allowed us to both invest in R&D initiatives we believe can generate significant shareholder value and maintain our solid financial position. We are excited for a strong 2026 and executing on our plans to grow Vafseo revenues and advance our pipeline, including our mid-stage rare kidney disease programs. I'll now provide an overview of our Q4 '25 and calendar year '25 financial results as compared to the prior year. Total revenues were $57.6 million in Q4 '25 compared to $46.5 million in Q4 '24 and $236.2 million in calendar year '25 compared to $160.2 million in calendar year '24. These increases were driven by sales of Vafseo and an increase in Auryxia sales. Vafseo net product revenues were $6.2 million in Q4 '25 and $45.8 million in calendar year '25. As Nick mentioned, Q4 Vafseo sales were negatively impacted by the inventory drawdown at USRC. Auryxia net product revenues were $48.1 million in Q4 '25 compared to $44.4 million in Q4 '24 and $181.5 million in calendar year '25 compared to $152.2 million in calendar year '24. We note that we anticipate generic competition for Auryxia to expand this year beyond the current authorized generic competition and therefore, expect Auryxia revenues to decrease in 2026 as compared to 2025 Auryxia revenues. Turning to expenses. Cost of goods sold was $12.5 million in Q4 '25 compared to $20.4 million in Q4 '24 and $39.5 million in calendar year '25 compared to $63.2 million in calendar year '24. COGS in both periods was driven by higher Auryxia sales volumes in 2025 and was impacted by the elimination in 2025 of a quarterly $9 million noncash intangible amortization charge we incurred through Q4 of 2024. In addition, COGS for calendar year '24 included a $12.3 million benefit due to our ability to sell inventory previously written down as excess inventory. Of note, Vafseo-related COGS in both periods of 2025 was derived from prelaunch inventory, which does not include the full cost of manufacturing as a portion of those inventory-related expenses were recorded as R&D expenses in the period incurred prior to Vafseo's approval in the U.S. R&D expenses were $26.6 million in Q4 '25 compared to $11.8 million in Q4 '24 and $62.4 million in calendar year '25 compared to $37.7 million in calendar year '24. The increase in expenses in both periods was driven by increased clinical trial-related activities for Vafseo and our other product candidates, higher headcount-related costs as well as by a $12.8 million charge incurred during Q4 '25 related to acquired in-process R&D costs associated with the acquisition of AKB-097. SG&A expenses were $26.1 million in Q4 '25 compared to $27.7 million in Q4 '24 and $107.5 million in calendar year '25 compared to $106.5 million in calendar year '24. Net loss in Q4 '25 decreased to $12.2 million as compared to a net loss of $22.8 million in Q4 '24. Net loss for the year also decreased to $5.3 million in calendar year '25 as compared to a net loss of $69.4 million in calendar year '24. The decrease in net loss in both periods was driven by the increase in net product revenues, which was partially offset by higher expenses. Turning to the balance sheet. Cash and cash equivalents as of December 31, 2025, were $184.8 million as compared to $51.9 million as of December 31, 2024. We believe our existing cash resources and cash from operations will be sufficient to fund our current operating plans for at least the next 2 years. With that, we welcome questions. Operator: [Operator Instructions] Our first question comes from the line of Julian Harrison of BTIG. Julian Harrison: I have a few, and I'll just go one by one here. First, can you talk more about your expectations for sequential Vafseo growth in 2026? Wondering also how we should be thinking about that in relation to your inventory adjusted demand in the fourth quarter of 2025. Second, to what extent do you expect data from the VOICE study to potentially accelerate uptake next year across dialysis providers? And then finally, I'm curious how operationalized the Vafseo access at DaVita currently is? Are the VOCAL data a big gating step there? Or do you expect broad commercial uptake at DaVita before the VOCAL data are reported? John Butler: Great. That's a great list, Julian. Thanks. So expectations for growth first in Vafseo. So we're not guiding for revenue. So I'll start with that. I mean I think it's -- again, when you're in a launch, particularly in this dialysis market, as you saw last year, we certainly -- I certainly expected, a, that dialysis providers would latch on to the opportunities around TDAPA more quickly, and we certainly didn't anticipate the issues we had with adherence, but we're certainly dealing with those, as I said, very much head on. But I think the way to think about it is kind of forget the inventory fluctuations. We give you the demand number and really think about that, right? I mean demand basically has been flat. We had $12 million in the third quarter, $11 million in the fourth quarter, and it was actually $12 million in the second quarter as well, right? So we absolutely expect and are seeing growth from that level. We don't know exactly how quickly that will increase. I think people are kind of looking for this sort of magical hockey stick. And when I think about launches that I've been a part of in this market that didn't have the complexity of the dialysis provider in between, I mean I go way back in time to sevelamer or Renagel launch, we did $20 million in the first year, $55 million in the second year, $130 million or something in the third year. Ultimately, it was a $1.3 billion product, right? But nephrologists don't adopt products like oncologists, right? And you definitely have a more measured growth. And I think that's what we're seeing here as well, particularly, I think as you look at DaVita, where DaVita has made the product available but aren't sending out lists to physicians of patients that have reimbursement. They're leaving it to the physician to make the decision. That's fine. That's on our field teams to sell and educate physicians about the benefits. And it's things like the data from VOICE. So you look at the data from the ASN meeting last year, it's super important data, right? We'll make a huge impact, but it's not published yet, right? So it's been submitted for publication. It's just been presented at ASN. Our medical affairs folks can't educate physicians with that data until there's a reprint in publication, peer-reviewed, which we expect is going to happen this year. But then the same thing will be the case with the cost analysis that's being presented this weekend. We have to get those things published. And I think you'll see the same with VOICE and VOCAL as well. As these things are published available and our sales and medical affairs folks can use them, these are the things that influence utilization and physicians. And I've never been more confident that the data that we're generating supports that managing anemia with a HIF-PHI and the only one that's available is Vafseo is going to be standard of care for this patient population. It really is just a question of how quickly that happens. And we're seeing growth now. We're confident in that growth, but we're not in a place where we want to guide around that. We want to see it continue to move in the direction that it's moving now. And maybe, Nick, you can talk more about operationalizing at DaVita? Nicholas Grund: Yes. And so certainly, DaVita made the product widely available throughout their "village" in late Q4. And as they've started to focus on educating their physicians, they're really starting with the home dialysis population. That population within DaVita is greater than 30,000 patients. So just about the size of USRC. And so that's a great step. It really fits with USRC in total. It really fits well within the profile of Vafseo. So super excited about that. Second, they're also really contemplating an observed dosing protocol, which will certainly hopefully handle some of the adherence challenges that we've seen in the past. And so -- but DaVita is not going to, as John suggested, send out lists and compel physicians to try it. It's our field teams, whether that be medical, educating them about Vafseo or sales selling Vaio that are really going to help physicians try and then increase usage and then ultimately adopt Vafseo as a standard of care. And so when we think about that process, DaVita is a fairly big organization, getting them to try, and we're very encouraged. In the quarter 4, we saw a number of DaVita physicians starting to utilize Vafseo, and that's continued into quarter 1. And so as John suggested, we're not going to see this hockey stick inflection. It is going to be steady growth month-over-month, quarter-over-quarter as we start to penetrate deeper in terms of breadth and depth. John Butler: I mean it definitely depends on how you define a hockey stick, right? 3 quarters of flat sales, it will be -- you will have growth. So that's -- you can call that a hockey stick. We do expect that to continue to grow. It really is about what's the slope of that curve, right? And again, I think as I said, one of the things that surprised me most was that it didn't happen faster because of the economic benefits of using the drug during TDAPA. But at the end of the day, it was always about the clinical benefit. And that's what we're showing now. And Nick talked about the observed dosing protocols that are being put in place. We really do think by the end of the year, most patients who are being treated in center are going to be treated with that observed dosing and that observed dosing means they get it 3 times a week when they're sitting in the chair. That helps greatly with compliance. And the anecdotes that we're hearing from physicians that have begun utilizing 3 times weekly dosing are -- and more importantly, maybe the anemia managers that are managing those patients on a daily basis, they're really very, very positive. So we're really excited that DaVita is moving forward with that as well. And if they focus in the first part of the year on their home population, that will be fantastic for us from a growth perspective. Hopefully, that helps, Julian. Operator: Our next question comes from the line of Roger Song of Jefferies. Unknown Analyst: Congrats on the progress. This is [ Nabil ] on for Roger. It's encouraging to hear about the improvement in the first refill adherence. I was curious if you could comment on how second and third refill rates are trending. And then any other comments just on the anemia manager education? And then I have a second one. John Butler: Nick, do you want to take that one? Nicholas Grund: Yes. And so super -- let's kind of repeat the first refill because I think it is significant. So historically, we've seen roughly a 75% adherence on the first refill. So a patient receives an initial prescription, that first refill is the next prescription. And so that moving from 75% to 91% in the fourth quarter in that small subset of patients was really an important, I'll call it, bellwether for what we're going to see moving on. We were waiting for the bigger subset in quarter 1 and specifically in January to say, okay, now is it really coming to fruition in a larger patient population? And it is. We're seeing this 87% first refill rate. As they moved into the second prescription, I think your question is a really good one. We've seen a significant continuation of that adherence rate. And so you have to remember, these patients have significant comorbidities, co-mortality, they receive transplant. There's always an underlying, let's call it, 2% to 4% discontinuation rate in that population every single month. And so we've seen this continuation of this high 80%, 90% adherence rate even through the second prescription is starting to lead towards some positive trends for annual adherence rates. John Butler: And the other thing you're going to see, as the clinical data continues to build, even if a patient -- one of the main reasons that a patient would go off is if they feel like they have some GI tolerability issues. But we know those are transient, right? And what we've seen from physicians who really believe in the clinical benefit, they talk to the patient and say, I understand what you're dealing with, but we put you on this medicine for a reason. We really believe this is going to benefit you. I want you to try to work through it and it will go away, and it does. And then there's other physicians or nurse managers who aren't as sole on the drug, maybe it's a way to say it or don't have the same level of education on the product benefits. And they'll acquiescent and take the patient off, right? So Nick, do you want to add something? Nicholas Grund: Yes. The only thing I'd probably add is by people moving from daily dosing to observed therapy in the clinic, what we've seen is a number of restarts of patients, patients coming back in. That means that physicians are saying, "Hey, that patient who may not have been compliant the first time around by being able to give it to them in the chair, we now can go back to that patient because we believe in the value that Vafseo might bring and by being able to dose it in the clinic 3 times a week has allowed them to offset that compliance challenge and really provide Vafseo for that patient. John Butler: Nabil, you had a question. I'm sorry, I didn't write it down. I can't remember what it is. Unknown Analyst: Yes. Just on the 9090 asset, again, congrats on the progress here. Just curious how that's -- if you can comment a little bit more on how that's mechanistically differentiated from prior SPHs? And then any other thoughts there? John Butler: On 9090, Steve, you want -- can you take that one? Steven Burke: The molecule has a different pharmacokinetics and a slightly different profile. Vadadustat tends to preferentially target the liver. That's where the erythropoietin is made, whereas 9090, because of its structural differences, has more widespread tissue penetration, so it gets into the lung and the kidney. And in our nonclinical models of ischemia reperfusion injury, 9090 was clearly the best compound that we had for that indication, whereas vadadustat probably would not work in that indication. So it's all about the structure and the PK. John Butler: Nabil, I think your other question was around anemia manager education. And I think it's maybe important to point out, we definitely recognize how significant that is. And a lot of that education has to be done through the medical affairs folks, our MSLs. We made the decision earlier this year to expand our medical affairs group, so that we have more folks feet on the ground, if you will, doing that education. So much of this data that's coming out really needs to be delivered, whether it's to a physician, KME or an anemia manager through the medical function rather than the sales function. So we're still finalizing the last couple of positions there, but those folks have kind of hit the ground running and really ramping up our education. Nick, do you want to add something? Nicholas Grund: It's great to see that the dialysis organizations are actually participating in that education, right? So USRC, we've had great advocacy from Dr. Dittrich and Dr. Block all along, and they've been educating proactively. Within DaVita, they have a centralized anemia management model. So those folks aren't necessarily in the clinic, and they've been educating their centralized anemia managers themselves, which also is a great step for getting folks comfortable with Vafseo. Operator: And our next question comes from the line of Roanna Ruiz of Leerink Partners. Unknown Analyst: This is Michael on for Roanna Ruiz at Leerink Partners. For Vocal study, can you give us a sense of what success looks like? Is this primarily about demonstrating TIW non-inferiority versus ESAs? Or are you powering for superiority on any endpoint? Also, how important is the RBC sub-study in differentiating Vafseo's mechanism? John Butler: Steve, do you want to take that one? Steven Burke: Sure. Yes. No, you're right about the study. It's 350 patients. DaVita felt it was important for them to do the study in their own units, partly to operationalize it, but also establish that the drug is as safe and effective as the ESAs, Mircera that they're using today. I suspect we'll see superiority on some of the hemoglobin-related safety endpoints, which we saw in the FOCUS study. So less rapid rises, less high hemoglobins and less need for dose adjustments. But it's not -- that's all prespecified, but it's not like it's a primary endpoint. The primary endpoint is non-inferiority for hemoglobin control, which makes sense because you're targeting people to a range of hemoglobin [indiscernible]. I do think the red blood cell study will be interesting and important because I think there may be some people who aren't really as close to this don't understand how different Vafseo is from ESAs, where ESAs, you're basically giving a recombinant human EPO, it binds to receptor on cells in the bone marrow and helps them differentiate into red blood cells. But Vafseo does so many more things. And we already know that the red blood cells that are made under the influence of Vafseo are different. They're bigger. They have more hemoglobin. They have a more uniform distribution of width. So this additional information, I think, will build on what we know to be true today that the red blood cells really are different. So I think it gives physicians a reason to believe that Vafseo is different. And then when we have data around things like death and hospitalization, it makes more sense to them. There's a mechanism by which they can understand these clinical benefits. Unknown Analyst: Got it. Another question, if I may. Have you reactivated the IND for AKB-097 yet? And are there any changes you made to the protocol from Q32 that was previously aligned with FDA? John Butler: That's a great question. We have been reworking the protocol just to make it simpler. But fundamentally, it's the same protocol that FDA agreed to with Q32. We're just trying to make it less operationally complex so that it's easier to recruit and easier to run. And we won't activate that IND until we resubmit the protocol that we're very close to finalizing. So I hope that answered your question. Operator: Our next question comes from the line of Allison Bratzel of Piper Sandler. Unknown Analyst: This is Ashley on for Allison Bratzel of Piper Sandler. Just one question from us because you guys did a great job of answering our other questions. But just on the R&D Day on April 2, when you're discussing your pipeline, can you help frame some expectations for investors? What should investors look forward to? What level of detail are you planning to provide? Any color there would be super helpful. John Butler: Sure, Ashley. So obviously, we're still bringing together the agenda for that. As I said, I mean, we really will focus -- there's so much that we could talk about. And that's kind of the exciting thing for the company right now. There are so many areas we can go. But I think we really want to focus on praliciguat and 097. And we think it's important that you hear from other people other than Akebia employees. I mean you'll hear from Akebia employees, but we really want to bring in KMEs to talk about -- when we think about the process we went through to make the decision to in-license 097, Steve always kind of says when Erik brought this forward, it was like, oh, another complement inhibitor, do we really need this? And it was really talking to KMEs, one of whom we expect you'll be able to hear at the R&D Day that this concept of a next-generation complement inhibitor really -- I think those are the words that were used. And so hearing the excitement around that product from people other than Akebia employees, I think, is important. And it will give us the opportunity. We haven't had the opportunity to kind of go into depth on the data that underlies the decisions we made, the data -- the preclinical data on praliciguat, for instance, that gave us confidence in moving forward in FSGS. And then it was exciting to get a question on 9090 on this call. But we -- this is the first product we're putting in the clinic from our own discovery efforts, small but mighty discovery efforts at Akebia and kind of introducing that product and answering questions like Nabil asked about what differentiates it from vadadustat. So we think it will be a very robust day. I mean it's kind of thing you can spend 6 hours on, but we'll do it in a much more streamlined fashion. But I think it will -- right now, we just introduced this rare kidney pipeline in December. And I don't think people really have had the opportunity to focus on it because quite rightly, they're focusing on the Vafseo launch. We're really happy with how the Vafseo launch is going. We think that will continue to deliver for the company and be the financial driver for continuing to build the pipeline. But now people will be able to really understand what we've got and why we're so excited about not just the rare kidney pipeline, but our capabilities in expanding that HIF pipeline as well. Operator: I'm showing no further questions at this time. I'll now turn it back to John Butler for closing remarks. John Butler: Great. Thank you, Marvin. I do want to take a moment again to outline the catalyst-rich next 12 months that we have at Akebia. In addition to watching our progress towards standard of care for Vafseo in the $1 billion dialysis market, we'll see Vafseo top-line data from VOCAL in Q4 and VOICE in Q1 of '27. We'll initiate the 097 basket study in the second half and expect to see the first data in 2027, and we'll begin and complete the Phase I study of AKB-9090 during the course of this year as well as continuing to enroll praliciguat Phase II in FSGS. We are very excited about the present and future for Akebia. We're eager to share more about our pipeline programs at our R&D Day on April 2, and I look forward to speaking to you then. Have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Clariant Fourth Quarter Full Year Results 2025 Conference Call and Live Webcast. I am Valentina, 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 Andreas Schwarzwaelder, Head of Investor Relations. Please go ahead, sir. Andreas Schwarzwaelder: Thank you, Valentina, and ladies and gentlemen, good afternoon. My name is Andreas Schwarzwaelder, and it's my pleasure to welcome you to this call. Joining me today are Conrad Keijzer, Clariant's CEO; and Oliver Rittgen, Clariant's CFO. Conrad will start today's call by providing an update on the progress we have made on our purpose-led growth strategy and a summary of the full year 2025 financial highlights and savings programs; followed by Oliver, who will guide us through the Q4 and business unit results; Conrad will then conclude with the outlook for the full year 2026. There will be a Q&A session following our presentation. At this time, all participants are in listen-only mode. I would like to remind all participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties. Listeners and readers are therefore encouraged to refer to the disclaimer on Slide 2 of today's presentation. As a reminder, this conference call is being recorded. A replay and transcript of the call will be made available on the Investor Relations section of the Clariant website. Let me now hand over to Conrad to begin the presentation. Conrad Keijzer: Thank you, Andreas. 2025 was a year that demonstrated the success of our transformation journey. The progress we've made over recent years is bearing fruit, with our purpose-led growth strategy proving its strength through effective execution. Built on 4 strategic pillars: customer focus, innovative chemistry, leading in sustainability and people engagement, the strategy reflects our integrated approach to creating value for all stakeholders. On our first pillar, customer focus. The execution of our commercial excellence programs delivered further improvement in customer satisfaction as indicated by the Net customer Promoter Score, cNPS. In 2025, this cNPS increased to 50 versus 45 in 2024, with the company receiving outstanding scores for product quality, technical support and customer service. Overall, this score placed Clariant in the top quartile amongst peers. Our local-for-local strategy has continued to help us to weather geopolitical challenges and tariffs. We serve our customers to a very high degree based on local manufacturing and local raw material sourcing. We successfully accelerated the rollout of CLARITY, a cloud-based service platform designed to optimize catalyst management and performance monitoring. It offers 24/7 real-time operations data so that customers can manage their plants more efficiently. By the end of 2025, CLARITY utilization has almost doubled to over 220 customer plants and over 800 users in 38 countries. And finally, differentiated steering, which ensures that we allocate resources strategically. Each business segment has its own strategic mandate to optimize value creation. The restructuring and capacity expansion actions taken in our Additives segment resulted in successful turnaround with improved sales growth and better margins. In our second pillar, innovative chemistry, we demonstrated a strong improvement in innovation sales, reaching 18.8%, marking a significant step-up from the 16.9% recorded in 2024. This trajectory reflects the strength of Clariant's innovation portfolio and execution. We maintain our commitment to research and development with sustained investment at 3% of revenue in 2025. The products from our innovation pipeline are growing faster than the rest of our portfolio. We will continue to intensify supplier partnerships to co-develop innovations meeting the highest environmental standards. This dedication to innovation resulted in over 30 awards and recognitions received throughout the year from customers like L'Oreal, Unilever and Schneider Electric and various industry associations. 2025 marked another year of great progress in sustainability leadership. Clariant's greenhouse gas emissions reduction targets that were originally announced at our Investor Day in November 2024 were reviewed and approved by The Science Based Targets initiative in 2025. By 2030, Clariant is committed to reducing absolute Scope 1 and 2 greenhouse gas emissions by 47% and absolute Scope 3 greenhouse gas emissions by 28% from the 2019 base year. In 2025, Scope 1 and 2 total greenhouse gas emissions fell to 0.43 million metric tons in 2025, a decline of 11%. The main driver for the greenhouse gas reduction in 2025 was a further switch to green electricity. The share of renewable electricity increased from 69% to 76%. The total indirect greenhouse gas emissions for purchased goods and services, Scope 3.1, were 6% lower to 2.4 million metric tons in the last 12 months. As a result of consistent progress over time, credible targets, verified data and clear accountability, we achieved top leadership level scores across all environmental categories of the Carbon Disclosure Project, CDP, the most widely used environmental disclosure platform globally. Ranking in the top 1% of all companies evaluated worldwide, Clariant was awarded A in climate change and forests and A- in water security. We are convinced that the transformation towards more sustainable business models will not reverse. Companies that stay on the course will shape the future and gain enduring competitive advantage. And finally, people engagement, where we increased our employee Net Promoter Score, eNPS, to 37 in 2025, up from 34 in the prior year. I'm particularly pleased that participation rate of our employees further increased to 88% and our employee engagement came in at 87%, which positions us in the top quartile compared to industry peers. Our safety performance also was top quartile of the chemical industry globally. Clariant recorded a Days Away, Restricted, or Transferred rate of 0.13, down from 0.17 in 2024. This reflects our high awareness and continued commitment to safety, training and accountability. These achievements are thanks to the hard work of over 10,000 Clariant colleagues across the globe who are committed to our purpose-led growth strategy and who delivered strong results in 2025. We delivered sales of CHF 3.9 billion, representing a flat performance in a challenging macroeconomic environment. We improved our EBITDA margin before exceptional items by 180 basis points to 17.8%, driven by the successful execution of our performance improvement programs. This is the third year in a row where we have delivered strong EBITDA improvement, both in absolute and in margins. I'm particularly pleased with the 42% cash conversion rate we achieved in 2025. This represents a 10 percentage point improvement compared to 2024, already exceeding our medium-term target of 40%. Our performance in 2025 enables us to propose a stable distribution to shareholders of CHF 0.42 per share. Now, moving on to more details relating to our financial performance for the full year 2025. We delivered sales of CHF 3.9 billion. This represents a flat performance in local currency, with the reported figure impacted by a 6% negative currency translation effect. We maintained pricing discipline across our portfolio in a slightly deflationary raw material environment with a year-on-year increase in Adsorbents & Additives and flat pricing in Care Chemicals and Catalysts. Organic volumes decreased by 1% across the business units. The acquisition of Lucas Meyer Cosmetics had a positive scope impact of 1%. Turning to profitability. We had a strong overall performance with 180 basis point improvement in EBITDA margin before exceptional items versus the full year 2024, driven by our performance improvement programs and cost productivity across all business units and the corporate functions. In absolute terms, EBITDA before exceptional items increased by 5% to CHF 679 million. As I mentioned earlier, we recorded a free cash flow conversion rate of 42% in 2025. This represents a 10 percentage point increase versus 2024 and delivers on our medium-term target of 40% ahead of schedule. We were able to achieve this through effective cost and margin management, which drove an increase in operating cash flow. Higher net working capital and phasing effects were offset by disciplined CapEx management. In absolute terms, free cash flow increased by 31% to CHF 273 million. Now turning to our Investor Day savings program. As a reminder, we expect full run rate savings of CHF 80 million from business units and corporate actions to be delivered by the end of 2027. In Q4, we achieved savings of CHF 19 million, which brings the total to CHF 50 million for 2025. This represents 63% of the total savings target with the remainder largely expected in 2026. The key measures include a headcount reduction of approximately 470 full-time equivalents across the business and corporate functions and the closure of 2 production lines and 2 sites as part of our footprint optimization. Procurement added another CHF 22 million savings related to structural changes in qualifying alternative suppliers and implementing best practice contract management. Cost-efficient execution of the programs and phasing led to restructuring charges of CHF 63 million. This was below the CHF 75 million restructuring charges originally expected for the year. With that, I now hand over to Oliver for further details