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Operator: Good afternoon, ladies and gentlemen, and welcome to Eni's 2025 Fourth Quarter and Full Year Results Conference Call hosted by Mr. Claudio Descalzi, Chief Executive Officer. [Operator Instructions] I'm now handing you over to your host to begin today's conference. Thank you. Claudio Descalzi: Thank you. Good morning, everyone. 2025 was a year of exceptional progress at Eni. We developed and executed our distinctive strategy in many cases, exceeding our original target. We will discuss in detail our updated plan at the forecoming Capital Markets update in March. But I can say at this point that 2025 provide an excellent guide to what you should expect the future to hold for Eni. Last year's result proved the value of our consistent strategies, strong operational and financial performance, timely project delivery to support growth and diversified investment for the short- and long-term to generate further value for investors. Specifically, looking in detail at the 3 main business pillars, the successes are compelling. First, Global Natural Resources. We started up 6 major projects as planned. This supported an underlying production increase of 4%, well above our original full year guidance and growth above 7% over the 2022, 2025 period, leading among our peers. Project execution is a clear strength of ours, and both Agogo, Angola and Congo LNG are further examples of our leadership in time to market. In addition, we took FIDs on 4 major new projects, 3 of which are operated, driving a stronger service replacement ratio of above 160% and meaning we currently have 500,000 barrels per day of production under development, securing our medium-term outlook. At the portfolio level, we have also established a new platform of growth by creating our largest business combination with Petronas in Indonesia and Malaysia. And we are progressing our Argentina LNG project with YPF and XRG. Alongside our continued exploration success underpins long-term outlook. We discovered 900 million barrels of new resources in 2025, reaffirming our industry-leading track record. Now over 10 billion barrel of resources discovered since 2014 at less than $1 per barrel from multiple geographies and different geological plays. Our focus on value as well as volume is also emphasized by our continued action to valorize our resources through dual exploration. As we did in Indonesia with the business combination in Cote d'Ivoire and high grade our portfolio through tail asset divestment. GGP is business we have comprehensively transformed in the past few years. And notwithstanding a softer market, we delivered EBIT above EUR 1 billion for the fourth consecutive year. Gas to power was also a strong contributor in 2025. And together, this result emphasized the work underway to capture more margin from our equity production. Second, our transition activities. They generate material growth and value creation and are important in diversifying and strengthening any earnings. In a year that was not remarkable for market improvement, we improved the robustness of our integrated business models, and we have been rewarded with strong earnings, EUR 2 billion of EBITDA and by the validation from the market with a contribution of EUR 5.8 billion from top private equity firms. These deals were completed in a multiple around -- with a multiple around 3x those of Eni stand-alone implying over EUR 23 billion of enterprise value for these new business lines. We are locking in further growth with both Plenitude and Enilive. Plenitude expanded its renewable capacity by more than 40% in 2025 and we'll add 10% to its customer base in 2026 on closing the agreed Acea Energia acquisition. Enilive has 3 new biorefineries under construction and 2 more have recently reached FID, together representing a further net 2 million tonnes of annual capacity. And third, industrial transformation. Changes in the energy market bring challenges that we are successfully mitigating but also opportunities. In this context, we are advancing the transformation of our traditional refineries. And we have set out the decisive measures to address challenges in our chemical business that are the same impacting the entire European industry. In 2025, we accelerated these actions, closing the crackers at Brindisi and Priolo 3 to 6 months earlier than planned. At the same time, we are transforming Versalis towards bio, circular and specialized products. The strategic and operational progress achieved in 2025 translates into exceptional financial delivery. Robust financial position is critical in managing the cycle, preserving flexibility and delivering our strategy. Last year, CFFO at EUR 12.5 billion was EUR 1.5 billion ahead of plan on a scenario-adjusted basis. Responding promptly to the more challenging scenario, we cut gross CapEx from a planned EUR 9 billion to EUR 8.5 billion, and we identified cash initiatives totaling EUR 4 billion raised from an initial EUR 2 billion, including delivering EUR 0.5 billion of savings. Net CapEx on a pro-forma basis was lower than EUR 5 billion versus our initial expectation of EUR 6.5 billion to EUR 7 billion as we executed on more portfolio activity for better value. As a result, pro-forma gearing at year-end was 14%, with net debt down almost EUR 3 billion over the year. These outcomes gave us the opportunity to raise our share buyback by 20% from EUR 1.5 billion to EUR 1.8 billion, achieving the unique combination in 2025 of both lowering debt and enhancing shareholder distribution. In Q4, pro-forma adjusted EBIT was EUR 2.9 billion, up 6% year-on-year despite the lower oil price and weaker dollar. We reported excellent E&P result with production up 7% year-on-year and 5% sequentially at 1.839 million barrels per day, underpinned by the positive impact of 2025 start-ups. Full year production of 1.7 million to 8 million barrels per day was 2% above our guidance for the year. GGP Q4 EBIT of EUR 0.1 billion delivered on our raised full year guidance of more than EUR 1 billion despite relatively low volatile markets. Plenitude and Enilive together delivered EUR 2 billion of pro-forma adjusted EBIT in the year and Enilive benefited from improved bio margins in the quarter, part offsetting seasonally lower marketing. Refining returned to profit in the quarter, albeit held back by relatively low utilization rates, while chemicals continued to see a weak scenario setting the early benefits of the restructuring underway. Q4 adjusted net profit was EUR 1.2 billion with a tax rate of 37% as we adjusted to a full year rate of 44%, just below guidance. CFFO in Q4 was EUR 3 billion, representing excellent cash conversion again, helped by the material cash initiatives we undertook in the year. Full year cash flow at EUR 12.5 billion was EUR 1.5 billion above our full year guidance on a scenario adjusted basis. Thanks to a release in working capital and our actions around the portfolio, we were able to fund our CapEx, shareholder distributions and other commitments and also to significantly reduce debt. Gross organic CapEx in the quarter was EUR 2.6 billion, taking the full year figure to EUR 8.5 billion, EUR 0.5 billion less than our original plan. Valorizations and portfolio activities have raised around EUR 10 billion over the past 2 years. In 2025, we completed more than EUR 6.5 billion in valorization of portfolio activity, which meant that adjusting to a pro-forma basis, net CapEx was lower than EUR 5 billion, around EUR 2 billion below our original plan. But 2025 is not a one-off year. For 2026, we expect to limit our gross CapEx to around EUR 7 billion and net CapEx at around EUR 5 billion. We reduced net debt over 2025 by almost EUR 3 billion, as we said, bringing gearing to 15% at year-end or 14% on a pro-forma basis. We can confirm that we expect pro-forma gearing in 2026 to remain at historically low levels at between 10% to 15%. Our shareholder distribution details, we have to revert to the CMU in March, but we can confirm a full funded attractive and growing dividend is our first priority. In the last 5 years, we have raised the dividend by an average of 5% per year, reflecting underlying growth and the reduction of sharing issue. At the same time, we have additional tool of distribution via the buyback that reflects our policy of showing cash flow generation and upside. In 2025, for example, we raised the buyback by 20%, the third occasion in the past 4 years, we have increased distributions. In conclusion, 2025 was a clear outcome of Eni strategy in action. Looking ahead, we will update our -- on our plan in March, but strategy remain unchanged. The choices we make in how we do business are driven by our industrial, technological and commercial strength and by a business model that has proven to perform in strong and soft market conditions. The upstream will grow organically at a sector-leading rate, leveraging our exploration successes and our proven ability to fast track time to market while managing costs and delivering the value from our business combinations and partnerships. On the energy transition, we will deliver the programs outlined by -- for Plenitude and Enilive while developing CCS, fusion, battery storage and data centers for hyperscalers, coupled with Blue Power and exploring opportunities in critical minerals. Portfolio activity will again be material in 2026 as we continue to pursue disciplined capital alignment and value disclosure. In March, we will share with you the details that underpin this outlook and which support continued highly attractive investor returns. And now with the rest of Eni top management are ready to take your questions. Thank you. Operator: [Operator Instructions] First question is from Alejandro Vigil, Santander. Alejandro Vigil: Congratulations for the results. I have 2 questions about the upstream business. Definitely, you will elaborate more on the Capital Markets Day. But I'm very interested in the outlook for this year, thanks to the contribution of the joint venture with Petronas, if you can elaborate about potential increase in production driven by this joint venture? And the second question is about Kazakhstan. There is a lot of noise in the media, and I would like to know your view about the situation in the country. Claudio Descalzi: Okay. Thank you. Thank you for the questions. I just give you a few words about Petronas and the outlook and Kazakhstan, then Guido -- and I will give where are the possibility to expand and elaborate on these 2 questions. So Petronas, I think that Petronas will be finalized by the second -- end of the second quarter. And it's going to give a contribution clearly, yes. We cannot be precise now. I think that we can give you more detail on the -- in March, but clearly is going to give a contribution in terms of production for 6 months. And as you know, we are going to have immediately a company that is producing about 300,000 barrels per day, but we have already project that we're going to implement FID in the next years to reach 500,000 barrels per day. We already drilled in Indonesia, as you know, successful wells that we can tie into the existing infrastructure. So we talk about reserves, not just resources. Kazakhstan -- Kazakhstan, I think that is a long story because in the last -- in the last 15 years, every 3, 2 years, we have some renegotiation and some, I can say, dispute, but more discussion because we are friends. And as always happen between friends, we always find a solution. So I'm positive about the future. But now I think that Guido can take over and give you more detail. Guido Brusco: Yes. Thanks, Claudio. So barring from more details coming in the next CMU, of course, the growth of production next year will be driven by the project we have started up recently. So we will see more production coming from Congo, from Norway, from Angola, from UAE and of course, from Indonesia. But as I said, more details will come in a few more weeks. As far as Kazakhstan, of course, as you know, the Republic has advanced several arbitration claims regarding production performance, cost recovery, environmental matters, sulfur storage and the JV is defending. There is a broad claim here, which -- it's in the arbitration court at the moment, and we do not expect a result before 2027, 2028. However, we continue as the operator is saying, confirm that operation have been conducted in compliance with the law of Kazakhstan and the operator had always possessed the required permits. And therefore, we are challenging this sulfur refine in all the courts. Operator: Thanks, Alex. We can now pass over to Michele Della Vigna at Goldman Sachs. Michele Della Vigna: Congratulations on the results. I wanted to ask 2 questions. First, on your CapEx guidance for '26 of EUR 7 billion. I was wondering if you could walk us through the bridge between the EUR 1.5 billion this year and the EUR 7 billion. Clearly, the deconsolidation of Indonesia plays a part, but if you could give us a bit more detail? And then secondly, the more we look at all of your discoveries and access in the last couple of years, it feels like you probably have the best pipeline of new projects you've ever had in your corporate history. How should we think about your priorities for FID in 2026, given the wealth of opportunities between Namibia, Indonesia, Cote d'Ivoire and all of your recent discoveries? Claudio Descalzi: Okay. Thank you. Thank you for the question. So it's true, we said that we cut our CapEx or we reduced our CapEx from EUR 8.5 billion this year to EUR 7 billion. That is a reduction in terms of CapEx optimization. We are not reducing the growth. We are not touching the growth of the company, but just we became more efficient because we did -- we have a strategy or we applied the strategy to be more efficient starting from the exploration. So exploring and go to the place where we have existing facilities. And then this year, we had a very excellent success. Also last year, we are moving at EUR 1 billion or less than EUR 1 billion resource discoveries in the right place where we have infrastructure. That means that we can continue to reduce CapEx because we need less CapEx to produce more, more, more production. That was a strategy that is not something that you can start overnight. It's something that we start in 2011, '12, '13. It's something that we built day by day because we never stop exploration. We never stop exploring. We never stop developing. We never stop going directly to the development and working as upstreamer. So that is the reason why we can reduce our gross CapEx. Then we have other points that maybe Guido can explain to you that is an additional important unless that can explain why we can reduce CapEx. Guido, you can explain. Guido Brusco: Yes, Claudio. And I mean, just building on what you were saying about the advantaged barrels. The project we have started up in the last 4, 5 years and the prospective project, which you will have more visibility in the Capital Market update are projects with, first of all, low unit development cost. Second, they have longer plateau. So we can devote less CapEx to maintain the production and fight the decline and more CapEx for the growth at the same CapEx level in a nutshell. As far as concerned, your question, Michele, about the -- what will come next year. Of course, we have a great degree of optionality. We have a very large and diverse portfolio of projects. But clearly, next year, the project that we will focus more in terms of FID is Argentina, Ivory Coast, Cyprus, plus a few more geographies in Africa. Operator: We're going to now move on to Biraj Borkhataria at RBC. Biraj Borkhataria: Just to follow up on the CapEx point and the number you guided today. How much of that year-on-year change is the Indonesia CapEx coming out as you deconsolidate it? And is there anything you can say on the CFFO contribution that will be removed also when you deconsolidate that production? And then second question is just on Versalis. You've now closed down the crackers, but we haven't seen that sort of come through in the P&L. So do you still expect to be EBIT breakeven in 2027? And what should we expect for 2026? Claudio Descalzi: Okay. CapEx in Indonesia, we already said that Indonesia is not -- I think that we can start working in Indonesia after the finalization of the business combination of the new company that we expect in the second quarter. So I think in any case, the impact on CapEx on Indonesia will not be very large this year because then we have FID to take maybe in '26, but mainly in 2027. For Versalis, I think Adriano, CEO of Versalis, can give some answer, and some light. Adriano Alfani: Sure. Thank you for the question. I mean we have seen some improvement in the second half of 2025 following the shutdown of the 2 crackers that, as we said before, we move forward and we stopped earlier than what was original plan. Unfortunately, the positive impact, although you remember what we said in the previous call that the impact of 2 major cracker shutdown, you start to see after 12, 18 months. So we've seen some positive impact, and this helped in order to mitigate the deterioration in the scenario. So we have seen improvement in the second half of 2025 compared to the second half of 2024, and we continue to see also in the beginning of the months of 2026. We are taking additional actions in order to mitigate the plan that is not coming as expected in terms of scenario. I'm pretty sure that you have seen so many shutdowns have been announced in the last 3 years, close to 160 shutdown announcement. And in the next capital market update, we are going to share the plan for the next 2, 3 years. Operator: We're going to move to Lydia Rainforth at Barclays. Lydia Rainforth: Two questions, if I could, please. The first one, on the exploration side and building a little bit on Michele's question earlier, you've clearly been very, very successful in what you've done. Can you actually give us what the success rate is now? Are we looking at sort of 1 in 2, 4 out of 5 wells? I'm just trying to work out what that success rate is. And then secondly, just on AI, clearly, you've got a lot of computing power. I'm just wondering what you're seeing, if you're seeing any benefits at this point or what your plans are around that. Guido Brusco: On exploration, last year, we've been very, very successful and success rate was exceptionally high. As you could also notice from the very low write-off we basically written in our books. So it was really exceptionally high, very close to 100%, the success rate last year. On the AI, as you may be aware, last year, we've opened a new business line on data center, coupled with the gas-fired plant. We have a plan with international partners to develop a data center in the north of Italy, close to Milan up to 500 megawatts split in different phases. We have a first phase which will go from 80 to 100 megawatts and the second phase to 500 megawatts. And this is in an area which is underdeveloped and in a country like Italy, which has foreseen a demand of AI center by 2030 up to 1 -- the impact, of course, we are forerunner in terms of application of technology and super computational capacity on our activity and the exploration success is one example of it. Of course, AI will apply also on other segment of the business in the upstream like the production improvement, drilling and project improvement, rotating machine enhancement. So we expect a significant impact on the AI. Just to remind that in the industry, we have already one of the lowest downtime for the production facilities, which is around -- which is less than 1%, while the average of the industry, WoodMac data is around 3.5%. Operator: We're now going to move to Irene Himona at Bernstein. Irene Himona: Congratulations on a strong year, especially in the upstream. Can you please say, firstly, what did you change exactly to high-grade production? What does that involve? Secondly, can you remind us what upstream tax rate we should expect in an environment of $65 to $70 Brent? And then finally, very quickly, looking at the 10 billion BOE of resource you have discovered since 2014, can you say roughly what the split is between gas and liquids, please? Guido Brusco: On the what we did basically question of the high grading, of course, in our portfolio, we are bringing onstream project with very high profitable cash flow per barrel. And we are divesting late-life assets. So the combination of these 2 elements. So the new project and the late-life asset disposal is high-grading our portfolio. And you may have also seen that if we compare the free cash flow per barrel from 2024 to 2025, we have seen a 10% increase. On the tax rate... Claudio Descalzi: Before talking about the tax rate, so you remarked a very successful increase in our production. Absolutely what we said is true. So we have a different quality in terms of barrel, so higher cash flow per barrel, but also we have been successful for -- in the last years to be in terms of time to market -- time to market and budget. So we have been able to not only respect our schedule, but in most of the case, faster. So that clearly impacted positively. The production impact and internal rate of return of all our projects. And we are respected on all the budget. So that is something that maybe is not clear or explicit to all -- to everybody, to investors, to all our community, but that is one key point of success in terms of results and the value of our volume. Tax rate. Francesco Gattei: On the tax rate, as you have seen, there is a fluctuation that are mainly related to clearly to the composition. In this case, you mentioned the upstream tax rate. So on the composition in terms of production contribution in different countries on the exploration write-off and some additional one-off factors that could imply or determine certain effects. In the 2026, the expectation is to -- with a $62 that is, for the time being, our assumption, a tax rate that should be in the range of 45% to 50%. Clearly, if the price will improve, there will be a lower tax rate. Guido Brusco: Just to complete, you made another question, the split between oil and gas of the discovery is 70% gas and 30% oil. Operator: We are now going to move over to Josh Stone at UBS. Joshua Eliot Stone: Two questions, please. One, I wanted to pick on -- up on this Italian energy reform that got passed and whether you had a chance to estimate the initial impacts because it looks like there's quite complicated, lots of moving parts. It's connected to gas spreads, the ETFs and tax. Maybe you could just talk about how you're thinking about that being a net positive or net negative and the different impacts on your different parts of the businesses, that would be useful. And then second question on the buyback. I know we've got to be patient for the actual number, but I was hoping you can maybe share just your thought process here and the importance you put on buybacks after the re-rating of your stock. And am I right in saying when you set this buyback, you'll be using the $62 oil price deck for 2026? Claudio Descalzi: About the energy bill that you were referring in Italy, clearly, the impact is slightly negative, but quite marginal because you have to consider that as Eni, we are not just a supplier and a producer, but we are also an important industrial player in the country with different activities spanning from the refinery, chemicals, bio-refineries and also certain upstream activity, clearly. So you have to consider that the overall effect is mitigated by this double exposure. So it's absolutely, let's say, marginal towards the overall performance of Eni. In terms of buyback, I was mentioning before, the reference is $62 for the expectation for the next year in terms of pricing, we have to confirm at the next Capital Market Day. Clearly, you know what is the structure of our distribution policy. When we set up a buyback that is clearly the variable component of our distribution, this is a floor. And historically, we proved that this is the floor because we raised the floor 3 times on 4 years. And the scope is substantially to share the upside that will emerge both in the performance and the scenario to our investors. We will provide all the details in the Capital Market Day at the end of March. Operator: So now we are looking for Alastair Syme at Citigroup. Alastair has disappeared off the list, apologies. We're going to move to Matt Lofting at JPMorgan. Matthew Lofting: Congratulations on the strength of execution throughout 2025. Just 2 quick questions from my side. First, coming back to the net debt and gearing targets. I wondered, you mentioned Asia and the JV earlier. I wondered whether there was any other accounting effects in those targets, including any allowance for a possible deconsolidation of Plenitude, which I know has been sort of talked about in the past. And then secondly, Eni is obviously one of the companies in the industry that's retained a presence in Venezuela. Do you have any thoughts at this point on the near and longer-term upside that could sit there for you in the country and how you'd sort of think about ranking that within the range of portfolio opportunities that you have from a capital allocation and risk reward perspective? Claudio Descalzi: Thank you. So Francesco, look after gearing, and I look after Venezuela. Francesco Gattei: Okay. Clearly, about the gearing target that we provide you is, let's say, an effect of a number of actions and levers. As we said before, there is a strong operational performance, cash flow improvement, CapEx efficiency. And clearly, the satellite model that helps to, let's say, transform this potential contribution in terms of growth in stand-alone companies or entities that will be able by themselves to provide the debt. We are studying different solutions. You were referring to Plenitude, but clearly, we are working on different concepts and potentially this could be, but it's something that will be eventually disclosed at the proper time. Claudio Descalzi: Venezuela, what I can say that, for sure, is an upside for us, an upside from several point of view, not just 1, 2, maybe 3 upside, different kind of upside. The first one that through the general licenses, #50 that has been issued a few days before, 1 week, I think, we can recover our gas. So Venezuela can pay through using crude, the gas that we deliver to the domestic market. So that is already a big upside before we were stuck for almost 1 year. And that creates a very buildup of our outstanding. So now that is done. Then there is a second upside. We have blocks, we have oil. We are in one of the best block in the Orinoco belt. We are also offshore with Corocoro. And that possible additional development can use to recover the past cost or the past outstanding that's around EUR 3 billion. And that is another upside. So for sure, we are working with some American companies to see if we are creating a joint venture to develop this field are producing. But clearly, they can grow our production quite quickly, and that is a possible upside. And the third upside is gas. Gas is something that is needed. You have to consider that U.S. have to increase or deliver additional EUR 20 billion or more EUR 20 billion in 1 year -- less than 1 year because with the sanction on the LNG gas and Russian gas, we need to compensate this EUR 20 billion. So you asked to -- they have to increase. But U.S. need also gas in domestic market. So the gas that we discovered about 20 Tcf in Perla with additional prospects that are really located in the right position, not just to deliver domestic gas, but also to export to Europe is a third opportunity. And clearly, these are in line with what President Trump wants. I mean, develop the oil and gas in Venezuela -- for Venezuela first, but also to create a different kind of environment in the region. So I see that very positively. Operator: So we'll move to Martijn Rats at Morgan Stanley. Martijn? Martijn Rats: Yes. To be honest, most of my question has largely been asked, but I've got one left. There have been a couple of articles saying that you're interested in sort of revitalizing some of the oil trading business within E&I and including some partnerships with some other firms. I was wondering if you could provide some color around that issue, what your thoughts are in that area. Guido Brusco: We've started a journey to improve our trading and extract more value from this segment of the business. And we've -- first of all, we've created one single organization. So we have put under one umbrella all the trading arms of the company all along the value chain to extract all the margins. That's the number one. Number two, we have changed also some of our approaches to the risk. We are becoming a little bit more -- a little bit less risk adverse. And number three, we are, of course, looking at different way to do business. And in doing that, of course, we have started a dialogue with some international trading players in the recent months. Operator: We are going to move to Massimo Bonisoli at Equita. Massimo Bonisoli: My 2 questions. One on CapEx. Net M&A was around EUR 4 billion in 2025, roughly EUR 2 billion above the initial guidance with EUR 2 billion target also for 2026, does this implicitly rise your opportunities over the 4-year plan? So I'm curious to understand if you have more options in your portfolio than 1 year ago? And the second question on biofuels. How do you see biofuels trading environment evolving in 2026, particularly in terms of margins and market balance between supply and demand? Claudio Descalzi: Yes. Thank you, Massimo. About the net CapEx and the portfolio effect, as you can see, we continue to upgrade our portfolio to leverage on our capability to execute and to explore and to have success for the dual exploration model to valorize as we have done so far, the business line that will be recognized as valuable through the transition. So there is a large list of opportunity. Remember, last year, we declared there was a risk amount and the result at the end in terms of value and the higher effect is the fact that clearly, we had a positive result at the end. So in terms of this year effect of EUR 2 billion, you can also already appreciate that we completed in early January the first disposal. It was the Ivory Coast top-up. And this is something that is already on our, let's say, results. And we are moving to additional progress or activity related in particular, Indonesia, 10% is a program that is ongoing and some other additional element. We continue to work, and you should expect as we had last year, eventually upside because we generally risk our overall portfolio program. Stefano Ballista: Yes. On biofuel, thanks for the question, Massimo. Biofuel, we see the development is absolutely constructive. We estimate biofuel demand in 2026 above EUR 20 million. This year, it's going to be around EUR 16 million, so a significant step-up. It's going to be driven mainly by Europe and U.S. Main reason for this demand growth is twofold. In Europe is the well-known Renewable Energy Directive #3. We quoted the Germany example even in previous call. I just want to add that on top of getting extra GHG reduction target and the ban of double counting, they are even asking to allow site investigation in countries -- foreign countries that are providing flows to Germany in order to be that flow accountable. And this is actually a positive evolvement for the supply-demand balance. So this is another good news. Talking about U.S., actually, just yesterday, the EPA said that within the end of March, they want to finalize the new renewable volume target. Expectation is to have a significant increase between 35% and 40% increase. We are seeing this already on the RIN prices. RIN prices improved by 40% from the beginning of the year. And this happened without an improvement in terms of RIN generation. So this means that in order to cope with the new EPA target, we need to have RIN generation improvement, and this is going to drive economic margins improvement itself. Last comment, this year, we saw a reduction, a destocking of the RIN banking. It's about EUR 0.5 billion destocking. And this is a turning point that revert the trends that we saw previous year when the RIN banking actually got exactly in the opposite direction with an increase of EUR 2 billion. We expect this trend to definitely move forward and to rebalancing the supply demands overall. Operator: We're going to move now to Mark Wilson at Jefferies. Mark, if you're online. Mark Wilson: Okay. You said earlier how the strategic path that has got you where you are in upstream is not one that you can start overnight, the exploration, the infrastructure, as you say, you've never stopped. Now you've also spoke to AI impacting exploration. And on the last call, you spoke to the technical hedge that floating LNG is giving you. So -- but my question is that it's impossible to have this kind of delivery alone. So I'd like to ask which third-party areas other than the ones already spoken to across your upstream partners or indeed oilfield service contractors, where has the greatest improvement been to assist your delivery? Is it drilling, reservoir characteristic, E&C cycle time, shipyards? Is it something else? That would be my question. Claudio Descalzi: Thank you for the question. It's very interesting. No, first of all, we are never alone in the life. I have a lot of colleagues with me in Eni, but we are not alone in terms of strategy. When other company outsourcing, we are in-sourcing, that means that we kept in our company all the main competencies. That started in the 2000 and so 2011, 2012, we decided to in-source. So we didn't follow the mainstream that say reduce cost and may your contractors as a main contractor, they do everything in Turkey. Now we want to take our end in each project. And that means that in the last, I think, 16, 17 years, we put our competencies and we increased our competencies in all the different segments of our business. I talked about E&P, not only. We increased the R&D investment. We opened up 7 R&D centers. We increased our R&D people [ 1,200 ] people. And we have in our end technology in drilling, reservoir or seismic and development, and we made a revolution in our time to market, the best we can say in time to market. So we are not alone, but we are alone in terms of the choices we made in the last 15 years. So I think that, that is the main reason. I don't know if we share this point, you want to say something else. I hope and I think... Guido Brusco: It couldn't be better. Operator: We're going to move to Paul Redman at BNP Paribas. Paul? Paul Redman: Just 2, please. First was you achieved EUR 4 billion of cash initiative benefit in 2025. I wanted to ask how much of that is roll or could roll over into 2026? And secondly, I know people have asked but kind of -- and it is early, seeing you've got a Capital Markets Day in a few weeks' time. But I wanted to ask about how you think about allocating to shareholder. You currently allocate based on a percent of cash flow from operations, but you've clearly paid above that percentage. And I think part of that has been driven by acceleration of divestments. So I wanted -- and this year, you're guiding EUR 2 billion of divestments. So I wanted to ask if you still believe that percentage of cash flow from operations is the appropriate way to allocate cash flow to shareholders. Claudio Descalzi: First of all, about the cash initiative, you have seen that we executed. I think that there is a lot of evidence through the results that we achieved that we started with EUR 2 billion, we raised to EUR 3 billion and then EUR 4 billion, and we performed. Most of that are one-off factors that doesn't mean that they will be reverted, but actually will be rolling. So we are executing our cash management in a different way than before, optimizing the time to market of this cash needs, and there were a lot of opportunity. We continue to study because I believe that generally in managing a huge amount of cash in a company's Eni, there is still a lot of pockets or upside that are -- have to be discovered. It is a sort of treasury search that we look for. So we do expect something also, but this is probably we have to wait a bit, 3 weeks for additional disclosure. On the cash flow from operation reference, the idea of having cash flow from operation as a starting point for distribution is because we want to put the shareholders at the top of our priority. So the first line of cash flow is the cash flow from operation, pre-working capital. And clearly, there is all the other factors that come later. So the free cash flow could be another way to distribute. Clearly, you have to change the percentage because you are speaking about different absolute figures. But at the end of the day, the logic of having cash flow from operation is giving the reference in terms of priority versus the distribution line. We will see again also in the next Capital Market Day, what will be the announcement and what will be eventually the percentage that we allocate. Operator: And we're going to go to the last question. We found Alastair. Al, you around. Al at Citigroup. Alastair Syme: Yes. So the question I had was really on -- well, I mean, there's been a lot of commentary in Italy and across the European Union about the European carbon scheme, the ETS. And you have a foot in several camps here, you're a carbon emitter, you're a power generator, you've got a CCS business. So can you give us a sense of where you think the political discussion is and what, if any, changes you would like to see? And if I could poke in a second question. Do you have any update on the well you're drilling offshore, Libya? Guido Brusco: Yes. Libya offshore, we are currently drilling one exploration well, and we'll announce results when they become available, of course. Claudio Descalzi: I think that we are very ready to talk about drilling reservoir explorations and all we want. But on ETS, honestly, we cannot give you a lot of light is the tax we pay. I don't know. Honestly, there is a big debate today because in Europe, the industry is suffering a lot. It's not growing. In the contrary, they are squeezing the industry in Europe with all the different kind of taxes and green deals that impacted negatively all the kind of industry. ETS is one of these taxes. And Europe is the only country that apply these taxes at a very high level. So when we talk at competition with the rest of the world, it's not easy to compete one and the other and not really applying the same kind of rules. So that's what I can say, but I [ do ] not want to enter any political debate. It's not our business. I prefer to increase production and get good results for my company instead to cry about taxes I'm paying. Thank you. Alastair Syme: Claudia, can I ask, does it make you think differently about putting capital on the CCS business given that there is a potential that the legislation could change? Claudio Descalzi: No, I think that change has been made already have been in taxonomy and they've been accepted at least. At the moment, in Holland, especially in U.K. and now in Italy, so we have at least 3 countries where the CCS can be developed. In U.K., they made a big, I think, effort for the future. And for that reason, they -- now the investment has started and also the project has been sanctioned. In Holland, I think that is going to follow. And Italy, we are very close to have a new law, but we have a huge amount of potential to be explored and we constitute the company. We already got interest from investors, and we have already an investor with us in the company. So I'm positive and Europe after years, now they accepted this important tool to reduce CO2 emissions. And clearly, the CCS is the counterpart of the ETS because the CC, so the capture now has not matched yet, but now with the ETS that is close to EUR 90 or between EUR 80 and EUR 90 per tonne, I think that the CCS based on the existing assets, not on new development, is very good from an economic point of view. It's very positive. Operator: Thanks, Claudio. Thanks, Al. That brings us to the end of the call. Thank you very much for your attention, both today and through 2025. And we look forward to speaking to you all in greater detail on the new strategy and plan or the strategy and the new plan on the 19th of March. So we'll see you all then. Thank you very much.
Operator: Good morning, ladies and gentlemen, and welcome to the freenet AG Conference Call on the Preliminary Results for the Financial Year 2025. At this time, all participants are on a listen-only mode. The floor will be open for questions following the presentation. Let me now hand over to Robin Harries, CEO of freenet AG. Robin John Harries: Good morning, everyone, and welcome to our earnings call. I'm Robin Harries, the CEO of freenet. Overall, we are happy about the operational performance and the strong customer growth. We see many opportunities ahead of us, but we are not happy about agreement with the network provider that we have, which was closed in '24. This agreement might lead to a minus EUR 13 million impact in '25 and to up to EUR 50 million negative EBITDA impact for the year '26 to '28. We are at the moment in discussions with the management of the network operator and are negotiating, trying to negotiate a better deal. This is already -- so the risks that I mentioned are already reflected in our numbers. So we are in ongoing discussions and we'll provide an update as soon as we have something. Freenet becomes more lean, focused and effective. We did some nice strategic moves in the last years. One is that we streamlined the executive board. This made us faster, more efficient and we have a clear focus. We optimized a lot in terms of marketing and sales initiatives. We have a clear focus on KPIs and performance. I think we created a lot of transparency within the organization, streamlined the focus. Everybody is on board here and is delivering, and this is I think quite good. And then we acquired the mobilezone last year, and this was one of our competitors, and we are happy about that as well. Another strategic move was that we have started a customer value management project, and this is a really a high-impact project. At the moment, our conversion rates are not great yet, but I think we have a lot of potential here. So when we compare our churn rates with competitors, we are at the moment behind, and this is potential. Because if you think about reasons why customers leave network operators, companies, the top 2 reasons are: first, they find a better deal somewhere else, and the second one is that they are not happy about network performance. Both of these things, I think, doesn't make a lot of sense when you look at freenet, because we have really great deals and we are able to offer products on all networks. So our churn rate should be good. So that's why this project is really important. We made big progress. So we are working on over 50 initiatives. And this quarter or this month, we will bring live our first AI voice bot in the customer service, and we have another AI tool for our call center agents, which will facilitate the selling process. And we are quite confident that we will have -- that we will see better outcomes here in the near future. We have some really great operational highlights. We achieved an all-time high in terms of postpaid net adds. We achieved over 300,000 organic postpaid net adds. When it comes to waipu.tv, that's -- there we achieved over or around EUR 36 million adjusted EBITDA. This is also a big step forward. In the past, we could prove that we can achieve strong customer growth there. Now we also proved that we can become profitable and show nice EBITDA. And we have a record dividend proposal of EUR 2.07. Now let's dive deeper into the mobile segment. We have -- our strongest brand is Freenet and the second one is klarmobil. And we put now a lot of focus on freenet. This is our premium brand. We changed a lot over the last month. For example, we moved the freenet offerings from the domain freenet-mobilfunk.de to freenet.de in the end of January. And so we prepared it over the course of last year. And yes, so this will be our premium brand. We will put our money on freenet. So today starts a new TV campaign and we also invest into digital out-of-home. That's important. We also shifted our marketing budgets to performing channels. We stopped the stuff that doesn't really work and now invested where we have a direct sales impact. And we will invest into our brand and that's a nice opportunity when you look at unaided brand awareness and brand awareness -- aided brand awareness. You can see that many people in Germany know the brand freenet, but when it comes to unaided brand awareness, our numbers are still very low and far below the competition, and that's a huge opportunity. So by investing into brand marketing, so we will be able to increase this, and I think this is also a nice upside potential. Beside our premium brand, freenet, we also launched new branded shops, Unlimited Mobile and Mobilfunk.de. We have a nice portfolio of brands that we position on various platforms and target specific user groups. I think this works quite well. We also relaunched our freenet FUNK app. And what's also very interesting and important is that we started our partnership with 1&1. At the end of last year, we had the first tests in selected shops where we started to sell also 1&1 mobile plans, and this test was very successful. We could achieve incremental sales. That's important for us that we not just replace one partner with another. No, we were able to really generate incremental sales. The partnership with 1&1 I think is very good. We are in the process of scaling this partnership now and roll it out to more and more shops. We have very good relationship to them, also to our partners, Vodafone and Telekom. So I think that we are very well positioned in the market, we showed that we can grow where we're strong, and yes, now we are further optimizing it and scaling the things that work. And the acquisition of mobilezone was also one important step. We could add even more brands, and this will further strengthen our market position. We have -- we are very dominant now on certain channels, and we could also add more marketing channels. And we will grow together as one organization. This will lead to nice synergies, the mobilezone team, very smart, very dynamic, moving fast. So I think that's a very good and cultural fit. The teams already work together closely, and we expect further potential there. On the next slide, this is a really important slide because you know that there's a lot of price competition in the market, a lot of pressure. And what you can see here is the freenet and frontbook pricing over the course of the last 2 years. And you could see that beginning of '24, it went down a lot, also beginning of '25. However, in the end of '25, we were able to do -- to increase it again. This actually is I think very important for us and for the market, and we could already see it during the Cyber Week. This is always a period where it, in the previous years, it became even more aggressive. This was not the case this year. We even increased our prices. This is also what we are doing at the moment. So we keep increasing our prices. We see that this works. In the last 6 months, we tested a lot or we did a lot of elasticity tests on our marketing and sales channels, that we showed our models. We could see that we can achieve very, very strong growth in terms of customer growth, new customer growth. But for us, it's more important to actually do this on a really healthy basis. That's why we started -- in Q4 last year, we started to increase prices, and we'll keep doing this. So for us, it's -- and quality is more important than quantity, and we put a lot of focus on it. So the guidance for '25 was moderate decrease, and this will be still the case for '26, because even though we increase frontbook pricing, we still have impacts from our customer base, and this will take some time. But I think it's very important that we see a shift here and that we will keep focusing on quality and try to further increase prices. On the next slide, you can see that we really gained momentum in the end of last year, we achieved all-time high customer growth, 306,000 customers, this is really outstanding result. And on top of that, we also could add 240,000 net adds from the acquisition of mobilezone. So this led to 546,000 postpaid net adds. So we outperformed our guidance here, which is great. And on top of that, there are also still 95,000 subs from base and tariffs. So overall, I think in the mobile segment, strong growth, many opportunities through our customer value management and through AI, also the marketing channels, and we just started there. I mean, last year, the TV campaigns, we started with klarmobil, now with the move to freenet.de. We also switched our marketing campaigns to freenet, to our core brand. And this is what we are -- that we want to scale this year and also afterwards. Next slide. This is our TV and media business. Media Broadcast shifted to segment orders. In Q1 '26 onwards, here you can see the freenet TV subscribers. The decline continues. And however, we have some stabilization measures. So we increased prices, we introduced a Hybrid TV stick, we prolonged a content contract, so we are working on this side as well. This segment, we also have waipu.tv and the IPTV market grows continuously. It's a strong market. Also the position of waipu.tv is very strong in this market. It was 20% to 25%, and the market will continue to grow. I mean, we are very well positioned in the competition. The product is very strong. When you look at ratings, when you look at reviews, it's an outstanding product, and we believe that we will further grow here and the market will further grow. So this is I think a very good market to be in. On the next slide, you can see our organic growth. We did some cleanups during the last quarters. We always talked about the O2 impact. And so here in this view you can see that now we deducted it, so we cleaned it. And now we have with 1,755,000 customers. We have now a clean base, because we deducted the O2, the O2TV customers. I think the migration will be finalized during this quarter, but we already deducted them in order to have a clean base. And we also deducted further unprofitable subs. So this brought us to the new and clean base. Overall, I think the growth was 152,000, is healthy. And beside this, we could show that we increased the profitability a lot and reached EUR 36 million adjusted EBITDA besides this nice growth. So on the next slide, you can see our priorities and the guidance for full year '26. Our focus areas are to strengthen the freenet brand. We will keep investing into our brand, into performance-based brand marketing campaigns. We have experience with it. It's important to have a clear branding and messaging impact of our campaigns. And then we will further develop our customer base value management and work on our initiatives. We will further optimize the conversion rates on our website. At the moment, when you go to freenet.de, you can see that we moved the domain, but there's still also a lot of room for further improvements in terms of user experience and page speed, conversion rates. So we are working on this. There will be further updates in the next months, which will also lead to further sales potential. And we will keep integrating the mobile phone channels. We work closely together with the teams. We will also reaccelerate the waipu.tv growth and the customer base. So we are -- we see potential in the market. We see potential through the product very good product. And we -- our objective is to become the AI telco company in Germany. So we started our projects in the customer value management, but we will also roll out AI tools to all different areas. It's -- for us, it's really important. We see that this is a huge path. Our guidance for '26 in terms of postpaid subs and moderate growth. I said that we have many opportunities here. But here, for us, it's the ARPU, the quality is more important. So we -- I think we showed that we can grow. We can outgrow the market. But for us, quality is more important. And postpaid ARPU, we expect still a moderate decline because of the impact of the customer base. However, we believe that the pricing for new customers that we are quite confident. In waipu.tv, we expect noticeable growth. With that, I hand over to Mr. Arnold. Ingo Arnold: Yes. Thank you, Robin. So I'll start with the group financials. So yes, to be honest, at the beginning, I'm disappointed by the figures, especially because there's one effect. I think all the figures are quite fine. The performance was quite fine during the year. And a lot of initiatives, what Robin was talking about, they worked quite fine and quite well. And then there is one effect now, which is a little bit disturbing, the picture here, but coming to the details further on. So if we look into the revenues here, yes, I would say, it's nearly stable. What we see here, we sold this WiFi business, which was called the cloud. We sold it mid of the year '25. This was an effect, especially in the second half of the year. If we look into the Q4 revenues, we see the effect from the cloud, the missing revenues. On the other side, if you remember, last year, we sold these IP addresses in Q4 last year, which was a positive effect in revenue of nearly EUR 20 million last year. So more or less, the miss in the revenues in Q4 is explained by these 2 reasons. I think what is important that revenues from high-margin services continue to grow. Switching to the gross profit. Here, what we see, we see a miss in Q4, but we still see that the gross profit is stable. Even with the bad Q4, it is stable for the whole year. What are the effects in Q4? I already talked about the phasing of the sale of IP addresses, which took place in the third quarter in '25 and took place in the fourth quarter in 2024. On the other hand, from the sold business, there was a gross profit contribution last year of something like EUR 5 million. And then Robin was already talking about the effect out of one single MNO agreement, where we chose to be very conservative in our accounting. Robin already mentioned that we are in discussions here, especially about a totally new agreement. These discussions are ongoing. And as we are here, as you know us, we are conservative. We are cautious. Therefore, here in the actuals, we chose to be -- to build up a worst case, and this is what we also did in the figures starting with '26 into the future. Adjusted EBITDA, here again, the reason is this -- especially this MNO agreement, which is a negative effect of nearly EUR 13 million in Q4. What we also saw as a negative effect was this sold business. Again, the cloud, they generated an EBITDA of EUR 2.7 million in Q4 '24. And so if you deduct or if you normalize by these 2 effects, it would be a very good quarter, and it would be a very good full year deeply in the guided range. Moving to the next page, mobile business. We see these -- we see on the one hand, in the revenue in the quarter that we lost some revenues in the segment here, hardware other. It is again this disposal of the WiFi business. But on the other hand, we -- and Robin explained it, we focused or we had to focus in marketing -- in online business, we had to focus on our discount brand, klarmobil. And with the discount brand, klarmobil, I think this is as usual, you do not see a lot of bundles. You see a lot of SIM-Only. So what I do expect for '26 ongoing is that with the new brand, and we just started with the new website, freenet.de, where we can sell the more premium quality tariffs and where we can sell more bundles. I do expect these hardware/other line to increase again. The service revenues, here on this page, not separated the postpaid service revenues, which grew slightly during the year. The miss here in service revenues is based on a reduction in prepaid business. So I think there is still a number of something like 1.5 million prepaid customers, what we do have, but it is reduced step by step. And therefore, we see a reduction of revenues here, but unprofitable revenues. Gross profit in the mobile business, here, you see it even clearer the effect from the conservative accounting of the MNO agreement. So without it and without the effect from the sold WiFi business we would be in the quarter. But definitely, on a yearly basis, we would see at least a stable gross profit. Adjusted EBITDA, again, the same reasons here. I think without the special effect, we would be near to the level -- much nearer to the level what we saw last year, and we would be deeply in the guided range. So moving to some KPIs of the postpaid business. Robin already talked about the growth in the postpaid business. So I think it was a proof of concept in the fourth quarter, especially in the fourth quarter, where we generated this high figure of new customers, but I think also for the full year. So -- but just to make clear here, and I read it from also some of our competitors, but for us, definitely, this is a top priority here for generate customers and to have the priority value over volume. So in the first quarter, I do not expect a comparable figure to what we saw last -- the Q4. But I think this makes a lot of sense because in the middle of this chart we see the ARPU, and Robin already talked about the base effect. We still -- we are happy that the ARPU of the new customers could be stabilized and even increased in the last month. And this is also what we focus on in the first quarter. We try to increase the prices. We would like to have a turnaround here in the ARPU situation. But during '26, it will stay difficult because of the base effect. But I think we are so happy that on the new customer side it was possible to stabilize it now. Digital lifestyle revenues are stable compared to last year. TV and Media, yes, definitely a success story with waipu.tv. Here, this is a page which definitely makes the CFO happy. All figures could be increased, higher revenues, higher gross profit, higher EBITDA, everything inside the range what we guided, even at the upper end of the range, the EBITDA. So I think it's a very good picture. It was possible to prove that waipu could not only grow, but could also generate relevant EBITDA. And so I think it's really a success story what we see. On the next page, financial structure. I think it's no changes to what we had in the other quarters. Still a very low leverage, a very healthy balance sheet. Yes, if you see the debt maturities, it is obvious that we do have to do a refinancing in the first quarter. I think we postponed it to April. It's no reason by market or that it would be difficult, but we will place promissory notes. We just started the process with the banks. So there will -- a refinancing will take place. And I'm optimistic that it will be possible with similar margins what we saw before. Free cash flow, I think we came in -- I think, yes, the EBITDA was lower than expected in our last call because of the now known effect. But all the other buckets are near to what I forecasted during our last call. Net working capital, I think I forecasted minus EUR 45 million. We came in a little bit better. Taxes, I forecasted EUR 60 million. Now we -- EUR 4 million better, EUR 56 million. In the -- on the CapEx side, we instead invested, especially on the AI side, we decided to invest some additional CapEx at the end of the year. Lease, as forecasted. And also, interest nearly as forecasted. And then we have to deduct the EUR 12 million here from the sale of this WiFi business. As you know, we generated sales -- we generated a price of EUR 40 million. So this was the cash in. We are not allowed to show the cash in, in our free cash flow based on our definition. Out of this EUR 40 million, EUR 12 million was relevant for the EBITDA, but we reduced it here again, but the cash is in the company, definitely the EUR 40 million. What we also did to be fair to our shareholders, and we know that a lot of shareholders are shareholders because of our high dividend, and there were some payouts in the second half of the year because we reduced the number of Board members here. And then there were some compensation severance payments, which were necessary in the second half of the year. Yes, it was linked to LTIP programs. This is correct on the chart, but it were compensation payments. And in a normal world, these would not have -- we would not have to pay them in the second half of the year. So therefore, we corrected this figure. And after correcting it, we are on a free cash flow level above EUR 300 million. And on this level, the calculation of the dividend is based and we stick to our promise to pay 80% of our free cash flow as a dividend. This is a calculation now and this leads to EUR 2.07 and the EUR 2.07 will be also proposed to our AGM. And I'm of good mood that they will support it there. Then on the next page, the guidance for '26. I already said that what we built up here in the guidance and also in the ambition for the years, we built up a worst case from this agreement with the network operator where we do have a problem now, where we do have the discussions. And therefore, in the guidance '26 and also in the following years, there is a negative EBITDA effect of EUR 50 million, EUR 5-0 million from this topic. And this is -- and therefore, I think on the first view, the figures may look disappointing. But if you put this into consideration, I think it is clear that basically we believe in the business, we stick to what we promised and we are -- for the underlying business, we are still very optimistic. It is only this one problem what we do have at the moment. And so we had -- we showed in the actual EBITDA of EUR 515 million. You have to add EUR 25 million for mobilezone, then you would have EUR 540 million. But on the other hand, you have to reduce the difference from this network operator agreement. So we already had EUR 13 million in '25 in the figure of EUR 515 million. And so in addition, there is something like EUR 37 million. This is a negative impact. And so therefore, we see EUR 500 million to EUR 530 million on an EBITDA level and free cash flow is corresponding to this. As the free cash flow may be a little bit disappointing. We would like to give some certainty to our shareholders and to make very clear that we believe in the business and that we do not see any negative signs in the business and in the underlying business. And therefore, we decided to promise to pay at least EUR 2 as something like a minimum dividend for the years '26 to '28, payout '27 to '29. But definitely, if the 80% of the free cash flow, what I believe today, if it would be higher than the EUR 2, definitely, this rule is still valid. So maybe these explanations to the guidance here hopefully helpful. Then I would hand over to Robin again to discuss the ambition what we renewed. Robin John Harries: Yes. Thanks, Ingo. So we updated our ambition. We have -- our 2 pillars are the mobile business and the IPTV business. Mobile, I think we have a healthy market share. We have over 8 million postpaid customers. The big advantage is that we offer all networks. So now we also offer 1&1. I think that's a very good value proposition. We have a multi-brand strategy, and we have strong sales channels. We have our own shops around 500. We have exclusive partnership with MediaMarktSaturn. We start brand marketing in TV. We do connected TV. We have many affiliates, online partners, offline partners. We acquired mobilezone. So this really gives us a very, very strong footprint in the market, and I think it's a very strong position. So we will -- and I mentioned it before, it's not only the new customer growth or the new customer potential that we see through our strong offerings. It's also the improvements in our customer base, and we want to reduce churn. So all of that let us believe that we have a potential to grow here, a stable business. It's healthy. And in our second pillar, the IPTV business, we have a product that is really outperforming the market, very strong, very good reviews. So we have a nice market share there as well, highly recommended and we believe that the market will further grow. And so the customer base will grow. On the next page, yes, so you can see our plans to become a leading AI telco in Germany. Our big advantage is that we are the smallest. So we are much smaller than our big partners and big competitors. And so I think that's an advantage. So we have a flat hierarchy. So we can -- we are very strong in decision-making. We can make decisions very fast and we are doing this. So we did this in the customer value management. So this was started last year. So this month, we already bring the first AI tools and agents live. So we are very, very quick here. And we do this in all different areas in the company. So we have customer care, customer base management, then we also bring our AI tools to our shops. So as I mentioned, we have 500 -- around 500 shops in Germany and the tools that our salespeople there use, they will be -- they will get new tools so that they will get information, which are -- they will get AI information. And this will make the user experience within the shops and the experience for our salespeople much better and hopefully also increase conversions. We also keep investing into our staff. So we are -- we have our people here. They are able to adapt quickly. So they have -- I think we have many, many growth mindsets here. They are able to change. And yes, so this is, I think, whenever you do something like a transformational company, 70%, 80% is people. And here, we are, I think, very strong. So -- and besides these big lighthouse projects, we apply AI wherever we can do this. So for example, when you look about -- or when you think about creatives, how to produce creatives for your advertising campaigns, we want to use AI. And when you look into mobile, so I mentioned it, we have a strong customer base. We have strong offerings. All networks makes a lot of sense to come to freenet and to buy products there. And we improve our customer value management. We use AI. So -- and this will lead to a reduction in churn, and we will also increase our sales after service. So when people call our hotlines and they have a service request, we help them. After that, we will also start to do more sales after service and sell family cards, for example, or waipu.tv. Customer acquisition, so a premium strategy that's important for us. We will focus on Freenet, on our premium brand. And when you look into unaided brand awareness, there we are around 10%, which is very low where our competitors like 1&1, they are, I think, around 50 or even higher percent. So there, we have a lot of room to grow. And we will close this gap by investing into smart performance-based marketing campaigns. We know how to do this. We already tested this with klarmobil last year, and those campaigns were very successful. We really saw a nice sales impact and also -- and then that's important. So whenever we do brand marketing invest into TV, we do this with a clear sales approach. So we produce our creators always with a clear focus on a product, on a price, which drives sales. So this is a combination of performance and brand. And yes, so also when you look at our websites, so they are getting better step by step, but there's also a lot of room for improvements. Our conversion rates have become or we already have improved them a lot, but there's still a lot of room for further improvements. This will also help us to further increase performance here. So therefore, we see a potential to an uplift of EUR 30 million by '28. Next slide, IPTV. Waipu.tv is a success story, very strong customer base, strong offerings. And besides this, also the advertising business within waipu, it's growing very strong. We see further potential. We have strong partners here. And we believe that we will further grow our subscribers and we will further grow subscription revenues, advertising revenues. And all of that, I think, is really a huge opportunity, and we expect an uplift of EUR 85 million by '28. As I said, here, the market is healthy. Our customer base, we expect that we will grow very nice until '28. So this is reflected or this is due to our strong products, the outstanding product, but also through the market development. If the market itself will grow, we will grow. Therefore, we are quite confident that we can see nice subscriber growth. And we have strong advertising partnerships with RTL, [ ProSieben ]. And besides this, we will also grow in our advertising business. Ingo Arnold: Yes. Coming to Page 26, I think base information which is relevant when we published the financial ambition for '28, the first time 2 years ago, I think we based it on the EBITDA of '23. Now here, there is a new baseline. The baseline here for this financial ambition is the year 2025. In mobile, yes, we -- Robin already mentioned the plus EUR 30 million, what we see here compared to '25. Here again, we have this negative impact from this MNO agreement. On the other side, we have mobilezone. We have cost efficiency, especially from AI projects. So we see possibilities here to reduce our cost line by something like EUR 10 million. And then from all the initiatives, which we started here and what Robin already talked about, we expect something like EUR 30 million. And this seems possible. We also restarted freenet energy. We restarted freenet fixed net. So I think we -- there are a lot of initiatives. And so we are very confident to reach at least EUR 30 million out of these initiatives in the next years. In IPTV, we slightly increased our ambition compared to what we published 2 years ago. Because what we did that time was only to put into consideration the increase from the subscriber -- from the subscription and from the service revenues. This time, and Robin already showed this, the revenues from advertising, which are increased. So therefore, we increased it here compared to last time. And then in the other holding, there is also an increase compared to the last ambition '28, what we published because of the lower Board salaries. So all in, we increased our ambition from more than EUR 600 million to more than EUR 620 million. And yes, I think it's challenging, but I think especially if we get a solution with one network operator. And if you use it and if you would correct it by this and if we could solve it, then it would be even higher and definitely higher than what we published 2 years ago. Moving to the free cash flow ambition. Yes, I think we have the positive effect from the EBITDA, what I already described. The other items of the EBITDA to free cash flow bridge are more or less unchanged, but we have the negative effect from the taxes. I think everybody is prepared to it because the tax loss carryforward will be -- will fall away in '28, up to the end of '28. And therefore, there will be a higher tax what we will have to pay. So all in, a free cash flow of more than EUR 340 million, which implies a dividend of something like EUR 2.30. And this is still based on the promise that we will pay out 80% of the free cash flow with the addition now what I already mentioned that we pay a minimum dividend or we grant a minimum dividend of EUR 2. And dividend is still the first priority in capital allocation. So no changes here. Second pillar or second priority is growth. And third priority is to do any share buybacks in the future or to reduce the leverage further, but this would not make any sense from my point of view. So therefore, for the last page, I hand over again to Robin. Robin John Harries: So here, you can see what freenet will stand for in '28. Our 2 strong pillars, mobile pillar. We will -- we believe that we can grow our customer base by doing smart performance-based marketing, reducing churn. And we are implementing AI first and tools and want to have an AI first operating model. So we believe there will be steady profitability, and this will lead to highly cash generating -- this will be highly cash generating. In our IPTV business, so here, we see a very strong second -- core business is developing. We believe we will grow the business up to 3 million users. The advertising will be additional revenue stream, and we believe that there will be an EBITDA of at least EUR 120 million in '28. So all of this, I think it's -- we have very healthy financials, low leverage. We are growing free cash flow. We have a nice dividend policy, which I think is a very healthy and attractive business. Ingo Arnold: So therefore, we give back to the operator to start the Q&A, please. Operator: [Operator Instructions] And we have the first question from Polo Tang from UBS. Polo Tang: I have 3 questions. The first question is just about the MNO shortfall. So you highlighted a EUR 13 million profit shortfall with one MNO contract that could rise to EUR 50 million if you do not meet certain volume commitments. However, do your deals with the other MNOs have a similar structure? And is there a risk of further profit shortfalls if you do not achieve volume targets? Second question is really just about the impact of AI. Do you see a risk of the MNOs becoming more efficient at acquiring and retaining customers, meaning they will be less reliant on independent third-party channels like freenet going forward? Alternatively, if you look at it the other way around, do you see AI as an opportunity? Third question is just on waipu.tv. You indicated that your underlying net adds in 2025 were 150,000. Your mid-term guidance indicates that growth will pick up to 300,000 net adds per annum going forward. But can you remind us what caused the underlying slowdown in 2025? And why are you so confident that the net adds will rebound and improve going forward? And who do you think your main competitors are when you look at waipu.tv? And is Vodafone bundling cable TV for free with broadband having any impact on waipu.tv? Ingo Arnold: Yes, your first question, I think we have very favorable contracts with the other MNOs. I think it's only one partner where the agreement is as it is. This was done before Robin started. It was done in '24. So I think we -- and both partners now think that discussions do make sense. So also for the operator, it is not a healthy agreement. And I think we are on the same side there. And so with the other operators, no, we do not have comparable risks what we see at the moment. Then I take the third question about waipu. Yes, I think you linked your question to the 152,000. On the other side, what I would do in my calculation is I think we were free to clean up the unprofitable subs. We decided to clean it up by the 88,000. If you would not do so, then we would have something like 240,000, which is not that far away from what we guided and the 240,000 is something like 15% of growth. And this is something what we also see for the future, something like between 15% and 20%. So I think even in a year where we reduced our marketing spending, where we were not that aggressive, it was possible to grow the business by 15%. So therefore, we are optimistic here for the future. The IPTV market is growing. And I think you also asked about bundles. It is possible. We are in discussion here with different suppliers in the market for fiber, for broadband, etc. And so I think maybe -- and also in the mobile area, maybe there it will be possible in the -- maybe in the second quarter to another contract with one of the big players. But I think I do not want to promise anything today. Discussions, negotiations are ongoing. But I think we are -- basically, we are happy now with the waipu base because it is clean. I think we do not have to discuss in '26 about Telefonica customers. We just can show the growth, and we are very optimistic already for the first quarter to be on a relevant growth path again. And then we had this AI question. Robin John Harries: I'm happy to take it. So for us, AI is an opportunity, it's not a threat. And to be clear here, so when you talk about direct, freenet is direct. Freenet is no comparison website. Freenet is no intermediary. We are direct. People come to us, customers come to us, they book with us, they become our customers. And so we compete like with all the other direct players, the network operators. And when you look at our offering, so we offer all networks and we offer this to very nice prices. So -- and I mean, AI should be smart. And if you look at the benefit of companies and products, I think we are in a very good position to benefit from this. So I see this really as an opportunity because of the very attractive offerings. And we also have a multi-brand approach. It's not just one brand. So we have premium brands. We have brands for pricing. We have budget brands. So we are very well positioned through the offerings of our brands and through the massive footprint that we have in all marketing and sales channels and then through the attractive price and because we are direct, we are no intermediary, no comparison website. Operator: The next question comes from Ulrich Rathe from Bernstein. Ulrich Rathe: 3 questions for me as well, please. So again, on the MNO contract, could you talk a little bit about when this became apparent during 2025? It sounds like this became apparent only during the fourth quarter. How is that possible? I mean, the market trends have been unfolding throughout the year. So it's a bit difficult for us to understand how only in the fourth quarter you suddenly see something developing that costs you EUR 13 million this year and EUR 50 million next year. That will be -- and with regard to the mitigation for this issue, is there a precedence for such a contract renegotiation? Or are there any other reasons for confidence you can give us that the renegotiation would be successful? My second question is on the waipu outlook for 2028, which you have raised. Could you talk a little bit about your level of visibility here in terms of the customer revenue and margin outlook? I mean, there is -- it is very optimistic, but I suppose I'm trying to sort of gauge to what extent you're guiding for things that you feel are very achievable compared to sort of a little bit like a moonshot kind of guidance on waipu. And my third question, if I may, you pointed to a voice robot launch in the context of this better customer value management. Now my question on that is, why would be an AI robot, a voice robot be better at customer value management than engaging with a person? I understand why AI is cheaper. I also understand why it might help your sales force to put the right information in front of them when they deal with the customer. But do you actually believe that a voice robot has the ability to manage customer value better than a person? Ingo Arnold: Ulrich, from my side to the MNO topic, I think at the end of the third quarter, we were still optimistic to have no gap in '25. We already started some discussions with the network operator, but with the former management of it. And so yes -- and therefore -- and I think the conditions what we get for the tariff plans, the margins, this all was not sufficient to promote this network. And therefore, we reduced it during the fourth quarter, and therefore, we saw the effect. So it's -- and now we are in these discussions to make, but to make it clear. And you asked about some -- I cannot give you a confidence level to it, how -- what level -- how the success rate could be of these discussions, what we do have there. But what we -- what I can definitely say is if the discussions would not be possible, then we would also take legal actions against it because we think the behavior of the network was not fair to us here. Then about the waipu outlook, maybe I take it also, Robin, if you're fine. I think it is -- the increase versus the ambition what we gave 2 years ago. The increase is based on the advertising contract what we could close with the big TV channels here in Germany. And on the other side, and it refers to the question of Polo, we think that it is possible even on the reduced base what we see today to increase the customer base to 3 million customers up to the end of '28. And this is also -- this is another effect. If you have more customers, then your advertising revenues are also higher. And if you have more customers, definitely, your service revenues are higher. So I think we did the calculation. And yes, it works if we have the increase by something like 15% to 20% in the customer base year-by-year. And this looks for us -- and I think this is the key to the ambition here. But I think I tried to make clear already with Polo's question or with the answer to Polo's question that even in a year where we focused on EBITDA, it was possible to grow the base by something like 15%. And so I'm optimistic that this could also work in the future. Robin John Harries: And related to your question regarding the voice bot, so it will be an AI voice bot. We will start the first test this month in our service line. And you -- so normally in the service line, you get many requests that you could also answer if you go through the FAQ section. So at the beginning, we are building our knowledge base. This is important. So this is the fundament for the AI bot. And so the benefits of the AI bot is that it's available 24 hours, 7 days. It's very efficient in terms of cost. It has a huge knowledge base. So the knowledge is -- I mean, it's huge, so it can answer many, many questions. And it's continuously improving and learning. So calls will be transcripted, they go back into the machine, they will learn, they will develop. The AI bot will also do sales after service afterwards. So for example, if like by the way, her name is Ginnie. And if you, for example, have a service request, you talk to the very friendly Ginnie. So afterwards, she might ask you, okay, now that we've solved your problem, I see that you also have 2 kids. And may I also offer you like a family card for your kids, stuff like this. And I think this is -- that's the future, and we have made huge progress during the last weeks, months with also with the help of external consultants. And that's a huge workforce here internally is working on this. And I'm sure that we will make a big step forward this year. Operator: We have the next question from Florian Treisch from Kepler Cheuvreux. Florian Treisch: I have to ask a question on the MNO agreement. My one is on the EUR 50 million headwind you mentioned. I think in your remarks, you phrased it as a worst case. I just want to double check. Does it really mean EUR 50 million is the absolute worst case in a way it cannot get lower? And what is, to be fair, a base assumption we have -- we can make for '26, i.e., a lower number than the EUR 50 million you have mentioned? The second one is on mobilezone. Can you give us a feeling what is the implied EBITDA contribution in '26? And are you expecting already a net positive synergy effect, i.e., after the integration cost in '26 or is it something more likely for '27? And the last one, you just mentioned that you are restarting freenet energy, the broadband operations. I mean there was a reason to shut it down in the past. What has changed here? Ingo Arnold: Florian, your answer about the worst case, I think what is the worst case in the world? I think, yes, I would say from -- and I called it worst case and I mean it is a worst case. We do not know what happens in the world. But if the framework is as it is today, yes, it's definitely a worst case. I think there is only a possibility to optimize it. And therefore, definitely, it is a worst case, EUR 50 million. Mobilezone, I think for the year '26, we used an EBITDA of EUR 25 million. We have not calculated or put into consideration any synergy effect. I think the team is working hardly to get synergy effect. And so yes, there is an additional chance. But yes, I would support your idea that it makes more sense to show the synergies or to get the synergies then in '27. I think that we'll -- we will start in '26. We will -- there will be some low-hanging fruits. This is what we already saw. but we have not calculated these synergies. I think we have to get more knowledge of the business of mobilezone. We just started at the beginning of January to discuss with all the operating with the finance people. So I think it is too early to put any synergies in our forecast, but I'm optimistic that we will have some. And so there will be additional chances definitely compared to the plan for '25 and for our guidance. Robin John Harries: Yes. And related to the other products, broadband and energy, so we are on it. We are calculating cases. We are talking to partners. So for us, that I think it's obvious that it makes a lot of sense to sell broadband and fiber. So we have a strong footprint with our owned shops, almost 500 in very good areas. And if you want to sell broadband, it's important that you have a face to the customer, that you can talk to them, that you can explain them about the process, how to get fiber in your home. So that's the opportunity. And we are -- also there, we are in discussions with all the important players. They are all very interested in us supporting them. You can see that for all of them, fiber is, I would not say, a pain, but it's a top priority. And it's really difficult to do advertising and marketing and sales for broadband because you really have to talk to people, explain that to them. And we are there in a very good position. So this is -- it's not so easy to develop the product. So from the IT, from the technical side, yes, broadband is complicated. But -- and therefore, we are looking into solutions, how we can get there, external solutions, internal solutions, talking to partners. So -- but makes a lot of sense. We are quite confident that this will be an opportunity for us. In energy, it's the same. I think it's also obvious if you think about our shops and if customers come to our shop or to buy a mobile, so then it also makes sense to ask them, okay, where do you buy your energy? And if you have a good offer, so why would you or why shouldn't you try to sell this as well? So I think this is something where at the moment we are -- where we small, tiny, but we are working on changing this. Operator: The next question comes from Karsten Oblinger from DZ Bank. Karsten Oblinger: I have 2 questions. The first one is a follow-up question on the waipu outlook for '28. So how much of the advertising business with ProSieben and RTL is included in the guidance? So is it EUR 10 million, EUR 20 million? So could you give us a rough idea here? And the second question is related on the new business with 1&1. Could you give us an idea on the magnitude of the business so far? Ingo Arnold: Karsten, I would say, from the advertising side, as we had an EBITDA forecast or ambition in the last time of EUR 100 million without marketing revenues. Now it is without additional marketing revenues or advertising revenues. Now it is including advertising revenues. So it is something like the EUR 20 million. Robin John Harries: Yes. And related to the 1&1 partnership. So we started it in Q4. So we started it in the first shops. We selected some shops in order to have a test group. And I mean, for us, it makes sense to sell 1&1 if we get incremental sales. And yes, so the test was successful in the first stage. So that's why we scaled it. We are in the process of scaling this. Overall, I mean, we want to be the place where you get all networks, also 1&1. We want to have an offering for the customer, the best out of all worlds. And so therefore, 1&1 is important for us. But it's also -- I mean, they have attractive products. They have a strong brand. They do a lot of brand advertising as well. That's good. So people know the brand. If they see that they can get it also in our shops, they will come to our shops. This might further increase the frequency. And then on the other hand, Mr. Dommermuth, I mean, he's a smart guy, and it's always possible to make smart deals with him. So therefore, we are quite confident that this can become a fruitful partnership for the future. Operator: We have the next question from Joshua Mills from BNP Paribas. Joshua Mills: A few questions from me. I wanted to come back to the MNO shortfall and the rationale you have for how you could renegotiate that contract. So my understanding is that the freenet position is we're not being given the right kind of tariffs in order to meet the volume commitments with an operator, which would be necessary. So if that operator isn't giving you those tariffs and without them you can't hit the target, what levers and what legal backing or support do you have to demand access to those tariffs? I would assume that given you're accounting for the headwind now and you're putting into guidance, there's at least a degree of uncertainty to whether you do have any of those levers. And can you also confirm that beyond 2028, you'll roll on to a new contract with that MNO? And if so, should we expect to see a similar kind of setup or similar headwind? I just really want to understand what your negotiating position is on this if they decide that they don't want to use your services as much going forward? And secondly, you did mention that if the negotiations broke down, you could resort to legal action. Can you remind us what the legal backing for freenet's role as a reseller in the German market is today? I believe it is that MNOs must negotiate with freenet in good faith. But as far as I'm aware, there's no guarantee on paying a certain amount to freenet or giving them access to all tariffs. So if you could clarify that would be helpful. And then finally, on the waipu subscriber guidance, I think comparing to the 2024 guidance update, it looks like you have scaled back the subscriber target somewhat even with the 300,000 run rate, which you're looking for. Is that right? I know there's been some adjustments with the O2 sub base. And I just want to understand whether the better waipu TV EBITDA assumption is in part driven by the fact you expect to deliver fewer subscribers than previously under the old plan? Ingo Arnold: Maybe I'll start with the waipu question. I think it's still 3 million. I think in the last quarter, we already forecasted something like 3 million as a customer base for 2028. And so there's no relevant change. About the legal actions and possibilities, I do not want to talk about. I think this is something -- I think this is not what both parties want to have. We want to have a solution in the discussions and in the negotiations. But if these negotiations fail, then we have to think about legal possibilities and legal actions. And we see possibilities there, but I think it's -- you would understand that we do not want to talk about it. And I think first priority for all parties is to find a partnership solution. We want to have a good partnership with all networks. And I think we -- in the talks, we see a very good mood. We see that all -- both parties are interested in a solution. So we are very optimistic to find a solution. But I think we have to wait and see what happens. And after -- I think we have to wait what happens after '28. I think we give an ambition and an outlook up to the year '28 and then the other years have to be negotiated. So this is what I can comment on it or what we want to comment on it. I think we have discussed it in depth now. And I think I do not want to give further information about it from our point of view. I think we said what has to be said. And then I think we have -- action has to follow. Joshua Mills: And maybe just one follow-up. So if we assume that this particular MNO contract expires in 2028, could you just update us on when the other 2 MNO contracts expire? I think one -- another one is in 2028 as well and then one in 2030, but just to get some clarity on that. Ingo Arnold: I have not said that it ends in '28. Operator: And we have one question from Siyi He from Citi. Siyi He: I have 2, please. The first question, I just want to go back on the waipu.tv 2028 guidance. And it's just looking at your guidance for '26, and it seems that there will be a quite big step-up on EBITDA growth for '27 and '28. Just wondering if you can help me to understand why the acceleration? And I think you mentioned that advertising revenue would be EUR 20 million. Do you expect the full impact of that EUR 20 million to start hitting from '27 onwards? And my second question is on the synergies you talked about regarding mobilezone. I'm just wondering you can give us a little bit more details of where are the low-hanging fruit? And also what would be the ultimate situation for you when you're looking at potential synergies with mobilezone? Ingo Arnold: Yes, I think waipu, I already tried to explain that we saw on an adjusted base, we see already a growth of 15% we saw in '25. And so this is something what we do expect for the following years. The IPTV market hopefully grows again further, then we could grow further. We think a similar market share, stable market share is possible with a very good product what we offer. So I think we are -- it's -- yes, it's a forecast, it's an ambition, but we think this looks possible to us. With the synergies at mobilezone, yes, I think we -- what we did is we had a lot of meetings with the management first, but then we connected all the people who do similar jobs. And so we have a lot of small teams now and they are looking into their business. This is different thing. This is the HR department. This is the marketing department. All departments are talking with each other. And then you have some small low-hanging fruits, you have some bigger low-hanging fruits and then you have the operational business. And on the operations side, sometimes we have the same partners. So we -- it's like scaling the business with the partners. You talk with the partners, what could be possible. We talk with the MNOs, which could be possible, which is their interest, which is our interest. And so -- and also on the side, they have in an Apple contract to buy iPhones directly. This is something what we did not have in the past. So we can use this channel now to buy iPhones, to buy Apple products. And so I think there's a lot of fast development in all these conversations what we do have with all these discussions. And as I said, I do not want to -- I gave you some examples, but I think if we would talk to the teams now, you would have 50 examples where the synergies could be possible. And a lot of them could be get fast. But I think it's too early. I think we will keep you informed in the upcoming quarters. And then I think we will see how it develops. But I think we already have a lot of initiatives which are started. So we are on the way to generate it. Robin John Harries: Yes. So yes, thanks for your -- thanks for attending this call. I think we are happy about the operational progress. We have many, many initiatives. We have a very motivated team here, and we are working on this and try to deliver step by step. We are not happy about the current situation with the network provider, but we are working on this. And as Ingo said, we are in fruitful discussions. Both parties share the view that we have a sick agreement there that we need to change it, that we have to work on a new agreement. We are doing this. But yes, I see like many, many opportunities, and I'm really happy to be here in this company. It's a lot of fun. We are working on this. And yes, thanks for your time. Wish you a great day.