on our business performance in the fourth quarter. Oliver Rittgen: Thank you, Conrad, and good afternoon, everyone. In the fourth quarter, we delivered sales of CHF 1 billion, representing an increase of 1% in local currency versus the prior year period. Pricing was overall flat as formula-based price adjustments linked to raw material costs in Care Chemicals were offset by a 1% increase in Adsorbents & Additives and flat pricing in Catalysts. Volume increased by 1% as growth in Catalysts and Care Chemicals offset a decline in Adsorbents & Additives. The reported figure was affected by a 7% currency headwind. Turning to profitability. Our Q4 EBITDA, before exceptional items, increased by 10%, corresponding to a margin of 17.1%. This represents a 240 basis point improvement versus the fourth quarter of 2024. Key contributions came from continued strong execution of the performance improvement program in all business units, effective cost management, a positive mix due to strong growth in Catalysts and operating leverage. Let us now dive into the fourth quarter development by business unit, starting with Care Chemicals. Sales increased by 1% in local currency as 2% volume growth recorded in the quarter more than offset the 1% decline in pricing due to formula-based price adjustments linked to raw material costs. The reported figure was negatively affected by a 7% currency headwind. We recorded low double-digit organic growth in Mining Solutions, driven entirely by volumes; and in Oil Services, where higher volumes were supported by slightly positive pricing. Sales in Personal & Home Care increased at a low single-digit rate, also driven by volume growth and including a continued positive contribution from Lucas Meyer Cosmetics. Base Chemicals declined slightly despite volume growth in the seasonal aviation business as pricing declined due to formula-based price adjustments. Sales in Industrial Applications declined due to lower pricing and volumes. Crop Solutions declined, driven by lower volumes versus the prior year period when a restocking effect led to strong growth. We recorded an EBITDA before exceptional items of CHF 96 million, representing a 7% increase compared to the prior year. This translated into an EBITDA margin of 18.3%, a 220 basis points improvement, driven by increased operating leverage and a strong contribution from the performance improvement program. In Catalysts, sales increased by 5% in local currency, a result of materially higher volumes in Ethylene versus the prior year period. The reported figure was negatively affected by a 7% currency headwind. Sales in ethylene catalysts recorded the strongest growth at a high double-digit percentage rate with some first fill business coming on top of the regular refill cycle, followed by Syngas & Fuels. This more than offset lower sales in Specialties and Propylene, which both declined at a double-digit percentage rate against a strong comparison base in the prior year. EBITDA before exceptional items increased by 22% to CHF 62 million, representing an EBITDA margin of 23.4% versus 18.8% in the prior year. This was driven by effective price and cost management and the contribution from our performance improvement program. Moving to Adsorbents & Additives. Sales decreased by 3% in local currency and by 8% in Swiss francs as slightly higher pricing was more than offset by lower volumes. In the Adsorbents segment, sales decreased at a low single-digit percentage rate as stable volumes in APAC and EMEA were more than offset by a decline in the Americas, which were impacted by delayed U.S. renewable fuel regulation. In the Additives segment, sales decreased at a mid-single-digit percentage rate as growth in Polymer Solutions was more than offset by lower volumes in Coating & Adhesives, mainly attributable to the construction market. EBITDA before exceptional items decreased by 9% to CHF 30 million with an EBITDA margin of 12.6% at a similar level to the prior year. The positive contributions from the performance improvement programs partly offset the impact of low volumes. And with this, I close my remarks and hand it back to Conrad. Conrad Keijzer: Thank you, Oliver. Let me conclude with our outlook for 2026. For 2026, we expect macroeconomic challenges, uncertainties and risks to remain. According to the latest assessment of Oxford's economics, the global GDP growth projection for 2026 has increased slightly to 2.8%, driven by AI investments. The chemicals industry forecasts predict a reduction of chemical output growth from 2.9% in '25 to 1.9% in '26, driven by slower growth in China from 7.4% to 2.7% and the U.S. turning negative to minus 0.6% compared to a positive 0.6% in 2025, while Europe expects some improvement to positive 0.5% after negative 0.4% in 2025. Looking at our addressable market, we expect 2026 market growth for Clariant of around 1%, considering our geographic footprint. We remain focused on delivering profitable growth and executing our self-help actions. That said, there are some positive signals in certain end markets. Growth in mining and electric vehicles is expected to continue. We also see continued growth in data centers, a recovery in consumer electronics supporting our Additives business and an improvement in renewable fuels demand supporting our Adsorbents products. We, therefore, expect sales in local currency to be around flat as we look to offset a negative top line impact for the group of 1% from portfolio pruning in the prior year. We expect slight growth in Care Chemicals on an underlying basis. And in Adsorbents & Additives, while sales in Catalysts are expected to be at levels similar to those in 2025, we expect to further improve our EBITDA margin before exceptional items to around 18% in 2026 with the CHF 80 million performance improvement program expected to deliver most of the remaining cost savings during the year. Clariant expects to continue to achieve a free cash flow conversion of around 40% in 2026. We remain committed to delivering our medium-term targets, assuming a recovery to normalized trading conditions in 2027. With that, I turn the call back over to Andreas. Andreas Schwarzwaelder: Thank you. Thank you, Conrad and Oliver. Ladies and gentlemen, we are now opening the floor for questions. To ensure everyone has a chance to participate, please ask no more than 2 question per person. Thank you for your cooperation. And Valentina, please go ahead. Operator: [Operator Instructions] The first question comes from Thea Badaro from BNP Paribas. Thea Badaro: Two from me, please. We are seeing positive data points in both chemical specific and industrial surveys. So, I'm curious to know if that optimism is also being reflected in your conversations with customers? And if so, are there any end market in particular? And then my second question is on Care Chemicals. You're guiding for slight growth for the division in 2026, while many peers are expecting actually a flattish year overall due to tough comps. Can you elaborate on where exactly you're getting more positive? Conrad Keijzer: Okay, sure. Yes. So, your second question was on Care Chemicals, where you say that many peers are guiding flat growth is what you say, right? Thea Badaro: Yes. Conrad Keijzer: Yes. Okay. Clear. Yes. So, first on the overall market outlook. So, what you actually see overall is less growth in chemical production rates globally than last year. I mentioned them in our speech, where actually markets are expected to slow down, particularly in China, where we had strong growth last year that really will be significantly slower this year. And in the U.S., where we had positive growth -- slightly positive growth this year, markets will turn negative next year, amongst others, also due to trade actions. In Europe, we were slightly negative this year. We may turn slightly positive. But overall, I wouldn't characterize this as an optimistic outlook in chemicals. So, if you look, what we have in the industry is operating rates typically between 70% and 80%. That's still historically low. And a recovery is typically not expected for this year yet, but more 2027. So, in '27, there is actually a general consensus that there should be a recovery. So, if you look at recent years, consumer spending has not been sufficiently on durable goods or semi-durable goods. There was more spending on services and recently on AI. So, this switch back to durable goods spending and semi-durable goods spending that is really expected at some point in time. There's a natural replacement cycle to products. But for this to happen, we first need better consumer confidence levels, which still are generally low considering geopolitical and trade tensions. More specifically to Care Chemicals, what we say here is actually that in our outlook overall around flat, there's underlying growth because last year, we had a fair amount of pruning in Care Chemicals, which had an effect of roughly 2% of revenue in Care Chemicals. As you are aware, we closed a site in Argentina. We also shut down a plant in Europe for EO derivatives. And with that, when we're giving an outlook of around flat for Care Chemicals, underlying, that means actually that there's growth also in our outlook. Operator: The next question comes from Christian Faitz from Kepler Cheuvreux. Christian Faitz: Congrats on the results. Two questions, please. First of all, if I look at weather conditions, both in Europe as well as in North America in Q1 so far, I would figure your de-icing business must have been rather robust. Can you confirm this? And if so, possibly put a number on this? And my second question is on Catalysts. You seem to be a bit less optimistic on your Catalysts performance for '26 after a rather robust Q4, particularly on the ethylene side. Why is this the case? Would you see a sequential slowdown again? Conrad Keijzer: Yes. Thank you very much, Christian, for the question. So, on Care Chemicals and de-icing, we had a strong start. You saw that also, I think, in the press, also one of the airports in Europe almost running out of de-icing material. But it is too early to call it. It really also depends on how March will come in. So we can't really give numbers yet. As far as Catalysts and our outlook for this year, yes, we basically signal that we are bottoming out. I think the recovery in Catalysts really requires a recovery in new build. So, if you look right now at our order book and also what we basically saw last year is still of the orders, it's by and large, a refill business. So, the new build has dropped to roughly 10% of our orders. For us to really see a big recovery in Catalysts, we should see the new build coming back in. That is visible in the order book, not this year. But if you look at '27, '28, '29, we are seeing actually a pickup in new builds, particularly in China. There is, let's say, a small wave of new build coming in there ahead of their peak carbon year in 2030. So, we're not seeing a recovery yet this year, Christian, we are bottoming out, but we are actually quite optimistic for the years after that, then we should see a recovery in Catalysts. Operator: The next question comes from Christian Bell from UBS. Christian Bell: I've got 2 questions, please. My first one is, how should we think about the earnings phasing in 2026? Are you sort of expecting a softer first quarter, then a stronger second half as savings and volumes build? If you could provide a loose guide for first quarter '26, that would be really useful. And then the second question, if you could just help me, I'm a little bit confused on your 2026 guidance. So, you're basically guiding to top line down 3% to 5% on currency, which is similar to the outcome in 2025. But last year, you still expanded EBITDA margins by 180 basis points with CHF 50 million of cost out with another CHF 30 million planned for 2026 and a similar top line result. What's preventing any margin improvement this time around? Like what's the difference from 2026 versus 2025 that stops you repeating that same margin progression? Conrad Keijzer: Okay. Christian, I'll take the first question on phasing, and Oliver will provide some more granularity on your second question. As far as the phasing throughout the year, I think we should keep in mind that we had last year actually a strong first quarter. Other than that, if you sort of ignore the year-on-year comp, we are seeing a fairly normal pattern throughout the year. It's not that we see a significant recovery in H2 versus H1, like we sometimes have in other years in the outlook. What is important, maybe some specific comments in Care Chemicals, we see at the moment, nothing unusual. De-icing is obviously playing a role there in how Q1 will come in. In Catalysts, we are comparing against a strong quarter last year. But normally, we always see a weak Q1 as we also saw last year after a strong Q4. So, there is that sequential effect. In Adsorbents & Additives, we are seeing a somewhat weaker start in Adsorbents where we still are waiting for the regulation for renewables to kick in. The EPA has set ambitious targets for renewable diesel and SAF, but these need to be still endorsed by Congress. And because of the government shutdowns, there's a delay in that. You see that the market expects these increased targets to kick in because RINs prices are going up, but we're not seeing that in our numbers yet. Other than that, I think there's nothing here to comment. Yes, Oliver, to you. Oliver Rittgen: Christian, yes, let me comment on your second question on margin progression year-over-year. I mean, first of all, as you have seen, there's a strong progression from '24 to '25 with 180 basis points of improvement, which brought us now to 17.8%. And that was driven by the performance improvement programs, the cost productivity and effective price management, as we said. So of course, when you -- and we had a flat top line at this. For '26, we are guiding for now a second year of flat top line with the effects that we alluded to before, the pruning that needs to be compensated and the soft market environment. And again, we are executing now on the performance program and delivering further savings in '26. At the same time, of course, in '26, like in '25, we need to compensate for the inflation that is happening in the cost structures that we do have. And we guided for '26 that we have 3% to 4% inflation in the cost structure. We have the savings from the savings programs plus other productivity measures that we're taking. And hence, we guided for around 18%. So -- of course, the ambition here is to make further progress also towards our medium-term targets. But as we alluded to, for '27 that it requires also a bit of a rebound of growth that we then bring it really in. Christian Bell: Okay. It just seemed like a similar setup in 2026 with a similar level of cost out. So, you're basically saying that your underlying inflation -- your underlying cost inflation this year is much stronger than it was -- or you're expecting it to be much stronger this year than it was in 2025? Oliver Rittgen: No. I mean, there is another year of inflation. I think, Christian, the point is more -- we did 180 basis points last year where we set the organization on a leaner base. And obviously, the savings were also a bit higher in '25 versus '26, and that's partially driving that effect. Operator: The next question comes from Katie Richards from Barclays. Katie Richards: I had a question on the use of capital and the balance sheet. You were on Bloomberg this morning, Conrad, and mentioned that Clariant would be open for bolt-on acquisitions potentially on the scale of Lucas Meyer. But you're also, at the same time, targeting CapEx potentially as low as CHF 150 million. So, a few questions on this then. With leverage coming down and proceeds also coming from Stahl, which end markets would you be interested in exploring further? Could you also remind us how much you're spending annually for maintenance purposes, please? And finally, how are you looking to balance organic growth versus paying a premium to grow these? Conrad Keijzer: Yes. Katie, maybe first to clarify on comments made this morning on the calls. Yes, there's nothing new. So, we're always open for bolt-on acquisitions. But we also said this morning that our first priority is always organic growth and margin improvement. And then if we can complement that with the right bolt-on acquisitions, we're very open to that. And we defined as the right ones, acquisitions that really fit to our core segments and that provide real synergy. And then I mentioned Lucas Meyer as a great example of an acquisition that basically fits those criteria in the past. But that's not to say that there is right now a target of that size available. So just to be clear about that. But overall, people do expect with limited growth perspectives right now in the chemical industry that there should be an increased level of potential consolidation ahead of us. And what I said this morning is it's important that we obviously participate in industry consolidation if and when that happens. As far as CapEx, maintenance, that's fairly steady at roughly a level of CHF 100 million a year. You see the big reduction in CapEx for us from the fact that we haven't actually added to our footprint, particularly in China in recent years. And now actually, we're very well set up there. So, keep in mind, in recent years, we invested CHF 80 million in a new catalyst plant that came up on stream. We invested CHF 80 million last year in a new surfactant plant in Daya Bay that came up on stream we invested last year. We completed actually the investment of 2 lines for flame retardants. That was another CHF 100 million. So, if you look at those items alone, that explains why the CapEx envelope is structurally lower than it was in the past. So, we haven't cut any corners on maintenance CapEx. So, no worries there. That's at a fairly steady level around roughly CHF 100 million per year. Operator: The next question comes from Michael Schaefer from ODDO BHF. Michael Schaefer: On one hand -- first one, I want to come back to your Catalysts outlook for '26. So, as you said, you guide for flat local currency sales into '26. So, nevertheless, you also reported on some greenfield projects helping you to record what we haven't seen for quite some time, this kind of EBITDA level in the fourth quarter. And I think also on the full year, the 20.8% margin was rather unique over the past 4, 5 years, so to say. So, I wonder how should we think about mix effect into '26 and how margin is progressing in the Catalysts segment? This would be my first question. And the second one is on the cash flow in '26. You built up some working capital, quite sizable, in 2025, maybe a bit as a surprise here, talking also about phasing effects. So how should we think about the measures you are implementing and what you expect in '26 in terms of working capital? Conrad Keijzer: Yes. I will answer the question on margins and mix outlook for Catalysts and Oliver will provide some clarity on working capital movements. If you look at Catalysts and the performance that we saw, we're very pleased that indeed, new build that is out there that we're getting it. So that is, I think, very positive. So particularly on ethylene, there is actually a large project in Europe that is starting up actually early next year. And we see actually the first fill order for that coming in. So that's very positive. We also saw -- if you look at Syngas & Ethylene, we saw actually that both of these segments are performing well on refill. So, we have a full share on new builds. And if it's about refill, we think that on -- particularly on Syngas, we've gained some share. So, if you look at our margins, they are reflecting that as well. So, there is the very positive effects from the cost-outs also in Catalysts, but there's also underlying a structural improvement in mix. And what you see is in Catalysts with rising prices for metals, it is not an easy environment. You may have seen the profitability reports of some of our competitors that show EBITDA margins significantly down. So, we're actually very pleased with the results in Catalysts with a 21% EBITDA margin for the year. But to further step up the margin in a significant way in the year ahead of us, that is still requires a pickup -- that still would require a pickup in new builds. And that is not yet what we see for this year. We see that more for '27. Oliver Rittgen: Michael, on working capital and cash, let me first start from the broader picture, cash. I mean, we are very satisfied with the cash performance overall that we had in '25, 10 percentage points of cash conversion, up versus previous year. CHF 80 million better operational cash flow performance. And then indeed, we had a bit of a buildup in net working capital that we then also compensated with very disciplined CapEx management. So, that buildup in net working capital in the fourth quarter is also a bit related to the phasing of the sales pattern that we have seen in the fourth quarter. We had a very, very strong December in Catalysts, but also in Care with the aviation business. And I mean, obviously, with the payment terms that you have then on these sales, you have a bit of a buildup of accounts receivables. We also have slowed down on inventory buildup in A&A, which had an impact on accounts payable. So, we had a couple of effects at the end of Q4. What we have done independent of that particular quarter is that we initiated a cash program in Clariant, where we structurally will look into the different net working capital levers. It's an integrated approach across the business units. It's ingrained in the target setting that we have on a segment level. So, it's a clear focus area. You have seen it also with our triangle and to say growth, margin, cash. That's what we focus on. That is what drives our differentiated steering. So, there's a focus on net working capital and to drive that down in '26. Operator: The next question comes from Julia Winkelmann from Bank of America. Unknown Analyst: I was wondering, you finished the year ahead of schedule on your cost savings target and also achieved your cash conversion target already. Given this progress, do you plan to update your mid-term targets and perhaps also give an update on how to think about your capital allocation going forward given the stronger cash generation? Conrad Keijzer: Yes, Julia, that's a great question. And we are obviously very happy with and pleased with how we finished the year in terms of our EBITDA margin being up 180 basis points and our cash conversion being up 10 points to slightly over 40% conversion now. So, where we are versus the midterm targets is that indeed, for cash conversion, we have achieved these targets already. But it's fair to say that we still have a bridge from 17.8% to the bottom range, which was 19% to 21% EBITDA margin. I will say, we look at 3 years in a row now of improvements, annual improvement in EBITDA margins as well as absolute EBITDA. We came from 14.6%. We're now at 17.8%. That was certainly in a challenging market environment for us now to revisit the midterm targets, that's not on the agenda. We're very much focused on delivering them. So, we are very much focused to have all the levers in place to bridge towards the 19% to 21% EBITDA margin, and that is the differentiated growth strategy. It's repositioning the businesses to more profitable segments. It is finishing the cost-out program, as Oliver has alluded to. It is -- maintain pricing discipline. And with that, we think we have the levers in place in addition to a pickup in markets that we do anticipate for '27. So, we have all the levers in place to deliver the 19% to 21%. But yes, that is -- those are actually quite ambitious targets in the current environment. Operator: The next question comes from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: Two questions, please. The first is, could you maybe just run through your end markets and the trends and outlook that you see in those, so in agriculture, autos, construction, electronics, et cetera? And then, can I ask a general question about your views on the threat to European specialty chemicals companies from China? Do you still think that European chemical companies have sustainable moats in specialty chemicals? And to what extent are you seeing Chinese competition moving into specialties so far? And to what extent do you expect that to accelerate over the next 10 years? Conrad Keijzer: Yes, sure. These are important questions. So, first on end markets, what we are seeing. Well, first of all, let me start with Care Chemicals. We see, in general, the consumer-facing segments with a robust demand. So, if you look at Personal Care, Home Care, that is basically low to mid-single-digit growth with a bit more growth in Personal Care in the premium segments like skin care, hair care, but then really the premium, premium products, the level just under that, there is actually some downtrading, the so-called aspirational buyers. Home Care, very, very solid and robust; laundry, things like that. Crop Protection, we've had interesting years behind us. Last year, we had a strong year in Crop Protection, but that was really very much because the year before, we had still the destocking. So, it was also, let's say, some of the year-on-year comparisons. I think now we have a much cleaner comparison, and we should more trade in line with historic levels where we sort of slightly outperform GDP levels. Oil and gas, it's basically a relatively modest outlook right now. And oil prices, now they're up to $70 because of the geopolitical turmoil in the Middle East. But in reality, there's plenty of supply and more so than demand. So, it's not an environment with high oil prices or a lot of investments that we are seeing there. Mining continues to be positive, especially for items like copper and still lithium. Catalysts, yes, we still globally run 70% to 80% util rates. And for us, really to see new builds kicking in, we need to go first to higher utilization levels. I did mention China as one where '27, '28, '29, we are seeing new builds coming back in. But for this year, it is really a bottoming out year in Catalysts in our forecast. And finally, Additives and Adsorbents, what we see actually is relatively weak demand if you look at electronics and particularly smartphones, but that was already the case last year. So, actually, there's a certain level of maturity here with very low single-digit rates for growth for smartphones. PC production was actually quite nicely up last year. And we think that will continue to be relatively okay. And finally, if you look at our Additives business, end markets like furniture, we had expected a big recovery there last year already as consumers at some point should spend on durable goods again or semi-durables, but it hasn't happened yet. And for this year, so far, we are not seeing that either. And to finish it all off with Adsorbents, this is very much for us driven by renewable diesel now, sustainable aviation fuel. In Europe, there are the mandates in place. But in the U.S., we're still waiting for the endorsement by Congress for the new increased EPA targets, but that should come at some point in the year. So, overall, if you summarize it, it's a very modest sort of growth environment overall and with some differences by region. Maybe specifically on your second question on China and how is this impacting Specialty Chemicals. I think there is a big difference between commodity and petrochemicals on the one hand and specialty chemicals on the other side. In China, there is significant capacity being built up in local -- in recent years for commodity chemicals for petrochemicals. In specialty chemicals, we are not seeing that level of competition in China. I mean, this is based on IP that took decades to develop. And actually, what we see is that for our business, we make good margins in China, but there is a shift where we increasingly supply to local Chinese companies. And I think high level, the other big impact that China has is historically, Europe was exporting a significant part of its production into China, the same with the U.S. That has come down significantly, and China has become an exporter for some items, but not so much in specialty chemicals again. It's much more on the commodity side. Operator: The next question comes from Chetan Udeshi from JPMorgan. Chetan Udeshi: I just wanted to follow up, Conrad, on your comment on industry consolidation. And I'm a bit puzzled and also curious that we've not seen much happen already. For Clariant, and you've signaled openness to participate in any consolidation, but you have a very different business structure in the sense like you've got Catalysts business, you've got Care Chemicals, which is comprised of industrial plus consumer. And then, of course, you have Adsorbents & Additives. It just feels like the structure of the business is probably too complicated to see Clariant as an obvious candidate or initiator of any consolidation? I'm just curious how you think about that. Conrad Keijzer: Was it a question or an opinion that you were voicing, Chetan? Chetan Udeshi: It's a both. I mean, a bit of both. I think it's not just for Clariant. I'm just curious, is this a problem for the industry overall that there is no like pure-play company that is easy to buy or easy to sell, and that makes it quite complex for industry to consolidate. Conrad Keijzer: Yes. No, it's an important question that you're raising. So, if you look big picture where we came from is we were a hybrid. So, Clariant was both active in commodity businesses and in specialty businesses. And if you look at the recent years, we've really repositioned the business to become fully specialty. So, if you look at the recent, let's say, 5 years, what we did is in '22, we divested our pigment business, which we clearly saw that was commoditizing. By the way, it has indeed even further commoditized. So, I'm glad that we divested that in 2022. Actually, a year later, we divested our North America Land Oil business, which also was very much a commodity business. And if you look now, what we also did was we divested a part of our Care Chemical business, the commodity surfactants to Wilmar, and we put it in a joint venture there. So, we've done actually quite a bit in recent years to, first of all, get out of our commodity business, but at the same time, to strengthen our specialty chemical business. So, we did a number of smaller bolt-on acquisitions. We bought the cosmetic ingredients business in Brazil with Actives. We bought the green surfactant business in India. We did the purification business from BASF for renewable diesel, Attapulgite in the United States. And last but not least, the Lucas Meyer business, which really strengthens our position in Personal Care. So, what you see now is that we have leading positions in specialty chemicals in the segments where we compete. At the same token, what you also see, Chetan, is that we have year-on-year improved the profitability of these businesses. So, we rarely get the question asked, are you the right owner for this business as long as we just continue to improve the profitability and in fact, achieve leading profitability, both in terms of growth, in terms of margins, we have very sustainable positions in each of these segments because we are having significant market shares in the individual businesses. So, yes, that's, I think, sort of the