Operator: Good day, and welcome to the Nexstar Media Group's Fourth Quarter 2025 Conference Call. Today's call is being recorded. I will now turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir. Joseph Jaffoni: Thank you, Rochelle, and good morning, everyone. Let me read the safe harbor language, and then we'll get right into the call. All statements and comments made by management during this conference call other than statements of historical fact, may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during today's call. For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10-K for the year ended December 31, 2024, as filed with the U.S. Securities and Exchange Commission and Nexstar's subsequent public filings with the SEC. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. It's now my pleasure to turn the conference over to your host, Nexstar Founder, Chairman and Chief Executive Officer, Perry Sook. Perry, please go ahead. Perry Sook: Thank you, Joseph, and good morning, everyone. Thank you for joining us today. Mike Biard, our Chief Operating Officer; and Lee Ann Gliha, our Chief Financial Officer, are with me on the call, as always. Nexstar's fourth quarter financial results capped a year marked by strong execution and bold strategic action to shape our future of the business. We delivered on all key operational priorities in 2025, including successfully reviewing and renewing distribution agreements representing over 60% of our subscriber base, further elevating The CW and NewsNation to top-tier networks, extending our affiliation agreements with both ABC and MyNetworkTV and pursuing regulatory reform through our landmark agreement to acquire TEGNA. These achievements, together with the return of midterm election political advertising in 2026, all set the stage for a very exciting year of growth ahead for Nexstar as reflected in our stand-alone Nexstar pre-TEGNA full year adjusted EBITDA guidance of $1.95 billion to $2.05 billion. The rationale for the Nexstar-TEGNA combination is becoming increasingly clear. Consolidation is accelerating across the broader media industry from the Hulu-Fubo transaction to the proposed Charter-Cox merger to the upcoming sale of Warner Bros. Discovery. Against this backdrop, our transaction represents a pivotal and critical opportunity to establish a framework for local television broadcasters to more effectively compete with big tech and with big media while strengthening our ability to deliver high-quality local journalism to our communities. I'm pleased to report that we remain on track and are making great progress on our path to closing. Our HSR filings and our FCC license transfer applications have all been submitted. We have responded to all inquiries from the DOJ, the FCC and the state attorneys general, and we continue to work with all regulatory and legal bodies to fulfill any remaining requests. Our explanation for close is by the end of second quarter of 2026, and that remains unchanged. If we look at recent industry strategic activity, broadcast has been a consistently coveted asset because of the scale, reach and results it delivers to premium programming, especially sports. The numbers speak for themselves. This past season, the NFL delivered its highest viewership in 16 seasons, up 7% year-over-year, largely driven by broadcast. In home and away markets, broadcast still delivers the majority of the NFL Thursday Night Football audience versus Amazon Prime. The NBAs return to broadcast fueled a 16% year-over-year increase in regular season viewership through mid-February, and that marks the highest average NBA audience at this point in the season since 2018. The NBA All-Star Game also benefited with the highest ratings in 15 years in its first year back on NBC. And finally, the Winter Olympics also delivered their strongest viewership in years. The data is clear when it comes to delivering scaled audiences for premium live sports and events, broadcast remains unmatched. In this regard, Nexstar's own sports-focused programming strategy is delivering excellent results and enabled The CW to exceed our financial expectations in 2025. The CW finished the year as the tenth most watched ad-supported network and the second fastest-growing network overall, delivering a 19% year-over-year increase in viewership. In 2025, we improved the network's cash flow by an impressive 32%, and we anticipate continued financial improvement for the network as we move through 2026 with profitability expected by the fourth quarter of this year. The continued success of our long-term strategic focus on high-impact news and sports programming is further validated by the performance of NewsNation, which posted its strongest year ever in total day, primetime and daytime viewership and in 2025 was the fastest-growing cable news network in the adult 25-54 demographic. Consumer awareness of NewsNation has increased to over 40%, its highest level to date with over 50% awareness among viewers of news. These results reflect the fact that NewsNation's programming and unique fact-based reporting is resonating with viewers looking for a balanced and impartial take on the news. Looking ahead, as we had anticipated and discussed on prior calls, we're beginning to see more stable subscriber trends. Smaller DTC platforms are being integrated into multichannel pay TV packages and distributors continue to launch new value-priced skinny bundles, many focusing on broadcast and news programming. In Q4, Charter posted sequential quarterly growth in video subscribers, and overall, the data is encouraging to Nexstar's distribution outlook. While we are focused on closing our proposed acquisition of TEGNA, we remain equally disciplined in executing against Nexstar's core business. Beyond maximizing the political advertising opportunities presented by the midterm elections, our top 2 priorities in 2026 are digital optimization and expense rationalization. Digital is a key growth engine, and we continue to expand our audience reach, including local CTV apps now live in 108 markets, and broaden advertiser solutions across our owned and third-party inventory. Despite AI search headwinds, digital revenue grew high single digits in 2025 and double digits in our local business. And in 2026, we expect digital revenue to surpass our national advertising revenue, an important milestone that strengthens our long-term nonpolitical advertising trajectory. At the same time, we are further streamlining and centralizing our operations, automating select production functions, aligning incentive compensation closely with performance, actions which we expect will drive additional operating expense reductions and enhanced execution across the company. Touching briefly on political. Ad impact projects about $10.8 billion in total political advertising for the '25, '26 election cycle, a record amount for the midterms, with broadcasting expected to capture nearly 50% of that total or about $5.28 billion. We expect to capture a low double-digit share of total broadcast political advertising spend for the current cycle as our positioning remains excellent with a presence in more than 80% of the contested election markets. In summary, our assets generate consistently strong free cash flow, which we've used to create the clean balance sheet that we have today to return capital to shareholders and pursue highly accretive M&A like TEGNA and have executed with our proven playbook and grounded in our steadfast community to localism. We are energized by the significant prospects before us, and we remain laser-focused on executing our 2026 objectives, including closing our acquisition of TEGNA, capitalizing on the midterm election political advertising opportunity and continuing to optimize our business operations, all of which we anticipate will contribute to shareholder value creation. So now with all that said, let me turn the call over to Mike Biard. Michael? Michael Biard: Thanks, Perry, and good morning, everyone. Nexstar delivered fourth quarter net revenue of $1.29 billion, a decline of 13.4% compared to the prior year, primarily reflecting the year-over-year reduction in political advertising, offset by better-than-expected growth in nonpolitical advertising revenues. Fourth quarter distribution revenue of $720 million increased $6 million or 0.8% compared to the prior year quarter and primarily reflects increased rates, growth in vMVPD subscribers and the addition of CW affiliations on certain of our stations, offset in part by MVPD subscriber attrition. In 2025, we renewed distribution agreements covering more than 60% of our subscribers, extended our network affiliation agreements with ABC and MyNetworkTV to 2027 and renegotiated affiliation and vMVPD agreements for The CW covering about 2/3 of its subscribers. Looking ahead, we have approximately 30% of subscribers up for renewal this year. In 2026, on a stand-alone Nexstar-only basis, we are projecting distribution revenue growth to be in the low single digits on a gross basis and in the mid-single digits on a net basis for the full year. Our projections are based on our current and expected contract terms and an improvement in the rate of subscriber attrition. Turning back to our results for Q4 2025. Advertising revenue of $549 million decreased $209 million or 27.6% over the comparable prior year, primarily reflecting $233 million year-over-year decrease in political advertising to $21 million. However, nonpolitical advertising was up 4.5% in the quarter, better than the expectation of a low single-digit decrease we mentioned in our last earnings call. We saw later-than-anticipated spending last quarter, driving broad-based improvement across all advertising segments, including local, national, network and digital. Top advertising categories in the quarter were gaming, banking, attorneys and sports betting driven by the legalization of online sports betting in Missouri. Auto was once again our largest declining category, but our focus on developing new digital advertising products with auto dealers partially offset that decline. For the first quarter, nonpolitical advertising is currently forecast to be flattish on a year-over-year basis, primarily due to the negative relative impact of the Super Bowl airing on NBC this year compared to FOX last year where we have a stronger footprint. However, this negative comparison will be partially offset by the incremental advertising from the Winter Olympics on NBC. So far this year, we've seen strong viewership and advertiser demand for marquee sports content with more than a 20% increase in advertising for the 2026 Super Bowl and Milan Cortina Olympics compared to the comparable 2022 Super Bowl and Beijing Olympics. On the political side, we generated approximately $21 million in political advertising revenue during the quarter, primarily driven by Virginia's statewide general election and spending on -- general election spending and California's redistricting ballot proposition and early governor's race spending. With the return of the midterm election cycle in 2026, we look forward to once again demonstrating the value of broadcast television to candidates and campaigns looking to communicate to the electorate through political advertising on television. As Perry mentioned, we expect to generate a low double-digit percentage of total broadcast political advertising for the year. As a reminder, industry advertising forecasts are provided on a gross basis and Nexstar reports advertising revenue, including political, net of agency commissions. As in previous election years, we expect roughly 20% of our full year political advertising revenue to be earned in the first half of 2026, with the remaining 80% in the second half. Political advertising is also expected to impact nonpolitical advertising, driving displacement in the back half of the year. On the expense side, we remain focused on continuously improving the operational efficiency of our business. And in 2025, we reduced recurring cash operating expenses by 1.6% as a result of the operational restructuring we implemented in Q4 2024 and Q1 2025 and continued rationalization of programming costs at The CW. Looking ahead, as Perry mentioned, you can expect us to deliver additional cash operating expense savings across the business in 2026. Turning to The CW. Audiences are consistently showing up for our live sports lineup, and that momentum is translating into progress toward our financial targets. With its debut on CW Sports, the NASCAR O'Reilly Auto Parts Series, formerly the Xfinity Series, delivered its most watched season in 4 years, up 10% year-over-year, averaging over 1 million viewers across 33 races. College football also posted double-digit gains, averaging 456,000 viewers per week with ACC matchups on The CW, up 26%. ACC men's and women's basketball is also off to a strong start this season, with total viewers up 35% through the first 10 games. And NASCAR on The CW has returned strong with the O'Reilly Auto Parts Series season opener at Daytona delivering 2.3 million peak viewers, including more viewers in the 18 to 49 demo for any addition of this race since 2018. The momentum continued last week in Atlanta, where we've delivered 1.4 million average viewers, representing the best performance for this race since 2016. With 100 additional hours of sports program expected in 2026, nearly 47% of The CW schedule will be sports or sports adjacent. At the same time, we're strengthening our primetime lineup with premium entertainment, including Wild Cards, the final season of All American, Police 24/7 and refreshed game shows, Scrabble, hosted by Craig Ferguson and Trivial Pursuit, which will air not only on The CW, but will also be licensed for syndication downstream. Our overall programming strategy is delivering results with The CW outperforming Big 4 primetime telecasts 273 times across total viewers and key demos in the 2024-2025 season. That's up from just 45x a year ago. Similarly, NewsNation continues to hit consistent ratings milestones. In 2025, NewsNation remained the #1 fastest-growing cable news network in the 25 to 54 demo. For the year, NewsNation surpassed MS NOW 60x and CNN 40x in head-to-head telecasts across total viewers and in the 25 to 54 and 35 to 64 demos. This compares to the 2024 period when NewsNation surpassed MSNBC 4x and CNN 2x in head-to-head telecasts. So to close, I want to reiterate our confidence in our long-term outlook and the enduring strength of Nexstar's business model. Our programming strategy anchored by live news and sports continues to deliver results for The CW and NewsNation, and we remain committed to unlocking even greater value from these assets as our audiences grow. Our local programming strategy is similarly anchored by our unrivaled live news product and the proposed TEGNA acquisition will create a substantial and immediate value for shareholders while advancing the public interest by strengthening local broadcast journalism and providing an expanded range of competitive broadcast and digital advertising solutions across our portfolio of local and national assets. And with that, it's my pleasure to turn the call over to Lee Ann for the remainder of the financial review. Lee Ann? Lee Gliha: Thank you, Mike, and good morning, everyone. Mike gave you most of the details on the revenue side and on The CW. So I'll provide a review of expenses, adjusted EBITDA and adjusted free cash flow, along with a review of our capital allocation activities and our 2026 guidance. Combined fourth quarter direct operating and SG&A expenses, excluding depreciation and amortization and corporate expenses, decreased by $7 million or 0.9%, driven primarily by reduced commissions from sale of political advertising revenue in Q4 of '24, reduced news and production expenses, reduced promotions from our operational restructuring initiatives and lower administrative and onetime expenses. Q4 2025 total corporate expense was $65 million, including noncash compensation expense of $20 million compared to $48 million, including noncash compensation expense of $20 million in the fourth quarter of 2024. The increase of $17 million is primarily due to onetime costs associated with our proposed acquisition of TEGNA and the impact of a reduction in the bonus reserve in the fourth quarter of '24 that was larger than the fourth quarter of '25. Q4 2025, amortization of broadcast rights included in our definition of adjusted EBITDA was $75 million, a reduction of $23 million from $98 million in the fourth quarter of '24, primarily due to timing of programming at The CW. Q4 2025 income from equity method investments, which primarily reflects our 31% ownership in TV Food Network reduced by amortization of basis difference, declined by $12 million in the quarter or 67%, primarily related to TV Food Network lower revenue. We also wrote down our investment in TV Food Network consistent with other companies in the entertainment cable network space. Putting it all together, on a consolidated basis, fourth quarter adjusted EBITDA was $433 million, representing a 33.6% margin and a decrease of $195 million from the fourth quarter '24 of $628 million. Moving to the components of free cash flow and adjusted free cash flow. Fourth quarter CapEx was $54 million, an increase of $19 million from $35 million in the fourth quarter last year, primarily due to an investment in real estate at one of our properties. Fourth quarter net interest expense was $91 million, a reduction of $13 million from the fourth quarter of 2024. On a cash basis, this compares to $89 million in Q4 2025 versus $101 million in Q4 2024. The reduction in interest expense was primarily related to a reduction in SOFR and reduced debt balances. Fourth quarter operating cash taxes were $33 million compared to $67 million in 2024, a decrease of $34 million, primarily related to decreased pretax operating income in 2025 related to decreased nonelection political advertising. Payments for capitalized software obligations net of proceeds from disposal of assets and insurance recoveries were $6 million versus $4 million last year. In Q4, cash programming amortization costs were greater than cash payments by $19 million versus lower by $13 million in 2024 as certain programming payments were prepaid. Pulling this all together, consolidated fourth quarter 2025 adjusted free cash flow was $214 million as compared to $411 million last year. Now turning to our 2026 guidance. We believe Nexstar's stand-alone 2026 adjusted EBITDA will be in the range of $1.95 billion to $2.05 billion. Perry and Mike already provided some of the key assumptions that are embedded in that guidance, including: one, our expectation for gross and net distribution revenue growth to be up low and mid-single digits, respectively, based on contract renewals completed in 2025 and expected in 2026 and an improvement in subscriber attrition trends; two, political advertising revenue should be in an amount equal to a low double-digit market share of broadcast political advertising and will have a displacement impact on nonpolitical advertising in the back half of the year; three, total operating corporate expenses and amortization of broadcast rights, excluding onetime charges, will again decline year-over-year due to our continued plans to affect our business by focusing on efficiencies and reducing programming costs; and four, we expect The CW will continue to reduce its losses by another 30% in 2026 from 2025 levels and achieve profitability in the fourth quarter. Key factors differing from our current expectations, which could affect our outlook for adjusted EBITDA for 2026, either positively or negatively. Those factors include, among other things, the rate of growth or attrition of pay TV subscribers, the health of the local and national advertising markets, our renegotiation of certain distribution and affiliation agreements on terms favorable to the company and the attributable net income related to our 31.3% ownership stake in TV Food Network. We do not intend to update this guidance on a quarterly basis. As a few additional points of guidance with respect to adjusted free cash flow. We are currently projecting CapEx of $125 million to $130 million for the year and $30 million to $35 million in the first quarter. Based on the current yield curve, we anticipate full year 2025 cash interest expense to be in the $355 million to $365 million area, an improvement of $11 million versus 2025 levels at the midpoint. We project Nexstar's cash interest expense, including the spread on our floating rate debt instruments, the current SOFR forward curve and the coupons on our fixed rate debt, along with our expectations for debt repayments, which includes our mandatory amortization of approximately $111 million. Q1 interest expense is expected in the $85 million range. Full year 2026 cash taxes are expected to be approximately $315 million to $325 million range, an increase versus 2025 of $208 million due to an expected improved income, primarily a result of the election year. For cash taxes, we use a 26% tax rate when calculating our estimated tax before onetime and other adjustments. The first quarter includes only a very small amount of state income tax in the $2.6 million range. As a reminder, we will use the annualization method for tax, meaning tax related to the fourth quarter of '26 will be largely deferred to '27. In 2026, payments for programming are expected to be in excess of amortization by $25 million to $30 million due primarily to an investment in programming for future years with approximately $1 million of that in the first quarter. Turning to capital allocation and our balance sheet. Together with cash from operations generated in the quarter and cash on hand, we returned $56 million to shareholders comprised entirely of dividends as we are conserving cash for acquisition of TEGNA. For the year, we returned $351 million or 42% of our adjusted free cash flow to shareholders in the form of $226 million of dividends and $125 million of share repurchases, reducing our year-end shares outstanding by 1% to 30.3 million. Nexstar's outstanding debt at December 31, 2025, was $6.3 billion, a reduction of $26 million for the quarter as we made quarterly amortization payments. Our cash balance at quarter end was $280 million, including $13 million of cash related to The CW. Because we designated The CW as an unrestricted subsidiary, the losses associated with The CW are not accounted for in our calculation of leverage for purposes of our credit agreement. As such, our first lien covenant ratio for Nexstar as of December 31, 2025, for the last 8 quarters annualized was 1.71x, which is well below our first lien and only covenant of 4.25x. Our total net leverage for Nexstar was 3.09x at quarter end. Our 2026 cash flow will be deployed first to fulfill our mandatory obligations, including debt repayments of $111 million and $36 million of pension and defined benefit plan contributions, the anticipated 2026 dividend of approximately $228 million and to build cash balances to fund the acquisition of TEGNA. In January, we announced our dividend maintaining the same level as 2025 as excess cash will be used to fund the acquisition of TEGNA. Based on our stock price as of yesterday, our dividend represents a 3.2% yield, which puts us in the 73rd percentile of all dividend-paying stocks in the S&P 400 for dividend yield. With that, I'll open up the call for questions. Operator, can you go to our first question. Operator: [Operator Instructions] And we'll go on to our first question. We'll hear from Dan Kurnos with Benchmark StoneX. Daniel Kurnos: Great. Appreciate all the color as usual. Perry, as you might imagine, given the presidential tweet recently, I think investor anxiety around when we might get an FCC cap elimination has increased a little bit. So any color you can give us around wording, timing and how that process might play out would be helpful. And then separately on the expense side, all of you really super helpful like kind of walk through the pieces. I guess, since you guys called out digital optimization and expense rationalization as your 2 priorities. Given all of the AI tools that are out there, what we're hearing from peers, what we're hearing from kind of the broader tech landscape, I mean how much of that is sort of embedded in the guide you've given this year? How much is applicable on, say, like content cost reduction for things like CW or NewsNation? Just any way you can help us frame up kind of the opportunity set you see there to continue sort of this expense reduction momentum would be helpful. Perry Sook: Dan, I'll take the first part. I would hope to not characterize investor anxiety around the elimination of the cap and approval of our deal. I would hope that, that anxiety would turn into enthusiasm. We certainly appreciate the support of the President vis-a-vis his tweet and follow-on comments by the Chairman of the FCC and his support for the deal. And as to timing, that's really the purview of the regulatory agencies. We are working very diligently to complete all of the information requests. As things go, the FCC shot clock would technically expire on June 1 of this year. So we remain consistent in our belief that the transaction will close before the end of second quarter. We are hopeful that we can close sooner than that, but we'll obviously continue to engage with the regulatory agencies to try and get to the to the desired result, not only on the national ownership cap, but the approval of our transaction. Lee Gliha: On your questions about digital and expense, maybe I'll take digital first. I think that Nexstar has got a tremendous local sales force. We have over 1,500 sales folks across the country. Relationships with over 50,000 advertisers. Our advertisers really value our television products, but they also value our apps and our websites and they are also increasingly looking for audience extension opportunities. And because we have those great local relationships, we're able to sell more and sell a broader audience, not just including our local television audience, but if somebody wants more entertainment or they want more different demographics, we can sell that and add that on to the portfolio. So we've had good success with that, especially on our local side, and that really has been driving the growth. And as Perry mentioned, this will be a good year for us because we do expect our digital revenue to eclipse our national television advertising revenue, which digital has a different trajectory, which should actually really help our longer-term growth with respect to net revenue. On the expense side, we are continuing to just look at the business in ways to optimize the operations. And are there ways that we could do things in a different way that's more centralized or to use new technologies to help create efficiencies in our local operations and even more centrally. And so we are just continuing to reimagine that. And that's one of the benefits we have because of the scale of our business. We just have a good opportunity to be able to do some of those things. And you saw it in our 2025 results, and you'll see it again in our 2026 results. Operator: Our next question, we'll hear it from Benjamin Soff with Deutsche Bank. Benjamin Soff: Another one on the regulatory side. Now that you're a bit deeper into that process, have there been any surprises so far in your conversations with regulators? And in particular, do you have a sense for how the DOJ might plan to view in-market consolidation? And what could that mean in terms of requiring any divestitures or not? And then I'm curious what you're seeing as far as the macro environment so far in 2026 as it relates to advertising. Perry Sook: Sure. As it relates to the regulatory process, I mean, we continue to engage vigorously with the DOJ, and I think it provided some excellent material to them regarding the definition of market or redefinition of video, which is where we really compete. Obviously, they have yet to render a decision. So we will obviously defer to their judgment. But I think that the information that we provided has been strong and we're laser-focused on that. So we feel very good about where we are, the dialogue we've had, the progress we've made, the endorsements that we've received. But as to transaction particulars, we're just not there yet in terms of those expectations. But as we've reported historically, we expect that if there are any divestitures, they would be de minimis to the overall value of the deal. Lee Gliha: Yes. And then just on the overall macro environment, I think we're feeling decent about it. I think one of the things that we'd like to track is within our overall advertising categories is what percentage of the categories are increasing versus decreasing in terms of the revenue growth. And we're seeing in the first quarter versus the fourth quarter, a greater percentage that are increasing than we saw in the fourth quarter. So I think we're -- we had some guidance here of flattish in terms of our nonpolitical advertising in the first quarter. So we're feeling decent about the macro outlook. Operator: And next, we'll move to Aaron Watts with Deutsche Bank. Aaron Watts: Just 2 questions. Lee Ann, maybe one for you to start. Just based on your performance to close out '25 and your view into '26, any change in your outlook for pro forma leverage once you close the TEGNA deal? Lee Gliha: Not really, no. Aaron Watts: Okay. Great. And then secondly for me on the advertising side, Perry, this question is a bit of an offshoot of one I asked you at the time you announced the TEGNA deal. The programmatic buying marketplace continues to grow and gain influence, how do you see that impacting your ad sales overall over the near-term horizon? And how are you currently participating or planning to participate in that marketplace with your ad inventory? Perry Sook: Sure. Well, in terms of programmatic digital advertising, part of the acquisition of TEGNA will include the acquisition of Premion, which is their platform for programmatic digital advertising. We think there's some real opportunity there to overlay that technology and that sales force with our inventory, which currently is not on the Premion platform. So that is an upside in operating the business. I wouldn't necessarily characterize it as a synergy, but obviously, we think that will prove as time goes on. As to programmatic on linear, I mean, we already are in that business to a certain extent with companies like ITN and Cadent who basically are doing a very manual version of programmatic in linear. We are working internally and with external partners to develop a programmatic linear solution that we're in the early, early stages of trying to develop with other partners. We need to reduce the frictional cost of buying linear inventory. And I think technology is a way to do that. And I think that we'd like to get to the point where we have a single seamless system from pitch to pay regardless of where the impressions are located that you're attempting to access. And so that's my vision and where I would like us to get to. Obviously, When people ask me what we're going to do on day 2 of the TEGNA acquisition closing, it's to work on that project. And work has started already, and we've got pretty good task force together and I'm doing another update here in a couple of weeks. So we intend to try -- and obviously, as one of the largest purveyors of advertising in the world, I think that we were ranked by one analyst as the 18th largest purveyor advertising in the world. We have a lot to gain by getting that right and removing the frictional costs of buying linear television, trying to make it more akin to the buy-sell process of digital inventory. And at the end of the day, it's really should be one set of inventory, one process, seamless, as I said, from pitch to pay, and that's the gold standard that we're going to try and work to achieve. Operator: And next, we'll move to Patrick Sholl with Barrington Research. Patrick Sholl: I guess maybe just a quick follow-up on advertising. Could you provide just a little bit more detail on some of the categories that were increasing or decreasing? And as we start to lap the initial tariff headwinds, if you're kind of seeing any greater enthusiasm from the Supreme Court ruling? Lee Gliha: So with respect to just the categories, auto was our biggest decliner but not by like any sort of outstanding amount. But we did see the rate of decline being offset within that category by good growth on the digital side. And we're actually seeing a pretty nice improvement in that auto trend into the first quarter. So we're feeling good about that. With respect to the other top categories, we had gaming and sports betting that was a great category in the fourth quarter. That was mostly due to the Missouri legalization. And then anything kind of other than that, even on the downside, nothing really was distinguished. I think I mentioned earlier that we did see more categories increasing than decreasing overall, and we're seeing that trend continue into the first quarter and be even a little bit better in the first quarter. So things are looking okay, I would say. And but there's nothing really like to read into the various categories, no outliers that are driving the transaction or driving the outcome one way or the other. With respect to the tariffs, I don't know that we've seen anything in particular there. I would remind you, I think one of the points that we always like to make is it's about 60% of our advertising revenue comes from services categories versus good service -- goods categories. So we do have a little bit of a natural hedge there because we are much more service-focused than goods-focused. But I wouldn't say that there's been anything that people have been talking about with respect to tariffs as of yet, but we'll keep you posted. Operator: And next, we'll go on to Craig Huber with Huber Research Partners. Craig Huber: I've got a broad question here. The uses of AI in your operations, can you just give us some examples of things that are moving the needle that you're excited about that AI is helping you, whether it be on the cost savings front or enhancing your product to speed up things, et cetera? Just some examples there would be helpful first. Michael Biard: Sure, Craig, I'll take that. We've actually deployed some AI tools across the organization inside our local newsrooms really to help us just on the workflow front, make the process a little bit more efficient. It allows us to take a story and optimize it for multi-platform, for instance, it allows us to efficiently find sources of information and leads across multiple places all at one time. So I think looking forward, we're in the middle of deploying some AI for our sales team that we expect will help with prospecting, sales development and also with workflow and operations in that front as well. So we -- early days yet, but we're optimistic about some of the potential that's out there as that technology starts to flow down into our industry. Craig Huber: And then my -- sorry, do you want to go ahead? Go ahead. Lee Gliha: No, no, go ahead. Sorry, Craig. Craig Huber: Sorry, I wanted to also ask, just maybe an update on alternative uses of spectrum. I don't think we've heard about that lately. Maybe just sort of update us on what's happened in the last year and what maybe the plans are this coming year. I know it's a long way out to be meaningful for your company and your peers, but just sort of update on alternative uses of the spectrum, please. Michael Biard: Sure. I think to underscore what you said it is a long way out before it's meaningful for us or our peers. So in the last year, as you know, we formed a joint venture with 3 of our fellow broadcasters EdgeBeam Wireless. That organization is really just at the early stages of formulating its management team and its go-to-market strategy. I think you'll see them in the coming year be in the market with products. They're out there right now talking with customers. I think, again, early days, but we're starting to see some early orders flow. Some of that is proof of concept. Some of it is actual revenue. But we're optimistic that, that business will take off and really demonstrate to the market the unique the unique broadcast or benefits of a broadcast spectrum for high-speed data transmission. Operator: And Steven Cahall with Wells Fargo will have our next question. Steven Cahall: And I joined a little late, so I apologize if I ask anything that causes you to repeat yourself. On the regulatory process around TEGNA, the press has had a lot of information about the direction of the FCC. I think that one seems increasingly clear at least of the conclusion we're going to get. The DOJ is a little more of a black box, and I think the initial commentary is you expect minimal divestitures. I was just wondering if you could give us the latest and greatest on what your perception is as to how the DOJ is now looking at markets and what sort of a precedent this transaction could be kind of the future of how the DOJ looks at broadcast ownership within markets. And then also just a question on synergies. TEGNA has some good digital advertising businesses. I'm guessing that scale helps in political cycles. I don't think any of those benefits are in your synergy guidance. Do you have any experience with these from deals like Tribune or even CW that you could share in terms of where there could be some opportunities for kind of 1 plus 1 equals more than 2 in some of those revenues over time? Perry Sook: Craig -- I'm sorry, Steven, on the regulatory front, as I said earlier, we have provided reams of information to DOJ and studies from economists that we've hired that talk about the definition of the marketplace and the need for a redefinition of video, which is where we compete. And obviously, we provided that information, but we, at this point, have not had any definitive feedback as to how they're interpreting that information. As to the topic of divestitures, we have had no conversations about divestitures at all at this point in the process. Not to say that it won't come up later in the process. But again, we continue to maintain that if there were divestitures, it would be a minimal percentage and not meaningful to the deal. And so I think the agencies -- the DOJ is meant to be a black box, disclosures there are not required to be public. But I have read the information that we provided and the economic studies that I think are highly, highly credible and very, very convincing. But it is obviously up to the folks at the DOJ, and there's been some change in personnel there. And so other folks are getting up to speed, but it's up to the DOJ and to the FCC to render their opinion and ultimately to come to a decision. But we feel very good about the work that's been done, the information that's been provided, the endorsements we've had and the stage at which we are in the process. So we're very confident that we will get to a finish line in the time frame that we outlined. Lee Gliha: And then on the synergies, I would just say, Steve, on the digital side, as Perry mentioned earlier, TEGNA has this business, Premion, which is really focused on the CTV end market, which we know is growing very nicely. And so we're excited about the opportunity to bring our stations to bear in that market in a little bit of a bigger way. So we're feeling positive about that. But you're correct. We have not put any revenue synergies other than the retrans synergies that we've talked about previously into our synergy number. And then with respect to political, I think we -- it all -- as you know, that all comes down to what market is it, where there's a contested election and where do the dollars need to go. And so to the -- one of the things that we thought was going to be beneficial about this transaction is it does give us more exposure to some of those political markets. We have a presence in Georgia, but we didn't have a presence in Atlanta. They've got some great stations in Maine that is a contested election market. They've got a station in Toledo, Ohio, which could also be a good political market for us. So -- and Phoenix, Arizona is the other one where they have a larger market or a larger station than we do there. So all of those things, we think, should accrue to the political picture going forward, and we're optimistic on getting this deal closed in advance of the cycle this year. Operator: And next, we'll hear from Jason Bazinet with Citi. Jason Bazinet: Okay. At risk of sharing my own ignorance, I'm going to ask this question. I think you said on the call that you think that digital ads will exceed your national ad revenues. And I think the last time you disclosed digital ad revenues is around $400 million. And I sort of think of your national ad revenues as being at The CW network and would have said it's already bigger than your national ads. So what am I missing? Lee Gliha: Yes. So I think all you're really missing there is that CW is national advertising, but it's really like a subsegment of that, right, network national advertising. We also have significant national advertising at our stations, which are national buyers that then look to place their ads in local markets. So those are -- that's the other piece that we refer to as national. Operator: That will conclude the question-and-answer session. I would now like to turn the floor back to Perry Sook for closing remarks. Perry Sook: Thank you, operator. I appreciate everyone joining us today, and we're very pleased at the results that we were able to post for 2025, strong financial results solidly in line with our expectations that we set last year at this time. Despite the changing media landscape, our performance demonstrates that we have both durability and stability in our broadcast model and the operational execution expertise of this management team. We look forward to closing our pending acquisition of TEGNA and bringing that operational expertise to bear on our synergy plan and reinforcing our position as the largest local broadcast company in the United States. Thank you for your continued support over the last 22 years of quarterly earnings calls, and we look forward to updating you on our next earnings call in about 90 days' time. Thank you. Have a great day. Operator: Thank you. This does conclude today's teleconference. You may now disconnect your lines.
Operator: Good morning, and welcome to the Fiera Capital's earnings call to discuss financial results for the fourth quarter of 2025. I will now turn the conference over to Natalie Medak, Director, Investor Relations. You may begin your conference. Natalie Medak: Thank you, and good morning, everyone. Welcome to the Fiera Capital conference call to discuss our financial results for the fourth quarter and full year. A copy of today's presentation can be found in the Investor Relations section of our website. Comments made on today's call, including replies to certain questions, may deal with forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from expectations. Please refer to the forward-looking statements on Page 2 of the presentation. Our speakers today are Maxime Ménard, Global President and CEO; and Lucas Pontillo, Executive Director, Global CFO and Head of Corporate Strategy. Also available to answer questions will be John Valentini, President and CEO, Private Markets. I will now turn the call over to Maxime. Maxime Ménard: Good morning, everyone. Thank you for joining us today as we report operating and financial results for the quarter, fourth quarter and full year. Our total assets under management ended the year at $164.1 billion. Excluding sub-advised strategies, assets under management increased 0.4% for the fourth quarter and increased by more than $7 billion or 5.7% for the year, driven by net inflows of approximately $1 billion and strong equity market growth in 2025. Including sub-advisory AUM, our total assets under management declined by 1.7% for the quarter and 1.8% for the year, reflecting net outflows from our sub-advisory strategies. In public markets, assets under management ended the year at $142.1 billion. Excluding sub-advised strategies, public markets AUM reached $108 billion, increasing 0.5% in the fourth quarter and 4.7% for the year. Assets in our private market platform ended the year at $22 billion, up 11.4% from the end of the prior year and reflect net inflows of approximately $900 million and acquisition of controlling interest in the real estate investment platform during the year. Private markets AUM was flat versus the prior quarter as net inflows and positive market action were offset by negative FX impact. Turning to highlights of our commercial and investment platform, starting with our public market platforms. For the quarter, new mandates totaled approximately $500 million with good demand for our Canadian large cap and U.S. growth equity strategies. Excluding sub-advised AUM, net outflows for the quarter were $450 million, largely reflected outflows from our U.S. fixed income. During the quarter, approximately $550 million of sub-advised assets within our balance mandate were reallocated into our U.S. equity strategy. Including this transfer, combined net inflows into our non-sub-advised AUM were $100 million for the quarter. For the year, public markets captured new mandates of $3.2 billion, reflecting strong interest in our Canadian large-cap U.S. and emerging market strategies. Several of these new mandates were the result of relationship established with new financial intermediaries clients during the year, which are expected to generate ongoing net inflows on a go-forward basis. Approximately $700 million of positive net contribution in 2025 were directly attributed to these new mandates. For the year, net inflows, excluding sub-advised assets were approximately $100 million. Our 4 largest core public market franchise consisting of Canadian equity, U.S. growth equity, active and strategic fixed income and integrated fixed income and representing more than 50% of our public market AUM captured net inflows of $2.8 billion for the year. These were largely offset by treasury and U.S. fixed income net outflows within our financial intermediary channel in the U.S. Net outflows in our U.S. fixed income business in 2025 were mostly related to structural changes at investment advisory partners and not related to performance. These advisory firms continue to view Fiera U.S. fixed income team as a value partner and have added funds year-over-year. Over the last year, we have seen very positive underlying momentum in our public market platform within our core Canadian business, excluding sub-advised strategy, we captured positive net contribution of $400 million in 2025, up from negative net contribution of $4.3 billion, a year-over-year improvement of $4.7 billion. We also saw year-over-year growth in gross mandate of better client retention. We lost mandates totaling approximately $200 million in 2025 compared to $2.2 billion in the prior year. Overall, net organic growth in our core Canadian public market increased from net outflows of more than $4 billion in 2024 to net inflows of $2.7 billion in 2025, an improvement of $6.8 billion year-over-year. We are pleased to note that a higher share of new mandates won in the past year have been through the financial intermediary channels where mandates are multiproducts in nature and flows from these mandates are expected to grow with greater adviser level strategy penetration. Turning to the investment performance in public markets. Our fixed income strategies continues to perform exceptionally well with nearly all strategies adding value for the quarter. Approximately 95% of our fixed income assets outperformed their benchmark over both the 1-year and 5-year periods and 97% of fixed income assets outperformed over the 3-year period. Most of our equity strategies delivered positive absolute returns in the quarter, but outperform remain a challenge as low-quality index continue to drive growth in benchmark index. In 2025, it was a challenge year for value and high conviction manager in general. But despite near-term challenges, absolute return for our strategies remain strong, have helped our clients achieve their overall objectives. We have seen minimal attrition related to performance over the year. Now turning to our private market platform. For the quarter, we captured new mandates of approximately $300 million, primarily into real estate strategies and saw net organic growth of $75 million. For the year, new subscription were $1.9 billion and net inflows were close to $900 million. Flows were mostly driven by demand for our real assets strategies, namely real estate, infrastructure and agriculture. Demand for these strategies reflect the strength of our expertise and secular demand as investors seek inflation and downside protection. Loss mandate within the private market platform remain limited, testament of the strength of our offering and stickiness of our clients. We returned capital of approximately $100 million for the quarter and $600 million for the year. We also deployed approximately $450 million of capital into new projects during the fourth quarter and close to $2 billion year-to-date. We maintain a robust pipeline of $2 billion in committed undeployed capital for future opportunities. Moving to the Investment Performance. Our private market strategies continue to perform well in the fourth quarter and for the year. Within Real Estate, our core and small-cap industrial strategies produced positive absolute returns for the quarter. We have generated returns of 8% and 13%, respectively, since inception. We see a more constructive backdrop and these strategies in 2026 given improvement in investor appetite and supportive industry tailwinds. In Infrastructure, returns were positive for the quarter and close to 8% for the year. And in Agriculture, we saw good returns for the quarter, supported by consistent income generation with primarily reports indicating that our full year performance is tracking ahead of industry benchmark. Within Private Credit, performance in our real estate debt and infrastructure debt strategies remained strong and absolute returns of 10% for the year and gross internal rates of return of 12%, 11%, respectively, since inception. Now turning to Private Wealth. Assets under management of $14 billion at the end of the fourth quarter declined by 2% for the quarter and down 6% for the end of the prior year. The quarter was impacted by negative net contribution largely out of treasuries and sub-advised strategies. I will now turn it over to Lucas for a review of our financial performance. Lucas Pontillo: Thank you, Maxime, and good morning, everyone. I will now review the financial results for the fourth quarter and full year. Beginning with earnings. On an adjusted basis, net earnings for the quarter were $30 million, up from $25 million in the prior quarter and $23 million in the same quarter last year. On a diluted per share basis, adjusted net earnings were $0.24 for the quarter, up $0.01 from the prior quarter and up $0.03 from the same quarter last year. This increase is in spite of the fact that adjusted EPS for the current quarter reflects share dilution from our 6% hybrid debenture, which was not the case in the prior quarter or the same quarter last year, which adversely impacted adjusted EPS by approximately $0.03. Adjusted net earnings were $108 million for the full year, up 5% from adjusted net earnings of $103 million for the prior year. On a per share basis, however, adjusted net earnings of $0.87 per diluted share when compared to the $0.94 of the prior year, with the decline being explained by the share dilution from our 6% hybrid debenture on a weighted average share count for the current year, whereas there was no dilution from hybrid debenture in the prior year weighted average share count during the year. The impact on dilution by including the 6% hybrid instrument in the weighted average share count reduced adjusted EPS by approximately $0.09 for the full year. Excluding this impact, our adjusted EPS would have increased by approximately $0.02 year-over-year. Turning to adjusted EBITDA and adjusted EBITDA margin. Our adjusted EBITDA was $55 million for the quarter, up $4 million or 9% for the prior quarter and up $1 million or 2% for the same quarter last year. We saw margin expansion both quarter-over-quarter and year-over-year as adjusted EBITDA margin of 30.4% in the fourth quarter increased from 30.1% in the prior quarter and increased from 29% in the same quarter last year. On a full year, adjusted EBITDA of $194 million was down by less than $2 million or 1% from the prior year despite a decline in revenues, primarily from lower sub-advised assets under management, share of earnings in joint ventures and public market performance fees. Hence, while total revenues were down year-over-year, we were still able to generate margin growth for the full year with adjusted EBITDA margin of 28.8%, up from 28.4% in the prior year. Focusing on total revenues. Total revenues were $180 million in the fourth quarter, up $13 million or 8% quarter-over-quarter, primarily due to higher performance fees and higher commitment and transaction fees. Year-over-year, total revenues declined $4 million or 2%, reflecting lower base management fees in public markets, which were partially offset by base management fees in private markets. On a full year basis, total revenues declined $16 million or 2%, largely from a decline in revenues from sub-advised mandates, share of earnings in joint ventures as well as lower performance fees in public markets. Base management fees across both platforms were $154 million in the fourth quarter, up $1 million or 1% from the previous quarter, but down $3 million or 2% from the same quarter last year. For the full year, base management fees declined by $3 million or 1% from the same period last year as the decline in fees in public market sub-advised assets was largely offset by higher base management fees from our private markets. Turning to private market revenues. Base management fees of $104 million in the fourth quarter increased $1 million from the prior quarter, reflecting average AUM growth. Base management fees declined $4 million or 4% from the same quarter last year, primarily due to lower sub-advised assets under management. For the year, base management fees of $410 million declined $14 million or 3% from the prior year due to lower sub-advised AUM. Performance fees were $5.2 million during the quarter compared with $5.5 million in the same quarter last year. For the year, performance fees of $5.4 million were down compared with $8 million in the prior year due to lower performance fees crystallized, and other revenue of $2.1 million in the quarter compared with other revenues of $1.6 million in the prior quarter and $2.8 million in the same quarter last year. For the year, other revenues of $7 million declined from $14 million in the prior year, largely due to revenues related to an insurance claim settled in the prior year. Moving on to private market revenues. Base management fees of $50 million in the fourth quarter were steady from the prior quarter. Year-over-year, fees increased $1 million or 2%. For the year, base management fees of $199 million increased $11 million or 6% from the prior year. Commitment and transaction fees of $8 million for the fourth quarter compared with fees of $2 million in the prior quarter and $7 million in the same quarter last year. For the year, commitment and transaction fees were $17 million or $1 million higher from the prior year. Performance fees of $8 million during the quarter were $1 million higher from the prior quarter and effectively flat year-over-year. For the year, performance fees were $18 million, up from $17 million in the prior year due to higher performance fees crystallized in our private equity strategy. Lastly, share of earnings in joint ventures related to our U.K. real estate business were approximately $600,000 in the quarter, down from $1.4 million in the prior quarter and $1.8 million in the same quarter last year. For the year, earnings from joint ventures were $7 million compared with the $12 million from the prior year, largely reflecting income earned from the completion of several large construction projects in the prior year and the fact that controlling interest in a joint venture on our U.K. real estate investment platform is now consolidated in our results and reported in base management fees. Other revenues were $2 million for the fourth quarter, flat from the prior quarter and the same quarter last year. For the year, other revenues were $9 million, up from $8 million from the prior year. Assets under management in our private market platform comprised 13% of total assets under management and generated 37% of our total revenues for the year. This compared to 35% in the prior year. The platform continues to deliver attractive AUM and revenue growth and provides diversification to our overall business. Now looking at expenses. SG&A expenses, excluding share-based compensation, were $125 million in the fourth quarter, up $9 million or 7% quarter-over-quarter, largely due to higher sub-advisory fees connected to the recognition of performance fees in the fourth quarter. Year-over-year, SG&A expenses, excluding share-based comp, declined $5 million or 4%, primarily due to lower compensation costs, sub-advisory fees and operating. For the full year, SG&A expenses, excluding share-based compensation, were $479 million, down $14 million or 3%, reflecting our ongoing cost containment initiatives and lower sub-advisory fees. Finally, a look at our last 12-month free cash flow of $79 million, which compares with $87 million for both the prior quarter and the same quarter last year. The decrease primarily reflects higher dividends paid to noncontrolling interests during the current 12-month trailing period as we harvested dividends from some of our operating platforms in order to reduce leverage. As such, net debt was $664 million at the end of the fourth quarter, down $16 million from the end of the prior quarter. Our net debt ratio also declined to 3.4x in the quarter from 3.5x at the end of the prior quarter. At the end of December, we also redeemed $67 million of our senior subordinated unsecured debentures using funds from our credit facility along with the cash generated during the period. As a result, funded debt, as defined by our credit facility agreement, increased by $35 million to $540 million, and our funded debt ratio increased 3x from 2.9x during the period. Delivering value to our shareholders remains a fundamental pillar of our strategy. During the year, we accretively repurchased 1.6 million shares for a total consideration of close to $10 million. Lastly, the Board has approved a quarterly dividend of $0.108 per share payable on April 9, 2026, to shareholders of record on March 11, 2026. I will now turn the call back to Maxime for his closing remarks. Maxime Ménard: Thank you, Lucas. 2025 was a year where we laid out the groundwork for the future of the growth of the organization. We rightsized our organization, streamlined our operation and reporting lines and setting us up to drive improvement in operating efficiency. We revised our capital allocation strategy, which reallocate free cash flow towards deleveraging and provides greater flexibility for share buybacks and opportunistic transaction. We continue to specialize our distribution teams in both public and private markets, an approach which has already yielded positive results. And we made improvement in our client service offering, putting more structure around our processes to ensure that regardless of geography, clients are being serviced in a consistent and a very efficient way. As a result, we have seen good momentum in our business during the year. We captured more than $5 billion of new subscription across both platforms, of which close to $4 billion went into higher fee U.S. growth, Canadian large cap global emerging markets and private market strategies. Excluding sub-advised strategies, we produced positive net organic growth of $1 billion, including net inflows of $2.8 billion into our 4 largest public market investment. As I touched on earlier, we saw very strong flows momentum within our core Canadian business in public markets, which saw net organic growth increase by $6.7 billion year-over-year. We established relationships with several new financial intermediary clients, which are expected to generate more consistent long-term flows. We also entered a new market with the Qatar equity strategies in partnership with the QIA, which we announced earlier this year. And we grew our private market platform by more than 11% through strong net organic growth and the strategic acquisition. Looking ahead to 2026 and beyond, we are well positioned to build on the momentum. Myself and the executive leadership team at Fiera have developed a 3-year plan, which executes on 5 strategic initiatives to accelerate growth in key areas where we believe we have significant growth potential and competitive edge. First, we are focusing on distribution efforts. We are investing in Canadian distribution to both maintain our market leadership and serve markets where we believe are untapped. We are putting greater focus on developing relationships within the financial intermediaries channels that are carrying long-term and more consistent flow profiles. The ATB relationship is an excellent example of our recent success in this area. Globally, we are strengthening our presence in core markets where our investment capabilities are well aligned with the needs of clients and ensuring our distribution teams have the right specialization and support while also bringing best practice from Canada to other geographies. Second, we are centering the organization around investment performance. We are strengthening performance management process tools and investing in attracting, developing and retaining some of the best talent in the business. Next, we are positioning private markets to be a growth driver. Across each geography, we are aligning our product shelf with areas of investment demand and investing in those areas with the highest growth potential. The momentum of our real asset strategies is expected to carry over in 2026 with tailwinds for growth given aging infrastructure and housing shortages. Next, in order to drive efficiency and scalability, we are optimizing our operations. This includes streamlining middle and back-office functions across platform and improving systems that support client service and investment teams. And lastly, we are creating more financial capacity for greater reinvestment in our business. Over the past year, we introduced a new capital allocation strategy, freeing up capital to future growth. We are also exploring initiatives like engaging with strategic partners who can provide long-term capital and help us accelerate growth of key platforms. These strategic initiatives will ultimately drive us in achieving our ambitions to lead the Canadian market as the top independent multi-strategy asset manager, grow globally in a disciplined and profitable way and deliver consistent and high-quality results for our clients. I will now turn the call over to the operator for questions. Operator: Your first question comes from Gary Ho from Desjardins Capital Markets. Gary Ho: Maybe just start off with maybe just on the private market side. Good to see 11% growth in your AUM. I'm not sure if John is around, but as you look out next few years, which strategies do you see the greatest opportunity there? And also, I just wanted to see or get an update on the infrastructure fund or funds or strategies, how those are tracking with the recent kind of PM changes? John Valentini: On the growth, I mean, we're going to continue to see growth, I think, in our real assets. I mean in our private markets, our strongest assets and platform really are in real assets. It's real estate, infrastructure, natural capital continue to be the strongest pillars of our business, our core competencies. I mean we still have credit. We do over $5 billion in credit. We have a private equity strategy. They will continue to grow. But I would say, Gary, our strongest part of our business is really our real assets, and we will continue to see growth in those, and we see the momentum in 2026 as well. With respect to infrastructure, your question is precisely -- could you repeat what your question was on infrastructure? Gary Ho: Yes. No, just on the recent kind of PM changes, kind of how that has... John Valentini: Stabilized. Yes, I mean the transition has been very good with the leadership change. There's been stability in the platform. On the major mandate we won last year, we expect to deploy capital this year on the SMA of $420 million. So the business is performing as expected. So that's the situation. Gary Ho: Okay. And then my second question, I wanted to kind of touch on the PineStone. So another sizable kind of redemption in the quarter. I think there were $12 billion of net outflows in the year. They still managed roughly $34 billion as of December. What's your outlook? And should those redemptions kind of stabilize as we look out to 2026? Lucas Pontillo: Yes, Gary, thanks for that, and I saw your report this morning. Look, just 2 points. Really, the outflows you saw in the fourth quarter were really sort of overall client losses, right? And they were performance-driven. So this is not a question of sort of the leakage or the transfer to PineStone that we sometimes talk about. So as such, it's tough to give any visibility there. As at this point, we have no indications from clients as we're heading into 2026. But I did just want to clarify that those outflows that you saw in Q4, and they were spread across the board. We had mandates redeemed in Canada, the U.S. and in Asia. But they -- as I say, that's not really -- not at all related to any transfers. So tough to give you any kind of guidance on what that looks like for next year. Gary Ho: Okay. And then maybe just to sneak one more in, Lucas, in since I have you there. Good to see a tick down in your leverage. Just wondering if you look out '26, '27, where do you see leverage going? Lucas Pontillo: I mean I think, look, we're -- over the 3-year plan period, we're targeting our target leverage to be down to 2.5x on the net debt side, okay? There's going to be ebb and flows in that over the 3-year period depending on how we're allocating capital. But as Max spoke to, it is one of the strategic pillars of our 3-year plan going forward. And it really is on focusing on deleveraging the balance sheet and creating balance sheet capacity to be able to reinvest in the business. Gary Ho: And how much of that decline is paying down debt versus kind of the EBITDA growing? Lucas Pontillo: I mean I think there's a combination of the 2 for sure. I think as you look at it, the other piece of this is -- don't forget, it's not only the increase in EBITDA that we're expecting, but it's also the reallocation of capital. So the decision we made to reduce the dividend this year. The intent behind that is to expressly have a large amount of that excess free cash flow that's coming from that going to debt repayment. So at the time, we've effectively said to ourselves that the excess capital would be used sort of you can think about half of that capital being earmarked for debt reduction, 1/4 of that capital being earmarked for reinvestment in the business and another 1/4 of that being opportunistically used for things like share buybacks. Particularly... Operator: Your next question comes from Graham Ryding from TD Securities. Graham Ryding: Lucas, just to clarify on that last piece, you're targeting 2.5x over a 3-year period. Does that imply end of 2027 as sort of the time line for that? Lucas Pontillo: No. I mean our 3-year plan is effectively starting this year, right? So you'd be end of 2028 in terms of that time line. Graham Ryding: Okay. Understood. Max, you made reference to -- when you're referring to your financial flexibility has been increased. It's one of your pillars of the strategy going forward. You said you're investigating strategic partnerships as part of that. Is there anything you can elaborate on what exactly you're referring to there? Maxime Ménard: Yes, it's a great question. So I think we've made a fair assessment of where we have like a very strong competitive edge in terms of our ability to deploy a full multi-asset strategy. Canada is certainly one of the market that we lead and dominate in terms of being able to deploy our entire strategies. When you start to look a little bit on the international, whether you go to Japan or even like the U.S. or even some larger, more competitive markets. we're looking for opportunities to partner up with some of the large multi-asset players to sort of fill in some of our strategies and add-on. It's not unlike the rest of the industry where we've seen some of the very big player in the world coming together with Blackstone, BlackRock going to others. I think there's a clear consolidation from a solution strategy standpoint. And I want to make sure that we capitulate on introducing these strategies and also have the ability to allow some of those perhaps to access the Canadian market. So one of our strengths when you look at it as a nonbank independent multi-asset asset manager or single-purpose organization -- we focus on adding value from an asset management and tactical asset allocation and multi-asset strategy. And there's very few left here in Canada. So we're trying to look at how we could partner throughout the world with whether it's insurers or large conglomerates that would benefit from our exposure and expertise. There's still a continued effort in growing organically in these different markets. But as we've seen over the last probably 2 to 3 years, there's been a heavy consolidation towards $1 trillion asset manager. And so I just want to make sure that we are aware and capitulate on those opportunities. Graham Ryding: So that would -- just to be clear, that would be more like a sub-advisory-type mandate within a multi-asset strategy from a larger institution? Is that where Fiera would fit into that? Maxime Ménard: It could take different fronts. It could take sub-advisory, it could be a product, it could be equity component. There's a number of things. I mean I think there's really 3 prongs when you look at it. It could be commercial driven strictly. It could be more strategic or it could be equity if we get to a point where we really feel that there's an absolute fit from a geographic and solution standpoint. Operator: Your next question comes from Jaeme Gloyn from National Bank Capital Markets. Jaeme Gloyn: First question, I just wanted to dig into the, I guess, distribution strategy over this 3-year plan. Maybe you can highlight some of the key shifts in the strategy for the next 3 years that we should expect to see relative to the business, I guess, as is and what has been tried in the past in terms of trying to drive stronger distribution penetration and flows as a result. Maxime Ménard: Yes. Good question. So in Canada, what we did over the last few years is we've really gone to a more specialty distribution model. So we have a team that does servicing, which means effectively they focus on our existing asset base and try to add value through complementing their offering, giving consultative approach and where and when possible, add cross-sell opportunities. And I also have a dedicated team of people who are split between private and public markets. I think the concept of being generalists in the market where it's becoming evenly complex and where platforms are more and more broad makes it very hard for someone to be able to add value at a certain level. So we in Canada have split sales in private and public markets, and we've seen a huge pickup in terms of appetite. Also the incentive in terms of how we get rewarded for success has been a huge driver. And I'm going to continue to deploy the strategy in the U.S. and other markets where I think that we may have a limited product shelf compared to what we have in Canada, but we want to make sure that we identify where we have an opportunity to win and we double down and put a lot of effort on this. So when you think about Canada, it's going to be continue to offer the full breadth of our offering, including tactical asset allocation, multi-asset base. And when you get into the U.S., the competitive and the speed of product development is so fast that we have to have dedicated individuals with really, really strong ties to the decision-makers to make sure that we have an ability to get some traction. So it could be through financial intermediaries. It could be through distribution. Like when we think about the U.S., a lot of the distribution is consolidated around very big consultants, very big intermediaries, wirehouses, insurers, and we have to make sure we have the right strategy to continue to push through this. We've had some success, but I think we have an opportunity to pick this up. When we think about Europe and EMEA, we've had some really, really good success in the Middle East. And I think we are in a great discussion with some of the very large players about insurance and whatnot. And then -- so in that sense, what you could expect to see is continued regionalization from a leadership standpoint. But from a distribution standpoint, we may split private and public markets to make sure we have the right level of sophistication of conversation when we get to the final or close to the final pitch. Lucas Pontillo: And if I can just add some numbers to that for context. I mean, if you think about sort of what the year 2025 looked like in terms of the focus of the model that Max was talking about in Canada, when you look at our gross flows for the year, we generated new business of just over $5.1 billion, while $3.8 billion of that came from Canada. So a high level of conviction that effectively exporting that same focused strategy to the other regions of the world should be able to yield the same type of results that we had in Canada this year. Operator: We have no further questions registered at this time. I will turn the call back over to Natalie for closing remarks. Natalie Medak: Thank you, everyone, for joining us this morning. Please feel free to reach out if you have any other questions. Operator, we can end the call now. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.