summary from a sort of an M&A perspective where we are, and we remain interested to continue to do bolt-on acquisitions in these businesses, but only if they bring real synergy. Operator: The next question comes from Jaideep Pandya from On Field Research. Jaideep Pandya: First question is on Catalysts actually. What do you think is the longer-term outlook like when you look at the next 3 years, considering so many capacity shutdowns that have been announced in Europe and also sort of asset rationalization in China as well. So, what do you see as a longer-term outlook in Catalysts? That's my first question. And then the second question sort of is on the legal -- I apologize if you have answered this before or if you cannot go in details, but if you can give us some color at least on the legal situation around the ethylene cartel case. What sort of provision have you booked already? And any time line in terms of result that we could hear around this? And then, finally, just on the consolidation point, Conrad, I mean, from -- on paper, if I just sort of ask the question differently, what Chetan was, I guess, trying to ask, the obvious candidate for increasing your size would be in Care Chemicals. So, if there is a case to be presented, are you saying you could be aggressive enough to further pursue divestments of some of the other areas to pursue increasing size in Care Chemicals? Conrad Keijzer: Yes. Thank you, Jaideep. Yes. First, on your question on Catalysts and the long-term outlook, I think what is important to realize is that there has been a shift in production. So, Europe is -- has actually significantly come down in chemical production. CEFIC issued an interesting recent study that since 2022, a total of 37 million tons of capacity has been taken out of the market in Europe. That's roughly 10% of the overall capacity. Now at the same token, you have seen a buildup of capacity in China and to a lesser extent, in the Middle East. So yes, so there is a shift. If you look at the global outlook for Catalysts, it is actually a fairly robust business, even regardless of these shifts, these regional shifts. And if you look at the long-term outlook, petrochemicals historically, globally, has always performed at or above GDP. So that is still intact. The change is actually that there are some regional shifts. And therefore, it was for us extremely important to invest in China in Catalysts in our footprint, and we're very happy with that footprint now that we also have in China to support the local growth. So, in terms of long-term outlooks, the fundamentals are still intact at a global level. But yes, there have been regional shifts for sure. In terms of your second question on legal, yes, in terms of ethylene claims, at this stage, we cannot publicly comment any further than what we've already said. Clariant firmly rejects the allegations and will adamantly defend its position in the proceedings. And we do have substantiated economic evidence that the conduct of the parties did not produce any effect on the market. And yes, we are in litigation, so we cannot comment further on that other than your question on the provisions, we haven't taken any. And this obviously has been reviewed with our auditor, KPMG, and they are obviously of the same opinion, and you will see that in our integrated report also explained. Operator: The last question for today is a follow-up coming from the line of Thea Badaro, BNP Paribas. Thea Badaro: Just a quick follow-up for me. Specifically on the flame retardant business, can you quantify the size of the data center market opportunity for your flame retardant business? Conrad Keijzer: Yes. This is a very interesting question, and we just made a deep dive actually on data centers and to make sure that we capture all of the share that is out there when it's about our products. And what we are seeing is indeed that our flame retardants are benefiting from this. This is about the -- yes, our flame retardants for connectors, for switchgears, cable jackets. That is a part of it. There's also a part of it which sits in fire-resistant coatings actually, that are applied to the infrastructure of these buildings. But finally, and this is also quite important, our Catalysts business, we are really targeting data centers here as well. And this is first from a development perspective, but we're very happy that we also commercialized now the first application where we basically have a fuel cell technology. So, we have methane. We have basically gas, then we convert it to hydrogen. And then the hydrogen basically gets converted into water and electricity. And this is a climate-neutral, if it's biomethane, a climate-neutral solution actually, for decentralized and distributed electricity generation in the right -- high quantities that are necessary. So, there's other solutions. Nuclear is also mentioned. But particularly with the limited grid capacity, the solution will be power plants, small power plants in the United States and Europe has the same challenge. And with Catalysts, we're talking about a very interesting opportunity here, which already the first -- what we now commercialize is a few tens of millions already in revenue in the outlook that we have. The size for flame retardants combined right now globally is also in that order of magnitude. So, it is not moving the goalpost for the company as a whole, but we are seeing a nice upside from data centers. Andreas Schwarzwaelder: So, thank you very much. This is Andreas speaking. This concludes today's conference call. A transcript of the call will be available on the Clariant website in due course. The Investor Relations team is available for any further questions you may have. Once again, thank you for joining the call today, and have a good afternoon. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good day, and thank you for standing by. Welcome to the NovoCure Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Adam Daney, Head of Investor Relations. Please go ahead. Adam Daney: Good morning, and thank you for joining us to review NovoCure's Fourth Quarter and Full Year 2025 performance. I'm joined on the phone today with our Executive Chairman, Bill Doyle; CEO, Frank Leonard; and CFO, Christoph Brackmann. Other members of our executive leadership team will be available for Q&A. For your reference, slides accompanying this earnings release can be found on our website, www.novocure.com, on the Investor Relations page under Quarterly Reports. Before we start, I would like to remind you that our discussions today during this conference call will include forward-looking statements, and actual results could differ materially from those projected in these statements. These statements involve a number of risks and uncertainties, some of which are beyond our control and are described from time to time in our SEC filings. We do not intend to update publicly any forward-looking statements, except as required by law. Where appropriate, we will refer to non-GAAP financial measures to evaluate our business, specifically adjusted EBITDA, a measure of earnings before interest, taxes, depreciation, amortization, and share-based compensation. We believe adjusted EBITDA is an important metric as it removes the impact of earnings attributable to our capital structure, tax rate, and material noncash items and best reflects the financial value generated by our business. We do not provide forward-looking guidance for adjusted EBITDA on a GAAP basis due to the inability to predict share-based compensation expenses contained in the reconciled GAAP measure of net income without reasonable efforts. Reconciliations of non-GAAP to GAAP financial measures are included in our press release, earnings slides, and in our Form 10-K filed with the SEC today. These materials can also be accessed from the Investor Relations page of our website. Following our prepared remarks this morning, we will open the line for your questions. I will now turn the call over to our Executive Chairman, Bill Doyle. William Doyle: Thank you, Adam. I'll begin this morning with a brief review of our 2025 accomplishments and look ahead to 2026. Our CEO, Frank Leonard, will then discuss recent commercial updates. And finally, our CFO, Christoph Brackmann, will walk through our fourth quarter financial performance and 2026 guidance before opening the line for questions. 2025 was a year of progress and change at NovoCure. We generated a record $655 million in net revenues last year, an 8% increase from 2024. We presented final data from 2 large randomized trials in plenary sessions at major medical congresses, followed by publications in leading medical journals. We submitted PMA applications to the FDA for the use of TTFields therapy to treat pancreatic cancer and brain metastases from non-small cell lung cancer. And we rolled out product enhancements designed to improve the TTFields therapy experience for both patients and physicians. 2025 was a strong year of execution, setting the stage for a catalyst-rich 2026. We expect to reach a number of regulatory, clinical, and commercial milestones this year. The first milestone was reached earlier this month with the approval of Optune Pax for the treatment of locally advanced pancreatic cancer, and we have submitted regulatory filings for Optune Pax in Europe and Japan. We expect Optune Pax to be a significant contributor to our long-term growth and are eager to begin treating patients in the coming weeks. We also expect a decision from the FDA on our brain metastases PMA later this year. On the clinical front, we are on track for top-line readouts from both the PANOVA-4 and TRIDENT trials this year. PANOVA-4 is a Phase II trial exploring the use of TTFields, atezolizumab, a checkpoint inhibitor, and chemotherapy in metastatic pancreatic cancer with top-line data anticipated next month. TRIDENT is a Phase III trial exploring earlier use of TTFields concomitant with radiation and temozolomide in newly diagnosed GBM, which we expect to read out in Q2. We are also on track to complete enrollment of our next Phase III trial, KEYNOTE D58, studying Tumor Treating Fields, temozolomide, and the checkpoint inhibitor pembrolizumab in newly diagnosed GBM by year-end. Turning to our commercial portfolio. We anticipate a number of national or regional launches of our 3 products this year. This includes Optune Gio launches in Spain, Czechia, and the Canadian province of British Columbia, and Optune Lua launch in Japan and Optune Pax launches in the U.S. and Germany. Before I hand the call over to Frank, I would like to touch on one update from this morning's press release. Dr. Nicolas Leupin, our Chief Medical Officer, resigned from the company effective February 25. Following Nicolas' departure, we have decided to combine our scientific and clinical organizations to accelerate our R&D execution and shorten the cycle from scientific insight to clinical relevance. Dr. Uri Weinberg, our Chief Innovation Officer, will now also assume the role of Chief Medical Officer. Dr. Weinberg joined NovoCure in 2008 and has been instrumental in establishing and leading a number of our scientific and research and development functions over the years. Uri is well qualified to take over this dual mandate. I would like to personally thank Nicolas for his contributions to NovoCure and to congratulate Uri on his expanded role. With that, let me hand the call to Frank to walk through recent updates. Frank Leonard: Thank you, Bill, and good morning. I'm excited to speak to you in my new role as CEO and at a time when NovoCure is evolving into a multi-indication platform company. 2025 was our most successful commercial year to date, and we expect to carry this positive momentum into 2026. Our business remains core, our GBM business remains core to our commercial operations. In 2025, we saw substantial active patient growth across all our major markets. OUS markets were the biggest driver, including 10% year-over-year growth in Germany, 19% in France, and 29% in Japan. We also saw 4% active patient growth in the U.S., which had been flat in recent years. In 2026, we expect growth rates to stabilize in the low to mid-single-digit range as these markets continue to mature. We should also see a tailwind from new market launches in Spain, Czechia, and British Columbia, though first-year revenue contributions are likely to be modest. Turning to Optune Lua. We are preparing to launch in Japan. Japan represents a promising opportunity for Optune Lua, given first and second-line use of immune checkpoint inhibitors is standard of care in Japan. We expect to receive our final reimbursement approval in the coming weeks. We will then be able to launch in Japan with national coverage and pricing. As we've previously stated, the Optune Lua launch has been slower than we originally projected in the U.S. and Germany. We have rightsized our marketing spend based on the current demand and are prioritizing investments in indications with a higher return potential, such as pancreatic cancer. Finally, I will turn now to our newest FDA approval, Optune Pax for locally advanced pancreatic cancer. We are very pleased to have received FDA approval and appreciate the agency's partnership throughout the review process. The industry standard time for PMA reviews is between 9 to 12 months. In the case of Optune Pax, the FDA review was completed exactly at the 180-day mark, with approval received on February 11. We've commenced our Optune Pax launch and are now certifying prescribers and receiving prescriptions. We have designed the launch plans for Optune Pax to make prescribing and starting patients as easy as possible for physicians, including emphasizing the use of our HCP portal to enable digital prescriptions. We are also giving the prescriber more discretion in patient selection rather than detailing to a preferred patient profile. We are also able to leverage our established torso sales force for the Optune Pax launch. The existence of a trained team significantly lessens the educational burden of onboarding a new team and enables us to take advantage of the established team's deep knowledge of TTFields therapy. This team has built extensive connections with physicians, which will prove invaluable given that some medical oncologists treat both lung and pancreatic cancer patients. There are a lot of similarities between GBM and pancreatic cancer that give us confidence in both the market opportunity and our ability to commercialize Optune Pax. Both cancers are typically diagnosed at a late stage and are incredibly difficult to treat. Both cancers have properties that limit the bioavailability of systemic therapies, making these tumors prime targets for a physical treatment approach. And both tumors have limited approved therapeutic options for patients. We are eager to begin treating patients in the coming weeks. Now is an exciting time to step into the CEO role at NovoCure. Since I joined the company in 2010, we have had numerous clinical, regulatory, and commercial milestones across multiple indications, and we are now primed to enter our next era of substantial growth. I'm thankful for the opportunity to lead at such an exciting time, and I want to thank all of my colleagues for their dedication and support during the transition. I'll now pass the call over to Christoph to review our Q4 and full-year 2025 financials as well as our guidance for 2026. Christoph Brackmann: Thank you, Frank. We closed 2025 with continued momentum, delivering record net revenue for both the quarter and full year. Fourth quarter net revenue was $174 million, and full year net revenue totaled $655 million, representing 8% year-over-year growth for both periods. Growth was primarily driven by continued expansion in ex-U.S. markets, particularly Germany, France, and Japan, reflecting solid underlying demand and increased active patient count. Foreign exchange provided a tailwind of approximately $5 million in Q4 and $11 million for the full year compared to 2024. We recognized $3.5 million from Optune Lua claims in the quarter, including $2.4 million from non-small cell lung cancer. For the full year, Optune Lua revenue was $10.4 million, including $5.8 million from non-small cell lung cancer patients. I would also like to briefly address the recent Medicare billing situation. Earlier this month, CMS notified us that our billing privileges were halted due to an administrative issue identified during the DME supplier revalidation process. We engaged with the agency quickly, submitted a corrective action plan the following business day, and completed our required reinspection. Two days ago, we were notified that CMS rescinded the revocation and directed that our Medicare enrollment and billing privileges be reinstated retroactively to December 17, 2025. As a result, we do not expect any negative impact on revenue recognition from this matter. We are pleased that the issue is resolved and are appreciative of the agency's partnership in addressing the issue swiftly. Looking ahead to 2026. This morning, we issued annual net revenue guidance at constant exchange rates of $675 million to $705 million, representing year-over-year growth between 3% and 8%. This assumes Optune Gio net revenue growth in the low to mid-single digits and net revenue contributions from non-GBM products of $15 million to $25 million compared to $10 million in 2025. Moving down the P&L. Fourth quarter gross margin was 76% and 75% for the full year compared to 79% and 77% for the fourth quarter and full year 2024. The decrease was primarily driven by a decrease in prior period collections in the U.S. and increased costs associated with the HIV rates and tariffs. For 2026, we expect gross margin in the mid-70s percentage range. Research and development costs in the quarter were $61 million, an increase of 19% from the same period last year, and $225 million for the full year, an increase of 7%. The quarterly increase was driven by increased costs related to the KEYNOTE-58 and LUNAR-2 Phase III trials and regulatory costs. Sales and marketing expenses in the quarter were $69 million, an increase of 2% from Q4 2024, and full year sales and marketing expenses were $240 million, flat year-over-year. The increase in the quarter was driven by increased marketing activities related to new indications. G&A expenses for the fourth quarter were $43 million, a decrease of 41%, and $178 million for the full year, a decrease of 6% from 2024. The primary driver for the quarter was lower share-based compensation expenses related to 2020 PSUs triggered by the approval of Optune Lua in 2024. As noted in the 10-K today, we will have a similar charge in Q1 triggered by the Optune Pax approval. Net loss for the quarter was $24 million with a loss per share of $0.22. Full-year net loss was $136 million or $1.22 per share. Adjusted EBITDA in the quarter was negative $16 million and negative $34 million for the full year. Our cash and investment balance at the end of Q4 was $448 million. In the fourth quarter, we repaid $561 million of convertible notes in cash. We believe our current funds available, coupled with diligent expense management, will provide the necessary bridge as we bring new revenue streams online. Therefore, we have decided not to go beyond the $200 million already drawn from our current credit facility. As we look ahead to 2026, we are determined to make material progress towards our goal of driving profitable growth in the coming years. This morning, we issued adjusted EBITDA guidance of negative $20 million to breakeven for full year 2026. Overall, this reflects an acceleration of our plans to achieve adjusted EBITDA breakeven, driven by both our expectations of revenue growth as well as diligent expense management across the organization. With that, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Jason Bednar with Piper Sandler. Jason Bednar: Congratulations on the recent approval of Optune Pax. There's probably too many topics to choose from this morning. There's a lot going on here. But why don't I start first with the guidance? This is obviously a first for NovoCure, glad to see it. So can you talk about why it made sense now to give the guidance versus past years? And then can you break out some of the contributions included within the revenue guide around maybe things like you're assuming with new international markets? I think you called out Spain, Czechia, and Canada. And then as well as whether you're assuming anything in the revenue and EBITDA guide from previously denied claims. Frank Leonard: Thanks, Jason. This is Frank. I'll start with top line, and then I'll hand it to Christoph to go into some of the assumptions. First, I just want to also say thanks for the recognition of the many positive headlines we had in the last quarter and closing out 2025. It certainly has been an exciting time here at NovoCure. Jason, as I came into the role as CEO, one of the things we did is really try to spend as much time with our investor community as possible. One of the core messages that we've heard is that we need to speak more clearly in terms of setting expectations of what we can accomplish in the coming year. And we're taking that first step today with guidance where we really want to send the signal first at the top line that we are committed to returning the company to steady growth. And this is the first year where the Optune Pax will build a foundation that we can make even stronger going out to 2027. Two is that we're sending a very clear signal that we want to drive to adjusted EBITDA breakeven as a possibility this year because we've heard the message loudly and clearly that we need to have both growth and profitability. And lastly, I think I just would emphasize that as a company, we're trying to send a signal that we're moving up the maturity curve. We've been a public company for 10 years. We think this is a necessary and important step to take right now. So Christoph? Christoph Brackmann: Yes. Thank you. So yes, on the specifics on guidance or the underlying assumptions, on the revenue side, there's really 3 areas that we are thinking of in terms of growth. There's our GBM business in established markets where we expect growth in the low to mid-single-digit growth -- mid-single-digit range. Then we have GBM in newer markets. So an example of this would be Spain or Czech or also the recent approval in Canada that we announced. Now these will be modest contributions in 2026 as we ramp in 2026 in those markets. And then the third bucket of growth would be new indications. And yes, that's also where -- as you can see, we say we are expecting contributions in the range of $15 million to $25 million. So growth over prior year connected to the launches that we have with Optune Lua in Japan and Optune Pax in the U.S., as well in other markets. Operator: Our next question comes from Vijay Kumar with Evercore ISI. Kevin Joaquin: This is Kevin on for Vijay. Just one on Optune Gio. It looks like the guidance assumes a low to mid-single-digit revenue growth. My understanding is that this market, over the long term, is more of a mid-single-digit growth type of market. Is this just conservatism embedded in the guidance? Or are you seeing a change in the market growth rate? Frank Leonard: Thank you for the question, Kevin. No, we are not seeing -- we're not signaling a conservatism or a moderation. We're trying to signal that we believe the -- number one, we believe there are still many patients who will benefit from Optune Gio with glioblastoma. As a reminder, we think in our mature markets, we're on average, about 40% of the patients are getting a prescription for Optune Gio. And we think based on the data that we've already generated, that number should be significantly higher. And so the range is really intended to reiterate our ability that we've shown last year to grow in that mid-single digits range, but at the same time, to provide that guidance of a band that reflects all of the assumptions that could come into revenue, including -- just including the various puts and takes on when revenue comes online. Operator: Our next question comes from Larry Biegelsen with Wells Fargo. Larry Biegelsen: Congrats on the Pax approval as well coming in earlier than expected. So on that product, can you just talk about, based on the approved label, how do you think the device will be prescribed? And specifically, what are the lessons learned from the lung launch that you can apply here to ensure success? And I have a follow-up regarding the guidance. Frank Leonard: Yes. Thanks, Larry. This is Frank. I'll start, and I might turn it to Christoph at the end to just comment on the market size itself. So first, we're very pleased with the approval for Optune Pax, both the label that we received as well as the timing. And I think that the quality of the data that we brought to the FDA should really be underlined in that sense that we were able to secure this 180-day review cycle. Optune Pax is being approved for locally advanced pancreatic cancer in a first-line setting in concurrent use with nab-paclitaxel plus gemcitabine. And so I want to emphasize that's a first-line patient with locally advanced disease, so still focal disease. We think this is a highly motivated patient population. It's a population also that has had really very limited treatment options to date. And we think this fits very nicely with our overall value proposition to physicians and to patients, that we can bring this unique physical approach to layer on top of the existing systemic therapies that, quite frankly, have not been successful enough in pancreatic cancer. So to answer the question directly, we believe within that label, that really is the core population that we can pursue first, and we're very happy that that is because we believe it's a highly motivated patient and a highly motivated physician. And Christophe, could you comment a bit on the market assumptions? Christoph Brackmann: Yes, sure. So we estimate the TAM for locally advanced pancreatic cancer in the U.S. to be 15,000 patients on an annual basis. This is down from about 60,000 patients being diagnosed with PDAC on an annual basis, and then about 1/3 is in the locally advanced pancreatic setting. Operator: Our next question comes from Jonathan Chang with Leerink Partners. Unknown Analyst: This is Albert Aginis on for Jonathan Chang. Congrats on the approval of Optune Pax. Regarding that topic, how much sales force are you allocating for Optune Pax? Do you foresee or have you recruited new commercial team members to accommodate for this launch? Or is it more of a reallocation of the current commercial team? William Doyle: Thanks, Albert, for the question. We are very pleased that we have an established team that we've trained over the last 2 years to detail our Optune Lua product. That team that's already in the field and fully established is being -- repurpose is probably the wrong word, but I should say, tasked now with leading our pancreatic launch. So we're not adding incremental sales headcount at this time. We are simply leveraging the team that we have. Operator: Our next question comes from Emily Bodnar with H.C. Wainwright. Emily Bodnar: Congrats on the Optune Pax approval. So you guided to the $15 million to $25 million in revenue for Optune Lua and Optune Pax this year. I'm curious if you could kind of give some more detail into how we should be thinking about revenue contribution, specifically for Optune Pax this year, as you're kind of getting reimbursement plans in place? And then maybe a follow-up to the prior question. How much of your sales and marketing force that you already have is kind of in place for HCPs that are going to be covering locally advanced pancreatic patients based on your GBM and non-small cell lung cancer launches? Frank Leonard: Excellent. Thanks, Emily. I'll start, and I'll turn it over to Christoph. Just as a reminder for everyone, as we launch in a new indication, we do, as a medical device, need to go through a process of working with the payers to establish coverage policies and in some cases, having updates to our contracts with the payers in the United States to then move towards a position where we have a more direct correlation between active patients and revenue. At the start, we will start all of the patients, and we'll begin working through an appeals process, just as we've done with glioblastoma and lung before, and it's a process that we're quite familiar with, and we're confident we're going to be able to work through it. But that will mean that in this launch period, you will see revenue not correlate directly with active patients because there will be a lag as we establish the coverage policies and the payment policies with payers in the United States. I'll flag that as always, for us, one of the most critical steps in that process is to secure an inclusion in the NCCN guidelines for the treatment of locally advanced pancreatic cancer. We have submitted that application, and we're hopeful to be included soon. And we think that will be one of the material steps this year towards securing the coverage policies that will drive some revenue this year, but ultimately, it will be revenue that will come next year. Christoph? Christoph Brackmann: Yes. I think the only thing to add to what you said, Frank, maybe would be that similar to what we said for Optune Lua, we expect it will take us about 1 to 2 years to get coverage on a more routine basis for commercial payers. And that's also connected to the launch success, right? The more patients that we have on therapy, the easier we'll get to get coverage policies. Frank Leonard: And Christoph, there was also a question about sales and marketing expenses. Christoph Brackmann: Yes. So in terms of sales and marketing expense, as we -- I mean, as Frank alluded to earlier, we are basically reusing this field force. So when we built the field force for NACLC last year and earlier, basically, we thought of it as a Torso-focused field force. And so from a field force perspective, there is no incremental -- very small incremental spend, if any, incremental spend on the pancreatic launch will be on the marketing side. Part of that already we had in Q4 of last year. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Bill Doyle for closing remarks. William Doyle: So in closing, I'd like to underline that 2025 was a year of strong execution at NovoCure with record net revenue and record active patients. We're very pleased with our 2 Phase III presentations and publications and the 2 PMAs submitted, which we think really create the foundation for success in the future. We're set to maintain that momentum with a catalyst-rich 2026. We're pleased to have already received the PMA approval for PANOVA for Optune Pax, and to have submitted the regulatory filings in the EU and Japan. And we're looking forward to the top-line results from PANOVA-4 and TRIDENT. On the commercial side, we expect to maintain our momentum as has been discussed on this call, and we're really excited to bring our products to patients in new markets, particularly Spain, Czechia, and in British Columbia. We've really tried to emphasize to everyone today that we're focused on driving to profitability. As Frank said, 10 years in the public markets, we're ready to guide, and we're ready to make that one of our primary goals. We see a path to profitability and, in fact, the potential to reach adjusted EBITDA breakeven this year. With that, I'd like to end by thanking you all for your continued interest and focus on NovoCure. And in particular, I need to thank my colleagues. 2025 was a year of accomplishment and change as we position the company for the exciting future that we see ahead of us. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Clariant Fourth Quarter Full Year Results 2025 Conference Call and Live Webcast. I am Valentina, 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 Andreas Schwarzwaelder, Head of Investor Relations. Please go ahead, sir. Andreas Schwarzwaelder: Thank you, Valentina, and ladies and gentlemen, good afternoon. My name is Andreas Schwarzwaelder, and it's my pleasure to welcome you to this call. Joining me today are Conrad Keijzer, Clariant's CEO; and Oliver Rittgen, Clariant's CFO. Conrad will start today's call by providing an update on the progress we have made on our purpose-led growth strategy and a summary of the full year 2025 financial highlights and savings programs; followed by Oliver, who will guide us through the Q4 and business unit results; Conrad will then conclude with the outlook for the full year 2026. There will be a Q&A session following our presentation. At this time, all participants are in listen-only mode. I would like to remind all participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties. Listeners and readers are therefore encouraged to refer to the disclaimer on Slide 2 of today's presentation. As a reminder, this conference call is being recorded. A replay and transcript of the call will be made available on the Investor Relations section of the Clariant website. Let me now hand over to Conrad to begin the presentation. Conrad Keijzer: Thank you, Andreas. 2025 was a year that demonstrated the success of our transformation journey. The progress we've made over recent years is bearing fruit, with our purpose-led growth strategy proving its strength through effective execution. Built on 4 strategic pillars: customer focus, innovative chemistry, leading in sustainability and people engagement, the strategy reflects our integrated approach to creating value for all stakeholders. On our first pillar, customer focus. The execution of our commercial excellence programs delivered further improvement in customer satisfaction as indicated by the Net customer Promoter Score, cNPS. In 2025, this cNPS increased to 50 versus 45 in 2024, with the company receiving outstanding scores for product quality, technical support and customer service. Overall, this score placed Clariant in the top quartile amongst peers. Our local-for-local strategy has continued to help us to weather geopolitical challenges and tariffs. We serve our customers to a very high degree based on local manufacturing and local raw material sourcing. We successfully accelerated the rollout of CLARITY, a cloud-based service platform designed to optimize catalyst management and performance monitoring. It offers 24/7 real-time operations data so that customers can manage their plants more efficiently. By the end of 2025, CLARITY utilization has almost doubled to over 220 customer plants and over 800 users in 38 countries. And finally, differentiated steering, which ensures that we allocate resources strategically. Each business segment has its own strategic mandate to optimize value creation. The restructuring and capacity expansion actions taken in our Additives segment resulted in successful turnaround with improved sales growth and better margins. In our second pillar, innovative chemistry, we demonstrated a strong improvement in innovation sales, reaching 18.8%, marking a significant step-up from the 16.9% recorded in 2024. This trajectory reflects the strength of Clariant's innovation portfolio and execution. We maintain our commitment to research and development with sustained investment at 3% of revenue in 2025. The products from our innovation pipeline are growing faster than the rest of our portfolio. We will continue to intensify supplier partnerships to co-develop innovations meeting the highest environmental standards. This dedication to innovation resulted in over 30 awards and recognitions received throughout the year from customers like L'Oreal, Unilever and Schneider Electric and various industry associations. 2025 marked another year of great progress in sustainability leadership. Clariant's greenhouse gas emissions reduction targets that were originally announced at our Investor Day in November 2024 were reviewed and approved by The Science Based Targets initiative in 2025. By 2030, Clariant is committed to reducing absolute Scope 1 and 2 greenhouse gas emissions by 47% and absolute Scope 3 greenhouse gas emissions by 28% from the 2019 base year. In 2025, Scope 1 and 2 total greenhouse gas emissions fell to 0.43 million metric tons in 2025, a decline of 11%. The main driver for the greenhouse gas reduction in 2025 was a further switch to green electricity. The share of renewable electricity increased from 69% to 76%. The total indirect greenhouse gas emissions for purchased goods and services, Scope 3.1, were 6% lower to 2.4 million metric tons in the last 12 months. As a result of consistent progress over time, credible targets, verified data and clear accountability, we achieved top leadership level scores across all environmental categories of the Carbon Disclosure Project, CDP, the most widely used environmental disclosure platform globally. Ranking in the top 1% of all companies evaluated worldwide, Clariant was awarded A in climate change and forests and A- in water security. We are convinced that the transformation towards more sustainable business models will not reverse. Companies that stay on the course will shape the future and gain enduring competitive advantage. And finally, people engagement, where we increased our employee Net Promoter Score, eNPS, to 37 in 2025, up from 34 in the prior year. I'm particularly pleased that participation rate of our employees further increased to 88% and our employee engagement came in at 87%, which positions us in the top quartile compared to industry peers. Our safety performance also was top quartile of the chemical industry globally. Clariant recorded a Days Away, Restricted, or Transferred rate of 0.13, down from 0.17 in 2024. This reflects our high awareness and continued commitment to safety, training and accountability. These achievements are thanks to the hard work of over 10,000 Clariant colleagues across the globe who are committed to our purpose-led growth strategy and who delivered strong results in 2025. We delivered sales of CHF 3.9 billion, representing a flat performance in a challenging macroeconomic environment. We improved our EBITDA margin before exceptional items by 180 basis points to 17.8%, driven by the successful execution of our performance improvement programs. This is the third year in a row where we have delivered strong EBITDA improvement, both in absolute and in margins. I'm particularly pleased with the 42% cash conversion rate we achieved in 2025. This represents a 10 percentage point improvement compared to 2024, already exceeding our medium-term target of 40%. Our performance in 2025 enables us to propose a stable distribution to shareholders of CHF 0.42 per share. Now, moving on to more details relating to our financial performance for the full year 2025. We delivered sales of CHF 3.9 billion. This represents a flat performance in local currency, with the reported figure impacted by a 6% negative currency translation effect. We maintained pricing discipline across our portfolio in a slightly deflationary raw material environment with a year-on-year increase in Adsorbents & Additives and flat pricing in Care Chemicals and Catalysts. Organic volumes decreased by 1% across the business units. The acquisition of Lucas Meyer Cosmetics had a positive scope impact of 1%. Turning to profitability. We had a strong overall performance with 180 basis point improvement in EBITDA margin before exceptional items versus the full year 2024, driven by our performance improvement programs and cost productivity across all business units and the corporate functions. In absolute terms, EBITDA before exceptional items increased by 5% to CHF 679 million. As I mentioned earlier, we recorded a free cash flow conversion rate of 42% in 2025. This represents a 10 percentage point increase versus 2024 and delivers on our medium-term target of 40% ahead of schedule. We were able to achieve this through effective cost and margin management, which drove an increase in operating cash flow. Higher net working capital and phasing effects were offset by disciplined CapEx management. In absolute terms, free cash flow increased by 31% to CHF 273 million. Now turning to our Investor Day savings program. As a reminder, we expect full run rate savings of CHF 80 million from business units and corporate actions to be delivered by the end of 2027. In Q4, we achieved savings of CHF 19 million, which brings the total to CHF 50 million for 2025. This represents 63% of the total savings target with the remainder largely expected in 2026. The key measures include a headcount reduction of approximately 470 full-time equivalents across the business and corporate functions and the closure of 2 production lines and 2 sites as part of our footprint optimization. Procurement added another CHF 22 million savings related to structural changes in qualifying alternative suppliers and implementing best practice contract management. Cost-efficient execution of the programs and phasing led to restructuring charges of CHF 63 million. This was below the CHF 75 million restructuring charges originally expected for the year. With that, I now hand over to Oliver for further details on our business performance in the fourth quarter. Oliver Rittgen: Thank you, Conrad, and good afternoon, everyone. In the fourth quarter, we delivered sales of CHF 1 billion, representing an increase of 1% in local currency versus the prior year period. Pricing was overall flat as formula-based price adjustments linked to raw material costs in Care Chemicals were offset by a 1% increase in Adsorbents & Additives and flat pricing in Catalysts. Volume increased by 1% as growth in Catalysts and Care Chemicals offset a decline in Adsorbents & Additives. The reported figure was affected by a 7% currency headwind. Turning to profitability. Our Q4 EBITDA, before exceptional items, increased by 10%, corresponding to a margin of 17.1%. This represents a 240 basis point improvement versus the fourth quarter of 2024. Key contributions came from continued strong execution of the performance improvement program in all business units, effective cost management, a positive mix due to strong growth in Catalysts and operating leverage. Let us now dive into the fourth quarter development by business unit, starting with Care Chemicals. Sales increased by 1% in local currency as 2% volume growth recorded in the quarter more than offset the 1% decline in pricing due to formula-based price adjustments linked to raw material costs. The reported figure was negatively affected by a 7% currency headwind. We recorded low double-digit organic growth in Mining Solutions, driven entirely by volumes; and in Oil Services, where higher volumes were supported by slightly positive pricing. Sales in Personal & Home Care increased at a low single-digit rate, also driven by volume growth and including a continued positive contribution from Lucas Meyer Cosmetics. Base Chemicals declined slightly despite volume growth in the seasonal aviation business as pricing declined due to formula-based price adjustments. Sales in Industrial Applications declined due to lower pricing and volumes. Crop Solutions declined, driven by lower volumes versus the prior year period when a restocking effect led to strong growth. We recorded an EBITDA before exceptional items of CHF 96 million, representing a 7% increase compared to the prior year. This translated into an EBITDA margin of 18.3%, a 220 basis points improvement, driven by increased operating leverage and a strong contribution from the performance improvement program. In Catalysts, sales increased by 5% in local currency, a result of materially higher volumes in Ethylene versus the prior year period. The reported figure was negatively affected by a 7% currency headwind. Sales in ethylene catalysts recorded the strongest growth at a high double-digit percentage rate with some first fill business coming on top of the regular refill cycle, followed by Syngas & Fuels. This more than offset lower sales in Specialties and Propylene, which both declined at a double-digit percentage rate against a strong comparison base in the prior year. EBITDA before exceptional items increased by 22% to CHF 62 million, representing an EBITDA margin of 23.4% versus 18.8% in the prior year. This was driven by effective price and cost management and the contribution from our performance improvement program. Moving to Adsorbents & Additives. Sales decreased by 3% in local currency and by 8% in Swiss francs as slightly higher pricing was more than offset by lower volumes. In the Adsorbents segment, sales decreased at a low single-digit percentage rate as stable volumes in APAC and EMEA were more than offset by a decline in the Americas, which were impacted by delayed U.S. renewable fuel regulation. In the Additives segment, sales decreased at a mid-single-digit percentage rate as growth in Polymer Solutions was more than offset by lower volumes in Coating & Adhesives, mainly attributable to the construction market. EBITDA before exceptional items decreased by 9% to CHF 30 million with an EBITDA margin of 12.6% at a similar level to the prior year. The positive contributions from the performance improvement programs partly offset the impact of low volumes. And with this, I close my remarks and hand it back to Conrad. Conrad Keijzer: Thank you, Oliver. Let me conclude with our outlook for 2026. For 2026, we expect macroeconomic challenges, uncertainties and risks to remain. According to the latest assessment of Oxford's economics, the global GDP growth projection for 2026 has increased slightly to 2.8%, driven by AI investments. The chemicals industry forecasts predict a reduction of chemical output growth from 2.9% in '25 to 1.9% in '26, driven by slower growth in China from 7.4% to 2.7% and the U.S. turning negative to minus 0.6% compared to a positive 0.6% in 2025, while Europe expects some improvement to positive 0.5% after negative 0.4% in 2025. Looking at our addressable market, we expect 2026 market growth for Clariant of around 1%, considering our geographic footprint. We remain focused on delivering profitable growth and executing our self-help actions. That said, there are some positive signals in certain end markets. Growth in mining and electric vehicles is expected to continue. We also see continued growth in data centers, a recovery in consumer electronics supporting our Additives business and an improvement in renewable fuels demand supporting our Adsorbents products. We, therefore, expect sales in local currency to be around flat as we look to offset a negative top line impact for the group of 1% from portfolio pruning in the prior year. We expect slight growth in Care Chemicals on an underlying basis. And in Adsorbents & Additives, while sales in Catalysts are expected to be at levels similar to those in 2025, we expect to further improve our EBITDA margin before exceptional items to around 18% in 2026 with the CHF 80 million performance improvement program expected to deliver most of the remaining cost savings during the year. Clariant expects to continue to achieve a free cash flow conversion of around 40% in 2026. We remain committed to delivering our medium-term targets, assuming a recovery to normalized trading conditions in 2027. With that, I turn the call back over to Andreas. Andreas Schwarzwaelder: Thank you. Thank you, Conrad and Oliver. Ladies and gentlemen, we are now opening the floor for questions. To ensure everyone has a chance to participate, please ask no more than 2 question per person. Thank you for your cooperation. And Valentina, please go ahead. Operator: [Operator Instructions] The first question comes from Thea Badaro from BNP Paribas. Thea Badaro: Two from me, please. We are seeing positive data points in both chemical specific and industrial surveys. So, I'm curious to know if that optimism is also being reflected in your conversations with customers? And if so, are there any end market in particular? And then my second question is on Care Chemicals. You're guiding for slight growth for the division in 2026, while many peers are expecting actually a flattish year overall due to tough comps. Can you elaborate on where exactly you're getting more positive? Conrad Keijzer: Okay, sure. Yes. So, your second question was on Care Chemicals, where you say that many peers are guiding flat growth is what you say, right? Thea Badaro: Yes. Conrad Keijzer: Yes. Okay. Clear. Yes. So, first on the overall market outlook. So, what you actually see overall is less growth in chemical production rates globally than last year. I mentioned them in our speech, where actually markets are expected to slow down, particularly in China, where we had strong growth last year that really will be significantly slower this year. And in the U.S., where we had positive growth -- slightly positive growth this year, markets will turn negative next year, amongst others, also due to trade actions. In Europe, we were slightly negative this year. We may turn slightly positive. But overall, I wouldn't characterize this as an optimistic outlook in chemicals. So, if you look, what we have in the industry is operating rates typically between 70% and 80%. That's still historically low. And a recovery is typically not expected for this year yet, but more 2027. So, in '27, there is actually a general consensus that there should be a recovery. So, if you look at recent years, consumer spending has not been sufficiently on durable goods or semi-durable goods. There was more spending on services and recently on AI. So, this switch back to durable goods spending and semi-durable goods spending that is really expected at some point in time. There's a natural replacement cycle to products. But for this to happen, we first need better consumer confidence levels, which still are generally low considering geopolitical and trade tensions. More specifically to Care Chemicals, what we say here is actually that in our outlook overall around flat, there's underlying growth because last year, we had a fair amount of pruning in Care Chemicals, which had an effect of roughly 2% of revenue in Care Chemicals. As you are aware, we closed a site in Argentina. We also shut down a plant in Europe for EO derivatives. And with that, when we're giving an outlook of around flat for Care Chemicals, underlying, that means actually that there's growth also in our outlook. Operator: The next question comes from Christian Faitz from Kepler Cheuvreux. Christian Faitz: Congrats on the results. Two questions, please. First of all, if I look at weather conditions, both in Europe as well as in North America in Q1 so far, I would figure your de-icing business must have been rather robust. Can you confirm this? And if so, possibly put a number on this? And my second question is on Catalysts. You seem to be a bit less optimistic on your Catalysts performance for '26 after a rather robust Q4, particularly on the ethylene side. Why is this the case? Would you see a sequential slowdown again? Conrad Keijzer: Yes. Thank you very much, Christian, for the question. So, on Care Chemicals and de-icing, we had a strong start. You saw that also, I think, in the press, also one of the airports in Europe almost running out of de-icing material. But it is too early to call it. It really also depends on how March will come in. So we can't really give numbers yet. As far as Catalysts and our outlook for this year, yes, we basically signal that we are bottoming out. I think the recovery in Catalysts really requires a recovery in new build. So, if you look right now at our order book and also what we basically saw last year is still of the orders, it's by and large, a refill business. So, the new build has dropped to roughly 10% of our orders. For us to really see a big recovery in Catalysts, we should see the new build coming back in. That is visible in the order book, not this year. But if you look at '27, '28, '29, we are seeing actually a pickup in new builds, particularly in China. There is, let's say, a small wave of new build coming in there ahead of their peak carbon year in 2030. So, we're not seeing a recovery yet this year, Christian, we are bottoming out, but we are actually quite optimistic for the years after that, then we should see a recovery in Catalysts. Operator: The next question comes from Christian Bell from UBS. Christian Bell: I've got 2 questions, please. My first one is, how should we think about the earnings phasing in 2026? Are you sort of expecting a softer first quarter, then a stronger second half as savings and volumes build? If you could provide a loose guide for first quarter '26, that would be really useful. And then the second question, if you could just help me, I'm a little bit confused on your 2026 guidance. So, you're basically guiding to top line down 3% to 5% on currency, which is similar to the outcome in 2025. But last year, you still expanded EBITDA margins by 180 basis points with CHF 50 million of cost out with another CHF 30 million planned for 2026 and a similar top line result. What's preventing any margin improvement this time around? Like what's the difference from 2026 versus 2025 that stops you repeating that same margin progression? Conrad Keijzer: Okay. Christian, I'll take the first question on phasing, and Oliver will provide some more granularity on your second question. As far as the phasing throughout the year, I think we should keep in mind that we had last year actually a strong first quarter. Other than that, if you sort of ignore the year-on-year comp, we are seeing a fairly normal pattern throughout the year. It's not that we see a significant recovery in H2 versus H1, like we sometimes have in other years in the outlook. What is important, maybe some specific comments in Care Chemicals, we see at the moment, nothing unusual. De-icing is obviously playing a role there in how Q1 will come in. In Catalysts, we are comparing against a strong quarter last year. But normally, we always see a weak Q1 as we also saw last year after a strong Q4. So, there is that sequential effect. In Adsorbents & Additives, we are seeing a somewhat weaker start in Adsorbents where we still are waiting for the regulation for renewables to kick in. The EPA has set ambitious targets for renewable diesel and SAF, but these need to be still endorsed by Congress. And because of the government shutdowns, there's a delay in that. You see that the market expects these increased targets to kick in because RINs prices are going up, but we're not seeing that in our numbers yet. Other than that, I think there's nothing here to comment. Yes, Oliver, to you. Oliver Rittgen: Christian, yes, let me comment on your second question on margin progression year-over-year. I mean, first of all, as you have seen, there's a strong progression from '24 to '25 with 180 basis points of improvement, which brought us now to 17.8%. And that was driven by the performance improvement programs, the cost productivity and effective price management, as we said. So of course, when you -- and we had a flat top line at this. For '26, we are guiding for now a second year of flat top line with the effects that we alluded to before, the pruning that needs to be compensated and the soft market environment. And again, we are executing now on the performance program and delivering further savings in '26. At the same time, of course, in '26, like in '25, we need to compensate for the inflation that is happening in the cost structures that we do have. And we guided for '26 that we have 3% to 4% inflation in the cost structure. We have the savings from the savings programs plus other productivity measures that we're taking. And hence, we guided for around 18%. So -- of course, the ambition here is to make further progress also towards our medium-term targets. But as we alluded to, for '27 that it requires also a bit of a rebound of growth that we then bring it really in. Christian Bell: Okay. It just seemed like a similar setup in 2026 with a similar level of cost out. So, you're basically saying that your underlying inflation -- your underlying cost inflation this year is much stronger than it was -- or you're expecting it to be much stronger this year than it was in 2025? Oliver Rittgen: No. I mean, there is another year of inflation. I think, Christian, the point is more -- we did 180 basis points last year where we set the organization on a leaner base. And obviously, the savings were also a bit higher in '25 versus '26, and that's partially driving that effect. Operator: The next question comes from Katie Richards from Barclays. Katie Richards: I had a question on the use of capital and the balance sheet. You were on Bloomberg this morning, Conrad, and mentioned that Clariant would be open for bolt-on acquisitions potentially on the scale of Lucas Meyer. But you're also, at the same time, targeting CapEx potentially as low as CHF 150 million. So, a few questions on this then. With leverage coming down and proceeds also coming from Stahl, which end markets would you be interested in exploring further? Could you also remind us how much you're spending annually for maintenance purposes, please? And finally, how are you looking to balance organic growth versus paying a premium to grow these? Conrad Keijzer: Yes. Katie, maybe first to clarify on comments made this morning on the calls. Yes, there's nothing new. So, we're always open for bolt-on acquisitions. But we also said this morning that our first priority is always organic growth and margin improvement. And then if we can complement that with the right bolt-on acquisitions, we're very open to that. And we defined as the right ones, acquisitions that really fit to our core segments and that provide real synergy. And then I mentioned Lucas Meyer as a great example of an acquisition that basically fits those criteria in the past. But that's not to say that there is right now a target of that size available. So just to be clear about that. But overall, people do expect with limited growth perspectives right now in the chemical industry that there should be an increased level of potential consolidation ahead of us. And what I said this morning is it's important that we obviously participate in industry consolidation if and when that happens. As far as CapEx, maintenance, that's fairly steady at roughly a level of CHF 100 million a year. You see the big reduction in CapEx for us from the fact that we haven't actually added to our footprint, particularly in China in recent years. And now actually, we're very well set up there. So, keep in mind, in recent years, we invested CHF 80 million in a new catalyst plant that came up on stream. We invested CHF 80 million last year in a new surfactant plant in Daya Bay that came up on stream we invested last year. We completed actually the investment of 2 lines for flame retardants. That was another CHF 100 million. So, if you look at those items alone, that explains why the CapEx envelope is structurally lower than it was in the past. So, we haven't cut any corners on maintenance CapEx. So, no worries there. That's at a fairly steady level around roughly CHF 100 million per year. Operator: The next question comes from Michael Schaefer from ODDO BHF. Michael Schaefer: On one hand -- first one, I want to come back to your Catalysts outlook for '26. So, as you said, you guide for flat local currency sales into '26. So, nevertheless, you also reported on some greenfield projects helping you to record what we haven't seen for quite some time, this kind of EBITDA level in the fourth quarter. And I think also on the full year, the 20.8% margin was rather unique over the past 4, 5 years, so to say. So, I wonder how should we think about mix effect into '26 and how margin is progressing in the Catalysts segment? This would be my first question. And the second one is on the cash flow in '26. You built up some working capital, quite sizable, in 2025, maybe a bit as a surprise here, talking also about phasing effects. So how should we think about the measures you are implementing and what you expect in '26 in terms of working capital? Conrad Keijzer: Yes. I will answer the question on margins and mix outlook for Catalysts and Oliver will provide some clarity on working capital movements. If you look at Catalysts and the performance that we saw, we're very pleased that indeed, new build that is out there that we're getting it. So that is, I think, very positive. So particularly on ethylene, there is actually a large project in Europe that is starting up actually early next year. And we see actually the first fill order for that coming in. So that's very positive. We also saw -- if you look at Syngas & Ethylene, we saw actually that both of these segments are performing well on refill. So, we have a full share on new builds. And if it's about refill, we think that on -- particularly on Syngas, we've gained some share. So, if you look at our margins, they are reflecting that as well. So, there is the very positive effects from the cost-outs also in Catalysts, but there's also underlying a structural improvement in mix. And what you see is in Catalysts with rising prices for metals, it is not an easy environment. You may have seen the profitability reports of some of our competitors that show EBITDA margins significantly down. So, we're actually very pleased with the results in Catalysts with a 21% EBITDA margin for the year. But to further step up the margin in a significant way in the year ahead of us, that is still requires a pickup -- that still would require a pickup in new builds. And that is not yet what we see for this year. We see that more for '27. Oliver Rittgen: Michael, on working capital and cash, let me first start from the broader picture, cash. I mean, we are very satisfied with the cash performance overall that we had in '25, 10 percentage points of cash conversion, up versus previous year. CHF 80 million better operational cash flow performance. And then indeed, we had a bit of a buildup in net working capital that we then also compensated with very disciplined CapEx management. So, that buildup in net working capital in the fourth quarter is also a bit related to the phasing of the sales pattern that we have seen in the fourth quarter. We had a very, very strong December in Catalysts, but also in Care with the aviation business. And I mean, obviously, with the payment terms that you have then on these sales, you have a bit of a buildup of accounts receivables. We also have slowed down on inventory buildup in A&A, which had an impact on accounts payable. So, we had a couple of effects at the end of Q4. What we have done independent of that particular quarter is that we initiated a cash program in Clariant, where we structurally will look into the different net working capital levers. It's an integrated approach across the business units. It's ingrained in the target setting that we have on a segment level. So, it's a clear focus area. You have seen it also with our triangle and to say growth, margin, cash. That's what we focus