Operator: Hello, and thank you for standing by for Baidu's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Juan Lin, Baidu's Director of Investor Relations. Juan Lin: Hello, everyone, and welcome to Baidu's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. Baidu's earnings release was distributed earlier today, and you can find a copy on our website as well as on newswire services. On the call today, we have Robin Li, our Co-Founder and CEO; Julius Rong Luo, our EVP in charge of Baidu Mobile Ecosystem Group, MEG; Dou Shen, our EVP in charge of Baidu AI Cloud Group, ACG; and Henry Haijian Hu, our CFO. After our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other filings with the SEC and Hong Kong Stock Exchange. Baidu does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Our earnings press release and this call includes discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Baidu's IR website. I will now turn the call over to our CEO, Robin. Yanhong Li: Hello, everyone. In Q4, Baidu General Business total revenue was RMB 26.1 billion. Revenue from our core AI-powered business exceeded RMB 11 billion, accounting for 43% of Baidu General Business revenue. In AI Cloud Infra, subscription-based revenue from AI accelerator infrastructure grew 143% year-over-year, accelerating further from 128% in Q3. Meanwhile, Apollo Go maintained its robust momentum, delivering 3.4 million fully driverless operational rides in the quarter. Total rides increased by over 200% year-over-year. 2025 marked the third year of our journey in Gen AI and a pivotal year where AI became the new core of our portfolio. In 2025, we made substantial progress in scaling AI across our businesses, accelerating AI cloud growth, expanding robotaxi operations with improved unit economics and deepening AI integration into our mobile ecosystem. Looking at our portfolio through an AI native lens, momentum across our core AI-powered businesses continue to build in 2025. AI Cloud Infra gained strong traction through its highly efficient and cost-effective training and inference capabilities. Revenue from AI Cloud Infra reached approximately RMB 20 billion in 2025, up 34% year-over-year, outpacing industry growth. Our AI application portfolio is among the most comprehensive in the industry, combining AI-empowered flagship products with AI native offerings that unlock entirely new use cases. For the full year 2025, revenue from AI applications exceeded RMB 10 billion. Apollo Go achieved a significant landmark. We delivered over 10 million fully driverless operational rides in 2025 alone. To date, we have provided a total of over 20 million rides to the public cumulatively. With our accelerated global expansion, Apollo Go's footprint has now reached 26 cities worldwide, reinforcing our leadership in autonomous ride-hailing services. Lastly, our AI native marketing services, including digital humans and agents, sustained strong growth with revenue up 110% year-over-year. Collectively, these results demonstrate AI's growing contribution to Baidu's value creation and our ability to translate AI capabilities into scalable commercial impact. Now let me share the key highlights of the quarter, starting with our proprietary AI chips. This quarter, we announced the proposed spin-off and separate listing of Kunlunxin. After more than a decade of steadfast investment in self-developed AI chips, we are proud to see the market increasingly recognize their value and proven performance. This milestone validates our long-term strategic vision and unlocks new opportunities for value creation. Our AI chips are built on a proprietary architecture developed in-house from day 1. They deliver stable, high-performance AI computing at scale with broad compatibility across different models and frameworks. This enables customers to deploy faster with lower integration costs. What distinguishes our AI chips is a proven track record of large-scale, real-world deployments with leading enterprises across diverse industries, spanning financial services, telecommunications, energy and Internet sectors. Customers choose our chips for reliable performance, stable supply at scale, exceptional software compatibility and strong efficiency, especially in inference workloads. Looking ahead, we see significant opportunities for both Baidu and Kunlunxin as AI infrastructure demand continues to accelerate. Next, I will turn to our AI cloud infrastructure. Our infrastructure is among the most advanced in China, powered by a diverse mix of domestic and international high-performance computing resources. In Q4, subscription-based revenue from AI accelerator infrastructure grew 143% year-over-year, achieving triple-digit growth for the full year 2025. Importantly, we saw a continued shift toward a more recurring, structurally healthier revenue model. The robust growth was fueled by rapidly expanding enterprise AI adoption. As customers integrate AI into core operations, the unique value of our full stack end-to-end AI architecture becomes increasingly evident. By owning and optimizing across all 4 layers, we achieved sustained advantages in stability and cost effectiveness, better addressing enterprises' needs for AI deployment. These advantages are translating into tangible market momentum, fueling accelerated adoption of our AI Cloud Infra. In Q4, we further broadened our client reach. Leading enterprise clients deepen their partnerships with us, driving increases in both usage and spending. We also saw healthy growth contribution from our mid-tier clients. We continue to strengthen our presence in diverse industries, like Internet services, gaming, autonomous driving and embedded AI, underscoring the versatility of our infrastructure. Embodied AI, in particular, showed notable momentum. Revenue from this vertical doubled quarter-over-quarter in Q4. We onboarded a new wave of leading humanoid robotics companies, cementing our position as the go-to cloud service provider for China's fast-growing embodied AI industry. Next, I'll cover our foundation model progress, which is a critical part of our AI capabilities. We remain fully committed to advancing our proprietary foundation model, ERNIE. Following the unveil of ERNIE 5.0 last quarter, we launched an updated version in January. As we advance ERNIE, we remain guided by a clear application-driven approach, making ERNIE strongest where it matters most for our portfolio. To execute this approach more effectively, we recently restructured our model development organization into 2 dedicated teams. One team advances ERNIE state-of-the-art foundation model capabilities, maintaining our technological edge in this fast-evolving space. The other team tailors models for specific business needs, reducing costs, improving response latency and optimizing model size and efficiency to ensure our technologies are not just cutting edge, but readily scalable across our businesses. Close collaboration between both teams ensures our technologies stay grounded in real-world needs while our applications benefit from continuous technological advancement. Now turning to AI applications. This is where we believe AI's greatest value will ultimately reside. We are pioneering AI applications to solve complex real-world problems for both individuals and enterprises. Let me share our progress across multiple key areas, starting with AI-powered search. In Q4, we continued our AI search transformation, pursuing one of the most comprehensive and ambitious transformations globally. Our focus remains on continuously improving the quality of AI search results while expanding what users can accomplish directly within search. This quarter, for example, we introduced AI-generated infographics into our search results, utilizing text-based information where appropriate to make key insights immediately clear and digestible. We've also integrated more MCP capabilities across key scenarios, including e-commerce, health care and local services. This enables actions such as shopping, booking and health care consultation to be completed seamlessly within the search experience. During the Chinese New Year, we moved quickly to embrace the latest AI agent innovation by integrating OpenClaw, a recently popular open source agent framework directly into Baidu app with one-click access, enabling our users to immediately benefit from cutting-edge agentic AI capabilities with an MAU of around 700 million. We provide easy access to OpenClaw for almost half of the Chinese population. For ERNIE Assistant, which is the AI chatbot integrated across our platform, we enhanced the user experience by introducing broader multimodal capabilities. This improvement have been well received by users, driving ERNIE Assistant's MAU to exceed 200 million in December. We are also scaling our AI search API. Adoption has accelerated in Q4 with call volume up over 110% quarter-over-quarter. With industry-leading authority, comprehensiveness and newly added multilingual capabilities, our AI search API is now opening up broader possibilities for the international market. Next is digital humans, which represent a compelling form of AI application. They combine visual presence, voice and real-time interaction to create more engaging and effective experiences. In December 2025, the number of digital humans live streaming on our platform increased nearly 200% year-over-year. Beyond Baidu's own platforms, our digital human technology is expanding to empower the broader industry. Leading companies have partnered with us, including Jingdong, Zuoyebang and TikTok, validating the performance and efficiency of our digital humans. On the technology front, we believe our hyperrealistic digital human represents the next generation of capabilities. This quarter, production costs declined to roughly 1/3 of previous quarter levels, bring industry-leading cost performance and positioning this technology for broader adoption. Another area of progress is Miaoda, our vibe coding platform, which enables users without coding experience to build applications through natural language, including WeChat Mini Programs, websites, mini games and more. Following the Q4 launch of Miaoda's international version, MeDo, users globally have created over 1 million AI applications as of early February, all without writing a single line of code. Looking ahead, we see meaningful opportunities to unlock even greater possibilities in AI application development. Lastly, we are using AI to solve operational problems and drive efficiency gains across industries. One example is Yijian, our advanced visual intelligence platform. Yijian enables enterprises to automate operational compliance and safety checks through intelligent visual analysis. While known brands across coffee chains, quick service restaurants and fine dining are now using Yijian to ensure high standard operations across their thousands of locations. Another example is FM Agent, our self-evolving agent, designed to solve complex operational challenges. By autonomously reasoning across data, rules and real-world constraints, it simulates countless scenarios to identify best solutions. We've seen strong validation both internally through our own cloud resource optimization and externally across industries like manufacturing, energy, finance and logistics, where efficiency improvement is a universal priority. On the organizational front, we recently established the Personal Super Intelligence Business Group, or PSIG. PSIG unifies Baidu Wenku and Baidu Drive, our 2 flagship consumer-facing AI applications. Even before this organizational integration, the 2 teams have already collaborated at the product level to deliver innovations like Free Canvas and GenFlow. This new group enables even deeper collaboration going forward as we accelerate the rollout of new applications to foster a robust growth curve driven by application layer innovation. Shifting to physical AI. Apollo Go represents our largest AI application in the physical world. 2025 was a year of accelerated scaling for Apollo Go, where we reinforced our leadership in operational scale and achieved significant progress in global expansion. We continue to expand fully driverless operations at pace, delivering 3.4 million fully driverless operational rides in Q4 with weekly rides peaking at over 300,000. Total rides grew by over 200% year-over-year. Cumulative rides provided to the public have surpassed 20 million as of February 2026, firmly cementing our position as the world's leading autonomous ride-hailing service provider. We entered 2026 with momentum across key international markets. In the U.K., we advanced our partnerships with Uber and Lyft moving forward with plans to pilot autonomous vehicles in London with testing expected to begin in the first half of 2026. This represents an important step in Apollo Go's international expansion, extending our right-hand drive robotaxi capabilities from Hong Kong to another strategically important market. In Switzerland, we initiated testing in St. Gallen following our market entry last quarter. In the Middle East, we achieved progress in both Abu Dhabi and Dubai. In Abu Dhabi, we launched a fully autonomous ride-hailing services on Yas Island in January with AutoGo. In Dubai, we secured the city's first fully driverless testing permit from the Roads and Transport Authority. We also announced the next phase of our global partnership with Uber to bring our fully autonomous ride-hailing services to Dubai via the Uber platform. These are critical milestones that accelerate our progress across the Emirates. In Asia, we entered a new market, South Korea, starting with the Seoul metropolitan area, further expanding our presence across the Asian region. Meanwhile, in Hong Kong, we expanded our open road testing into Tsuen Wan and initiated cross-district testing between Airport Island and Tung Chung, bringing us closer to commercial readiness there. As of February 2026, Apollo Go's global footprint reached 26 cities, demonstrating the scalability of our autonomous driving technology across diverse regulatory and operational environments. Looking ahead, we are focused on accelerating expansion to more cities globally while continuously improving operational excellence and unit economics. Our growing experience across diverse markets gives us confidence in our ability to scale further, and we expect more cities to achieve positive unit economics over time. Underpinning this expansion, safety remains our top priority and the foundation of everything we do. Our autonomous ride-hailing service is the safest globally with our fully driverless vehicles experience an airbag deployment accident only once every over 12 million kilometers. As we scale, we will continue strengthening safety standards and ensure sustained reliability. Ultimately, our mission is to harness AI to transform mobility, making it fundamentally safer, more affordable and more comfortable and improving how millions of people move, work and live. In summary, with AI now firmly integrated across our portfolio, we believe we are well positioned to deliver sustainable value and shape the next phase of the AI era. With that, let me turn the call over to Henry to go through the financial results. Haijian He: Thank you, Robin, and hello, everyone. We are making progress on our key focus areas. Over the recent quarters, we've enhanced disclosure for greater transparency and driven operational efficiency improvements. This quarter, we took a significant step to unlock value from our strategic AI chip investments through the proposed Kunlunxin spin-off and a separate listing, a milestone we are particularly pleased with. We've also announced a new USD 5 billion share repurchase program and adopted a dividend policy for the first time. Additionally, we've sharpened our strategic focus on high-potential AI applications by forming a PSIG business group, integrating Baidu Wenku and Baidu Drive. These actions reflect our consistent execution and ongoing focus on creating shareholder value. Looking at Q4 results, we saw positive momentum. Baidu General Business total revenue increased 6% quarter-over-quarter with non-GAAP operating profit, expanding 28% sequentially to RMB 2.8 billion. Operating cash flow for Baidu turned positive in Q3 and remained positive in Q4, generating a combined RMB 3.9 billion across both quarters. In terms of our core AI-powered business, in Q4, revenue exceeded RMB 11 billion, accounting for 43% of Baidu General Business revenue. We are seeing strong momentum across several areas. AI Cloud Infra continues to gain market traction and outpace industry average. Our AI application portfolio is expanding rapidly with strong enterprise adoption. Combining AI Cloud Infra and AI applications, our cloud revenue reached RMB 30 billion for the full year 2025. Meanwhile, Apollo Go reinforces its position as a global leader in autonomous ride-hailing with one of the industry's largest footprints and the strongest growth momentum. And AI native marketing services is growing fast. These results demonstrate our progress, and we believe this is just the beginning. We have a robust pipeline of initiatives ahead, and we are confident in our ability to create lasting shareholder value. Now let me walk through the details of our fourth quarter and full year 2025 financial results. Total revenues in Q4 were RMB 32.7 billion, increasing 5% quarter-over-quarter, primarily due to an increase in Baidu core AI-powered business. Total revenues for the full year 2025 were RMB 129.1 billion, decreasing 3% year-over-year, primarily due to a decrease in legacy business, partially offset by an increase in Baidu core AI-powered business. Cost of revenues was RMB 18.3 billion in Q4, which remained flat quarter-over-quarter. Cost of revenues was RMB 72.4 billion in 2025, increasing 10% year-over-year, primarily due to an increase in costs related to Baidu core AI-powered business. Operating expenses were RMB 13.0 billion in Q4, increasing 10% quarter-over-quarter, primarily due to an increase in expected credit losses and a onetime employee severance costs to improve efficiency. Operating expenses were RMB 46.3 billion in 2025, increasing 1% year-over-year. Impairment of long-lived assets was RMB 16.2 billion in 2025, attributable to an impairment loss of core asset group. Operating income was RMB 1.5 billion in Q4, and operating margin was 5%. Operating loss was RMB 5.8 billion in 2025 and operating loss margin was 5%. Excluding impairment of long-lived assets, operating income was RMB 10.4 billion in 2025. Non-GAAP operating income was RMB 3.0 billion in Q4, and non-GAAP operating margin was 9%. Non-GAAP operating income was RMB 15.0 billion in 2025, and non-GAAP operating margin was 12%. In Q4, total other income net was RMB 1.2 billion compared to RMB 1.9 billion last quarter. Income tax expense was RMB 1.0 billion compared to income tax benefit of RMB 1.8 billion of the quarter. In 2025, total other income net was RMB 12.5 billion compared to RMB 7.4 billion in the same period last year. Income tax expense was RMB 1.3 billion compared to RMB 4.4 billion in the same period last year. In Q4, net income attributable to Baidu was RMB 1.8 billion, net margin for Baidu was 5% and diluted earnings per ADS was RMB 3.71. Non-GAAP net income attributable to Baidu was RMB 3.9 billion, non-GAAP net margin for Baidu was 12%, and non-GAAP diluted earnings per ADS was RMB 10.62. In 2025, net income attributable to Baidu was RMB 5.6 billion, net margin for Baidu was 4% and diluted earnings per ADS was RMB 11.78. Excluding the impact of impairment of long-lived assets, net income attributable to Baidu was RMB 19.4 billion. Non-GAAP net income attributable to Baidu was RMB 18.9 billion, non-GAAP net margin for Baidu was 15% and non-GAAP diluted earnings per ADS was RMB 53.41. We define total cash and investments as cash, cash equivalents, restricted cash short-term investments, net, long-term time deposits and held-to-maturity investments and adjusted long-term investments. As of December 31, 2025, total cash and investments were RMB 294.1 billion. In Q4, operating cash flow was RMB 2.6 billion. In 2025, operating cash flow was negative RMB 3.0 billion, which remained positive for the past 2 consecutive quarters. Baidu General business had approximately 29,000 employees as of December 31, 2025. With that, operator, let's now open the call for questions. Operator: [Operator Instructions] Your first question comes from Alicia Yap with Citigroup. Alicis a Yap: I have questions related to the model. So we have noticed very active model iteration recently. How does management view the current competitive landscape? And then Baidu recently also released updated ERNIE 5.0 and also make some organizational adjustments. So could management discuss the strategic rationale behind these moves and also how the company thinks about the relationship between the model evolution and also the application in your overall AI strategy? Yanhong Li: Alicia, this is Robin. We did see very active model releases recently. The market is highly competitive and moving fast. But amid all the competition, we've always believed that applications matter more than models because models ultimately create value through applications. That is why we always take an application-driven approach with ERNIE. Model improvements are guided by the most valuable and promising use cases. And this has been consistent across every iteration of ERNIE. As I just mentioned, recently, we released the updated version of ERNIE 5.0. At the same time, we've been proactively making organizational changes to stay agile in the fast-moving market. We restructured our model team into different focus areas. One team continues pushing frontier capabilities at the foundation model level to maintain technical leadership. ERNIE has clear strength in several key areas, such as creative writing, omnimodel understanding and instruction following. We are confident we will keep improving ERNIE's performance across key application scenarios. Meanwhile, this high-value application scenarios continuously provide ERNIE with real data and feedback, driving model iteration and making ERNIE better and better. The other team works much closer to specific business needs and application scenarios focused on reducing costs, improving speed and increasing efficiency or leveraging the best available models for specific use cases, all aimed at helping businesses better leverage AI based on their actual needs. We recognize that model capabilities are broad and application scenarios can be highly diverse. And no single model can lead everywhere. So we fully leverage ERNIE where it has clear strengths, and we are open to using other models where they are better suited. The goal is always to achieve the best application outcomes. So to sum up, we will continue with our application-driven approach using real application needs to continuously iterate and optimize our models while also keep refining applications themselves to deliver better and better results, ultimately, creating tangible value for users and businesses. Operator: Your next question comes from Alex Yao with JPMorgan. Alex Yao: I have one question about the Baidu AI Cloud. We noticed that Baidu AI Cloud revenue delivered strong growth for the full year 2025. Can you elaborate and help us understand the key growth driver behind the robust revenue growth number? And how should we think about the AI cloud revenue growth outlook in 2026? Dou Shen: Thank you, Alex. This is Dou. For 2025, our AI cloud revenue, which includes revenue from AI Cloud Infra and AI applications, reached RMB 30 billion. Revenue from AI Cloud Infra grew 34% year-over-year, outpacing the broader market. Within AI Cloud Infra, subscription-based revenue from AI accelerator infrastructure grew 143% year-over-year in Q4 and has become the primary growth driver, demonstrating strong momentum. We remain highly confident in sustaining strong growth momentum in 2026. Underpinning our growth is the accelerating enterprise AI adoption. We are seeing a demand growth in both training and inference workloads, and we expect the demand for AI computing to keep expanding, creating significant opportunities ahead. Baidu's full stack end-to-end AI architecture is a key differentiator in capturing such opportunity. Under the foundation of this architecture is our industry-leading AI infrastructure, which achieves an excellent balance across performance, efficiency and cost. Our AI infra is powered by a diverse mix of chips. We have built deep expertise in heterogeneous computing and unified scheduling, which enables us to efficiently manage computing resources from different chip vendors and achieve industry-leading performance and efficiency. In the meanwhile, our proprietary chip capabilities provide a significant competitive advantage. As Robin just mentioned, our self-developed Kunlunxin AI chips deliver strong performance, compatibility and cost efficiency. They have been deployed at scale with leading enterprise customers across financial services, telecom, energy and Internet sectors and the market feedback has been very positive. Kunlunxin serves as a key component of our own cloud platforms computing power, playing an important role in our overall AI infra. As AI demand grows, the advantages of our AI infra will become increasingly evident. Beyond AI infra we just discussed, we are continuously evolving our best-in-class agent infra to help enterprises rapidly build and deploy AI agents at scale. We keep bringing in the latest, most cutting-edge capabilities. For example, we recently launched simplified open cloud deployment on Baidu AI Cloud, which streamlines the process so that even users with no coding experience can quickly deploy their own open cloud agents. Then looking into 2026, as enterprise AI deployments deepen further, we are confident that our cloud business will continue to grow faster than the industry. We expect AI Cloud Infra to maintain strong momentum with AI accelerator infrastructure continuing to serve as a core driver, propelling our overall cloud business toward a more sustainable and high-quality growth mode. Operator: Your next question comes from Lincoln Kong with GS. Lincoln Kong: So actually, this quarter, we see this AI-powered business continue to deliver a pretty solid growth. So how does management view the current stage development for those AI-powered business? So when should we expect this share to exceed, say, 50% of the Baidu General Business? And what will be the key driver going forward for the AI-powered business? Yanhong Li: Okay. Let me start by sharing how we think about our core AI-powered business. This includes AI cloud infrastructure, AI applications like Baidu Wenku and Baidu Drive and our robotaxi business, Apollo Go, and our AI-native marketing services, including agents and digital humans. AI-powered business organizes our business according to the nature of our products and services, where AI is empowering each to create meaningful customer value and business impact. In Q4, AI-powered business revenue exceeded RMB 11 billion. That's like 43% of Baidu General Business revenue. This percentage has been rapidly increasing over the recent quarters, and AI-powered business is becoming the core driver of our overall revenue growth. Each of our AI-powered businesses has clear strategic positioning and competitive advantage. First, AI Cloud Infra. We see enterprises scale AI from pilots to production and our full stack end-to-end AI capabilities enable strong performance at competitive cost. AI Cloud Infra revenue grew faster than the industry average in 2025 with subscription-based AI accelerator infrastructure revenue accelerating sharply in Q4. And second, it's AI applications. We've always believed AI's ultimate value will settle at the application layer, and we built one of China's most comprehensive AI application portfolios. As AI capabilities continue to evolve and new use cases emerge, we see significant expansion potential in this business. And then third is the robotaxi business, Apollo Go. Apollo Go is scaling rapidly while expanding internationally. We lead globally in operating scale, safety record, efficiency and cost structure. And the fourth is AI native marketing services like agents and digital humans. They improved engagement and conversion, and we're seeing strong market adoption with great potential ahead. So looking to the mid- to long term, as enterprise AI deployment deepens, monetization capabilities of AI applications improve and physical AI applications such as autonomous driving continue to expand, and we're confident in the growth trajectory of our AI-powered business. This AI-powered business aren't isolated. They continuously reinforce each other through our full stack capabilities. And based on current visibility, we believe our core AI-powered business will become the majority of Baidu General Business in the foreseeable future. Operator: Your next question comes from Wei Xiong. Wei Xiong: Could management elaborate on the framework that you use to allocate capital, including shareholder returns, organic investment and potential strategic opportunities? And also, could management comment on the long-term strategic positioning of Kunlunxin within the Baidu Group? Haijian He: This is Henry. I believe many of you may have noticed our recent series of initiatives. These include enhancing our disclosures, improving operational efficiency, optimizing our organizational structure, advancing the proposed Kunlunxin spin-off and separate listing and also announcing our new share repurchase program and the first dividend policy. And recently, we're also reforming the PSIG, the Personal Super Intelligent Group business group, integrating Baidu Wenku and Baidu Drive. Altogether, these moves reflect a coherent execution framework, demonstrating our improved management execution and ongoing commitment to creating shareholder value. I think take our new share repurchase program as one example. We are very focused on providing clear and sustainable returns to shareholders. So in the recent, in February, the Board has approved a new USD 5 billion share repurchase program, which we plan to execute on a regular basis in a very disciplined and transparent manner. We are also introducing Baidu first dividend policy. We believe the introduction of the policy alongside with a sizable buyback program will further strengthen our shareholder return profile and attract a broader range of investors, thereby further diversifying our investor base. As we mentioned, the proposed spin-off and a separate listing of Kunlunxin is another good example. We are making very good progress of the listing process. Kunlunxin is a result of over a decade of investment and represents a critical infrastructure component of our full-stack AI capabilities. We believe this spin-off and a separate listing will receive strong market recognition and unlock significant value for Baidu as a group. So looking ahead, we firmly believe the company has tremendous value, and we will continue unlocking it through various initiatives. We remain committed to deliver sustainable and consistent returns to our shareholders. So more initiatives will follow in due course. So stay tuned with us. Thank you. Operator: Your next question comes from Gary Yu with Morgan Stanley. Gary Yu: My question is on robotaxi. First of all, congratulations on the robotaxi expansion into more countries, especially to my hometown Hong Kong. Can you share your overseas strategy in 2026? And what are your key competitive advantages there? And also with Waymo recently valued at $126 billion, how is management thinking about unlocking Apollo Go's value? Would you consider a spin-off? Yanhong Li: Gary, as I mentioned last quarter, I believe robotaxi has reached a tipping point globally. Through continuous delivery of safe autonomous drives and positive word of mouth, we're seeing more countries and regions creating supportive environment for robotaxi operations. We believe the industry will accelerate in 2026. Apollo Go is a clear global leader in this space. We've completed over 20 million cumulative rides. At peak period, our weekly fully driverless rides exceeded 300,000. To date, Apollo Go fleets have accumulated more than 300 million autonomous kilometers, including over 190 million fully driverless autonomous kilometers with an outstanding safety record. And we continue advancing our industry-leading technology to make rides safer and more comfortable. We're also accelerating international expansion to capture global opportunities. Today, our global footprint spans 26 cities across different continents, covering both left-hand and right-hand drive robotaxi market. Our autonomous driving system works reliably anywhere across different traffic patterns and different urban environments. Notably, very few players have entered right-hand drive robotaxi market, while we've already established a presence and are making rapid progress. Moreover, we have a fundamental cost advantage. RT6 is the world's first purpose-built production vehicle designed from the ground up for Level 4 autonomous driving. At under USD 30,000 per vehicle, RT6 offers the industry's best cost structure and combined with our leading operational efficiency, this enables us to achieve the lowest cost per mile globally while maintaining superior safety. We were the first to achieve UE breakeven in Wuhan in late 2024. And as you know, most major cities have higher ride-hailing prices than Wuhan. To accelerate global expansion, we are leveraging diverse strategic partnerships. For example, we are collaborating with Uber and Lyft in London to launch this year and in Dubai with Uber also. These partnerships drive faster, more efficient market expansion. We see Apollo Go as a strategic growth engine with significant long-term potential. Many major cities are short of human drivers. More supply via robotaxi service not only offer safer rides, but also stimulate ride-hailing demand, therefore, add tax revenue to the government. It also releases precious land from parking spaces and provide additional monetization opportunities for these real estate assets. Our focus is on 3 areas: first, aggressively scale up safe and comfortable operations by deploying more vehicles. Second, continuously improving unit economics with the goal of achieving UE breakeven in more cities this year. Third, expanding with flexible business models, both domestically and internationally. As for strategic options, we will remain flexible and evaluate the best path that maximizes long-term shareholder returns. And of course, our focus is always on execution and sustainable growth. We believe the autonomous ride-hailing sector as a whole remains undervalued. Over time, we expect valuations across the sector to better reflect the transformative potential of this technology, which creates meaningful upside opportunity for Apollo Go. Operator: Next question comes from Miranda Lang with Bank of America Securities. Xiaomeng Zhuang: Wish you a happy year of hope. So my question is about competition. We have seen that the consumer-facing AI competition is intensifying recently, especially during the Chinese New Year. How do you assess the current competitive dynamics? Where do you see Baidu's AI2C products such as the early assistance, differentiation and also positioning in this market? And lastly, how to think about the path to monetization? Rong Luo: This is Julius. The AI2C product market is highly competitive. We have seen some competitors about very aggressive market strategies to rapidly scale their user base in the past Chinese New Year. However, as technology and products evolve rapidly, we still believe our core strategy should remain grounded in actual user needs. We are highly committed to continuously enhancing our existing products and services capabilities through AI innovations to better serve our users. In our flagship consumer-facing products, like Baidu app today, we have built a ERNIE Assistant to strengthen our service capabilities across the entire user journey, from information thinking to providing solutions and completing tasks. On information thinking, we have significantly enhanced our users assess information through ERNIE Assistant. For example, we have improved the answer accuracy and relevance through RAG, and ERNIE Assistant maintains low error rates with minimal hallucinations, delivering the highly trustworthy content to users. We have also integrated the multilingual AI such as API capabilities that can enable the users to assess the broad information sources during conversations, improving the information richness and usability. And especially for scenarios like travel planning, which is quite helpful. And in December, ERNIE Assistant's MAU surpassed 200 million and with conversation rounds and engagements growing quite fast. For past complexion, we are integrating MCP agents to connect users with tools and real-word services. This quarter alone, we're adding nearly 100 service capabilities, especially in health care, travel, education and e-commerce. For example, through the Baidu Health MCP integrated into ERNIE Assistant, users can assess a range of health care capabilities, spending online to offline services. In e-commerce, our MCP module saw a very strong GMV growth quarter-over-quarter. Meanwhile, we are taking a different approach with the stand-alone ERNIE app, our positioning as a platform for innovation and experimentation. Our earlier multi-model AI features have gained good traction with the young audiences. And more recently, we have added AI capabilities focused on the workplace productivity, tapping into ERNIE's ability to handle the complex tasks in professional settings. We are seeing the promising early signals in these productivity scenarios. We take a measured approach to monetize the AI tools and products, prioritizing the product excellence and the user experiences. Monetization will follow naturally as the products mature. Thank you for your question. Operator: Your next question comes from Ellie Jiang with Macquarie. Ellie Jiang: My question is mostly focusing on the AI investment. How do you think about the AI-related CapEx over the next 12 to 24 months? How should we think about the return profile of these AI investments and the expected impact on the ROIC over time? Broadly speaking, where do you see further efficiency opportunities to support margin and cash flow improvements in the future? Haijian He: This is Henry. First of all, on CapEx and AI investment, since we have launched early in March of 2023, we have invested over RMB 100 billion in AI. Going forward, we will continue to maintain this level of investment density. Second, we are very conscious about returns and understand investors' focus on the return on capital invested. That's why we have work to improve our financial performance, and we have delivered good results on key metrics over the past few quarters. For example, in Q4, gross profit for Baidu grew double digits sequentially and non-GAAP operating income for Baidu increase about 35% quarter-over-quarter. We also performed better on the margin profile, both on gross margin and operating margin increasing sequentially. Importantly, operating cash flow for Baidu turned positive in Q3 and remained positive in Q4. With the second half, operating cash flow reached nearly RMB 4 billion. Free cash flow for Baidu also turned positive in Q4. Thirdly, we have also found and explored alternate ways of supporting our financial needs including, for example, operational and financing leasing as well as we have access to the low-cost interest banking borrowing. For example, some of these bank borrowings and the leasing facilities carry the interest rates as low as below 2%. Though these approaches help us maintain a healthy long-term financing structure while sustaining our AI investments and support our business growth. So in summary, we will continue to maintain our AI investment density, while balancing investor focus on profitability and return time lines. We believe that even with significant AI investment, our operating cash flow remain positive going forward as well. Thank you. Operator: Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Eni's 2025 Fourth Quarter and Full Year Results Conference Call hosted by Mr. Claudio Descalzi, Chief Executive Officer. [Operator Instructions] I'm now handing you over to your host to begin today's conference. Thank you. Claudio Descalzi: Thank you. Good morning, everyone. 2025 was a year of exceptional progress at Eni. We developed and executed our distinctive strategy in many cases, exceeding our original target. We will discuss in detail our updated plan at the forecoming Capital Markets update in March. But I can say at this point that 2025 provide an excellent guide to what you should expect the future to hold for Eni. Last year's result proved the value of our consistent strategies, strong operational and financial performance, timely project delivery to support growth and diversified investment for the short- and long-term to generate further value for investors. Specifically, looking in detail at the 3 main business pillars, the successes are compelling. First, Global Natural Resources. We started up 6 major projects as planned. This supported an underlying production increase of 4%, well above our original full year guidance and growth above 7% over the 2022, 2025 period, leading among our peers. Project execution is a clear strength of ours, and both Agogo, Angola and Congo LNG are further examples of our leadership in time to market. In addition, we took FIDs on 4 major new projects, 3 of which are operated, driving a stronger service replacement ratio of above 160% and meaning we currently have 500,000 barrels per day of production under development, securing our medium-term outlook. At the portfolio level, we have also established a new platform of growth by creating our largest business combination with Petronas in Indonesia and Malaysia. And we are progressing our Argentina LNG project with YPF and XRG. Alongside our continued exploration success underpins long-term outlook. We discovered 900 million barrels of new resources in 2025, reaffirming our industry-leading track record. Now over 10 billion barrel of resources discovered since 2014 at less than $1 per barrel from multiple geographies and different geological plays. Our focus on value as well as volume is also emphasized by our continued action to valorize our resources through dual exploration. As we did in Indonesia with the business combination in Cote d'Ivoire and high grade our portfolio through tail asset divestment. GGP is business we have comprehensively transformed in the past few years. And notwithstanding a softer market, we delivered EBIT above EUR 1 billion for the fourth consecutive year. Gas to power was also a strong contributor in 2025. And together, this result emphasized the work underway to capture more margin from our equity production. Second, our transition activities. They generate material growth and value creation and are important in diversifying and strengthening any earnings. In a year that was not remarkable for market improvement, we improved the robustness of our integrated business models, and we have been rewarded with strong earnings, EUR 2 billion of EBITDA and by the validation from the market with a contribution of EUR 5.8 billion from top private equity firms. These deals were completed in a multiple around -- with a multiple around 3x those of Eni stand-alone implying over EUR 23 billion of enterprise value for these new business lines. We are locking in further growth with both Plenitude and Enilive. Plenitude expanded its renewable capacity by more than 40% in 2025 and we'll add 10% to its customer base in 2026 on closing the agreed Acea Energia acquisition. Enilive has 3 new biorefineries under construction and 2 more have recently reached FID, together representing a further net 2 million tonnes of annual capacity. And third, industrial transformation. Changes in the energy market bring challenges that we are successfully mitigating but also opportunities. In this context, we are advancing the transformation of our traditional refineries. And we have set out the decisive measures to address challenges in our chemical business that are the same impacting the entire European industry. In 2025, we accelerated these actions, closing the crackers at Brindisi and Priolo 3 to 6 months earlier than planned. At the same time, we are transforming Versalis towards bio, circular and specialized products. The strategic and operational progress achieved in 2025 translates into exceptional financial delivery. Robust financial position is critical in managing the cycle, preserving flexibility and delivering our strategy. Last year, CFFO at EUR 12.5 billion was EUR 1.5 billion ahead of plan on a scenario-adjusted basis. Responding promptly to the more challenging scenario, we cut gross CapEx from a planned EUR 9 billion to EUR 8.5 billion, and we identified cash initiatives totaling EUR 4 billion raised from an initial EUR 2 billion, including delivering EUR 0.5 billion of savings. Net CapEx on a pro-forma basis was lower than EUR 5 billion versus our initial expectation of EUR 6.5 billion to EUR 7 billion as we executed on more portfolio activity for better value. As a result, pro-forma gearing at year-end was 14%, with net debt down almost EUR 3 billion over the year. These outcomes gave us the opportunity to raise our share buyback by 20% from EUR 1.5 billion to EUR 1.8 billion, achieving the unique combination in 2025 of both lowering debt and enhancing shareholder distribution. In Q4, pro-forma adjusted EBIT was EUR 2.9 billion, up 6% year-on-year despite the lower oil price and weaker dollar. We reported excellent E&P result with production up 7% year-on-year and 5% sequentially at 1.839 million barrels per day, underpinned by the positive impact of 2025 start-ups. Full year production of 1.7 million to 8 million barrels per day was 2% above our guidance for the year. GGP Q4 EBIT of EUR 0.1 billion delivered on our raised full year guidance of more than EUR 1 billion despite relatively low volatile markets. Plenitude and Enilive together delivered EUR 2 billion of pro-forma adjusted EBIT in the year and Enilive benefited from improved bio margins in the quarter, part offsetting seasonally lower marketing. Refining returned to profit in the quarter, albeit held back by relatively low utilization rates, while chemicals continued to see a weak scenario setting the early benefits of the restructuring underway. Q4 adjusted net profit was EUR 1.2 billion with a tax rate of 37% as we adjusted to a full year rate of 44%, just below guidance. CFFO in Q4 was EUR 3 billion, representing excellent cash conversion again, helped by the material cash initiatives we undertook in the year. Full year cash flow at EUR 12.5 billion was EUR 1.5 billion above our full year guidance on a scenario adjusted basis. Thanks to a release in working capital and our actions around the portfolio, we were able to fund our CapEx, shareholder distributions and other commitments and also to significantly reduce debt. Gross organic CapEx in the quarter was EUR 2.6 billion, taking the full year figure to EUR 8.5 billion, EUR 0.5 billion less than our original plan. Valorizations and portfolio activities have raised around EUR 10 billion over the past 2 years. In 2025, we completed more than EUR 6.5 billion in valorization of portfolio activity, which meant that adjusting to a pro-forma basis, net CapEx was lower than EUR 5 billion, around EUR 2 billion below our original plan. But 2025 is not a one-off year. For 2026, we expect to limit our gross CapEx to around EUR 7 billion and net CapEx at around EUR 5 billion. We reduced net debt over 2025 by almost EUR 3 billion, as we said, bringing gearing to 15% at year-end or 14% on a pro-forma basis. We can confirm that we expect pro-forma gearing in 2026 to remain at historically low levels at between 10% to 15%. Our shareholder distribution details, we have to revert to the CMU in March, but we can confirm a full funded attractive and growing dividend is our first priority. In the last 5 years, we have raised the dividend by an average of 5% per year, reflecting underlying growth and the reduction of sharing issue. At the same time, we have additional tool of distribution via the buyback that reflects our policy of showing cash flow generation and upside. In 2025, for example, we raised the buyback by 20%, the third occasion in the past 4 years, we have increased distributions. In conclusion, 2025 was a clear outcome of Eni strategy in action. Looking ahead, we will update our -- on our plan in March, but strategy remain unchanged. The choices we make in how we do business are driven by our industrial, technological and commercial strength and by a business model that has proven to perform in strong and soft market conditions. The upstream will grow organically at a sector-leading rate, leveraging our exploration successes and our proven ability to fast track time to market while managing costs and delivering the value from our business combinations and partnerships. On the energy transition, we will deliver the programs outlined by -- for Plenitude and Enilive while developing CCS, fusion, battery storage and data centers for hyperscalers, coupled with Blue Power and exploring opportunities in critical minerals. Portfolio activity will again be material in 2026 as we continue to pursue disciplined capital alignment and value disclosure. In March, we will share with you the details that underpin this outlook and which support continued highly attractive investor returns. And now with the rest of Eni top management are ready to take your questions. Thank you. Operator: [Operator Instructions] First question is from Alejandro Vigil, Santander. Alejandro Vigil: Congratulations for the results. I have 2 questions about the upstream business. Definitely, you will elaborate more on the Capital Markets Day. But I'm very interested in the outlook for this year, thanks to the contribution of the joint venture with Petronas, if you can elaborate about potential increase in production driven by this joint venture? And the second question is about Kazakhstan. There is a lot of noise in the media, and I would like to know your view about the situation in the country. Claudio Descalzi: Okay. Thank you. Thank you for the questions. I just give you a few words about Petronas and the outlook and Kazakhstan, then Guido -- and I will give where are the possibility to expand and elaborate on these 2 questions. So Petronas, I think that Petronas will be finalized by the second -- end of the second quarter. And it's going to give a contribution clearly, yes. We cannot be precise now. I think that we can give you more detail on the -- in March, but clearly is going to give a contribution in terms of production for 6 months. And as you know, we are going to have immediately a company that is producing about 300,000 barrels per day, but we have already project that we're going to implement FID in the next years to reach 500,000 barrels per day. We already drilled in Indonesia, as you know, successful wells that we can tie into the existing infrastructure. So we talk about reserves, not just resources. Kazakhstan -- Kazakhstan, I think that is a long story because in the last -- in the last 15 years, every 3, 2 years, we have some renegotiation and some, I can say, dispute, but more discussion because we are friends. And as always happen between friends, we always find a solution. So I'm positive about the future. But now I think that Guido can take over and give you more detail. Guido Brusco: Yes. Thanks, Claudio. So barring from more details coming in the next CMU, of course, the growth of production next year will be driven by the project we have started up recently. So we will see more production coming from Congo, from Norway, from Angola, from UAE and of course, from Indonesia. But as I said, more details will come in a few more weeks. As far as Kazakhstan, of course, as you know, the Republic has advanced several arbitration claims regarding production performance, cost recovery, environmental matters, sulfur storage and the JV is defending. There is a broad claim here, which -- it's in the arbitration court at the moment, and we do not expect a result before 2027, 2028. However, we continue as the operator is saying, confirm that operation have been conducted in compliance with the law of Kazakhstan and the operator had always possessed the required permits. And therefore, we are challenging this sulfur refine in all the courts. Operator: Thanks, Alex. We can now pass over to Michele Della Vigna at Goldman Sachs. Michele Della Vigna: Congratulations on the results. I wanted to ask 2 questions. First, on your CapEx guidance for '26 of EUR 7 billion. I was wondering if you could walk us through the bridge between the EUR 1.5 billion this year and the EUR 7 billion. Clearly, the deconsolidation of Indonesia plays a part, but if you could give us a bit more detail? And then secondly, the more we look at all of your discoveries and access in the last couple of years, it feels like you probably have the best pipeline of new projects you've ever had in your corporate history. How should we think about your priorities for FID in 2026, given the wealth of opportunities between Namibia, Indonesia, Cote d'Ivoire and all of your recent discoveries? Claudio Descalzi: Okay. Thank you. Thank you for the question. So it's true, we said that we cut our CapEx or we reduced our CapEx from EUR 8.5 billion this year to EUR 7 billion. That is a reduction in terms of CapEx optimization. We are not reducing the growth. We are not touching the growth of the company, but just we became more efficient because we did -- we have a strategy or we applied the strategy to be more efficient starting from the exploration. So exploring and go to the place where we have existing facilities. And then this year, we had a very excellent success. Also last year, we are moving at EUR 1 billion or less than EUR 1 billion resource discoveries in the right place where we have infrastructure. That means that we can continue to reduce CapEx because we need less CapEx to produce more, more, more production. That was a strategy that is not something that you can start overnight. It's something that we start in 2011, '12, '13. It's something that we built day by day because we never stop exploration. We never stop exploring. We never stop developing. We never stop going directly to the development and working as upstreamer. So that is the reason why we can reduce our gross CapEx. Then we have other points that maybe Guido can explain to you that is an additional important unless that can explain why we can reduce CapEx. Guido, you can explain. Guido Brusco: Yes, Claudio. And I mean, just building on what you were saying about the advantaged barrels. The project we have started up in the last 4, 5 years and the prospective project, which you will have more visibility in the Capital Market update are projects with, first of all, low unit development cost. Second, they have longer plateau. So we can devote less CapEx to maintain the production and fight the decline and more CapEx for the growth at the same CapEx level in a nutshell. As far as concerned, your question, Michele, about the -- what will come next year. Of course, we have a great degree of optionality. We have a very large and diverse portfolio of projects. But clearly, next year, the project that we will focus more in terms of FID is Argentina, Ivory Coast, Cyprus, plus a few more geographies in Africa. Operator: We're going to now move on to Biraj Borkhataria at RBC. Biraj Borkhataria: Just to follow up on the CapEx point and the number you guided today. How much of that year-on-year change is the Indonesia CapEx coming out as you deconsolidate it? And is there anything you can say on the CFFO contribution that will be removed also when you deconsolidate that production? And then second question is just on Versalis. You've now closed down the crackers, but we haven't seen that sort of come through in the P&L. So do you still expect to be EBIT breakeven in 2027? And what should we expect for 2026? Claudio Descalzi: Okay. CapEx in Indonesia, we already said that Indonesia is not -- I think that we can start working in Indonesia after the finalization of the business combination of the new company that we expect in the second quarter. So I think in any case, the impact on CapEx on Indonesia will not be very large this year because then we have FID to take maybe in '26, but mainly in 2027. For Versalis, I think Adriano, CEO of Versalis, can give some answer, and some light. Adriano Alfani: Sure. Thank you for the question. I mean we have seen some improvement in the second half of 2025 following the shutdown of the 2 crackers that, as we said before, we move forward and we stopped earlier than what was original plan. Unfortunately, the positive impact, although you remember what we said in the previous call that the impact of 2 major cracker shutdown, you start to see after 12, 18 months. So we've seen some positive impact, and this helped in order to mitigate the deterioration in the scenario. So we have seen improvement in the second half of 2025 compared to the second half of 2024, and we continue to see also in the beginning of the months of 2026. We are taking additional actions in order to mitigate the plan that is not coming as expected in terms of scenario. I'm pretty sure that you have seen so many shutdowns have been announced in the last 3 years, close to 160 shutdown announcement. And in the next capital market update, we are going to share the plan for the next 2, 3 years. Operator: We're going to move to Lydia Rainforth at Barclays. Lydia Rainforth: Two questions, if I could, please. The first one, on the exploration side and building a little bit on Michele's question earlier, you've clearly been very, very successful in what you've done. Can you actually give us what the success rate is now? Are we looking at sort of 1 in 2, 4 out of 5 wells? I'm just trying to work out what that success rate is. And then secondly, just on AI, clearly, you've got a lot of computing power. I'm just wondering what you're seeing, if you're seeing any benefits at this point or what your plans are around that. Guido Brusco: On exploration, last year, we've been very, very successful and success rate was exceptionally high. As you could also notice from the very low write-off we basically written in our books. So it was really exceptionally high, very close to 100%, the success rate last year. On the AI, as you may be aware, last year, we've opened a new business line on data center, coupled with the gas-fired plant. We have a plan with international partners to develop a data center in the north of Italy, close to Milan up to 500 megawatts split in different phases. We have a first phase which will go from 80 to 100 megawatts and the second phase to 500 megawatts. And this is in an area which is underdeveloped and in a country like Italy, which has foreseen a demand of AI center by 2030 up to 1 -- the impact, of course, we are forerunner in terms of application of technology and super computational capacity on our activity and the exploration success is one example of it. Of course, AI will apply also on other segment of the business in the upstream like the production improvement, drilling and project improvement, rotating machine enhancement. So we expect a significant impact on the AI. Just to remind that in the industry, we have already one of the lowest downtime for the production facilities, which is around -- which is less than 1%, while the average of the industry, WoodMac data is around 3.5%. Operator: We're now going to move to Irene Himona at Bernstein. Irene Himona: Congratulations on a strong year, especially in the upstream. Can you please say, firstly, what did you change exactly to high-grade production? What does that involve? Secondly, can you remind us what upstream tax rate we should expect in an environment of $65 to $70 Brent? And then finally, very quickly, looking at the 10 billion BOE of resource you have discovered since 2014, can you say roughly what the split is between gas and liquids, please? Guido Brusco: On the what we did basically question of the high grading, of course, in our portfolio, we are bringing onstream project with very high profitable cash flow per barrel. And we are divesting late-life assets. So the combination of these 2 elements. So the new project and the late-life asset disposal is high-grading our portfolio. And you may have also seen that if we compare the free cash flow per barrel from 2024 to 2025, we have seen a 10% increase. On the tax rate... Claudio Descalzi: Before talking about the tax rate, so you remarked a very successful increase in our production. Absolutely what we said is true. So we have a different quality in terms of barrel, so higher cash flow per barrel, but also we have been successful for -- in the last years to be in terms of time to market -- time to market and budget. So we have been able to not only respect our schedule, but in most of the case, faster. So that clearly impacted positively. The production impact and internal rate of return of all our projects. And we are respected on all the budget. So that is something that maybe is not clear or explicit to all -- to everybody, to investors, to all our community, but that is one key point of success in terms of results and the value of our volume. Tax rate. Francesco Gattei: On the tax rate, as you have seen, there is a fluctuation that are mainly related to clearly to the composition. In this case, you mentioned the upstream tax rate. So on the composition in terms of production contribution in different countries on the exploration write-off and some additional one-off factors that could imply or determine certain effects. In the 2026, the expectation is to -- with a $62 that is, for the time being, our assumption, a tax rate that should be in the range of 45% to 50%. Clearly, if the price will improve, there will be a lower tax rate. Guido Brusco: Just to complete, you made another question, the split between oil and gas of the discovery is 70% gas and 30% oil. Operator: We are now going to move over to Josh Stone at UBS. Joshua Eliot Stone: Two questions, please. One, I wanted to pick on -- up on this Italian energy reform that got passed and whether you had a chance to estimate the initial impacts because it looks like there's quite complicated, lots of moving parts. It's connected to gas spreads, the ETFs and tax. Maybe you could just talk about how you're thinking about that being a net positive or net negative and the different impacts on your different parts of the businesses, that would be useful. And then second question on the buyback. I know we've got to be patient for the actual number, but I was hoping you can maybe share just your thought process here and the importance you put on buybacks after the re-rating of your stock. And am I right in saying when you set this buyback, you'll be using the $62 oil price deck for 2026? Claudio Descalzi: About the energy bill that you were referring in Italy, clearly, the impact is slightly negative, but quite marginal because you have to consider that as Eni, we are not just a supplier and a producer, but we are also an important industrial player in the country with different activities spanning from the refinery, chemicals, bio-refineries and also certain upstream activity, clearly. So you have to consider that the overall effect is mitigated by this double exposure. So it's absolutely, let's say, marginal towards the overall performance of Eni. In terms of buyback, I was mentioning before, the reference is $62 for the expectation for the next year in terms of pricing, we have to confirm at the next Capital Market Day. Clearly, you know what is the structure of our distribution policy. When we set up a buyback that is clearly the variable component of our distribution, this is a floor. And historically, we proved that this is the floor because we raised the floor 3 times on 4 years. And the scope is substantially to share the upside that will emerge both in the performance and the scenario to our investors. We will provide all the details in the Capital Market Day at the end of March. Operator: So now we are looking for Alastair Syme at Citigroup. Alastair has disappeared off the list, apologies. We're going to move to Matt Lofting at JPMorgan. Matthew Lofting: Congratulations on the strength of execution throughout 2025. Just 2 quick questions from my side. First, coming back to the net debt and gearing targets. I wondered, you mentioned Asia and the JV earlier. I wondered whether there was any other accounting effects in those targets, including any allowance for a possible deconsolidation of Plenitude, which I know has been sort of talked about in the past. And then secondly, Eni is obviously one of the companies in the industry that's retained a presence in Venezuela. Do you have any thoughts at this point on the near and longer-term upside that could sit there for you in the country and how you'd sort of think about ranking that within the range of portfolio opportunities that you have from a capital allocation and risk reward perspective? Claudio Descalzi: Thank you. So Francesco, look after gearing, and I look after Venezuela. Francesco Gattei: Okay. Clearly, about the gearing target that we provide you is, let's say, an effect of a number of actions and levers. As we said before, there is a strong operational performance, cash flow improvement, CapEx efficiency. And clearly, the satellite model that helps to, let's say, transform this potential contribution in terms of growth in stand-alone companies or entities that will be able by themselves to provide the debt. We are studying different solutions. You were referring to Plenitude, but clearly, we are working on different concepts and potentially this could be, but it's something that will be eventually disclosed at the proper time. Claudio Descalzi: Venezuela, what I can say that, for sure, is an upside for us, an upside from several point of view, not just 1, 2, maybe 3 upside, different kind of upside. The first one that through the general licenses, #50 that has been issued a few days before, 1 week, I think, we can recover our gas. So Venezuela can pay through using crude, the gas that we deliver to the domestic market. So that is already a big upside before we were stuck for almost 1 year. And that creates a very buildup of our outstanding. So now that is done. Then there is a second upside. We have blocks, we have oil. We are in one of the best block in the Orinoco belt. We are also offshore with Corocoro. And that possible additional development can use to recover the past cost or the past outstanding that's around EUR 3 billion. And that is another upside. So for sure, we are working with some American companies to see if we are creating a joint venture to develop this field are producing. But clearly, they can grow our production quite quickly, and that is a possible upside. And the third upside is gas. Gas is something that is needed. You have to consider that U.S. have to increase or deliver additional EUR 20 billion or more EUR 20 billion in 1 year -- less than 1 year because with the sanction on the LNG gas and Russian gas, we need to compensate this EUR 20 billion. So you asked to -- they have to increase. But U.S. need also gas in domestic market. So the gas that we discovered about 20 Tcf in Perla with additional prospects that are really located in the right position, not just to deliver domestic gas, but also to export to Europe is a third opportunity. And clearly, these are in line with what President Trump wants. I mean, develop the oil and gas in Venezuela -- for Venezuela first, but also to create a different kind of environment in the region. So I see that very positively. Operator: So we'll move to Martijn Rats at Morgan Stanley. Martijn? Martijn Rats: Yes. To be honest, most of my question has largely been asked, but I've got one left. There have been a couple of articles saying that you're interested in sort of revitalizing some of the oil trading business within E&I and including some partnerships with some other firms. I was wondering if you could provide some color around that issue, what your thoughts are in that area. Guido Brusco: We've started a journey to improve our trading and extract more value from this segment of the business. And we've -- first of all, we've created one single organization. So we have put under one umbrella all the trading arms of the company all along the value chain to extract all the margins. That's the number one. Number two, we have changed also some of our approaches to the risk. We are becoming a little bit more -- a little bit less risk adverse. And number three, we are, of course, looking at different way to do business. And in doing that, of course, we have started a dialogue with some international trading players in the recent months. Operator: We are going to move to Massimo Bonisoli at Equita. Massimo Bonisoli: My 2 questions. One on CapEx. Net M&A was around EUR 4 billion in 2025, roughly EUR 2 billion above the initial guidance with EUR 2 billion target also for 2026, does this implicitly rise your opportunities over the 4-year plan? So I'm curious to understand if you have more options in your portfolio than 1 year ago? And the second question on biofuels. How do you see biofuels trading environment evolving in 2026, particularly in terms of margins and market balance between supply and demand? Claudio Descalzi: Yes. Thank you, Massimo. About the net CapEx and the portfolio effect, as you can see, we continue to upgrade our portfolio to leverage on our capability to execute and to explore and to have success for the dual exploration model to valorize as we have done so far, the business line that will be recognized as valuable through the transition. So there is a large list of opportunity. Remember, last year, we declared there was a risk amount and the result at the end in terms of value and the higher effect is the fact that clearly, we had a positive result at the end. So in terms of this year effect of EUR 2 billion, you can also already appreciate that we completed in early January the first disposal. It was the Ivory Coast top-up. And this is something that is already on our, let's say, results. And we are moving to additional progress or activity related in particular, Indonesia, 10% is a program that is ongoing and some other additional element. We continue to work, and you should expect as we had last year, eventually upside because we generally risk our overall portfolio program. Stefano Ballista: Yes. On biofuel, thanks for the question, Massimo. Biofuel, we see the development is absolutely constructive. We estimate biofuel demand in 2026 above EUR 20 million. This year, it's going to be around EUR 16 million, so a significant step-up. It's going to be driven mainly by Europe and U.S. Main reason for this demand growth is twofold. In Europe is the well-known Renewable Energy Directive #3. We quoted the Germany example even in previous call. I just want to add that on top of getting extra GHG reduction target and the ban of double counting, they are even asking to allow site investigation in countries -- foreign countries that are providing flows to Germany in order to be that flow accountable. And this is actually a positive evolvement for the supply-demand balance. So this is another good news. Talking about U.S., actually, just yesterday, the EPA said that within the end of March, they want to finalize the new renewable volume target. Expectation is to have a significant increase between 35% and 40% increase. We are seeing this already on the RIN prices. RIN prices improved by 40% from the beginning of the year. And this happened without an improvement in terms of RIN generation. So this means that in order to cope with the new EPA target, we need to have RIN generation improvement, and this is going to drive economic margins improvement itself. Last comment, this year, we saw a reduction, a destocking of the RIN banking. It's about EUR 0.5 billion destocking. And this is a turning point that revert the trends that we saw previous year when the RIN banking actually got exactly in the opposite direction with an increase of EUR 2 billion. We expect this trend to definitely move forward and to rebalancing the supply demands overall. Operator: We're going to move now to Mark Wilson at Jefferies. Mark, if you're online. Mark Wilson: Okay. You said earlier how the strategic path that has got you where you are in upstream is not one that you can start overnight, the exploration, the infrastructure, as you say, you've never stopped. Now you've also spoke to AI impacting exploration. And on the last call, you spoke to the technical hedge that floating LNG is giving you. So -- but my question is that it's impossible to have this kind of delivery alone. So I'd like to ask which third-party areas other than the ones already spoken to across your upstream partners or indeed oilfield service contractors, where has the greatest improvement been to assist your delivery? Is it drilling, reservoir characteristic, E&C cycle time, shipyards? Is it something else? That would be my question. Claudio Descalzi: Thank you for the question. It's very interesting. No, first of all, we are never alone in the life. I have a lot of colleagues with me in Eni, but we are not alone in terms of strategy. When other company outsourcing, we are in-sourcing, that means that we kept in our company all the main competencies. That started in the 2000 and so 2011, 2012, we decided to in-source. So we didn't follow the mainstream that say reduce cost and may your contractors as a main contractor, they do everything in Turkey. Now we want to take our end in each project. And that means that in the last, I think, 16, 17 years, we put our competencies and we increased our competencies in all the different segments of our business. I talked about E&P, not only. We increased the R&D investment. We opened up 7 R&D centers. We increased our R&D people [ 1,200 ] people. And we have in our end technology in drilling, reservoir or seismic and development, and we made a revolution in our time to market, the best we can say in time to market. So we are not alone, but we are alone in terms of the choices we made in the last 15 years. So I think that, that is the main reason. I don't know if we share this point, you want to say something else. I hope and I think... Guido Brusco: It couldn't be better. Operator: We're going to move to Paul Redman at BNP Paribas. Paul? Paul Redman: Just 2, please. First was you achieved EUR 4 billion of cash initiative benefit in 2025. I wanted to ask how much of that is roll or could roll over into 2026? And secondly, I know people have asked but kind of -- and it is early, seeing you've got a Capital Markets Day in a few weeks' time. But I wanted to ask about how you think about allocating to shareholder. You currently allocate based on a percent of cash flow from operations, but you've clearly paid above that percentage. And I think part of that has been driven by acceleration of divestments. So I wanted -- and this year, you're guiding EUR 2 billion of divestments. So I wanted to ask if you still believe that percentage of cash flow from operations is the appropriate way to allocate cash flow to shareholders. Claudio Descalzi: First of all, about the cash initiative, you have seen that we executed. I think that there is a lot of evidence through the results that we achieved that we started with EUR 2 billion, we raised to EUR 3 billion and then EUR 4 billion, and we performed. Most of that are one-off factors that doesn't mean that they will be reverted, but actually will be rolling. So we are executing our cash management in a different way than before, optimizing the time to market of this cash needs, and there were a lot of opportunity. We continue to study because I believe that generally in managing a huge amount of cash in a company's Eni, there is still a lot of pockets or upside that are -- have to be discovered. It is a sort of treasury search that we look for. So we do expect something also, but this is probably we have to wait a bit, 3 weeks for additional disclosure. On the cash flow from operation reference, the idea of having cash flow from operation as a starting point for distribution is because we want to put the shareholders at the top of our priority. So the first line of cash flow is the cash flow from operation, pre-working capital. And clearly, there is all the other factors that come later. So the free cash flow could be another way to distribute. Clearly, you have to change the percentage because you are speaking about different absolute figures. But at the end of the day, the logic of having cash flow from operation is giving the reference in terms of priority versus the distribution line. We will see again also in the next Capital Market Day, what will be the announcement and what will be eventually the percentage that we allocate. Operator: And we're going to go to the last question. We found Alastair. Al, you around. Al at Citigroup. Alastair Syme: Yes. So the question I had was really on -- well, I mean, there's been a lot of commentary in Italy and across the European Union about the European carbon scheme, the ETS. And you have a foot in several camps here, you're a carbon emitter, you're a power generator, you've got a CCS business. So can you give us a sense of where you think the political discussion is and what, if any, changes you would like to see? And if I could poke in a second question. Do you have any update on the well you're drilling offshore, Libya? Guido Brusco: Yes. Libya offshore, we are currently drilling one exploration well, and we'll announce results when they become available, of course. Claudio Descalzi: I think that we are very ready to talk about drilling reservoir explorations and all we want. But on ETS, honestly, we cannot give you a lot of light is the tax we pay. I don't know. Honestly, there is a big debate today because in Europe, the industry is suffering a lot. It's not growing. In the contrary, they are squeezing the industry in Europe with all the different kind of taxes and green deals that impacted negatively all the kind of industry. ETS is one of these taxes. And Europe is the only country that apply these taxes at a very high level. So when we talk at competition with the rest of the world, it's not easy to compete one and the other and not really applying the same kind of rules. So that's what I can say, but I [ do ] not want to enter any political debate. It's not our business. I prefer to increase production and get good results for my company instead to cry about taxes I'm paying. Thank you. Alastair Syme: Claudia, can I ask, does it make you think differently about putting capital on the CCS business given that there is a potential that the legislation could change? Claudio Descalzi: No, I think that change has been made already have been in taxonomy and they've been accepted at least. At the moment, in Holland, especially in U.K. and now in Italy, so we have at least 3 countries where the CCS can be developed. In U.K., they made a big, I think, effort for the future. And for that reason, they -- now the investment has started and also the project has been sanctioned. In Holland, I think that is going to follow. And Italy, we are very close to have a new law, but we have a huge amount of potential to be explored and we constitute the company. We already got interest from investors, and we have already an investor with us in the company. So I'm positive and Europe after years, now they accepted this important tool to reduce CO2 emissions. And clearly, the CCS is the counterpart of the ETS because the CC, so the capture now has not matched yet, but now with the ETS that is close to EUR 90 or between EUR 80 and EUR 90 per tonne, I think that the CCS based on the existing assets, not on new development, is very good from an economic point of view. It's very positive. Operator: Thanks, Claudio. Thanks, Al. That brings us to the end of the call. Thank you very much for your attention, both today and through 2025. And we look forward to speaking to you all in greater detail on the new strategy and plan or the strategy and the new plan on the 19th of March. So we'll see you all then. Thank you very much.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties Fourth Quarter and Full Year 2025 Earnings Conference call. [Operator Instructions] Please note that this conference call is being recorded today, February 26, 2026. I will now turn the call over to Samantha Gallagher, General Counsel with VICI Properties. Samantha Gallagher: Thank you, operator, and good morning. Everyone should have access to the company's fourth quarter and full year 2025 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI Properties website at www.viciproperties.com. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of words such as will, believe, expect, should, guidance, intends, outlook, projects or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition. During the call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our website, in our fourth quarter and full year 2025 earnings release, our supplemental information and our filings with the SEC. For additional information with respect to non-GAAP measures of certain tenants and/or counterparties discussed on this call, please refer to the respective company's public filings with the SEC. Hosting the call today, we have Ed Pitoniak, Chief Executive Officer; John Payne, President and Chief Operating Officer; David Kieske, Chief Financial Officer; Gabe Wasserman, Chief Accounting Officer; and Moira McCloskey, Senior Vice President of Capital Markets. Ed and team will provide some opening remarks, and then we'll open the call to questions. With that, I'll turn the call over to Ed. Edward Pitoniak: Thank you, Samantha, and good morning, everyone. In the next few minutes, you'll hear from John Payne on our growth outlook and David Kieske on our financial results and our 2026 guidance. To start, I would like to thank the members of the VICI team for their hard work and dedication. Their contributions are the foundation of our success, and we're grateful for everything they do for our company and our shareholders. I'd also like to thank our operating partners for all that they do in bringing our buildings to life each and every day. Our leases are triple net. We don't get involved in how our tenants operate their businesses, but that doesn't mean we don't pay attention. We pay attention, of course, to what they produce, that is their operating results, but we also pay attention to how they produce results because how they operate today can impact the results they produce in future quarters and years. How gaming, leisure and hospitality companies produce results isn't usually captured in financial statements. And that's because financial statements don't directly tell you much, if anything, about one of the key factors that drives financial results and that key factor is people, namely employees and customers. When I entered leisure and hospitality in the mid-1990s through Ski resort operations, I had the good fortune to be introduced right away to the model that I believe best captures how value is created and sustained in a service-based business, including leisure and hospitality businesses like gaming and other experiential categories. That model was the service profit chain authored by a group of Harvard Business School professors that included Gary Loveman. Here's the essential dynamic of the service profit chain as described in the original Harvard Business Review article published in 1994, "the service profit chain establishes relationships between profitability, customer loyalty and employee satisfaction, loyalty and productivity. The links in the chain are as follows. Profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to customers. Value is created by satisfied, loyal and productive employees. Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers." This sounds simple and logical. Why wouldn't every service business operate this way? Well, there are lots of reasons, starting with creating and sustaining this chain is hard, ceaseless work, especially in operationally intense businesses like gaming, which operate 24 hours a day, 365 days a year with multiple guest experience, service and profit units within a single operation. Because putting the service profit chain into full effect is hard to achieve, it's worth recognizing and celebrating when it is achieved. Last year, Harvard Business School, yes, back to them again, recognized such an achievement when it published a case study entitled: The Venetian Resort: Frontline Engagement as Value Driver. It's almost exactly 5 years ago that we announced our acquisition of The Venetian together with our partners at Apollo. The time was winter 2021 and the COVID pandemic was still severely impacting Las Vegas. As Apollo and VICI collectively underwrote that acquisition, our hope and our stated intention on announcement was that the asset could recover to 2019 levels of profitability by 2026. We'll let Harvard Business School tell you how we collectively fared, and I quote, "to bring Apollo's investment thesis to life, the Venetian's Board of Directors made 3 decisions. First, they appointed Patrick Nichols to lead the transformation. Second, they committed over $1 billion in capital to enhance the guest experience from room renovations to convention center upgrades. And third, they implemented a broad-based equity-like program called the Venetian Las Vegas Appreciation Award, grounded in the belief that employee ownership could drive both cultural and operational change. Continuing to quote, 3 years later, the results were strong. Employee engagement increased materially above historic levels, signaling that cultural change was taking root. Guest satisfaction scores rebounded from pandemic lows of 56% to 61% and the EBITDAR of the property had increased from $487 million pre-pandemic to $777 million in 2024." From VICI's perspective, since Patrick Nichols took over leadership of The Venetian in early 2022, we've been privileged to witness the transformation that ensues when an experiential management team is attentive and responsive every single day to employee effectiveness and morale and its impact on guest behavior, satisfaction and loyalty. I strongly encourage you to read the HBS case study on The Venetian. You can find a link to a PDF of the case study on our website, www.viciproperties.com. To reiterate, given our triple net leases, we don't operate anything that goes on within our real estate, but we pay attention to operations and greatly appreciate all that our operators do every day to make our real estate relevant to their end customers. And it's those end customers after all, who produce the revenue that eventually funds our rent. With that, I'll now turn the call over to John Payne. John? John W. Payne: Thanks, Ed. Good morning to everyone. As Ed highlighted, the operating prowess of our tenants is important. When we underwrite new transactions, not only are we assessing the financial profile and projections of these operating businesses, but we're also intentional about deeply understanding the partners with whom we are doing business. As Ed points out, it is an operator's managerial style and ability to retain and attract consumers that filters down to the bottom line. Over the course of 2025, we formed and announced several new partnerships that we believe are emblematic of the energized, experienced and effective operators we seek. Last February, we established a long-term strategic relationship with Cain and Eldridge Industries, 2 companies highly aligned with VICI-owned experiential real estate through a $450 million mezzanine loan investment related to One Beverly Hills. In May, we initiated our first partnership with Red Rock Resorts, one of the premier gaming operators through a $510 million delayed draw term loan for the development of North Fork. Red Rock's fourth quarter results demonstrate how their thoughtful and creative operating model is leading to superior results. In October, we welcomed Clairvest as our future 14th tenant following the announcement of their pending acquisition of operations at MGM Northfield Park. And finally, in November, we announced a $1.16 billion sale leaseback of 7 casino properties in Nevada with Golden Entertainment and Blake Sartini, a highly seasoned gaming operator, which will add our 15th tenant when the transaction closes, which is expected later this year. These announcements combined represents $2.1 billion of committed capital in 2025 at a weighted average initial yield of 8.9%. This volume of commitment and quality of partnership is what differentiates VICI. I'd like to take a moment to focus on the Golden transaction. We're very proud to have announced a $1.16 billion fee simple real estate deal in the gaming sector involving 7 properties located in Nevada, a state that is very protective in land-based brick-and-mortar gaming. We also look forward to our future partnership with Blake Sartini, current Chairman and CEO of Golden Entertainment, who we will own and control a newly formed entity that will acquire the operating business of Golden in connection with the closing of the transaction, subject to Golden shareholder vote as well as customary closing conditions and regulatory approvals. Blake has a long tenured history of over 30 years in casino operations and has established reputation as an effective operator with a strategic focus on Nevada gaming landscape. We hope to grow together in the coming years. At VICI, we've talked about investing in the local -- the Las Vegas locals market for years, and Golden has allowed us the opportunity to do so. The market is demographically attractive. Median household income in the locals Las Vegas market has a 10-year CAGR of 5.5% compared to the national median household income 10-year CAGR of 1.9%. The Las Vegas locals market has also maintained incredible resiliency as demonstrated by most recent market results. We acknowledge that the Las Vegas strip had a relatively softer 2025 compared to prior years. But as we've discussed over the last few quarters, we view 2025 as more of a normalization than a pullback. For instance, though the number of passengers traveling through Harry Reid Airport was down on a year-over-year basis, largely due to a dip in Canadian visitation, it was still the third busiest year in the airport's history. But as John DeCree astutely noted in a recent research report, despite many domestic casino stocks being out of favor at present, credit spreads for casino companies remain tighter than ever. We agree with John that these spreads are the more appropriate barometer for the health and durability of the casino operating model. Looking ahead to 2026 in Las Vegas, the strong convention calendar has already started to have an impact with the highly attended CES in January and with CON/AGG CONEXPO approaching in March, the group segment that has historically been a pillar of strip demand should provide meaningful support through the first half of 2026. Our operators' ability to react and respond to changes in the macroeconomic picture and shifting consumer demand contributes to the longevity of the experiential sectors in which we've invested and we'll seek to continue to diversify our partnerships across best-in-class experiential operators just as we did in 2025. Now I will turn the call over to David, who will discuss our financial results and guidance. David? David Kieske: Great. Thank you, John. In terms of financial results, for the quarter, AFFO increased 6.8% year-over-year to $642.5 million and on a per share basis, increased 5.6% year-over-year to $0.60. For the full year 2025, AFFO increased 6.6% year-over-year to $2.5 billion and on a per share basis increased 5.1% year-over-year to $2.38. This compelling growth in AFFO on a per share basis for both the fourth quarter and full year 2025 was delivered primarily through the reinvestment of our free cash flow. We only increased our share count by 1% in 2025, highlighting VICI's ability to deliver sustainable per share returns as our portfolio continues to scale. Our results once again highlight our highly efficient triple net model. Our G&A was $19.3 million for the quarter, $65.1 million for the year and as a percentage of total revenues was only 1.9% and 1.6%, respectively. Our net income margin for the year was approximately 69%, one of the highest net income margins in the S&P 500. Touching on the balance sheet and liquidity. Our total debt is $17.1 billion, and our net debt to annualized fourth quarter adjusted EBITDA is approximately 5x at the low end of our target leverage range of 5 to 5.5x. We have a weighted average interest rate of 4.46% as adjusted for our hedge activity and a weighted average 6 years to maturity. As of December 31, we have approximately $3.2 billion in total liquidity comprised of approximately $608 million in cash, $243 million of proceeds available under our outstanding forwards and $2.4 billion of availability under our revolver. And turning to guidance. As you saw in our press release last night, we are initiating AFFO guidance for 2026 in both absolute dollars as well as on a per share basis. AFFO for the year ended December 31, 2026, is expected to be between $2.59 billion and $2.625 billion or between $2.42 and $2.45 per diluted common share. And just as a reminder, our guidance does not include any transactions that have not closed, interest income from any loans that do not yet have final draw structures, possible future acquisitions or dispositions and related capital markets activity or other nonrecurring transactions or items. With that, Adam, please open the line for questions. Operator: [Operator Instructions] And our first question comes from Caitlin Burrows from Goldman Sachs. Caitlin Burrows: I guess it seems like you guys have had some preliminary discussions with Caesars regarding the master lease. So wondering if you could give any updates on what has been discussed, potential update -- potential outcomes and timing. And to the extent you don't want to discuss those, perhaps you could say maybe what's off the table or that an announcement before X date is probably not reasonable. Edward Pitoniak: Yes, Caitlin, good to talk to you. Yes, we're obviously not going to get into any kind of detail on what we might have discussed already with Caesars or more importantly, what we will be discussing. But what I want to emphasize, Caitlin, is that as we address lease issues with Caesars, we're going to do so within the context of our overall approach to portfolio and risk management. So that any solutions that we develop and agree to with Caesars help further our larger portfolio goals of optimizing our exposure to any single tenant to any single category to any single geography. And that's the way in which we will evaluate any possible solutions that get shared at the table. We can't obviously and won't specify any single date by which an agreement is made or arrived at. But I would reemphasize the degree to which our history over 8 years has been a history in which we've continually used our strategies to achieve our goal of getting better. I would remind everyone, not that probably anyone needs reminding that we started out with 100% exposure to Caesars and only Caesars. Today, we're in the high 30s as a percentage of our annual rent roll. But what we undertake with Caesars again, will be a solution that we believe can and will be a win-win, but win-win for us insofar as it also helps further our portfolio optimization goals. Caitlin Burrows: Got it. Okay. And then I guess I saw in the 10-K that it mentioned you had placed a senior loan collateralized by golf development on nonaccrual status. So wondering, can you give more color on this, maybe what visibility you had, what's going on at the property and any assumed impact to AFFO in 2026 guidance? Edward Pitoniak: Yes. So this -- one of the benefits for us, Caitlin, of having so small partner roster, whether it be on the asset investment side or on the lending side is that when issues do arise, we are able to get all over them. In this particular case, it became clear that our partner, in this case, the borrower was facing a working capital issue, and we made what we think is a very sound tactical decision in relation to this tactical issue of making sure that they would have the working capital to continue to operate and develop in a way that preserves the value of the property so that during that time, they could also focus on recapitalization on their side, and they are working very intensely on that, and we are tracking that with them day by day. In terms of any impact on earnings for 2026, again, this is a de minimis part of both our loan book and, of course, our overall asset base. But Gabe, I don't know if you want to offer any thoughts in regard to Caitlin's question around earnings impact. Gabriel Wasserman: Yes. I'd just reiterate, it is de minimis and it's not included in guidance for 2026. Caitlin Burrows: By not included, you mean there's not a headwind included. Gabriel Wasserman: Correct. There's no income related to that loan included in 2026 guidance. Operator: The next question comes from Barry Jonas from Truist. Barry Jonas: I mean, I guess, just broadly speaking, can you talk about the deal environment, what you're seeing out there between sale leaseback or increasing loan book discussions. Samantha Gallagher: John? John W. Payne: Yes. Barry, it's nice to speak with you. And I know we've talked before. I can't tell you exactly what's in our pipeline, but I will take a moment. I do think it's important to remind everyone what we at VICI, we get paid for. On the short-term incentive, it's 100% based on a rolling 2-year AFFO per share growth and our long-term incentive is based on an absolute relative total return. And we aim for 8% to 10% total return annually. And I simply bring that up to orient you on how we approach the pipeline and external growth. We're all very clear here, and we have been since we started the company that we need to line up sustainable external growth. So with that said, we continue to prioritize real estate ownership while also using our loan book and we've talked about to develop new relationships. So we continue to be active. I'll remind you, Barry, from -- at this point last year, I think we had only announced our partnership with Cain and Eldridge. We had not even announced our partnership with Red Rock Resorts or Golden this time last year. So we continue to do our work. We're aware of -- we'll continue to employ our relationship-based approach to future transactions, and we feel good about what's out there. Barry Jonas: Got it. And then maybe related, maybe not, but I noticed there's a change in your accounting leadership with Mr. Wasserman moving to an expanded role for biz dev and experiential credit solutions. So just wondering if any ramifications to Gabe's shift there as you think about VICI's strategy or focus? Unknown Executive: Well, Gabe is on the call right now. So I don't want this to go to his head a little bit, Barry, but I couldn't be more excited to have Gabe shift over and help me and help us grow our business development. He's going to be a great resource. He's already been working with me for the past couple of months primarily on nongaming and experiential. But I know the whole company, but particular me is excited to have him be working on business development. He is on the call. He can weigh in as well if he'd like. Gabriel Wasserman: Barry, thanks for the shout out. And I also want to give a shout out to Jeremy Waxman, the new Chief Accounting Officer. Jeremy has been part of the team for 8 years, joined at the same time as I did, and we're all incredibly excited for his promotion here, and he'll continue to do a great job on the accounting side. Operator: The next question comes from Greg McGinniss from Scotiabank. Greg McGinniss: I was just hoping you could talk about the rationale between -- on the Greektown Margaritaville combination, lease adjustment there and the genesis of how that deal actually happened, who approached who. So any color would be appreciated. Edward Pitoniak: John? John W. Payne: Greg, it's nice to hear from you. Just about who approaches who. Remember, because we only have 13, 14, 15 tenants, we're always talking about a variety of things, whether that's with Penn or with any of the others. Regarding the combination of the leases, we really saw the opportunity to combine 2 leases, simplify the escalation structure, remove the volatility by eliminating the percentage of rent. This combination clearly enhances our credit protection by cross-collateralizing 2 of our assets in a master lease with a corporate guarantee. While at the same time, it did not change the amount of rent collected by VICI this year. So we saw it as a really good opportunity. Both sides came together and we negotiated. And obviously, we announced it when we put out our earnings last night. Greg McGinniss: Okay. And speaking of the kind of limited tenancy and the relationships that you're building on the debt side, how do the debt investments like with Red Rock as the builder out of the tribal casino impact your relationship with them and the discussions that you have with them or how frequently you're communicating with them, right? So like how do you view kind of the long-term benefit of that transaction versus just stepping in as bank adjacent, someone that has a pocket book as opposed to someone that's a long-term partner. Samantha Gallagher: David? David Kieske: Yes, Greg, it's a good question because we approach all of our investments from a fundamental relationship-based position. And particularly Red Rock, as we talked about when we announced that last year, I mean John and Ed and team and I have been meeting with Frank, Lorenzo and Steve and team for years and just getting to know them, getting to know their business. And when they called us last fall to come into that syndicate, it was very much -- this is a way to continue to grow that relationship and develop that relationship, and we still have frequent dialogue with them, even though they are the developer and the tribe will operate the asset, but it's via Red Rock relationship that we did that investment with their credibility and expertise around development. If you've been out or seen any renderings of the North Fork asset, it's on time and slightly under budget, and we'll open here in the fall. So we are not just a lend and stick the credit on the shelf and walk away. It's everything is relationship-based and who's our partner and is there strategic merits to the capital that we deploy, whether it be through equity investments or the debt investments. Operator: The next question comes from Haendel St. Juste from Mizuho. Haendel St. Juste: First question is on the guidance. I understand a large majority of the growth you have is locked in through your bumps. So I guess I'm curious on some of the variables that could drive us to the upper and lower end of the range. I know it's not a wide range, but it also doesn't assume transactions or capital markets. So some thoughts there and maybe also some thoughts on the debt coming due later this year. I think it's $1.75 billion in the low 4% range. Edward Pitoniak: Yes. Haendel, I'll start, and then I'm going to hand it over to David. Yes, we obviously do not guide to investment activity that has not yet been announced or even to loan draws that haven't been formally calendarized. And that's obviously -- that sets us apart somewhat. And when we boil down the key reasons as to why we don't give investment guidance like many of our net lease peers do, there's really, I think, 2 key reasons. The first one is, obviously, visibility and predictability would be hard to achieve. Secondly, I, as a risk manager, I'm a little hesitant around the whole idea of investment guidance because if you give an investment target, and you don't know exactly with certainty how you're going to achieve it, it can, in some cases, I'm not saying all, can, in some cases, lead investment teams to make investments for the sake of making damn sure they hit the target, and that can often be a road to trouble. But I will now turn it over to David to answer the back half of your question. David Kieske: Yes. Just in terms of the range, Haendel, I mean, we have some draw schedules for Kalahari North Fork that we just talked about and a few others. So we bake in some flexibility around that in terms of percentages that they may draw each month. There's obviously -- you got on our income statement, there's not a lot of other lines. There's a little bit of fluctuation around G&A. There's a little bit of fluctuation around interest income. And then we do bake in some conservatism, not specificity around the refis, which you've mentioned that we have upcoming at the end of this year, maturity in September of $500 million and a maturity in December of $1.25 billion and then you roll into the first part of '27, and we have another $1.5 billion coming due. So we'll look to access the -- it wasn't exactly your question, we'll look to access the bond market later this year, obviously, ahead of those maturities to continue to term out our debt wall, debt ladder as we have been doing since inception. Haendel St. Juste: Would your preference be to do term? And just curious on kind of where you see the ballpark estimated cost of new unsecured debt? David Kieske: Yes. We're getting close kind of on a 10-year is how we look at it, 125, 130 over the 10-year right now. So I don't know what the 10 year is exactly this morning, but low 5s all-in coupon. So as we've done last year, a mix of -- we'd love to do 10s, 30s if the market is there, but we've got optionality in a very deep fixed income investor base that we're very grateful for and we'll come to the market at the right time for the company. Haendel St. Juste: Got it. Got it. My second question is on Golden. I wanted to go back to the pricing on that transaction for a moment. I appreciate the stats on the Las Vegas local market, certainly some encouraging things we heard there. But the mid-7 cap rates inside of where we've seen other regional deals trade largely in the 8% plus range. So I was curious how we should think about -- and how you're think about cap rates for regional versus strip assets going forward? And if this is a new pricing level you think or expecting in the market? Edward Pitoniak: John? David? John W. Payne: Yes. Look, we felt very good about the pricing, being able to get 7 assets with the team at Golden and then being able to operate them and understand them and then also be able to grow with them, we felt that, that was the appropriate price at the time. We are obviously getting more exposure to Nevada, which we're excited about. So it's easy to kind of lump everything into regional assets, but there's no question there's a big difference between middle market regional assets as well as what we describe as Nevada regional or local assets. So we think the price was appropriate for getting a whole portfolio of assets and helping the team grow their business. And I think over the years, we would hope that we do more with the Golden team. David, anything to add? David Kieske: No, you covered it well. There is a difference between regional assets in the locals market and the regulatory environment that Nevada or the importance of the regulatory environment in Nevada and the bricks and mortar and the income and the taxes that they generate and the employment base that they support through that state and their economy. Operator: The next question comes from Jim Kammert from Evercore. James Kammert: It seems like Sphere Entertainment is pretty likely to go forward on their deal down National Harbor. I was just curious, does VICI had any talks with the Sphere or their Peterson company partners about participating in that deal? Edward Pitoniak: Well, Jim, good to talk to you. Obviously, we don't really -- we never talk about deals in progress of any kind or whether or not any kind of conversations are in progress. But I guess I will say that we've been obviously able to have a ringside seat on Sphere's success at The Venetian. And from what we have seen and heard and witnessed through the results, Sphere has created, obviously, a very compelling offering. Sphere is run by a very strong management team, not only on the entertainment programming side, but on the construction and development and risk management side. So we're obviously paying attention and perhaps I'll leave it in there unless any of my colleagues want to offer anything more. John W. Payne: The only thing I would add, Ed, is that where we're seeing this potentially could go. Obviously, we are the owners of National Harbor and MGM runs it. And what we've seen, as Ed mentioned, in Las Vegas for the Sphere is the amount of new customers that get attracted to that. So it could only help our business and MGM's business should the Sphere -- the next Sphere be built on that campus. James Kammert: That's helpful. I appreciate the caveats. And then I know, Ed, again, you can't really speak to the Caesars discussions. But given the strong report between the 2 companies, I mean, can you say, is there just sort of like a regular -- to use your term, calendarized sort of series of discussions? I mean is this ongoing? Or is this sporadic? I'm just trying to understand kind of what the interaction feels like? Edward Pitoniak: Yes. Yes. It's obviously -- it's regular by nature of us needing, obviously, to have a regular dialogue with the single biggest tenant on our rent roll. And again, there's conversations that obviously have to take place around issues that are not necessarily specific to the regional lease. But John, I don't know if you want to add any more than that? John W. Payne: No. Look, I mean, we -- if the question was just about the lease, that's a different question than are we talking to Caesars and our tenants about their business to understand the trends. And the latter we do all the time, and it's, again, one of the benefits of our model where we don't have 500 or 1,000 tenants where you can't understand the business and trends. By having 14, 15 tenants, we can talk to them and understand specifics about our assets. So I speak frequently, Danny, the lawyer works and our group speaks frequently, not only with Caesars, but really all our operators. Edward Pitoniak: Yes. And yes, let me just reiterate, Jim, what I said in response to Caitlin's question at the outset. For both Caesars and for us, I really believe the ultimate best solutions will be solutions that simply do not only address issues of lease coverage, but solutions that enhance both portfolios, which is to say, I think there's going to be multiple levers, multiple strategies to achieve portfolio optimization for both parties. Operator: The next question comes from Anthony Paolone from JPMorgan. Anthony Paolone: Maybe for John, can you go through some of the bigger buckets of investments and give us a sense as to where you're more or less active in terms of seeing things these days, whether it's sports, wellness, gaming, international and so forth? John W. Payne: I'd just say yes. But let me just give you some really -- I'll talk about experiential. Obviously, we'll continue to grow our gaming portfolio, and I feel that we're well aware of potential opportunities in that space really all over the world, obviously, here in the U.S. When we turn to experiential or non-gaming, there's a couple of areas I'll just touch on. And don't assume that's all we're looking at, but we only have 35 seconds here for me to talk about this. So a little bit about -- you mentioned sports, and this has been really interesting for me, and you hear Gabe's in a new role, he's spending a lot of time on this. And we are in discussions with a variety of sports operators, teams, leagues. And frankly, it just takes time, just like it did when we started the company, taking time to learn all the gaming operators, we're needing to take time to introduce ourselves to sports operators, teams and leagues. And frankly, the sports financing world is changing rapidly. You can pick up your news, however you get your news, I almost said newspaper, no one does that anymore. But pick up your news and look and you'll see there's always something happening in the sports finance world. And really, whether it's a university, whether it's a pro team, they want to understand their options before moving forward. What I'd tell you about the VICI team is we're getting in front of the right people. We're staying patient because we really do believe there's an opportunity for great growth in the sports infrastructure space. And the other area we're spending time with because we really like the data we see is in live entertainment. If you look at the data from millennials and Gen Z, there seems to be a large appetite and willingness to spend a great amount of money on live entertainment. So we continue to spend time understanding is there an opportunity for our capital in those type of infrastructure developments. So Tony, I'll hit on those and see what else you got. Anthony Paolone: Okay. My only other one maybe for David. Just I think one of the Cain loans has an initial maturity that's perhaps next month, if I recall. Like what's the likelihood of getting paid back on that? Or does that just get extended out? David Kieske: Yes, Tony, you're right. There's an initial maturity next March -- or this March, sorry, next month. The likelihood is it gets rolled -- unlikely it gets repaid, but it gets rolled into a broader construction syndicate that the Cain team is working on and timing of that is TBD. It's hard to predict. It's a big construction loan, but it's something they're very focused on and ensuring that they get that done in a timely manner. Operator: The next question comes from David Katz at Jefferies. David Katz: John, I wanted to -- I was hoping to just go back to the sports opportunity because we have been talking about it for a while, and I understand the answer about patience and persistence. Have you talked about any TAM or sizing that opportunity? Just a little something more that we can chew on while we're waiting. John W. Payne: We don't have an exact number. I'll let Dave weigh in a little bit. What I would tell you, David, is that we have approached 50, 60, 70 universities to date. There is clearly a need for capital to build sports infrastructure. And because we've not announced the deal yet, we're trying to see how our capital can work in that environment. So what I do know is there's a large TAM, and that's just in universities, we're not even talking about professional sports teams, mixed-use facilities around new arenas, new stadiums as well. So David, I can't give you an exact number, but what I do know when I meet with these groups is that there is a need for capital and there are projects that are on the board. Now how they ultimately get financed is something that we continue to be, as I mentioned, being patient discussion about how our capital can work. Gabe, anything else you'd add to answer David's question? Gabriel Wasserman: Yes. I think just to, everyone we've talked about really has almost like a 9-figure need for athletic infrastructure on campus. Time line is shorter for some and more immediate. Others, it's part of a long-term plan. And hopefully, our capital can be a good fit and can help with their future development goals and opportunities. David Katz: Perfect. And then just to follow that up, when we look at, John, noting some of your commentary about live entertainment venues, which is certainly relevant in our coverage as well as the sports opportunity that's a little bit new. How can we think about the duration or durability of that real estate in comparison to your initial core, which was casinos. I know we've talked about we know what the strip is essentially going to be in 20, 30 years. How do we feel about that in those other types of real estate venues? John W. Payne: Dave, do you want to take that since you've been leading this charge? David Kieske: Yes. I think, David, as I'm sure you're seeing in your meetings, a lot of these sports anchored mixed entertainment districts are popping up all over the country, and they're trying to get some live entertainment to anchor them and to drive visitation, which really activates the site and increases the value of the surrounding real estate. I think if you talk to any operators that would operate these venues, they see them as a 25-year plus investment, 25- to 50-year horizon, which really aligns really well with our investment horizon and looking at these as permanent capital investments. So we see these as really kind of core infrastructure that are part of the development and is a really good fit for our capital and our long-term outlook. Edward Pitoniak: Yes, David Katz, I'm really glad you asked that question because it's not only timely, it's also a perpetual question. And you've probably heard David Katz, the kind of acronym of the week, Halo, H-A-L-O, which is to say in the last couple of weeks, as software stocks have self-immolated, suddenly, there's a focus on heavy assets, low obsolescence, halo. And yet one thing we can never be smug about is obsolescence risk because it is the key value destruction risk in every category of real estate. So it is something we very much focus on category by category, location by location, use by use. And I think, Gabe answered well how we would look, for instance, at sport assets and their likely both useful life, but moreover their relevant life. But certainly, as we look across experiential categories, that is probably, at least for me, the #1 risk factor, which is to say how relevant will this real estate be 20 or 30 years from now. John, I don't know if you wanted to add something more. John W. Payne: No, you got it, Ed. Operator: The next question comes from Wes Golladay from Baird. Wesley Golladay: I just got a question for you on the cost of capital. Your 10-K highlighted that sometimes it falls out of favor. I'm just curious if you're looking at different ways to diversify your equity source, whether it's joint ventures, maybe even start to fund business at some point, but is that becoming a bigger priority? Edward Pitoniak: David and Samantha, do you want to talk about that? David Kieske: Yes. Wes, it's a good question. And we have the benefit of those that have come before us. Obviously, Prologis has a very robust and high-quality fund business. We're watching and seeing what Realty Income does with their fund business. Welltower is diversified. And it's something more broadly we think about what is the evolution of the REIT market. And is it becoming more of an asset management market or more of an asset management model, excuse me, because obviously, fund flows over the last 5, 10, 15 years have been very, very anemic with in the REIT world. So it's something that we're watching and learning and thinking about. There's nothing imminent on the horizon, but it's like any good stewards of capital. We want to make sure that we're forward thinking and putting the best practices forward. Samantha Gallagher: David said it, my job is to make sure we can basically structure anything we need to structure to accomplish our objectives. Operator: The next question comes from John DeCree from CBRE. John DeCree: I know we've talked about New York casinos in prior calls, but with 3 licenses awarded, Ed, John, Dave, whoever wants to take this, how are you thinking about New York development opportunities and your appetite to get involved in financing in whole or part. Can you kind of walk us through your view on the New York City development opportunity right now? Edward Pitoniak: John and David. John W. Payne: I'll start and then David can jump in. John, good to talk to you this morning. Obviously, it's a very large developments that are going to happen with these licenses. We do already have a partnership, as you know, with Hard Rock organization that are rebuilding the Mirage in Las Vegas. We also have a partnership with them in Cincinnati. So we're watching to see where there are opportunities for us to be part of a capital stack, so to speak, in New York. So it's still a wait and see, still seeing what's going on and where our capital could be productive and the projections of these businesses as well, we're getting a better handle on. David? David Kieske: I think you covered it well, John. Obviously, we've got 2 ground-up developments that will be further out. And obviously, Resorts World has a bit of a head start given the existing facility. So John DeCree, timing and amount and magnitude and what partners is a bit TBD still at this point. John DeCree: David, John, I appreciate that. And I wanted to circle back to your prepared remarks as it relates to The Venetian and the case study that you've referenced and the success that Pat had there and the development capital. I'm curious to get your views on opportunities where that could be replicated, where there's large assets, great assets in great locations, casino assets that with the right focus and capital could earn significantly more. And I mean an asset like The Strat is coming into your portfolio that's a fantastic asset that could maybe have a lot more potential. So it was such a unique opportunity for The Venetian, but can you see that being replicated anywhere. Edward Pitoniak: Yes, John, very much so. And then obviously, it is -- the fundamental approach that Patrick and The Venetian team have taken is an approach that I believe you fundamentally see across the street at The Wynn. You see it in many other assets up and down the strip. And if I was going to distill what I think is essential to increasing the vitality and relevance of an asset, it's that the management team has really strong, really broad, really deep cultural insights into how people want to experience the world and how much of those consumer desires they can capitalize on in terms of how they program the asset. Because at The Venetian, as at so many other places, what you're seeing is acting on really strong cultural insights on how people want to be entertained, how people want to dine, how people want to socially gather, how people want to shop, how people want to pursue wellness. And that, I think, is the key ingredient. An old friend of ours -- and David, I don't know if John or Raabe coined the term relevant real estate. But at any rate, we stole it from him. And that's what we fundamentally believe in, John, is making the real estate as relevant as it can possibly be to consumer desires. And I think that is an opportunity that can be realized on the Las Vegas Strip. It can be realized in regional assets, and it can be realized in so many different experiential categories. And again, it really takes having a really profound feel for where not only the culture is, but where it can or should go. John W. Payne: And John, before you drop off, I'll just say, if Patrick was on the phone, I don't think he'd say they're done at The Venetian. I think they still think that, yes, they've grown, but they are a management team that continues to look for opportunities to grow the business in a variety of ways there. Operator: The next question comes from Smedes Rose from Citi. Bennett Rose: I know you've covered a lot of ground here, but I just -- I wanted to circle back on something, maybe just a little bit of a clarification. The combination of the 2 PENN leases, you mentioned there's no change in rent this year to VICI. But if I -- maybe I'm not reading this right, but it looks like the escalators going forward were reduced? Or is that -- or is the rent going forward the same as well? John W. Payne: We simplified -- yes, Smedes, we simplified the escalation structure there. If you remember, there was a percentage rent in these leases. We removed the volatility by eliminating the percentage rent. I think that's important to see. David, do you want to jump in as well? David Kieske: No. I mean creating a master lease with a much simpler structure going forward, the aggregate rent does not change. There is a change in the potential escalation going forward, but it's a much cleaner, simpler structure going forward. Bennett Rose: Yes. No, that makes sense. I just -- so less upside, but I guess, less downside, too. I wanted to ask you on the loan book, are there -- I mean, just in general, I mean, I know you can't name names, but I mean, is there anything kind of on your watch list or things that you're concerned about coverage going forward given that you had one that obviously moved to nonaccrual. I realize it's small, but these are the kinds of things that people care about. And I'm just sort of wondering if you can give any color on that. Edward Pitoniak: Sure. Gabe, do you want to talk about our approach? Gabriel Wasserman: Yes. Thank you. So all the other loans in our portfolio are performing and are current on their obligations. But we have an active asset management approach where we review every single lease and loan investment in our portfolio on a quarterly basis. So as John Payne has been emphasizing, I have really great insight into all of our partners, all of our tenants, all of our borrowers and their underlying financial performance and business plan. So continue to stay close to them and understand future forward-looking performance. Edward Pitoniak: And I'm just going to add that Gabe came to us from the Blackstone mortgage REIT. So Gabe has done this before. Have you not Gabe. Gabriel Wasserman: Yes. Operator: The next question comes from Rich Hightower of Barclays. Richard Hightower: I know we've covered quite a lot of ground this morning, but I think I want to piggyback off of -- I think it was Wes Golladay's question earlier and also referring to, Ed, you said VICI has sort of a target total return annually of 8% to 10%. And if I look at current dividend yield plus AFFO growth is embedded in guidance, you're essentially already there without really investing another dollar in anything that hasn't been announced. And so I guess in that context, where do share repurchases fit into the capital allocation framework. I know that's unusual for a REIT, but sometimes circumstances are unusual. Edward Pitoniak: Yes. Well, Samantha would justifiably smack me if I said we would never do share buybacks. So I'm not going to say we would never do share buybacks, but I would consider them highly unlikely, Rich, given what we fundamentally believe is the better use of our cash, retained cash resources and any other incremental capital that we were able to source to invest in experiential assets that we think will give our investors better long-term returns than would the repurchase of shares. I mean you're right, the math as it is, certainly adds up to what should be a compelling total return. If we've learned anything, though, Rich, in the last few years, and you've lived this right alongside us, you never want to make assumptions about where multiples are going to go in any given cycle and what that is going to mean for the capitalization of earnings growth or frankly, the capitalization of base earnings. But as we look out over the course of this year, I think you've heard from John and the team, the energy that they are bringing to growth activities. And I would reiterate that while we do not obviously give investment guidance, we have a track record of working hard to produce growth within a given year, both for the year and for the following year. And so we start the year with the guidance that we do, but I would also encourage everybody to look at our track record over our history of where we end up in relation to where we started. In other words, where do we end up with year-end earnings in relation to where we started at the beginning of the year with our initial guidance. And I think you'll see a pretty strong track record of the team working hard to produce results in the year for the year. Operator: Our final question today comes from Chad Beynon from Macquarie. Chad Beynon: Just one for me. I just wanted to go back to the Golden transaction. I know you guys hit on the cap rate and the opportunities in that region. Just wanted to focus on the coverage of 1.9. Can you talk about kind of how you thought about that level at this time in the cycle maybe versus prior negotiations? And then more importantly, does this portend for future negotiations in terms of the -- how you're thinking about the coverage? Or is every deal a different snowflake, so to speak? Edward Pitoniak: John? John W. Payne: Yes. I'll take the last part of your question, which is every deal we have is just so different, whether it's a portfolio of assets, whether it's a single asset. So as it pertains to your question about coverage, every time we look at something, we go through what is the appropriate coverage to start with. Regarding Golden, it's a belief, these deals, they're real estate deals, but we're really, as I said in my opening remarks, underwriting the management team and understanding their plans for the assets and where the markets are and how these assets can perform. So as we put it all together and we're looking at a portfolio deal of the Golden assets, our team and our investment committee took a look and believe that, that was the appropriate way to start at that coverage. And we believe that the operating team will be successful running the business based on their future plans. Operator: Thank you. I'll now hand the call back to Ed for any closing comments. Edward Pitoniak: Yes. Adam, thank you. I will just close out by thanking everybody for dialing in today at the end of what I know has been for all of you, both on the sell and buy side, a very long earnings season. We look forward to seeing many of you at the conferences over the next few weeks and then, of course, again in about 2 months for our Q1 call. And Adam, that will conclude the call. Operator: This does indeed conclude today's call. Thank you all very much for your attendance. You may now disconnect your lines.
Philip White: Good morning, everyone. Welcome to our 12 months unaudited results presentation. As you know, I'm Phil White. I'm Executive Chair of Mobico. Introducing to my colleagues. We've got Brian Egan, who is our CFO; and Paco, who is our COO. You met all 3 of us before at our half year results. And you can remember at that time, we weren't really in the best of places. And at that time, you will recall that only 1 of our 5 divisions, as said, was really making any real money. Today, we are here to talk to you about the stability we brought to the business as well as the momentum being gradually built up as we implement our Simplify for Success program. And apology first. I'm sorry that the results we are presenting today are unaudited. But as you know, we were left without an auditor late in the day last year, but I'm really pleased to say that we now have KPMG on board. That's a big win, believe it or not getting an auditor. I know I'll probably be counseled by our advisers for saying this, but please forgive me, I will only use the word unaudited once because I could use it in every sentence as we go along. So -- and I think the same applies to the word adjusted. So forgive me on that, because I don't want to be here all day, and I'm sure you don't want to be here whole day, too. The reporting schedule again for this year is quite complex, and we'll spend most of 2026, would you believe, in close periods. But Brian will explain the schedule in more detail. As is usual, I'll start with the highlights. Brian will follow on the financial review, and then Paco will do all the operational stuff. But let's start with the highlights first, guys. As you can see, we've delivered significant progress in 2025. Revenue increased by 6% to GBP 2.8 billion, while adjusted operating profit increased by 9% to nearly GBP 200 million. Operationally, we achieved nearly 25 (sic) [ 24 ] billion passenger [ kms ] secured new contracts worth over GBP 1 billion. Our German rail business provided a full service in December, would you believe for the first time in 2 years. And importantly, as you've seen, we've reached an agreement with the 5 German PTAs in North Rhine-Westphalia on the restructuring of all our rail contracts. This derisks the business and ensures that our rail operations are sustainable in the long term. All of this has been achieved while making solid progress on safety across the whole business, something, as you know, is absolutely integral to the way we operate. In business, we all know that not all contracts are perfect, and we've inherited a few difficult ones. But in business, you also have to deal with the unexpected. When this happens, I always believe it's better to be totally transparent and to be very open. Too open, some people will say, but that's my style. In 2025, as you know, we experienced some issues with certain contracts, and we fully recognized this in the year, whilst at the same time, demonstrating the strength of our underlying business. Honestly, we would prefer the scale of the adjusted items to be much smaller, and that certainly is our ambition going forward. Before we dive into the numbers, I just want to remind you of our strategy that we announced at our H1 results for '25. Our road map is unchanged, and we remain focused on stripping away complexity to reveal the high-performing businesses that we know are there. While continuing to cut through the noise, it means really streamlining our management structure and aggressively attacking overheads. We are removing as what I call the corporate glue, the surge of large and listed companies, the duplication of functions and processes going through procedures, waiting for yes and nos. It takes a hell of amount of time to do this and slows us down in the past. By being smarter and integrating our operations where it makes sense, we are becoming a leaner, faster and more effective organization. Our financial health is absolutely paramount. We are very focused on generating cash, improving liquidity and reducing debt. Every pound of CapEx is now being scrutinized to ensure maximum value, and we are leveraging Alsa's operational excellence to unlock synergies group-wide. Through simplifying and strengthening, we are putting the business back on the path to success, just like where we used to be. The financial impact of actions across the group are already visible with operating profit H2 performance of GBP 138 million. And I'm pleased to say that in H2, all our divisions were profitable. In Germany, we've taken the necessary steps to make our rail business sustainable for the long term by eliminating the significant cash flows over the remaining life of the contracts. Once the agreement is formally signed, we'll be able to provide you guys with a more detailed breakdown of the figures. Until then, I would ask you to please bear with us in respect to the amount of detail we can give you today. We're aggressively reducing costs with some savings delivered in '25, and we're announcing today that we will deliver GBP 75 million of cost savings in '26 with an annual run rate of GBP 100 million by the end of the year. We have largely integrated UK Coach into Alsa to create a more robust business, one that will meet the challenges of increased competition. We have also completed our exit of loss-making businesses in NXTS in our Coach division and the loss-making CARTA contract in WeDriveU. Despite the progress to date, we do recognize the challenges ahead. Our priorities for '26 are very clear. As I said, our strategy is indeed simple: simplify, strengthen and succeed. Whilst our operational story today is one of transition, this should not take away the fact that Alsa has delivered another record year. This was driven by growth in Spain and further revenue diversification. In Morocco, we have faced and resolved several challenges, and this has led us to a reduced operating footprint in the country. WeDriveU completed its first year as a stand-alone entity, and we are applying lessons learned there to improve operational and financial performance. We exited early the loss-making CARTA contract at the start of this year, '26. This contract had lost over [ $303 million ] in 2025. You'll see from our RNS that we've provisioned GBP 52 million for WMATA. We aren't waiting for a miracle there. As I said, we want to be open and transparent. We are pursuing legal redress with our client, but we are ensuring this no longer distracts from our profitable core business. In the U.K., the integration of UK Coach into Alsa is now largely complete with operational and functional benefits starting to be seen from the start of this year. And in Bus, preparations continue for franchising. In Germany, as mentioned previously, we are now operating a full service. This result was achieved through our investment in driver training and increased recruitment. It sounds pretty easy, really. It's pretty obvious anyway. Across the group, we have maintained strong momentum, securing 25 new contracts with a total value of GBP 450 million, whilst maintaining a disciplined conversion rate of 28% on new deals. This compared to 23% last year. It's really worth noting that these contracts exclude nonconsolidated stuff like joint ventures and joint operations. Most notably, the project of Qiddiya in Saudi Arabia and the Guadalajara Health bid will bring the total value of new contracts secured in '25 in excess of GBP 1 billion. We also expect to be awarded 2 key contracts in Spain shortly. These include a retention of one of Alsa's largest regional contracts and the expansion of our business in Ibiza, where we'll become the largest operator in the island. A key highlight is the ongoing growth in Alsa passenger volumes, which reached a new milestone of 640 million passengers. This was largely driven by a growth of 10% in Spanish domestic demand, mainly regional and urban resorts. As you can see from the charts, we're witnessing consistent upward growth in passenger numbers across Spain. This isn't merely a seasonal trend. It's a fundamental shift towards public transport and one that is being supported and driven by the Spanish government across the whole country. We do expect this momentum to continue in 2026 as a Spanish single ticket, which offers unlimited travel for a flat monthly rate becomes embedded in consumer behavior. I will now hand over to Brian, who will take you through the numbers in more detail. Brian Egan: Okay. Thank you very much, Phil, for that, and good morning, everyone. Before going into the 2025 figures, I want to mention the 2024 numbers have been restated for a GBP 0.8 of a million EBIT impact in Germany. They also reflect the discontinued operations of NASB and NXTS. This ensures a clean and like-for-like comparison for the performance we are discussing today. Revenue of GBP 2.8 billion represents a 6.2% increase from 2024, driven primarily by Alsa's strong growth at 12.8% and Alsa has now reached GBP 1.5 billion in revenue, reflecting the continued diversification in addition to a great performance in both regional and urban. We've also enjoyed good revenue growth in WeDriveU of 4.7% from new contracts wins both in shuttle and in transit business. Revenue growth helped deliver a 9.3% increase in operating profit, noting second half performance was significantly better at GBP 138 million versus GBP 60 million in the first half. It also, if you look on the very right-hand side, shows the improvement in performance this year versus the same period for last year. This reflects the improved underlying operational performance and the benefit of cost savings arising from the restructuring and efficiency improvements that we've been making. Free cash flow was GBP 77.3 million. This was lower than last year, but that was mainly caused by cash outflows related to the school bus business, which were made prior to its sale in July, so in the first half of the year. Covenant gearing improved by 0.1x from the end of 2024. And again, this has been helped by the proceeds from the school bus sale. In terms of statutory results, operating profit from continuing operations decreased from GBP 12 million to GBP 21.9 million. To understand the bridge between our adjusted statutory operating profit, there are several nonoperating charges that I'll walk you through. There were no charges to the German rail onerous contract provisions in the period. However, we did utilize GBP 56 million in the provision during the year, leaving the remaining provision at GBP 133 million. This provision will be reviewed in detail for the 15-month audited results. So it's reviewed in detail once a year. Moving to WeDriveU. We have made a GBP 52 million onerous contract provision in respect of the WMATA contract. And we are seeking legal address, which Phil as mentioned, for -- in order to recover ongoing losses. We expect the outcome of these legal proceedings to be successful and the contract losses significantly reduced. However, the benefit of this legal settlement is not included in the provision calculation. We are confident of a favorable outcome. However, the process is expected to take 18 to 24 months. It's a long process. In the year, the utilization of the provision was just over GBP 4 million. It's worth also taking a moment to say that we have learned from the WMATA contract. We have overhauled our North American bidding process to include vigorous review procedures. A GBP 38.5 million charge has been recognized in the income statement for retained legal liabilities tied to the open insurance claims from the NASB sale, the school bus sale. The charge stems largely from material adverse developments in more significant individual cases. The year-end cash impact from settled claims was just under GBP 19 million. In Morocco, following a rapid change in local operating environment, we have taken a GBP 27 million charge. This reflects a combination of price concessions we made in Casablanca, which enabled outstanding debts to be settled and also a noncash impairment charge following the abrupt transfer of Marrakech and Tangier contracts in December. To put this adjustment in perspective, on an adjusted basis, Morocco contributed an operating profit of EUR 8 million compared to just under EUR 13 million in 2024. Amortization of intangibles with acquired businesses from continuing operations increased by GBP 2.8 million during the period. This represents the annual charge for intangibles such as acquired brands and customer contracts. This happens every year. Finally, as part of our strategic initiatives to stabilize and improve the group's performance, we invested GBP 35 million on restructuring and streamlining costs and also some transaction fees related to the school bus disposal. The year-end cash impact for restructuring was GBP 29.8 million. Overall, there was a cash outflow due to adjusting items in the period. This figure includes adjusting items for discontinued operations. So now turning to our balance sheet provisions at the bottom of the slide. We currently have GBP 133 million remaining on the German OCP. We will reevaluate the provision for our 15-month audited results as it will be dependent upon the finalization of the legally binding agreements with the PTAs, which are due to be signed before the 30th of June. Of the GBP 47 million remaining provision for WeDriveU, we expect to utilize GBP 8 million in 2026. And again, as I mentioned, this is still subject to the legal process. Moving to our divisional breakdown. Alsa was our most significant growth driver with revenue increasing by just under 13% to reach the GBP 1.5 billion mark. And operating profit increased by 14% to GBP 212 million. As I've already mentioned, underpinning these numbers is strong underlying demand in Spain. Both regional and long-distance sectors are performing well, supported by a better expected trading environment, particularly towards the end of the year. In WeDriveU, revenue increased by just under 5% to GBP 432 million, driven by new contract wins. And as again, as I mentioned, both in shuttle and in transit businesses. However, the full year profit remained below 2024 levels due to challenges with WMATA contract and the CARTA contract, which has now been exited, which Phil mentioned in his presentation. We saw a meaningful change in the second half of the WMATA performance with WeDriveU improving to a GBP 17.6 million profit in H2. This recovery is expected to continue in 2026. On the other hand, the U.K. business continues to face a very challenging environment, but has shown great resilience with revenue decreasing only 4.6% to GBP 587 million despite intense competition in the Coach business. Breaking this down, UK Coach contributed GBP 315 million revenue, while U.K. Bus delivered GBP 272 million. Given the separation of the U.K. Coach as it has moved under Alsa, a profit split isn't available in these financial results. However, a breakdown will be provided in the full 15-month results ending 31st of March. With ongoing competition in key routes, it has been a very difficult year for UK Coach with revenues declining by 6.2%. However, passenger numbers only fell by 3.8%. And on a positive note, the market appears to be growing and growing quite strongly. Within U.K. Bus, revenues rose by 2.4%, and this is largely due to the fare increases that we implemented towards the end of June. The decline in passenger numbers reflects the wider problem right across the industry in the U.K. During the period, we also sold Acocks Green depot and Oak Road. This resulted in a GBP 4.3 million increase in the adjusted operating profit for the 12 months. Overall, the U.K. reported a GBP 4.6 million operating loss, as I said, largely due to the competitive pressures in U.K. Coach, also combined with rise in employer national insurance costs. We expect to see this performance improve as we move into 2026, along with the benefits of integration into Alsa. In Germany, revenue decreased by 1.6% (sic) [ 1.4% ] to GBP 253 million. And whilst the -- the adjusted operating profit increased to GBP 15.6 million due to improved operational performance, and this actually was very significant. We recovered from the loss to a profit-making position. The in-year losses on the RRX contract were GBP 56 million, and this is a cash outflow, which -- this is the significance of the German contracts that we're in the process of finalizing. Central Function costs increased by GBP 2.3 million, principally due to higher costs in relation to professional services and include a higher audit fee. However, this sort of hides the underlying cost savings that have been made during the year. Looking forward to 2026, we expect Alsa to maintain current levels of performance. For WeDriveU, we expect continued underlying recovery, whilst we continue to redress WMATA through the legal process. By integrating UK Coach into Alsa, the business is becoming more competitive. Nevertheless, we expect 2026 to be a challenging year. U.K. Bus is expected to be at breakeven, subject to finalization of funding discussions with Transport for the West Midlands. And in Germany, our rail business is benefiting from operational improvements and will be derisked once we have the PTA agreement signed by the 30th of June. By the way, that's important to mention that the revised contracts will be backdated and effective from the 1st of January 2026. In respect of Central Functions, we expect further cost reductions. Moving to our cash flow performance for the period. The most important point to highlight is the impact of school bus, which is shown in the middle column. In 2025, school bus was a significant drag on group liquidity prior to its disposal. The school bus cash outflow was driven by substantial investment in CapEx and working capital requirements that were committed in 2024. Excluding school bus, the group free cash flow was GBP 76 million. Key year-on-year movements include a working capital net inflow due to the timing of cash collections in Alsa. The increase in tax is due to a one-off refund because of the change in tax law, which significantly reduced our cash tax payments in 2024. And we are looking -- we have an ongoing project to look at managing our tax burden. As one of the problems we have is that our debt is sitting in the U.K., most of our profits are in Spain, and therefore, we don't have an offset for interest. We are targeting a total CapEx of GBP 120 million for 2026. This reflects our commitment to disciplined spending, maximizing cash conversion as we move forward. And Phil has mentioned this in his presentation and Phil has -- or Paco is also going to mention there is very, very strict CapEx control now in the organization. However, despite the strong CapEx control, we are able to pursue new growth opportunities, focusing on CapEx-light contracts. In terms of net debt, we saw a GBP 286 million inflow, reflecting the cash proceeds from the school bus disposal. We recorded a cash outflow of GBP 118 million related to items excluded from our adjusted results, and I talked through these earlier in the presentation. It should be noted that we have paid the hybrid on coupon for 2025, which is the last payment at GBP 21 million. The next payment due is GBP 40 million, which is in February 2027. There was a GBP 9.6 million outflow from other items, primarily driven by exchange movements and derivative settlements. This is partly offset by the sale of an investment. When we pull all of this together, the group achieved net -- total net funds inflow of GBP 127 million for the period. The funds inflow was offset -- has offset the loss of school bus EBITDA, resulting in a covenant gearing improving to 2.7x. I should mention that the covenant gearing for the 15 months would be dependent on a number of factors, including the German rail agreement, which has quite complicated accounting implications. However, we can confirm that we will be within the covenant requirement. In terms of debt maturity, at the 31st of December 2025, the RCFs were all undrawn, and we had nearly EUR 900 million in total between cash and undrawn committed facilities available to us. The majority of our RCF will only expire in 2029. Notably, the interest rates on our instruments are relatively attractive, and we have significantly reduced our exposure to interest rate volatility with over 90% of our debt now at fixed rates, in fact, 94%. We have sufficient liquidity to meet our debt maturities arising in 2027. And then finally, just to talk through -- sorry, almost finally, I want to briefly walk through our financial calendar for 2026. As you may have noted, we have adjusted our 2025 and '26 accounting periods following the appointment of KPMG as our new auditor, which took place in November. These changes are designed to provide KPMG with sufficient time to complete their audit work. However, we do plan to return to a December 31 year-end in 2026. Our current financial year will be for a period of 15 months to the 31st of March 2026, and we expect to release our audited results in late June, early July. Looking into the second half, we will report 6-month interim results for the period ending September 30 and expect to release those in late November. And finally, to bring us back into alignment with the standard calendar year, the final accounting period for 2026 will be a shortened 9-month period ending the 31st of December '26. Results for the period are expected to be released in March of 2027, making a return to a normal 12-month December year-end. In terms of financial imperatives, the focus remains on ensuring our strong top line growth translates to sustainable value creation. As such, we've implemented a disciplined approach to cost control. Specifically, we are implementing controls over capital expenditure and working capital to maximize cash generation and reduce debt. As Phil mentioned, the mission is simply to succeed -- to simplify to succeed. Behind this, we have our Simplify for Success cost program, which is currently targeting GBP 75 million of cost savings in 2026 with a run rate of GBP 100 million from the end of 2026. We are targeting an adjusted operating profit of GBP 195 million to GBP 210 million in 2026. I note, and this is quite important that this does not include the positive impact of the revised contract changes from the German rail businesses. Once these agreements become legally binding, which we expect will happen by 30th of June of this year, we will update our guidance. In summary, Alsa remains an engine of growth. WeDriveU is on a recovery path, and our U.K. and German businesses are leaner and more resilient with GBP 75 million in targeted savings and an operating profit guidance of GBP 195 million to GBP 210 million and positive net cash in 2026. I will now hand over to Paco, who will go through the operational review. Francisco Iglesias: Hello. Good morning. Thank you, Brian. Thank you, Phil. Thank you all of you for being here. For me, it's the first time I'm in the floor, and it's an honor to share some words with you. Just to -- as you have noticed, I'm Spanish, but you probably don't know is I'm from the South of Spain, that means that my accent is a little bit poor. So apologies for that, but I hope you can understand me better. I'll try to give you a more view on the operational side after all the numbers that Brian and the strategy from Phil, I would like to say something a little bit different on that well, this is Alsa, you know that I know Alsa a little bit. I've been working for Alsa for 34 years, and I'm very proud in the last 10 years as CEO. But I would like to explain what is behind the figures of Alsa. And I think it's important to know what's the portfolio of the business that Alsa maintains at the moment that you probably know that Long Haul is like a jewel of the crowd, long haul is 17% of the company. It's just 17%. Where we are growing more at the moment, what we are growing a lot in international that was almost 0, 5 years ago. because Morocco is there. And also in the diversification area that we are also improving. And the largest part of the company right now is the regional one that is also under a concession under franchisees process. But if you see the figures, we have managed to keep growing in 2 digits in terms of revenue and also in terms of profit. And the margin, to be honest, is unbelievable. I think it's to achieve 14% margin is challenging for the future. But I would like to convey that it's been a record year for Alsa, but not only in terms of revenue or profit or margin, but also number of passengers, customer satisfaction index, safety target, digital sales. So it's a mix, a combination of all the factors that we are working in to get the strategy and the numbers done. And a couple of points regarding the environment that Alsa, especially in Spain are now involved. One is very important is there is no direct impact in the figures, that is the approval of the mobility law in Spain. Just for you to know that the former mobility law took place in, if I'm not wrong, '87. So that means that it is a new law after 40 years. And why it's important that this mobility is now a right for the citizens in Spain. It's not only a word. It's something that is like a new pillar of the well-being of the society in Spain as the healthy or the pensions, we have also now mobility on the top of the priorities of the government, and this is very important. And also this new law secure the system of franchising and concession for long haul in Spain. So I think it's very important. It's something that has been very controversial in the past regarding if it's going to be regulated or liberalized now with the new law is secure. And the other point is the strong support from the government, from this government to the public transport, not only by the law, but also for the -- it's not subsidy. It's like because it's not subsidies to the companies is to reduce price for the passengers to use more public transport. And I think it's -- the current government has put on the table million of euros to support all kind of transport, rail, coach, buses and the rest. So I think it's important you to know. And my view on '26 is very positive. And the first 2 months, I cannot show you the figures, but the starting of the year '26 is going -- is performing very well. Let me give you an example of growth. This is Qiddiya, the Saudi city on that. How can we -- growth in that contract is EUR 500 million contract in 8-year plus a potential extension of 2 more. And it fits exactly with the strategy of Alsa. It's asset-light, is low risk and it's a project that is absolutely scalable because this is one of the -- it's the first mega project that the Saudi government is building in the country, but the plan is to have 10 projects like Qiddiya, in the next year. So we have been awarded in the first one. So we are well positioned for the rest of the tendering process that will take place. And it's also remarkable that we have won this contract competing in the, what I call the Champion League because we were competing there with the state owned -- French state-owned company, the Italian one, the Singaporean one. Well, the top of the, company and Alsa that is -- the size of Alsa is not that high as you can imagine as some of our competitors, and we won the contract through technology and through innovation. For example, you cannot see very well, but this is one of the main -- of the strong points in our offer is to build what we call the station for the future. That is a new concept of how people are going to move in the country. And I think it's key that it's not a question of price, not only price, it's a question of technology where we are the technical support for the government as well. If we move to WeDriveU, as Brian mentioned, I think despite the total figures, the figure from H2 has been very, very positive. We have managed to change the trend that we had in the past. You know that from the H1, we have the separation process with the school bus that has some cost. And now we are focused on -- once the separation has been made, we are focused on the strategy of cost and also to improve operation and to have better margins on that. So -- and also, as Brian and Phil mentioned, one of the main points is to get rid of the loss-making contract. We don't have much. We're managing in the States almost 100 contracts, but there are 3, 4 of them that are negative. And we are in the process of avoiding all this risk for the future because that will make directly an improvement in the final figures. Also to say that the states I passed a lot of times in the last year, there is a lot of room for improvement. Our market share in the state is very, very little. For example, one of our competitors have 10x the size of WeDriveU. That means we have a lot of place. And we are now entering some new areas of the industry like universities where I see very interesting through technology and through good performance. And I'm quite happy about the future as well in 2026. If we go to U.K., I think it's -- we cannot share the figures from bus and coach, but I can give you some light on that. On the bus, we are -- a slight increase on revenue, but it's true that the passengers are going down, not that much, but I think it is in the same trend that all the urban industry in U.K. are doing and are suffering right now. But I think positive news is we have managed with the authority to secure the fundings in order to have at least, I would say, breakeven in '25 and of course, in '26. Also very important in the coach that I would define that the integration of U.K. Coach and Alsa is completely success. Now here, I can see Javier, who is in charge of U.K. Coach in Birmingham. And we are in just less than 6 months, we have changed a lot of things. And again, if we go to the numbers, the decline on passengers in long haul has been less than 4%. But if you consider that our competitor, our main competitor in long haul has doubled the size of the flights and the routes that they are operating, our less in passenger is very, very little. And we still have the majority market share in long haul by far to our competitor. And we have also a very clear strategy on focusing on specific routes with the new pricing tool on technology that we have completely changed a new structure that we have put in place leaner, more close to the ground to have -- to know the problems and to have several areas depending on the different products that Javier is running there. For example, we have a clear vision that we need to grow in airports that we are -- in the overall figures, we are growing a lot. And of course, we are tackling with massive savings with no impact on safety, not impact at all in the operational excellence. So I'm also very optimistic regarding '26 that we can manage to reverse the situation that we have. Finally, Germany, I think as Phil mentioned, I think it's several milestones. For the first time, we have -- we are running 100% of the services after years. And what is even more important, we have achieved the number of drivers that we need that you know that we have a shortfall in drivers in the last year that made us some penalties with the PTA. Now we have all the drivers. And what is more important, we have all the drivers with a lower cost because you know that part of the driver that we were using in the past came from third parties for agencies now and with a higher cost. Now we are running all the operation with our own drivers. And for '26, I think it's very important because it's the year not only because of the agreement with the PTA that they are doing extremely well, but also because they are going to start the new process of bidding there. So -- and I think we are now in a very good position after the agreement with the drivers with good KPIs in operation to try to keep growing in that market that I see also very interesting for the future. And this is my final slide. I would like to say that this is after 1 year working on the -- throughout the group, 5 things that I have identified that we are working in the same page. This is -- these are facts. This is not only narrative. This is -- there is fact behind all this statement. First, all the divisions are performing better than last year, these numbers. Second is we have huge opportunities of all around the world. I mentioned Saudi. I mentioned states, but we have also some other opportunities in some other places. The massive cost reduction that we are implementing all around the divisions, including Alsa, but also the rest of the divisions. So we are going to work in the future. In the present -- we are right now working in the present with a leaner and more efficiency base of cost. So that gives us the opportunity to be more profitable that is linked with the next point that we are improving the margin on every single contract. We are avoiding totally loss-making contracts. This is a process that we're going to finish in the next months, and we are trying to get a little bit more of every single contract to gain 1% in every single contract, you can imagine that it has a huge impact on profit. And finally, probably this is not a real -- it's a fact, but it's not a number behind that I've been working, as I said, with National Express in the past for the last 20 years. And for the first time, and thanks to these guys, we are working as a group. Now it's not -- there are 4 CEOs or Vice President or whatever. We have the same protocols. We have the same CapEx view. We have the same procedure for safety. We have everything. So I think it's very important in order to get synergies from one part of the world to the other. For example, U.K. Coach, we are using the pricing technology of Alsa or -- but we have also exported some from the states in terms of Chatel to the business -- or France in the business that we have started in Spain, for example. So -- that's all. I would like to end thanking all of you. Any question after Phil's conclusion, but I want to convey that we as a team are strong. We are excited with the present and the future and myself are very, very optimistic with '26. We will see you in the next month again for your presentation. So you can check if I was right or wrong. I hope I was right. Thank you. Philip White: Just to conclude, special thanks to my buddies over here, Paco and Brian. Let me say, Paco. You have no need at all to apologize for your English. People can probably understand. I'm not mentioning you. But Paco, your accent from the south of Spain, it's much easier for people to understand than my accent from the north of England, but well done. That was a great presentation. Let's conclude. We're not going to keep you much longer over the presentations. But I suppose to conclude the first half of the year, compared to that, we're in a much better position in the H2, and there's been a significant turnaround throughout the business, especially coming up in 2026. We've streamlined our business by getting rid of the corporate glue, as I say, and exited loss-making operations. No point in running them if you're not making money. We are streamlining and simplifying, removing unnecessary layers and complexity. We're working smarter, becoming leaner, more agile and better able to respond positively to market trends and opportunities. And there's still lots and lots of opportunities out there for us. As Brian mentioned, cost and cash flow are now the key priorities for strengthening the business. And of course, we continue to seek every opportunity to deleverage. Everything we've discussed today is about creating a sustainable business. I spent the first 6 months of my tenure looking backwards, trying to fix things that had happened probably years ago. We're now no longer just looking backwards to manage challenges, we are rewiring and rebuilding our business to deliver long-term profitable growth for our shareholders. And for our millions of customers, we are committed to delivering what they deserve, and that's the best possible service we can provide. We are here for them. They are not here for us, and that's important. So in summary, we're fixing the businesses that need our focus. We are simplifying and integrating where it counts. Importantly, we are taking our people with us on this journey, returning the brilliant talent that we have in our business, and I can tell you, we have some brilliant talent. I'm not just saying, that's easy to say. But working with these guys since I've joined, very young, and they make me feel young, too, and I love that. But from the Board up to the guys who turn out every day to run our buses to run our coaches and run our trains, whose jobs can be both very difficult and dangerous, we owe a hell of a lot to these guys. Thousands of them who do this on a regular basis. A couple of thank yous. Thank you for coming along today, and thanks for the patience you've given us over the last 12 months-or-so. A very special thanks to our advisors over there who support us all the time. Yes, give us a nudge when we need it, pull us back when we need it and stop us for saying silly things, which is mainly me when I'm feeling a bit crazy. Now we couldn't do it without you guys really, really appreciate it. But thanks for turning up today. I can tell you, I'm very looking forward to a number of site visits in Ibiza, right? Where I can show you our late night and early morning service, and I'm sure you'll enjoy it. So thanks very much for everything. Thank you. Philip White: And over to Q&A. Are you going to manage this? Gerald, do you want to kick off? Gerald, be nice. Gerald Khoo: Gerald Khoo from Panmure Liberum. I'll start with 3, if I can. Morocco, can you talk us through what's gone wrong? When did it go wrong? And why has it led to such a large exceptional charge? And on the topic of exceptionals, can you talk through how much of those turn into cash? And let's assume WMATA does, I know you're all confident that it won't. And then, again, on the exceptionals, you talked about sort of more cost reductions, what exceptional should we expect associated with that? And finally, on U.K. Bus asset monetization, I think you sold 2 depots. You gave us the game. Are you able to give us the proceeds from those 2 sales and how many depots have you got left? Philip White: Can you do the operational stuff in Morocco first explaining what happened there? And Brian, can you deal with exceptional stuff? Francisco Iglesias: Okay. Morocco, we started just to put you in context, we started Morocco in 1999. So it's 27 years ago. And we reached 6 operations in Morocco in 5 years ago. So until more than 20 years, we didn't reach the size of the business that we have. Now we are running 4 cities, and we are running the first and the second cities in Morocco, that is Casablanca and Rabat, as you know. So I think it's part of our bidding process. Sometimes you win, sometimes you lose. This is nothing to be at fault. And we are still the largest urban operator in Morocco. And what we have done with the exception is just to all the assets we have and the staff that we need to be out of the company because of the process of losing Tangier and Marrakech. This is the cost. But if you ask me, are you optimistic in Morocco? We are making money in Morocco. We will make money in Morocco '26. We have some opportunities in the future to keep growing. But as the largest operator there, it will be more difficult because now there are more big companies competing with us that we don't have in the past. But we have also some areas that I cannot say, but some areas of diversification that we can enter in the Morocco market. So my view is it's been -- of course, I prefer to win rather than to lose, but I think it's part of the normal business, and I'm not especially worried and I'm optimistic for the future in Morocco. Philip White: I think when you're operating a successful business, you grow it to the extent that we did. There's always a lot of people, a lot of competitors who want a share of it. They'll come in and take it, whatever business you're in, whatever profits you're making. And I think that's what's happened to us in Morocco. But on the numbers, Brian? Brian Egan: Yes. Morocco, we had a provision of just roughly GBP 20 million at the half year. So this -- then in the second half of the year, we had this issue where the authorities ended a contract and we had to impair some of the assets. In terms of the other questions, the sales of the depots, we sold 2 depots, just over GBP 4 million, the proceeds from those. And then we look to monetize the rest of the U.K. Bus business. That was all that we had at the end of the year. On the exceptionals for the cost restructuring, we don't have a number for this year at the moment. We're working through more cost takeout. We'll give more guidance on that for the -- at the 15-month stage. We have a better handle on that. And then the final one was the adjustments. So I can very quickly go through them. I mean, obviously, the -- we drive new contract provision, which you mentioned, I mean, we do absolutely expect to be successful in litigation. But -- that is -- that won't be a cash cost if we were unsuccessful, but that certainly is not what we expect. And the legal advice is very solid. On the legal claims, that will end up being cash because it's a provision for settlements. On the intangibles, that's noncash write-down and the restructuring cost is mainly -- that is mainly cash. That is mainly cash. And Morocco going forward, that is really -- in terms of a go forward, that isn't an impact because that's a provision against -- in other words, we're not going to recover that debt. That debt has now gone. It's not a cash -- it's not -- the debt has disappeared effectively. Philip White: And Gerald, on the West Midlands depots. One is a depot Acocks Green, it's very old, in need of a lot of maintenance and the other property was a bit of car parking land. So it's one garage and a bit of land. Gerald Khoo: It sounds like it was in the books [indiscernible]. Philip White: Yes. Francisco Iglesias: Yes. A little bit more than that. But... Philip White: There was no write-down was there? Brian Egan: No, no. We made a profit of [ GBP 4 million ]. I think it was in the books, it was about [ GBP 7 million ] was in the books. Muneeba Kayani: Muneeba Kayani, Bank of America. So firstly, just on your guidance, the low end implies a decline in profits and EBIT. So can you explain how you've thought about that in the range like the bottom and top end scenarios? Secondly, on Alsa. So if I understand your outlook, you are saying kind of maintain profitability. Is that a comment on the margin, given the strong margin that you saw last year. So you still expect top line growth? If you could just clarify kind of the moving parts between the top line and the margin outlook on Alsa for '26 as you've thought about it? Brian Egan: Yes. I'll give -- I might ask Paco for some help on the second one. But for the first question, we've taken a view on the guidance for next year. We felt it was right to start at the more or less where we entered this year, I guess, very slightly below. I mean we certainly hope to do better than the minimum, but that is where we felt being sensible about guidance was the right place to be. What we don't want to do, which has been a constant theme in the past is where we give guidance and then miss it. So we want to give content that we're very firmly believe that we can achieve. And then on the margins. On the margins, Alsa had an extraordinarily strong performance this year. And again, maintaining that performance, and there are some challenges, for example, in Morocco, we've just discussed. So making sure that we can maintain that level of profitability going forward, I think, is what we believe is achievable. I mean there are quite a lot of challenges within the mix of Alsa. I don't know whether you have anything to add? Francisco Iglesias: Yes. Yes. Okay. Of course, I said in the presentation that 14% is unbelievable. It's something that even if you have asked me 1 year ago, I would say that's very, very difficult to achieve 14%. What I can say is the trend in Alsa that we are growing in terms of revenue through business as usual, passengers that are growing even 2 digits, thanks to a lot of things. But also because we are winning new contracts, for example, that figure is not included the contract or it's not included in the new contract that we are going to start in Ibiza or some other places or Guadalajara. So I don't -- to be honest, I don't know if we can reach 14% of margin. But I can say is that we are still growing. There is room for improvement in terms of revenue, in terms of passengers, even in terms of profit if you are not obsessed that I need to reach 14% of margin, I'm obsessed that we need to keep growing in all the opportunities we have. If the margin is 12%, it's fine for me. If the margin is 20% much with it. Philip White: I think you might think we're a bit cautious. I think -- we think by being open and realistic we've got to rebuild a lot of trust with you guys and with our shareholders. And I think by being open and realistic, then putting figures out that end up to be meaningless is the best way to go rather than totally failing and failing to hit guidance year-on-year. I don't think that's the best way to go. Muneeba Kayani: And if I may ask a third question on the Qiddiya project in Saudi Arabia. We've heard in other projects there, there have been many delays. So kind of as you think about this project and other projects in Saudi, how do you factor in kind of timing of these projects and impacts from your perspective? Francisco Iglesias: Well, my experience you know that we run the 3 contracts in Middle East, 2 in Saudi and 1 in Bahrain. This Qiddiya project, this is a fact we were awarded, and we need to start in 45 days after the sign of the contract. So my experience is they are doing very quickly because they know they need to have these cities running. And for example, they are now launching a project with rail that we are not in. But -- and we have been asked the time line day to ask that we can manage a second project there. So I'm not worried about that. And also to say that in the first month of operation, it was like a wide operation. We made profits from the day #1 because it's not a risk contract. It's a gross cost. So it's -- so if I have to bet, I would say that it's something that is going to happen quite quickly. Jack Cummings: Jack Cummings at Berenberg. Three questions, please. The first one is just on cost savings program. I was wondering if you could just flesh out a little bit more. I know you mentioned kind of corporate glue, but what specifically you are taking out the business in what divisions? And the second is on the pipeline. Obviously, you won a decent amount of revenue and contracts both outside of the joint venture and including it. What's the pipeline looking like for full year '26? And then just finally on covenant leverage, I think 2.7x at year-end. How should we think about how that's going to trend over the next 12 months? Will it tick up a little bit in the next 3 to 6 when North America School Bus comes out and then full? Just any more color there would be great. Philip White: I'll do the corporate glue one because it's my theme this one. It's quite easy really. And it's what Paco said, it's the first time we've been really operating as a team probably since I left a long time ago. We work together. We've got a strong GEC, our group executives. But importantly, it's how you deal with requests either for approvals or for help. We deal with them quickly. If it's a no, we tell them no straight away. We don't just ask them, can you give me more information? Can you give me more information and then tell them no. And if it's a yes, we're pretty positive about that. It's all about the speed of things. Attending these big corporates where we've all worked before, they lose -- their nimbleness goes. And the slower they are on making decisions and getting bogged down, more chance that opportunities disappear. And we've had one already. I mean, an acquisition in another country in Europe. We've delayed it and deferred it and messed about with it in the past, and it's gone away. And this is danger, by being so pretty slow, you can miss such a lot by being too careful. We've got this governance. I know you guys think governance is important, and I appreciate that. But governance doesn't make you any money. It makes you do things right, and you know the difference between right and wrong. But there's a balance between good governance and good and quick decision-making, and that's getting rid of that glue that's sticking us everywhere. Francisco Iglesias: Let me add something that we are now, as Mobico running 12 countries. If you compare 12 countries with our main competitors in the Champion League, they are running in 40, 50 countries. So that means that there is a lot of room for places to go. Let me not releasing the exact pipeline. But it also is a fact that we submit roughly 30, 3-0, bidding process in a year. I would say less than half in Spain. This is the line of their share, but more than 50% out of Spain in the other 11 countries that we run, we are preparing something too. But not only that, we are also having a look or -- not footprint, but some researches and some ongoing negotiations with at least 5 more countries where we are not in at the moment. So let me say that I'm not going to say you the opportunity because they are competitors. But I can assure you that we have a lot of opportunity. I'm not sharing -- I'm not sure that we're going to win all of them. You know that the ratio of winning contract is about 30%, but you can imagine that if we have this size of opportunities, I don't know, 1, 2, 3, we will win, I hope. If not, it has to fire me. Philip White: Brian, can you do the cost stuff? Brian Egan: Just in terms of cost savings, so GBP 75 million, that is spread right across the group. Head office is -- I mean, just in very rough terms, there's around GBP 15 million at head office. The big focus, as we've mentioned in really all the presentations has been on U.K. Coach, which is about [ GBP 25 million ] and then it's [ GBP 10 million ] out of the other divisions. So Germany, Alsa and WeDriveU. So -- but it really is right across the business. On the covenant, it's a little bit complicated because of the German settlement because that's going to influence the ratios very significantly. And in fact, the accounting is quite complicated. In fact, even KPMG are getting technical advice as to how it's treated. But it will be -- without Germany, it will be in -- it will obviously, the covenant ratio, but probably in the 3s. But I'm probably getting stared now, I'm not supposed to say. So it will be in 3 excluding Germany, with Germany, and that again, depends on accounting, it would be lower. And by the year-end, it will be below 3. Philip White: Questions, guys? Ruairi Cullinane: Ruairi Cullinane, RBC. The first question on Alsa concession renewal. So what percentage of Alsa's revenues are up for renewal in full year '27? Is there anything else coming in the years after that? If you could even give us an indicator of what percentage of earnings that would be even better. Then secondly, on provisions on the balance sheet, you've hopefully quantified that there will be GBP 8 million of utilization from the WeDriveU onerous contract provision. You may not be able to comment on German rail, but if you can, that would be appreciated. And then is there anything else we should be thinking about? Yes, I'll leave it at that. Philip White: Okay. Thanks, Ruairi. Can you talk a bit about concessions coming up, Paco, well, this year and next year? Francisco Iglesias: Yes. Well, the franchise process is ongoing. This -- it's true that it has been a general delay but it's something, for example, right now, there is 1 or 2 contracts on the table. We are not incumbent, but in Spain, we have -- in March, it's -- we need to submit at least 2 offers in the process. So we will have the process. I don't expect that we will have in all -- of course, not all of them because if I'm not wrong, we manage 21 contracts in long haul in Spain. So probably it's a process that will take at least a couple of years to finish. And after that, you know that there is a process of mobilization, claims and so on. So I don't have the crystal ball, but I think it's something that for sure is not going to impact '26. It's strange that could impact in '27 or at least in the first half of '27, but it's something that is happening. And of course, we haven't lost a single contract in long haul in the history in Spain. And as I show the revenue of long haul is 17% of the company is a good margin. And of course, after a bidding process you usually lose a bit of margins, but because you have to reduce price. But after that, there is a recovery coming from the increase on passengers. So it's a process like a peak on that. So I don't know if that answers your question or not, but this is my expectation. Philip White: On German rail, I'm sorry, I can't give you any more because that's a commitment we've made to the local authorities there until we get the contract signed. They're a different organization to us, political organization and they have got a lot of people who they report to, including their elected members and offices and also central government. But we did say in the announcement that we're reducing the length of our loss-making contract. We're increasing the length of our profit profit-making contract. And we're also changing the basis of our profit-making contract to gross costs rather than net cost, and that takes away a lot of revenue risk. All, I can say there have been long negotiations, and we're very happy with the outcome. There's a lot of tricky accounting, I can't understand, but as Brian says, we're seeking help there, but we are very satisfied with the outcome. Brian Egan: I think the important one is when you put the 3 contracts together, the cash leakage is going to stop. That's the intention. Philip White: And Brian, on provisions and stuff? Brian Egan: Well, I think only the 2 provisions. So on WMATA, it can be GBP 8 million be released next year. And then on the German one, we just have to finalize the contracts and we disclose that. So hopefully, again, with the full year results. We just have to finalize the contracts and we disclose that. So hopefully, again, with the full year results. Philip White: Okay. Any more questions, guys? Are we done? I think we are. Thank you very much for coming along. Really enjoyed meeting as usual. We'll be seeing a lot of you in the future, particularly in this year. Please don't get too bored with us. I know we're not the most exciting people, but we do our best. Thank you very much. Brian Egan: Thank you.