on. That is what drives our differentiated steering. So, there's a focus on net working capital and to drive that down in '26. Operator: The next question comes from Julia Winkelmann from Bank of America. Unknown Analyst: I was wondering, you finished the year ahead of schedule on your cost savings target and also achieved your cash conversion target already. Given this progress, do you plan to update your mid-term targets and perhaps also give an update on how to think about your capital allocation going forward given the stronger cash generation? Conrad Keijzer: Yes, Julia, that's a great question. And we are obviously very happy with and pleased with how we finished the year in terms of our EBITDA margin being up 180 basis points and our cash conversion being up 10 points to slightly over 40% conversion now. So, where we are versus the midterm targets is that indeed, for cash conversion, we have achieved these targets already. But it's fair to say that we still have a bridge from 17.8% to the bottom range, which was 19% to 21% EBITDA margin. I will say, we look at 3 years in a row now of improvements, annual improvement in EBITDA margins as well as absolute EBITDA. We came from 14.6%. We're now at 17.8%. That was certainly in a challenging market environment for us now to revisit the midterm targets, that's not on the agenda. We're very much focused on delivering them. So, we are very much focused to have all the levers in place to bridge towards the 19% to 21% EBITDA margin, and that is the differentiated growth strategy. It's repositioning the businesses to more profitable segments. It is finishing the cost-out program, as Oliver has alluded to. It is -- maintain pricing discipline. And with that, we think we have the levers in place in addition to a pickup in markets that we do anticipate for '27. So, we have all the levers in place to deliver the 19% to 21%. But yes, that is -- those are actually quite ambitious targets in the current environment. Operator: The next question comes from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: Two questions, please. The first is, could you maybe just run through your end markets and the trends and outlook that you see in those, so in agriculture, autos, construction, electronics, et cetera? And then, can I ask a general question about your views on the threat to European specialty chemicals companies from China? Do you still think that European chemical companies have sustainable moats in specialty chemicals? And to what extent are you seeing Chinese competition moving into specialties so far? And to what extent do you expect that to accelerate over the next 10 years? Conrad Keijzer: Yes, sure. These are important questions. So, first on end markets, what we are seeing. Well, first of all, let me start with Care Chemicals. We see, in general, the consumer-facing segments with a robust demand. So, if you look at Personal Care, Home Care, that is basically low to mid-single-digit growth with a bit more growth in Personal Care in the premium segments like skin care, hair care, but then really the premium, premium products, the level just under that, there is actually some downtrading, the so-called aspirational buyers. Home Care, very, very solid and robust; laundry, things like that. Crop Protection, we've had interesting years behind us. Last year, we had a strong year in Crop Protection, but that was really very much because the year before, we had still the destocking. So, it was also, let's say, some of the year-on-year comparisons. I think now we have a much cleaner comparison, and we should more trade in line with historic levels where we sort of slightly outperform GDP levels. Oil and gas, it's basically a relatively modest outlook right now. And oil prices, now they're up to $70 because of the geopolitical turmoil in the Middle East. But in reality, there's plenty of supply and more so than demand. So, it's not an environment with high oil prices or a lot of investments that we are seeing there. Mining continues to be positive, especially for items like copper and still lithium. Catalysts, yes, we still globally run 70% to 80% util rates. And for us, really to see new builds kicking in, we need to go first to higher utilization levels. I did mention China as one where '27, '28, '29, we are seeing new builds coming back in. But for this year, it is really a bottoming out year in Catalysts in our forecast. And finally, Additives and Adsorbents, what we see actually is relatively weak demand if you look at electronics and particularly smartphones, but that was already the case last year. So, actually, there's a certain level of maturity here with very low single-digit rates for growth for smartphones. PC production was actually quite nicely up last year. And we think that will continue to be relatively okay. And finally, if you look at our Additives business, end markets like furniture, we had expected a big recovery there last year already as consumers at some point should spend on durable goods again or semi-durables, but it hasn't happened yet. And for this year, so far, we are not seeing that either. And to finish it all off with Adsorbents, this is very much for us driven by renewable diesel now, sustainable aviation fuel. In Europe, there are the mandates in place. But in the U.S., we're still waiting for the endorsement by Congress for the new increased EPA targets, but that should come at some point in the year. So, overall, if you summarize it, it's a very modest sort of growth environment overall and with some differences by region. Maybe specifically on your second question on China and how is this impacting Specialty Chemicals. I think there is a big difference between commodity and petrochemicals on the one hand and specialty chemicals on the other side. In China, there is significant capacity being built up in local -- in recent years for commodity chemicals for petrochemicals. In specialty chemicals, we are not seeing that level of competition in China. I mean, this is based on IP that took decades to develop. And actually, what we see is that for our business, we make good margins in China, but there is a shift where we increasingly supply to local Chinese companies. And I think high level, the other big impact that China has is historically, Europe was exporting a significant part of its production into China, the same with the U.S. That has come down significantly, and China has become an exporter for some items, but not so much in specialty chemicals again. It's much more on the commodity side. Operator: The next question comes from Chetan Udeshi from JPMorgan. Chetan Udeshi: I just wanted to follow up, Conrad, on your comment on industry consolidation. And I'm a bit puzzled and also curious that we've not seen much happen already. For Clariant, and you've signaled openness to participate in any consolidation, but you have a very different business structure in the sense like you've got Catalysts business, you've got Care Chemicals, which is comprised of industrial plus consumer. And then, of course, you have Adsorbents & Additives. It just feels like the structure of the business is probably too complicated to see Clariant as an obvious candidate or initiator of any consolidation? I'm just curious how you think about that. Conrad Keijzer: Was it a question or an opinion that you were voicing, Chetan? Chetan Udeshi: It's a both. I mean, a bit of both. I think it's not just for Clariant. I'm just curious, is this a problem for the industry overall that there is no like pure-play company that is easy to buy or easy to sell, and that makes it quite complex for industry to consolidate. Conrad Keijzer: Yes. No, it's an important question that you're raising. So, if you look big picture where we came from is we were a hybrid. So, Clariant was both active in commodity businesses and in specialty businesses. And if you look at the recent years, we've really repositioned the business to become fully specialty. So, if you look at the recent, let's say, 5 years, what we did is in '22, we divested our pigment business, which we clearly saw that was commoditizing. By the way, it has indeed even further commoditized. So, I'm glad that we divested that in 2022. Actually, a year later, we divested our North America Land Oil business, which also was very much a commodity business. And if you look now, what we also did was we divested a part of our Care Chemical business, the commodity surfactants to Wilmar, and we put it in a joint venture there. So, we've done actually quite a bit in recent years to, first of all, get out of our commodity business, but at the same time, to strengthen our specialty chemical business. So, we did a number of smaller bolt-on acquisitions. We bought the cosmetic ingredients business in Brazil with Actives. We bought the green surfactant business in India. We did the purification business from BASF for renewable diesel, Attapulgite in the United States. And last but not least, the Lucas Meyer business, which really strengthens our position in Personal Care. So, what you see now is that we have leading positions in specialty chemicals in the segments where we compete. At the same token, what you also see, Chetan, is that we have year-on-year improved the profitability of these businesses. So, we rarely get the question asked, are you the right owner for this business as long as we just continue to improve the profitability and in fact, achieve leading profitability, both in terms of growth, in terms of margins, we have very sustainable positions in each of these segments because we are having significant market shares in the individual businesses. So, yes, that's, I think, sort of the summary from a sort of an M&A perspective where we are, and we remain interested to continue to do bolt-on acquisitions in these businesses, but only if they bring real synergy. Operator: The next question comes from Jaideep Pandya from On Field Research. Jaideep Pandya: First question is on Catalysts actually. What do you think is the longer-term outlook like when you look at the next 3 years, considering so many capacity shutdowns that have been announced in Europe and also sort of asset rationalization in China as well. So, what do you see as a longer-term outlook in Catalysts? That's my first question. And then the second question sort of is on the legal -- I apologize if you have answered this before or if you cannot go in details, but if you can give us some color at least on the legal situation around the ethylene cartel case. What sort of provision have you booked already? And any time line in terms of result that we could hear around this? And then, finally, just on the consolidation point, Conrad, I mean, from -- on paper, if I just sort of ask the question differently, what Chetan was, I guess, trying to ask, the obvious candidate for increasing your size would be in Care Chemicals. So, if there is a case to be presented, are you saying you could be aggressive enough to further pursue divestments of some of the other areas to pursue increasing size in Care Chemicals? Conrad Keijzer: Yes. Thank you, Jaideep. Yes. First, on your question on Catalysts and the long-term outlook, I think what is important to realize is that there has been a shift in production. So, Europe is -- has actually significantly come down in chemical production. CEFIC issued an interesting recent study that since 2022, a total of 37 million tons of capacity has been taken out of the market in Europe. That's roughly 10% of the overall capacity. Now at the same token, you have seen a buildup of capacity in China and to a lesser extent, in the Middle East. So yes, so there is a shift. If you look at the global outlook for Catalysts, it is actually a fairly robust business, even regardless of these shifts, these regional shifts. And if you look at the long-term outlook, petrochemicals historically, globally, has always performed at or above GDP. So that is still intact. The change is actually that there are some regional shifts. And therefore, it was for us extremely important to invest in China in Catalysts in our footprint, and we're very happy with that footprint now that we also have in China to support the local growth. So, in terms of long-term outlooks, the fundamentals are still intact at a global level. But yes, there have been regional shifts for sure. In terms of your second question on legal, yes, in terms of ethylene claims, at this stage, we cannot publicly comment any further than what we've already said. Clariant firmly rejects the allegations and will adamantly defend its position in the proceedings. And we do have substantiated economic evidence that the conduct of the parties did not produce any effect on the market. And yes, we are in litigation, so we cannot comment further on that other than your question on the provisions, we haven't taken any. And this obviously has been reviewed with our auditor, KPMG, and they are obviously of the same opinion, and you will see that in our integrated report also explained. Operator: The last question for today is a follow-up coming from the line of Thea Badaro, BNP Paribas. Thea Badaro: Just a quick follow-up for me. Specifically on the flame retardant business, can you quantify the size of the data center market opportunity for your flame retardant business? Conrad Keijzer: Yes. This is a very interesting question, and we just made a deep dive actually on data centers and to make sure that we capture all of the share that is out there when it's about our products. And what we are seeing is indeed that our flame retardants are benefiting from this. This is about the -- yes, our flame retardants for connectors, for switchgears, cable jackets. That is a part of it. There's also a part of it which sits in fire-resistant coatings actually, that are applied to the infrastructure of these buildings. But finally, and this is also quite important, our Catalysts business, we are really targeting data centers here as well. And this is first from a development perspective, but we're very happy that we also commercialized now the first application where we basically have a fuel cell technology. So, we have methane. We have basically gas, then we convert it to hydrogen. And then the hydrogen basically gets converted into water and electricity. And this is a climate-neutral, if it's biomethane, a climate-neutral solution actually, for decentralized and distributed electricity generation in the right -- high quantities that are necessary. So, there's other solutions. Nuclear is also mentioned. But particularly with the limited grid capacity, the solution will be power plants, small power plants in the United States and Europe has the same challenge. And with Catalysts, we're talking about a very interesting opportunity here, which already the first -- what we now commercialize is a few tens of millions already in revenue in the outlook that we have. The size for flame retardants combined right now globally is also in that order of magnitude. So, it is not moving the goalpost for the company as a whole, but we are seeing a nice upside from data centers. Andreas Schwarzwaelder: So, thank you very much. This is Andreas speaking. This concludes today's conference call. A transcript of the call will be available on the Clariant website in due course. The Investor Relations team is available for any further questions you may have. Once again, thank you for joining the call today, and have a good afternoon. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning and thank you for joining Bentley Systems Q4 and Full Year 2025 Results and 2026 financial outlook. I'm Eric Boyer, Bentley Systems Investor Relations Officer. On the webcast today, we have Bentley Systems Executive Chair, Greg Bentley; Chief Executive Officer, Nicholas Cumins; and Chief Financial Officer, Werner Andre. This webcast includes forward-looking statements made as of February 26, 2026, regarding the future results of operations and financial position, business strategy and objectives for future operations of Bentley Systems, Incorporated. All such statements made in or contained during this webcast other than statements of historical fact are forward-looking statements. This webcast will be available for replay on Bentley Systems Investor Relations website at investors.bentley.com on February 26, 2026. After our presentation, we'll conclude with Q&A. And with that, let me introduce the Executive Chair of Bentley Systems, Greg Bentley. Gregory Bentley: Thanks to each of you for your interest and attention. Nicholas will review the factors behind our stalwart 2025 operating results, and Werner will then provide our consistent 2026 outlook. So I'll take a longer-term perspective. First, as I hope we'll be welcoming some new investors, I'll begin with an update on Bentley Systems' financial fundamentals. With 2025 results, I can extend my previous review of our first 5 years as a public company to now focus on the years since pandemic disruptions. Our business model prioritizes durability and visibility. Our key metric, annual constant currency ARR growth has been reliably sustained in the low-double digits since 2022. This business performance measure excludes the ARR onboarded with our major platform acquisitions, Seequent and Power Line Systems. In 2025, the portion of this growth from smaller programmatic acquisitions was at a low of under 40 basis points. During the earlier of these years, rates of inflation as shown here for the U.S. were significantly higher. So in ex inflation real terms, our ARR growth has been more than maintained. Reflecting our standing commitment to annually improve profitability as we gain efficiencies, especially from our 94% direct sales motion, our adjusted operating income grows faster than revenue. As we regard stock-based compensation as fungible with cash, our key profit measure is AOI less SBC. Having institutionalized annual improvement of about 100 basis points in margin, since 2022, we have compounded AOS (sic) [ AOI ] less SBC dollars at over 16% per year. Our straightforward revenue recognition primarily ratable and almost never for multiple years and annually prepaid subscriptions make free cash flow also predictable though subject to variations in working capital, taxes and interest. With such factors having been favorable in 2025, our free cash flow margin reached 35%. However, cash flow isn't truly free to the extent it must be allocated to offset share dilution from stock-based compensation. Our truly free cash flow margin, that is less SBC, reached 30% in 2025. For valuation benchmarking, one must reckon per share. Our fully diluted share count has been substantially constant including punitive dilution from the convertible debt that funded our platform acquisitions. But last month, we retired the maturing 2026 convertible debt as will presumably occur again next year, reducing our fully diluted share count by about 3%. And having reached a satisfactory target range of about 2x, we have completed delevering since the platform acquisitions and can now allocate more of our cash flow generation towards scaled up programmatic acquisitions. The consistent 2026 financial outlook Werner will present, reflects our confidence in both our robust end markets and in sustaining our execution fundamentals. But market perceived risks of AI interloping seem to have discounted our value thereafter to nearly terminal. In fact, for Bentley Systems, AI is not a risk to be countered but an unprecedented opportunity. Distinctive fundamentals of infrastructure engineering serve substantially in our favor. As the industry's established and trusted digital quartermaster, we are best positioned to catalyze with infrastructure engineering organizations, the value to be realized by taking full advantage of AI's potential to transform the substance of their work. Over 42 years, our key advantage has been providing continuity across technology generations, something highly valued for long-lived infrastructure projects, assets and engineering careers. Based on our actual experience over these decades, enabling and then encouraging progress from CAD to BIM to digital twins, the faster AI and its integration improves, the better for Bentley Systems. The deliberate pace of technology adoption in infrastructure and engineering is rooted in legitimate prudence. Each of our lives and much of their quality depends on vital infrastructure, meeting standards for safety, resilience and fitness for purpose. This is why specific to public infrastructure, regulatory regimes variously require a licensed professional engineer to personally seal project deliverables, vouching under penalty of law and of liability that they supervise the work. This requirement cannot be met by casually adopted unproven AI tools. Institutionally and contractually, project collaborators across engineering disciplines must adhere to formally structured interactions and data formats. Owner operators and engineering enterprises mandate strictly approved tool sets for interoperability and quality assurance. In this world, do-it-yourself AI tools without years of vetting would confine and engineer to trivial work at their own risk. From a practical standpoint, the nature of our applications is unlike the administrative software now suspected to be vulnerable to AI replacement. Like other professionals, infrastructure engineers do use administrative software but not from Bentley Systems. Our applications are virtually devoid of the forms, transactions and text that characterize administrative work. The screen capture as you see here, include, by the way, a data center site as typically construction modeled by DPR construction, a world leader in virtual design and construction. Infrastructure engineering is performed through immersive, interactive, 3D geospatial modeling experiences like these with almost all projects juxtaposed within real-world brownfield environments. Their design requires all context all the time while orchestrating complex algorithms and simulations. And while engineering is a creative profession, unlike other 3D creators, an engineer cannot be satisfied with the notional abstractions of mere visualization, often what can't be seen is most important. Precision is paramount with zero tolerance for approximation, let alone hallucination. Beyond the confidentiality required for physical and cybersecurity of essential infrastructure, their designs constitute the valuable intellectual property of engineering firms and their owner-operator clients as by far the long-standing primary system of record for infrastructure design, all data managed through project-wise within Bentley Infrastructure Cloud is strictly proprietary to the engineering organization. We responsibly steward this complex engineering data for their authorized use only, including for AI training. There is no such credential data publicly accessible to be script for such training. In any case, our users' economic incentives to seek alternatives are perhaps surprisingly mild. Though mission critical to produce, capture and deliver an engineer's work, our software costs on average per user day, only about 3% of that user's burdened daily labor cost. This low substitution rate of technology for labor compared to other industries is likely rooted in owner-operators archaic norm of paying by the hour and often based on low bid for engineering services, perversely disincenting advances in productivity. Spurred by now chronic shortages of engineering capacity, I believe that AI is poised to transform infrastructure engineering business models to finally compensate not for man-hour inputs, but for better quality outcomes. All votes will be raised, but especially software and computing spending per engineer with AI agents automating design optimization. Engineers could, of course, improve their designs without automation to the extent they would be allowed time to explore more iterations. But with the current technical norm of attended consumption, compounded by the current commercial norm of hourly billing, budgets rarely afford such repetitions. AI can break through this bottleneck by enabling an engineer's AI agents to automate the workflow of systematically permuting the engineer's initial design over a many-dimensional solution space, for instance, varying geometry, dimensions, materials, capacities, utilization and so forth. As a start for this, we are already providing Copilot AI for users to create from natural language, scripts that run against the APIs of some of our applications. Through many more APIs to be instrumented across our portfolio, these automation agents will headlessly invoke our proven modeling and simulation functionality and a heuristic search strategy to converge to qualified superior alternatives for the human-in-the-loop to subjectively assess. But consider that AI could extend design optimization even further. For example, to reuse proven components from past projects and to minimize construction effort, schedule and risk. The potential incremental value of such optimization can reach a very significant portion of infrastructure projects, total installed cost, which together is literally in the trillions of dollars annually. Owner operators will willingly pay more for designs accordingly AI optimized for quality. Project delivery teams finally will be able to expand beyond the current constraints of engineers' time and will compete to generate value by leveraging their IP in AI agents and in proprietary project and asset data. For our part, Bentley Systems will, in due course, incrementally monetize API consumption on a scale orders of magnitude greater than that of continuing attendant consumption. But a quite immediate opportunity already open for us is to apply AI and digital twins toward optimizing the operations and maintenance life cycle of assets. This is a committed priority of Bentley Systems' new management generation. Our comparatively small proportion of revenue from asset performance to date in relation to years of investment shows how slow this had been to significantly grow. But more recently, in conjunction with fast improving reality capture technologies ranging from drones through dash cams, AI has enabled instant on digital twins. Our asset analytics strategy accelerated by year-end acquisitions reached the $50 million run rate milestone for asset consumption revenue in 2025. Our progenitor OpenTower iQ continues its leadership with ARR now in 8 figures. It exemplifies our winning strategy, uniquely combining market-leading digital twin creation with best-in-class engineering simulation. Blyncsy for roadway operations also had a breakthrough 2025 and is now being piloted by many departments of transportation. Hawaii announced a statewide commitment including providing dash cams to drivers to extend coverage. Alabama is using Blyncsy to improve decisions on maintenance and capital project spending. Our 2 acquisitions were strategically complementary. We acquired the assets of Pointivo, whose R&D and valuable patent portfolio, extend our asset analytics platform in new directions. Pointivo software has been broadly applied for advanced AI-based point cloud processing, automated measurement and condition analysis and inspection workflows. And we acquired Talon analytics, the leader in asset analytics for telecom and utilities, with capabilities proven at the level of 8-figure contracts. Talon originated drone capture for wireless structures and evolved its AI-based software to expedite construction completions and ongoing maintenance. Talon already relied on our iTwin Capture for engineering-grade digital twins. Recently, they collaborated with integrated grid utilities to pioneer AI-based digital twins for electrical distribution poles to automate the structural analysis for hundreds of thousands of poles we help Talon to implement API consumption of our SPIDA simulation software. To gauge the potential for this, the U.S. alone has 180 million distribution poles. And for each digital twin inspection and simulation, our Talon asset consumption revenue is in low-double digits. By law, distribution pole inspections are required only every 5 years, which is a reason that classification as ARR is not obvious. The best outcome is for digital twins and AI to make annual monitoring affordable and effective. The next opportunity for our expanded asset analytics platform is to leverage Power Line Systems simulation to improve resilience of electrical transmission tower capacity. That's the infrastructure most needed for AI computing to grow. For API consumption, we are now prioritizing propagation. But I consider that the progression we've just talked about from Talon's 7-figure API usage to our mid-8 figures of asset consumption revenue to be representative of our potential to monetize AI at scale. By virtue of Bentley Systems majority family ownership, our compass has always been set to benefit the long term. Our solid financial fundamentals and our directly relevant organizational experience equip us to tolerably bear the marginal risks and volatility inevitably associated with these increased AI investments and ambitions. My assessment is that AI transformation for infrastructure engineering augurs better times than ever for Bentley Systems. Here's to 2026 and beyond. And now over to Nicholas. Nicholas Cumins: Thank you, Greg. Building on the context you've provided for AI, I want to start today by outlining our strategy, the significant progress we made in 2025 and how we plan to execute on it going forward. Our approach is twofold. We are not only embedding our own AI capabilities into our products but also instrumenting our platforms, so our users and partners can build their own AI-driven workflows. We're investing in AI across our entire portfolio. But for this conversation, I want to focus on 3 key areas that are central to our business and represent a comprehensive and principal approach to infrastructure AI. First, in Bentley open applications, we're leveraging AI to enhance the work of engineers. This includes leveraging AI to automate interactions with our applications such as the python assistant for MicroStation, automate time-consuming design tasks like generating drawings annotations for OpenRoads and even optimize entire designs as seen with the site layout optimization in OpenSite+. Just as importantly, our applications serve as a critical environment where AI recommendations are not just tested but continuously optimized. This is not a single pass fail gate. It is an iterative process where software is used continuously improve the AI orchestrated design, ensuring it becomes progressively more sound. This process naturally drives greater consumption of our applications core engineering capabilities as they become central to the AI-driven design workflow. Second, Bentley Asset Analytics, which Greg spoke about, uses a 2-step process. It leverages AI, primarily computer vision, to process imagery and detect features on an asset. It then uses Bentley Open Applications to understand what those features mean from an engineering perspective. For example, can a tire safety take on more load. The output is actionable engineering intelligence that an AI workflow can then use, for example, to automatically trigger remediation work in a third-party EAM system, like IBM Maximo. Third, Bentley Infrastructure Cloud serves as the data foundation for AI. This is where the world's leading engineering firms manage the design files for their current and past