Operator: Good afternoon, and welcome to the PROCEPT BioRobotics Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to Matt Bacso, Vice President, Investor Relations, for a few introductory comments. Please go ahead. Matthew Bacso: Good afternoon, and thank you for joining PROCEPT BioRobotics Fourth Quarter 2025 Earnings Conference Call. Presenting on today's call are Larry Wood, Chief Executive Officer; and Kevin Waters, Chief Financial Officer. Before we begin, I'd like to remind listeners that statements made on this conference call that relate to future plans, events or performance are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. While these forward-looking statements are based on management's current expectations and beliefs, these statements are subject to several risks, uncertainties, assumptions and other factors that could cause results to differ materially from the expectations expressed on this conference call. These risks and uncertainties are disclosed in more detail in PROCEPT BioRobotics filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date, February 24, 2026. Except as required by law, PROCEPT BioRobotics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances or unanticipated events that may arise. During the call, we will also reference certain financial measures that are not prepared in accordance with GAAP. More information about how we use these non-GAAP financial measures as well as reconciliations of these measures to their nearest GAAP equivalent are included in our earnings release. With that, I'd like to turn the call over to Larry. Larry Wood: Thanks, Matt. Before discussing our fourth quarter results, I want to share context on progress since joining the company as CEO. When I joined PROCEPT, I outlined an immediate near-term plan for the organization that I believe was critical to positioning the company for its next chapter. It was essential to move with a clear vision, a strong sense of urgency and a culture grounded in discipline and accountability. Historically, PROCEPT executed effectively in its first chapter of growth. That work created the foundation the company benefits from today. However, as the company evolves, so do the requirements for success. The next stage of PROCEPT's development requires shifting the operational focus towards increasing procedure volume, expanding margins and achieving profitability and gaining market share. At the same time, we must deliberately build an organization that supports both near-term performance and long-term sustainable growth. We recently made two changes to our commercial organization that we believe are strategically important for long-term performance. First, we have realigned our commercial team into an integrated regional structure where our clinical and sales functions now report to a common regional leader. The new structure creates a single point of accountability at the regional level to ensure clinical and commercial activities are coordinated around customer success and procedure growth. Second, we formed a dedicated launch team by reassigning a small number of our top performers to focus specifically on new system placements. The intent is to drive more consistent launches, reduce variability in activation and accelerate time to value for customers because we see launches as a key lever to improving downstream utilization and performance. In the near term, the sales realignment and formulation of the launch team creates some short-term disruption. Certain account coverage has changed and temporarily, we have fewer tenured resources in the field as we stand up the launch team. We view this as a normal transition period as teams ramp, establish account relationships and standardize new operating processes. Importantly, we believe these changes better position us for sustained high growth through clear leadership, better alignment and more repeatable launches. We will continue to manage through this transition thoughtfully, and we expect the benefits to build as the organization settles into the new model. Now turning to fourth quarter results. In the fourth quarter, we completed 12,200 procedures, reflecting approximately 69% annual growth. On the third quarter earnings call, we reduced our previously issued Q4 guidance by 1,000 handpiece units as we reestablish customer inventory targets that we felt were appropriate based on usage volume. Separate from establishing inventory targets, it became clear as the quarter progressed that accounts have become accustomed to purchasing large quantities of handpieces and receiving bulk discounts in the final weeks of the quarter. I've always believed pricing discipline is foundational for long-term success. At PROCEPT, I have been focused on implementation of handpiece price discipline. And as part of that, we eliminated the historical practice of providing discounts on bulk purchases, particularly at the end of the quarter. Despite customer requests, we remain disciplined and did not allow bulk purchases at a discount. As a result, handpiece unit sales were approximately 80% of procedures in the fourth quarter and for the first time, procedures exceeded handpieces sold. While this resulted in lower-than-expected revenue, it delivered a significant improvement in handpiece selling price. Average fourth quarter selling price was $3,340 or up $140 or approximately 5% sequentially from the third quarter. Historically, handpiece unit sales exceeded procedure volumes by approximately 8% to 16%. Based on the last several months, we now expect handpiece unit sales and procedure volumes to be in close alignment on a go-forward basis with sustained improvement in handpiece average selling prices. These business practice changes resulted in a reduction of our projected 2026 handpiece revenue. The revenue impact is meaningfully offset by the increase in handpiece average selling prices. Based on the combination of these factors with the short-term disruption associated with the sales force realignment, we are now resetting 2026 guidance to $390 million to $410 million, representing annual growth of 27% to 33%. Before I turn it over to Kevin to walk through the financials, I want to close by previewing what to expect at our Investor Day tomorrow morning. For the first time since the IPO nearly 5 years ago, we will provide a more detailed multiyear look at our financial guidance, including more details on '26 and '27, our path to profitability and an update on the Water IV Prostate Cancer trial as well as a vision for our future. I hope to see everyone there. With that, I'll hand it over to Kevin to walk through the financials for the quarter. Kevin? Kevin Waters: Thanks, Larry. Total revenue for the fourth quarter of 2025 was $76.4 million, representing 12% year-over-year growth. U.S. revenue for the quarter was $66.6 million, reflecting 10% growth compared to the prior year period. Turning to U.S. procedures. As noted by Larry, we completed approximately 12,200 U.S. procedures in the fourth quarter of 2025, representing approximately 69% year-over-year growth. Handpieces sold totaled 9,400 units at an average selling price of approximately $3,340 during the quarter, reflecting a 5% price increase compared to the third quarter of 2025. Other consumable revenue totaled $2.3 million in the fourth quarter. As a result, total U.S. handpiece and other consumable revenue was $34 million in the fourth quarter of 2025, representing 16% growth compared to the fourth quarter of 2024. Turning to U.S. robot placements. In the fourth quarter, we sold 65 new HYDRO systems. At the end of 2025, we had an installed base of 718 systems, representing a 42% increase compared to year-end 2024. Total U.S. system revenue was $27.6 million in the fourth quarter comparable to the prior year period with systems sold at an average selling price of approximately $425,000. International revenue in the fourth quarter of 2025 was $9.8 million, representing year-over-year growth of 25%. Moving down the income statement. Gross margin for the fourth quarter of 2025 was 60.6% compared to 64% in the fourth quarter of 2024. The approximate 450 basis point shortfall compared to fourth quarter guidance was driven primarily by lower-than-expected U.S. consumable revenue as well as a onetime voluntary field action that contributed approximately 240 basis points of pressure. On a full year basis, 2025 gross margin was 63.7% compared to 61.1% in 2024. Total operating expenses for the fourth quarter of 2025 were $77.4 million compared to $63.4 million in the prior year period. The increase reflects continued investment to support commercial expansion, continued innovation across our BPH platform technology and increased funding for our Water IV Prostate Cancer trial, positioning us to drive long-term growth and expand our clinical and technology leadership. Net loss for the fourth quarter of 2025 was $29.8 million compared to a net loss of $18.9 million in the fourth quarter of 2024. Adjusted EBITDA was a loss of $19 million in the fourth quarter of 2025 compared to a loss of $10.3 million in the prior year period. Cash, cash equivalents and restricted cash totaled $285 million as of December 31, 2025, providing a strong balance sheet to support our strategic priorities. Moving to our 2026 financial guidance. We now expect full year 2026 total revenue to be in the range of approximately $390 million to $410 million, representing growth of approximately 27% to 33% compared to 2025. This guidance range assumes international revenue to be in the range of $50 million to $51 million. Additionally, we now expect 2026 total U.S. procedures to be in the range of 60,000 to 64,000, representing growth of approximately 39% to 48%. As Larry noted, the adjustment to our 2026 revenue guidance is driven by a few factors. As a result of our business practice changes, we now expect handpiece unit sales to be closely aligned with procedure volumes, which results in a reduction in 2026 handpiece revenue. This revenue reduction is meaningfully offset by the increase in U.S. handpiece average selling prices, which we now estimate to be $3,500 in 2026. Our updated guidance incorporates both factors above in addition to the short-term disruption of our sales organization, as discussed by Larry. Importantly, our 2026 outlook does not change our confidence in the company's long-term growth and profitability trajectory through 2026 and 2027. Turning to gross margins. We expect full year 2026 gross margin to be approximately 65%, which includes $5 million to $6 million of tariff expense compared to $1.3 million in fiscal 2025, which is an approximate 100 basis point headwind to 2026. Turning to operating expenses. We expect full year 2026 operating expenses to total $350 million, representing a 17% increase compared to 2025. After considering all relevant factors, we expect full year 2026 adjusted EBITDA loss to be in the range of $30 million to $17. Our revised revenue guidance reflects positive EBITDA in the fourth quarter of 2026 at both the low and high end of the revenue range. For the first quarter, we expect total U.S. procedures to be in the range of 12,000 to 12,800, representing growth of 29% to 37%. This anticipates the implementation of multiple commercial initiatives designed to drive more durable and sustainable procedure growth. As these initiatives take hold, we expect procedures to accelerate, reaching growth of over 50% in the second half of the year compared to fiscal 2025. We expect total revenues for the first quarter of 2026 of $79 million to $82 million, representing growth of 14% to 19%. Included in our total first quarter revenue guidance is U.S. system revenue of approximately $20 million and $10 million of international revenue. I would now like to pass it back to Larry for closing comments. Operator: Thanks, Kevin. While financial performance in the fourth quarter was lower than anticipated, the changes we have made are critical to driving sustainable high growth and paving a clear path to profitability. We are very excited to share more details on 2026 and beyond at our investor conference tomorrow morning at 8:00 a.m. Eastern. With that, we are happy to take questions. Operator? Operator: [Operator Instructions] Our first question comes from Matthew O'Brien with Piper Sandler. Matthew O'Brien: I think we can ask two. But the first one upfront here is just -- I think, Larry, everybody knew that the quarter was going to be soft on the handpiece side, but the level of softness here just wasn't anticipated. So maybe just talk a little bit more about what unfolded in Q4? And specifically, did you flush -- just looking at some of the math, did you flush about 4,000 handpieces in Q4 on the inventory side? And then I do have a follow-up. Larry Wood: Yes. Thanks, Matt. Well, first, I'd just say we're dealing with two distinctly different dynamics. The first was we had signaled on the Q3 call that we expect there to be some destocking, but that was really about establishing part levels for accounts based on their usage. And I think directionally, that number was still pretty sound. The thing that came to light later in the quarter was how much our business practices of allowing bulk purchases at a discount was influencing customer purchase behavior. And when we did a deep review of that, I just didn't think it made sense for us on a go forward to be running that practice and discounting that way. I think without that incentive, customers no longer did the bulk purchasing, and that's obviously what contributed to the revenue mix. I think the big thing is it had two positive structural effects for us. The first one was the obvious one of ASP. We saw our ASP increase to about $3,340 in the quarter. But the other thing is it's going to improve our quality and predictability of revenue by aligning shipments more closely with underlying procedure volumes. And the health of our business was never going to be defined on customer stocking patterns or bulk purchases. It's always going to be about our procedure growth. And so that's really what we focused on. And so yes, there was a lot more reduction in inventory. I think our handpiece sales were about, I think, I don't know, 77% of procedure volume. So I think you can do the math on that and get to the number of units that came out. But I think the big thing for us is, as we look at 2026, we're now modeling those being at about a 1:1 ratio, and we're modeling an ASP of about $3,500, which is about a 9% improvement over where we were in 2025. And these are the structural foundational fundamental things that I just feel we have to do to really to ensure our path to profitability in the time frames that we want to be. Matthew O'Brien: Okay. I appreciate that. And then as far as the guide goes for '26, it's obviously back-end loaded. I'm looking at the Q1 commentary, it's just, it's still -- it's the toughest comp of the year as far as handpieces go, but it's pretty modest. So it just seem like the impact from the commercial reorg is still going to be influenced in Q1. I guess, why such confidence that you're going to see this benefit towards the back half of the year? Because I just don't -- I'm just hoping we don't have to cut the expectation for the full year again? Larry Wood: Yes. No, thanks, Matt. And I understand your question completely. We put a range and try to give guidance on where we think we're going to be in Q1. And I think Q1 always starts a little bit slow coming out of the holidays. That's always something that we have. And I think I've seen that in previous companies as well. I think the other thing, though, is we did just signal that as the as the sales force matures into the new alignment as they rebuild relationships with customers, we have people covering different accounts. We just wanted to signal that there's -- that's going to take a little bit of time for it to mature. But we do think these are going to pay dividends to us. We do think having people that are just dedicated solely on procedure growth in their territories and they're no longer distracted by launches and then having dedicated launch teams, we do feel that, that's going to pay benefits. But those are going to show up more in the back half of the year rather than the front half of the year. And we're going to provide a lot more detail tomorrow. We're going to walk across the procedure walk. And you're -- we're going to be completely transparent about it. I know we've talked before about really procedure volumes. We focus on handpiece revenue. But tomorrow, we're going to walk through all of that in detail and I think give you all the components of it. And I think you'll be able to make informed decisions about how confident you could be in our plan. Kevin Waters: I just want to follow on to Larry here, Matt, this is Kevin. And we're going to go through this, as Larry mentioned tomorrow, to give a full cohort analysis. And to your concern or question around the low end of the range, we're going to provide everybody with comfort that at the low end of the range, we are only expecting very modest utilization growth in our legacy installed base. We're actually going to show you that tomorrow to directly answer your concern that you just brought up. Operator: Our next question comes from the line of Chris Pasquale from Nephron Research. Christopher Pasquale: It looks like handpiece sales exceeded procedure volumes by a little over 10,000 units over the past 3 years, including this quarter's drawdown. So what gives you confidence that the ratio is going to be 1:1 in '26? Why shouldn't the rest of that gap need to be closed? Larry Wood: Yes. Thanks for your question. I think there's a couple of things here. When we look at the history here, handpiece sales have been about 108% to 115% of procedure volume, and now we're modeling that at 1:1. But we're modeling it 1:1 even though that we're going to increase our installed base by a couple of hundred systems that are all going to have to take inventory and take stocking orders and do all those things as we expand our installed base. So even with that, we're modeling at a 1:1. Based on all of our analysis and assessments, I think there's probably more upside to that number than downside. But I think 1:1 is where we're modeling it at. And that's a significant change from how we've done all of our previous modeling. And that actually is probably the biggest impact to the reduction in guidance. If we would have modeled handpiece sales at 110% even of procedures like we historically had, then that would have been worth a little over $20 million, probably $20 million, $22 million. And we're able to offset a lot of that with the price increase. But again, I think the long-term health of our business is going to be focusing on procedure growth and having steady, stable revenue. The other thing I can say is we made this change in the fourth quarter of pretty much the last month. So we have about 8 or 9 weeks of runway under this new business practice. And we continue to see now handpiece sales and procedures pretty much flying in formation. And I think that's what gives us confidence that that's that the 1:1 ratio is going to be appropriate for 2026. Christopher Pasquale: Okay. And then, Kevin, you talked about the gross margin impact of a field action in the quarter. Could you just give us some details around what that was and if that impact is contained to the fourth quarter? Larry Wood: Yes. I'll start with the field action. And here's what it was. It was a onetime nonrecurring field action. There were no patient safety issues. There were no concerns. It had to do with compatibility between the handpiece and between the system itself. And what we did was we were just able to go to a field upgrade that just took that issue off the table for us. And so we've upgraded our systems and made the appropriate changes. So that was contained in the fourth quarter. Kevin, if you can walk through the math on it. Kevin Waters: Yes. It was approximately $1.5 million, which was 240 basis points of pressure is the math. But as Larry said, onetime, and it will not impact us moving forward. Operator: Our next question comes from Josh Jennings of TD Cowen. Joshua Jennings: I was hoping to just get a better understanding of the fourth quarter dynamics and the go-forward outlook just on ending the bulk -- end-of-quarter bulk purchase deals that were offered previously. Are you seeing any customer dissatisfaction? And do you anticipate that some high-volume or medium volume and low-volume centers will decrease their utilization at least in the short term until these higher handpiece prices are digested? Larry Wood: Yes. Thanks, Josh. We don't anticipate that, and we haven't seen that. I think there were some customers, frankly, in December that were waiting us out to see if we would bring back these incentives before the end of the quarter, and we didn't. But we've seen the ordering patterns and certainly in Q1 and even late last year, people were having to reorder to support the cases that we're doing. And I don't think it impacted utilization or our case volume, and we haven't heard anything about that. We're just, again, really focused on being disciplined about this. And again, we're fairly deep in Q1, and I just don't think that's impacted us. I think there was a little bit of a mindset in the company that if we -- if people took these orders and we -- and the idea of bulk discounts isn't unique to PROCEPT or anything else. I think people thought like if they have much more handpieces, maybe that would be an incentive for utilization. And I just don't think the two are related at all. So we're going to continue to drive our procedure growth, and that's going to be our key area of focus. That's why we made the changes to the sales force. But we're going to be very disciplined about handpiece pricing. And we're going to be disciplined about system pricing as well. Joshua Jennings: Understood. And you took -- you made some comments, Larry, just on the -- some disruption just in the commercial work or the commercial restructuring. Just wanted to hear about just the stability of the sales force and some of your all-star clinical specialists and reps on the capital side as well. I mean, is it relatively stable? Are you seeing any attrition? And are you planning on adding to the team as you move forward in 2026 and beyond? Larry Wood: Thanks, Josh. Yes. No, I think our team has been stable. We haven't seen any higher attrition. When I talk about the disruption, it's not about losing people. And I'll just provide a little bit more color on this, and we'll talk about it more tomorrow as well. But what we did to create the launch teams is we took some of our most tenured people, some of our most seasoned people, and we moved them over to the launch team because we really want launches to go well. And I learned this in my time at Edwards. When we launched TAVR site and they launched -- and they launched well with steady rhythm and steady volume, they just became healthy programs for us. If somebody launched and they launched poorly, it took a long time for them to get up to the projected volumes of where we thought they should be. So we really want to focus on these launches and make sure they go well, make sure teams have all the support and they deliver spectacular outcomes for their patients, especially in those first early procedures. In creating those launch teams, though, we took some of our best people out of the utilization team, plotting at procedure support team. And in doing that, we backfill those positions. We have people in place on those, but they have to rebuild relationships with those customers. You don't have somebody that maybe has a long-standing relationship. And we also realigned territories that we think allow us to better service our customers and drive the growth. But whenever you do that, people have to reestablish relationships and do all those things, and that's just what we're going through now. But this isn't anything that's unique to us when out of the network, and we used to split territories and hire new reps. You have new people calling on established accounts, and it takes time for them to build those relationships. So I see this as being very transient, been very normal. We just did a lot more of it all in one fell swoop rather than the normal course of business where you're splitting territories periodically. But I think we have great people. I think we have people in the right places. It's just going to be a matter of people maturing and selling into their new accounts that they cover. Operator: Our next question comes from the line of Richard Newitter of Truist Securities. Richard Newitter: I have two. The first one, just on systems. I think you had said a $425,000 ASP or blended ASP. You did 65 systems. So can you just tell us what the kind of the greenfields were? Were there any operating leases in there and trade-ins, et cetera? And then for 2026 on systems, I don't think you gave an explicit placement number. I think the Street at around 220 something for the year. Doing the math, it would suggest you're basically kind of -- or I think that's what you're backing into. Can you confirm that? And then I have a follow-up. Larry Wood: Yes. I'll start with the pricing. Our capital pricing varies a little bit quarter-to-quarter, and it really has to do with our customer mix, whether we're selling into some of the big IDNs or whether their individual systems are being placed. So the $425,000 doesn't reflect any softness in the capital. I think what we're modeling next year is we expect ASP for systems to be flat to up compared to what we saw this year. And so that's kind of where we are. And I think in terms of systems, I think we're modeling Greenfields to be very similar to this year. We're going to shed more light on that tomorrow. But Kevin, do you have anything to add? Kevin Waters: No, we're going to walk through the different components, Rich, of guidance tomorrow, but your observation around roughly flat system sales with a slight increase in ASP is a fair assumption. Richard Newitter: Okay. And then Larry, just starting from the first quarter or fourth quarter of last year even, I know this predates you, there were some seemingly transient or was explained to us was transient externalities, things like the hurricane, the impact on solution, et cetera. And then there were some onetime factors as we move through the year. And then you -- on your last call, obviously prepared us for this destocking or the stocking component and trying to get that right now. It seems like there was some discounting. I guess with respect to kind of where we are today and what you see in the business going forward, what can you tell us about the health of the actual underlying demand for procedures? Is there anything with the reimbursement changes, doctor usage patterns? Is it all, in fact, self-inflicted type items that are leading to the drawdown here or the lower consumables forecasting? I think there's just been a lot of consecutive kind of noise around procedures, and now we're entering a period where there's some internal self-help factors. So how can you get people confident in your visibility, the ability to execute on this new seemingly reset level and that there's nothing underlying on demand side or the penetration curve that's just -- you're bumping up against the wall? Larry Wood: Yes. Thanks for the question. And I understand where you're going with this. And again, one of the things that we never reported on before with actual procedures, we always report on handpiece revenue. And to provide a new level of transparency, we -- externally, we're going to talk about procedures. And if you look at our procedure growth, it was almost 70% in the quarter. And so compared to year-over-year. So I think the procedure demand -- and I'll tell you even at that number, we're trying to accelerate well past that and drive further growth beyond that. But it was pretty healthy procedure growth. The revenue shortfall wasn't really driven on the procedure side. It really was about the customer ordering behavior. And it was being driven much more than probably we appreciated by these discounts that people have become accustomed to, and we were living in the cycle of people stocking up at the end of the quarter and then depleting going into the next quarter, which is leading to very lumpy sales. And again, I reviewed that practice with the team, and we just looked at it hard and said, I don't think this makes any sense for us. And if you look at the ASP that we're modeling for next year, I think that's where we're going to get the benefits from it. And to some degree, I traded off continuous this ordering cycling at discounts for having more ASP and steady revenue that's going to mirror procedures. And I just think these are foundational fundamental things that needed to happen. But I feel very strongly that these things are behind us. We've talked about the sales force reorganization that I expect to improve our execution around procedure growth. And we're going to talk tomorrow about what our value proposition is for Aquablation in the clinical community. And I think we have a compelling story to tell. And so if you make the investor conference tomorrow or watch online, we're going to provide a lot of detail on that, that we've never provided before. But I think we have a solid strategy, but it all starts with these fundamental pieces. And price is just something that's always a huge part of that. And our margins and our path to profitability, those are key areas of focus for us. And the steps that we've taken are the things that I believe are going to drive us to the success and profitability that I think we all want. Operator: Our next question comes from Brandon Vazquez from William Blair. Brandon Vazquez: Larry, in a story like this, I mean, ideally, we're trying to put this behind us and use the analogy of ripping the Band-Aid off in one quarter. I think what investors often try to grapple with here is that meaningful changes to the commercial side or big inventory changes like this typically aren't a one quarter 1 and done, but it feels like you guys have some of the confidence that, in fact, you're going to just continue growing through the year despite some of the noise going on and even some of the externalities that Rich was talking about that have been impacting the business for a little bit. Maybe you could spend another like couple of minutes on -- you said it's been a couple of weeks that you guys have been doing some of these new initiatives. Any metrics you can give us on what's already being done in the early days that's kind of giving you confidence that this is done, that there's not going to be another thing that we need to change on a go-forward basis? Larry Wood: Sure. Thanks for the question. Well, I'll start with the procedure matching to handpiece revenue. We made those changes in the last month -- in December of last year. So we have pretty many weeks of run rate now where we're seeing those 2 numbers pretty much aligned. And so that's one of the things that gives us confidence that that's behind us. But again, we're going to increase our installed base by a couple of hundred instruments this year, and all of those are going to need inventory to drive. So even if there was a little bit more destocking in our installed base, which I don't have any evidence that there is, we're still going to have all these new systems coming in that are going to need inventory, which is why I said there's probably a little more upside than downside. But again, I think our focus is going to just be strictly on procedure growth because the health of our business is never going to be impacted by customer ordering or stocking patterns. It's going to be driven by our execution in the field and by growing procedure volumes. And that's why we made the changes to the sales organization, and we made them all at one time, so we can get it behind us. We can get the team moving forward and they can go execute. And we've aligned the team under our common regional leader now to where we have the focus and we have the accountability and aligned incentives to go drive our growth on the things that matter the most, which, again, is going to be procedure growth. So I understand the question and I understand the comments, but we had to make these changes to drive the organization the way that we need to drive it. And I'm building this thing with a multiyear plan in place, not an individual quarter. And so we just had to stop some of these things that I think we're hurting our margins, and I think we're encouraging the wrong customer behavior. And that's what we've done. And I feel very confident that the inventory issue, I feel very confident that is behind us. And on the sales organization, I'm confident that this will pay dividends to us down the road. But again, it's a big organization change. It does take time for those things to settle in as people will reestablish those relationships, but all of that is factored into our 2026 guidance. Brandon Vazquez: Okay. And switching gears a little bit, just because this will probably start to come up a lot in investor conversations going into the quarter, of course, I'm sure you guys have heard that a lot of noise around PAE given the reimbursement there and a lot of experts doing or a lot of urologists doing more PAE cases these days. You gave the procedure numbers, which is super helpful. But maybe talk to us a little bit what you're seeing in the field and help us bridge like you called 10 urologists and 9 out of 10 of them are doing more PAE, your procedures are still growing. Kind of give us the lay of the land of how you're seeing Aquablation and PAE playing out in the field. Larry Wood: Yes. No, thank you. We're going to provide more detail on procedure trends at the investor conference tomorrow, but we're still very early in penetrating a market with more than 400,000 surgical BPH procedures annually. So our primary opportunity improving commercial execution is going to be consistently taking share. From a competitive standpoint, we continue to think that we offer a very strong value proposition, particularly related to term. Specific to with respect to PAE, while the site and service economics can be attractive, we're seeing continued variability in clinical durability. And we've also seen more variability in payer coverage. And our current market intelligence suggests that coverage may be more selective over time rather than broader. And as a result, we don't see changing the long-term competitive dynamic for patients who are appropriate for resective therapy. But we're going to show some data tomorrow, and we're going to walk through what we think our value proposition is and why we think we're going to be successful making inroads from a share perspective in this patient population. Operator: Our next question comes from Suraj Kalia from Oppenheimer & Co. Suraj Kalia: Larry, can you hear me all right? Larry Wood: I can hear you fine. Suraj Kalia: So Larry, I want to follow up on Chris' question. Obviously, the math is the math in terms of inventory in the field. I guess if I could comment it from a different angle, Larry, look, the Board signed off, the Audit Committee had to sign off on the previous sales process, right? Now a completely new process has been instituted. My question, Larry, would be, why now? Why couldn't this be staged? And what specific thing has triggered the Audit Committee, everyone to say, okay, we bless this. This is the path to go and now is the time to do this? Larry Wood: Well, look, one of the things that we've talked about, and we'll show more detail on it tomorrow is the -- if we look over the last 4 or 5 years, the handpiece revenue was always higher than our procedure volume. And if we look at what was happening with pricing, pricing was pretty stable during that period of time. But I signaled last year that I thought inventory levels in the field were higher than they needed to be, and that's why we signaled that we thought we would take some of that inventory level down. It wasn't until we were deep in the quarter that I think we started to get an appreciation for just how much these incentives were really driving the customer stocking behavior. And I think -- when I look at that, price is such a hard thing to do and improving margins is such a challenge. And I just thought there's a huge opportunity here. To be at a $3,500 price point in our 2026 plan is a really meaningful upside, but that's not going to pay dividends just for us in the short term. That's going to pay dividends over the next several years as we think about our path to profitability and improving our margins. And so the idea that you would try to like whittle these things down and bleed this thing off over many quarters, it was just going to be a headwind that we frankly would have to keep talking about and just gradually do it. And I think we would not have seen the ASP benefit if we would have tried to bleed this off over a long period of time. So we just made the decision. And look, we understand completely why it created a revenue shortfall, but the impact that it has to ASP next year is so significant. To me, again, building these foundational pieces for the long term, it's just critical. And so we just took a step. I think we also wanted to recondition our customers that these practices are behind us and that we're not going to be doing these things anymore. And so they can just order based on their procedural usage rather than ordering on other things. And none of the changes we made impact our future growth trajectory, and they don't impact our path to profitability. So I think they were just the right decisions for us to make. I understand the point that you're making, and sometimes it may look tempting to try to bleed this stuff over time. But then I think you just continue to confuse your customers with these incentive plans. And we just wanted to put that behind us and be done with it. Suraj Kalia: Fair enough. And Larry, my second question, so you mentioned customer behavior a couple of times in your remarks, presumably that is referring to wanting end-of-quarter discounts and whatnot. So these customers have been -- their behavior has been primed by PROCEPT's sales practices, and it is over multiple years, right? Have you all done a sensitivity analysis based on your existing customer base where the switch that you all are turning on or off, it's going to now change the end customer behavior once again and almost instantaneously? Larry Wood: Yes. Thanks. We've had multiple weeks of this where we've been dealing with it. Again, we did this in December of last year, we made these changes. So I think we've had a decent run now where we've been able to evaluate that. And we don't really see any impact or change there, and I don't expect that we will. I think the -- I see it in terms of customer conditioning, but we're a party to that as well. We were offering incentives. We were offering discounts. Customers were taking advantage of those. And it just wasn't a good healthy practice for us, I don't believe over the long haul. I think it's far more beneficial for us to see the impact on ASP, but also to have a stable, reliable ordering pattern and revenue stream. And so I think those are just the things that we needed to do, and that's the structural impact of this change, but I think it benefits us over the long term. Operator: Our next question comes from the line of Michael Sarcone from Jefferies. Michael Sarcone: I guess just first one for me. I know you're going to give more detail at the Investor Day tomorrow, but you carved out this team that's focused on the launch process. Can you maybe just help crystallize that, give us 1 or 2 examples of what you're attempting to change in the launch process now that will kind of position you for success? Larry Wood: Sure. Well, here's what happened in the previous org structure was our team -- we just had sort of one field team that was focused on procedures. And then obviously, we had the capital team as well. In the old process, the capital team, they would sell the instrument. And then at some point, the procedure team gets notified of it. And in addition to supporting the installed base, they would have to figure out how to launch this new system, how to provide the support, what doctors want to be trained, how they wanted to be trained. So they were sort of pulled in multiple different directions. And when you think about it this way, you have a capital team that's trying to move capital. You have the procedure team, which is made up of salespeople and clinical people, that they reported up into different leaders and sort of had their own incentives and their own plans and their own objectives. And those weren't always aligned. And so by creating the launch team, it sits under our capital organization so that when the capital team is close to closing on an order, we're already lining up who are the clinicians that need to be trained, what that process is going to be. And then we took some of our most tenured people and put them on the team because we want to make sure for every new system that's placed that they get the best support, the best care so that they have a great launch. And the metric that we're tracking to is time for PO, the time that they complete like their first-line cases. It's not just getting one case under their belt. So we're really trying to drive that repeated excellence and predictability of launches and really running a very standardized playbook, which we didn't really have historically. You have different people doing it differently. And again, they were being pulled from trying to support existing accounts and also trying to launch systems. And in some cases, maybe you're having junior level people do some of these activities. Now we have our best people in place to do those things. The impact of that is we have to rebuild those positions on the procedure team and rebuild those relationships and do those things. But again, we think that's going to pay dividends for us. We ran a pilot in Q4 when we ran that pilot, we saw about a 50% reduction in time to first-line cases when we did under the launch team model, which I think is going to have a lot of impact for us on a go forward. And again, we'll talk more about this tomorrow and go into more detail on it. But these are the foundational pieces that I think we have to get in place. And our goal is by the end of the year that everybody is launching in a launch team model. Michael Sarcone: Very helpful, Larry. And I guess the second one from me is I'll echo the sentiment from other folks here, 70% procedure growth is pretty impressive. I mean, can you give us any color on how that's split out between maybe older cohorts of existing customers versus newer cohorts? Larry Wood: Yes. Thanks. Yes, while the growth number was pretty good, I will tell you, we have much more ambitious goals than that, and that's again why we made some of these changes because we want to drive and accelerate that. In terms of where the growth comes from, I will tell you, it's highly variable. And we'll provide a little bit more color on some of our insights tomorrow, but there's just not an easy one answer. It's not to say that every customer is a snowflake, but there's not as much commonality as maybe one would think. But we're going to talk about that tomorrow. And again, we're going to be really transparent tomorrow walking people through our strategy through the changes we've made, why we believe they're going to benefit us and what we're going to do differently on a go forward that hopefully will give people confidence in our strategy and our long-term out. Operator: Our next question comes from the line of Mason Carrico from Stephens Inc. Benjamin Mee: This is Ben on for Mason. Are you -- in light of some of the recent changes that you've discussed today, could you update us on maybe your IDNs level strategy? Are you planning to lean more heavily into these negotiations in 2026? And is there any opportunity for maybe some bulk system placements in the 2026 guide? Larry Wood: I don't know that anything really changes year-over-year. We always are focused on -- we have a team that focuses really on IDNs. We have teams focusing on new greenfield placements. I don't know that anything really materially is going to change from last year to next year. But we're going to talk broadly about our capital strategy tomorrow and try to shed maybe a little bit more light on that, but I don't think there's any massive changes from last year to this year. Benjamin Mee: Okay. Great. And then you previously noted that maybe Aquablation improved outcome story -- the Aquablation improved outcome story may not be as widely understood by patients today. Are there any patient activation initiatives you plan to launch in 2026 to maybe help drive this messaging? Larry Wood: Well, if you're interested in that, then you're definitely going to want to tune in tomorrow. We have a very specific plan and strategy about making the clinical case both to patients and to clinicians about the value proposition of Aquablation. But one of the things that I may really want to stress is I think when some people hear patient activation, they think it's just about getting people off the sidelines. But there's about 400,000 people a year that get an invasive procedure for their BPH. And we're only about -- in 2025, about 10% penetrated into that group. So we have a lot of headroom just in taking share from the patients that are already being treated. You go beyond that, there's a whole other funnel of people who are on drugs and other things that we will shed light on tomorrow. But our near-term execution is all going to be focused on moving share. But I think certainly, the patient education and the physician education is going to be a key component of that. I think the other thing that people hear a lot of time is when they hear patient activation, they think Super Bowl commercials and millions of dollars of spend. And that's not anywhere in the ballpark that we're in. We're very focused on our path to profitability and the programs that we have are not going to be of that scale. And what's -- what's really good about this market for us is it's very easy for us to target and identify men with BPH. It's much simpler than, for example, in my old world where you're looking for the 5% of the people over the age of 80 that have valvular heart disease. We know exactly who these people are. So you don't have to cast as wide a net to be able to target the people with BPH. And so we can do much more targeted education programs that I think are going to be impactful. Operator: Our next question comes from Stephanie Piazzola from Bank of America. Stephanie Piazzola: I'm sure we'll get more detail tomorrow, but if there's anything you could share now on how to think about that step-up to 62,000 U.S. procedures in 2026 versus the Q4 run rate was a little under $50,000. And then also I just wanted to clarify on the ASP uplift that you expect this year. Is that just a result of the change in the customer ordering practices or something else, too? Larry Wood: Yes. Thanks. I'll take your second question first. Yes, the ASP pickup is just by not offering incentives or discounts for end of the quarter purchases. And by eliminating that practice, we've already seen the impact on our ASP, and we expect that to continue. On the procedure walk, we are going to go into detail on that tomorrow, but it's going to be a combination. I think the biggest drivers of it, frankly, are going to be the new systems that we're adding, the benefits of the launch team, the growth that we're going to get from that. We don't have massive uptick in our installed base. There's obviously going to be some growth that comes there, but we know it's going to take a little bit of time for some of our programs to take hold. But we're going to go on a detailed walk tomorrow to walk through kind of the puts and takes on how we take our procedure total from what we had in 2025 to what we had in 2026. Stephanie Piazzola: Got it. And then just on the sales force realignment and some of the potential disruption there, how do we think about where you are in that process and how much is left to go? And how do we think about the disruption turning to a benefit and when that happens? Larry Wood: Yes. Thanks. All of the changes structurally in the organization have been made. So those are all made. Those are all in place. We rolled them out at our sales meeting in January. And so all of that work has been done. Everybody has their account targets, everybody has their quotas, everybody has their revised incentive plans. All of that work has been done. I think it's now just a matter of people maturing into these roles, learning their new accounts, building those relationships and doing the things they need to do. And just -- again, I don't want to overstate things. It's not like every single customer got a new rep. A lot of things did hold over from the old as we realigned territories. And we did pull some people out to the launch team, but it wasn't like 30% of our field force or anything. But all of these things have some impact. They do create some headwinds for us. And -- but I do believe as the organization matures, having a team of people, their only focus is improving utilization in our installed base, I think is going to pay dividends for us and ensuring that there's streamlined incentives between the commercial team, the sales team and the clinical team and having them report to a common leader in that region is going to drive a lot more focus. It's going to drive a lot more accountability and ultimately improve our execution and performance. Operator: Our next question comes from the line of Danielle Antalffy from UBS. Danielle Antalffy: I imagine we are going to get this more for this tomorrow. But Larry, I'm just curious, in the 6 months or so that you've been there, how much of a heavy lift do you think the market development component is here? I appreciate you've talked a lot about the sales force realignment and adjustments there. But just from a pure market education perspective, what's the plan? I mean, as much as you feel like saying on this call versus tomorrow? And how much of that is going to be part of this procedure volume bridge and the long-term plan? Larry Wood: Yes. Thanks, Danielle. Here's what I will say. The company historically has really been focused on placing systems and then working through the people that acquired the symptoms to make sure that they knew how to do the procedure and they delivered good outcomes with the system. And I think the team did a great job on that. In terms of marketing programs and in terms of awareness and in terms of those things, the value proposition, I'm just real frank about it, none of that work was done. If you -- if I pretended to be a patient and I went out live and tried to find information on BPH therapy, I couldn't even find Aquablation on WebMD going through what I think a patient would normally do for search firms or any of those things. So there's just some very basic fundamental work that had never been done that had never really made our value proposition case to patients. But doing these things and getting out WebMD and getting in social media and doing the comparison how our procedure compares in terms of outcomes and durability and the things that matter most to patients, we have to do that work, but this is always a build. It's never a light switch. I mean you look at TAVR journey during my entire time at Edwards, and it's a continual build that you have to do. But there's just so much basic work that can be done quickly that I think is going to make a difference. And I think we're going to spend a fair amount of time on that tomorrow during the investor conference, and I hope you're there because I think when you see the work that we're doing, you see the value proposition we have, I think we're going to make a compelling case to clinicians and also to patients. Danielle Antalffy: Okay. That's helpful. And again, I don't want to front-run tomorrow, but one thing we heard in our diligence and speaking to docs was some level of appetite to have the ability to do this in the ASC. I know you guys aren't ready for that yet. But just from a capacity perspective, is that something that could be part of the long-term plan? Anything you can say about that? Larry Wood: Yes. Thanks, Danielle. Certainly, for the long-term plan, that's going to be something that's going to become part of our story as we go through time. So I think that, that's very fair. I don't think it's something that's so much of a near-term thing for us. The other thing, and I'll just address it and we're going to talk about it tomorrow is we have people saying, like, are you going to cover cases forever because that's been our model we've done historically. And we'll provide an update on that as well on how we think these things evolve over time, and that can improve our efficiency and again, improve our ability to execute. Operator: Our next question comes from Mike Kratky from Leerink Partners. Michael Kratky: I wanted to follow up on Chris' question again earlier. I mean, if handpieces sold have consistently been above procedure volumes every single quarter for the last 3 years outside of the fourth quarter, I mean, wouldn't your customers still have a pretty substantial buildup of handpieces that they have available, that they need to work through? When you talk about this 1:1 ratio, can you just help us understand why that is -- you have confidence that, that's going to be the case? And was there anything in the voluntary field action that might have impacted that? Larry Wood: Yes. Well, I'll start with the second part. There was nothing in the field action that had any impact on this one way or the other, completely separate event that didn't have any impact. In terms of the handpieces, what I can tell you is customers still need to maintain inventory levels. Nobody is sitting there with one hand piece on the shelf. So they need to continue to carry inventory levels. It's just a matter of what inventory levels are they carrying. And I think what was happening with the incentive plans is people would stock way much -- way more inventory than they wanted and then they reverted down in the first couple of months of the quarter, and then they would repeat the process and reorder again and take advantage of these incentives. I think we eliminated that and now what we've seen is a settling into where accounts are just carrying the inventory levels that they feel are appropriate based on their usage and based on whatever their inventory policies are. We modeled next year at 1:1 and that's what has been actually happening as we look at the last several weeks since we made these policy changes or practice changes, I guess. And so that's what gives us confidence on a go forward. But the other thing is, again, we're going to install a couple of hundred systems next year, and they're all going to have to take stocking orders and they're all going to have to establish inventory levels as well, and we're still modeling it at a 1:1. So those are the things that give us confidence next year that 1:1 ratio is going to be in line. Michael Kratky: Got it. And then maybe just the last one on my side, but can you provide any additional color on the cadence of OpEx and your sales force expansion or SG&A throughout the year? Kevin Waters: Yes. On the cadence of OpEx, maybe I'll just point to what our EBITDA guidance implies. So we had said at both the low and the high end of guidance will be EBITDA positive in the fourth quarter. We're forecasting an EBITDA loss in Q1 of somewhere in the $20 million range, which would put OpEx somewhere between $85 million to $88 million in the first quarter and then build from there. And again, we're going to go through kind of that walk tomorrow as well. Operator: Our last question comes from Nathan Treybeck from Wells Fargo. Nathan Treybeck: So it sounds like handpiece sales have exceeded procedure volumes by wide margin for a long time. I guess, can you talk about what this implies for actual utilization levels at your accounts? And I guess, how would you put that into context the monthly utilization numbers that the company gave in the past for other BPH surgical procedures? Larry Wood: Yes. Utilization is highly variable. And I think, again, what we're focused on is procedure growth. I probably can't go as deep on the history here. I don't know, Kevin, do you have anything you want to add? Kevin Waters: I think if you look at it, it's been relatively consistent over the last 3 years. And just to maybe put a number that's been thrown around a few times to highlight, I think it is correct. If we're at a 1:1 ratio, you would see about 11,000 units out in the field. But remember, we're adding over 200 systems in 2026, which would put given current procedure trends, average customer inventory just a little over a month to 7 weeks, which we feel really comfortable with. Nathan Treybeck: Okay. And so on your capital funnel, I think last time you mentioned there might have been more scrutiny of budgets. It sounds like you're expecting flattish system placements in '26. I guess talk about the level of price sensitivity you're seeing in the accounts that you're pursuing now and I guess, the willingness to place an Aquablation system with just a BPH indication. Larry Wood: Yes. Well, we actually had a very strong capital quarter in Q4. We had 65 systems, which is an all-time high for us. And so I think that supports that we continue to see demand now, just the natural nature of capital, the fourth quarter tends to be our biggest quarter every year. And we are modeling about the same number of placements in 2026 is what we had in 2025, and we'll provide more detail on that. But we're actually modeling ASP to be flat or up in 2026 from where they were in 2025. And so we continue to see good demand for -- and we think the capital market, I don't want to say it's ever easy, but I don't think there's anything structurally that's changing from 2025 to 2026 that would impact our ability to execute our plan. Operator: At this time, that does conclude the question-and-answer session. I would now like to turn it back to Matt Bacso, CEO, for closing remarks. Matthew Bacso: Thanks, operator. I appreciate everyone's time today going through Q&A, listening to the Q4 call. I just want to remind everybody that we are hosting our Analyst Day tomorrow in New York at 8:00 a.m. Eastern, and please show up a little early. There will be breakfast provided, but we will start promptly at 8:00 a.m. Hope to see you there. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to FS KKR Capital Corp.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note that the conference is being recorded. At this time, Anna Kleinhenn, Head of Investor Relations will proceed with the introduction. Ms. Kleinhenn, you may begin. Anna Kleinhenn: Thank you. Good morning, and welcome to FS KKR Capital Corp.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. Please note that FS KKR Capital Corp. may be referred to as FSK, the fund or the company throughout the call. Today's conference call is being recorded, and an audio replay of the call will be available for 30 days. Replay information is included in a press release that FSK issued yesterday. In addition, FSK has posted on its website a presentation containing supplemental financial information with respect to its portfolio and financial performance for the quarter ended December 31, 2025. A link to today's webcast and the presentation is available on the For Investors section of the company's website under Events and Presentations. Please note that this call is the property of FSK. Any unauthorized rebroadcast of this call in any form is strictly prohibited. Today's conference call includes forward-looking statements and are subject to risks and uncertainties that could affect FSK or the economy generally. We ask that you refer to FSK's most recent filings with the SEC for important factors and risks that could cause actual results or outcomes to differ materially from these statements. FSK does not undertake to update its forward-looking statements unless required to do so by law. In addition, this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures can be found in FSK's fourth quarter earnings release that was filed with the SEC on February 25, 2026. Non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly named measures reported by other companies. To obtain copies of the company's latest SEC filings, please visit FSK's website. Speaking on today's call will be Michael Forman, Chief Executive Officer and Chairman; Dan Pietrzak, Chief Investment Officer and President; and Steven Lilly, Chief Financial Officer. Also joining us on the call today are Co-Chief Operating Officers, Drew O'Toole and Ryan Wilson. I'll now turn the call over to Michael. Michael Forman: Thank you, Anna, and good morning, everyone. Thank you all for joining FSK's Fourth Quarter and Full Year 2025 Earnings Conference Call. I'd like to start today's call by reviewing the goals we set for 2025 and discussing how we performed against those priorities. Our first goal was to originate attractive, well-structured investments, which would be accretive to the quality of our investment portfolio. During 2025, we achieved this goal as our investment team leveraged its deep sponsor relationships to originate $5.6 billion of predominantly first lien and asset-based finance investments. Second, we set out to provide shareholders with $2.80 per share of total distributions through a combination of our quarterly base and supplemental distributions. Our spillover income, which purposely was increased during the high interest rate environment allowed us to achieve the objective even against the backdrop of a declining interest rate environment. Our third goal was to continue proactively laddering the right side of our balance sheet. During 2025, we continued to optimize our capital structure by issuing $400 million of new unsecured notes, closing on a new $400 million bilateral lending facility, diversifying our funding sources through 2 new middle market CLOs and further enhancing our liquidity profile through an amendment to our senior secured revolving credit facility that increased our total commitment, extended the maturity and reduced pricing. Despite the achievement of these goals, during the second quarter and fourth quarter of 2025, we experienced downward pressure on a few specific investments across our portfolio, which resulted in a decline in our net asset value. We acknowledge that noninvestment-grade private debt investing necessarily will result in underperforming assets from time to time. However, we are disappointed by these markdowns. Dan, of course, will discuss these topics in more detail later in the call. Looking ahead to 2026, our goals are as follows: First, we expect to address underperforming assets through restructurings, exits and continued proactive portfolio monitoring to reduce the number of nonaccruals and non-income-producing investments in the portfolio. Second, we will continue our strategy of focusing on first lien senior secured originations with the goal of continuing to increase the overall quality and diversification of our investment portfolio while simultaneously continuing to focus on rotating a portion of our legacy investments. Third, we remain focused on preserving our strong liquidity and balance sheet flexibility by keeping net leverage within our target range and maintaining ample revolver capacity to manage volatility and selectively deploy capital. Turning to our fourth quarter results. FSK generated net investment income totaling $0.48 per share and adjusted net investment income of $0.52 per share as compared to our public guidance of $0.51 and $0.56 per share, respectively. Our net asset value share declined by 5% to $20.89 compared to $21.99 as of the end of the third quarter. The 2 primary components of the quarterly change in net asset value are a $0.22 per share decline as a result of our $0.70 per share distribution compared to our GAAP NII of $0.48 per share and an $0.87 per share decline as a result of downward pressure on certain investments. From a liquidity standpoint, we ended the quarter with approximately $3.8 billion of available liquidity. Based upon our updated dividend framework and expected operating results, our Board declared a total first quarter distribution of $0.48 per share, consisting of our base distribution of $0.45 per share and a supplemental distribution of $0.03 per share. This represents a 100% payout of our GAAP net investment income and a 9.2% yield on our ending fourth quarter net asset value. With that, I'll turn the call over to Dan to provide additional color on the market and the quarter. Daniel Pietrzak: Thanks, Michael. I'd like to start by focusing on FSK's recent performance. As Michael noted, our recent underperformance reflects challenges in certain legacy investments, including Production Resource Group, as well as challenges in certain current adviser originated investments such as Medallia, Cubic Corp, KBS and 48forty. We are actively engaged in each of these situations and are pursuing company-specific solutions to stabilize performance and maximize recoveries, although we acknowledge each company faces challenges unique to a specific business. We also acknowledge that our nonaccrual assets are higher than we would like, which tempers our near- to intermediate-term view from an NII standpoint. Specifically, this means that our 2026 dividend, which we originally believed would equate to approximately 10% of net asset value, may now be more in the range of 9% of net asset value. Stepping back a bit, focusing on the current adviser's long-term performance. Since the formation of the FS/KKR Advisor 8 years ago, we have originated $34 billion of investments in FSK, generating an unlevered IRR of 9.1% since inception. And while recent nonaccruals have emerged from this body of work, we do believe some level of defaults is inevitable in a sub-investment-grade portfolio, particularly across various market cycles. Nevertheless, we are focused on the work ahead of us during 2026 and beyond, not only to establish more stability in our investment portfolio, but also to regain the market's confidence in our ability to deliver more consistent results on a quarter-to-quarter basis. And with that, I'll turn to a few specific comments about the quarter. During the fourth quarter, approximately 50% of net realized and unrealized losses were attributable to 4 investments: Production Resource Group, Medallia, Peraton and Cubic Corp. We have spoken about most of these investments in detail in the past. However, I'll give a quick update on each name. PRG, a legacy investment, is a leading provider of integrated entertainment and live event production solutions. PRG continues to be impacted by softer operating performance due to headwinds in their TV, film and music segments. During the quarter, we incurred approximately $47 million of net losses. Medallia, an enterprise software as-a-service experience management platform, has faced competitive pressures, which have resulted in the company's recent financial underperformance. This investment contributed $29 million of unrealized losses during the quarter. Peraton, a provider of technology-focused services and solutions to U.S. government agencies, contributed $23 million of unrealized losses during the quarter. Cubic Corp, an existing nonaccrual investment, is a diversified technology provider to defense and civil-related agencies across governments throughout the world. Over recent periods, the company has experienced order and implementation delays, resulting in the current period valuation. Cubic Corp contributed $21 million of unrealized depreciation during the quarter. Turning to the investing environment. During 2025, we experienced a 13% increase in the number of investment opportunities we evaluated, though I would highlight we are remaining extremely selective. We are focused on continuing to diversify our portfolio by taking smaller position sizes in a greater number of borrowers. Additionally, based on the opportunities we are seeing in the market today, we continue to believe the best risk-adjusted returns are in first lien loans and asset-based finance investments. During the fourth quarter, we originated approximately $1.1 billion of new investments. Approximately 80% of our new investments were focused on add-on financings to existing portfolio companies and long-term KKR relationships. Our new investments, combined with $806 million of net sales and repayments when factoring in sales to our joint venture, equated to a net portfolio increase of $292 million. New originations consisted of approximately 65% in first lien loans, 15% in asset-based finance investments, 18% in capital calls to the joint venture and 2% in equity and other investments. Our new direct lending investment commitments had a weighted average EBITDA of approximately $352 million, 6.2x leverage through our security and a weighted average coupon of approximately SOFR plus 475 basis points. We continue to focus on upper middle market companies with EBITDA in the $50 million to $150 million range across a diverse set of industries and sectors. As of December 31, the weighted average EBITDA of our portfolio companies was $236 million, and the median EBITDA was $132 million. Our portfolio companies reported a weighted average year-over-year EBITDA growth rate of approximately 4% across companies in which we have invested in, since April of 2018. Median interest coverage increased to 1.9x compared to 1.8x at the end of the third quarter. Software and services currently represents 16% of our investment portfolio, diversified across 50 issuers with an average position size of 33 basis points of our total investment portfolio. Average and median EBITDA of approximately $162 million and $110 million, and a median LTV of approximately 39%. This segment of our portfolio historically has been one of our best performers and has been underwritten with a particular focus on primary customer relationships and the durability of revenue and cash flow streams attached to those relationships. We will continue to assess potential future AI risks with each investment we analyze as our current belief is that widespread AI adoption may result in an overall expansion of the addressable market, even though it likely will negatively impact certain companies, which either have not yet achieved meaningful positive cash flows or are less well positioned from a customer retention standpoint. During the fourth quarter, 5 investments were added to nonaccrual status and 1 was removed. New nonaccrual assets include Alacrity Solutions, Amerivet Partners, Dental Care Alliance, Gracent and Lionbridge Technologies. Together, these investments totaled $255 million of cost and $214 million of fair value across our investment portfolio. As previously disclosed, Production Resource Group was removed from nonaccrual status. As of December 31, nonaccruals represented 5.5% of our portfolio on a cost basis and 3.4% of our portfolio on a fair value basis. This compares to 5% of our portfolio on a cost basis and 2.9% of our portfolio on a fair value basis as of September 30. Nonaccruals relating to the 90% of our portfolio, which has been originated by KKR Credit were 5.1% on a cost basis and 3.1% on a fair value basis as of the end of the fourth quarter. This compares to 3.4% on a cost basis and 1.8% on a fair value basis as of the end of the third quarter. And while we acknowledge that this nonaccrual rate is above the long-term BDC industry average cost basis, nonaccrual rate of approximately 3.8%, we also recognize that this measure is a point-in-time data point. KKR's long-term average cost basis nonaccrual rate since April 2018 is 1.2%. In summary, with regard to our investment portfolio, we recognize there's work to be done, which may result in an above-average level of portfolio volatility during certain periods, coupled with lower levels of net investment income as compared to prior estimates. Portfolio metrics do move over time, and we believe our investment and workout team are well equipped to successfully navigate this period of elevated portfolio volatility. Lastly, subsequent to quarter end, we announced that the aggregate capital commitment to our joint venture with South Carolina Retirement Systems Group Trust increased from $2.8 billion to approximately $2.975 billion, reflecting an additional net $175 million contribution from our partner. Following this transaction, our partners' ownership percentage climbed from 12.5% to 21.1%, and our ownership percentage changed from 87.5% to 78.9%. We and our partner have been very pleased with the performance of the JV to date, and this incremental capital positions the joint venture to continue scaling while fully leveraging the breadth and depth of the KKR credit investment platform. With that, I'll turn the call over to Steven to go through our financial results. Steven Lilly: Thanks, Dan. As of December 31, 2025, FSK's investment portfolio had a fair value of $13 billion, consisting of 232 portfolio companies. At the end of the fourth quarter, our 10 largest portfolio companies represented approximately 19% of the fair value of our portfolio compared to 20% as of the end of the third quarter. We remain focused on senior secured investments as our portfolio consisted of approximately 58% first lien loans and 62% senior secured debt as of December 31. In addition, our joint venture represented approximately 15% of the fair value of our portfolio as of the end of the fourth quarter. As a result, when investors consider our entire portfolio, looking through to the investments in our joint venture, then first lien loans total approximately 68% of our total portfolio and senior secured investments total approximately 72% of our portfolio as of December 31. The weighted average yield on accruing debt investments was 10% as of December 31, a decrease of 50 basis points compared to 10.5% as of September 30. As a reminder, the calculation of weighted average yield is adjusted to exclude the accretion associated with the merger of FSKR. Turning to our quarterly operating results. Our total investment income was $348 million for the fourth quarter, a decrease of $25 million compared to the third quarter. The primary components of our total quarterly investment income were as follows: Total interest income was $256 million, representing a decrease of $29 million quarter-over-quarter. The decline in interest income was driven by investments placed on nonaccrual during the quarter, lower base rates and the repayment of higher-yielding investments. Dividend and fee income totaled $92 million, an increase of $4 million quarter-over-quarter. Our total dividend and fee income is summarized as follows: $58 million of dividend income from our joint venture, other dividends from various portfolio companies totaling approximately $28 million during the quarter and fee income totaling approximately $6 million during the quarter. Our total expenses were $213 million during the fourth quarter, a decrease of $1 million compared to the third quarter. The primary components of our total expenses were as follows: Our interest expense totaled $110 million, a decrease of $6 million quarter-over-quarter, and our weighted average cost of debt was 5.1% as of December 31. Management fees totaled $50 million, a decrease of $1 million quarter-over-quarter. Incentive fees totaled $28 million, a decrease of $5 million from the third quarter. Other expenses totaled $7 million, a decrease of $3 million quarter-over-quarter. And lastly, excise tax totaled $18 million during the quarter. The detailed bridge in our net asset value per share on a quarter-over-quarter basis is as follows: Our ending third quarter 2025 net asset value per share of $21.99 was increased by GAAP net investment income of $0.48 per share and was decreased by $0.87 per share due to a decrease in the overall value of our investment portfolio. We experienced a $0.01 per share reduction in net asset value from realized loss on extinguishment of debt and a $0.70 per share reduction as a result of the total quarterly distribution paid during the quarter. The sum of these activities results in our December 31, 2025 net asset value per share of $20.89. From a forward-looking guidance perspective, we expect first quarter 2026 GAAP net investment income to approximate $0.45 per share, and we expect our adjusted net investment income to approximate $0.44 per share. The detailed components of our first quarter guidance are as follows: Our recurring interest income on a GAAP basis is expected to approximate $226 million. We expect recurring dividend income associated with our joint venture to approximate $60 million. We expect fee and other dividend income to approximate $29 million. From an expense standpoint, we expect our management fees to approximate $48 million. We expect incentive fees to approximate $26 million. We expect interest expense to approximate $104 million, and we expect other G&A expenses to approximate $9 million. Capital Structure. In December, we closed our third middle market CLO, raising $363 million of low-cost secured debt priced at a weighted average rate of SOFR plus 157 basis points. We are pleased with this financing given it is match funded with no mark-to-market at an attractive rate. As of December 31, our gross and net debt-to-equity levels were 130% and 122%, respectively, compared to 120% and 116% at September 30. Our leverage remains within our target range of 1 to 1.25x net debt to equity. At the end of the fourth quarter, our available liquidity was $3.8 billion and approximately 62% of our drawn balance sheet and 43% of our committed balance sheet was comprised of unsecured debt. Pro forma for the $1 billion unsecured bonds that matured on January 15, 2026, 49% of our drawn balance sheet and 38% of our committed balance sheet was comprised of unsecured debt, and our next balance sheet maturity is a $400 million bond in January of 2027. And with that, I'll turn the call back to Michael for a few closing remarks before we open the call for questions. Michael Forman: Thank you, Steven. As we enter 2026, we actively are focused on working through the portfolio-related items Dan discussed in detail. Our new and recent originations are performing well, and the vast majority of our portfolio continues to perform in line with our original expectations. As a result, we believe our scale, experience and proactive portfolio management will enable us to maximize recoveries and to continue providing shareholders with an attractive level of current income relative to the risk-free rate. As always, we appreciate you joining us today. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Finian O'Shea with Wells Fargo Securities. Finian O'Shea: So just to start, like big picture, FSK is shrinking, which makes it worse, and likely stuck below book. So do you ever think about like a grand bargain where, say, the FS side allows for a lower fee, and then the KKR side puts in some balance sheet money to inject life into the BDC and ultimately show that the partnership model can work? Daniel Pietrzak: I mean that's probably a bit of a complicated question. But I think if you take a step back, I think we have been, I think, both sides quite happy with just the partnership. I mean, clearly, this has been a harder quarter. But if you do think about, we have originated $34 billion of investments into FSK in the last 8 years. The last quarters have felt bumpy, but we're sort of 9.1% sort of IRR sort of against those. I think we've got some work to do clearly on the portfolio. I think we've got some work to do, to your point about how to either grow this thing or create some levers as it relates to income growth. The short or the low-hanging fruit there is we do have too many non-income-producing assets, right? We're roughly 9.5% there. I think we've been stuck with that for a while because that really started with some of the older assets that were here. But I think us as a team have gone through, I'd say, a laundry list of things as I would think about kind of a forward operating plan as we evolve this thing for '26 and '27. I don't think this is a quarterly sort of discussion as we work on that evolution. Finian O'Shea: Okay. Sorry about that. A follow-on on the performance fee. So one of your peers yesterday, Blackstone, they had a few write-downs. They got a little bit less of an incentive fee. The stock was fine. Do you think that makes sense to revisit again? The look back that is? Daniel Pietrzak: Yes. And I mean, I think we're kind of quite cognizant of fee structures and constantly sort of mapping that to the market or at least where we sit versus others in the market and then also thinking about where we sit vis-a-vis sort of dividend numbers, right? I think at the $0.48-odd number, we're sort of roughly 9.2%. But I think that -- we'll call it a valuation, we as a team and we're constantly sort of thinking about and we'll be discussing those sort of matters. But I think we're, in a lot of ways, focused on the total earnings sort of here in that 9.2%, which probably lower than we want to be today, but probably above kind of historical average. Operator: Your next question comes from the line of Ethan Kaye with Lucid Capital Markets. Ethan Kaye: Wondering if there's anything you can kind of point to any common thread or common denominator here across the positions that drove the underperformance this quarter? Daniel Pietrzak: Yes, Ethan, thanks for the question. Maybe I'll put it in a couple of buckets, right? If you do look at the 5 names that were added to nonaccruals, 2 of those are in the sort of medical or sort of health care roll-up space, right? That's one area we are kind of keeping an eye on. I think we've seen a lot of names performing well there, but that has been a space where wage inflation sort of has mattered, retention has mattered. That's been across kind of dental as well as the vet area. So that is probably what I'd say one common theme out there on the nonaccrual side. I think the other names where we've seen some of the marks and we went through in the script, I mean, 4 names drove 50-odd percent of that. One of them is PRG, which has been a tough name for a long time. We've got a lot of resources sort of attached to that, but that's very much idiosyncratic to that name. The rest of it, I would just probably put in the camp of we'll call it operational sort of underperformance. There's a little bit of [indiscernible] or government sort of contract risk embedded in there, but I think that still plays through the system with someone like a Peraton or sort of a Cubic. So there are -- on one hand, some themes with the medical roll-ups on some hand, some themes with kind of the [indiscernible] sort of government sort of points and then some of it just boils down to operational performance. Ethan Kaye: Got it. And then I guess the 3 kind of other non-legacy names you mentioned as well as at least I think one of the new nonaccrual names seem to be either software-centric or software adjacent, if I'm not mistaken. I'm just curious if there's any kind of -- we're obviously hearing a lot about the emergence of AI and the risk that poses to software companies. Wondering if any kind of pressure from that dynamic? Daniel Pietrzak: Yes. No, it's a very fair question considering what's going on news-wise. I mean the overall portfolio from software for us is about 16%. I think we have been evaluating what I would call AI risk in that portfolio for some time, not just on the back of the recent news flow. We do have the benefit of working with our private equity colleagues and have come up with this sort of what I'll call framework looking at 20 different data points to assess what might be high risk or not. I think from an investing perspective, we have focused on what I would call mission-critical products, those that are sort of hard to rip out or have focused on those businesses that, in our opinion, truly have proprietary data. I think we have not been active in the ARR space, right? We do have one ARR loan left, which is Medallia, which we sort of talked about. I think when you put all that together, when we look at our portfolio, we got sort of roughly 2% of the names that we think have a high AI risk attached to them. Of the names you kind of referred to, you look at the ones that were talked about as it relates to driving the mark. I don't think that they actually had anything to do with AI as it relates to underperformance. It's really more in that operational camp. The one that did would be Lionbridge, right? That business is a language translation business and sort of a gaming business. The language business has, in our opinion, had some headwinds from that. We think the gaming business is quite attractive. I think for a long time, and I think we still might believe we could be covered from that gaming business. But really not AI-driven is the summary point. Operator: Your next question comes from the line of Arren Cyganovich with Truist Securities. Arren Cyganovich: The 2026 goal of kind of dealing with the problem credits, maximizing value can often take a while to unfold. How are you kind of approaching this to try to both quickly address these, but also maximize the value that you're going to get from potential restructuring? Daniel Pietrzak: Yes. And the line is not great, but I think the question was around sort of maximizing value. So if I don't answer it fully, please add to it. I think we did talk about our '26 goals, right? I mean, clearly, addressing these underperforming assets has to be top of that list. I think the other parts of it relate to getting more diversification in the portfolio. That's been a big focus and needs to continue to be. And then obviously, thinking about liquidity. We've got a deep and solid investment [indiscernible], specifically those who function on the workout side. We've got 25-odd people focused on portfolio monitoring. I do think, Arren, it's a little bit of a case-by-case basis. I think there are some things that I would expect to be multiyear events, and some of the PRG has been multiyear already. I think there are some where we think there could be a either faster sale process either because it would be accretive or sort of a risk management point. In several of these businesses, we have replaced management teams, brought in new senior leadership, used our senior adviser network. So it will be case by case. I would caution to say that it's not an overnight thing, right? We do believe it will take some time. That's why we're talking about things over kind of a longer period, which I would call sort of '26 and '27. Arren Cyganovich: Got it. And maybe you could just provide a little more details on the JV equity changes there and what drove that? And how much of a drag will that be from the dividend income associated with that? Daniel Pietrzak: Yes. Fair question. We've been happy with the joint venture. I think that's the starting point, right? We've talked about a lot on prior calls about getting that towards its target number of roughly 10% to 15%. It's been at the upper end of that range. We do want to see it continue to grow over time, which that was really the driver here. South Carolina has been a great partner for us. Then putting additional capital in, I think you can just equate to FSK kind of selling a portfolio or an asset sort of that kind of the mark and then you can use those proceeds to reinvest into other places. So there's some offset to that to your question around any sort of dividend reduction. But the point and the purpose of it was to allow the entity to grow. My guess is, over time, you will see our percentage potentially sort of tick back up as we continue to put additional sort of capital in there. That's not necessarily automatically will happen, but it's something that sort of could happen. But it's about trying to continue to grow. I think it will have a certain amount of an impact out of the gate. I think we're mindful about that, but I think we were pretty happy to continue this good partnership with South Carolina. Operator: Your next question comes from the line of Casey Alexander with Compass Point Research & Trading. Casey Alexander: I have one question and one follow-up. My first question is, look, I hate to bring up what might seem like a tired old refrain. But at the moment, the stock is trading at 55% of book, and that kind of screams not to invest in new loans, but to take repayments and start buying the stock. Could you guys give us some feeling for your temper in regards to beginning to initiate meaningful stock repurchases? And I know -- look, I know the employees have bought the stock. I know the advisers bought the stock. But at this point in time, your only road to increasing NAV at this point in time is accretive share repurchases at such a dramatic discount to book value. Daniel Pietrzak: Yes. Casey, thanks for the question. I think we understand the point there. I think as the entity, these numbers might not be perfect, but I think we have historically bought back $350 million of stock. That's probably more than sort of most out there. It is something that we do have to consider. I think the only thing on the other side of that, that I just need to be mindful about is the market noise and/or volatility. And I do believe some of that is overdone out there broadly, but that's kind of top of mind and then where we're at vis-a-vis sort of leverage and target leverage. But it is, yes, something that we will be talking about. Casey Alexander: Yes. And the fact that maybe some of the movement in the stock is related to broader market noise would argue even more, I would think, to buying it here because some of that will then be relieved by the absence of the market noise, and this would be the most accretive level. My second question is there have been multiple reports of pretty material dislocation in the fix and flip market. And FSK has a significant investment in Toorak. And so I was wondering if you could remind us what the structure of the Toorak investment is and how it's performing? Daniel Pietrzak: Yes. Yes. So if you go back, I mean, that investment was initially made in 2016. It, in a lot of ways, started out in probably thinking about it almost as a trade, right, meaning that there was no institutional footprint out there. We wanted to capitalize on that. When we did the deal back in '16, I probably would have been happy with -- if we did kind of $1 billion to $2 billion of loans. I think when we do look at it today, right, we've done $12.5 billion of loans. I think the cumulative losses for the entity over the 10 years have been kind of roughly $100 million, so that's held up pretty well. I think we have seen -- and I don't think your point is wrong, Casey. I'll come back to the other side of that. I think we have seen some positive of point, their direct origination business did almost $800 million or $820 million last year. They do have a business in the U.K. that's been quite effective and quite strong. I think we have seen higher delinquencies in the U.S., roughly 10%, although that's been sort of stabilizing. I think we have seen ROEs challenged, right? Some of that relates to the delinquency numbers. Some of that relates to the rate environment where the interest rate on the loans did not move anywhere near the financing cost did, right? That has had an impact on us, right? Our dividends out of Toorak which have historically been roughly 10% per year have been lower. We've seen some impact to the mark there. But arguably, over the 10-year period has been a positive story. It is treated like a portfolio company, meaning it is an active originator on a direct basis as well as a buyer of loans in the U.S. and the U.K. And so we can either be the benefactor of those cash flows or it's a partnership with the management team, you could look for a monetization event down the road. But I think you're not wrong about the noise. I think there's been a little bit of let's call it, LTV type risk against some of the loans that have originated, especially from some of the smaller guys. Fortunately, Toorak hasn't had really any or -- de minimis exposure to things like that. But I think the ROE has been the bigger one. Operator: Your next question comes to the line of Rick Shane with JPMorgan. Richard Shane: Look, Casey really covered, I think, as far as I'm concerned, the most important structural issue in terms of repurchasing shares. Look, you guys had over $5 billion come in last year, $5 billion the year before that. Presumably, the run rate in terms of repayments will be similar this year, which should provide a fair amount of liquidity for repurchases. I haven't -- listening to all the BDC calls, I haven't heard anybody make a super compelling case for, wow, there's this incredible dislocation, this opportunity to deploy capital into new loans that's so attractive. What is out there that's actually more accretive to both earnings and again, to NAV than repurchasing shares at this point? Daniel Pietrzak: Yes. And thanks for the question, Rick. I think the investing environment has been -- maybe the right word is interesting over the last handful of years, right? There's been a lot of different forms of market events to the market. I think on the direct lending side, to be fair, has felt decently tight in terms of -- you have seen spread compression. I think a lot of that has had to do with the fact of inflows were high. I do think the inflows from the wealth channel was a driver of that, and that was really coupled with, let's call it, lower-than-normal M&A volume. So you can talk about a little bit of a market technical out there. I think the offset to that is, I think the quality of the companies that have been accessing the market has been strong. I think the size of the companies that have been accessing the market has been good. I think we prefer to lend to those larger companies. I think the thing we have tried to focus on is getting diversification in the book, right? So that was growing the joint venture was one form of that. We got up to the target number. We have seen some compelling opportunities in the asset-based finance. We talked about some of those on prior deals -- I'm sorry, prior calls, either the Harley-Davidson or the PayPal. But I understand the point. I think we need to take all that into consideration as we move forward. I would say one thing. I probably am expecting a more lender-friendly environment as we go through the course of '26. I think that will very much skew based upon how open the capital markets is, which it is pretty open right now. But I think you'll see the flows maybe sort of temper a bit, and then you'll have to see what happens in the capital markets as the sort of probably primary driver of that. But our eyes are focused on. Richard Shane: I appreciate the answer. Look, there's the old curse may you live in interesting times. I'm not sure about you guys, but I'm tired of interesting times. Operator: Your next question comes from the line of Robert Dodd with Raymond James. Robert Dodd: Excuse me. Sorry, I'm coupling from Rick's line because I agree with him on that one. Just a couple of questions on credit, not surprising. On the main markdowns this quarter, I mean, PRG, Medallia, Peraton, I mean, Cubic is already on nonaccrual. Those are the 3, I mean, PRG just came off, nonaccrual, it is markdown. I mean, looking at the scale of the marks, I got a question. Are there -- is there a high probability that those businesses end up on nonaccrual as well or large segments of them? Do they have to go through aggressive restructurings where even if they don't go on nonaccrual, you equitize a bunch of the debt. And those -- is there an incremental risk in addition, obviously, to the 5 new ones this quarter, those 3, PRG, which has been a multiyear process already, but the first restructuring didn't stick. Is there a material risk that there's more earnings loss to come from those assets? Daniel Pietrzak: Yes. And Rob, thanks. I think on each of those names, there's what I would call some level of active dialogue or sort of active sort of monitoring. I mean Peraton is probably as much of a -- over time, it's evolved to as much of a Level 2 asset as sort of Level 3. So I think there's some of that component in there. So I think as we -- as you go down the list of those, right, I think we're trying to make significant changes on the PRG side. There is a large chunk of more sort of equity-like risk that's in the non-income-producing bucket. I think the lenders have been doing a lot of work on the Cubic side, but there still is, quite frankly, some headwinds from the government. I think Peraton had some good news, right, during Q4 as it related to sort of a big contract win. And I think we're going to spend time with the other lenders, and I'm sure in discussions with the sponsor on Medallia. There's a lot of capital below us in Medallia, but performance has been more difficult, really operational, though non-AI. So they're all live situations. Robert Dodd: Got it. Got it. And then on to the -- you mentioned this in response to another question. I mean the health care and the roll-up issue. I mean a few years ago, physician office rollups. I'm not talking about your portfolio at this point. And then it became dental. I mean you've got DCA, but a lot of other people in DCA and 2 other dental businesses went back on nonaccrual this quarter elsewhere. And you had -- I mean, obviously, that's been an evolving theme. The roll-up issue within the health care space has become -- it doesn't seem to be getting fixed, right, broadly across the space. Is there -- this continues to spiral? I mean there's still plenty of dental businesses that aren't currently feeling those pressures across -- in your portfolio and elsewhere. And the same thing like with vets and what's the next shooter to drop on the roll-up strategy kind of breaking down as it exists in your portfolio as a [indiscernible] obviously? Daniel Pietrzak: Yes. I mean I think that is a fair question. And I think you're correct. It was for some period of time, probably one of the darlings of both PE and direct lending. We -- it is an emerging theme in our mind or it has been for the last handful of quarters. I think we saw it initially on things that were, let's call it, consumer discretionary sort of focused, right? So they were sort of struggling. We have seen, as I talked about before, kind of the wage inflation remains sort of a challenge there. We have seen, we'll call it a very different performance even within the dental space on certain names. And some of that goes to, we'll call it, structure of business or how the employees are getting compensated, whether they own part of their individual practice or whether everybody owns something sort of on top. So it is a little case specific. I think for us, we're 5.7% of the portfolio is in these medical sort of roll-ups, 3.3% of that is dental. DCA went on nonaccrual. It got sort of marked down this quarter. I think we feel pretty good about that business, that team. I think we were in, what I'll call it, live discussions with the junior debt holders and sponsors there. It feels like it's going to be a 1L-led solution. But that business is actually doing, we'll call it, broadly okay or at least in line with plan, but I think being a '21 investment at a different rate environment, just over-levered. We have seen some other names out there that have inside of this quarter, struggled a bit more in the dental space, right? We have one of those in affordable care. But it is a bit of a hotspot right now and one that we're focused on. Operator: Your next question comes from the line of Dillon Heins with B. Riley Securities. Dillon Heins: I know we talked about this quite a little bit here, but I guess what was the inflection point coming from last quarter's expectations of decreasing nonaccruals? There was the pro forma guide of 3.6% on cost and 1.9% of fair value after PRG restructuring. But I guess like what -- yes, what was the breaking point coming from that to where we are now? Daniel Pietrzak: Yes. And again, another fair question. I do think -- just to be fair, I think the 3.6% was just kind of giving a pro forma knowing that PRG had sort of fallen off. It wasn't trying to sort of necessarily guide, but if that was the impression, we'll work better on communication there. I think that if you look at the nonaccruals, really the 3 of the names are quite small from a market value perspective. The real drivers are really DCA and Lionbridge. I just talked about DCA on the prior call. That was a live conversation with those who are subordinate to us, and it's going a different way than I think we would have assumed or thought it was going. And then on Lionbridge, we were in an active sales process. We do think parts of that business are still interesting. And that was the one space in the portfolio where there was some direct, in my mind, kind of AI impact, not just performance, but the kind of overall mood around the business, which I think made that sort of sales process hard. So I think the events relating to what we were at DCA and Lionbridge were the drivers. Operator: Your next question comes from the line of Finian O'Shea with Wells Fargo Securities. Finian O'Shea: I'll be less abstract this time. I wanted to get an update on the -- I know you talked about the dividend a little bit, but part of the sort of lead up to the finality here was the spillover item. Can you give us an update there? Did you like reach your target range? And/or should we anticipate specials like on top of the supplemental program? Daniel Pietrzak: Yes. And I'll let Steven kind of go through that. I think just for everybody's benefit on the call, just as a reminder, right, we did change the dividend effect of the dividend policy in the last call to be more sort of base and supplemental, the 45 base and supplemental sort of thereafter. But Steven, do you want to add? Steven Lilly: Yes. Then we ended the year, I think the number in the 10-K is the estimate $464 million or so of spillover. And as you will certainly note, based on the current dividend, that's sort of 3.5 quarters or so. What I would say in that is as we have -- what we've seen kind of during late '24 and through 2025 as the ABF portfolio has continued to ramp and international structured investments and partnerships and things, we're making estimates at this point in the year of what tax could be. And then in certain investments, whether or not cash is received, there's -- if they're quarter paper profits, and we are allocating our portion of tax, which would go into spillover. So there can be some timing differences on that. And so we will know much more in the kind of August, September time frame. But I think we stand by what we've said before, which is if we need to make a payment later in the year, we will certainly do that. But I think it's too early to tell if some of these reversals could happen or where the final partnership tax returns will come in over the summer months. So it's a little bit of wait and see. But certainly, when there's news, we will announce it. Finian O'Shea: Yes. No, I appreciate it. So it's not like last year where it's overpaying like the 45% is your true like NOI target? Steven Lilly: Yes. I think what we've said in terms of the dividend is as GAAP net investment income moves quarter-to-quarter, then the dividend will move as well. And then if we need to make an additional payment later in the year to satisfy something from a spillover related basis, we will do that, which is, as I think you're pointing out, different than the concept last year of effectively guaranteeing the market that we're going to pay $0.70 for all 4 quarters of 2025 because for other reasons, more over-earning reasons in the higher interest rate period, the spillover balance had grown. Operator: This concludes the question-and-answer session. And I would now like to turn it back to Dan Pietrzak for closing remarks. Daniel Pietrzak: Thank you, everyone, for your time on the call today. We very much appreciate it. We are available for any follow-up questions as needed. And if not, we look forward to speaking with you on our Q1 call. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Alexander Saverys: Good afternoon, and welcome to the CMB.TECH Earnings Conference Call for the Fourth Quarter of 2025. My name is Alexander Saverys, and I'm joined here by my colleagues, Joris, Enya and Ludovic. We will touch upon our classic topics. We'll start with our financial highlights. We will then give you a market update and finish with a conclusion and a Q&A. And for the financial highlights, I'd like to hand it over to Ludovic. Ludovic Saverys: Thanks, Alex, and good afternoon, everybody. As usual, we start with a snapshot of our company, where here, we've shown you the key metrics of the fleet, roughly 40 ships with about a $10.7 billion fair market value. This is excluding the vessels we have sold already. Our market cap sits today at $4.2 billion after a nice run-up on the share. We have $1.5 billion CapEx remaining as from end of January and operate a modern fleet of 5.9 years. Dry bulk today is predominantly 60% of our total fair market value with the other divisions showing the rest of the value of the fleet. Zooming in on the highlights of the Q4, we had a net profit of $90 million bringing the full year profit to $140 million. And the EBITDA of this quarter was $322 million to end the year on a $943 million EBITDA. Our liquidity sits at a pretty strong $560 million and our covenants for the bonds on the equity on total assets sits at 31% and for the rest of our loan agreements at 44%. We've had a pretty remarkable Q4 where we were able to delever the company, at the same time, pay dividends again, which we'll discuss later and strengthen the balance sheet with a couple of actions that we've performed in the company. Running through it, the result, I mentioned $90 million. We had some nonrecurring one-off and sometimes even noncash impact on the results, which are mostly related to the finalization of the integration of the merger with Golden Ocean. There's IT costs, but there was also, I would say, refinancing costs that we had to take as a one-off on arrangement fees, success fees in Q4. On top of that, we had roughly $15 million, 1-5 of nonrecurring costs on the SG&A, which is tax reversals and other, again, integration fees from the Golden Ocean merger. The liquidity stands at $560 million, which is quite strong with the good markets, with the sale of assets, and we'll discuss later, gives us a lot of capabilities to further strengthen the balance sheet in 2026. The acquisition, if you recall, the first 50%, 49% of Golden Ocean, we bought through a bridge facility. Happy to inform that it was fully paid back end of January. There was also some costs related to that of acceleration of arrangement fees. But this will give an interest saving of roughly $42 million for 2026. So quite happy to say that we were able to do this, but that also we were able to repay it out of own cash, but also some releveraging on other dry bulk ships. The contract backlog sits at $3.05 billion. Alex will go in further detail, but we added in Q4 roughly $304 million, primarily on Capesizes and on one CSOV. Happy to tell that there an interim dividend declared of $0.16. This is roughly $45 million of dividend being paid later in April. We feel that the balance sheet has strengthened good enough to increase from the $0.05 we previously paid in the quarters to a somewhat higher dividend. This dividend is not yet the dividend that we announced in the press release on the sale of the 6 VLCCs of 50%. So this -- the capital gain on those ships will be taken in Q1 and Q2, and the Board will decide on the dividends at that moment. We've had a very active delivery schedule in Q4, 6 newbuildings, but Alex will talk about it later. But more importantly, for our balance sheet, we were able to, in Q4, Q1 and Q2 already secured more than $420 million in capital gains. That's profit that is locked in. $50 million was booked in Q4. But in Q2 and in Q1, we have already a guaranteed $370 million profit, which gives us a lot of opportunities for the rest of the year. We have a large spot exposure still on tankers, but predominantly on dry bulk. If you look at 2026, we have roughly 53,000 shipping days from which 44,000 are spots. And if we zoom in into dry bulk, where we have a pretty strong feeling that there will be a good market in 2026. We have 36,000 days from which 27,000 on Capesizes and Newcastlemaxes. This means $10,000 up on our breakevens brings in $270 million in cash flow. When we look on the right side, we always like to position on the segments we are active in compared to the order book to fleet ratio. The bottom segments are compared to some of the other shipping segments on the relatively low side on the order book. When we look at Capesize and Panamax, I think we're very well positioned to look for better markets in 2026. Looking at the CapEx program. It's a recurring slide we like to show. As of end of January, we have roughly $1.5 billion remaining CapEx from which $216 million will come from our own cash. You can see in this slide, which is quite interesting is that the next 12 months will be a heavy delivery schedule, roughly $1.2 billion will be paid to the yards. All the financing has been secured. And if we look at the cash from the sale of the VLCCs and Capesize we've already done, the whole CapEx has been taken care of. This also shows that within 12 months, every sale, every cash flow generation we'll have will give us an opportunity again to look at dividends, delever further in an even more accelerated way. The free cash flow, we've given an estimation based on hypothetical rates that you see on the bottom right. I think we're still pretty conservative if you look at today's markets. But should we have the estimated rates even with 20% where we're already in today, this would create a $700 million free cash flow on top of the normal debt repayments. This gives us ample capability to pay back the Nordic bonds, which we anticipate just to pay out of own cash, continue to fund the CapEx and delever the company in an accelerated way. This was the financial highlights. I'll move on to the market update and give the floor to Alex. Alexander Saverys: Thank you, Ludovic. I want to update you on the various markets where CMB.TECH is active. You see our overview sheet where we put all our markets and zoom in on the demand side, supply side and where we see the balance. This slide has fundamentally not really changed compared to 3 months ago. We are still positive on dry bulk tankers and offshore. We are cautious on the container side and on the chemical side. If you look at dry bulk specifically, you see that we see very nice ton-mile growth for iron ore and bauxite in 2026, which is a positive. On the supply side, the order book to fleet has grown a bit. There's been some more orders for Capesizes and Newcastlemaxes for delivery in 2028 and 2029, but we still believe it's a manageable 12.4%. The fleet growth this year in Capes specifically will only be 2.3%, and we see the trade growing by more than that. So all in all, the balance is positive. On our dry bulk side in Bocimar, we have 87 spot vessels. There's another 9 vessels that will be delivered to us that will also be traded spot unless we have fixed the charter. And with the addition of the recent charters that we concluded, we have now 16 ships on charter, and that's another 3 newbuildings on charter as well coming later this year, beginning 2027. On the tanker side, the figure in pure supply/demand is a little bit more muted. There is more fleet growth than demand growth at least on paper, but there's a big element of sentiment, and I'll zoom into that when we speak about Euronav that has propelled the market to very, very high levels. All in all, sentiment is good. Earnings are good. The tanker market is still very positive. Our tanker fleet with the sales of the 8 vessels recently has reduced a bit. We still have 12 vessels on the spot, another 3 newbuildings coming. And then we have 10 vessels on time charter with another 2 newbuildings that will also be on charter, but I'll talk about that when we talk about Euronav. Containers and chemicals, I'll handle a bit later. And then just on the offshore energy, which is both on the offshore wind and the offshore oil and gas. Specifically on the wind, we are seeing a slight acceleration again of the installation of capacity, which should support our CTV and CSOV markets. And on the supply side, we have seen basically a slowing down of ordering new vessels. The order book to fleet for CTV stands at 13%, which we think is very manageable. Order book to fleet for the CSOVs is much higher. But again, there is also a lot more demand for that type of vessels, specifically from the offshore oil and gas markets. I want to run you through a couple of slides for Bocimar and dry bulk, starting with the overview of what Bocimar has done in Q4 and Q1. We have 36 Newcastlemaxes on the water. We have another 10 newbuilding Newcastlemaxes that will all be delivered by the first quarter of 2027. In Q4, we achieved actuals of close to $35,000. Q1 quarter-to-date, we are at slightly more than $30,000 a day. We have 37 Capes on the water. There, the results in Q4 were $30,000 and Q1 to date, we are at $26,000. These are strong rates Definitely, for the first quarter of the year, we are seeing rates that have not been as strong over the last 15 years. So we are seeing a very strong Q1. We have sold the Golden Magnum and the Belgravia and we'll record a capital gain of $8 million in the first quarter. Our 30 Kamsarmaxes and Panamaxes are all on the water. We achieved rates of $17,300 in Q4 and $13,200 so far in this quarter. You can see the breakeven levels and what we have achieved on the right side. Just a couple of important indicators on the right side. We see that there's a lot of green indicators, a lot of support for dry bulk demand. Just the inventories on iron ore in China are up. The coal imports in China are down. These are slightly more negative indicators. But all in all, we see more positive signs than negatives for dry bulk. Here on this slide, we look at the order book to fleet ratio for Capesizes and why we believe that vessel values could well be supported for the next 2 or 3 years. We basically have put on the right side of the slide, the recent number of vessels that have been delivered, including the newbuilding prices that are being quoted by brokers and compare that to the last time we were in a dry bulk boom. Here, basically, we want to say that as long as the order book is around the levels that we see, this market still will be supported on asset values. We don't see an oversupply coming. The fleet profile for Capes and for Panamaxes, again, it's a recurring theme. There's very little scrapping going on. We see that vessels are aging, aging rapidly. We are now at close to 150 Capes that are over 20 years of age, close to 600 Capes over 15 years of age, and the numbers on Panamaxes are even more important. So if the market one day would correct and scrapping would start, this would definitely be something that can balance the market. When we look at Q4 and Q1, the 2 big themes for us, definitely for our Capes and NUCs have been iron ore and bauxite. You can see on these graphs, the rainfall and then the volume of iron ore and bauxite that's being loaded in the Atlantic, in West Africa and in the Pacific. What we have seen specifically with West Africa on the bauxite side, but now also the iron ore will start playing a very important role is that it is a bit counter seasonal compared to the weaker seasons that we have used to be seeing in the Pacific for Australia predominantly and the Atlantic for Brazil. So it is helping our market. It is balancing the market. There are more opportunities for large bulkers to load cargo even in the first quarter of the year. And as you can see, the rates have reacted very positively to these volumes. Capesize market fundamentals this year are positive. I mentioned it when we spoke about the overview. We see a ton-mile increase in demand of 2.7% and a fleet growth of 2.3%. So we expect the utilization to creep up. We are already around the 90% utilization mark. This could go to 91%, 92% in the coming months. The big market moves in dry bulk and then specifically for iron ore is -- well, you can see them on this slide, all the volumes coming out of West Africa, Brazil, Australia. We see that iron ore, according to the forecast will continue to grow. So seaborne iron ore will continue to grow. It will come from areas that are far away from the main customer for these goods, which is China, which is good for ton-mile demand. And you can see that the same story can go for bauxite. We have been very surprised by volumes of bauxite in January. So the number of 184 million tons could well go higher if this trend continues this year. So very supportive of these 2 commodities, both in volume and in ton-mile for 2026. I will say a few words about Euronav and the crude oil tanker market. Starting with our fleet of VLCCs. So the fleet has been reduced. We have sold 8 of our older vessels as we have announced last month. We are left with 3 VLCCs on the water. That's one 2016 built ship and 2 newbuildings. And then we have another 3 eco VLCCs coming in the next couple of months. So our fleet of VLCCs is 6 ships in total. You can see what we have achieved in terms of rates, around $75,000, both in Q4 and in Q1 quarter-to-date. The Suezmaxes, we have 17 Suezmaxes on the water. We have another 2 vessels delivering very soon. These 2 vessels, these 2 newbuildings have been fixed on long-term time charters. But for the spot fleet, we achieved rates around the $60,000 to $65,000 mark, both in Q4 and in Q1. The markets there are very, very supportive, watch the space because the numbers that we have been seeing over the last couple of weeks are way higher than the numbers that we are reporting here. If you look at the key indicators, a lot of green indicators, the market is supported. We are seeing the tanker fleet growing a bit. But all in all, both in sentiment and in fundamentals, we see that the tanker market right now is very supportive, and that's probably the understatement. It is more than supported is actually very high. The sustainability of the expanding crude tanker order book will depend a lot on the durability and the potential uptick in scrapping. The order book has risen. We are seeing more orders for VLCCs and Suezmaxes. These orders will not come through this year or next year. But as from 2028, this is something to watch because the market balance will depend a lot on how many vessels we can scrap to make sure that the amount of newbuildings that are coming to the market will not distort the market to the downside. Demand durability of crude tankers, all the different agencies have different numbers. It's not always easy to follow. It looks like we are producing more oil in the world today than we are actually using. And so the only big explanation for that can be that someone and particularly the Chinese are probably stockpiling oil in great numbers. That as long as this continues, it is, of course, very supportive for the oil tanker markets. Depending on what will happen in the next 6 months, both with the oil price and on geopolitics, of course, all these scenarios can be rewritten. But for the time being, what we're seeing is an oversupplied oil market, whereby the oversupply is absorbed in stockpiling. Sanctions remain a very important theme, the Russia-Ukraine conflict, what's happening or what will happen in Iran and of course, Venezuela. We just wanted to highlight one interesting graph on the right side, whereas we see that the Indian crude imports from Russia have gone down after the sanctions that the U.S. imposed in December. We see actually that probably China has picked up some of that slack, as you can see on the graphs to the right. A few words about Delphis and our container vessels. As you know, our 4 container vessels on the water have been fixed on long-term charters for 10 years. We have one more newbuilding delivering this year, which will be under a 15-year time charter contract. So we are not really exposed to the spot market. If you look at the spot freight market, it's a downhill slope. We see that the SCFI is actually trending downwards. So spot freight rates are down. Interestingly, the charter market is still quite supported. So not a lot of charter vessels available. Some big liners still fighting for market share and chartering vessels. We expect this actually to go down going forward because there is still a very significant order book to be delivered both this year in '27 and in '28. Bochem and our chemical tankers, we have 8 ships on the water. You can see the performance in Q4 on the right side. So there's a mix of time charters mostly, but we also have 2 vessels operating in a spot pool. Bochem still has an order book of 8 vessels. We have 2 product tankers coming this year. We then have another 6 chemical tankers in '28 and '29. All these vessels have been fixed on long-term time charters. So our spot exposure is relatively limited. And what we see on the spot market is a slightly declining market, nothing dramatic, but definitely, the rates are not what they were in 2024. So still seeing okay rates, but definitely, things are going down a little bit. And then I want to end with a very good performing business unit recently. That's Windcat. We have taken delivery of 2 of our CSOVs last year. One CSOV has been trading for the last 4 to 6 months on the spot market, but earning very good rates, as you can see on the right side, the equivalent in Q4 of $108,000 a day. The other one has been fixed on a 3-year agreement for work in the North Sea. We still have another 4 CSOVs coming and one larger CSOV is CSOV XL this year and next, but the market is very supportive. And it's supported because the oil and gas market requires good modern offshore supply vessels. And these good modern offshore supply vessels, in some instances, were earmarked for the wind business but actually can now earn better rates in oil and gas, and that is where they are going. On the wind market, we're actually seeing some positive evolutions as well. Last year was a bit slow in terms of delivery of new projects. But in North Sea and Europe, we are seeing new projects coming on stream this year and next, which will necessitate demand for CSOVs and CTVs. CTVs, we have a large fleet of close to 60 vessels on the water. You can see the rates that we achieved. We definitely are satisfied with the rates that we achieved and are looking forward for probably a better 2026 than 2025. So this ends our market update. I'd now like to hand it over to Enya for the Q&A. Enya Derkinderen: [Operator Instructions] So we will now start taking the first question. Frode Morkedal, you can now unmute and ask your question, please. Frode Morkedal: Yes. Can you hear me? Alexander Saverys: Yes. Perfect. Frode Morkedal: Okay. Perfect. On this Golden Ocean bridge repayment, is it fair to assume that the strong tanker market helped you with this? And specifically, obviously, the sale of the 8 VLCCs must have been instrumental in being able to repay this way ahead of schedule, right? So that's -- and also you could just remind us the numbers we're talking about, how large was the bridge facility? And what's the net proceeds of these 8 plus 2 Capes, I guess, you sold? Ludovic Saverys: Yes. If it's okay, Alex, I'll take that one. So just to remind, we had a $1.4 billion acquisition facility given by the banks. We only drew upon $1.3 billion. So that was the actual exposure we had fully drawn to buying the first 40% and then another 9% of the market. Of that $1.3 billion, quite quickly after the merger in August, we re-levered the ships of Golden Ocean with a $2 billion facility. And we used $750 million of cash of the releveraging to pay down to $550 million. And that $550 million was what we carried since, I would say, September until 2 weeks ago, $550 million, which half of it has been paid with operational cash flow and cash from sale of vessels with a little bit of the Q3 vessels we sold delivered in Q4, but also some of the tankers, as you mentioned. And then there is roughly half of it, $270 million, which we shifted from the "expensive $2 billion facility with Golden Ocean with some Chinese leasing that we did execute last December." And that was -- so roughly $260 million that we did. So own cash, only about $260 million, $270 million on that. And I think the sale of the tankers, especially the 6 plus 2 Capes and then the remaining 2 has even further strengthened, I think, the belief on the Board to pay more dividends, delever more and then also get a comfort on the Nordic bonds for the remaining of the year that the cash out of the 8 tankers was roughly $420 million cash. So that obviously gives good opportunities to do all of the above that we mentioned. Frode Morkedal: Right. So is it still that the target is to bring down the LTV -- net LTV to around 50%? And at that point, you could... Ludovic Saverys: At that point, Frode, I think the target -- the long-term target is at 50% LTV. The LTV today end of December was roughly 55%. Now with the increase in tanker rates -- in tanker value, sorry, as everybody has seen in the market, we're probably already at those levels. But that is the target. I think it's more important to say what are the opportunities with every dollar that comes in from sale of operational cash. And then we stick to the point that it can be dividends, it can be further deleveraging. It can be accelerating the payments on some of the revolvers that we have to reduce the interest costs. Because one thing, when you do M&A, there is a cost of it, especially when you leverage buyouts. And we have seen that in 2025, the SG&A was higher because of lawyer, success fees, refinancing. And hopefully, going forward, our interest costs in '25 should go much lower, that is because there's no more bridge because we are changing expensive or more expensive bank debt sometimes with Chinese leasing and other cheaper, I would say, instruments. Frode Morkedal: Right. So is it fair to assume that you would probably wait for the bond maturity or some type of refinancing before you step up the dividend payments, even if you are probably approaching 50% earlier than this, right? Ludovic Saverys: I think the decision of the Board of the $0.16 that we paid today is testimony that I think we can do both paying dividends, both delevering and both continuing to delivering all the newbuilds. Frode Morkedal: Great. Final question is on NAV. What do you see about investment opportunities, specifically newbuilds, I guess. For example, in tankers, I mean, I'm hearing it's starting to get tempting to start ordering VLCCs, right, because you can order at $120-something million and the prompt resale is $40 million to $50 million higher. So that type of, let's say, [ arm ] is opening up and maybe that is interesting. What's your view? Alexander Saverys: Our view is that the ship you ordered today at $120 million, delivers in 2029. So today, it might look cheap. In 2029, it might look very expensive. Right now, Frode, we are not actively pursuing tanker newbuilding plans. We are, of course, opportunistic. We will look at any possibility that comes across. But right now, right now, we'd rather enjoy the spot market and not order any tankers. Enya Derkinderen: The next one is Petter Haugen. You may now unmute and ask your question, please. Petter Haugen: In terms of -- well, I suppose then turning through this question upside down. You still have tankers, although now it's predominantly Suezmax tankers, obviously. Would you consider to sell some of those in order to, well, do the combination of further paying down debt and dividends? Alexander Saverys: Yes, Petter. Look, the first thing we wanted to do over the last 1.5 years is to sell our older vessels. I think we've done a good job at that so far. So obviously, we still maybe have 1 or 2 older vessels that could be up for sale. The second thing is if we see an exceptionally high price for any asset, we will always look at it. Look, trading ships, buying and selling ships is part of our business. And where we like to keep our younger vessels, we will never say no to a very high price. Do we need it to deliver? No. That I would say, I think the heavy lifting on delevering has been done. I think operational cash flows can bring us to a very comfortable leverage over the next 9 months. But we will always be ship traders. If someone comes with a very high price on any assets, we will look at it. Petter Haugen: Understood. And in terms of your dry bulk fleet, sort of the same question there. I suppose we've seen how the market has appreciated your -- yes, your sales and the communicated increase in dividends. So on the Capesize fleet, there are, I suppose, more opportunities still to sell older ships. But is that done now? Or is that still on the table? I know that you say that you sell at the right price. That's true to all of us, I would say. But in light of the very strong tanker market and increasingly strong dry bulk markets. I would -- well, in interpretation of your earlier statements, I would think that you were contemplating to sell more rather than the opposite. Alexander Saverys: No, I think that is not really correct. I think on the dry bulk side, we believe we are not yet where the tanker market is right now. We think this market has a lot more in it, and we would like to let it run. So stay spot exposed unless we find some good charter parties. And as you've seen, we fixed 5 of our Capes for 5 years at what we believe are very good rates or unless, again, an exceptional price comes along. But I don't think we're there yet. So we're very happy with the dry bulk fleet we have now. We have sold some of our older vessels. And now we really want to just enjoy the market for the next couple of quarters. Enya Derkinderen: Now, Kristof Samoy, you can now unmute and ask your question, please. Kristof Samoy: I have 2. One on long-term charters. You've concluded these 5-year charters for your Capesizes. Could you disclose the counterparty? And then secondly, we've also seen in the market that Vale has been ordering quite some newbuild VLOCs. Would your Newcastlemaxes have been competitive for the trade? Or were they particularly looking for 400,000 deadweight ton plus vessels for the transportation? That's the first bulk of my question. And then secondly, on the U.S. Maritime Action Plan proposal. I recall when we discussed USTR and the impact or the potential impact of USTR in previous calls that you indicated that the impact would be fairly limited because you have little port calls in the U.S. Does this logic still apply to the now proposed U.S. Maritime Action Plan? Or are there like substantial differences there that you see for CMB? Alexander Saverys: Okay. Thanks, Kristof. So first, the counterpart of the charters, that's confidential. So we are not disclosing that, but it's a very good counterpart. On Vale and their large ore Valemaxes, typically, what they like is to do very, very long-term deal at very, very low returns. That's not something we like. Could our Newcastlemaxes have completed, of course, but then we would have accepted a very, very low return. That's usually these large projects, and we leave that to some of the specialists in Asia. And our relationship with Vale on the spot market is still there. We do business with them with our Newcastlemaxes. On what is happening in the U.S., Kristof, you will agree with me that the only thing we know is that we don't know. Things are changing by the day. When you say that we don't have a lot of port calls in the U.S., that's actually not true on the tanker side. Don't forget, we do quite a lot of business with our tankers in the United States. But under the USTR and all the other regulations, we would have been exempt anyway because energy was going to be exempt. The new package that is there, it's too early to assess what the impact would be on our business. Enya Derkinderen: Climent Molins, you can now unmute and ask your question. Climent Molins: I wanted to follow up on Kristof's question on the Capesize charters. Could you disclose the rate on the contracts? Or is it confidential as well? And secondly, what's your current stance on potentially adding more coverage based on your forward outlook on the dry bulk side? Alexander Saverys: Yes. Thank you, Climent. So no, again, we can't disclose the rate. But I think if you look into broker reports, how they quote a 5-year Cape rate, and add a little bit to that because our vessels are more modern and better than what brokers are quoting, then you're probably in the ballpark. But so unfortunately, we cannot disclose the rate. Would we look at taking more coverage? Yes. Answer is yes. We have said this in this call many times. We think that, ultimately, we want to create stable cash flows in our company. We will not do it at any price. But when markets move in the kind of zones we are now, we will actively engage with our customers to see whether we can take more long-term cover. Climent Molins: Makes sense. And I also wanted to ask about the dividends on the gains on sales. I assumed a few minutes late, and you may have already touched upon this, but is it fair to assume you'll declare a dividend on that front on both Q1 and Q2 based on the reported gains? Alexander Saverys: The answer is definitely on Q1. And again, if you take back full discretionary dividend policy, I think every quarter, we look at it. We had a very good Q4 quarter. We were able to achieve a lot of the internal check the boxes to reinstate, I would say, a somewhat higher dividend than before. So the $0.16 was purely on Q4. Q1, we have already $270 million profit, which we announced our intention to pay a dividend on it. So that will be decided and confirmed, I would say, on that part in the May earnings release for Q1. And as the market continues, as we continue probably to shift from sales to really operational cash flow and take out the remaining parts of the new build program and the bonds, it frees up a lot more capacity for dividends. But again, we're not going to commit to a fixed percentage. I think it will be quarter-by-quarter that we look at, but it's fair to say that it all looks pretty good. Enya Derkinderen: We have 2 more questions in the Q&A. So the first one is, do you expect Sinokor?behavior to trigger a regulatory reaction? Alexander Saverys: I don't know. You should ask Sinokor. Enya Derkinderen: And then the second one is, what are your expectations on framework changes after the European Industry Summit? Alexander Saverys: I think the theme of that summit was more the industry based on land and not specifically on the maritime side. But I do think it's great that our politicians are aware that if we want to make sure that prosperity continues in Europe, we need to change certain things. And that can only help our vibrant maritime industry, which, as you know, is very strong here in Europe. Enya Derkinderen: We have one more question live. [ Victor ], you may now unmute and ask your question. Unknown Analyst: I had a quick question regarding your leverage. Do you intend to lower it back to pre-2025? Or do you have a figure in mind on the leverage you're looking for? Also on the equity ratio, you haven't moved a lot on this part. And just wondering how far you are within your covenants? And last question, can you give us more flavor on the recent cooperation you signed with China for your new project there? Ludovic Saverys: Yes. [ Victor ], thanks for the questions. On the leverage, we have a target of 50% loan-to-value. I think we're not far off. If you would take today's value, especially with the increase in tankers, we're there or thereabouts. I think it's about making sure that combined with the long-term cash flows that you have, but also the opportunities you see. I just recall, we did increase our leverage quite dramatically with the Golden Ocean opportunity. But I think as shareholders, we're all pretty happy that we did. That leverage has reduced. and we're now positioned with another 90 dry bulk ships in what is seemingly a strong market. So we do justify that increase in leverage tactically. The equity ratio, just to remind, we have a pretty low book value, which is, I would say, taking a long success because we buy or order quite cheaply, and we don't re-rate our assets in book values. If you look more towards the value-adjusted equity, which we showed on slide -- on the overview slide, that has, I would say, equity ratio increased quite dramatically with the adjustment on fair market value. The bond covenant of 31% in Q4, you don't have to be a mathematician to see that if you add another $370 million of profit in Q1, Q2 on fixed sales. I think that covenant is high and dry definitely until the maturity of the bonds in September. And so we mentioned that we will probably not issue a new bond to just pay back at maturity. So we're good in all covenants, by the way, and you'll see that in the audited financials end of March. Alexander Saverys: And then Victor, to answer your question on our investments and our joint venture in China. You know that we are building ammonia-powered vessels that will deliver this year. We have secured an offtake of green ammonia in China. And we have also invested in a company that provides the logistics for that ammonia, bringing the ammonia from the factory where it is produced to the tank and from the tank with a bunker barge to our ship. So that is the nature of our investment there. Ludovic Saverys: And for everybody, we mentioned this, this is quite a small investment. We took a stake to better understand, to better control that logistics and to see how that is developing. But we we're talking a couple of tens of millions, but definitely not a huge investment. Unknown Analyst: And last question, if you allow me this. Do you have a target on the EU ETS price? Alexander Saverys: That I want to pay or that I want the market to go to. Unknown Analyst: That you want the market to go to for your investments to be more interesting for our customers. Alexander Saverys: It's a very good question, Victor. Of course, the higher, the better because then there will be more incentive for people to use our assets in European waters. Okay. Thank you, Victor. Enya Derkinderen: Okay. Then Quirijn want to ask a question. You can now unmute. Quirijn Mulder: Quirijn Mulder from ING. You sound quite optimistic about the wind offshore market. Can you maybe give some idea about the utilization and let me say, the future prospects? Let me say, is it more what you see from your order book? Or is it more what you see in the market happening? Maybe you can elaborate a little bit on that. Alexander Saverys: Yes. So I think the optimism comes from 2 sides. The first side is purely related to the wind and the new parks that will be developed in the next 3 to 4 years. As you know, a lot of projects over the last 2, 3 years have been either halted or delayed. What we do see is that certain projects are still coming through in the North Sea, which will create additional demand for offshore wind supply vessels. But we're also optimistic Quirijn because our assets that we are deploying for wind parks can also be deployed in offshore oil and gas markets. There, the fleet has been aging, has not been renewed sufficiently. The quality and the comfort of the assets in the oil and gas markets is much less than the ones in the wind markets. So our assets that are suited for wind are actually in very high demand to serve the oil and gas markets. And what we're trying to do over the last 6 to 9 months is basically to make sure that our ships can earn good money in oil and gas. And then once they have done their job, their transition to better wind markets. Quirijn Mulder: Okay. But let me say the contract size is very different in wind compared to oil and gas, as you might know. So wind in general is longer, more -- let me say, more -- takes longer time, especially. And oil and gas short time, short time contracts, et cetera. So... Alexander Saverys: That's not really true. You see long-term contracts in oil and gas and you see spot contracts in wind. Our CSOVs have been ordered to operate on the spot market first. And as and when we see longer-term contracts, then we go for it. What we have not done, unlike some of our competitors is order these vessels with a charter attached because there the charters were very, very low paying. Ludovic Saverys: It's a little bit the similar analogy with the Vale contracts that, yes, there are certain peers that accept not the IRRs we would accept. And hence, with the balance sheet that we have, the strength we have, the knowledge in the market, we order speculatively spot based on long-term fundamentals and then wait a little bit until, as Alex mentioned, we see good long-term contracts as we've done on the second CSOV, which is actually quite profitable contracts over 3 years. Enya Derkinderen: I think this concludes the questions. Alexander Saverys: Okay. So I'd like to thank everyone for dialing in today. Thank you for your questions. Thank you for your attention. You know that if you have any other questions, we are here to answer them. Do reach out to us if you have any further questions. And I look forward to speaking to you on our next call. Thank you very much. Bye-bye.
Operator: Thank you for standing by, and welcome to The E.W. Scripps Company's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Carolyn Micheli, Head of Investor Relations. Please go ahead. Carolyn Micheli: Thank you, Latif. Good morning, everyone, and thank you for joining us for a discussion of The E.W. Scripps Company's financial results and business strategies. You can visit scripps.com for more information and a link to the replay of this call. A reminder that our conference call and webcast include forward-looking statements based on management's current outlook, and actual results may differ materially. Factors that may cause them to differ are outlined in our SEC filings. We do not intend to update any forward-looking statements we make today. Included on this call will be a discussion of certain non-GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies' uses or formulations. Reconciliations of these measures are included in our earnings release. We'll hear this morning from Chief Financial Officer, Jason Combs; and then Scripps' President and CEO, Adam Symson. Here's Jason. Jason Combs: Good morning, everyone, and thank you for joining us. This marks our fourth consecutive quarter of reporting financial results that met or exceeded expectations on nearly every reporting line. Our growth strategies around network streaming distribution and Scripps Sports are helping us outpace local and national peer companies, supported by strong sales execution and disciplined expense management. I'll recap our fourth quarter 2025 results in a moment, but first, I wanted to touch on a few important activities we've undertaken since our last reporting period. On February 11, we announced a transformation plan to grow enterprise EBITDA by $125 million to $150 million by 2028. Our plan balances rightsizing our current expense structure with implementing new ways to grow revenue and profitability. The EBITDA improvement is one aspect of our larger company transformation plan, which Adam will discuss in a few minutes. You'll start to see the financial benefits of our plan in the second half of this year. We expect total in-year EBITDA impact of $20 million to $30 million and to go into 2027 with an annualized run rate of $60 million to $75. We expect the benefits to contribute to a significantly improved leverage ratio by year-end. This plan builds on the work we've already done to improve our division margins in recent years. In fact, for 2025, we exceeded our guidance for margin performance in the Scripps Networks division. We guided to 400 to 600 basis points of expansion over 2024 and delivered nearly 700 basis points. In the Local Media division, we kept expenses down despite new partnerships in valuable and growth-driving sports rights. In another strategic move to improve margins, we are exercising our option to reacquire 23 TV stations affiliated with ION that we had to divest when we bought the network 5 years ago. We anticipate the aggregate purchase price to be about $54 million. The transaction allows us to expand our already sizable spectrum holdings. After close, we will no longer be paying the owner of those stations affiliate fees. So acquiring these station assets will be immediately accretive to the Scripps Networks division segment profit and margins. We will seek waivers for the transaction under the FCC's current television station ownership rules. On February 9, we announced the sale of Court TV, which did not require regulatory approval and closed on that date. This transaction reflects our disciplined approach to capital allocation. We've monetized an asset while also securing a multiyear spectrum lease that instantly improves our operating performance. The transaction is immediately accretive to the Scripps Networks segment profit and division margin. The divestiture reflects Scripps' practice of growing businesses and then making strategic decisions about how we unlock the greatest value. We also were pleased to find a fitting owner in Law&Crime, founded and run by ABC News Chief Legal Analyst, Dan Abrams. On the local media M&A front, we are progressing towards closing on our station swaps with Gray and the sales of WFTX in Fort Myers, Florida and WRTV in Indianapolis. Gross proceeds from the Fort Myers and Indianapolis sales will be $123 million. We expect Fort Myers to close in the coming weeks and Indianapolis to follow soon after, pending FCC approval. We're also optimistic about closing in the coming months for the Gray Stations transaction. All of this acquisition and divestiture activity with the stations, the ION affiliates and the sale of Court TV support our strategy of evaluating and maximizing the value of our assets, improving margins while reducing our debt and leverage ratios. Now let's review fourth quarter financial results, and then I'll share some guidance for the first quarter and the full year. During the fourth quarter, our Local Media division revenue was $360 million, down 30% due to the absence of political advertising revenue compared to the prior year. Core advertising, however, was up 12% for the quarter. Let me repeat that. Core was up 12% in the quarter. All 5 of our top categories grew year-over-year, including our largest services at 19%. Gambling was up 32%. Our local sports strategy is a key contributor to our core advertising growth, and it's not just the addition of the Tampa Bay Lightning this year. We also saw continued strong revenue growth during Q4 in our existing local sports markets, Las Vegas, Salt Lake City and South Florida. Local Media distribution revenue was down 1.6%. Expenses for the division were down about 1% year-over-year. Local Media segment profit was $50 million compared to $199 million in Q4 of last year's political cycle. For the first quarter, we expect Local Media division revenue to be up low to mid-single digits. The big story here again is growth in core advertising revenue, which we expect to be up in the mid-single-digit range. In addition to the live sports strategy that also helped drive fourth quarter growth, we have the benefit in Q1 of the Winter Olympics and the Super Bowl on our 11 NBC stations. In the back half of 2026, we expect Local Media division revenue to grow through record midterm election spending. In the 2022 midterm election, we took in about $200 million. This year, we're expecting strong spending in our markets due to U.S. Senate and gubernatorial races in Arizona, Colorado, Michigan, Nevada, Ohio and Wisconsin. We also are encouraged by ad impact reports showing local broadcasters and related media will retain about half of the projected record spending. We expect local media distribution to benefit from about 70% of our pay TV subscriber households renewing this year. For the year, we expect low single-digit growth in gross revenue and low teens percent growth in net distribution revenue as a result of both the top line growth and declining affiliate fees. Turning back to the first quarter guidance. We expect Local Media expenses to be up low single digits. Backing out the new expense for the Lightning, Local Media expenses are down. Now let's review highlights for the Scripps Networks division fourth quarter results and first quarter guidance. In the fourth quarter, Scripps Networks revenue was $199 million, down less than 8% compared to Q4 2024 and well ahead of guidance and the marketplace. Connected TV revenue was up nearly 10% for the same quarter last year and 30% for the full year. The division's expenses for the quarter were down 13% due to lower employee-related costs and operational expense reductions. Scripps Networks segment profit was $64 million, and the segment margin was 32%. For the first quarter, we expect Scripps Networks division revenue to be down in the high single-digit range. We expect Scripps Networks expenses to be down in the low single digits for Q1. Turning to the segment labeled other. In the fourth quarter, we reported a loss of $8 million. Shared services and corporate expenses were $22 million. For the first quarter, we expect that line to be about $27 million. The expected increase is due to higher medical claims and increased insurance premiums. For the fourth quarter, we reported a loss of $0.51 per share. The quarter included a $19.5 million noncash charge for our held-for-sale Court TV assets, $2.4 million in restructuring costs and a $2.4 million loss on extinguishment of debt. These items increased the loss attributable to shareholders by $0.20 per share. In addition, the preferred stock dividend has a negative impact on earnings per share even when we don't pay it. This quarter, it reduced EPS by $0.18. Now I'd like to share our full year guidance for a few below-the-line items. For 2026, we expect to pay cash interest of between $180 million and $190 million, cash taxes of $15 million to $20 million, capital expenditures of $60 million to $70 million and depreciation and amortization of $140 million to $150 million. We also are required to make a minimum contribution of $4.5 million to our pension plan this year. On December 31, we had no borrowings outstanding on our revolving credit facilities. Cash and cash equivalents totaled $28 million and net debt was $2.3 billion. Also during the quarter, we paid down $55 million on our B2 term loan. Net leverage at the end -- at year-end was 4.8x per the calculations in our credit agreements. Looking ahead to the end of 2026, I expect a meaningful reduction in our net leverage ratio as we execute our plan to improve EBITDA and reap the benefits of a robust midterm election cycle, our Scripps Sport strategy and accretive M&A and pay down debt. Improving the balance sheet and reducing both our debt and leverage ratio remain our highest capital allocation priorities. And now here's Adam. Adam Symson: Thank you, Jason. Good morning, everybody. We were very pleased to close out 2025 with strong financial results that have again met or exceeded expectations across the board. We delivered these results by doing exactly what we said we'd do, getting more from the assets we have, our local stations and our networks and executing with focus and discipline. What does that look like? Well, in the Scripps Network division, we exceeded our full year 2025 guidance by delivering nearly 700 basis points of year-over-year margin improvement. This success was driven by our live sports strategy, our streaming revenue initiatives and disciplined expense management. In Local Media, expenses remained flat for the year even as we brought on new growth-driving local sports rights. We've kept expenses down partly by driving down network affiliate fees, reflecting a fundamental shift in the network affiliate dynamic that we expect will continue working in our favor. Now we're building significant momentum for 2026. This year, we expect our financial performance to be buoyed by record midterm election spending, local sports partnerships that are driving industry-leading core advertising performance, national professional sports on ION, the Winter Olympics and the World Cup, continued connected TV revenue growth that outperforms the market and accretive M&A. Two weeks ago, we announced an enterprise-wide transformation plan designed to improve operating performance and unlock new value. As part of that plan, we will grow our enterprise EBITDA run rate by $125 million to $150 million by 2028. We'll achieve this improved EBITDA through cost savings and just as importantly, through revenue growth initiatives. We're leaning hard into the opportunities that technology, AI and automation can deliver to how we operate, the tools we use in our work and the revenue we generate. But we also are being thoughtful. After much research experimentation and testing in the space, I can confidently say that this shift will enhance revenue and not diminish the quality nor the quantity of our work. On the contrary, making full use of technology is exactly what is necessary to modernize and improve it and to ensure we can stay committed to American audiences and advertisers. While we're now unveiling our plan for investors and sharing quantifiable targets for financial models, we actually launched this effort a year ago. Last summer, we consolidated and centralized every technology, engineering and IT function in the company to enhance efficiency and efficacy. We knew those changes had to be a precursor to this plan given the role AI, automation and technology will play in our future. The plan we are now executing will improve EBITDA by nearly 1/3, taking full advantage of opportunities for efficiency. But make no mistake about it, this is not about contraction, it's about growth. For Scripps, it has always been about growth. This company was founded nearly 150 years ago. Our founder, E.W. Scripps, was a savvy capitalist who understood from the outset that doing well and doing good weren't in conflict at all. Rather, they were critical to each other. E.W.'s entrepreneurial spirit has often driven this company to take a contrarian approach to the marketplace and investors have benefited. For the entirety of our history, we have leaned into opportunities others overlooked, starting with the company's founding when E.W. built a newspaper empire directed at the working class, a segment of the population that had been mostly ignored by other newspaper, [ barons ] of its time. That customer-first approach has continued into more modern times such as when we were laying coax cable in the ground, even as skeptics said no one would pay for television. And when we built HGTV and the original Scripps lifestyle cable networks, while peers focused on their high-margin newspapers. More recently, combining the Katz networks and ION allowed us to diversify away from retransmission revenue, increase the revenue yield on our spectrum and move into the burgeoning marketplace of streaming. The networks business has allowed us to use ION stations to capitalize on our unparalleled reach with the collapse of the regional sports networks and to carve out a leadership position in women's sports, all of which is fueling the revenue growth performance differentiating us today. Now you are witnessing yet another Scripps inflection point that builds upon this recent success. Whereas in E.W. Scripps' Day, information, news and entertainment were scarce, today, they are abundant. What is scarce is real human connection. Scripps is uniquely positioned to create value through a fundamental reorientation around what is becoming our company's greatest role in society today. That is during a time of political polarization, disinformation and discord, when Americans feel -- report feeling increasingly isolated and alone, we see an open lane for economic value creation by embracing the mission to help Americans make authentic personal connections. Today, Scripps operates in the parts of media where the opportunity for connection is real and shared, local communities, live sports, trusted journalism and entertainment brands that still gather audiences across generations. These are environments that drive engagement, deliver measurable outcomes for advertisers and create durable customer and consumer relationships. Because of our company's long-standing reputation for independence and community stewardship, we are uniquely positioned at this moment to deliver what Americans need most, a coalescing sense of purpose and connection. Through our local neighborhood news strategy, we are connecting people to one another and to the communities where they live. Our sports and entertainment programming is connecting people to their passions, to their favorite teams and to one another through meaningful experiences. Our advertising products are moving past aggregating eyeballs to connecting brands and businesses with the valuable customers they seek. And we're both growing and identifying new business opportunities similarly centered on the consumer and connection. Our transformation strategy has 2 major elements. First, we're going even further to improve our operating results. This is the EBITDA growth that I discussed earlier. It's the accretive M&A and portfolio optimization we've been undertaking as a result of the long overdue changes in the regulatory environment, and it's the continued focus on improving our balance sheet. Becoming more efficient, leveraging technology, AI and automation and consolidation-driven M&A are crucial to creating shareholder value, but they're not paths to organic growth. In some cases, they're merely short-term financial engineering. And so the second aspect of our transformation, we grow organically. Our new company vision, we create connection is opening up opportunities that are both adjacent to our current businesses and outside of them where we have a right to win. We expect both adjacencies and greenfield opportunities to produce benefits to the bottom line. For a good example of this strategy, look at what we're already doing with Scripps Sports. I defy you to come up with anything in this country that connects people to each other and to their communities right now more than live sports. When audiences, advertisers, teams and leagues all told us that they were navigating distinct challenges in the fragmented media marketplace, we leveraged our unparalleled reach with linear television and streaming to solve their problems, moving us into an entirely new marketplace that is creating the revenue growth and our earnings that you're not seeing with our peers. That's a straight line between our focus on connection, the customers' problems to be solved and economic value for Scripps shareholders. Our company is palpably energized by the opportunity. Several weeks ago, we gathered more than 200 Scripps employees together to begin executing this transformation plan. And in the weeks since, the circle has been steadily expanding. Our colleagues across the country are engaged in this work and are excited by the opportunity to drive this important company further, faster and into the future and so am I. The next few years will be pivotal as we accelerate our momentum. So I'm grateful that the Scripps Board has decided to extend my contract until the end of 2029. I have the collective creativity and talent of nearly 5,000 colleagues behind me. I believe deeply in our ability to execute yet another Scripps transformation, and I am committed to seeing it through. And now, operator, we're ready for questions. Operator: [Operator Instructions]. Our first question comes from the line of Dan Kurnos of Benchmark StoneX. Daniel Kurnos: First, Adam, let me just say congrats on your extension. You've obviously shepherded the company through a lot of turbulent times. So I think well deserved for you. So with that, I guess 2 questions. First, just on the broader environment, Adam, you've always said and you clearly have demonstrated so far that you're open to unlocking value for shareholders, a lot of moving pieces here with both acquisitions and divestitures. Do you think it's change? Like how are you contemplating in sort of the -- we're running tangent here. We've got a transformation plan. But if the FCC eliminates the cap and then we see Nexstar- TEGNA close, does that change the landscape in the way that you think things will maybe fall into place or other opportunity sets that could come about? And then I have a follow-up. Adam Symson: Yes. Thanks, Dan, and I appreciate the kind words. From my perspective, transformation actually positions us better for the possibility of participating in M&A. But as I said earlier, consolidation, which I absolutely think is an opportunity and necessary is financial engineering. And what we're after, what even a post-consolidation Scripps would have to be after is organic growth. Relative to M&A, it's important to note, we've been active in the M&A marketplace from the outset, executing our plan to improve the performance of our portfolio and to improve the balance sheet. Every deal that we have announced has either put cash in our pocket or it will increase segment profit and some benefit both. I'm referencing the announced sales of the 2 stations at premium sellers' multiples, the Gray swap, the sale of Court TV, the acquisition we announced today of more than 20 stations from INYO that will fold into our networks portfolio and increase segment profit margins. And honestly, I don't think this work is finished. I think we'll continue to look for opportunities to optimize our portfolio and take advantage of changes to the regulatory environment. Daniel Kurnos: So with that said, Adam, I think you gave a couple of examples of how you plan on driving organic growth, but where will we see that? How long will it take to achieve? You've done great things with CTV, for example, and ION. Obviously, local sports and women's sports has been a driver. I assume you're not going to give us the road map on some of the adjacencies or even sort of some of the tangents given for competitive reasons, but is there any way for you to help us think through when we start to see some of these changes and to what degree and any other incremental examples you could give us besides the one you gave in your prepared remarks? Adam Symson: Yes, absolutely. I mean, look, I think the growth is going to come from both work that we're doing to enhance the yield on our current businesses and from new opportunities we're seeing in extensions and adjacencies to the businesses we're in now as well as new marketplaces of opportunity where we have the right to win. The platforms we have that we own today are so powerful. We see massive opportunities to leverage them to grow enterprise value, significant opportunities ahead. I would also say there's significant top line upside from things like revenue yield management, improvements to seller productivity and accountability and additional centralized decision-making. This business has traditionally been, I would say, slow to adopt technology in the back office and the front office, this industry. And there's been a fundamental shift in the way technology opens up that opportunity, and we're going to change that tradition at Scripps. We're going to really lean into that opportunity to both improve the efficiency of the business, but also improve the yield that we drive from our current assets while we explore and then move after other growth opportunities that we expect to be focused on bottom line improvement. Operator: Our next question comes from the line of Michael Kupinski of NOBLE Capital Markets. Michael Kupinski: A couple of questions. You mentioned some key advertising categories were driving core, and congratulations on a very strong core in the fourth quarter. I was wondering how some of the more interest-sensitive categories are performing like auto and some of the housing categories are performing in the first quarter. If you can just kind of give us a sense of how that's performing in the first quarter. Jason Combs: Yes. And so we guided to core up mid-single digits in the first quarter, and we saw January start pretty strong, 4 of our top 5 categories were up in January, 2 of them actually up more than 10% and so there are some categories you mentioned, for example, home services type categories that maybe is a little bit weaker right now. But services, our largest category, continues to be strong. Gambling has been strong and automotive has showed some relative strength as well. Adam Symson: I would also add, Mike, besides the category level view, first quarter, particularly in local, is starting off very strong as a result of the sports partnerships that we have and the upside we have to continue the growth we saw in the fourth quarter with those partnerships. Jason Combs: Yes. And I think an important point there, and we mentioned in the [ script ], but I want to reiterate it, it's not just the addition of the Tampa Bay Lightning, which is a new contract for us, every one of our NHL deals in local is growing in the first quarter versus the prior year. So we're not only winning the deals, but we're continuing to grow them once they -- once we win them. Michael Kupinski: Got you. And then in terms of political, I know that in the last cycle, we had such strong political that political is being booked in advanced. And so I was just wondering how much visibility do you have in Q2 and Q3 in political advertising at this point? Adam Symson: Thanks, Mike. Yes, I mean, we're looking at the races. The portfolio -- our portfolio lines up quite nicely. We have 16 governors' races, 7 of them, I expect to be highly competitive. There are 6 states and 26 U.S. congressional house races that are expected to be pretty competitive. As it relates to the U.S. Senate, I'd say we have a couple of very competitive races, notably in Kentucky to replace Mitch McConnell and the special election that will be taking place in Ohio to replace JD Vance. The good news is broadcast is going to take the lion's share with projections of about 51% of total political spend going to broadcast. But I think it's also really important to point out that Scripps is not built like other local broadcasters because of our network businesses and the success we have in connected TV. So we're also competing in a really meaningful way with our CTV inventory and that's also going to benefit us during political years. For example, during January, we already saw significant activity in political on CTV with the bulk of that spend concentrated in Texas, Kentucky, North Carolina and Illinois. So we're taking dollars out of some of the markets today that we don't even have local broadcast in. So when you think about our opportunity in political, it is going to be reflected both in linear with local broadcast and a very strong year with linear political as well as CTV. Michael Kupinski: Got you. And then in terms of your targeted $125 million to $150 million in annualized EBITDA growth, can you break down how much of that is expected to cost savings versus revenue initiatives? And then also, can you break down that between the segments? Jason Combs: Yes. So Mike, we are looking across sort of each and every revenue and expense line. I don't think we're going to provide a breakdown of exactly how that's going to hit. But I will tell you, you're going to see an impact across the enterprise. Each segment, corporate, there's a focus both on the revenue side, as you said, revenue growth, improving our yield, identifying adjacencies, identifying greenfield opportunities, but also looking at operational efficiencies within our workforce, third-party spend, all of those sorts of things. I mean we are turning over every rock here. Adam Symson: Yes. Just a little additional commentary. That number, $125 million to $150 million, that's a bankable plan. I think you can take that to the bank as far as I'm concerned. And that should give you a sense as to what the split looks like. I do think there's going to be significant top line opportunity and growth as a result of this transformation, as I talked about. This is a growth oriented transformation as we reorient the company towards our new vision of we create connection. But the EBITDA improvement will absolutely be bankable. Michael Kupinski: Got you. And so Adam, if I hear you correctly, then if there were, let's say, other disruptions and things like that, that you would then look at further cost reductions to achieve that target? Is that what I'm hearing? Adam Symson: I'm not sure I understood. Michael Kupinski: Like in other words, like if there were -- if we did go through, let's say, some disruptions in the economy and things like that, that you're saying that the $125 million to $150 million is bankable in terms of achieving that goal, that you would look at other cost reductions to achieve that? Adam Symson: I am very confident in the $125 million to $150 million target. Just to like sort of frame it up, we've spent months examining every opportunity in every corner of the business and the company, the front office, the back office. As I said, I'm confident we'll deliver on the EBITDA targets and be a stronger, more nimble and more aggressive company. This is not some sort of notional plan. This is a well laid out and executed plan. Operator: Our next question comes from the line of Steven Cahall of Wells Fargo. Steven Cahall: A few more on the transformation plan. Maybe first, Jason, the $20 million to $30 million that you talked about for '26, is that a run rate number? Or do we think about that as the actual contribution of EBITDA dollars that are additive to like a base case for 2026. And Adam, I mean, this is a massive undertaking. It's very ambitious. I think it's like 30% additive to EBITDA, and you talked about how it's bankable. How do you just think about some of the risk of revenue impact? I mean I imagine a lot of these things either touch current employees, maybe even spook sometimes a little bit of employees in this age of AI disruption. So how do you go about managing the employee base to make sure that everyone is able to execute against this and you don't face any of that? And then I just have a quick follow-up on M&A. Jason Combs: Steve, I'll go first. So the $20 million to $30 million is the in-year impact. So it's additive to '26 and any baseline model you have there. The run rate annualized savings we would expect as we exit the year this year is $60 million to $75 million. Adam Symson: Yes, Steven, I mean, there's no question this is a really ambitious undertaking. But I'll tell you, we have engaged employees across the company in the process. This is not a top-down process. This is a bottoms-up process that has really given many of our employees a tremendous sense of agency. And so there's a lot of energy in the company to get this done. Does that mean everybody is on board with the changes? Of course, not. But I think the vast majority of our employees recognize that this company is just really, really important to our stakeholders, not only our shareholders, but the communities that we serve as well as, frankly, our democracy at this time. And they are bought into this role that we can play in our society. Over the last couple of years, we have already been aggressively upskilling our employees relative to the use of automation, technology and AI. On nearly every town hall I'm on, I talk about the importance of employees upskilling and the role that technology is going to have, not only in this company and not only in this industry, but more broadly in the environment, the workplace environment overall. And that's really a part of, I would say, the consistent approach we've taken to working with our employees to communicate with them with candor and with compassion. And so I feel really good about the behavioral change that will come as a result of this transformation. This isn't just a transformation of workflows, processes, this is actually a transformation that will see us evolve a much more nimble, aggressive and competitive company where our employees are both combining a level of accountability and performance orientation as well as sort of the mission approach that Scripps has always been known for. So I feel really great about our employees and their engagement in this process. Steven Cahall: Great. And then just on the M&A front, I mean, I know we don't like to talk about sort of theoretical things that may or may not happen. You had a very specific situation over the last few months. I get the impression that the way Sinclair came wasn't necessarily the way that the Board or management would like to engage. But I get the impression that after a proposal, things have kind of now ended. So I guess, is that correct that they've ended? And can you talk about maybe why there isn't scope for more engagement around that potential transaction? Adam Symson: Yes. Look, back last year, the Scripps Board of Directors made it clear that Sinclair's proposal wasn't in the interest of all Scripps stakeholders nor shareholders, and they rejected the Sinclair acquisition proposal. Nothing new has happened since, and I really don't expect it to. Operator: Our next question comes from the line of Craig Huber of Huber Research Partners. Craig Huber: My first question, can you talk about the cost savings plan here you have. Can you talk about -- give me some examples, if you would, please, about how AI is going to help you save costs, improve your product, et cetera? Just give us some examples on that front, please. Adam Symson: Sure, Craig. So look, there are both significant top line and expense side opportunities using technology and AI. On the expense side, I think opportunities include additional centralization and automation, leveraging cloud computing for production workflows, enhancing news gathering, marketing operations and enhancing external spend. Again, 2 important points to be made about these examples. These aren't broad themes or broad brush sort of ideas. They're plans with real business cases. And that's how I have the confidence to know that we're going to execute on that $125 million to $150 million in EBITDA improvement. Second, I believe strongly that the cost savings will actually improve our product because I think we're going to bring greater efficacy, more agility to the company. Both content and advertising will be improved. And I think it's going to improve our service to audiences and advertisers and, of course, improve our opportunity for top line value. Going back to Steven's question, I make sure I answered it clearly. I don't see this in any way as diminishing top line value. I see this as actually enhancing top line value. Craig Huber: And then when you say helping with the news gathering, just go a little bit deeper on that, please, and the content, just how AI is specifically going to help you on that front, please? Adam Symson: Yes. Look, over the last couple of -- yes, sure. Over the last couple of years, as fragmentation has proliferated and people have turned to more and more platforms for their news and information. We have continued to ask our employees to do more with less. And that has diminished the quality of our product. AI opens up the opportunity for us to actually ensure that our reporters, our field journalists are spending their time doing that which they got into the business to do, actually report to ensure that they are connecting with the communities that they serve, to ensure that they are speaking directly to our consumer, to ensure that they're actually able to attend the news events and not have to rush off in order to then post something on the web and then immediately put something on social media and then do 4 live shots and -- so using AI in order to care for some of those things is already opening up opportunity for our journalists to spend more time doing journalism and less time doing what I would characterize as some of the performative aspects or the distribution or production aspects of their job. We want them creating the content. That's where the value is, that's what differentiates us from the commodity news and information that's out there. We don't want them spending their time rewriting broadcast scripts into an AP-style story that can go on the web. There's technology that can care for that, and we are already using it. Craig Huber: Great. I appreciate that. And then talk to us, if you would, please, about your expectations maybe for the timing of possibly getting rid of the 39% ownership cap and maybe also maybe touch on where do you think things are at now in terms of down the road here being able to negotiate with the virtual MVPDs on your own behalf as a local TV station operator as opposed to relying on the networks. What do you think the path is to get that fixed to get it resolved? Does it have to go through Congress or can the FCC do it on that second point? Adam Symson: Yes. Well, I mean, I think that you asked 2 different things. I'll talk first about maybe my view on the cap. Look, I think the FCC recognizes that local news, local sports and local programming now entirely depends on the durability of local television, right? The newspapers are just a shell of what they are. And standing in the way of that durability are the rules that essentially prevent consolidation, both in market and nationally. So we think lifting of the cap and consolidation is necessary to compete on an equal playing field with the national diversified media companies, frankly, to give us the leverage necessary with the networks that are already using their leverage essentially to impair our ability to serve local communities. And I think the Chairman rightly recognizes that using their economic leverage to control the local airwaves is a de facto violation of the Communications Act. And so I believe that the Chairman and the FCC will ultimately rectify that by both allowing limited in-market consolidation as well as lifting of the cap. You heard us announce today that we're acquiring the rest of the stations that we divested when we acquired ION, the INYO stations, that will require a waiver or a lifting of the cap to get done, and I have a lot of confidence that we'll be able to see that through. I believe this commission is acting in a way that will rebalance the marketplace. I don't think it's about favoring one platform or another. I think it's just in a way that's trying to make things more fair so that the American people know that they can rely on local television for generations to come. At the same time, I'm now more optimistic that the DOJ has come to recognize that its approach to the local market definition should evolve because I think the evidence is fairly obvious to anyone who examines it. The net effect should be that the FCC will adopt the courts ruling that strikes down the prohibition against owning 2 big 4s and then the DOJ will recognize what Chairman Carr already has that we don't just compete against local TV stations. We compete for ad dollars in a crowded and a complex video marketplace. And some in-market consolidation is not only okay, it's actually going to benefit consumers because it's going to safeguard journalism in the markets that we serve. As far as the virtual MVPDs, I'm not sure that, that's top of anybody's priority list right now from a government regulatory perspective. Clearly, we would be better off and we think that both the networks and the local affiliates would be better off if we were to negotiate directly with the virtual MVPDs. In fact, in some cases, I think the virtual MVPDs and the network relationship is compromised because of cross ownership. So I would expect us to continue beating that drum and I know that there are folks in Congress that agree. I do think it probably takes a reclassification of the virtual MVPDs as MVPDs. But you just saw that happen in Europe. And frankly, I don't think there's any reason why we should differentiate between the delivery of our product over Wi-Fi or coax or broadcast. To me, all the same rules apply, the same copyright rules apply and frankly, so should the same business dynamics. Craig Huber: So just a quick follow-up there. So what do you think the timing is to lift or eliminate the 39% ownership cap? Do you think it might get done here in the next, say, 2 months? Adam Symson: I mean, honestly, Craig, there are people far smarter than I am who -- or better connected than I am who might know that answer. Any answer I gave you would be pure speculation. I think it's in the offering, I think it's coming, whether it's within 2 months, I don't know. My job is to run this company in a way that adheres to the rules of our regulator, and we will continue to do that while recognizing that we have a regulator who is certainly open to doing the things that are necessary in order to benefit the business and rebalance the ecosystem. Craig Huber: Sorry, one last question. Just can you give us a little more meat and potatoes view? What about this ION transaction you're looking to do to pick up these additional TV stations here? What it means for your company, why you're excited about it? Maybe some financial metrics, I don't know if you can go into that detail or not. Jason Combs: Yes, Craig. So just a reminder that we had to divest these stations to comply with the FCC rules back in 2021. And with current regulatory environment, we think it's the right time to reacquire them. The ownership of these stations is immediately accretive from both the segment profit and a margin perspective, plus we also get some favorable tax benefits. So we have -- this transaction will ultimately relieve a significant onetime tax liability we've been carrying on our balance sheet. So when you kind of put all of that together, it just seemed like the right thing to do. There is some regulatory approval, as we said. But ultimately, this deal allows us to see an immediate lift because right now, we're paying an affiliate fee to the INYO party for these stations, which goes away as soon as this transaction is closed. Operator: Our next question comes from the line of [ Shanna Chung ] of Barclays. Gengxuan Qiu: I realize it could be smaller, but could you provide any additional color on the proceeds from the Court TV sale and maybe any economics in terms of multiples there? And then I guess, are you guys looking to sell any other assets like Court TV? Jason Combs: Yes. Thanks, Shanna. So we were really pleased, as we said, to find buyer for such a great and distinctive brand like Court TV. We are not disclosing any specific financial terms. But I will point out the transaction includes both a cash consideration upfront as well as a long-term distribution agreement. So that kind of ultimately created the economic package that we felt was in our best interest to go ahead and execute. Adam Symson: And Shanna, I guess I'd say broadly, we will continue to look at opportunities in the M&A marketplace, particularly in our Local Media division, where we have the opportunity to get premium multiples for noncore assets that we think can both improve the operating performance of our portfolio and help us improve the balance sheet. Gengxuan Qiu: And then just on Scripps Networks. I know in 4Q and 1Q, when you guys don't have the WNBA, there tends to be a bit more pressure on Scripps Networks top line. I think the guide was a little softer than expected even under the seasonality. So just you guys talked about positive commentary on political on CTV and growth in advertising in that channel. I guess, is the guidance based on heavy live sports in the Super Bowl and Olympics in 1Q that diverted some ad dollars in that channel? Or are you seeing increased competition on the CTV side with more and more players adding kind of FAST channels? Jason Combs: Yes, I can take that. So from a Q1 guide perspective, you are correct that networks because of the sports franchises we have there, typically sees a bit more strength in the summer months when we have the WNBA and NWSL. And so as such, I think we would be looking to have probably more favorable guide and comp in second and third quarter. When you kind of unpack the guide of down high singles, there's a couple of things. And one of which I just talked about on the last question is core TV. Core TV is going to create a negative comp for us as we move forward through the rest of this year. So the guide we gave had 5 weeks of revenue for core TV in it versus the prior year, which had obviously the entire quarter. So you have the core TV comp issue there. You also -- we did see some weakness in DR pricing as we entered the quarter tied to kind of just some of the macroeconomic factors that would impact the DR category. And then the last thing is, and it ties back to my comment on sports, we talked quite a bit last year about the upfronts and the fact that the upfront from last year, which is currently rolling through our P&L, generally outside of sports programming was a weaker upfront. And so we saw that reflected in our Q4 results in our Q1 guide. But we are -- we did do really well in the upfront last year tied to our sports properties. So we hope to see that, and we'll see that benefit as we move into the second quarter. Adam Symson: On the FAST front, I would say, yes, there are more FAST channels out there than ever. But frankly, our channels are among the most premium channels in the marketplace. We have terrific partnerships with the distributors. And so we don't expect to see growth abate. I mean I think we've forecasted double-digit growth, and I expect to continue to see that. Operator: Our next question comes from the line of Ken Silver of Stifel. Ken Silver: Just 2 topics. First, on the core advertising guide that you gave for the first quarter, I think you said up mid-single digits. I just want to clarify, does that include the Super Bowl and the Olympics? Jason Combs: Yes, it does. Yes, it includes the Super Bowl and Olympics. We have 11 NBC affiliates. So we did see some benefit tied to those as well as a lift tied to all of our local sports rights, or NHL deals we have. Ken Silver: Got it. So I guess, I don't know if you want to parse it a little bit, like if you excluded the Olympics and Super Bowl, any sense of how much it would be up? Jason Combs: So I don't think we're kind of breaking that out. We did see a strong performance in our Olympics revenue. We were up about 13% versus where we were back in 2022 and saw a bit of a lift on the Super Bowl as well, switching from Fox last year to NBC. But I don't think we're breaking out beyond that level of detail. Adam Symson: I think you also said that our partnerships with live sports on the local level was already seeing significant growth in the first quarter. Jason Combs: Also, which each of our NHL contracts. I mean, Tampa Bay is obviously new in the first quarter, but all of the rest of our NHL contracts are showing nice growth year-over-year in their second and third year with us. Ken Silver: All right. Well, hopefully, you get a bigger lift now after the gold metal. So I hope that goes well. And then just -- I want to just ask you one thing. You mentioned in your prepared remarks about lower reverse comp to the networks. And maybe this is review, but can you just talk about that, why you expect it to be down? Jason Combs: Yes. So we've been talking about that for the last couple of years, I feel like where we -- there was a paradigm shift from affiliate fees from increasing to flattish over the last, call it, 2 to 3 years. And now as we see continued pressure on top line with subscriber churn and frankly, in terms of the product we receive where there's less exclusivity, more -- take the NBA example with NBC, where a lot of that product is available on Peacock, we've been able to successfully negotiate decreases as we move forward on the affiliate fees. And so while we do expect to see some continued growth on our top line retrans revenue, and we guided to kind of up low singles, I think the bigger story is the expectation for declining affiliate fees this year. Ken Silver: Okay. And you mentioned NBC Peacock, but is it with the other networks, too? Jason Combs: Yes. Yes. Operator: We have a follow-up question from the line of Craig Huber of Huber Research Partners. Craig Huber: Just a couple of follow-ups, if I could. Adam, how would you describe the advertising environment right now, say, versus a year or 2 years ago? Do you feel it's any better out there, the environment that you're operating in, both on the Scripps Network side as well as the local TV station side? Just give us some puts and takes on how you're feeling broadly on that front. Adam Symson: I'd say probably the same, and I'd chalk it up to macro uncertainty. In the same way that Wall Street has its days in which uncertainty drives it up and drives it down, I think on the local and the network side, that level of uncertainty, an unclear picture on what tariffs are going to be has had an impact on marketers' willingness to spend and has often resulted in buys being placed later and a little bit more of a murky environment for media. I don't see travesty. I don't see advertising recession as much as I see just general softness. I will say our strategy in sports has been all about acquiring the premium inventory for the must-watch programming that advertisers still flock to. And so when I look at what we've got with respect to ION and women's sports and the way we've been able to leverage that inventory in order to drive value across our portfolio in networks, I think that's been a huge driver of success for us. Likewise -- and you can see that when you compare us to our peers in networks. And likewise, in local, sports has opened up entirely new categories of advertisers and new advertisers that weren't necessarily local television advertisers that come to the table for us with our local sports franchises. So again, while we have seen what I would characterize as sort of a sideways environment, we have been excelling at opening up new opportunity for us and expanding the number of advertisers and the kinds of advertisers we serve because of the strategies we're executing. Operator: Thank you. Ladies and gentlemen, that is all the time we have for Q&A and does conclude today's conference call. Thank you for participating. You may now disconnect.