projects, primarily using ProjectWise. Our iTwin technology provides the capability to access data from countless file formats and systems and map it to our base infrastructure schema, making it ready for AI. This unlocks tremendous potential. It allows engineers to search past project data using natural language. It will enable our users to fine-tune our AI models with their own proprietary data or even train entirely new custom models. We envision in not-so-distant future where Bentley copilots drawing on an organization's past projects stored in Bentley Infrastructure Cloud can proactively recommend the best design components. And crucially, as Bentley Infrastructure Cloud maintains a digital thread through operations, it will be able to surface invaluable performance data from the field. This will allow users to understand how designs created before have held up over time, providing a historical evidence-based foundation to inform and derisk the next generation of designs. But leveraging historical data is only the first step. The true power of our integrated platforms comes to life when Bentley copilot itself becomes an optimizer. Imagine it not only recommending that proven component, but then offering to reduce its carbon footprint using iTwin capabilities, refine its foundation with PLAXIS, optimize its structure with STAAD and ensure its constructability with SYNCHRO. That is the unique compiling power of a truly integrated platform for infrastructure AI. Finally, all of this is built on a principal approach to data. Data ownership is a critical topic in infrastructure. What makes us distinct is our unwavering commitment to data stewardship, a principle we first articulated in 2023. Our users and only our users decide if and when their data is used to train AI models. To enforce this, we provide a data agreement registry, where an account can formally correct or revoke its consent to have its data included in AI training sets, ensuring they remain in full control. I want to be clear about our commercial approach to AI as it is intentionally different across the portfolio. With Bentley Asset Analytics, AI is applied to mature operational needs where it delivers tangible ROI. Our focus there is rightly on driving revenue growth. For the foundational area of AI in design, however, we are playing a longer game. These are still early days for applying AI to mission-critical engineering. Therefore, our immediate priority is to lead the exploration for the highest value AI-powered workflows while at the same time, building the market and driving their adoption rather than focusing on direct monetization. As the infrastructure engineering software company, we believe it's our responsibility to lead this transition thoughtfully. This means actively engaging across the entire infrastructure ecosystem. From our deep collaborations with engineering firms and owner operators, to policy discussions with government bodies and partnerships with other technology leaders, we are helping to establish the standards and trust necessary for this technology to be adopted safely and effectively. Through these efforts, we are building the foundation of usage and trust first, confident that monetization will follow as these new AI powered workflows mature and prove their immense value. So that is a strategic foundation we are building for our next phase of growth. Now turning to our results from the fourth quarter. Our performance shows the continued strength of our established business today. We delivered a strong finish to the year, and that momentum gives us confidence in our 2026 outlook, where we aim to deliver another year of compounding results within our financial framework. I want to thank all of our colleagues for their dedication and hard work and our users for their continued trust. Q4 ARR increased 11.5% year-over-year, which was a solid increase from Q3 as we expected. Net revenue retention was stable at 109%. E365 performance remained steady, and we added 300 basis points of ARR growth from new logos once again, primarily within the SME segment. For the 16th consecutive quarter, we added at least 600 new SME logos through our line store, with retention in this segment remaining high. Turning to our total business by infrastructure sector. Resources was once again our fastest-growing sector. The standard growth of Seequent is expanding our addressable market into critical resources, a domain that includes mining as well as new energy sources and groundwater. The performance of Seequent, even during the recent mining slowdown, demonstrates the resilience of its business model, which is deeply embedded in operational workflows rather than cyclical capital projects. As market conditions in mining continue to improve, we are confident Seequent will remain a key growth engine for us in 2026 and beyond. Our largest sector, Public Works Utilities, delivered another quarter of strong growth, driven by sustained global infrastructure investment and the standout performance of Bentley Asset Analytics. Power Line Systems also continues to be a key growth driver, benefiting from global demand for grid resilience and increased power generation. Growth in the industrial sector was solid, while commercial facilities remain relatively flat. Turning to our total business by geographic region. Our largest region, the Americas, saw another quarter of strong growth. This was driven by a favorable macro backdrop for infrastructure investment that we expect to continue into 2026. The U.S. market remains healthy with stable public funding, ensuring that project backlogs remain large, and engineering services firms busy. We also see our accounts already at capacity, capitalizing on the large private sector investments in data centers, driven primarily by demand for AI computes. Even though the core design work is more akin to building design, the immense strain these projects place on the local infrastructure, in particular, the power grid and water network, creates a sustained tailwind for a broad portfolio of infrastructure engineering applications. Beyond infrastructure, the U.S. administration's announcement of Project Vault, a $12 billion investment to establish a strategic reserve for critical minerals, is a clear signal of a broader global trend, the imperative to secure domestic resources, which in turn drives the mining activity that benefits Seequent. Growth in EMEA was once again led by the Middle East. We expect this exceptional performance to continue in 2026 as investments there shift towards transportation, utilities and mining, playing to our strength even more. Europe delivered a strong quarter with infrastructure clearly remaining a top priority for the EU. This was evidenced by several policy initiatives published in Q4, targeting key strategic goals, energy transition, transport connectivity and supply chain security. The U.K. was softer in Q4, reflecting the tail end of project pauses from earlier in 2025. However, looking ahead into 2026, the pipeline for design and engineering work is improving significantly. For instance, we were very encouraged by last month's green light for Northern Powerhouse Rail. This adds another multibillion pound project to the design pipeline alongside massive engineering efforts now underway such as Sizewell C. In Asia Pacific, India delivered solid growth. The long-term outlook here remains strong. In addition to ongoing investments in transportation and the world infrastructure, the country's 2047 vision calls for a massive investment in grid modernization to provide power for all. With Power Line Systems as the industry standard for transmission engineering, we are uniquely positioned to help. China, which represents approximately 2% of ARR, continue to be impacted in the quarter by the economic and geopolitical headwinds, which are likely to remain through 2026. Growth in Australia is showing signs of recovery as headwinds from government changes and a pause in transportation projects subside. We expect stronger growth in 2026 driven by a resurgence in the mining sector and new infrastructure projects related to the Olympics. All in all, we are very pleased with the continued strength of our business, and we are well positioned with a great foundation and strategy to help the infrastructure ecosystem, leverage AI to deliver even better outcomes. And now for a detailed review of our financial results and outlook for 2026, over to you, Werner. Werner Andre: Thank you, Nicholas. We are pleased with our finish to a solid year of financial performance, which marks a strong close to 2025. We delivered strong financial results for both the fourth quarter and the full year. For the full year 2025, total revenues were $1.502 billion, growing 11% on a reported basis and 10% in constant currency. For the fourth quarter, total revenues were $392 million, an increase of 12% reported and 10% in constant currency. The primary driver of our growth continues to be our mainstay subscription revenues. For the full year, subscription revenues grew 13% reported and 12% in constant currency. This strong growth continues through year-end with fourth quarter subscription revenues also growing 13% reported and 11% in constant currency. Subscription revenues now represent 92% of our total revenues, up 2 percentage points from 2024. Our E365 and SMB initiatives remain solid contributors with E365 now comprising 45% of our subscription revenues, an increase from 42% in 2024. Our smaller and less predictable revenue streams performed as we signaled during the year. Perpetual license revenues were essentially flat for both the quarter and the full year. For services revenues, the full year decline of 6% reported and 7% in constant currency was consistent with expectations. The fourth quarter saw a modest increase of 4% reported and 2% in constant currency. Last 12 months recurring revenues increased by 12% year-over-year and represent 93% of our total revenues, up 2 percentage points year-over-year. Our last 12 months constant currency account retention rate remained strong and consistent at 99%. Our constant currency net revenue retention rate remains at a strong 109%. The combination of our high retention rates and new business momentum gives us confidence in the continued durability of our recurring revenue growth. Now turning to ARR. We ended Q4 with ARR of $1.462 billion at quarter end spot rates. On a constant currency basis, our ARR growth rate was 11.5% year-over-year. The sequential quarterly growth of 4% was in line with the expectations we set in Q3, reflecting our typical fourth quarter seasonality and the timing of anticipated asset analytics deals and programmatic acquisitions. For the full year, M&A contribution to our ARR growth was less than 40 basis points. Turning to profitability. Our GAAP operating income was $79 million for the fourth quarter and $363 million for the year. I've previously explained the impact on our GAAP operating results from deferred compensation plan liability revaluations and acquisition expenses. Adjusted operating income less stock-based compensation was $94 million for the quarter, with a margin of 24.1%. The strong quarterly margin expansion was in line with the OpEx seasonality we discussed in our last call. For the full year, adjusted operating income less stock-based compensation was $430 million, up 16% with a margin of 28.6%. This represents 110 basis points of margin improvement year-over-year, in line with our full year outlook. Our free cash flow generation for the year was very strong, totaling $520 million, up 24% year-over-year. The fourth quarter, in particular, significantly exceeded our expectations, driven by continued strong collections and effective working capital management. While we are pleased with this result, please note that Q4 is our largest renewal quarter, but the timing of collections can introduce variability across calendar years. We maintained our disciplined and balanced approach to capital allocation. In 2025, we invested $93 million in acquisitions, while strengthening our balance sheet by paying down $135 million in bank debt and repurchasing $10 million of convertible notes. We also delivered substantial returns of capital, deploying $157 million for share repurchases and $85 million for dividends. Our balance sheet provides significant strategic flexibility. At year-end, our $1.3 billion revolver remains undrawn with access to an additional $ 500 million accordion feature. And we reduced our net debt leverage to a healthy 2.1x, a 4-year low. Our current leverage range and cash generation affords capacity to fund dividends and ongoing share repurchases and up to $400 million in programmatic acquisitions annually. Subsequent to year-end, we retired our 2026 convertible notes at maturity, utilizing available cash on hand and approximately $600 million from our revolver. Retiring this convert reduced our fully diluted share count by approximately 3%. While this repayment shifts our debt profile, we continue to actively manage our interest rate exposure. We have safeguards in place, including the low fixed coupon on our remaining convertible notes and a $200 million interest rate swap expiring in 2030. In summary, we entered 2026 from a position of strong financial fundamentals. This provides the foundation for our outlook which builds on our long-term objectives of durable low-double-digit ARR growth, continued annual margin expansion and strong free cash flow generation. For 2026, we expect our total revenues constant currency growth to be in the range of 11% to 13%. At current exchange rates, this translates to total revenues in the range of $1.685 billion to $1.750 billion. Our mainstay subscription revenues which comprise 92% of our business are expected to grow between 11% and 13% in constant currency. In our smaller revenue streams, we expect a reacceleration in our service revenues with constant currency growth between 15% and 20%. This is attributable to increased scale of our Asset Analytics business as well as strong order book for our Cohesive Maximo business. We expect perpetual license revenues to remain relatively flat. Turning to our primary metric of business momentum. We are projecting constant currency ARR growth between 10.5% and 12.5%, reflecting momentum in our established business and that upside from our AI-powered Asset Analytics initiatives isn't necessarily annual recurring. Now turning to profitability. Our long-term financial framework includes a commitment to deliver approximately 100 basis points of operating margin improvement annually. Historically, our margin percentage has had a natural hedge against currency fluctuations. However, as our business mix has evolved primarily with the growth of Seequent, which builds globally in U.S. dollars, but has significant cost in other currencies, our exposure has shifted. While a weakening U.S. dollar can now create a headwind to our reported margin percentage, it also provides greater stability to our margin in absolute dollars. To reflect the shift towards increased stability of our absolute profit dollars, we will now provide our profitability outlook as a dollar range. Before I provide that range, I want to note one final refinement to our primary profitability metric. Going forward, our focus will be on adjusted operating income less operating stock-based compensation. This changes for consistency. Our metric has always excluded cash-settled acquisition-related stay bonuses, and this refinement simply aligns the treatment for equity-settled stay bonuses, which could become more significant. This removes M&A-related volatility from a key operational metric and results in an approximate 50 basis point increase in the calculated margin compared to the prior definition. For 2026, we expect adjusted operating income less operating stock-based compensation expense to be in the range of $495 million to $510 million. This incorporates our annual improvement commitment of approximately 100 basis points in constant currency, applied to the new baseline and offset by the 50 basis point FX headwind at current rates versus 2025. We expect our effective tax rate for 2026 to be approximately 21%, consistent with 2025. Finally, turning to free cash flow. For 2026, we are projecting a range of approximately $500 million to $570 million. The wider range directly reflects the timing variability of collections in our large fourth quarter. The midpoint of this range continues to represent very strong operational cash generation. However, the year-over-year growth is moderated as a direct result of repaying our 2026 notes, which will result in an approximate $30 million cash interest outflow compared to a negligible amount in 2025. We expect that approximately 45% to 50% of our free cash flow will be generated during the first half of 2026. To help with your modeling, we expect our quarter-over-quarter ARR growth rate to be similar to 2025, which will cause year-over-year ARR growth rates to be relatively stable throughout the year. Similarly, we expect our revenue seasonality to be comparable to 2025, while operating expenses we plan to invest earlier this year, which will result in spend being more weighted towards the first half and less concentrated in the fourth quarter. I also include here on this slide additional expectations on CapEx, interest expense and cash interest, cash taxes, total and operating stock-based compensation, operating depreciation and amortization, outstanding shares and our unchanged dividend. And with that, over to Eric to moderate Q&A. Eric Boyer: Thanks, Werner. Before we begin, I want to point out for your modeling purposes, we have included the historical adjusted operating income less operating SBC reconciliation on Page 47 and 48 of our Q4 presentation, which you can find on our IR website. [Operator Instructions] Our first question comes from Matt Hedberg of RBC. Matthew Hedberg: Congrats on the year, and it seems like there's a lot to be optimistic for in your 2026 growth outlook. I'm curious -- and I appreciate the -- all of the focus on AI at the start of the call, it's obviously topical for every investor in terms of how AI could potentially drive upside to growth. And it really does feel like you guys are well positioned there. Taking a step back, and realizing you did some smaller acquisitions to end 2025. What do you see as the most important elements that could push constant currency ARR growth closer to that higher end of the range? It feels like there's a number of opportunities. And is AI one of those? Gregory Bentley: Well, AI is contributing now in the form of asset analytics and faster growth in asset analytics than elsewhere. The caveat is it isn't necessarily growth in ARR because we don't yet classify it as annual recurring in all cases. That's simply because the inspections for many types of infrastructure assets are not done every year and regulatory requirement is not annual. We want to make it annual with the favorable economics of automated AI-based asset analytics. But that's a process over time. So AI will goose our asset analytics revenues, it takes time for that to come into ARR per se. Eric Boyer: The next question comes from Jason Celino from KeyBanc. Jason Celino: All right. Thank you. Sorry, it looks like I froze a little bit. Gregory Bentley: I can hear you though, Jason. Jason Celino: So Interesting comments on kind of leverage and M&A potentially, it looks like leverage is down to more optimal level. And I think you said annually, you're open to $400 million of programmatic acquisitions. Is that $400 million consistent with what you've been open to in the past? I know you've closed much lower amounts based on your cash flow statement. So are you messaging that we could see like a pickup in tuck-ins going forward? Gregory Bentley: Well, over the past several years, while we've had higher leverage, we've been particular to focus on asset analytics opportunities. And there we're fussy, but we've closed the ones we've cared most about. There are others of those. But now with leverage down to where it is, we are expanding our -- where we're open in M&A to beyond asset analytics potentially. And it's not that we're necessarily trying to do $400 million in annual acquisitions. But even if we did as much as $400 million, it wouldn't increase our leverage from where we are now. Eric Boyer: Next question comes from Joe Vruwink from Robert W. Baird. Joseph Vruwink: Okay. Thanks for the time today. Digital twins seem to be coming up more and more just even within the last 6 months. I know this has never been a buzzword frequently, it's a practical application and you talked today about how there's data and applications around the strategy when it comes to you. But I'm wondering if all the attention this is now seeing in digital twins as kind of a foundation for physical AI projects. Is that opening up pipeline? Or are you finding it's becoming easier to fund digital twin projects at the type of account that may be hesitated in the past just now that they're getting inundated with this messaging and you're certainly bringing tangible use cases that can be referenced back to them? Nicholas Cumins: We're making the investments into digital twins as easy as possible because our products themselves are leveraging the digital twin technology, meaning processes that before were powered simply by files are now powered by digital twins. So if you're going to do a design review right now, the technology to actually enable the design review to be able to combine perspectives from different engineering practices is actually the digital twin. If you're going to do a 4D model of the construction project, then the technology you're going to use to do that is also a digital twin. And then if you're going to do an inspection of an existing asset, the technology that enables to do that is also digital twin. So it's basically happening without the accounts necessarily being aware of it, because it is a technology which is underlying our products across our portfolio now. Eric Boyer: The next question comes from Siti Panigrahi from Mizuho. Sitikantha Panigrahi: Great. I want to ask about the macro, mostly demand environment and infrastructure and budgets. So what have you assumed in your guidance in terms of macro? You talked about some of the trends. But the last few years, we have seen some kind of slowdown in the construction. Are you seeing any kind of changes in infrastructure owner operator budgets right now or any kind of delayed projects or elongated sales cycle? And if I may, can you clarify any kind of revenue contribution from those 2 acquisitions in Q4 or in '26? Nicholas Cumins: In the macro environment, we are assuming for 2026 is remarkably consistent with what we've seen in 2025, yes. So look, on our side, the only area where we've seen a slowdown over the past few years was really the sector of facilities and commercial facilities, basically buildings, but all the other sectors have been -- have grown very well. So resources, which goes beyond infrastructure, was again our fastest-growing sector in Q4. But Public Works Utilities, which is the biggest sector we have, again, strong growth in Q4 and even industrial was solid. So that's why we're actually assuming for the rest of the year for 2026, which is a consistent demand environment. Gregory Bentley: Something that's different is China, quite apart from the geopolitical aspects is slowing down. And to your second question, we don't ever break out revenue from acquisitions. We do show the -- because it's easy to capture the onboarded ARR from platform acquisitions, but not the revenues. Eric Boyer: The next question comes from Kristen Owen from Oppenheimer. Kristen Owen: Thank you for the question. I wanted to ask about your assumptions on the services revenue recovery in your 2026 guide. How much of that is being driven by some of the unique aspects of this asset analytics sort of early revenue stage versus a recovery in some of that core Maximo related business? Just help us understand your drivers there. Nicholas Cumins: Yes. We've seen definitely an improvement of our services business related to IBM Maximo. And that is the bulk of our services revenue. So it's really good that the investments in upgrading actually to the newest version of Maximo MAS, MAS 8 and 9, has definitely resumed. And that started, let's say, towards the middle of 2025 and then carried over. And that's what we expect also for 2026. Gregory Bentley: The Asset Analytics acquisitions do bring us some data acquisition services but minimal. And our intention is further to minimize that. Eric Boyer: The next question comes from Jay Vleeschhouwer from Griffin Securities. Jay Vleeschhouwer: Nicholas, I'd like to follow up on something we talked about a quarter ago on the subject of your product development and product releases and the sequel question is at Amsterdam at the conference, you talked about new packaging that would be forthcoming, presumably this year. Could you talk about that and whether the new packaging is it all baked into your guidance for 2026? Nicholas Cumins: It definitely baked in because the new packaging was actually released in Q4. It is related to the announcements we made at our annual conference of Connect as the entry point to Bentley Infrastructure Cloud. And behind the introduction of Connect, there was a repackaging of ProjectWise in particular, to simpler, easier to understand and consume tiers. Now the -- we're getting a lot of positive feedback, and we got it already in Q4 about the new packaging because of its simplicity. Connect itself is getting very quickly adopted. Some of Connect comes from an older product we had called ProjectWise 365 and about 50% of the active projects in ProjectWise 365 have already been migrated to Connect. So it's really picking up quite a bit of momentum, which is fantastic. But the packaging of -- and the new packaging of ProjectWise, in particular, is really resonating with accounts because now they have a much easier access to advanced capabilities such as design review or constructibility review or clash detection. And it's made available to a much larger user base on our side. And our thinking is this is going to translate into higher consumption of those capabilities and is going to support our growth going forward. Eric Boyer: Next question comes from Faith Brunner from William Blair. Faith Brunner: I wanted to ask about the future of AI on the design side. You guys talked about you're playing the long game here. So maybe talk to us about how you're leveraging your network and customer base to really start designing this road map. Nicholas Cumins: We definitely are not designing a road map in an ivory tower. We're doing it in conjunction with our accounts. Whether they are engineering services firms or owner operators, and we make sure that these accounts that we're engaging with are as representative as possible of our markets. And we are building. And I will say, 42 years of trust. Greg is using this expression of digital quarterback. That is 42 years of us being the digital quarterback of infrastructure where we've helped engineering spaces firms and owner operators successfully navigate through multiple paradigm shifts from CAD to 3D, from 3D to 4D and digital twins and now with AI. So when we gave an update on the road map at our annual conference, we also announced a co-innovation initiative called infrastructure.ai. And in the context of this initiative, we are talking with our accounts on how we need to evolve. The most fundamental part of our portfolio are engineering applications, both technically and commercially in order to support AI-driven workflows. We have very strong engagement, a lot of excitement, and this helps prioritize actually which are the first APIs beyond the ones we already have that we need to enable in order to support these workflows going forward. However, as we explained in the prepared remarks, we're very clear that indeed this is going to take a while because of the peculiarities of the infrastructure sector for this kind of technology to be taken up. And therefore, focus is very much on adoption, more than monetization at this point in time,. But we're absolutely sure that as that technology gets adopted and as value is really created and appreciated that we'll be able to capture the fair share of that value. Eric Boyer: The next question comes from Blair Abernethy from Rosenblatt Securities. Blair Abernethy: Nice quarter. Nice way to end the year. Just on the asset analytics business, with these new acquisitions as well and more to come as you're suggesting, what was the go-to-market approach here? Is it still -- is it really just Bentley driven? Or are there -- I think, Greg, you and I have talked in the past about engineering partnerships or working with the large global engineering firms to try and develop a service revenue for these guys -- recurring revenue for these guys. Is that still in the works? Or just maybe an update on how you see the go to market on asset analytics. Gregory Bentley: That is the outcome intended that we will through our asset analytics platform, if you like, white label that engineering firms who will bundle it with substance of engineering services in their own IP-driven AI so that when a problem is detected, the remediation is part of their own know-how and their own recurring services. We think that's something we share an objective with the engineering firms in doing that. But in the meantime, there's such a opportunity on the ground floor to get established from one asset type to another, as we mentioned, distribution poles and next transmission towers are going to be strong for us this year, and we are tending to get ourselves established there directly to start with. Eric Boyer: Next question comes from Alexei Gogolev from JPMorgan. Alexei Gogolev: Greg, are you seeing the long-term ownership debate being impacted by the AI disruption dynamics? What I mean is, has it become incrementally more tricky to do a deal in light of this current uncertainty? Gregory Bentley: By deals, do you mean M&A deals? Alexei Gogolev: More kind of your deals with large corporates, large customers. I'm guessing not from the ARR growth dynamics that you are posting. And it seems like the market has overreacted for a lot of stocks, including Bentley, but what are you seeing on the ground? Gregory Bentley: Well, you've heard me before, measure carefully the annual escalation baked into multiyear cap and floor extensions. And that hasn't shown any proclivity to worry about AI displacement. The engineering firms would -- are glad to budget spending more for technology. I think they are as poised as we are to benefit from the transformation in business model when the owner operators pay more for intellectual property through AI than for the powers of execution. And that inflection still lies ahead. But in the meantime, there's no lack of confidence as measured by our visibility into the out years of the floor and ceiling brackets that I carefully monitor. Nicholas Cumins: We understand, we are, again, very early stage with respect to AI, especially when it comes to design. Asset Analytics, that's different. But when it comes to design. And I will say AI is a source of a lot of excitement and exciting conversation with our accounts. So what I can say is that it is helping us actually. For example, our commitment to data stewardship makes us quite distinct from other players out there. And