Adam Warby: Good morning, everyone. Very good to be with you here today to talk about FY '25. And FY '25 was a year of real tangible growth for Ocado, but one that also saw the business mature in a number of important ways. And while we've seen robust growth in the business and good progress across most of our global operations, we also worked to help some partners address a number of key challenges in their early network decisions. This included constructive engagement with our partners in North America, as they made decisions to close sites in areas where demand has not evolved as initially expected. And in fact, last year, we reflected that a number of our partners were looking at a small number of sites, which required a different strategic approach. And while the decisions made in North America to close were difficult, it does reflect a mature approach with those partnerships and putting them on a stronger foundation for long-term and sustainable growth. With exclusivity now having ended in North America, we've begun the journey to reengage in many of the commercial opportunities available in that very large -- world's largest grocery market. And Tim will reflect on this and Ocado's approach to reentering the wider global opportunity as Ocado moves into this next phase of commercial growth. So I look forward to hearing more about that soon. I've now been Chair for just over a year. And during that period, I've spent a lot of time engaging closely with a range of stakeholders. And reflecting on what I've learned, I remain still very excited about the significant opportunity that remains in -- to solve a range of business issues across the omnichannel journeys of our retailers. And Ocado itself is still a business that has a huge breadth of talent, a unique and world-leading technology platform, a visionary leadership team and a scaled commercial relationship with many of the leading retail brands around the world. I've enjoyed getting under the skin of these issues over the past year. And while recognizing that executing in a competitive and ever-changing world is challenging, I do believe Ocado is well positioned to take advantage of the significant global opportunity, both with current and future partners. I particularly value the time spent with many of our Ocado partners, including counterparts at Coles, Ocado Retail, of course, Kroger and of course, our JV partner, M&S. This engagement gives a tremendous window into the strategic thinking of our partners and in particular, a depth of understanding on how some of the world's most successful retailers think about their own long-term success and growth. Today, you'll hear from Stephen and Tim about progress we're making towards the key priorities that we laid out at the half year. First of all, our core priority to turn cash flow positive later this year with full year cash generation in FY '27, the measures that we're taking to drive continued growth and greater efficiency with our partners, and lastly, how we're reconfiguring key parts of the business to make sure we're well set to take advantage of the renewed and significant global opportunity. So over to you, Stephen. Stephen Daintith: Thank you, Adam, and good morning, everybody. I hope you're all well. Thank you for joining us at today's full year '25 results. I'm going to take you through the financials. Next slide, please. Okay. Here are the headlines. So good financial progress across the board really. Revenue grew, group revenue by 12%. I'm going to take you through the logistics and the tech solutions growth shortly. We had strong adjusted EBITDA growth of GBP 66 million to GBP 178 million. The underlying cash flow, if you exclude the letter of credit, was a GBP 230 million outflow. But if you were to take that into account, underlying cash flow would be GBP 140 million -- GBP 130 million better, driven by that receipt from the letter of credit. I should say upfront, by the way, on the closure fees from the 4 site closures and on the letter of credit, the accounting is not straightforward. It mostly impacts fiscal '26 and future years, but we've included in the appendix a couple of charts that show you how it all works when it comes to do your modeling. So I just wanted to make that open upfront. The retail -- sorry, the underlying cash flow in terms of credit, I talked about that. Liquidity finished the year yet again with healthier liquidity of GBP 700 million or so of cash and the access to the revolving credit facility. This has been bolstered further by the GBP 279 million inflow that came in post the year-end. So we're sitting on very good cash balances today. It does mean, and I'll get into it when we look at our debt chart shortly, as we approach our debt maturities with the optionality there. Certainly, in the first instance, the GBP 350 million convertible bond that's due in January '27, we can pay out of cash, which you will see our gross debt numbers starting to come down, important factor for us, particularly when you see the trend in interest costs. Yet again, we achieved our guidance for revenue, margin and cash flow targets and hit all of those. There's probably nothing more I'll say here. I'll take you through the detail now of each business. Here's the statutory chart, getting you to your earnings before tax of GBP 403 million, a positive number, but benefiting, of course, from the big adjusting item of the valuation of Ocado Retail of the stake of our 50% in Ocado Retail when we deconsolidated the asset and M&S took over consolidation. As a consequence of that, we took our value that we put in at GBP 1.5 billion or so, half of that and then you adjust for the assets that are on our balance sheet to get to that adjusting items income. A couple of other callouts. Tech solutions revenue growth, I'll go through that. Logistics, 11%. I think it's probably worthwhile calling out the finance cost line, a GBP 48 million increase in our interest costs. As I've mentioned earlier, there are plans to address that debt and gradually reduce that gross debt level. I'll get to that shortly. So Ocado Group adjusting items. Here is the key item there at the top that I talked about, Jones Food, if you recall, went into administration last year. We wrote off those assets that were consolidated on our balance sheet. We were a consolidating company. The Kroger of lessor credit pre fiscal '25. So whilst the cash was received in early this year -- sorry, last year, in fact, there is an accounting recognition of the revenue related to prior periods, which is an adjusting item in the prior period. You'll see at the chart at the back how it works. It's not straightforward. The organizational restructure, that is not the cost of the restructuring that we're about to do. We did a small amount -- a relatively small amount of restructuring principally in G&A and in technology in the first half of this year. So there's a small amount in there. The rest is pretty straightforward. So tech solutions. Well, you know the business model, grow the average number of live modules on that point, and we'll come to it shortly. That's probably the key number in respect of becoming a cash flow positive business full year fiscal '27, turning cash flow positive in the second half of '26. 121 modules today, driven by -- the growth there is driven by new sites going live. We've got around 6 sites going live over the next couple of years, but also drawdowns in existing sites. Those are the 2 drivers of that growth in modules. The quicker we grow our utilization of those sites, fill their capacity, the more modules and CFCs that are ordered going forward. That's a key metric for us. Recurring revenues make up the bulk of that revenue, that GBP 444 million, growing by 7%. And as you'd expect, that's in line with the growth in average number of live modules, but also the fees that we get, as you'll see shortly, per module that are indexed every year to local inflation. The nonrecurring revenue, a material increase in nonmaterial revenue by GBP 41 million, but there's a lot of noise within that number. A lot of it that's in there is around the Morrisons fee that we got when we exited their 5 modules out of Erith. It's about -- I think about GBP 17 million or so there. And then there's about a GBP 15 million number in respect to the closure fees as well. So you'll see that detail later on in the pack in the appendix. Other than that, contribution margin for tech solutions, an improving contribution margin of 72%. Of course, the revenue does benefit from those items that I mentioned, but we've also included a potential decommissioning provision in there in respect of those site closures. So just to make sure that we balance it out that we haven't taken all of that benefit directly to contribution. There is some provision in there as well. These are the expense items of the technology spend and then support costs. That's the G&A costs that exist, but it's also the partner-facing teams as well. As you'll see shortly in the slide, it's sales team, but it's also G&A, corporate overhead type teams. Okay. left-hand chart showing the progression of average live modules. Now clearly, as we approach '26 and '27, we are going to be hindered in '26 by, of course, the sites that have closed in -- recently that were part of that 121 number. We make that up by the sites that go live. We also make it up by Ocado Retail drawing down on further modules as well, which they will do, self-evident given we're going to show you shortly where they are on their capacity, but as they're growing as strongly as they are another year of growth, 15% revenue growth. And that's driven by volume as well. That's a volume-driven growth. Better revenue per module, I talked about that, that progression, indexation playing a part there drives our recurring revenues. That's the math. So here you go, go live of CFCs and drawdowns to drive the growth following the resets. Here on the right-hand side, we call out the CFCs we expect to go live over the next couple of years. And again, there's some bullet points there that just reinforce my earlier comments around module drawdowns and the importance of those. We expect by fiscal '27 to be at at least 125, and we're targeting over 130. But for the purposes of the modeling of cash flow positive, this range does the job. We expect we can go further than that, but let's get there when we do. That's our ambition. Okay. Direct operating costs, we expect those to benefit further going forward, but you can see the progression here, continued efficiency in the operations. We do think we can get to these being below 25% and therefore, an over 75% contribution margin. Technology spend, you can see how it's declined in fiscal '25 to a total across CapEx and P&L costs of GBP 248 million. We will be seeing shortly in the guidance that we give for fiscal '27, again the cash flow positive. We are looking at around GBP 100 million or so reduction in that spend over the next 2 years. We have made it very clear for quite a while that the last 5 or 6 years has been a peak investment period for us. If you recall, we launched those reimagined innovations in January 2022, and now they're going into the market with our partners taking those, Ocado Retail in the U.K., Kroger in the U.S. and so on, ordering them and seeing the productivity gains that Ocado Retail is already benefiting from. So it's a natural part of our evolution as we expected for this technology spend to start to wind down. SG&A costs will reduce further as we focus on a leaner operating model. You'll see that in the mix there of SG&A costs that we've actually -- I know it's split in the first half, second half split, we'll show it a little later. We've actually put an extra GBP 6 million into partner-facing sales teams and G&A costs have come down by the same GBP 6 million. So whilst it's flat year-on-year, the mix has changed quite significantly, and we'll continue in that direction. Again, that number, we're expecting there to be about GBP 50 million lighter in '27 versus where it is currently today in fiscal '25. That gets you to your GBP 150 million of cost savings. Ocado Logistics, okay, 11% growth in revenue, orders, again, it's volume-driven growth, as you might expect. So what would I call out on this slide, pretty reliable EBITDA number that we're generating. EBITDA has grown a little year-over-year. A lot -- some of that, I should say, is down to TSAs that have rolled off that we provided to Ocado Retail that we're now charging for as those transition services agreements have concluded. So we're getting more profitability out of the business. Eaches is growth of 8%, orders per week up 10% in line with revenue growth. UPH, again, we're going to show -- we're going to see a chart in a while that shows that UPH progression, really important part of the business model and the investment case for Ocado, which is the productivity our technology can bring to warehouses, drive down labor count and drive down labor costs where labor is becoming more expensive and more scarce, a really important part of our investment case. And going through those metrics, there you go. You can see the progression in UPH. Luton has at a peak of 318 UPH recently, and we averaged 289 in fiscal '29 -- fiscal '25, sorry. And then DP8, pretty steady at around the 21 number, 21.5 this year. So just close to 22 drops per van per 8-hour shift. Ocado Retail. Another really strong year for Ocado Retail, revenue growth at 15%, strong growth in our customers and growing our market share in the online grocery market, 15% revenue growth, gross profit up by 14%. Across these cost lines, you can see the operational leverage coming through as well, with the revenue growth of 15%, CFC costs up just 7%. Service delivery, that's hit hard by U.K. labor inflation, but also by the national insurance changes that kicked in over the last year or so. Utility costs flat year-on-year. Support costs, you can see growing by just 8% and marketing costs growing by just 3%. So good operational leverage in the business model. What else? I think I've pretty much highlighted the key things there. The underlying EBITDA margin, if you were to add back the GBP 33 million of Hatfield fees is now a 3.8% number. We expect those Hatfield fees to reduce as Ocado Retail orders more modules. There is a credit system in place that as they place more -- order more modules, for every 3 ordered, roughly there's around a 2% reduction in the Hatfield fees number, which is a 13 module count for that business -- for that -- sorry, that warehouse. Ocado Retail, structural and volume-led sales growth, orders per week, so it's a volume-driven growth, not a price-driven growth, 13% growth in orders, average basket value up slightly at 1.3%, and I think you'll be familiar with these trends. Okay. Again, customer growth now comfortably over GBP 1.2 billion -- GBP 1.2 million, sorry, basket items stable and utilization. There's the chart, the important one for us. We like that chart because it means they're going to be ordering more modules and CFC shortly. Watch this space on that one. So our cash flow, when you put this all together, this is from an EBITDA basis down to a cash flow basis in fiscal '25, there's our EBITDA. The cash received into contract liabilities, we get -- that's the cash that actually came in. We deduct then, of course, the amount that was recognized through the P&L account, which is part of the EBITDA number and because that's the noncash item that we take that out. The working capital movements we benefit from. There's the interest payment line that I highlighted earlier, GBP 46 million increase in that cash outflow year-over-year. CapEx pretty much in line with last year. CapEx is principally the CFCs, of course, the MHE, but also our technology spend. OAI CapEx, that's related to McKesson. Lease liabilities, no movements there and nothing to write home about in the other line. And then finally, the proceeds from the letter of credit of GBP 113 million, getting you to that underlying cash flow of GBP 100 million. Net cash inflows. When we take into account the final receipt from AutoStore, from that settlement that we concluded, agreed with them around 3 or 4 years -- 3 years ago now. That's the final payment that's now come through. On our financing, we actually paid -- whilst we paid down less debt than the amount of debt that we've raised and benefiting with GBP 58 million on the balance sheet, which you see today. Other items, you may have read that we've sold our stake in Paneltex, which was a very small GBP 400,000 investment, and we've got back comfortably our money back from the valuation of that sale, which is around GBP 20 million sale or so. And we own 25% of the business. Okay. The outlook for the year ahead, for the next couple of years. This goes back to my earlier comments. We have guided for quite a while that we'd be heading towards 20% of recurring revenues. When you do the math, this is the GBP 250 million or so that we spent across CapEx and P&L spend in fiscal '25, declining by about GBP 100 million to GBP 150 million in fiscal '27. Tim will be talking more about that during his pack. Other than that, I will then move on. CapEx has been weighted to the Re:Imagined fees, as you can imagine. You can see the composition of the capital items in fiscal '25 in the pie chart at the top there. And then there's more commentary around the '26 and the '27 targets outlook. The cost that we are taking out of the business of GBP 150 million in aggregate, that will be an exercise that is commencing now. The key events will be in March and then later in the year as well, there'll be another event. We'll just have to see how that progresses over the course of the year. It will take place -- I should have said, it will conclude by the end of November. There'll be progressive reductions over the course of the next 6 months because a better way of framing it. Lowering and leveraging our SG&A cost remains a key focus for us. This GBP 50 million of costs come out of this area. You can see the trend has been a downwards trend. You can see the shift there between the blue and the green bars around partner-facing teams and corporate functions. I think I've pretty much commented on this dynamic already. There's the GBP 150 million, putting it all together, and just reinforcing that point. And summarizing the key building blocks to be cash flow positive for full year '27. Live modules of GBP 125 million to GBP 130 million plus, I'll explain the drivers of those. That will generate a contribution of around GBP 400 million with a cash contribution of circa GBP 3 million per module. Total tech spend and SG&A spend will be around GBP 250 million from around, you can see, the GBP 400 million in fiscal '25. That's the GBP 150 million saving. And then we get a variety of other net inflows, including upfront receipts from partners. We typically get about GBP 34 million a year from -- GBP 30 million to GBP 40 million a year from those. Logistics cash inflows, the business that generates cash for us, take off our lease costs and then whatever the movement is on working capital from year-to-year. Net interest costs are we've modeled GBP 80 million to GBP 100 million, but hopefully, there'll be opportunity there to reduce that given our strong liquidity. And as I said, when we look at our debt stack and options to address some of those maturities, some of those -- some of that debt. We've concluded here in the final bullet, there will be sufficient cash flow to be cash flow positive and to fund circa 10% module growth. So one could argue that if we did a 15% module growth in fiscal '28 versus '27, we wouldn't have the cash flow. We might not be cash flow positive because we're putting the CapEx in. That's a high-quality problem, I think. We'll cross that bridge when we get there. That would be the only reason why we wouldn't hit our target if we had some big orders for delivery in '28 and '29. But I think both Tim and I would actually welcome that. Okay. Managing our debt maturities, and I've talked about this. You can see here, by the way, the GBP 56 million convertible bond due December '25, we paid that off, if you recall, just after the year-end. The GBP 500 million has gone away. This is the one we'll be targeting out of cash, the GBP 350 million. And there may be opportunities as we look through with our cash balances to look at those other 3 debt gross items that we've got as well. So I think you can pretty comfortably expect our gross borrowings number to start to come down quite significantly, which will be good news. So summary guidance, tech solutions revenue of around GBP 500 million, and adjusted EBITDA margin of around 30%. Logistics, more of the same, no great surprises in there. We're going to be having somewhat perversely a GBP 200 million outflow in the year that we turn cash flow positive. A lot of that is driven around the timing of our cost reduction activities that I talked about, the sequencing over the year. You get the full year benefit in '27, but you then see a partial year benefit in fiscal '26, which explains a lot of this dynamic. CapEx will be around GBP 250 million, and those are all the key numbers of our guidance. And that concludes it, there you go. I'll just repeat those messages. Good management of our balance sheet. I think we've been pretty good and proactive there on debt management, strong financial performance in '25, cost and capital discipline becoming a key theme for the organization. And again, the core priority is to turn positive during the second half, but it's backed up by a very robust plan as well. Thank you very much. Tim, over to you. Tim Steiner: Thank you, Stephen. Thanks, everyone, for joining us today. All right. Let's move on. Right. So we've had a good year in a number of ways. So I think one of the key metrics is that first one is that's the international CFC volume growth of the 26%. So we just want to keep helping our clients to grow. We're helping them to grow more and more, and we want to see that number continue to grow, and the compounding effect of that will lead to more and more drawdowns of modules that are available in existing CFCs as well as demand for future CFCs. Just again, to give you some idea of scale, we shipped 72 million orders across the whole of the OSP platform last year with a 98 -- more than a 98% fulfillment rate, 0.7% of average OSP waste. And then we saw quite a lot of efficiency coming into the platform last year. We got across the platform to a 21 DP8 on a weighted average basis across all of our clients. We saw an average of a 10% improvement in CFC productivity across our clients. And as Stephen mentioned before, in the financial year, we achieved 318 UPH in Luton and since the end of the financial year have got into the 320s. The metrics keep getting better. And to put it into context that 318 UPH, that means that a 40-item order is fulfilled in less -- using less than 8 minutes of human endeavor compared to about 75 minutes to do the same thing in a manual operation picked in store. So as you know, we've been busy working with our partners on partner success. That's the one area that Stephen outlined where we've been spending more money, improving our partners. We thought we'd pick a couple of examples just to show you not just what the equipment is capable of doing, but how we help our partners and what kind of results we achieve. So this is one warehouse where we've been working closely with one of our partners. Again, because of partner confidentiality, I won't get into exactly who they are, please don't ask me. But this is an international warehouse. This is a combination of 2 things. This is a combination of new software and operational advice. In this particular first example, this is DP8, so this is deliveries coming out of that warehouse. And we helped over an 8-month period to get a 34% improvement in the number of drops per shift. To put it into context, actually, the top of that graph is 25 DP8. So actually, it's higher than the U.K. The U.K. is not a standout performer on DP8. We have achieved greater results in some of our international warehouses. And so this is not a question of somebody who is extremely poor becoming less extremely poor. These are actually quite impressive numbers and are significantly ahead of our partners' expectations. If we choose a UPH example, here is a UPH example, it's a 5-month period that we went in and helped a partner inside their warehouse. We improved their labor productivity by 1/3 in just 5 months. That is a combination of better operational processes. So we're helping partners in their planning and in their operations as well as a rollout of some of an early rollout of some of the reimagined kit into that building. But -- so quite meaningful results in short periods of time. We brought back in Lawrence Hene, who used to run a significant part of Ocado Retail for many years, and he's leading our partner success efforts, working alongside Nick de la Vega, who's come in to run our revenue sales and partner relationships. So significant progress in those areas. In terms of CFCs driving growth, here are some comments, which I won't read them out. I'll let you read them yourselves from some of our newer partners, Alcampo, Auchan Polska and Coles, who all have opened warehouses recently, who are all seeing strong growth in their sites ahead of the wider online markets that they operate in, are achieving incredible NPS scores from their customers. What we're seeing is if you take an existing geography where you have existing store-based operations and move them into a warehouse, you can see not only enormous pickups in NPS, customer satisfaction generally, but you can also see 30% to 50% growth beyond the market and beyond your baseline in a very short period of time from the better performance, better availability, better fulfillment, fresher goods that arrive from putting those volumes into the warehouses. I think, obviously, we've spoken a bit about the warehouses that have closed. You need to put volume through warehouses. These are examples of retailers that have got some volume from store-based operations and putting that volume into warehouses makes enormous sense. So historically, we built warehouses that were designed to largely do fulfillment from order today, deliver tomorrow. We've talked before, we talked at Re:Imagined about inventing new software that would enable these warehouses to be used for order today and deliver today. We have been rolling out that software during the course of the year. We are still in the early stages of rolling out that software. It is currently available for rollout with all of our partners, and we expect it to be in the vast majority of warehouses before the end of the year. It's currently deployed in 9 CFCs. We've seen the earliest deliveries from order to delivery of 73 minutes. Now 73 minutes is not an impressive number for speed of delivery of an online grocery order. You can do that in 10, 15, 20 minutes, but from micro sites with 1,000, 2,000, 3,000 SKUs in them, with efficiency levels that are really, really poor. This is an order processed in a large-scale Ocado CFC with extremely high productivity, as we spoke about before, with range of 200, 30,000, 40,000, 50,000 SKUs available to those customers. And it is not costing anything in productivity to achieve that. And that order is being delivered in a scheduled 8-hour route, but we are able to get the last from the customer ordering it to delivering it to as little as 73 minutes for a full basket order. We have seen in the first warehouse we rolled this out in days where we're achieving 40% same-day deliveries in an international CFC. We think this is a game changer, and we look forward to the rollout of this across the rest of the network and our partners continuing to work with it and increasing the amount of capacity that they have for same-day ordering, which largely addresses that large shopper universe of people who find -- want to shop online, but find it hard to plan where they'll be able to take advantage of the big ranges, the hypermarket prices and same-day delivery. We also spoke at the half year about aggregators. So we have now integrated aggregators into our platform for the first time in the past year, enabling customers who order groceries with our partners, but from wider platforms. So from aggregator platforms, those orders are going through and then those orders are processed either in Ocado CFCs or using Ocado in-store picking software in the client stores, making significant efficiency compared to having multiple apps and multiple pickers in those stores. And these changes really reflect the evolution of the online grocery market where in some markets, significant amounts of volume are going to aggregators who don't process orders themselves or don't have stores or warehouses themselves. But now our platform is flexible and those orders can get pushed through it. It has enabled Morrisons to increase their aggregator coverage in the U.K. to a further 100 geographies. It's enabled Monoprix to roll out to 22 further cities in France with one of the global aggregators that they work with. So let's just talk a little bit more about the evolution of the platform. If we went back to 2018, there's a little graphic here that described largely the platform that we sold to our early partners. We had a largely next-day service. Partners are expected to operate OSP web shops and take 100% of the orders across OSP, web and mobile. And they were processing those largely in warehouses at an average of a 6-module size for home delivery in vans, either directly or via spoke sites. It was a narrow but successful approach to the market that has served us extremely well here in the U.K. for a number of years. But the market has changed and the market continues to evolve. And today, shoppers expect to shop online with total flexibility across different platforms, lead times and shopping missions. And retailers need and want to meet those expectations without incurring the high costs associated with the traditional fulfillment. So where are we today? Today, our platform supports all different shopper lead times from sub 1 hour, 1 to 6 hours, remaining same-day and next-day deliveries. We support bringing orders into our platform through managed fulfillment where the clients run their own front ends through the OSP web shop that continues to evolve and deliver a market-leading experience as well as mentioned before, through aggregator sites as well. We can process those in in-store fulfillment over 1,000 stores live through our new store-based automation that can range from 4,000 to 5,000 square feet attached to a store up to about 17,000 square foot potentially unattached to a store. In 2 to 10 module sites, for large scheduled delivery businesses in micro fulfillment centers, as I said before, from about 4,000 to 17,000 square foot that do not need to be attached to a store if they don't want to, as well as in manual warehouses or third-party DCs, serving all the different customer missions and all of them with the best economics. And then in the last mile space, we're working today delivering customers to order -- delivering orders to customers using couriers, lockers, customers collecting it, home delivery and home delivery via spoke. It's an incredible amount of total and evolution of the platform to total flexibility for our existing global partners and future global partners. It is the product of a very large and busy R&D period for us as a business. But we've now deployed most of this evolved platform for our partners worldwide with strong results. And with our exclusivity rolling off in multiple markets, we're focused on bringing these benefits back to some of the world's most mature grocery markets for the first time in years. As we move into this new commercial phase, we're also taking steps to realign our business to better serve our global customer base and focus on new prospects opportunities with the biggest value. But I wanted to start by reflecting on the scale of some of our commercial footprint today as I think it's sometimes underestimated. Most of you are aware of our global grocery partnerships worldwide. They remain the core revenue driver for our technology solutions business and the partnerships where our technology is most fully deployed. However, our commercial footprint does extend more broadly into the wider logistics, CPG and retail sectors, primarily driven by our growing AMR business. Today, our technology is live in 127 warehouses and more than 1,000 stores worldwide with 70 commercial clients and partners. We've got more than 17,000 bots live on grids around the world as well as 431 on-grid picking arms, that number growing probably daily, more than 2,500 truck AMRs, and we're seeing keen interest in initial orders for our new case handling product, Porter case handling AMR. So as we move into a new commercial phase at Ocado, we're building on strong widespread relationships with many recognized and leading worldwide brands. We're also making changes to the structure of our technology solutions segment. Stephen has already talked through our progress towards reaching our steady-state cost base that we flagged over the last few years. We've made significant strides towards our full year '27 targets over the course of the last year, and we continue to track towards those targets as we move out of this peak development cycle and into a steady-state R&D phase. The structural changes that we're making support these goals and make sure our business is properly geared towards our priorities, namely a renewed and focused go-to-market strategy, a simpler operating model, investment concentrated where we see the clearest path to value creation. One of the first key steps is the consolidation of our commercial divisions, meaning Ocado Solutions and Ocado Intelligent Automation are now operating as a single point of sales and account management under the new leadership of Nick de la Vega, who joined us as Chief Revenue Officer at the end of last year. This change also reflects an overall shift in our approach to new commercial opportunities with a more targeted approach to the most valuable opportunities and primarily within sectors where our expertise is most needed. Taking the example here, which shows in the blue areas of the grocery supply chain where our technology has been traditionally deployed in the CFCs and delivery to homes. One of the key lessons we've learned from the market engagement of OIA has been that there's significant opportunity to go further up the grocery supply chain and the CPG supply chain. We see significant opportunities to expand into those areas, both case replenishment for stores and wider distribution networks, both where AMR products like Chuck and the new Porter solution can bring significant capital-light productivity improvements. Our AMR products are already deployed in upstream CPG supply chain environments, and we see a positive opportunity to build on this business supported by a single, more simple commercial structure. We believe that opportunities like this will bring significant added value and optionality to our core OSP business, enabling us to grow an attractive new revenue stream in our tech solutions business alongside our core automation and fulfillment assets. Our solutions are very deployable in the case pick market for store replenishment. We highlighted this next piece in the half year, but I think it's really important that we continue to focus on it, which is about bringing the right fulfillment for the right market. To be successful today, retailers need to do careful network planning to make sure they deploy the right solutions in the right places at the right time in their development of their e-commerce journey. But we have a full toolkit to address those different opportunities. It's a framework for future growth, and it underlines some of the decisions taken in recent months. We can do everything from low-density solutions where you use manual pick in store with world-leading efficiency using our software. We can do manual pick in dark stores. As we mentioned, store-based automation before, we're going to focus on that in a moment, micro fulfillment centers as well as the large automated CFCs. The critical lesson that we've learned is that you do not buy a large-scale CFC unless you have a business to put through it. They are not a profitable asset if you don't use them. But if you do use them, they're great. So moving on with a little bit of focus on a CFC to start with. So a CFC can range from about GBP 150 million of annualized sales to over GBP 500 million in capacity. GBP 500 million is approximately what we refer to as a 6-module CFC. So if we take a 6-module CFC as an online case study, it can do about GBP 480 million of annualized sales in a standard sales pattern with kind of similar metrics to an Ocado Retail business. Today, to build a 6 module CFC requires both upfront fees and retailer CapEx to put in things like fridges beyond a standard developer spec shed of about GBP 50 million of investment. The benefit of running that at GBP 480 million of sales compared to doing this in store is somewhere in the region of GBP 30 million to GBP 40 million a year, meaning it is a 1- to 2-year payoff asset. These buildings are amazing if you can use them. And that really is the key lesson. Some of the buildings in North America were not being used and those retailers working with us have made the decision to close them, where these buildings can be used when you have an existing business or you can rapidly grow into these buildings, they are significant improvements for the same volume going through them. As I mentioned before, they deliver a far superior customer service, driving up significant NPS, resulting in significant uplifts as well in sales. So if you go into a building where you've got, say, recent examples, we built some 3 module sites. We've launched a 3 module site recently. We've got another one in build at the moment. If you've got 1 or 1.5 modules of business from your store pick to go into that facility, by the time you go into it and see the uplift and you've got strong growth, you're in a very good position to drive to full capacity and see significantly quick retailer cash payback. These have been -- these principles have been a key in the engagement with all partners at the moment and are reflected in those new CFCs that we're building. And this kind of thing is reflected as well in some of the CFCs that have opened with Coles, for example, putting significant volume into their new CFCs in Melbourne and Sydney in the year that they've opened. And you saw the positive comments from Leah just before. If we move on now to the other end of the spectrum, which is store-based automation. Here's a nice little visual of our store-based automation sites with the external pickup ports, the same on grid -- the same robots operating on grid, the same on-grid robotic picking. The one new piece being the external ports, a small development that we are engaged in at the moment. Store-based automation is a phenomenal product if you have a lot of customer pickup direct from store because you can process these orders really quickly and really efficiently compared to in-store. It's a phenomenal product if you have a lot of gig-based direct-to-customer deliveries from drivers picking up 1, 2 or 3 orders. They can also interact from those ports and those products can also be picked incredibly quickly from order to delivery. It is even more important if you're doing ultra short lead time delivery because when you pick ultra short lead time orders in a grocery store, the effective pick rate drops by about 70% because you're no longer able to batch and pick in the zones. You have to run around and pick a smaller order across the whole geography of a store for a single customer. And the pickup to doing it in our machine will be comfortably into the double -- a number above double-digit percentages in terms of efficiency improvement. Now if you take some markets, if we take a market like the U.S., for example, 8 years ago, the average store was doing $1 million to $2 million of sales. These machines wouldn't work sensibly to do $1 million to $2 million of sales, but markets have grown dramatically. And so here's an example of the sites that we've been talking to retailers about in the last few weeks that we've been able to speak to retailers in the North American market. And we're seeing significant enthusiasm for this product across every conversation that we've had with retailers in that market. Typically, sales in store could be anywhere from $5 million to $40 million online. I know the $40 million sounds like a large number. There are people who are interested in sites of those size. That's also a particularly relevant size for the French market, which is a 90-plus percent pickup market. But if we take a case study of a store with $12 million of sales, that's a fairly common size. That's 10% to 15% of a store that does $80 million to $120 million of store-based sales, now doing 10% to 15% online. The full retailer upfront fees to us and CapEx would amount to about $2 million upfront, we estimate, with a greater than $1 million a year operational improvement. This ignores the improvements in NPS. This ignores the benefits of increased capacity, which is suffering in a number of the larger stores and busier stores in these retailer networks. This is just pure labor savings, predominantly labor savings in these facilities, meaning that retailer cash paybacks of 2 years are quite possible in this space across all of the stores, across markets that are doing $8 million, $10 million, $12 million, $15 million, $20 million, $25 million, which in many markets now is the kind of average. If we look at the U.S., for example, when we entered into our exclusivity arrangements with Kroger 8 years ago, the U.S. grocery market was $30 billion in size. Next year, we're not ready to roll out store-based automation in mass scale at the moment. We're looking to do a couple -- a few handfuls of sites at the moment to prove all the different points around the costs and the execution. But by 2027, when we would look to roll out in scale, the U.S. grocery market is estimated to be 8x the size it was in 2018. This is why when people rolled out what they believed were micro sites 8 years ago, they tried to roll out one site to cover 5 to 10 supermarkets worth of volume. It created incredible complexity that doesn't exist today because today, each of those sites now needs $8 million, $10 million, $12 million e-com sales from the singular site. But also the difference today is that we can build these things in a fraction of the space that was being used with a fraction of the labor that was being used because of advances like our incredible AI-powered pixels to action on-grid robotic pick, which today is doing more than 50% of the picks in Luton across a 45,000 SKU range. Globally, since we entered into a number of exclusivity arrangements, the global market has more than doubled. And so we are super excited about reentering a number of markets where we're having some very interesting conversations with a large number of grocers and keeping Nick in his new role very busy. So in summary, we're reentering markets, with a tech solutions business with a simpler operating model, with a focused commercial operations and a strong R&D base. We're seeing strong interest in a massively evolved solution set with massively more flexibility, a wider fulfillment tool set and world-leading shopper outcomes. Our partners are seeing robust underlying growth, strong year-on-year improvements in operational performance, and we have learned important lessons. We now have stronger foundations of our key partnerships and clear pathways to deliver disciplined, sustainable growth worldwide. And on that, we'll start taking questions. Tim Steiner: Tintin knows I can't handle as many as 2 at once because I forget what they were. Tintin Stormont: Absolutely. Tintin Stormont from Deutsche Numis. Two questions. If we look at that graphic that you showed, the manual pick in store, manual pick in dark stores, and you look at the level of activity in terms of pipeline and trying to speak to customers, where is it sort of kind of busiest? Where is all the activity happening? And Stephen, for you, for those types of potentially new sales, how should we think about the revenue models? Is it more upfront fees? Or are we still thinking about the recurring fee as a percent of the capacity? That was actually one question. The second question was just a modeling one on Hatfield fees just in terms of how do we anticipate that GBP 33 million to come down over the next couple of years to 2027. Tim Steiner: Let me just try, and I might answer yours as well. Stephen Daintith: Go ahead I thought you might. Tim Steiner: The first initial interest from retailers in SBA is actually around their biggest sites, their busiest sites, where a number of retailers have maxed out capacity. So the kind of first focus is, oh, wow, can you do something that gives me more capacity in those locations? The brilliant thing about that is if you do that, it's going to simultaneously show them how much economically better they are and what better experience they deliver to shoppers. So when you look at the estate, there's an amount of the estate that is just something needed because they're maxing out capacity. And then there's the vast majority of the estate where once you realize what these things are capable of doing, you'll realize you've got a 2-year payoff. But most retailers won't turn down a product with a 2-year payoff that also gives them increased customer shopper outcomes and increased capacity. So there's a lot of interest. Markets are evolving and growing fast. And the more it moves to the shorter lead times, the more attractive the product is versus the manual alternative. I've tried to explain that before with the pick speeds. Globally, 180, 200 type pick speeds, if you're aggregating orders and segmenting pick walks and stuff like that, those drop to like 60 if you're running around frantically trying to get something ready for a courier in 5 minutes. In our store-based automation products, those will be picked over 1,000 -- a human pick endeavor will be over 1,000 UPH because the humans will be doing half over 500, okay? So just massive increases in efficiency. In terms of the fees on those sites, largely, we don't expect to have any significant outlay if we roll out that product. So the upfront fees should cover the majority of our investment into those sites, meaning that for a retailer, they're likely to have as a percentage of sales, a higher upfront outlay. But as it's a much more phased because you roll out store by store where you need it. So as a function where you need it, as we showed before, it's got a 2-year payback. So attractive on both sides. Our ongoing fees are likely to be slightly lower than our ongoing fees on the OSP product because we're not amortizing and financing as much equipment. And we'd aim to make a similar percentage of sales contribution to our R&D, SG&A profitability. The Hatfield fees have got a split that's about -- that's just about 60-40. So 60% of those fees will amortize over time as the equivalent amount of volume is taken down in new sites and 40% of those fees will remain until the end of the Hatfield lease. Marcus Diebel: Marcus Diebel from JPMorgan. Maybe just on the rollouts and ramps for your partners. We've seen some delays in Korea and Japan. Can you just talk a little bit more sort of like what's going on? Obviously, you don't want to like split hairs, but obviously, we had delays with Kroger and then a different outcome than we maybe thought. So if you just can tell us a bit more what actually happens there. Yes, that's the first question. Tim Steiner: So look, they're slightly different scenarios. One is Japan. Japan, we're opening 3 warehouses in a contiguous geography. So in fact, so long as there are a sufficient number of live modules, the exact timing of when the third site goes live is not hugely important because the volume is being done in site 1 and site 2. The site 3 isn't needed from a volume basis on that date, but it's about our clients building programs and about the time lines that they give us. We can get in and build very quickly. I think we speak about the fact that we built a warehouse from scratch and went live in 12 months this year from a greenfield site. So it's really just about when those handovers to us come. Sometimes those programs are set up and for whatever reason it is, it can be an internal reason that our client or it can be an external reason to do with zoning or commissioning or something like that. Those projects sometimes, we can't be sure at this point exactly when they're going to go live. In Korea, it's actually the first site is in Busan. The second site is in Seoul. Seoul is a bigger, more developed market. So we'd like to see that site live as early as possible, but we think it's a chance it's going to roll into next year. So we'd rather be transparent about that. We are with the client in store pick, and we are now seeing good growth on that platform and excited about the first launch later this year in Busan. Marcus Diebel: Yes. And the second question is just on sort of like we talked about it before. And what is your sense in regards to the sort of like urgency at your client base because we live in times of the technology evolves quickly, both software and hardware. So why is it now really the time to go the next step or to wait? I think previously, you commented on the analogy of an iPhone, at some point, you just have to buy it. But I obviously hear this a lot more at stage. So what is sort of like the kind of like situation where clients are in? Tim Steiner: Look, I think with most of our clients, they say they're seeing significant online growth. We saw 26% through the sites. And capacity is an issue at places outperforming their competitors in terms of shopper experience and efficiency and cost structures. And we keep coming back to the same kind of point. If you've got GBP 50 million of business and it's scheduled delivery and it's spread across a 3-hour catchment area, the best way to do that is in-store, right? There isn't an automated product that will help you to do that well. If you've got GBP 150 million of business or GBP 500 million of business in a 3-hour catchment, then the rightsized warehouse is the best way to do that. And the warehouses we would build today are half the size and 75% more productive than one we would have built 3 years ago, right? And so they're an ever-increasing attractive option. If you're doing -- if you've got a wide geography with not enough density to do that or you've got more immediacy business and pickup business, if you've got $2 million, $3 million at a single site, don't build store-based automation. It's not going to have a return yet. If you've got $5 million to $8 million annual growing, it's time to start considering building it. If it works as well as we expect it to work and can be built in the size and at the price we expect it to, that mean the economics work well for us and work well for -- even better for our partners. That's what we have to show in the next 12 to 18 months. But it is a question of people aren't wanting to invest in big J curves at this point. People aren't wanting to speculatively say, I think there's going to be a giant market in this place. I have nothing. I'm going to go and build a $0.5 billion capacity facility in this small city. When we're talking about something like, as you mentioned before, in Japan, this is not a small city. We're building facilities in Tokyo, okay, which is something like 40 million people living in the geography of those cities. So that's just an enormous market. But the likes of Calgary, people aren't going to speculatively build a 6-module site in the Calgary going forward unless they're already doing 3 or 4 modules worth of business in their store pick operations. Sarah Roberts: Sarah Roberts from Barclays. So just my first question, the Kroger and Sobeys sites that were closed seem to be in the underperforming category of CFCs that I think you've spoken about before. Just wanted to understand across the wider network, not having to give any details on specific partners, but how many CFCs are still in that kind of underperforming bucket? Or have those now moved to a level where you're both happy with the utilization. Just wanted to get a sense of any potential further downside across the existing network. Tim Steiner: I would say it's very limited downside at this point. I don't want to say there's 0, but there's very limited downside at this point. Sarah Roberts: Okay. Helpful. And then on the side of store and automation side, obviously, it's a little bit more of a competitive market versus potentially the full CFC model where you are the only player that can do that level of automation. So I just wanted to understand how you're seeing yourself positioned in the kind of micro fulfillment area, a bit of the warehouse automation market, why you deserve to win and how you're thinking of playing there, that would be really helpful. Tim Steiner: Absolutely. Look, I think the key things to make these work and what hasn't been understood before and where people have failed when they've rolled some out and not had the success they wanted for clients is based on a few things. One is just actually their understanding of handling grocery and the variation in grocery, the interaction with stores. And there, we obviously are in 1,000 stores today as well as delivering whatever, we think, we said 72 million orders last year across our platform. So we've got enormous knowledge that a number of these players just have got next to none. When we see people bragging that in the last 8 years, they've had this much volume go through a platform. And when we look at it, we've done that volume in the last 1.5 weeks, right? So we've got a depth of knowledge, number one. Number two is retailers want to do this in the smallest possible sites. And cubic storage is the densest storage for the products that you need to store, number one. And we have the solution, and we've spoken about this before, that can get the highest throughput from a square meter of grid, a square meter of processing because our bots are faster, accelerate faster, deaccelerate faster and our control algorithms allow them to work in greater density, and our single space bot patent means that nobody else can achieve the density that we can achieve. So in terms of using the least amount of space to generate the highest potential throughput, we are in the best place. That is significantly more relevant when you're trying to carve out a corner of a busy store in a city than that is when you're trying to put something in a massive warehouse outside of city. Our on-grid robotic pick is completely unique and one of the most advanced cases of AI being used in the physical world today. And by having at least 50%, we're at 50% already in sites in Luton, for example, by having more than 50% picked on the grid at the top of the grid, which is sharing the same air space as our moving robots, it's an immensely complex technical challenge. It removes the need to put human pick stations downstairs or to put robotic pick stations downstairs, which then take up twice as much space as the human ones did. But by removing that space, we're able to build these incredibly dense sites. So where we have spoken to retailers who have recently built or have been exploring building alternative sites to address the challenge of capacity, we are capable of building similar capacities that they've been talking to in less than half the space and with significantly higher range capabilities. And so we cannot see anything that has the capabilities that we have in this space. James Lockyer: It's James Lockyer from Peel Hunt. Two questions as well. First one, last time you spoke about how you managed to get Detroit up capacity by 50% because of some upgrades you've been doing. I think at the time, you said you think the entire estate could benefit from 30% over time. It would be good to understand how that's been going during the period and how you're seeing that benefit your own CapEx and OpEx efficiencies. Tim Steiner: So James, yes, look, we are over the design capacity in Detroit. We are over the design capacity in all of the -- everywhere other than Erith, in Dordon, the 2 oldest CFCs in the U.K., all the other ones are operating above design capacity. Continue to believe that we'll see at least the numbers that we outlined to you before. We are starting to achieve those. They are baked in as part of the plan for U.K. expansion over the next couple of years. And it's kind of what does it mean to a new warehouse? It's part of why a new warehouse can be only 50% of the size of what we built when we built those warehouses. So we're not able to get the full 100% uplift that you theoretically could today if you took the building again and built into it, but we are looking close to 50% in most of those sites in terms of their incremental capacity that they're going to be able to achieve. And the enhanced productivity, which is separately beneficial in terms of reduced labor also then means that if you can pick half of it with robots and you are picking 50% more, you are actually using less pickers than your original design, which means the outside of the building in the car park still works for you. You need to save some of those spaces for the extra drivers that you're going to have and now driving that increased volume. So there's a lot of considerations in making those changes. The one site that's most complicated in for us in the U.K. is Luton because we've got a third-party automated freezer in it. And that's the expensive part of building. Otherwise, it's very capital efficient for us and for Ocado Retail to achieve its next step of growth. And going forward for clients, their CapEx in a building that's half the size is materially lower, their ongoing rent rates and services are materially lower. The availability of sites is materially easier closer to customers when you start to be able to build these things in smaller buildings. Our space efficiency versus some others is just extraordinary. So we were talking to a retailer recently, and they said they weren't interested in big warehouses, and we said, no, of course, in their market, it wasn't relevant, store-based automation. I said, yes, that is what we're interested in, and we're looking at some sites already. And then they gave us the size that they were looking at. That to us was a warehouse. To them, it was store-based automation, but it was between 50,000 and 100,000 square foot. And for the volumes that they wanted, we'd have been looking at 10,000 to 15,000 square foot. So we're space efficient. James Lockyer: And then the second question was on the case study you gave around, I think it was the 25 DP8 on there, which is significantly better than the U.K. you mentioned at the time. Why do you think the reasons are specifically that, that was better? Was it density? Was it urgency from the clients? Was it just more savvy users? Why do you think it was better than the U.K.? Tim Steiner: We have some U.K. sites that we operate out of that are between 25 and 30 today. So it's like if you carve out -- that particular site has a geography that more reflects some of the sites that we've got in the U.K. as it's got a small radius around a warehouse doing a lot of volume, doing the full volume of the warehouse, you can do turnaround routes. So one of the challenges is you fill the van up, let's say, in the U.K., you can fill a van with 22, 23, 24 orders, there's -- it's then hard to go above that. So where we do 28 or so, it's because we have vans that are not working a single 8-hour shift on one route. So you have to do things like having 6 -- so in the U.K. in one of our sites, we do a lot of 6-hour and 10-hour routes. So we do -- the drivers alternate 3 of 1 and 2 of the other each other week. They do 38 hours, 42 hours, 38 hours rather than 40, 40, 40, and then we can offload a whole van in 6 hours or almost 2 vans in 10 hours. In some geographies, that's hard because the stem times are not there. And we are working on some longer-term quite complex and clever solutions to that to enable us to break through those numbers. But basket size and proximity and density and things like that come into it. Giles Thorne: Yes. Giles Thorne from Jefferies. Tim, there's been a lot of public discussion about Ocado and Kroger and Sobeys. And to my reading, a lot of it has ultimately been quite gentle on Ocado and most of the blame that people are looking to apportion blame has been put at the feet of Sobeys and Kroger. But nonetheless, it would be useful to hear your reflections with hindsight on things that you could have done differently that would have led to a more orderly outcome or a different outcome. And then the second question -- go ahead, Tim. Tim Steiner: No, no, go ahead. Giles Thorne: Second question is on -- I'd like to hear you talk about some of the compromises you've had to make on your innovation pipeline as a result of the cost efficiency program. Are there any bells and whistles that you wanted to build that have been put back up on the shelf and we'll have to wait for another time? Tim Steiner: Sure. Look, on the Kroger and Sobeys one, would I like to have built the warehouses that Sobeys wants to build in a different sequence so that instead of the third warehouse being in Calgary, would -- should I try to influence management to build it somewhere with a bigger population opportunity with more density that they already had in their network or something? Did we just accept the orders? Yes. Is that in hindsight, a bit naive? Yes. Could we have -- we know this because we've been working on it for the last 8 years, but could we build warehouses where a client could build a 3-module warehouse where a client could turn it on with 1 module and where we're -- economically that is a good warehouse for us even if that client never grows beyond 1 module? We're there today. We weren't there 8 years ago. So 8 years ago, we built 4s and 6s and 8s and 10s or 7s and 10s. And we insisted on clients opening them with 3 modules or 4 modules, which economically, we needed them to do because of the CapEx that we have put into those sites, and we even needed them to grow. But it was a big outlay. It was a big ongoing cost for the clients if they didn't fill them. We didn't have a strong enough sense they weren't going to fill them, and they haven't filled them. And so hence, they're a drag and a burden. Today, we've got 3 module sites going live, as I say, with 1 module down where the client is already doing 1 module before we put the spade in the ground in their store pick operations, expect to be at, let's say, 1.5 modules the day the site goes live, and we're allowing them to grow them in quarter module increments as opposed to having to grow them in 1 module increments. So we've been aware of the challenges of our early business model, and we've been working on that for the last 8 years. We obviously still have to live with the consequences of those early sites and those early decisions. So we need something that is economic for us and our partners at smaller size. We have it today. We need something that our partners can start with the smallest volume and the lowest kind of fixed outlays, and then can they grow it? And we're talking to clients about doing this in a more flexible way in terms of their charging and how that works with their growth that are massively useful for them and still work for us. So we're learning these lessons. Ideally, we might have built 2 warehouses -- might have signed 2 warehouses in 2018 and 3 warehouses in 2019. If we could have built the warehouses that we've got in a slightly more linear way rather than kind of pushed upfront, then maybe we could have learned some of these lessons earlier and helped our clients. And maybe if some of those 7 module warehouses where they were paying us for 3 modules had only been a 3-module warehouse and they've been paying us for 1, maybe there would have been a growth path to see that filling up and those would still be open. We're not blameless as such. But again, it's not our -- there are -- our partners are the ones that need to drive the acquisition of -- we can help them, and we are helping a number of our partners to understand how to best do online marketing, how to best trade an online business, but we need our partners having made a commitment to a site to try and work very hard to put volume into that site. Giles Thorne: And what does Nick bring that you didn't have before? Tim Steiner: Nick's got a huge depth of experience working with technology partners, accounts, clients, just kind of a much greater focus than we've ever had in terms of experience of doing large complex technology implementations where how to work with those clients to influence them to create the behavior that means we're both successful. I think one of the kind of combined naiveites between ourselves and our partners would have been kind of their view of we bought this amazing stuff, and if we just turn it on, we'll have a successful business. And obviously, we've been saying for a while, that's not the case, but we still don't have that element of control where even where we realize it, some of our partners have still behaved a bit like that. And we're kind of like, he's very good at getting in there and talking through that challenge and trying to get those retailers to realize what they need to do to contribute towards making their business successful and not just a view that because we've written some clever code and we've got some [ dwizzy ] robots, that means they've got a business. Giles Thorne: And so then on the innovation puts and takes. Tim Steiner: Look, we have that combo at the moment of some of the biggest projects that we did rolling off, reimagined and the re-platforming, which you will have noticed as -- well, I don't know you personally, but a number of you will have noticed as U.K. customers, the kind of the move -- the migration to OSP. That e-com migration and mobile app migration that happened in the summer at Ocado Retail was Ocado Retail moving the last part of its business on to OSP. They were the last of the 13 partners, Morrisons in the U.K. had migrated before. So that kind of catch-up of all the tiny bits of things that drive acquisition, retention, frequency, margin, basket, et cetera, are all in OSP, and it's an onward journey from here, as well as having got live in 11 markets with payments and currencies and regulations and laws and all that kind of stuff. Together with the rollout of Re:Imagined and efficiencies that are coming through in -- with AI in terms of not just coding, but testing and various things that mean that our overall productivity per person is significantly improving. What's not on the list is hard to say, but it's the more speculative stuff is not on the list. The core things that we want to do to deliver store-based automation, to deliver the growth in existing facilities in the U.K., in particular, to do with supply chain, and we talked about this at Re:Imagined called Orbit, continued work on helping our clients attract and retain and make it easier for shoppers to shop, continued attention on making it easier to run the platform for our partners and the rollout of short lead time orders. All these things are still in there, right? Everything that we really, really need is in there. We are going a little bit slower on some of the other opportunities to deploy our kit in other logistics supply chain scenarios. We have got continued spend to enable it to move up the grocery supply chain, but we could go faster on some of those points. And we may choose to, in the future, if we start to do some significant contract wins in those areas. So there are some things that are like show and tell, like we're doing those a little bit slower, where we -- maybe if we did them a little bit faster, we could then show something and maybe win some business. But it's a very tough process. We're being very rigorous on it. But we expect to get a significant amount of innovation in terms of features and functionality coming, and probably '27 will be a record year for us in terms of innovation. '26, we've got some -- I wouldn't -- I think it would be naive to say we're going to have a record year in '26 because of the disruption of actually going through the reduction in size, but I expect by '27, we'll be back at a record level of innovation. And the amount of change in the platform that we have achieved with this -- with all these amazing people in the last few years is incredible. And I tried to outline that in that slide before, the flexibility of the platform. It's not just the flexibility, it's the intelligence of the platform and so many different things it can do today. We have done so much innovation in that time period. It's amazing. William Woods: William Woods from Bernstein. I suppose the first question, historically, you've been quite cautious on the ROI and the ROC from smaller sites. And I don't think that was just capacity. I think that was operational complexities around the ability to store certain levels of SKU breadth and depth, duplicative picking, decamp complexities, all that kind of stuff. Have you worked out those operational issues? And if it does work, why haven't you built a 1 module site, for example? And I'll come to my second question in a second. Tim Steiner: The first one is what we can build today compared to what anybody could build 5 years ago is dramatically different, okay? The lighter weight bots, the third-generation lightweight bot can be deployed in a different way to the older heavier bots in terms of safety and crash barriers and stuff. And then the space savings that might be 1 or 2 grid spaces in a huge site is not massively relevant when you make it a tiny site is massively relevant. The weight going through the grids as a result of the bots and that weight accelerating at the same speed and therefore, the forces that need to be offset and what you need to do in the floor space is relevant. So if we built these 3 or 4 years ago, we need to start piling underneath supermarket floors and stuff. So there's just differences like that. The on-grid robotic pick taking up at least 50% today and moving towards 70% or 80% of the picking, again, simplifies the whole process. The remote monitoring and operations of our grids and our on-grid robotic pick, which we centralized into facilities in Bulgaria, in Mexico and in Manila, mean that we can run multiple sites, the reliability of the robots and therefore, not needing to have like live on-site engineers at every site permanently. Just there's a whole host of these reasons why this is viable now and we couldn't have built with our infrastructure 5 years ago. Now the people that did try and build things with different infrastructure 5 years ago just didn't have the process knowledge, didn't have the automation with the right throughputs, too much capital, too much labor, too much space. And they didn't succeed at what people wanted. But I think it's important to understand 2 things have changed. That's the supply side has changed, what we're able to do. But if you think back because at one point, we were going to get killed by a company -- because there's been loads of companies over the years, everybody said we're going to get killed by. And one of them at one point was a company called TakeOff, and TakeOff was the micro sites company, and they went around to the person that we didn't sell our OSP to and sold every one of their competitors, 1, 2 or 3 of those sites and said they were going to sell them each 1,000. They did sell them 1, 2 or 3. They never sold them the 1,000 and they eventually went bankrupt. The sites were, as I say, from a supply side, they were too big, they weren't efficient enough and the process flows just weren't good enough. The output wasn't strong enough, et cetera. But the demand side was different, too, because the demand side at the time was to make this site viable, you need a $10 million site or $20 million site and you're doing $1 million or $2 million a store. So they were like a mini where -- they were trying to do a mini version of our centralization where you've got -- so they kind of didn't have the benefits of our centralization, and they didn't have the benefits of being where they needed to be because they were only actually where one store was, whereas because the U.S. as a market has grown -- will have grown by the next year ninefold in that time, those $1 million to $2 million sites are now $9 million to $18 million. And so now you can have one of these things at each location. So the offsetting disadvantage of taking a $600 million site and splitting it into 60 can be offset by the advantages of being in that local geography, leveraging existing assets of that retailer and being able to do pickup in 30 minutes or in 5 minutes in store and being able to do ultra short lead time deliveries and working with the gig economy drivers that for a whole variety of reasons are significantly cheaper in the U.S. than a unionized labor force driving your own vehicles. Does that -- William Woods: Do you not think there's an issue with kind of holding a certain number of SKUs? Could you hold the whole SKU range of a store and... Tim Steiner: Yes. So this is your second part of question. We probably ought to take this offline if you want to. But we have a lot of experience of moving product and understanding how this can work. We've come up with some very good ways of doing this where the majority of the -- significant majority of the velocity will be in the automation. There will be some stuff that is not in the automation, but we will not be -- but our automation allows you to do a robotic merge. So you're not doing one of these things where you've got some pick from here, some pick from there, some pick from there and then humans need to try and marry that up and then deliver it somehow to a customer because the whole thing will be merged by robotics in our machine. But also we do carry already multi-SKU totes in our machine, so we can carry extensive ranges. We can replenish those ranges alongside the store replenishment for things of volume. We can replenish those ranges through batch picking in the store, but not for the specific customer, like keeping a SKU of -- a single item of each SKU in the automation, but not through an optimized pick walk on a batch basis, and we can merge in the rotisserie chicken and the sushi at the point of handing it over to the customer. So we are working through all of the challenges that we are well aware that have been encountered in this space. Today, people want to look at merging prescriptions from other sources, merging general merchandise. Our grid and some of our patents around our grid process, ones that we didn't license to our competitors in the cross-licensing are very important here and enable us to do things that drive, we think, unparalleled efficiency. We need to deliver it all. There's nothing that we're trying to deliver that we see as rocket science, as in on-grid robotic pick is rocket science. Obviously, it's not Starlink or SpaceX or whatever, but it's very, very, very complex. We've done the heavy lifting because we have that technology. There's just stuff we need to do around building up those processes, leveraging other things that we do. Like we already do store pick, so we know about optimized store pick. We just need to bring some of those bits together in the next year, build the first few prototypes for our clients, hope and believe that they'll be successful as we want them to do and then believe that there's an opportunity for thousands and thousands of them. William Woods: Great. And then just the second one was just on that prototype. Have you got a prototype that's working today that's delivering the economics that you put on the slide? Or is this still a little bit theoretical? And when should we get to a point where we can see one? Tim Steiner: It's probably -- it's on a spectrum. So you're kind of outlining 2 things, something nobody has ever built and something that's live and working in the exact size and format with all the pieces of equipment. I don't have that, but I'm also not here. I'm here, okay? I've got grids and bins and robots. I've got on-grid roboting pick. I've got early prototypes working of dispatch ports. I've got the software that runs the robots around. I've got the software that does the store pick. I've got software that does consolidation. So we've got and can illustrate most of the components. We can show small sites that we built small sites, but they were 10,000 square foot. They weren't 4,000 square foot. We've got and built -- we've got robots now running around in freezers, right? So we've got robots in chill, robots in -- ambient robots in freezers. We've got and tested robots moving between temperature zones, which is an important part of this. And to come back to your other question, so we're kind of -- we're here. We want to be here before we -- I don't want to sell thousands of them into [indiscernible], right? Because I don't want to take the responsibility of delivering thousands of them that we might not be able to hit the price targets and therefore, we'll need more capital or we might have the returns or whatever it might be. And we want to clear up those process flows when we're dealing with a couple of dozen sites, not when we're dealing with 1,000 live sites, right? We don't want to be deploying 3 sites a day at the same time as trying to make the first one work, right? Your first question is why not a 1 module site? And there are people who are looking at sites that are not probably 2/3 of a module. There's a point where there's some things that you can do when you miniaturize that will only expand to a certain size. And then when they expand to a certain size, some of the costs double. So for example, if you can run a single grid with a single maintenance area and you can have a part of those robots running into a chilled area, you can eliminate a whole maintenance area. That works to a certain size and a certain size, it just isn't feasible anymore, and I need to have 2 grids. At that exact moment, I need 2 maintenance areas. I need 2 wireless controllers controlling my bot fleets. I need more grid barriers and stuff like that, right? There's a cost uplift. And so there is this kind of area between the biggest of the micro store-based automations and the other sites where you kind of get into an area where you can see an increase in cost, but it's not really worth it for the increase in volume. You'd rather have 2 of these than 1 there. And then you get to a point where, no, I'm going to take that. Does that make sense? It's kind of -- so we model an enormous amount of data around what is physically feasible to be built. And we are talking to retailers for stand-alone sites, attached sites, ranges from 10,000 to 50,000 in the grids, throughputs from $8 million to $50 million, sizes from 4,500 square feet to 17,000 square feet, different use cases, right, different peak hours, different amounts of customer interaction, courier interaction. We've designed lots of different examples, and we're very good at simulating them and understanding what throughput should be available out of them. We just hope to build a few that are good examples. One of the challenges at the moment is actually saying no to a few people who want something that we could build, but we don't think that's the thing that we need to have thousands of, and we'd like to build a few of the ones that ultimately we believe there will be thousands of to show that concept to the world in a real-live 100% operating environment. [indiscernible] Thanks very much.