for engineering services firms and also on operators to understand that if they're going to use our platform that their data remains their data always. And we're not going to use it to train our own AI without their explicit ask actually, is really resonating, right? So it's -- AI is an opportunity to have a longer-term strategic conversation with accounts and for them to understand. And I appreciate that indeed, they are -- they have the right partner in Bentley Systems. Eric Boyer: The next question comes from Daniel Jester from BMO. Daniel Jester: Great. It's on Seequent. You highlighted fourth quarter improvement there. And if I go back, it looks like 2025, you saw pretty consistent improvement there. Maybe stepping back, if you look historically in the business, so we've got into an up cycle in minerals, metals and mining and the like, how has that in the past affected performance of the business? And if we do see this continued cyclical improvement, what are the levers to drive sort of maybe incremental revenue or opportunities for you? Nicholas Cumins: Of course. So what we've seen is starting a couple of years ago, actually, a slowdown in big capital investments for the exploration of new mines or for major expansions to existing line. And this was related more to the overall financial environment in which mining companies have been operating with inflation rate high, with interest rates high, basically making it quite expensive to raise capital. And this has improved through 2025. And that's why we're very -- I would say, cautiously optimistic about mining in 2026 and beyond. There is clearly an upward trend here. Now what has been remarkable with our Seequent business is that even during this slowdown of mining over the past few years, it continues to grow faster than the rest of the company. And that speaks a lot to the resilience of their business model. It's not so dependent on capital investments because their software is used in day-to-day operations of mines, also of energy plants if we can -- if you want to talk about geothermal. Now with cyclicality, you may be also referring to what's going on with the price of minerals. And that's a pretty complex topic. There are many reasons that explain why the price of gold, like any other commodity actually is going up or down, yes. But this is pretty disconnected from where the Seequent software is used, which is actually on the supply, the production side. Even with gold, by the way, you can see that the production, the volume of production of gold continues to go up and its decorrelated with what's going on with the price of gold. And that's again because the -- regardless of what's happening with the price, mining companies need to continue to understand the subsurface. They need to continue to derisk. They need to continue to be as efficient as possible and therefore, use Seequent software. Gregory Bentley: And an increasing portion of Seequent is for the foundation in civil engineering products -- civil engineering projects because the source of -- principal source of risk is subsurface and that has now been viewed in project risk approaches, the modeling with leapfrog of the subsurface. Eric Boyer: Next question comes from Joshua Tilton from Wolfe Research. Joshua Tilton: Can you hear me? Nicholas Cumins: Yes. Joshua Tilton: Greg, I very much appreciate the masterclass and why Bentley is well positioned to be an AI winner. I think if I listen to kind of the questions from my peers on the call, though, what investors are trying to figure out or hoping to get a little bit more clarity on, at least from my perspective, is just out of all of the opportunities that you discussed, whether it's asset analytics or more design, which of those opportunities do you see being a reality sooner? And is that a 2026 phenomenon, 2027 phenomenon? And exactly how -- I think you touched on a little bit -- consumption, like exactly how are we going to see that monetization show up in the model. Does that make sense? Gregory Bentley: Well, asset analytics is immediate. But what's interesting is that with Talon, we started with API consumption. We negotiated what wound up being a 7-figure annual consumption of the engineering simulations based on the digital twins they captured with our iTwin Capture models. And generally, the API opportunity will massively expand the consumption and the computing for our modeling and simulation across the board. But in our experience, as we mentioned, going from CAD to BIM to digital twins, the obstacle and for reasons that I got into the institutional impediments, it's take-up that is the biggest challenge. And so we're focusing on helping users identify the APIs for which they'll create AI agents. This year, we've made it as simple that they can do it now from a natural language and start to be running many more iterations and see the benefit of that. You can, in many cases, quantify how much better the design outcome will be. In future years, it will be more so reuse of existing components and constructability and so forth that we mentioned. But it's pretty immediate to work with accounts to identify how API consumption can help them now, and we'll be working out how we monetize that with them as their digital quartermaster during the year. Eric Boyer: The last question will be from Koji Ikeda from Bank of America. Koji Ikeda: Yes, guys, can you hear me okay? Gregory Bentley: Yes. Koji Ikeda: Yes. So I was wondering as we think about design software and the data that's embedded in there, how do we think about the pace of monetization potential of this data, either within Bentley itself or other vendors within the ecosystem that work with systems like Bentley to plug into your data, access that data and for Bentley to monetize that data. Is this an opportunity that could happen sometime in the next 12 months? Or do you think this is something that could happen potentially over the next several years? Gregory Bentley: Well, first, I will say that ProjectWise and Bentley Infrastructure Cloud, you can see on our distribution of ARR that, that is the largest of any individual product we have in terms of ARR. So we're already monetizing the compounding of semantically addressable project data that becomes more valuable now with the opportunity for our accounts to use it themselves to -- in the ways we've described, including training their own AI models and for optimization to occur within our modeling and simulation products, but under their own AI agents, exploring that outcome space. So we are monetizing that in that respect and have been. And now over to Nicholas to talk about the future. Nicholas Cumins: Yes. And to make it super clear, when we say we're monetizing it now. So this is not about using the data from one infrastructure organization and then monetizing it with all the infrastructure organization. No, no, not at all. What we're monetizing is the ability for infrastricture organizations to surface data from their own files in the context of ProjectWise and Bentley Infrastructure Cloud and then use it for their own purposes. Their data is their data, full stop. But there could be actually some additional data -- true data monetization opportunities for us going forward. I'm just thinking, for example, of Cesium that we are like deploying across our portfolio and Cesium itself opens up an ecosystem of third-party data that can be brought into the design environment of infrastructure engineers so they can design in full context. I'm thinking, for example, of the Google 3D photorealistic tiles or some additional terrain data or all the data sets that could be offered. And I will say in the longer run, it is fairly possible that all of these engineering insights that are being created with our software in the context of operation and maintenance also becomes context for the infrastructure engineers to design, for example, extension of existing assets or do some remediation work on existing assets. And some of these insights can be created from third-party data and can be monetized as such as well. So I will say, in the longer run, an exciting opportunity, monetizing potentially third-party data as well. Gregory Bentley: And it is Cesium's stock-in-trade to become -- to have become that geospatial platform for such immersion in the world at large. Eric Boyer: Great. That was the last question. So that concludes our call today. We thank you for your interest and time in Bentley Systems. Please feel free to reach out to Investor Relations with further questions and follow-up. And we look forward to updating you on our performance in coming quarters. Thanks. Nicholas Cumins: Thank you. Gregory Bentley: Thank you.
Operator: Good day, and thank you for standing by. Welcome to DIRTT's 2025 Q4 Financial Results Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adrian Zarate, Chief Transformation Officer. Please go ahead. Adrian Zarate: Thank you, operator, and good morning, everyone. Welcome to today's call to discuss DIRTT's Fourth Quarter 2025 Results. Joining me on the call today will be Benjamin Urban, CEO; and Fareeha Khan, CFO. Today's call will include forward-looking statements within the meaning of applicable Canadian and United States securities laws. These statements are based on the company's current intent, expectations and projections. They are not guarantees of future performance. In addition, this call will reference non-GAAP results, excluding special items. Please reference our Form 10-K as filed on February 25, 2026 with the Securities and Exchange Commission, or SEC, and other reports and filings with the SEC for information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. I will also remind you that this webcast is being recorded, and a replay will be available early next week. I will now turn the call over to Benjamin. Benjamin Urban: Thank you, Adrian, and good morning, everyone. As noted in our outlook, Q4 reflected a return to normal theme in terms of sales and earnings power or adjusted EBITDA. Our transformation initiatives continue to gain traction, and we believe they will drive a structural improvement in our long-term revenue and earnings capacity. I will expound upon this later in the call, but first, we'll ask Fareeha to walk us through our Q4 financial results and next 12 months or fiscal year '26 guidance. Fareeha Khan: Thank you, Benjamin, and good morning, all. Please note that we have issued a press release discussing our fourth quarter 2025 results and fiscal year 2026 guidance. We have also provided additional analysis in a supplemental presentation. Both documents are available on our website. Revenues for the fourth quarter were $50.9 million, an increase of 4% compared to the same period in 2024. Gross profit margin increased from 35.9% of revenue in the fourth quarter of 2024 to 36.6% of revenue in the fourth quarter of 2025. And sequentially compared to Q3 2025 grew from 30.4% to 36.6% due to the realization of tariff mitigation synergies. Operating expenses for the fourth quarter, excluding reorganization costs, stock-based compensation, impairment charges, legal provision and other nonrecurring operating expenses were $14.1 million, consistent with the same quarter last year. Increases in professional fees and operating support expenses offset lower general and administrative and technology and development expenses. Our net loss after tax for the fourth quarter of 2025 was $3.7 million compared to net income after tax of $4 million for the same period of 2024. Net loss after tax was primarily impacted by $7.6 million of increased general and administrative reorganization expenses and impairment charges as well as a $0.9 million noncash gain on the disposal of the Rock Hill facility lease and a $0.3 million foreign exchange loss due to the strengthening of the Canadian dollar relative to the U.S. dollar. Adjusted EBITDA for the fourth quarter of 2025 was $6.2 million, an increase of $0.7 million from $5.5 million during the fourth quarter of 2024. With respect to our balance sheet, the quarter finished with $20.3 million in unrestricted cash, a decrease of $5.8 million from September 30, 2025. Cash used in operations was $4.3 million, while cash used in investing activities was $1.2 million. Cash used in financing activities was $0.3 million and primarily consisted of repayment of long-term debt, employee tax payments related to vested RSUs and common share repurchases under the company's normal course issuer bid. Our working capital continues to improve with DIO decreasing from 61.4 days to 53.7 days and trailing 3-month average cash conversion cycle stepping down to 47.2 days from 49 days in September 2025. Liquidity was $32.1 million as of December 31, 2025, including $11.8 million of availability under our ABL credit facility. We have not drawn on this facility to date. This quarter, we had minimal activity in our debentures NCIB and shares NCIB program, but we repaid our January debentures with balance sheet cash in January 2026. Additionally, in the fourth quarter of 2025, we executed a letter of offer with BDC for up to CAD 15 million of total funds, of which the first tranche of CAD 5.5 million was received earlier this month. Looking forward to 2026, we are encouraged by the anticipated conversion of our pipeline into revenue. For fiscal year 2026, we are expecting revenue between $194 million and $209 million and adjusted EBITDA between $26 million and $31 million. Our guidance range reflects our current assessment of tariff impacts. Guidance does not reflect the potential impact of unforeseen tariffs or trade policy changes. We will update guidance if and when the impact becomes quantifiable. Benjamin Urban: Thank you, Fareeha. While 2025 presented a myriad of macroeconomic challenges, we transcended adversity and advanced strategic priorities via our transformation efforts. In fact, we are coming off our highest revenue grossing month in 2 years, culminating in $50.9 million of revenue and $6.2 million of adjusted EBITDA for the fourth quarter compared to guidance of $48 million to $52 million of revenue and $5 million to $7 million of adjusted EBITDA. We believe recent commercial wins, the scaling of our new distribution channel, and optimized partner network and our new operating model collectively provide proof of concept for substantially improved revenue growth and earnings quality. Regarding commercial, we recently announced another project with a 10-year-plus legacy client, Google, for their Toronto office, in addition to a major new contract with U-Haul. These engagements reflect the caliber of repeat and new enterprise relationships we continue to prioritize and expand. As for distribution channels, we have evolved how we pursue and deliver projects. Last year, we established a team called Integrated Solutions to explore expanded revenue opportunities. During Q3, we formalized this team as DIRTT Construction Services to better reflect their full scope and capabilities. They provide preconstruction, design build assistance, targeted estimating, self-perform installation and more, elevating DIRTT from manufacturing to a multi-trade prefabricated interior construction company. Construction services complements our existing partner distribution channel by allowing us to: one, provide more technical capabilities to help select partners bid and win larger projects; two, help fill gaps a partner may have on their team; and three, pursue projects in markets without partner coverage in sectors that require specific expertise or for our existing national account strategy. We have also optimized our partner network to support future growth through greater stratification and targeted resource allocation. We remain committed to this channel strategy and have identified our highest potential partners and increased our investments in those relationships to drive pipeline expansion and improved conversion to revenue. As part of our transformation, we introduced a new operating model focused on process standardization and operational discipline. This approach is intended to reduce complexity and unlock capacity across the enterprise. Collectively, these actions are designed to expand our addressable market, augment operating leverage and support structurally higher earnings power. With respect to the Falkbuilt litigation, the 8-week trial covering multiple allegations began on February 2, 2026, and remains underway. DIRTT is pursuing damages it suffered in Canada, the United States and abroad. In closing, I would like to thank our entire DIRTT team for their dedication to continuous improvement and transformation, which requires reimagining how we do business and innovating to be steps ahead of the market and competition. This takes a highly strategic collaborative process, and our team has risen to the challenge. Thank you for joining us today. I will now open the call to questions. Operator: At this time, we will conduct a question and answer session. CEO, Benjamin Urban; CFO, Fareeha Khan; and Chief Transformation Officer, Adrian Zarate, are available for Q&A. [Operator Instructions]. I'm showing no questions at this time. I would now like to turn it back to Benjamin Urban for closing remarks. Benjamin Urban: I have no further closing remarks. Thank you, everyone, for joining us today. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Celsius Holdings Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Paul Wiseman, Investor Relations. Please go ahead. Paul Wiseman: Good morning, and thank you for joining Celsius Holdings 2025 earnings webcast. With me today are John Fieldly, Chairman and CEO; Jarrod Langhans, Chief Financial Officer; and Toby David, Chief of Staff. We'll take questions following the prepared remarks. Our fourth quarter and full year 2025 earnings press release was issued this morning, with all materials available on our website, ir.celsiusholdingsinc.com, and on the SEC's website, sec.gov. An audio replay of this webcast will also be accessible later today. Today's discussion includes forward-looking statements based on our current expectations and information. These statements involve risks and uncertainties, many beyond the company's control. Celsius Holdings disclaims any duty to update forward-looking statements except as required by law. Please review our safe harbor statements and risk factors in today's press release and in our most recent filings with the SEC, which contain additional information and a description of risks that may result in actual results differing materially from those contemplated by our forward-looking statements. We will present results on both a GAAP and non-GAAP basis. Non-GAAP measures like adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, adjusted SG&A and adjusted SG&A as a percentage of revenue, and their GAAP reconciliations, are detailed in our Q4 and full year earnings release. And non-GAAP financial measures should not be used as a substitute for our results reported in accordance with GAAP. With that, I'll turn it over to John. John Fieldly: Thank you, Paul. Good morning, everyone, and thank you for joining us today to discuss our fourth quarter and full year results for fiscal year 2025. As I look back in 2025, the message is clear: We continue to execute with momentum and operating discipline, and we are reinforcing the scale of our platform as we build a modern energy portfolio. One of the reasons we feel good about the progress is that we delivered full year record revenue of $2.5 billion, reflecting our disciplined approach to growth and the material scale we've accomplished. At the core, our focus is straightforward. We stay close to the consumer and we execute with consistency alongside Pepsi and our retail partners, which creates the opportunity to grow in a sustainable and profitable way over time. With that as context, let me start with the portfolio: what we see across CELSIUS, Alani Nu and Rockstar Energy. Across the portfolio, we continue to manage and invest in CELSIUS, Alani Nu and Rockstar Energy with the intent to broaden our reach. Our combined portfolio represents approximately 1/5 of the U.S. energy market in tracked channels for the full year, which we believe to be very impressive both on an absolute basis and relatively. In addition, our portfolio includes 2 billion-dollar brands, validating that sustainability and scale of our portfolio. Each brand can win in its own way, and our focus is to enable that to happen more and more. We operate with precision, making sure that we are present where it counts, bringing the right innovation and activating demand in a way that strengthens our core, not just the moment. When you look at the CELSIUS brand, the opportunity is about strengthening momentum and executing in a way that positions us to outgrow the category over time. We are focused on the fundamentals that drive that outcome: staying disciplined with SKU productivity, sharpening revenue growth management and promotional efficiency, maintaining a consistent innovation cadence, and elevating market execution with Pepsi and our retail partners, particularly during key priority periods. LIVE. FIT. GO. continues to be the core part of how we connect with consumers, and we remain focused on the long-term runway and household penetration, expanding reach while also driving frequency and loyalty as modern energy becomes more embedded in daily routines. For Alani, we continue to see momentum supported by the strength of our core brand and the opportunity to expand distribution. As the brand transitions into the PepsiCo system, we are focused on what is complete, what remains in motion and what improves as the transition finishes. We saw the momentum with Cherry Bomb as the first limited time offer in the PepsiCo system, and we are taking those key learnings forward. And with Rockstar, our integration remains on track, and we expect to complete the remaining integration in the first half of 2026. Importantly, this is not just about completing 1 integration. It's about strengthening our growing operations. We are building repeatable processes, executing transitions with discipline and refining a playbook that improves how we manage complexity across our growing portfolio. On that note, let me give you a quick update on the integration and transition progress across the portfolio. Starting with Alani Nu, we are making strong progress moving the business into the PepsiCo system. As of year-end, we are substantially complete on the U.S. DSD transition. The way we're approaching the remaining work is intentional and methodical and is designed to make sure we set up the portfolio the right way with Pepsi and our retail partners. And they are brought in on this too. We believe we are set up for success and we continue to expect the Alani implementation and integration to be completed by the end of the first quarter of 2026. With Rockstar, we are progressing through the remaining integration steps and staying focused on the work required to fully bring the brand into our operating model. We are executing against a clear plan and remain on track to complete the integration in the first half of 2026. And when you talk about success, it is very clear. It is consistent execution, a more focused SKU set and improving the margin structure over time as we bring the brand further into our platform. As we think about brand health and durability, our view is rooted in what drives loyalty and relevance. Across the portfolio, we continue to differentiate through sugar-free and flavor innovation, and really believe the category continues to support brands that stay closely aligned with evolving consumer preferences. Looking at 2026, our focus is on making sure that loyalty and brand relevance remains durable. That means staying consistent on what each brand stands for, continuing to bring innovation that creates trial and drives frequency, and executing with that kind of operational discipline that protects the long-term value of our business. We kicked off 2026 by making our Fizz-Free line available nationally. And we see a meaningful opportunity as there's many consumers that prefer beverages without carbonation or like the optionality of fizz or fizz-free. Across 2026, you will see a more intentional innovation and a limited time offer cadence, supported by broader distribution and strong end market execution. For Alani, that also includes expanding distribution of the core SKUs as we complete the transition into the PepsiCo system. International represents a meaningful long-term growth opportunity for us. Today we are present in approximately 10 markets. While international remains a smaller portion of the total business, we see a significant runway as global consumer trends increasingly mirror what we're seeing in the U.S., particularly around fitness, wellness and better-for-you energy. Our approach to expansion is intentional. We are prioritizing focused market selection, clear entry plans and ensure the right execution model is in place before we scale. This is not about entering as many markets as possible. It's about building our brands the right way, with strong local partnerships, disciplined launch plans and sustained marketing and distribution support. To support this next phase, we've brought on Garrett Quigley as President of International. Garrett brings deep experience scaling beverage brands globally and is building a dedicated international sales and marketing organization to expand our footprint in a thoughtful and profitable manner. As global consumer behaviors continue to shift towards zero sugar, functional energy that fits into daily routines, we believe our portfolio is well positioned to participate in that structural growth. We will continue to prioritize strong execution and long-term value creation as we build our international presence. That same focus on execution and scale also shapes how we're evolving our marketing capabilities. On marketing, we're continuing to sharpen how we tell our story and activate demand across the portfolio. Historically, our brands use separate creative teams across different companies. A key step forward, the creation of our new brand studio, a full-service in-house agency built to drive brand growth with speed, consistency and sophistication. More than a creative team, the brand studio is a strategic engine that will shape, produce and scale how our brands show up across every consumer touch point, from packaging and campaigns, to digital-first content and 3D motion graphics. And importantly, this strengthens our ability to run the portfolio in a more intentional way, helping us reach more consumers and connect awareness to trial, and ultimately, to retail activation. The scale of our portfolio allows us to leverage the team, maintain clear control of each brand's voice. Innovation remains central to how we grow the portfolio. That includes leaning into consumer preferences, like fizz-free, while also deploying limited time offers in a disciplined way. For us, LTOs are not about chasing short-term spikes. They are about expanding the funnel, driving incremental trial, reinforcing the strength of the core portfolio. When executed with the right distribution and retail alignment, they can become a repeatable lever within our broader growth framework. Energy remains one of the most attractive growth areas in beverage, with zero sugar offerings leading expansion. We believe our positioning allows us to help grow the category, not just participate in it, by staying relevant to consumers and executing with discipline across both mature and white space markets. And that matters because it speaks to the runway. In more mature markets, the work is about consistency, innovation and driving frequency. In white space markets, the focus is on building awareness, expanding distribution and scaling trial, all while staying disciplined to how we execute. Our partnerships and activations are part of how we do that. We continue to leverage partnerships and others to connect awareness to trial and then the retail activation. These programs are designed to put the brands in motion, in real consumer moments and to convert that energy into demand where consumers shop. Through our social media community building as well as our macro and micro influencer bases, we are building excitement, brand awareness and loyalty to further grow the brands. And we're also proud to see Alani Nu recognized by BevNET's 2025 Brand of the Year. Congratulations to all of our team members. That recognition reflects the strength of our brand and the momentum we're building as we expand reach and execution. Finally, as we look ahead, we have a clear strategy and priorities for 2026 and believe they will support sustainable, profitable growth. Our focus on continuing to strengthen the platform we have built, executing with discipline across the portfolio and staying closely aligned with consumers as the category continues to evolve. Across each of these priorities, our intent is the same: execute consistently, strengthen our operating system and create long-term value. With that, I'll turn it over to Jarrod to walk through our financials. He'll begin with some context around the Rockstar accounting treatment, then cover full year and quarterly results. Jarrod? Jarrod Langhans: Thanks, John, and good morning, everyone. From a financial perspective, we have a lot to cover. As John noted, I'll begin with Rockstar given the accounting treatment during the integration, then move to Alani and brand CELSIUS to walk through the components of our consolidated results. Beginning with Rockstar, during the quarter, we were actively integrating the brand into our supply chain, back office and commercial organization, which impacted how certain sales activities reflected under generally accepted accounting principles. As a result, some components were required to be recorded in other income rather than net sales. For the quarter, $45 million was recorded within net sales and an additional $6 million was recorded in other income. As we move into the first quarter, we expect to fully transition the U.S. portion of the business to the finished goods model and we expect that only the Canadian portion will remain in the other income. We expect the Canadian portion of transition to the finished goods model in the first half of 2026. On a full year basis, we recorded $56 million in net sales for Rockstar and an additional $13 million in other income. And as we sit here 6 to 8 weeks into 2026, we remain confident the brand continues to resonate with many consumers, and we have a plan to stabilize the business and move it back into growth over the next handful of years as previously discussed. Turning to Alani Nu, during the fourth quarter, Alani achieved record net sales of $370 million, benefiting from significant ongoing customer demand, increased distribution points and increased orders as we move the business out of its prior distribution system and into the PepsiCo distribution system. On a pro forma basis, that would equate to growth of 136% for the quarter compared to the prior year. In the 9 months since we purchased the brand, Alani has contributed $1 billion to our net sales. During the quarter, we continued to execute against the integration plan we presented in May, and we are pleased to note we remain on track, including moving the business into our supply chain, back office and commercial operations. We have also moved a substantial portion of the distribution network into the Pepsi system, with only a few pieces of the DSD network remaining outside of Pepsi today. Moving a substantial portion of the business into Pepsi was a significant operational milestone, and I want to recognize the teams across our organization, our former distribution partners and Pepsi for making that happen as seamlessly as it did. We also saw the execution show up in innovation. Cherry Bomb, our first Alani LTO launched in the Pepsi system, and was very successful running out in record time. With strong pull-through, we saw increased orders in the last few weeks of the year above and beyond our initial projections, supporting triple-digit growth in the first 6 to 8 weeks of the year. As we look across 2026, we expect continued expansion into more locations with more SKUs and overall triple-digit space gains. As expected, the transition of Alani into Pepsi drove increased orders and strong execution, which in turn impacted reported results for brand CELSIUS as we manage the timing and sequencing of inventory movements within the Pepsi system as we balance the Alani load-in with total inventory across the network. As a result, scanner data is a healthy 12.8% for the quarter, while underlying GAAP sales for CELSIUS showed a 7.7% decline due to the timing activities noted. When combining brand CELSIUS inventory movements with the Alani load-in, the company had a net benefit of approximately $25 million. Just a year ago, we were coming off a period in which both the category and brand CELSIUS experienced pressure in the back half of 2024, with some continued softness in the first quarter of 2025. As a result, we put a plan in place across our commercial organization, and we are pleased by the improvements seen since then where tracked sales are more aligned with the upper range of the energy category growth. As a result, for the full year, brand CELSIUS delivered $1.46 billion of net sales, growing 7.5% year-over-year. So combining everything for the fourth quarter, consolidated revenue was approximately $722 million and full year consolidated revenue was $2.5 billion, including having 2 billion-dollar brands. Taking a step down the P&L, for the 3 months ended December 31, 2025, gross profit increased by $175.1 million to $341.8 million from $166.7 million for the prior year period. Gross profit margin was 47.4%, compared to 50.2% in the prior year period, reflecting dilution from Rockstar Energy, higher cost of product related to integration costs and tariffs, partially offset by improved outbound freight, lower consolidation billbacks as a percentage of revenue and favorable product impact mix. As previously discussed, gross margin was impacted by onetime integration and distribution transition costs associated with the timing and sequencing of integrating Alani Nu and Rockstar and transitioning Alani into the Pepsi DSD system. While operational efficiencies and revenue growth management will be ongoing initiatives, we continue to expect the Alani integration to be completed by the end of the first quarter of 2026, and we expect the Rockstar integration to be completed in the first half of 2026. As integrations progress and ongoing initiatives take hold, we expect margins to expand across 2026 and return to a more normalized profile, with gross margins in the low 50s driven by savings across raw materials, scrap, manufacturing tolling fees, freight and package and brand mix, offset in part by tariffs and aluminum costs. For the full year, gross profit increased by (sic) [ at ] approximately $1.27 billion, from $680 million in 2024. Gross profit margin increased by 20 basis points from the prior year to 50.4% in 2025. Sales and marketing expense in the fourth quarter was $249.2 million or 34.5% of sales, and administrative expense was $66.6 million or 9.2% of sales. Adjusted for distributor termination and integration costs of $81 million, sales and marketing expense in the fourth quarter was 23.3% of sales, and administrative expense was 8.5% of sales when adjusting for $5 million in acquisition and integration costs. On a GAAP basis, we reported a net income of $24.7 million for the quarter. On a non-GAAP basis, adjusted EBITDA was $134.1 million, up from $62.9 million in the prior year period. Adjusted SG&A for the quarter was 31.8% of sales. For the full year, sales and marketing expense was $876.3 million or 34.8% of sales, and administrative expense was $250 million or 9.9% of sales. Adjusted for distributor termination and integration costs of $327.5 million, the full year sales and marketing expense was 21.8% of sales, and administrative expense was 7.5% of sales when adjusting for $60.2 million of acquisition and integration and other costs. Adjusted SG&A for the year was 29.4% of sales. We had an adjusted EBITDA margin of approximately 18.6% for the quarter. For the full year, on a GAAP basis, we reported net income of $108 million, and adjusted EBITDA was $619.6 million, representing an adjusted EBITDA margin of approximately 24.6%. On cash flow and the balance sheet, we remain focused on free cash flow generation and working capital discipline. We ended the year with $399 million in cash and approximately $670 million in total debt. Operating cash flow was $359 million. Working capital reflects the timing dynamics we discussed earlier, including inventory positioning and customer order cadence during the transition period. As cadence normalizes, we expect working capital volatility to moderate. On capital deployment, we remain focused on 3 priorities. One, investing to support brand growth and integration execution. Two, strengthening the balance sheet. And three, returning capital to shareholders. During the quarter, we reduced debt by approximately $200 million and repurchased $40 million of shares. We ended the period with $260 million remaining under our share repurchase program. We will continue to evaluate repurchase activity based on cash generation, market conditions and capital priorities while preserving flexibility for strategic M&A opportunities. As we look at 2026, I want to briefly frame how we are thinking about cadence and variability following an active fourth quarter. As I mentioned, the fourth quarter included integration and distribution transition activity that we expected, and those actions created timing effects within the Pepsi network. At times, reported results can vary when shipments, inventory positioning and promotions are not perfectly aligned with consumer takeaway. When that occurs, it is typically a function of timing and sequencing, and we will continue to be clear about what we believe is transitory versus what we believe reflects underlying trends. As we progress through the first half of 2026, we expect those impacts to moderate as integration milestones are completed. We remain focused on tightening alignment between shipments and underlying takeaway where possible, while recognizing that periods of integration and large customer ordering cycles can still create some quarter-to-quarter variability. On pricing and revenue growth management, we are taking a portfolio approach with greater precision and ROI discipline. Revenue growth management for us is not about broad-based price increases. It's about shaping the business through mix, price pack architecture by channel, pack strategy, and disciplined promotion to improve both growth and quality of earnings. As we scale, we are tailoring price pack architecture by channel, sharpening priority periods and using data to allocate investment where it drives the highest return. Over time, this should lead to promotional activity that is tighter, more intentional and more measurable. In addition, aligned planning and the captaincy with Pepsi support more consistent end market execution and a more repeatable commercial playbook across retailers. With that, I'll turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Filippo Falorni with Citi. Filippo Falorni: The shelf space gains that you discussed last week at the CAGNY conference for both CELSIUS and Alani, can you give us a bit of an update on the spring shelf space resets and when we should start to see some of the benefits from the shelf space gains? And then in particular for the brand CELSIUS, you explained the gap versus consumption in Q4. That was very helpful to add it to the release, so thank you for that. So could we see an improvement in Q1 as we think about it on a reported sales basis given the shelf space for brand CELSIUS? John Fieldly: I appreciate the questions. In regards to the shelf gains, historically, we've seen them really materialize through and kind of finalize right around the end of spring, has historically been when the final resets take place as everyone is gearing up, as we call, the beverage summer selling season. So we do expect those to continue to materialize through the end of spring, really with the biggest gains, especially for Alani, would be in convenience. So that's been a big white space opportunity for the portfolio as well as with the CELSIUS portfolio. And really excited about, as we're heading into summer, especially leading off with a lot of our innovation that's coming. In regards to some of the timing and some of the differences as we look through consumption data versus the revenue that's recognized as we sell through to our distributor, there is timing and sequencing. Jarrod made some comments on that in our prepared remarks. Jarrod, do you want to provide any color? Historically, we don't provide any forward-looking information. But we do anticipate there could be gaps going forward within consumption on a weekly or within a moment of time. But over the long term, we'll start to see some more consistency there. But Jarrod? Jarrod Langhans: Yes. I mean if you look at it from a portfolio perspective, I think you'll see it tighten up quicker than if you're going specifically brand by brand, because we are looking at different things across the calendar. So for instance, we just launched an LTO, the Lime Slush, it's delicious, with Alani, so you'll see some spikes in some of the data. We also have LTOs coming out with CELSIUS this year. So depending upon the timing of those activities, you might see some differences within the scanner data versus load-ins in those kind of things. And then as we continue to expand distribution, with Alani in particular, as we continue to move across the Pepsi system and gain shelf space, you'll see some expansion there. And then you'll also see expansion within CELSIUS with the 17% space gains that we had as well. Operator: Your next question comes from the line of Peter Grom with UBS. Peter Grom: Great. I wanted to follow up on that. Obviously, a lot of moving pieces as it relates to the top line growth. But when we think about the $25 million net benefit from CELSIUS versus Alani, can you help us unpack what that looks like from a brand perspective? And then I guess, Jarrod, maybe more specifically as you think about Alani, would you expect inventory levels to remain elevated as we move through this transition? And similar to kind of what we saw when CELSIUS moved into the Pepsi system a couple of years ago, implying that maybe more of the unwind would be a 4Q, into '27 dynamic? Or would you anticipate maybe kind of some under-shipment to occur faster? Jarrod Langhans: Peter, so as we're looking at Q4 and into the future, I'd say John and I are committed to tightening up the peaks and the valleys of the data. With the captaincy and the more aligned partnership we have with our largest distributor, we're definitely much tighter and working very closely. We actually had the supply chain from their team in -- back in January. So we're committed to really tightening up those peaks and valleys. From an operational perspective, we'll continue to have our supply chain and commercial teams focused on what ultimately is going to drive the success of our modern energy portfolio, which is winning at the register as that is where we're going to win or lose. So if we have the opportunity to load an additional volume of 1 brand kind of at or near the end of the quarter while adjusting another brand, while maintaining our service levels and the growth of those brands, that's something that we're committed to doing so that we win. So as we look at kind of the results that you saw in the quarter, we benefited to the tune of roughly $25 million in our reported results. We were excited to see brand CELSIUS come out of gate with low double-digit growth and great service levels while seeing Alani kind of rocket out of the gate with triple-digit growth. And we have seen brand CELSIUS orders align more closely to the tracked data as we look at kind of the initial deliveries and orders in 2026. I will caveat that by saying there are 4 to 5 more weeks in the quarter, so we'll continue to manage the business holistically and make adjustments along the way as we do manage the portfolio. So I think there -- again, we'll manage the peaks and the valleys. I think, as a portfolio, playing a much more scaled business, we'll be able to get those a bit tighter and manage that. So we don't have as many kind of as much volatility as we've seen historically when we just had a 1 brand and when we were really learning each other within that supply chain. If I go back to kind of Q4 and I boil it down, if I'm looking at our supply chain around DSD in particular, as we approached the end of Q4, we did adjust an additional week for brand CELSIUS and loaded in additional Alani. That benefited Alani. And it benefited the portfolio from a net basis, as I said. So this didn't have an impact on service levels, and we continue to win at the register with both brands. And as John mentioned, as a proof point, we're picking up roughly 17% additional space with brand CELSIUS in '26, really as a result of that scanner growth and, obviously, even more with Alani, triple-digit space gains with Alani. Operator: Your next question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I guess I had a question on gross margins. You mentioned you expect your gross margins to return to a more normalized profile, in the mid-50% range, across this year. So maybe first, could you touch on the potential impact that the Midwest premium is having on your business near term? And then second, can you give us a sense of phasing gross margins this year? And then I guess beyond this year, how should we think about the evolution of your margins over the next few years? Can you highlight maybe some of the key puts and takes that we should think about? John Fieldly: No, excellent question. I would say in regards to the margin profile, and a lot of the infrastructure and strategies we've built about building on our orbit model with the CELSIUS portfolio, further looking at opportunities with supply chain, purchasing strategies, as well as vertical integration with the acquisition of our co-packer over a year ago, really driving further leverage and scale and efficiencies through that location. We also, as we're further integrating Alani and Rockstar, as it's moving through orbit over the next several quarters, we'll be able to gain additional leverage as well. Jarrod, do you want to provide additional color in regards to some of the timing around that and also some of the opportunities we see as we're progressing to this low to mid-50% margin profile by the end of the year? Jarrod Langhans: Yes. So I think our target for this year is to get back to a more normalized low 50s. In terms of the opportunity, we do see ability to move up into the mid-50s like you noted. I wouldn't necessarily call that a '26 target, but definitely a near-term target, into the next handful of years. Some of the things that are going to drive our benefit in order to get back, call it, from the 47.4% that we sat in Q4, and work our way to the low 50s, are really getting the cost of sales, the COGS, the raw material prices in line with what you see with brand CELSIUS. So we are working through that with Alani and with Rockstar. We're a bit ahead on Alani, so we should have that cost structure in place by the end of Q1. For Rockstar, we should have that in place by the end of Q2. Some of that has to do with integration, some of that has to do with just moving through the inventory balances and moving through some of the higher raw material costs as we have them fully integrated. So Alani will be fully integrated by end of Q1 and Rockstar by the end of Q2. So we've got those costs. Some other things that are going to benefit us is our orbit model and our freight structure. Getting them fully baked into that structure will provide us with benefit. Our mix, when you kind of look at a blended mix of our price pack and promotion strategy, will also be beneficial. So you kind of put those together. If you look at Q4, some of the kind of onetime things we had, we did have some transition costs where we had some COGS write-offs and we had some scrap and things like that, that were more onetime, so those will be gone after Q4. And so we'll have that benefit directly into Q1. But really, the goal is, once we get through that first half of the year, to be in good shape to get into that low 50s as you look at the back half of the year. Those do also factor in the Midwest premium that has picked up as well as tariffs. So depending upon where the Midwest premium goes, there could be some impact in terms of timing. And as well as tariffs, if the tariffs kind of subside quicker, then there's an opportunity to get to some of those numbers quicker. Operator: Your next question comes from the line of Andrea Teixeira with JPMorgan. Andrea Teixeira: So I was hoping to see, John, if we step back and think about the 3-brand portfolio and the opportunities of trimming at some point the SKUs and -- or you think that this cadence of LTOs now with Celsius, like how is the experience that you've had? And how do you think velocity, obviously, with the increase in shelf space, you obviously will have a reduction in velocity at some point, but just thinking of how to position the SKUs, how to position the category? And we all know this is a record year of innovation for everyone in the space. So hoping to see how you're seeing that set. And what are you hearing from the retailers as far as the competitor set and the -- what we think going forward? And just also on the -- just a clarification on the margin. It's very encouraging to see that you see the opportunity for synergies and improvements in the execution. I also was encouraged to hear from you guys at CAGNY in terms of the systems and visibility. So I was hoping to see if you can kind of wrap it up on how predictable your sales have been with the view from Pepsi and how you can see margins evolving as we go from a promo perspective. John Fieldly: Excellent, Andrea. In your question, you're absolutely right in regards to the overall category and what we're seeing as driving growth. Innovation has been a key factor of that. And also, innovation has been a great, not only for our portfolio, but the total category -- it's bringing new consumers in. And we're starting to see, as in CAGNY, we were talking about the evolution of a category, expanding day parts, expanding usage occasions. Big opportunity is social occasions with energy drinks. As we're seeing alcohol and liquor come into some challenges and headwinds, and what we're seeing is consumers are switching to energy drinks to -- as a replacement. And that's a huge opportunity with our CELSIUS mocktails and dirty Alanis that we have out there. So that's a big push for us as well. They continue to bring excitement and new consumers, new occasions in. When you look at the SKU prioritization, that's the beauty of a portfolio. We're able to really maximize the value of the portfolio now with CELSIUS, Alani and Rockstar, making sure we're maximizing the SKUs really for the channel and also for a regional basis. So that's going to allow us to put the fastest-turning SKUs on -- in the coolers, in the planograms. The space allocations are also, that we're seeing with resets, 17% with CELSIUS and over 100% with Alani, is allowing us not only getting additional slots and distribution and more flavors and availability in retail, but also additional points of disruption. And having that path to purchase is so important, those cold checkouts, the impulse purchases, the expanded shelf space in the dry sets. So that's all going to come into landing on exactly what you're talking about, velocity. Velocity is very important in the category. That's what is going to continue to drive it. We feel confident with the innovation. We're going to see the space gains. We're focused on velocity with some of our marketing strategies. Jarrod mentioned Lime Slush just hitting within our LTO strategy. And the LTOs are designed to lift up the core, to bring new consumers into the portfolio, into the franchise, and then build that daily consumption, daily routine. The other big area we see a huge opportunity is with the female consumer. That's a big opportunity. We're seeing them expand purchase occasions. There's a higher adoption rate that's taking place as well. And our portfolio is really positioned to leverage that tailwind with Alani and with CELSIUS. So we think we're really well positioned there, especially as coming through the finalization of the resets at the end of spring. Really excited about great innovation from an LTO standpoint, not only for Alani, but also for CELSIUS. We got some great innovation coming out, and it's going to be an exciting summer for us. Talk about the synergies and some of the costs within our system, Jarrod touched on that in our prepared remarks, and I also covered it, in regards to some of the investments we've made, the vertical integration, the optimization of our purchasing strategies, the further investment we've made in revenue management. Revenue management, RGM, is a really big component as we maximize the value. We're not just a singular brand anymore going on promotion against many other brands. We're really to maximize that value within the portfolio, gain that trial, gain that scale and compete at the highest level within the energy category. So I think when you look at all those components there, where consumers are, where our portfolio is connecting with consumers and then also the infrastructure we built here with the organization, really sets us up to continue to optimize and improve and continue to grow this category. Operator: Your next question comes from the line of Kevin Grundy with BNP Paribas. Kevin Grundy: Great to see you at CAGNY last week. John, just a follow-up, and Jarrod, for you as well, the distribution gains again. Not to beat the dead horse. But obviously, super strong with Alani up triple digits, CELSIUS up 17%. Three questions here, if I may. Number one, what -- can you quantify what you sort of estimate the distribution gains to be for the category given the strength? That would be question number one. Number two, where are the shelf space gains coming from for Alani and CELSIUS? To the extent it's sort of above and beyond what you'd expect with the category, which certainly would seem to be the case, where are the shelf space gains being sourced from within the category? And then just lastly, I think Andrea was sort of touching on this, with respect to velocity. When we think about holistically the innovation that's coming on and which seems like a really strong pipeline, but you're moving in to new areas, new geographies, particularly in convenience, how should we think holistically about velocity growth for CELSIUS and Alani this year sort of vis-a-vis the TDP gains that you're going to benefit from? John Fieldly: Kevin, great questions. We spent some time on the category on the space gains we anticipate for CELSIUS. But I think to your point in regards to the category, like where is that coming from? And when you look at the energy category, and it continues to grow as a larger percentage of LRB, retailers are expanding more space. They're expanding half-coolers and doors and more dry shelves. Like in the convenience channel, we're hearing from a lot of retailers, they're optimizing some of the beer coolers just to -- they're trying to get as much productivity out of these coolers as possible. So you've heard that. Juice category as well, and high premium waters as well has been under pressure. So those are areas that retailers are making those decisions. I think each retailer is a little bit different on how they're being able to carve out more space. But there is a lot more space coming in the energy category as it's becoming part of a daily lifestyle, daily routine, daily -- and expanded usage occasions. Historically, it's been an impulse purchase, and convenience has been a main driver of that, over 60% of sales. But if you look at large format and you look at the space gains we saw over the last 2 years, we expect anticipated space gains in large format as they can capture a larger share of that -- of those energy drink sales that will continue to grow. So seeing a variety of different retailers react differently, but many in convenience are, we're hearing, cooler doors within the beer category getting a little optimized there. And then you look at where we are within velocity, we're here to grow velocity. That's really important. That's a major KPI within our organization, within our teams. I think with the space gains, when you look at Alani particularly, we're expanding that distribution, right? So it's going into a lot of locations that are new. Many retailers, many regions, Alani is going to be new. So we will likely see a lower velocity entering new segments of the regions, within also channels and retailers, that we're going to have to build up those velocities. So each channel is going to be different. Each market is going to be different. But any time, just like when we saw CELSIUS, as you expand out broader, we did see reduced velocities as that expansion takes place. And then you build upon that. Remember, consumers are -- it's a daily routine, it's a daily lifestyle. We've got to get these brands into a cadence where consumers are purchasing on a frequency. And gaining distribution just doesn't mean the product starts flying right away. There is great momentum behind these brands. We're really excited about it. It's part of the LTO strategy, the innovation strategy to get trial and awareness. But that is something we're very keen on, is continuing to build velocity over time. Operator: Your next question comes from the line of Gerald Pascarelli with Needham & Company LLC. Gerald Pascarelli: A couple of things. Just a housekeeping question going back to the cadence, Jarrod. I just want to make sure I'm understanding this correctly. But are there any parts of the inventory benefit that Alani got this quarter that should in any way be considered a pull forward in revenue? It doesn't sound like it just based on the distribution opportunities ahead, but just wanted to confirm that. And then John, just going back to the shelf space growth that you're expecting for Alani this year, is there a way for you to broadly contextualize that in terms of what we saw for core CELSIUS back in 2022 when that brand transitioned? I understand that back then, CELSIUS has been benefiting in part from lost shelf space from Bang. But yes, just curious if you could provide your thoughts on how we should view that 102% in the context of the prior transition. Any similarities and differences? And then I guess, how that compares in this environment with a more competitive landscape. Jarrod Langhans: Yes, I'll jump in first, Gerald. In terms of pull-through, I do think we saw opportunity to load in even more of Alani with the ability of the Pepsi distribution system and really how quickly they were able to get Alani out from an ACV perspective across the shelf. So I think there was, I would call that more of an opportunity than a load-in, that we took advantage of. And you saw coming out of the gate with the triple-digit growth that Alani has hit pretty quickly, and we continue to see that expand. And then with our Cherry Bomb, we did -- that was kind of one of the pieces that was loaded in at the end of the year, and that really got depleted pretty quickly, record time. So we got the Lime Slush going out. We're looking for, hopefully, another record from an LTO perspective. But I would definitely see that as more of an opportunistic move as opposed to a pull back or pull forward. John Fieldly: In regards to some of the expansion when we look back on the CELSIUS integration, expansion to the PepsiCo network, and then timing of resets upon that, CELSIUS went in, in September, Alani's going in, obviously, in December. There are some similarities, but there's many differences as well. I think when you look at CELSIUS and Alani, when they were starting off, CELSIUS was at a lower ACV versus where Alani is. I think when you look at Alani, similar opportunities in convenience on distribution gains there. And yes, you are right, when we went into -- through that process, CELSIUS did take a lot of space from Bang at that point in time. But I will say when you look at Alani and the opportunity and you look at the category, this category has extremely strong growth. And although Alani will not likely be replacing brands, the category is expanding. We're hearing retailers expand their shelf presence for energy. So that's what really allowed Alani to gain some of that -- the large distribution gains as well. Also, the consumer dynamics have changed as the -- as I mentioned, usage occasions have expanded. More females are coming into the category and increasing consumption. So there's a lot of different dynamics at play. Although there are some similarities, there's a variety of differences just due to the evolution of the category and the growth we've seen in energy overall, as well as the innovation that's come in. And it's an exciting time for the portfolio. Coming out of NACS, where we presented in October, we felt the energy from a lot of retailers and the excitement about CELSIUS. And now with the partnership with Pepsi, being the energy captain with the Celsius Holdings portfolio, and having that distribution confidence and breadth. A lot of retailers really want to make sure you can keep those shelves full, especially with the velocity and how quickly these products turn. So that is really a show of confidence and really allowed our key accounts team to take advantage of those opportunities and gain that additional distribution for the total portfolio. Operator: There are no further questions at this time. I will now turn the call over to John Fieldly, Chairman and Chief Executive Officer, for closing remarks. John Fieldly: Thank you again for joining us today. 2025 was truly a defining year for Celsius Holdings. We recorded a record $2.5 billion and continue to scale a true modern energy portfolio with CELSIUS, Alani Nu and Rockstar Energy. As we move through 2026, our priorities are clear: execute with discipline, strengthen our operating system and stay closely aligned with consumers as the category continues to evolve. I want to take this opportunity to thank our employees, our partners and all of our customers out there for their focus, their teamwork that makes this all possible. We appreciate your support, and we look forward to updating you next quarter. Until then, grab a CELSIUS and live fit. Operator: This concludes today's call. Thank you for attending. You may now disconnect.