Operator: Good morning, and welcome to the Hilton Grand Vacations Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mark Melnyk, Senior Vice President of Investor Relations. Please go ahead, sir. Mark Melnyk: Thank you, operator, and welcome to Hilton Grand Vacations Fourth Quarter 2025 Earnings Call. Our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements and the statements are effective only as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our SEC filings. Our reported results for all periods reflect accounting rules under ASC 606, which we adopted in 2018. Under ASC 606, we're required to defer certain revenues and expenses related to sales made in the period when a project is under construction and then hold off on recognizing those revenues and expenses to the period when projects construction is completed. The aggregate of these potentially overlapping deferrals and recognitions from various projects in any given period are known as net deferrals. Please note that in our prepared remarks today, we'll only be referring to metrics that remove the impact of net deferrals, which more accurately reflects the cash flow dynamics of our financial performance during the period. To simplify our discussion today, we've uploaded slides to our Investor Relations site showing these metrics, which we'll be referring to on today's call. I'd urge you to view these slides on our website on investors.hgv.com. On Slide 2 of these materials, you can see the deferral adjusted metrics that we'll be referring to. Reported results for the quarter do not reflect $61 million of contract sales deferrals under ASC 606, which had the effect of reducing reported GAAP revenue and were related to presales of our Ka Haku and Kyoto projects. Also as shown on Slide 2, we recorded deferred $29 million of direct expenses associated with these revenues. Adjusting for both of these items would increase the adjusted EBITDA to shareholders reported in our press release by a net $32 million to $324 million. With that, let me turn the call over to our CEO, Mark Wang. Mark? Mark Wang: Good morning, everyone, and welcome to our fourth quarter earnings call. Before we begin, I'd like to take a moment to thank our team members around the world for their hard work and dedication over the past year to create memorable vacation experiences for our members and guests. 2025 was a year of meaningful progress for HGV. We consistently delivered against our strategic initiatives during the year, driving material growth in package sales, significantly improving our execution and further enhancing our HGV Max offering. As a result, we grew contract sales 10%, representing the highest growth since 2022, with EBITDA above the midpoint of our guidance. We also made investments in our lead generation capabilities, opening 41 new marketing sites with our partners at Hilton, Bass Pro and Great Wolf to support our future tour flow. We grew HGV Max memberships by 35% through the recent introduction of Max to our Bluegreen members, along with the continued demand from new buyers and upgrades in our legacy member base; optimized our financing business to structurally improve our industry-leading cash flow generation, including opening a new low-cost financing market in Japan, the first of its kind for any U.S. timeshare operator. And it enabled us to return $600 million of capital to our shareholders, achieving the target we laid out. Over the past 2 years, we returned over $1 billion to investors through share repurchases, and we remain committed to capital returns as the primary use of our free cash flow. Our strong 2025 results not only demonstrate the progress we made in integrating our business but they also underscore the advantages of our business model, backed by the strength of the Hilton brand with nearly 60% recurring segment EBITDA, a highly engaged base of over 720,000 members, including 266,000 Max members with substantial embedded value and an established differentiated experience platform in our HGV Ultimate Access. As we look forward to the year ahead, we continue to see a stable consumer environment overall, one where travel remains a top priority within consumer discretionary spending. With that consistent backdrop and much of the integration work behind us, we're carrying significant momentum into '26, putting us further down the path to achieve our long-term algorithm of resilient, profitable growth and material recurring cash flow generation to enhance our shareholder value. Our guidance today represents another step toward that goal, reflecting low single-digit contract sales with mid-single-digit EBITDA growth, along with strong cash flow conversion, which Dan will get into shortly. Next, I'd like to provide an update on our strategic priorities and the progress we've made on our integration work. Our strong results were achieved through disciplined execution against our 4 strategic priorities, which continue to guide the organization as we've moved into the new year. First, attracting new customers in a cost-efficient manner; second, enhancing the lifetime value of our member base; third, product evolution and innovation; and finally, driving operational excellence. Starting with the first priority of cost-efficient new member growth. We drove strong tour growth in the fourth quarter while expanding margins and maintaining our sales and marketing cost ratios. Consolidated tours grew nearly 9%, supported by strong package sales over the last several quarters, along with strong local arrival. Importantly, we surpassed our pro forma consolidated 2019 tour flow levels, which is a nice milestone. We continue to focus on tour quality as we leverage the strength of the Hilton brand across our portfolio, added new lead gen partners like Bass Pro and executed against our acquisition, integration and efficiency initiatives. We also sharpened our data analytics and processes with a focus on optimizing cost per tour by customer segment and channel to maximize flow-through. And we continue to expect to drive new buyer growth in '26, which is embedded in our guidance. That new member focus ties directly into our second strategic priority, which is to grow the lifetime value of our member base. The introduction of HGV Max has exceeded our expectations with sustained adoption that has driven a greater than 20% increase in lifetime value of a Max member versus a non-Max member. In the fourth quarter, we saw material growth from Bluegreen new buyers and owner upgrades. And importantly, 4 years after our initial launch, we've also continued to see our legacy club members upgrade into Max as well. We expect that demand to continue as we introduce new guests to our offerings and further enhance the value proposition of Max membership. In addition, we strengthened our customer service and rolled out new AI-based tools to drive engagement and help members make the most of their ownership and vacation experiences. Our third strategic priority is product evolution and innovation to position our brand for sustainable growth. One area where we're continuing to evolve is our scaled differentiated experience platform, HGV Ultimate Access. 2025 was our biggest and most successful year of Ultimate Access. We hosted over 137,000 attendees, a more than 15% increase in participation from the prior year. In 2026, you'll see us introduce several innovations across new categories of events, enhanced booking options and new pricing tiers to broaden accessibility to the Ultimate Access platform. In addition, we'll continue to enhance our HGV offerings with new features and benefits throughout the year. The final strategic priority is driving operational excellence, which is at the core of everything we do at HGV. This focus was a driver of our performance in the fourth quarter and building upon that success to drive incremental operational and asset efficiencies will be a key focal point in '26 and beyond. Operational excellence also extends to our integration efforts. I'm happy to say we reached our $100 million in cost synergy target during the fourth quarter, several months ahead of schedule. It's a great achievement for our teams, and I'm proud of their hard work to hit that goal. And we remain committed to managing costs and further improving our efficiencies from here. Branding front, we've now rebranded our targeted Bass Pro locations, including more than 125 this past year. In addition, we're well underway with the rebranding process for our Bluegreen Resorts with 8 properties completed in '25. We're on track to have roughly 10 additional rebrands completed this year and the remaining 10 in '27. So in summary, I'm happy with our performance this past year. We continue to demonstrate the strength of our differentiated model, and we made a lot of progress on the path towards our long-term algorithm. Our teams are all executing well in the field. We continue to innovate and evolve our offerings, which is showing in our results. As I look forward to the year ahead, our focus is on growth, innovation and efficiency to drive additional progress this year. So with that, I'll turn it to Dan for more details on the numbers. Dan? Daniel Mathewes: Thank you, Mark, and good morning, everyone. 2025 was a year of strong progress for Hilton Grand Vacations. Contract sales grew by 10% for the full year with both our owner and new buyer channels contributing to a positive sales growth. Additionally, the growth was driven by a mix of both strong VPGs and tour flow growth, driving 140 basis points of margin expansion in our real estate business. We achieved our goal of realizing $100 million of run rate cost synergies associated with the Bluegreen acquisition, slightly ahead of our 24-month post-close target. These factors, coupled with a strong fourth quarter performance, put us well into the upper half of our guidance range with adjusted EBITDA of $1.15 billion, growing 4% over the prior year. In addition to our operating performance, we augmented the long-term cash flow generation of the business by executing on our finance business optimization. We ended the year with 73% of our current receivables securitized within our target range of 70% to 80% and compared to a 55% run rate prior to the program's inception. As part of our optimization, we introduced timeshare ABS to the Japanese market, unlocking a new funding source at an attractive cost of capital. For the year, we generated adjusted free cash flow of $756 million or more than $8.25 per share, and we returned $600 million or 79% of that cash flow to our shareholders, repurchasing nearly 15 million shares to reduce our float by over 20%. Turning to our results for the quarter. Total revenue before cost reimbursements in the quarter grew 1% to $1.3 billion. Adjusted EBITDA to shareholders grew 12% to $324 million with margins, excluding reimbursements of 26%, up 250 basis points over the prior year. Within our real estate business, contract sales grew 2% to $852 million. We did a great job during the quarter of converting the package pipeline that we have built over the course of the year. Tours were up 9% year-over-year to 225,000, driven by growth in our new buyer as well as our owner channels. Our strong fourth quarter tour performance also enabled us to surpass our pro forma 2019 tour flow levels for the first time. So I'm really pleased with the result of our efforts. New buyers represented 24% of contract sales mix in the quarter. As we anticipated, VPG of nearly $3,800 declined against the prior year, owing to a difficult comparison from the launch of HGV Max to Bluegreen owners as well as the strong performance of our Ka Haku project during the initial introduction. Cost of product was 12% of net VOI sales in the quarter, down 290 basis points from the prior year, but consistent with levels we've seen throughout 2025. Real estate sales and marketing expense was 46% of contract sales, which improved slightly against the prior year. This reflects the monetization of some of the tour flow pipeline investments we made earlier this year as a portion of that expense was recognized when packages were actually sold in prior periods, but it also reflects the efficiency efforts the team has made during the quarter. Given the increased contribution from tours this quarter, which carries higher marginal expense, I'm really proud that the teams were able to manage costs so effectively to maintain our cost ratio against the prior year. Real estate profit was $177 million in the quarter with margins of 28%, up 150 basis points over the prior year to the highest level we achieved since 2023. In our financing business, fourth quarter revenues were $134 million and profit was $81 million with margins of 60%. Excluding the amortization items associated with our acquired receivables portfolio, financing margins were 63%. Looking at our portfolio metrics, our weighted average interest rate for originated loans was 14.6%. Combined gross receivables for the quarter were $4.3 billion. Our total allowance for bad debt was $1.2 billion on that $4.3 billion receivables balance or 28.6% of the portfolio. The portfolio remains in great shape overall. Our annualized default rate for our consolidated portfolios was 9.86% for the quarter, reflecting another 24 basis points of improvement from the third quarter and marking our third straight quarter of sequential improvement in our default rate. And as of year-end, our legacy HGV and DRI 31- to 60-day delinquencies are level with prior year, and our Bluegreen delinquencies are actually 28 basis points lower than the prior year, continuing the trend of credit outperformance on our originated platform. In late summer, we made meaningful changes to strengthen and streamline our underwriting processes, focusing more on equity at the point of sale, which we see as the primary driver of defaults. The result has significantly increased the equity and cash from both new buyer and upgrades, which should further improve our loan portfolio performance as we look into 2026. Fourth quarter provision of 18.1% of contract sales was slightly above our long-term target for a mid-teens rate and sequentially higher than Q3's level of just under 17%. This was largely a function of fourth quarter seasonally strong owner upgrade trends, particularly on the Bluegreen portfolio, where upgrades accounted for 76% of sales during the quarter. As owners upgrade out of the acquired portfolio, the provision release for the old loan shows up in the financing segment, which was the primary driver of margins in the finance segment being up over 700 basis points year-over-year despite an interest headwind from our previously disclosed financing business optimization program. Assuming similar mix and economic backdrop, we expect the provision to be down sequentially in the first quarter of this year and feel good about the provision in mid-teens as a percent of contract sales for the full year of 2026. As a reminder, our expectations for the financing optimization program was that it would drive an increase in our consumer interest expense during both 2025 and 2026 as we achieve our run rate securitization target of 70% to 80%. We have several ABS deals slated for the first half of this year, including another offering in the Japanese market, which will help us achieve our full targeted run rate of term securitization receivables on an annualized basis. In our resort and club business, our consolidated member count was over 720,000. Revenue grew 6% to $219 million for the quarter, and segment profit was $160 million with margins of 73%, growing 170 basis points versus the prior year, reflecting the consistency of our recurring resort and club business. Rental and ancillary revenues were up 2% versus the prior year to $178 million with a loss of $8 million driven by developer maintenance fees. Revenue growth in the period was driven by higher available room nights and an increase in our overall portfolio RevPAR. While we continue to see solid demand from our stand-alone rental business, developer maintenance fees remain the largest driver of our rental ancillary business segment profitability trends. Inventory management is a priority for our teams this year. We're focused on reducing the burden of those developer maintenance fees by working down our inventory balance through a combination of organic as well as inorganic means. Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA, JV EBITDA was $3 million, license fees were $57 million and EBITDA attributable to noncontrolling interest was $5 million. Corporate G&A was $42 million or 3% of pre-reimbursement revenue, down slightly from the prior year. Our adjusted free cash flow in the quarter was $414 million, which included inventory spending of $103 million, representing an adjusted EBITDA conversion rate of 128%. For the full year 2025, we converted 66% of our adjusted EBITDA into adjusted free cash flow or over $8.25 per share. As we discussed at this time last year, with the launch of our financing optimization, 2025's conversion rate would be above our target long-term rate of 55% to 65% before returning to that long-term range in 2026. During the quarter, the company repurchased 3.5 million shares of common stock for $150 million to achieve our targeted $600 million of repurchases in 2025. January 1 through February 9, 2026, we repurchased an additional 1.9 million shares for $89 million. As of February 19, we had $339 million of remaining availability under our current share repurchase plan. We remain committed to capital returns as the primary use of our free cash flow in 2026 and believe our shares continue to represent a compelling value. As we look at 2026, we expect to maintain a robust pace of repurchases of approximately $150 million per quarter with the aim of not increasing our leverage through those repurchases. This will enable us to continue to return capital to shareholders without adding additional corporate leverage to the business. Turning to our outlook. We are establishing 2026 guidance of adjusted EBITDA before deferrals to be between $1.185 billion and $1.225 billion. Two important expense headwinds are taken into consideration in our 2026 guidance. The first item is regarding our license fees. During 2026, we will experience the annualization of the final rate step-up on our Diamond business as well as our second rate step-up on our Bluegreen business. We estimate that these items combined will be approximately $15 million to $20 million for the full year. With the Diamond step-up being fully realized by August, the majority of the headwind will be realized in the first 3 quarters of the year. The second is the annualization of our finance business optimization. Consistent with our original expectations when we initiated the program, we expect that this will negatively impact the year by approximately $10 million to $15 million, with the majority of the impact being felt during the first half of the year. Our full year guidance also embeds low single-digit contract sales growth. As Mark mentioned, we expect this growth to be driven by tour flow this year. Specifically, our current expectation is that VPG for the full year will be down slightly as we lap the elevated growth rates from 2025. However, despite that increased mix of tours, which generally deliver lower flow-through than pure VPG changes, we still expect to maintain adjusted EBITDA margins consistent with where we ended 2025 due to continued execution against our efficiency initiatives. In regards to the cadence of the year, our current expectation is that contract sales and EBITDA in the first quarter will be flat to slightly down as we lap the near-record VPGs in Q1 of the prior year that were driven by the strong initial launch periods for HGV Max and Ka Haku, along with the anticipated expense headwinds associated with the expected step-up in rates for our license fees as well as consumer finance interest expense as we analyze the ramp of our finance optimization program. We expect EBITDA to improve sequentially in each successive quarters, consistent with sales growth, execution against our efficiency initiatives and as the expense headwinds subside. As I mentioned, our adjusted free cash flow conversion this year will fall within the long-term range of 55% to 65%. We expect that our 2026 conversion rate will be in the lower half of that range as we wrap up the spending on our Ka Haku project ahead of its anticipated opening later this year. But as our level of annual inventory spend trends towards a maintenance level in the upcoming years, we expect to move higher within that target range. Moving to our liquidity. As of December 31, our liquidity position was over $1 billion, consisting of $239 million of unrestricted cash and $809 million of availability under our revolving credit facility. Our debt balance at quarter end was comprised of corporate debt of $4.5 billion and nonrecourse debt balance of $2.7 billion. At quarter end, we had $235 million of remaining capacity in our warehouse facilities. We also had $943 million of notes that were current on payments but unsecuritized. Of that figure, approximately $374 million could be monetized through a combination of warehouse borrowing and securitization. While we anticipate another $388 million will become available following certain customary milestones such as first payment, deeding and recording. Turning to our credit metrics. At the end of the quarter and inclusive of all anticipated cost synergies, the company's total net leverage on a TTM basis was 3.78x. We will now turn the call over to the operator and look forward to your questions. Operator? Operator: [Operator Instructions] The first question is from Patrick Scholes from Truist Securities. Charles Scholes: Question, then I'll have a follow-up question here. You did briefly talk about quarterly cadence for 1Q, but I'm wondering if you could touch on, if possible, quarterly cadence expectations for the other quarters and also specifically within that expectations by quarter for tour growth and VPG. Mark Wang: Sure. Thanks, Patrick. Yes, let me kind of frame it up a little bit, and then I'll have Dan kind of jump into some of the details here. But I think, first, I'd say we made really good progress in '25 on both operational and from a financial perspective. When you think about the investments we made in our lead flow, that gives us a lot of confidence about our tour flow coming in this year, controlled our costs, especially you saw that in the second half of the third quarter and fourth quarter, grew both contract sales and EBITDA and grew both our tours and MVPGs and our real estate margins, which really led to this leading industry cash flow generation over $756 million. So -- and then as we've been talking about, we continue to buy back shares, and we had a record $600 million last year. So as I take just a step back here, as you look at how we're tracking against our targeted algorithm of consistent top line growth with EBITDA growing a bit faster and strong free cash flow, I think we're on a really good path. I'd say in '25, we were a bit below that algorithm with strong contract sales growth, but EBITDA growing more slowly due to the investments we put in the business. But as we look into '26, our guidance today really reflects us tracking better and closer to that algorithm with EBITDA that we expect to grow slightly ahead of sales for the year. So -- and that really is about the tour flow generation. And with that, we expect strong cash flow generation. So anyways, so I think we're tracking really well towards unlocking our earnings and cash flow power of the business and getting us set up on the right path toward that long-term algorithm we've been working on. I don't know, Dan, if you want to hit on some specifics on the VPG and EBITDA for the year. Daniel Mathewes: Yes. No, absolutely, Patrick. I know we talked about it a little bit in our prepared remarks. But when you think about Q1 specifically, we're looking at high single-digit growth on the tour flow side, mitigated by high single-digit decline on the VPG side, which is as expected and very consistent with what we saw in Q4 given the tough comps. As we look on the cost side, there are some pressures. I mentioned the license fee pressure as well as the financing business optimization. The one thing I'd also point out is from a provision perspective, we look to return to that mid-teens level for the full year of 2026. And if you look at year-over-year, Q1 was favorable to that last year. So there's a little pressure on that side. Those components really yield to that slightly down EBITDA in Q1. But when you think about it sequentially throughout the year, we're really going to capitalize on all the package pipeline work that we did last year. You'll recall, we saw some outsized package performance, in particular, in Q2 and Q3 last year. Those will be playing out this year. And we see strong tour flow growth, coupled with easier comps as we progress out the year. Clearly, Q1 being the toughest comp with the first full quarter launch of HGV Max to the Bluegreen owner base. And as we progress throughout the year, those headwinds, in particular, the license fee with the Diamond being fully ramped starts to fall away in Q3. And then the optimization of the financing business should be fully annualized by the time we hit midyear. So it helps sequential growth for EBITDA from quarter-to-quarter to quarter-to-quarter throughout the year. So that's how we see it playing out. So a lot of details in there. So if you have any follow-up, happy to address those. Charles Scholes: Okay. And then actually, my follow-up question is to you, Dan. Just with that uptick in the 4Q loan loss provision, you called out it having to do with upgrades to legacy existing Bluegreen owners. Can you -- there, I say, talk a little bit more about the sausage making into that. There's definitely a little bit of confusion out there of why such a step up. And if you could just help clear the air a little more color and detail around that. Daniel Mathewes: Yes. No, absolutely. Very important question. And it's one of those scenarios where purchase accounting still is coming into play since that acquisition is relatively recent. First, though, what I would like to say is the portfolio in general is performing extremely well. I talked about in my prepared remarks, about us making meaningful changes from the underwriting process. A little bit of an oversimplification, but a key aspect of that was eliminating a program that Bluegreen had in place. We've accomplished this about midyear in 2025, where we're now requiring additional capital down -- additional deposits down from the consumer as they upgrade in particular. Previously, Bluegreen allowed for a no cash upgrade option. And what we've seen is material upticks in the deposits, especially in the Bluegreen side that have yielded strong performance on those originated loans. So those are -- that performance is improving. We talked about the 31- to 60-day delinquency rates. On the HGV and the Diamond side, they're holding steady year-over-year, even sequentially, and the Bluegreen has actually improved by 20 basis points, which is good to see. And we expect that improvement to continue, especially with the change in the underwriting. Now from just a geography purchase accounting item and how you saw an uptick in Q4, the -- how it works from an accounting perspective is when someone in the acquired portfolio upgrades into an originated portfolio, the release of the reserve associated with that original loan actually goes through financing to the extent there's not already a reserve in place. And then you fully reserve the new loan into the real estate business, and that goes into the percentage count. So you're effectively reserving a full balance on the new loan even though you're only recognizing incremental contract sales, which yielded an optic -- uptick to that provision rate. But just to avoid any confusion, we're very happy where our portfolio sits and fully expect to be in that mid-teens range in 2026. So we'll see that tick down in Q1 and remain lower throughout the year in 2026, obviously, assuming no material deterioration in the macro environment. Operator: The next question is from Ben Chaiken from Mizuho. Benjamin Chaiken: I think maybe stepping back a little bit, excess inventory has been a headwind on the rental side for you guys, but also the entire industry broadly driven by the developer maintenances. If I caught you correctly, I think you mentioned there were -- and maybe I'm conflating 2 comments you made, but I think you were referencing some organic and inorganic ways to bring down that inventory again, if I caught you. One of your peers recently took some strategic action. Would it make sense to streamline some of your assets and locations? Why or why not? And then again, did I hear you correctly? Mark Wang: Yes. No, I think you heard us correctly. we've got through a very thorough financial brand and market analysis on the properties that we have in our portfolio. And we picked up a lot of really good inventory in the acquisitions and a lot of great markets. But ultimately, we're looking to try to optimize the portfolio for both our members and our shareholders. And as we've discussed in the past, some of the inventory that we acquired just doesn't align with our long-term vision for the portfolio. So I think as we get closer to making a final decision on our plans, we'll provide a lot more detail. But I think you've heard it from our competitors and you're hearing it from us. This is really nothing related to legacy HGV. That product is in great shape, and we feel like we've put the best new product in the market within our sector over the last decade. So that's in great shape. It's just really when you acquire 2 companies like that, there are properties that just meet the portfolio requirements. So we're looking at it, and we'll give you an update as soon as we have a final plan. Benjamin Chaiken: Got it. And recognizing you may not want to bite on this one, but any way you could maybe ballpark a range of number of assets? Mark Wang: No, I think we're still in the middle of the analysis. Look, we've been working on this for a while, but I prefer to wait and give you the bigger picture and a more concise program that we're looking to move on. Benjamin Chaiken: Okay. And then just as a quick follow-up, just any thought process on -- or maybe more color on your philosophy around buybacks. Is $150 million a quarter kind of the right number? Why not more, just given kind of the amount of free cash flow generated and your valuation? Daniel Mathewes: That's definitely a fair question. It clearly is our primary directive when it comes to -- well, primary choice of use of capital these days as the stock is a compelling value at these levels. And we anticipate continuing at $150 million per quarter. What I would say from our mindset is we're not of the mindset that we want to increase our leverage ratio to repurchase shares. We're very comfortable with the leverage that we're operating at today, which is actually a downtick from where we were prior quarter and year-over-year. But at the same time, levering up the company to buy back shares, given the robust level of the share repurchase program that we currently have in place is not what we're looking to do. That's why we are very comfortable at the $150 million level per quarter. Operator: The next question is from Stephen Grambling from Morgan Stanley. Stephen Grambling: I may have missed this in some of the opening remarks, so apologies. But I think this is the first year where NOG turned slightly negative. And that was kind of like a hallmark, I think, of the story relative to some of the peers. Maybe if you could just shed some light on some of the underlying dynamics there. Obviously, on the last comment about maybe club management, does that have any impact on owner growth that we should be anticipating? And do you expect it to maybe stabilize at some point going forward? Mark Wang: Yes. No, Steve, this is Mark. First, I'd say that I think when you look at our business right now, and it got a lot mature with these acquisitions, right? With the Diamond acquisition, that was -- the strategy was a roll-up strategy, and they acquired 11 companies over time and some of those companies go way back and -- as far as 40, 45 years back. And so you have a situation where some of these owners, some of these members have been in the system for a long time. And we continue to work with them to exit them out appropriately based on a one-by-one analysis of that. So we have some pressure on that side. I'd say the good news is we have generated -- when you look at Max since we rolled out, we've got 266,000 new Max members in less than 4 years. And of that, 175,000 are new buyers, meaning they bought within the last 4 years. So we continue to bring new members in the system. And we've talked about it, I think, on the last call, a new member, the lifetime value is 6x what a member that's been in the system for 15 years. So -- and when you look at our Max membership base, 50% of that base is -- the tenure of ownership or membership with us is 5 years or less and nearly 70% are 10 years or less. So we continue to build lifetime value into the business and more recurring revenue. And so it's just part of the equation. It's part of the business. And for HGV, when we were stand-alone before the acquisitions, we were a younger company, I'd say, only in the business for around 30 years versus we acquired some of these companies that have owners that have been in the system longer. So look, our focus continues to be on driving new buyers on an absolute basis. We believe we've been driving more new buyers on an absolute basis into our system than anybody in our sector, and we'll continue to stay focused on that. Operator: The next question is from David Katz from Jefferies. David Katz: I wanted to just talk about the sales force a bit. Such an important driver in this business. Where are you, would you say, in terms of having the force where you want it? Are there any sort of strategic changes or personnel changes or anything like that, compensation structures, et cetera? Give us a kind of lay of the land there, please. Mark Wang: Yes. So first of all, a big shoutout to our sales force because they do an amazing job. If you think about 2024, we broke through a barrier, $3 billion barrier in contract sales, and that wasn't good enough. They grew at 10% last year, right? So I don't know of any other company that's ever hit $3 billion nor grew at 10% at that level. So we got a great sales force. Dusty Tonkin leads our team there. We've got great leadership with Mike Reilly under him, a great team out there. So we feel really good about our teams. It's -- are we exactly where we want to be? Absolutely not. You always want to be improving. One of the things that you have to think about for us, and we're still continuing to evolve is -- we went from a business back in 2019, where 85% of our business was generated out of 7 markets. Now we're in 40 markets. So we historically were very focused on large markets, and I think we continue to dominate in those large markets. But we also are now -- have developed a lot of mid and small markets. And so those are markets where we continue to build our teams and our capabilities, but I'm very, very pleased with the progress we're making. We've got a great team, and they continue to drive results. Operator: [Operator Instructions] There are no further questions at this time. Before we end, I will turn the call back over to Mark Wang for any closing remarks. Mr. Wang? Mark Wang: All right. Well, thank you for joining the call today and another thank you to our team members for the strong year of execution and, most importantly, for taking care of our members and guests. I'm extremely proud of what you've accomplished, and we look forward to updating you on our Q1 call. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to Perrigo Q4 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 26, 2026. I would now like to turn the conference over to Bradley Joseph. Please go ahead. Bradley Joseph: Good morning, and good afternoon, everyone. Welcome to Perrigo's Fourth Quarter and Full Year 2025 Earnings Conference Call. A copy of the release we issued this morning and the accompanying presentation for today's discussion are available within the Investors section of the perrigo.com website. Joining today's call are Perrigo's President and CEO, Patrick Lockwood-Taylor; and CFO, Eduardo Bezerra. I'd like to remind everyone that during this presentation, participants will make certain forward-looking statements. Please refer to the slides for information regarding these statements, which are subject to important risks and uncertainties. We will reference adjusted financial measures that are non-GAAP in nature. See the appendix for the earnings presentation for additional details and reconciliations of all non-GAAP to GAAP financial measures presented. Finally, Patrick's discussion will address only non-GAAP financial measures. Now to the agenda. We have several topics to cover today. Patrick will first walk through a market overview and summarize fourth quarter and full year 2025 results. We will then cover our continued progress on the Three-S Plan and our transition to new reporting segments, which will begin in the first quarter of 2026. Finally, to walk through our 2026 outlook, after which Eduardo will cover 2025 segment highlights, balance sheet and capital allocation, our operational enhancement program and close out with further details of our '26 outlook. And with that, I'll turn it over to Patrick. Patrick Lockwood-Taylor: Thanks, Brad. Good morning, good afternoon, and thank you for joining today's call. 2025 was a year of meaningful progress for Perrigo. We continue transforming the company into a world-class consumer health leader, and the results of that work are increasingly visible in the marketplace. We are winning with consumers and customers, and that momentum is reflected in the strong market share gains and incremental business we secured with key retailers. These wins are a clear sign that our strategy is embedded and delivering. Despite a soft market environment, we delivered EPS in line with our revised guidance, a solid improvement versus the prior year. And we made strong progress on our Three-S Plan to simplify, streamline and strengthen the business even as the infant formula business continued to face structural challenges that affected both our financials and our outlook. Our outlook for 2026 reflects the realities of the current market and the work required to offset headwinds as we enter the year, which we believe are temporary. We expect the environment to improve in the second half, and we remain confident in our ability to build on our progress and position Perrigo for long-term growth and value creation. Even as the U.S. OTC market was challenged, we gained solid market share across most of the categories where we compete. Importantly, our share gains accelerated throughout the year, reversing years of decline. As consumers traded into store brands, we strengthened our partnerships with retailers, gaining over $100 million in new distribution and competitive takeaways and improved in-store execution. This is significant. This speaks to the underlying health of our business and the fact that we are winning back with both consumers and customers. We are seeing the same positive momentum in Europe. Our key brands are gaining share despite a soft market environment and our brand building, innovation and go-to-market efforts are translating into stronger marketplace performance. The share gains we are seeing across both regions reinforce that our strategy is working. We remain committed to making essential self-care accessible to everyone, leveraging more than 250 molecules and formulations across all price points and value tiers and the power of our scale, which is roughly 10x that of our nearest competitors. Turning to our financial results for the fourth quarter and full year 2025. As outlined in our press release this morning, we are providing results through 2 lenses: All-In and CORE Perrigo. All-In reflects our historical operations, while CORE Perrigo reflects our go-forward business, excluding infant formula and announced divestitures, primarily the Dermacosmetics business. To provide greater clarity into underlying performance, I will highlight results for All-In and CORE Perrigo. For the full year, despite soft market conditions that impacted consumption and net sales, we delivered strong operating income and EPS growth through operational rigor and disciplined cost management. Our All-In business grew operating income by 2% and EPS by 7%, finishing at $2.75, right in line with our revised guidance. CORE Perrigo operating income was up 7%, with core EPS up 14%. In the fourth quarter, market weakness continued to weigh on results. CORE Organic net sales declined 2% in the quarter despite strong share gains. And CORE operating income declined by $4 million or 2%, resulting in CORE EPS of $0.76, a decline of $0.02. Importantly, we made significant progress on our Three-S Plan in 2025. First, we stabilized our store brand business, evidenced by solid share and distribution gaps. We also stabilized supply in infant formula, recovering service levels above 90% even as demand recovery slowed and competition intensified. Second, we streamlined the business, focusing our portfolio through actions such as the announced sale of the Dermacosmetics business, which is expected to close in the second quarter of this year, pending final antitrust clearance and continuing to assess the role of Infant Formula and Oral Care. We also executed major efficiency initiatives, including Project Energize and supply chain reinvention, totaling $320 million in benefits, which drove improvements in operating income and EPS. This cost discipline will continue in 2026, which Eduardo will detail shortly. Third, we strengthened our portfolio and capabilities. Our key brands gained share, our innovation pipeline tripled in value versus the prior year, and we deepened retailer partnerships with next level demand generation capabilities. With our new category model now embedded and our executive team fully in place, we believe we are well positioned to drive end-to-end enterprise performance and to continue executing our Three-S Plan. Beginning with our first quarter 2026 results, we will introduce new reporting segments: Self-care, Specialty Care and Infant Formula. Oral Care, Dermacosmetics and other smaller distribution brands will be reported in Other. This new segmentation aligns with our global operating model and enhances transparency across our categories. It also provides a clear view of CORE Perrigo, business that will power our future. Now turning to our 2026 outlook, which reflects challenging market conditions and the actions necessary to combat temporary headwinds. As mentioned, we expect OTC market consumption to remain negative in the first half of 2026 as consumption so far in 2026 has further weakened in the markets we operate due in part to a soft cough and cold season compared to the prior year. So, the sales in the U.S. OTC market are down 5.1% over the last 13 weeks versus a year ago compared with a 4.3% decline in the fourth quarter and a 1.2% decline for full year 2025. Due to this slow consumption, retailers are also adjusting their inventory levels to current demand. This will be particularly noticeable in our first quarter results given this number and the scale of challenges we face. Amid these slow market conditions, however, we expect to grow share ahead of the market. Building on our 2025 momentum, 2026 performance will be driven by consumer-centric innovation, amplified demand generation with top customers, targeted and opportunistic geographic expansion for our priority brands and continued distribution gains. We also anticipate temporary but significant impact from plant under absorption stemming from lower sales volumes in 2025 for both OTC and Infant Formula. This translates into an unfavorable EPS impact to all CORE Perrigo in 2026 of approximately $0.60. For CORE Perrigo, we expect organic net sales growth in 2026 to range from negative 3.5% to positive 0.5% compared to 2025, with CORE EPS in the range of $2.25 to $2.55. We view 2026 as a transition year as we work through near-term headwinds and impacts from temporary underabsorption and market softness. We remain confident that our differentiated strategy, the stronger consumer base we built in 2025 and a more focused portfolio will position us for healthier top line growth as conditions normalize. I would also like to note that we are completing a growth algorithm for CORE Perrigo and the early indicators are encouraging across growth, cash flow and margin expansion. We look forward to sharing more on this later in the year. In closing, our focus for 2026 is clear: Grow share in our key brands and deliver our innovation pipeline, continue driving U.S. store brand demand generation in partnership with retailers, deliver operational and cost-saving programs, continue our portfolio assessment efforts and drive our category model and performance culture. We made clear progress winning with consumers and customers in 2025, and we are excited about the possibilities ahead. We believe we are very well positioned to create long-term value. And with that, I'll turn it over to Eduardo. Eduardo Bezerra: Thank you, Patrick. I appreciate everyone joining us today. Before getting to the details of our financials, I want to note that our 2025 GAAP results include noncash accounting impacts, including a goodwill impairment charge of $1.3 billion. Impairment is a nuanced issue, which merits both historic acquisition costs of businesses purchased over time with the realities of the current stock price. Certain historically acquired business have not performed as initially expected when acquired. Management must now address these realities and plan for the future. This impairment does not impact our strategy, cash flows or ability to execute. In addition, looking ahead to the first quarter, we need to reallocate goodwill from our existing to our new reporting units, which Patrick highlighted. While the aggregate fair and carrying values are unchanged from December 31, 2025, the redistribution of goodwill across our new reporting units may present a different outcome with surpluses in many and shortages in a few. As a result, the company may record additional noncash goodwill impairment charges of up to $350 million in the first quarter of 2026. In contrast to impairment, which reflects historical business performance, our decision to place business under strategic review is a reaction to external events informed by growth options and priorities for Perrigo in the future. Now to our results. As highlighted, we're introducing a new concept of CORE Perrigo results or just CORE, which excludes different formula and announced divestitures, primarily the Dermacosmetics business. From this point on, my comments will focus on adjusted non-GAAP results unless otherwise noted. Turning to results to our business units, starting with CSCI. Full year CORE organic net sales decreased 0.2% as growth from new products, share gains across most of our key brands and increased supply of Pain & Sleep Aids products were more than offset by lower consumption. Fourth quarter CORE organic net sales decreased 1.4% compared to the prior year due to continued consumer softness in the OTC category, combined with a softer cough and cold season compared to last year. Full year CORE operating income grew 11.6% as savings from Project Energize and lower variable expenses more than offset unfavorable impacts from gross profit flow-through. Fourth quarter core operating income increased 10.3% due to favorable foreign currency. All-In net sales and operating income growth for both fourth quarter and full year included the impact of divestiture. Turning to CSCI. Full year CORE organic net sales decreased 3% due to lower contract manufacturing revenue, soft category consumption and the prior year Opill launch stocking benefit, partially offset by share gains. CORE organic net sales for the quarter decreased 2.4%, also driven by contract manufacturing and OTC category consumption, partially offset by share gains. All-In net sales for the quarter and full year include the declines in Infant Formula net sales of roughly 25% and 10%, respectively, as growth in store brands was more than offset by lower contract manufacturing and lower distribution of the Good Start brand. CORE operating income for the full year and fourth quarter decreased 2.4% and 6.2%, respectively, both driven by the impact from lower net sales volumes and price investments, partially offset by benefits from Project Energize savings and lower variable operating expenses. Fourth quarter All-In operating income declined $29 million, including a negative impact of $21 million from Infant Formula. Moving now to cash. Exiting 2025, we had $532 million of cash on the balance sheet and fourth quarter operating cash flow was $175 million, bringing our total for the year to $239 million. We ended 2025 with a net leverage ratio of 4x, slightly above our updated projection due to currency translation on gross debt and lower cash balances at year-end. Our capital allocation priorities remain unchanged. Business growth, reducing total debt and net leverage and returning value to shareholders through our dividend. As a reminder, we expect proceeds from Dermacosmetics to contribute to debt reduction in the second quarter. As highlighted, we start with our first quarter 2026 earnings report, we will align our segment reporting to our commercial operating model. To aid comparability, we will recast selected historical financial results based on the new reporting segment, which we expect to furnish on an 8-K in April. This reporting segment change will have no impact on the company's historical consolidated financial position, results of operations or cash flows. Given the external dynamics we project in 2026, we will remain disciplined in managing our costs. We're implementing a new 2-year operational enhancement program to further improve productivity, streamline operations and enhance competitiveness. We're focused on evolving our structure to improve agility, accelerate decision-making and better leverage technology. As part of these efforts, we expect a global workforce reduction of approximately 7%, and we will also target operational cost reductions, mainly in our supply chain and distribution network. These efforts are expected to deliver annualized pretax savings of $80 million to $100 million with approximately 80% of the savings expected in 2026. Total cost to achieve these savings are expected to be approximately $80 million to $90 million. Now a bit more color on our 2026 outlook. We expect CORE Perrigo organic net sales growth of minus 3.5% to plus 0.5% year-over-year. CORE gross margin is expected between 39% and 40%, with CORE operating margin expected between 15% and 16%. Still within CORE, we expect higher costs from temporary OTC plans under absorption to dissipate over the next 12 months with the pace of returning to normalized levels depending on timing and levels of sales and production volumes. These cost pressures in addition to higher advertising promotion and the reset of variable incentive plans will be mostly offset through 2 levers: first, the benefits from our new operational enhancement program and in addition, targeted savings primarily procurement efficiencies driven in part by lower expected production volumes, along with the deferral of certain projects that are nonessential to our 2026 strategic objectives. Turning to our All-In outlook, which includes Infant Formula and assumes we divest the Dermacosmetics business during the second quarter of the year, we expect All-In net sales growth of minus 5.5% to minus 1.5%. Gross margin of 36.5% to 37.5%, operating margin between 12.5% and 13.5% and EPS in the range of $2 to $2.30. Finally, on operating cash flow. As we advance our Three-S Plan, we're taking on temporary cash costs to drive productivity, streamline operations and improve our risk profile, balanced with our commitment to reducing net leverage. For 2026, we expect operating cash flow conversion to remain in the mid-60 percentage range and net leverage to end the year roughly in line with or slightly better than 2025. As we are providing outlooks for All-In and CORE Perrigo for ease of comparison, we've included 2025 actuals for both in the appendix of this presentation. Let me quickly walk through our 2026 EPS bridge. Removing Infant Formula in divestitures yields a 2025 CORE baseline of $2.52. From there, other absorption, investments in advertising promotion and incentives normalization are largely offset by base business performance and cost savings actions. These, combined with the year-over-year net effect from interest, taxes and share count and FX result in our CORE EPS range of $2.25 to $2.55. The All-In EPS range of $2 to $2.30 reflects the expected impact from Infant Formula and divestiture. CORE EPS phasing is approximately 30% to 35% in the first half and 65% to 70% in the second half, which is modestly above our typical pattern. This reflects the expected timing of net sales, including impact from the current soft cough and cold season versus the prior year, the evolution of our savings program and impact from underabsorption. In closing, we remain disciplined, realistic and focused on the elements we control. The strategic actions underway as part of our Three-S Plan are strengthening our foundation for long-term value creation, and we're confident that CORE Perrigo can deliver steady growth, resilient margins and consistent cash generation. The steps we're talking now will continue strengthening our Consumer Health business to deliver for our consumers, customers and shareholders. Now I will turn the call back to Brad. Brad? Bradley Joseph: Thanks, Eduardo. Operator, will you please open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Keith Devas with Jefferies. Keith Devas: A lot to get through, so I'll try to keep it brief. But maybe just going to your outlook for 2026. I think you mentioned some of the pressures in the first half in terms of cough/cold and overall consumption as well, and you're expecting kind of second half improvement. So maybe just some more color or context on what's driving that second half improvement? And then maybe longer term what's needed for the categories, particularly in OTC, both in the U.S. and abroad to get it back to stable and then hopefully growth? Patrick Lockwood-Taylor: Keith, thank you for the question. As you can imagine, we put a significant amount of analysis on this as have a lot of our competitors. There are several components to answering this. First thing is what's causing the decline. We see the great majority of that as being transitory in nature. There has been household -- long-term household reduction in certain subcategories, but they are a small part of our overall business. So what do I mean by transitory, we saw some trade down. We saw consumers trading down into smaller units. We saw rollbacks from national brands. And the biggest effect is we didn't see price increases to the scale that we've historically seen. That temporarily took a lot of value out of the market. And we need to think of that as about 90% of the calls. We start to catch up with those effects in the latter part of quarter 2 and increasingly through the second half. So what the effect of that is it just normalizes. Unless you see additional value erosion versus that base, then by definition, it stabilizes. That is the effect that we see and increasingly in the second half. To get more down to the specifics of what's building our confidence: one, we expect to continue growing share; two, we expect store brand OTC to continue growing share. Second, about 60% of the value of our innovation is in the second half of this year, about 65% of our opportunistic geographic expansion is in the second half of this year. Our competitive takeaway, this is our distribution gains, more than half is in the second half. And then this work you've heard us describing this demand generation, which is driving key retailers' store brand category and their share of it and our share of that, almost 2/3 of that lands in the second half of this year as well. So as we combine all of those factors, that leads us to a more favorable second half outlook. Keith Devas: Got it. That's very helpful. Maybe just as a follow-up, just an update on kind of the liquidity and the leverage position. You're doing a new restructuring program. There's some cash charges there. And just in terms of the overall outlook for the business units, it sounds like it's a little bit pressured at least in the first half. So just as you think about the guide and keeping net leverage flat year-over-year, just if you think that gives you enough flex to reinvest in the business appropriately to try to get some of the changes that you're hoping for? And then just your other commitments in terms of the dividend and kind of putting it all together, how you feel in terms of update on liquidity and leverage would be helpful. Eduardo Bezerra: Thank you, Keith. Our capital allocation priorities remain unchanged, right? So we will continue to invest in the business, right, through investing in innovation as well as technology to continue to accelerate and in connection with our announced new enhancement program. We continue to focus on reducing leverage, right? So we expect the closure of the Dermacosmetics sale in early second quarter. And we're going to use those proceeds, as we mentioned before, to reduce our debt, right? And also continue to return value to our shareholders through dividends, right? So we held our dividend and we continue to assess that as we always have done. I think the important thing is we see 2026 as a transitory year, right? So it's very important to highlight, we see significant impact on under absorption that we talked a little bit on the call about $0.60, and we expect a significant portion of that to be recovered into 2027. And also these operational enhancement programs, they should sustain over time. So despite we see, let's say, from a free cash flow standpoint, a challenging year, we expect that to be a transitory and that things should improve as we look into 2027. Operator: And your next question comes from the line of Chris Schott with JPMorgan. Ethan Brown: This is Ethan on for Chris. Maybe just to start off, a lot of helpful color on the OTC business today. Just wanted to get some color on how you're thinking about the recovery of margins there and if that will start to be recovered kind of through the second half of this year or if that's more 2027 plus? Eduardo Bezerra: Well, thank you for the question. So a couple of comments there, right? So we're seeing an under-absorption impacting our margins in 2026, right? So -- and that's one of the key reasons why we're pushing for the operational enhancement program, right, that we're implementing this year. We believe though that's transitory in nature. And that mainly reflects the impact of softening that happened in the second half of last year. So despite our significant share gain that we have in the OTC store brand business in the U.S. as well as in our key brands in international, we still carried a strong inventory. And of course, the cost of that inventory has increased, and we see that transitory impact into 2026. But as I mentioned, this should be transitory in nature as we see the market normalize more in the second half of the year and into 2027, that should dissipate and we should see an improvement in our margins on OTC going forward. Ethan Brown: Super helpful. And maybe just one other question from me is looking to the Infant Formula business, how are you thinking about the path to kind of normalizing operations and margins going forward and the different actions you can take? And more broadly on the strategic review, just how are you thinking about the different options available, what any kind of sale might look like? And if that isn't available, what other actions you could take there? Eduardo Bezerra: Okay. Yes. So this formula review remains ongoing, right? So we're working with the advisers to assess all available options, right? So how do we -- can we optimize our operations, any potential partnerships and/or potential divestments, right? So it's too early to comment on much progress on that side because that -- there's a lot to be completed at this time, and we're going to provide more details in the coming calls as it progress. Operator: And your next question comes from the line of Susan Anderson with Canaccord Genuity. Susan Anderson: I was curious, just looking at the CORE sales categories, I guess, which categories are you seeing kind of with the most negative growth that's driving that guide towards the lower end for this year? And I guess, what categories are doing better than those? Patrick Lockwood-Taylor: Susan, thank you for that. So off the top of my head, I don't have the data in front of me, but the more preventative categories are typically doing better. So VMS, some of the subcategories of digestive wellness. The categories doing poorer on a very short-term basis, as you know, are cough/cold, and particular subsegments of pain, mainly pill dosing is where we're seeing systemic household decline. That's a small part of our business, but other parts of pain, in particular, topical creams are actually performing very well. Allergy, interestingly, also performing well in the early part of this year. As we try to map out the recovery of each of those subsegments, we see growth strengthening in some of those prevention categories. Allergy and cough/cold, obviously seasonally dependent, but of quite weak seasons, we see quite favorable -- we expect average season, which it follows is better than '25. We don't see anything that's going to change pain pill household penetration data, but that is a very small effect for us over the next 3 years. Susan Anderson: Okay. Great. That's really helpful. And then maybe just a follow-up on the capital allocation question. I guess, are you guys comfortable with the dividend level where it's at? Is that still a priority? And then I guess, with the plans for deleveraging with the Derma proceeds, I guess, what are your long-term leverage goals as well? Patrick Lockwood-Taylor: I'll take and then Eduardo because this is an important question that both of us should respond to. So our capital allocation priorities are clear, and they are unchanged. We invest in the business, reduce leverage and return value to shareholders through dividends. We held our dividend, as you know, but we will continue to assess our capital allocation priorities according to what's best for the business and what delivers the best sustainable shareholder return. Eduardo Bezerra: Yes. And just on top of that, in terms of leverage, right, so for '26, as we highlighted, we expect that to be in line or slightly better than 2025. So that's mainly because of the onetime impacts that we're seeing in the business impacting our adjusted EBITDA. And so as we look into -- as we previously expected to be below 3x in 2027, but because these transitory effects in the marketplace, we're now anticipating to achieve that level over the next 2 to 3 years as the new organizational enhancement program completes, our strategic reviews on both Infant Formula and Oral Care advance and consumption recovers over time. So more precise, timing will depend on all these factors, Susan. Susan Anderson: Okay. Great. And then maybe if I could just add one more on the infant nutrition business. I think it's dilutive to earnings now. I guess, did it ever get back to positive earnings? And then did it turn negative? And I guess if you guys end up keeping it, what will it take to kind of get that back to accretive to earnings? Eduardo Bezerra: Well, as I mentioned, we continue to assess the strategic review, right? So we're working on all the available options. And of course, we're going to look into which is the one that optimize not only the P&L, but also the cash flow as well. This is an important thing that we have been commenting that over several years, Infant Formula has consumed cash and so we're looking at that comprehensive of what's going to be the best option for shareholders on both aspects, right? So because at the end of the day, we need to be committed to improve our cash flow generation going forward. Patrick Lockwood-Taylor: Yes. Just to add a bit more sort of commercial perspective on that. We expect to continue growing share. I know the data that you see is total market, including VIC. We obviously look -- excluding VIC because we don't participate in that. Within that analysis, we see good store brand growth. We are confident as retailers reset their shelves later on this year, that will be favorable for us as we have innovation and launching that targets some of the foreign brands that we're seeing in the U.S. that will be positive for us. So we actually expect low to mid-single-digit revenue growth on Infant Formula this year. That allows us to clear this lower margin inventory, which has been a big factor for us in our EPS guidance. In doing, that starts to restore to '24, '25 levels gross profit. So that's how this model will play through this year from a commercial standpoint. Now to Eduardo's point, there is no doubt we need to look at plant optimization, set capacity in line with long-term volume and optimize cost and cash accordingly. Those are material margin and cash flow expansion opportunities for us should we go that route. Operator: And your last question comes from Daniel Biolsi with Hedgeye. Daniel Biolsi: Just following up on the last question. How much working capital like on average or whatever you can share is associated with the Infant Formula business? Eduardo Bezerra: Well, so it's significant because of the inventory levels that we have built in the prior year, expecting a significant share gain in the second half of the year, given the dynamics that we have explored and shared in the past, both further government intervention and also continued import products coming into the country significantly, that has impacted our ability to recover the share the way we had planned and shared in Investor Day last year, right? So that led to higher inventories, right, so at the end of 2025. And as Patrick mentioned, this low to mid-single-digit net sales plan should help deplete that inventory this year, right? So -- and that should bring working capital to more normalized levels versus what we faced in the past. Daniel Biolsi: Okay. And then I'm encouraged by the gross margins close to flat, excluding the Infant Formula business. And you mentioned in the prepared comments that there was a price investment in CSCI. What did you see? Like what kind of response did you see from those price investments in CSCI? Patrick Lockwood-Taylor: Yes. I mean this is an annual effect. We compete across a broad range of molecules. There is capacity available either in the U.S. or from low-cost overseas manufacturers. And just as frankly, because of supplier substitution, that squeezes margin. That has just been a reality in some of our molecules 20 years, okay? And that is just an annual cost of participation. We have a systemic program now that addresses that, which is productivity, mix, innovation, expanding into more profitable adjacencies and of course, driving more volume into our plants. Every point of utilization is worth about $10 million for us. We have got much better at master planning those activities just recognizing that cost of commoditization. That allows us to hold or improve gross profit year-on-year, but it is an important element of where we play, okay? I think historically, we've probably undervalued that and that has introduced risk into our P&L. But I feel we have much more visibility and control of that going forward. As we also drive the salience of our branded business by focusing more on brand, by focusing more on branded growth and share growth, that obviously also has a very positive impact on not just GP but OI margin as well. Obviously, branded tends to be higher. So really, it's being much better at managing the gross profit profile of our store brand business whilst driving the salience of our branded business. That allows us to protect and enhance both OI and GP. Operator: And that concludes our question-and-answer session. I would like to hand it back to Patrick Lockwood-Taylor for closing remarks. Patrick Lockwood-Taylor: Yes. Thank you very much, and thank you for joining us today and for those good questions. This is a tough market environment, and we have to lead what we control and manage with excellence, what we can't control. We're fixing the fundamentals of this business, and we believe we're positioning the business for quality growth, growing share now consistently after many years of decline. We're expanding category size in partnership with our key retailers. Store brand OTC in the U.S. is growing share, and we're growing share of that growing category. We're improving our financial structure. OI margin has expanded by 230 basis points over the past 2.5 years. Our net leverage is down from 5.5 to 4, and we will continue to deleverage. Our operations are more effective, more consistent and more compliant. We have 30-plus inspections in '25 with no critical or major observations and no recalls. We lead in quality assurance. Our leadership team and our senior management is in place. They're experienced, world-class, they're performance-driven and they're cost competitive. We now have in place an expandable growth model that will drive TSR. We have a differentiated and clear purpose. We exist to provide essential everyday self-care for everyone. We streamlined our portfolio, playing in the markets and increasingly in categories where we have the right to win and is an attractive size of profit. These categories reinforce and are driven by the core strengths of this company. We have more molecules. We cover more price points. Ultimately, that allows us to reach more consumers. We're developing even deeper and more strategic customer partnerships. We win through scaled, high-quality regionalized supply chains. We have extensive regulatory interface, and that allows us to shape the regulatory environment for these categories going forward. We're now set to go after geographic and category opportunities where we can operationalize these strengths in order to drive advantage. Recall, we only serve 10% of the world consumers today. This provides us with a tremendous growth runway. We've divested businesses where we can't leverage our growth model, e.g. Dermacosmetics, rare diseases, et cetera. In conclusion, we increasingly believe in our model and the path forward. 2027 is shaping up as a meaningful growth year. Again, thanks for joining us. Operator: Thank you. And ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Fortrea Q4 and Full Year 2025 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tracy Krumme, Senior Vice President of Investor Relations. Please go ahead. Tracy Krumme: Thank you. Good morning, everyone, and welcome to Fortrea's Fourth Quarter and Full Year 2025 Earnings Conference Call. With me today on the call is Anshul Thakral, Chief Executive Officer and Director; and Jill McConnell, Chief Financial Officer. Before we begin, please note this call is being webcast. There is an accompanying slide presentation, which can be found on the Investor Relations section of our website, fortrea.com. During this call, we'll make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations. We strongly encourage you to review the reports filed with the SEC regarding these risks and uncertainties, in particular, those are described in the cautionary statement concerning forward-looking statements and risk factors in our press release and presentations that are posted on our website. Please note that any forward-looking statements represent our views as of today, February 26, 2026, and that we assume no obligation to update the forward-looking statements even if estimates change. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures provide investors with a more complete understanding of results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and the earnings call presentation slides that are provided in connection with today's call. Lastly, I would like to add that Anshul, Jill and I will be attending the Barclays Level Healthcare Conference on March 10 in Miami. If anyone would like to meet with us on these dates, please contact me or a sales representative from the firm. And with that, I'd like to turn the call over to Anshul Thakral, Chief Executive Officer and Director. Anshul, please go ahead. Anshul Thakral: Thank you, Tracy. Good morning, everyone, and thank you for joining us today. I'm pleased to report our fourth quarter and full year 2025 results. Before I begin, I want to express my sincere appreciation to our colleagues across Fortrea, our Board of Directors, our clients and our broader stakeholder community. This was my first full quarter here, hard as that is to believe, given how deeply rooted I feel at Fortrea. The progress we will cover today reflects a tremendous amount of dedication across our entire global community, and I'm proud to share it with you today. We delivered solid fourth quarter and full year performance in line with our guidance despite a challenging and uneven operating environment. Jill will walk through the financials in more detail, but I want to highlight a few key points upfront. We delivered revenue and adjusted EBITDA in line with our full year expectations. We closed the year with a Q4 book-to-bill of 1.14x and a trailing 12-month book-to-bill of 1.02x reflecting improvement in demand during the second half of the year. We generated positive operating and free cash flow in Q4, resulting in positive operating and free cash flow for the full year. Importantly, we exceeded our gross and net savings targets, delivering approximately $153 million in gross savings and $93 million in net savings for the year. We continued to strengthen our balance sheet through disciplined debt payout using cash on hand, reinforcing our commitment to improving our capital structure. We expanded our leadership team, welcoming Aggie Gallagher as General Counsel in the fourth quarter. More recently, we appointed Dr. Scott Dave to lead our clinical pharmacology business. Dr. Oren Cohen, who previously led this business is now fully dedicated to his role of Chief Medical Officer, where he is focused on strengthening our clinical development and medical expertise as we continue to leverage our scientific and therapeutic experience with customers. Stepping back to the broader environment, the macro backdrop remains cautious. But importantly, it continues to show signs of stabilization and early recovery. Funding activity rebounded meaningfully in the second half of 2025 with the strongest activity in the fourth quarter. Large pharma budgets have largely stabilized following pipeline reprioritizations and the market is currently signaling improving biotech funding flow through 2026. With this backdrop, we are seeing higher client engagement levels, shorter decision-making time lines and more concrete customer conversations, particularly within biotech. That said, we continue to expect our recovery to be somewhat uneven in the first half of 2026, which reflects the new business wins we saw earlier in 2025. Looking further ahead, we're cautiously optimistic about building momentum in the second half of the year as outsourcing trends remain steady and access to capital looks to improve. Through all of this, our focus remains unchanged. Disciplined execution and positioning Fortrea to win as demand continues to recover. Our solid performance is built upon 3 pillars of excellence: commercial, operational and financial. We use these pillars to prioritize our actions and measure our progress in our journey to growth and margin expansion. I'll provide an update on our commercial excellence and operational excellence pillars, while Jill will discuss the financial excellence pillar. Starting with commercial excellence. We secured significant new and repeat wins in the quarter, underscoring both our differentiated capabilities and the strength of our client relationships. Q4 notable wins included a long-term clinical pharmacology partnership award with the top 5 large pharma company, several FSP renewals from long-standing large pharma clients and a healthy balance of Phase II and Phase III global clinical development wins across biotech, midsize pharma and large pharma as well as across various therapeutic areas. Overall, I really like the mix of our current pipeline. As I said last quarter, we have a commercial framework to expand our commercial opportunities, which we call the 3 Rs: Reach, Relevance and Repeat. These 3 Rs guide how we are rebuilding growth, strengthening execution and improving consistency across the organization. First, Reach, expanding the top of the funnel and increasing access to customers. Over the last several quarters, we've taken deliberate actions to broaden our operature. We've restructured our global sales organization to increase capacity and capabilities focused on hunting new client relationships. We're building our inside sales, otherwise known as our Reach engine, focused on early-stage qualification needed to Fortrea prospects and general biotech outreach. And we've made executive-led customer engagement a standard part of our go-to-market discipline. Second, Relevance, creating bespoke solutions that leverage our recognized therapeutic and scientific expertise, in ways that are relevant and resonate with clients. Our clients have come to expect that Fortrea leads with science. Now we are infusing our medical expertise deeper into how we deliver our clinical programs. As I mentioned earlier, Dr. Oren Cohen is now spending all of his time as Chief Medical Officer to deepen relationships with clients. He's engaging earlier in the scientific dialogue and collaborating closely with our physicians and therapeutic leaders to ensure Fortrea's solutions address the complex development challenges our clients face. We also have been sharpening our focus on biotech opportunities, assembling biotech ready teams that understand the unique constraints and needs of the biotech sector as they advance scientific innovation. On the flip side, we maintained strong discipline, including a willingness to walk away if opportunities do not meet our strategic or margin criteria. Third, Repeat, earning the next study by delivering consistently and creating long-term relationships. We've strengthened the interface between sales, delivery and project management to ensure seamless handoffs, improved visibility and streamlined client experience. This focus is showing up in execution and our clients are noticing the difference. Our Net Promoter Score which is how we track client satisfaction improved year-over-year. Now let me share some progress we have made under our operational excellence pillar. As a provider of professional services, operational excellence is baked in how we manage projects. We continue to optimize our approach to project management with a relentless focus on the client experience based on reliable and predictable delivery. Let me share some recent updates. We've created a stronger alignment to evolving regulatory requirements with risk-based quality management embedded as a cornerstone of how we deliver quality and oversight across the development life cycle. Notably, we've streamlined the design of our project management capabilities reducing touch points for customers and creating more direct interaction with our therapeutic and scientific leads. We have also streamlined our planning and global processes removing repeat actions and simplifying workflows. These process changes are enabled by technology. Now given technology underpins so much of operational excellence, let me take a pause here from the quarterly updates and address the topic of technology more holistically, particularly as it relates to AI in our industry. I'm very aware that there has been a great deal of discussion and frankly, concerns raised in the recent weeks about how AI will impact the CRO sector. So here's how we are thinking about it. Speaking broadly, we see AI as a force multiplier that can accelerate execution and ultimately can drive more science, more trials and more growth. AI is a way to advance science faster, which ultimately expands demand for CROs rather than shrinking it. AI is a margin and productivity level, not a people replacement or a cost cutter. AI will automate specific task level work rather than replace core CRO roles. It eliminates routine and repeatable work and improves throughput and standards. It is part of a broader push to compress trial time lines to pause, but with a hard boundary, quality is nonnegotiable. Examples of AI in use across our industry today include case and take in reporting in pharmacovigilance, central monitoring documentation checks and alert triggers, site selection and study design optimization. At Fortrea, more specifically, we are making focused investments in AI, machine learning and other advanced technologies and workflow automation and orchestration to drive speed, reduce costs and improve quality in clinical research. Our industry-leading accelerate platform remains central to that strategy. By integrating real-time role-based insights across the trial ecosystem, we are able to reduce manual effort, accelerate decision-making and improve quality at scale. You may recall, last quarter, I reported that the AI-enabled risk radar update to accelerate was in production, and we are beginning to roll out the CRA mobile app Digital Assistant and our start My Day platform to increase CRA productivity. We advanced deployment of these tools in the fourth quarter and introduced further innovation. Currently, we're wrapping up a pilot of our new feasibility intelligence engine which enables Fortrea partner with clients at the beginning of the program to make better informed feasibility decisions that improve operational outcomes. With all of our investments in technology, we are ultimately driven to improve the efficiency of drug development, streamline the experience for clients and investigator sites and improve the overall quality of clinical trials. From project management, to streamline processes to face deployment of AI-enabled tools, we track our operational excellence progress in terms of outcomes. Are we delivering faster better or changing the experience for our clients. That is the key question. For example, we recently accelerated recruitment by 3 months in a complex respiratory study and completed enrollment in a Phase II Alzheimer's study. These achievements matter to our clients and make a meaningful difference to the patients who will eventually benefit from new treatments. As a service-driven organization, our people are the foundation of operational excellence. Beyond adoption of new technology and processes, we prioritized employee engagement and development. I'm pleased to report that in our recent annual engagement survey, our overall scores improved year-over-year. Alongside a significant increase in response rate, scores increased across all categories with most exceeding cross industry benchmarks. I said earlier that I am proud of Forte's performance and recent progress, but I'm even more proud of the impact our work has on patients. I continue to make time to meet with our teams and clients in person around the world. A few weeks ago, I had the pleasure of visiting our clinical research unit in Dallas, Texas, just days after a significant winter storm disrupted the region. While the weather created disruptions, our research did not stop. Members of our team stayed overnight to ensure study volunteers were cared for and that planned dosing continued on schedule. During the visit, I met with our principal investigator and observed an ESMO bridging study in progress. Demand for these studies is growing as the global regulatory environment evolves, and our global clinical network has earned a tremendous reputation for delivering this critical work. Moments like this reinforce what sets Fortrea apart. The dedication of our physicians and clinical operations teams united by our shared purpose of bringing new treatments to patients faster. Before I turn it over to Jill, let me close with a few key points. Fortrea is executing against a clear strategy and building momentum. This is a high-quality business with strong fundamentals now operating with greater discipline, focus and accountability. We've taken meaningful steps to strengthen our commercial engine and improve our cost structure. We are advancing operational excellence from streamlining project delivery to transforming our processes and tools and we're innovating in ways that are meaningful to clients. These actions position us well to benefit from an improving market. While this remains a journey, the direction is clear. Early proof points are in place, and we are confident in our ability to deliver consistent long-term value creation. With that, I'll turn the call over to Jill. Jill McConnell: Thank you, Anshul, and thank you to everyone for joining us today. Let me start by thanking the entire Fortrea organization for our solid performance in 2025. We navigated another year of significant change and as always, the grit and resilience of this team persevered. In my prepared remarks, I'll cover the primary factors that influence our fourth quarter performance including progress against our previously shared cost optimization initiatives, improvements in cash flow and our expectations regarding liquidity and capital structure. I will also provide our outlook and 2026 guidance. As Anshul stated, we delivered a solid fourth quarter and full year 2025. I am very proud of what the team achieved, particularly our ability to execute and deliver results in line with our guidance. Before getting into the details, I'd like to highlight our progress towards financial excellence, the third pillar of our growth strategy. First, as part of our rightsizing initiatives, we delivered full year cost savings of $153 million growth and $93 million net, exceeding our original target. Second, we generated positive full year operating and free cash flow with another significant improvement in DSO in the fourth quarter, reflecting continued improvement in our order to cash process. Finally, demonstrating our continued commitment to financial discipline and balance sheet strength, we paid down approximately $76 million of our senior secured notes in the fourth quarter using cash on hand. Now I'll cover the financial results in more detail. Fourth quarter revenue was $660.5 million, 5.2% lower than the prior year quarter. The decline was driven primarily by lower pass-through costs in both our clinical pharmacology and clinical development businesses as well as continued FSP headwinds. The decline in pass-through cost was driven by steady mix. Full year 2025 revenue of $2,723.4 million, in line with our guidance range, increased 1% year-on-year. The increase was driven primarily by higher revenue in our Clinical Pharmacology business, partially offset by lower FSP revenue. On a GAAP basis, direct costs in the quarter decreased 4.8% year-over-year primarily due to lower head count and personnel costs. These reductions were achieved despite the planned reintroduction of variable compensation as we remain focused on rewarding our talent while maintaining cost discipline. SG&A in the quarter decreased 30.5% year-over-year, driven primarily by lower TSA and IT-related costs. Looking at underlying controllable SG&A on a sequential basis, fourth quarter SG&A was 4.8% lower than the third quarter of 2025 and 23% lower than our fourth quarter 2024 run rate as a result of execution of our SG&A specific cost optimization initiatives. These results also include the impact of reintroducing variable compensation. I'll discuss progress on our ongoing transformation efforts across the organization later in my remarks. Net interest expense for the quarter was $23.2 million, broadly in line with the prior year quarter. For the full year, we recorded an income tax charge of $3.2 million, resulting in an effective tax rate of negative 0.3%. The annual rate differed from our statutory rate, primarily due to the nondeductible goodwill impairment. Our book-to-bill for the quarter was 1.14x, broadly in line with the third quarter. Book-to-bill for the trailing 12 months was 1.02x, Backlog was $7.7 billion, and cancellations remained in line with historical trends. Adjusted EBITDA for the quarter was $54 million, compared to $56 million in the prior year period. The decline versus the prior year quarter was driven primarily by the reintroduction of variable compensation, partially offset by the benefit of our cost savings initiatives. Adjusted EBITDA for the full year was $189.9 million towards the higher end of our guidance range. The decline versus the prior year was primarily the result of lower FSP revenue clinical pharmacology mix, the reintroduction of variable compensation as well as the negative impact of lower research and development tax credits. These impacts were largely offset by the benefits of our cost savings initiatives. Moving to net loss and adjusted net income. In the fourth quarter of 2025, net loss was $32.5 million compared to a net loss of $73.9 million in the prior year period. Adjusted net income for the quarter was $9.2 million compared to $16.6 million in the prior year period. Adjusted basic and diluted earnings per share for the quarter were $0.10 and $0.09, respectively. Turning to customer concentration. Our top 10 customers represented 56.8% of revenue for the year ended December 31, 2025. Our largest customer accounted for 18.1% of 2025 revenue. As I comment on cash flows, please note that all references to prior year cash flows are for the entirety of Fortrea, as we had not segregated cash flows from discontinued operations for the businesses sold in June 2024. To more clearly see full year and fourth quarter cash flow metrics, please refer to the investor presentation posted to our website this morning. Our cash generation in the fourth quarter was particularly strong, enabling us to deliver positive operating cash flow and free cash flow for both the quarter and full year. In the fourth quarter, we generated positive operating cash flow of $129.1 million and free cash flow of $121.6 million, both of which exceeded our expectations. For the year ended December 31, 2025, operating cash flow was $113.5 million compared to $262.8 million in the prior year period. And free cash flow was $88.3 million compared to $237.3 million in 2024. Recall that 2024 benefited from the net proceeds of $297.9 million upon the initiation of our $300 million securitization program. On a comparable basis, excluding the impact of the securitization, operating cash flow improved year-over-year by $148.6 million and free cash flow improved by $148.9 million reflecting meaningful underlying improvement in cash generation in 2025. Cash flow performance for both the quarter and the year was driven by a significant improvement in day sales outstanding. DSO was 16 days at year-end, improving by 17 days sequentially and 24 days year-over-year, reflecting continued enhancement in our order to cash processing. We also benefited from favorable payment timing during the fourth quarter. Net accounts receivable and unbilled services for continuing operations were $589.7 million of December 31, 2025, compared to $659.5 million as of December 31, 2024. This reduction is primarily driven by the improved cash collections during 2025. We ended the quarter with no borrowing on the revolver consistent with the third quarter. Our positive operating cash flow in the quarter combined with our undrawn revolver throughout the quarter resulted in available liquidity in excess of $600 million. Looking ahead, we are currently targeting full year 2026 operating cash flow to be positive. We anticipate first quarter cash flow to be negative, primarily driven by variable compensation payouts and a partial reversal of some timing-related DSO benefits. We are targeting first quarter use of cash to be more than offset by positive cash flow generation over the remainder of the year. With our targeted EBITDA and significant add-backs available under our credit agreement, we expect to maintain ample liquidity and significant flexibility under our financial covenants for the foreseeable future. Our capital allocation priorities continue to focus on driving organic growth and improving productivity alongside debt repayment, the latter of which was evidenced by the $75.7 million repurchase of our senior notes at par during the fourth quarter of 2025. Since the spin, we have paid down approximately 35% of our original debt. This has strengthened our balance sheet and improved our capital position, underscoring our disciplined approach to financial management. Backlog burn rate of 8.6% in the fourth quarter was lower than in prior quarters due primarily to lower pass-through costs. Now I'll give an update on execution against our cost reduction plans. I am pleased that we exceeded our annual targets for both growth and net cost reductions in 2025 with the difference between gross and net savings being reinvestments back into our people. Consistent with the timing and expectations we communicated last quarter, the fourth quarter was a strong period of execution, particularly across our SG&A specific savings program. Turning to our transformation plans for 2026 and beyond. We believe the primary lever to our margin transformation is sustainable revenue growth, which is why we are laser-focused on strengthening our commercial engine. The second half of 2025 was a step in the right direction. We've made several changes that support more stable book-to-bill performance, including strengthening commercial leadership, improving opportunity qualification, simplifying the proposal generation process and engaging the entire leadership team in building and reinforcing customer relationships. As our commercial engine matures and the market environment continues to normalize, we anticipate that these changes could enable more stable book-to-bill performance over time. With our attractive 50-50 split between large pharma and biotech customers, we believe we are well positioned to capitalize on demand across our end markets. Margin improvement remains a multiyear journey, supported by 2 primary building blocks. The first is revenue growth, as I mentioned earlier. The second is continued structural cost actions, including ongoing rightsizing of the organization and improvement in efficiency, all while maintaining our commitment to quality delivery. As the element of revenue growth and continued cost optimization come together, we are targeting an achievable path back to adjusted EBITDA margin more in line with peers over time. Turning now to 2026 guidance. Using exchange rates in effect on December 31, 2025, we are targeting revenue in the range of $2.55 billion to $2.65 billion and adjusted EBITDA in the range of $190 million to $220 million. The year-over-year anticipated decline in revenue primarily reflects the impact of [indiscernible] bookings in the first half of 2025, continued FSP headwinds and anticipation of reductions in pass-through costs. The targeted improvements in adjusted EBITDA are driven by our continued efforts to rightsize the business and improve our efficiency and agility. We will continue our cost savings programs in 2026 targeting incremental cost reductions of approximately $70 million to $80 million in gross savings and $40 million to $50 million in net savings as we move closer to normalized compensation levels by the end of 2026. In terms of quarterly progression, the first quarter has historically demonstrated a step sequential reduction as billable hours can be impacted by the timing of holidays and certain expenses increased at the start of the year. We anticipate a similar pattern this year. From a margin perspective, we expect gradual improvement as the year progresses and anticipate exiting 2026 on stronger footing. The team at Fortrea has demonstrated remarkable focus and resilience, and we welcome the opportunity to have our full engagement centered on our customers, our employees and our shareholders. We will continue on our transformation journey sharpening our execution against the 3 pillars previously described. Through it all, our employees remain engaged and committed to quality delivery. Our customers signaled that their experiences with Fortrea grow stronger and our investors understand that we are putting the right building blocks in place to improve our financial performance over time. We are confident in the direction we are taking and are excited about the future of Fortrea. Now we'll open the call for Q&A. Operator, please open the line. Operator: [Operator Instructions] Our first question comes from the line of Patrick Donnelly with Citi. Patrick Donnelly: Anshul, you sound cautiously optimistic on the overall backdrop, particularly on the biotech side, it does seem like the market has firmed up. You talked about the funding piece, obviously. Can you just talk through the outlook a bit? You mentioned the uneven first half. Is that more just a comment on the past bookings rolling through, but feeling better about the position on new bookings front going forward. Just given your conversations with customers, are you seeing any changes on the share front? Would love you to talk through a little bit on the overall backdrop here for bookings going forward? Anshul Thakral: Sure, Patrick. I'm happy to. Thanks for that question. And let me take the second part of your question first here. The comment around recovery in the first half, that is a comment around the 2025 first half bookings and how that reflects in revenues. But -- what I -- the words I use are cautiously optimistic because I do think the environment is improving. We see signs of improvement. We see signs of stabilization. We see signs of early recovery. Let me give you some evidence. Our engagement level with clients is significantly higher than it was in the first half of 2025. We think the decision-making time line will come back to more of a normal pace that we would expect within the industry. Our conversations with customers have become a lot more constructive, both big pharma and little pharma. So in the world large pharma, what we're seeing is a lot of the turnaround pipeline reprioritization, all of that sort of subsided as things matured in Q3, Q4, and we moved on to having very constructive dialogues about the 2026 pipeline. In our world of biotech, we're seeing a shorter time line in terms of decision-making. We're also seeing an increase in our people coming now from our biotech customers. So all of these things added together, I use the words cautiously optimistic because we've had some of this momentum during the back half of '25. I'd like to see some more of that momentum before I drop the word cautious in front of my statement. Patrick Donnelly: Understood. Okay. That's helpful. And then maybe one for Jill. The quarter definitely saw some encouraging signs on the margin, EBITDA cash flow front. It seems like '26 implying continued improvement. Can you just expand a little bit on the key margin levers? It sounds like a steady ramp throughout the year is the right way to think about it there. And if you were to see any upside to revenue, how should we think about the potential flow through to the bottom line? You did talk about revenue growth being the key driver. So I just wanted to talk through that. Jill McConnell: Sure, Patrick. Yes, I mean, you're right in my remarks in terms of the progression through the course of the year. We do see usually a bit of a step down in the first quarter, and then it improved over the course of the year. The key drivers, it is revenue growth. And I think as we've said previously, that is going to be the key to getting back to peer margins over time. And in this year, we're seeing a bit of a step back in revenue. It's roughly split quite frankly, between pass-through mix and then some continued headwinds in FSP primarily, but we're going to continue with the cost savings optimization. So the cost journey is what's going to help us well. Revenue is still a bit measured to continue to expand the bottom line. We're very focused on delivering both margin and adjusted EBITDA dollar improvement. And we think that with what we demonstrated this year around the cost savings and hitting those goals, we feel good. Most of what we've built into the guide has already been initiated for this year. So I think when revenue comes back, assuming the demand environment continues to be supportive, we would expect that to flow through pretty strongly, especially in the beginning as we continue to pick up some of that trapped demand that we have. And obviously, in time as we grow more, we would have to revisit perhaps our -- the people side of things. But for now, we believe you will see pretty strong drop through when the revenue starts to come back. Operator: The next question comes from the line of Elizabeth Anderson with Evercore ISI. Eric Coldwell: Maybe just to talk about the back half of '25 bookings a little bit more. Anything you would call out in terms of like mix composition or steady start times or something? Or is that sort of very characteristic to what we we generally think about in terms of the timing of those bookings starting to phase in. And then anything to call out timing-wise on the accounts payable side, the debt number seems to have flipped around a little bit, and I just didn't know if there was a timing aspect of that at all? Anshul Thakral: Elizabeth, thanks for the question. There's nothing specific to call out on the bookings. I think the -- if I look at the mix of our new business coming in, in the last 2 quarters, it's in line with what I expect in terms of therapeutic area mix, in terms of study mix of types of studies that are coming in. We've had strength in both clinical pharmacology as well as our full-service business in the late stage, a mix of Phase II and Phase III. So I'm actually quite happy of the quality and mix of what we're putting into the backlog over the last 2 quarters, but nothing that would be one thing to call out there as ask Jill to comment on the second part. Jill McConnell: Sure. Yes. Elizabeth, from an accounts payable perspective, there are a couple of things that are impacting it. It has come down to quite a lower level compared to where we were at the time that it's been in a year ago, there's a few factors for that. One, we had inherited a pretty significant payment hold at the end of the quarter as we completely unwound that. that last year, you would remember, we still had some significant onetime in TSA and other costs that were coming in. And so those would have been sitting in the AP balance at the end of the year. And then honestly, with the introduction of the new ERP, we've improved those processes and had to -- and that's allowed us to be a lot more efficient in what we're doing. I would expect -- I wouldn't expect the AP levels to go down much more from this. I think they're probably at a place where they would stay or be in and around that level, but it is mostly around improvement and unwinding some of the things that were spin related. Operator: The next question comes from the line of Eric Coldwell with Baird. Ishan Majumdar: You've already addressed a couple of these, but I was hoping maybe you could give a little more color on some of the commentary around RFP flow. It sounds like it's improving. If you could add any detail on that would be great. And then Anshul, you said you're happy with the bookings mix. I was hoping we could get some better directionality on bookings mix in the fourth quarter in terms of FSP versus full service or direct versus indirect. I'm interested in your win rate. And then finally, new to Fortrea clients, are there any updates on that front? Because I know that was a big initiative for you to not only retain and grow existing clients but also to bring new clients into the fold? Anshul Thakral: Okay. Great, Eric, thanks for the question. I think it's a multipart question. I'll do my best to answer as much of it as I remember. In terms of the mix of bookings, we don't typically comment on pass-throughs versus direct. But I will tell you, there's nothing unusual in Q3, Q4. It is in line with what I would expect to see in terms of the mix of the type of work coming in. It was a good healthy mix of Phase II, Phase III which is good for Fortrea. We'd like to see some more of those larger Phase III come in. So I was very proud of the team in what they were able to achieve. I'll give a couple more comments around the bookings. We have seen a pickup in full service work, which has been a lot of my push has been to be very selective when it comes to FSD. We want to continue to be strategic and we want to continue to be disciplined. FSP does cause a lot of headwinds when you're on a margin improvement journey. And so I'm very proud of the team that the shape of our pipe, the shape of what's coming in has been towards the FSO world, which is more what I would like, and it is more of where strategically I've been pushing the team. In terms of our win rate, I think our win rates are where I would like them to be. The win rates have been modestly consistent across Q3, Q4. The new-to-Fortrea customer HICA that the company had in Q2 subsided very quickly in Q3 with the CEO being put in place. And for me, I've instituted that all deals our executive led engagements, all of our biotech and biopharma customers are getting a different level of executive involvement than they typically would have been in the commercial process, and we're doing that pretty consistently. That took away any fears that new-to-Fortrea customers would have, and I saw none of that hesitation in Q4. What I did like about Q4 from an RFP flow, that was another one of the questions that you asked, but I liked about Q4 was we had a lot more RFP flow coming from biotech. So we saw growth in our biotech RFP flow, which is consistent with, I think, what some of my peers have said and consistent with what we're seeing in the market. And I was very proud of Fortrea's win rates in that space. Hopefully, that helps, Eric. Ishan Majumdar: It does. And I know it was a 4 heart question, but I am going to ask a follow-up. On Q1 specifically in terms of the phasing, I know you briefly touched on that, but just given the lumpiness in the pass-through revenue and how much that can gyrate quarter-to-quarter coupled with the seasonality and the impact of still working through the transition and rebuild of the company, the bad 1H '25 bookings, et cetera. Can you just help us hold our hand a little more on modeling, so we don't get ahead of our skates going into Q1? Jill McConnell: Yes. Sure, Eric. Happy to. So I think, again, we know -- I talked about the fact that we saw a bit of a step down sequentially in revenue, a lot of that driven by the pass-through mix. We're expecting that to continue. And in fact, part of the reduction year-on-year, a good chunk of the reduction year-on-year is related to that. So I think revenue-wise, it's going to be broadly similar to what we saw last year. That would be our expectation. But you'll see a little bit of improvement in margin just because of all the cost savings initiatives that we've done. But Remember, as we've been on the journey to reintroduce variable comp, we did a step change in that in 2025, we have a little bit more headwind to absorb there. Plus we always see some pick up in early on employment some other taxes in the year. So that impacts the first quarter. But that should hopefully give you some sense of what Q1 would look like. Ishan Majumdar: And just to be clear, Jill, when you say revenue similar, are you talking in terms of growth rate or absolute dollars? And then same question on margin, is it -- or profit, is it you said margin would improve a little bit. I assume that was a year-over-year comment while down quarter over quarter up year-over-year. Okay. Jill McConnell: Correct Yes. Operator: The next question comes from the line of David Windley with Jefferies. Derik De Bruin: And appreciate the information. The customer mix, I guess, and revenue growth metrics along with your clinical pharmacology business, I'm trying to disaggregate a little bit. Your top customer appears to have grown in the high 20% range. You also had, as you had earlier described, this kind of large and perhaps somewhat unique, albeit you told me not completely unique clinical pharmacology package in GLP-1s, burned quickly, incorporated a lot of sites, not all of which were yours, which drove some of the excess pass-through. I guess what I'm getting at is to what extent did those overlap, and to what extent are these trends continuing or repeatable? In other words, is some of the headwind that you have to say, overcome in '26 because you don't get a repeat CP package like that. And maybe you also are not expecting to see a top customer continue to outgrow the rest of the base as fast as it has? Anshul Thakral: Okay. So I'm going to try to disaggregate some of that, David. And I think when we talk later, we can talk in more detail on that. I'm not sure we're following the same statistic in terms of our largest customer growing 20%. I don't think that was the right math for us, I think. But we can sit back and... Derik De Bruin: Sorry, in '24, wasn't it 14-ish percent and '25, it was 18%. That's -- so if that's wrong, I apologize. Jill McConnell: You're talking about from the full year, sorry. Anshul Thakral: We thought you were trying to say in the fourth quarter were like looking at fourth quarter data are from full year -- from a full year basis, yes. Yes. For a full year basis, yes. That's correct. Jill McConnell: It actually stepped down a little bit though in the fourth quarter just relative. So, yes. Anshul Thakral: We've been -- the diversification of customers has been clearly a priority, and that's taking shape. And we saw good progress on that metric in Q3 and Q4. You asked a couple of different questions there on clinical pharmacology, let me try to just aggregate them. Yes, I've mentioned in the past that in our clinical pharmacology business, we saw pass-throughs in the middle of last year that were those we can't predict. They come from 1 or 2 large studies from a client where we need to use multiple sites on the mass of the client. And that study causes those types of pass-throughs. That was a onetime event that has happened, those revenues largely burned last year. Now to say whether or not we would get a study like that this year, I don't see one in the pipeline, but you never know. As their journey continues, our journey also continues in terms of us continuing to be able to do on board on our own sites. But I can't predict when those types of studies are going to come. And that's what we talked about in Q3 also for that type of a clinical pharmacology study. With that said, we've seen strong demand for our clinical pharmacology business. It continues to grow quarter quarter in terms of not just the pipeline, but the demand for services. So we're actually very happy with how that business is tracking and we continue to make pushes to increase organic capacity within our wherever we can. Hopefully, David, that answers your questions. Let me know if I missed some. It's a multipart question. Let me let know if this one [indiscernible]. Operator: [Operator Instructions] Our next question comes from the line of Jailendra Singh from Tourist Securities. Jenny Cao: Anshul, I want to go back to your comment about you describe it the fourth multiplier that accelerate execution and expand demand for CRs. Clearly, the way CRO shares have traded recently. There's a lot of fear out there in terms of CRO services getting disrupted. I would love your thoughts there. And additionally, can you elaborate on how all this focus on beginning to influence customer conversations or your differentiation. For example, our biotech and large pharma looking at AI-enabled execution is a key factor while deciding on ERS? Just give us some a little bit more color there. Anshul Thakral: Sure, Jailen. I'm happy to talk about this. As you can imagine, this topic comes up very often right now. But I think the topic is being driven more by sentiment and headlines, the changes we're actually seeing on the ground in terms of either customer behavior or demand. As I've mentioned, I think the AI adoption in clinical trials remains early is cautious is highly constrained by regulation, liability, data integrity, GCP requirements. Many of you on this call have read written papers and reports around this topic. And I think the whole industry is kind of aligned on that. I want to make sure that market sentiment doesn't get too far away from the reality on the ground. As a result, look, we're not seeing AI replace the need for large-scale clinical execution, patient recruitment, monitoring or regulatory grade delivery. I do think AI is going to accelerate pipeline more than it is going to eliminate work. So I know as I talked to our suite of our large pharma company, AI is already having impact in terms of the world of discovery, in terms of the world of decision-making, in terms of the world of being able to move pipelines forward not necessarily in the terms of replacing human labor, even on the pharma side to be able to run the actual clinical trials and do clinical development. As I said a couple of times, I think I do see this as a force multiplier, and the more we can move science forward the faster, the more science there is for us to develop. I actually think it will have a positive impact in how our market grows. As far as the behaviors in outsourcing, that was the second part of your question, we've not seen large pharma or biotech materially change anything in their outsourcing behavior as a result of does AI come up as a topic of conversation and essentially every proposal? Yes, it does. It comes up in all of my conversations. But I find that we as a industry are fairly aligned now how I see in our peers talk and we're fairly aligned with our customers and our clients in biotech and pharma. So we are seeing AI's ability to improve some oversight, ability to improve some trial design, ability to improve internal decision-making and ability to give us some efficiencies in the areas of past automation. But certainly, it's more of a productivity tool and not a replacement tool and that's been pretty consistent in the conversations I'm having, and it has not been an influence in any RFP or proposal that we've seen thus far. Hopefully, that answers your question, Jailendra. Operator: The next question comes from the line of Max Smock with William Blair. Michael Ryskin: Maybe just following up on a portion of Eric's question earlier on mix. I wonder if there's any detail you can give around expectations for direct fee revenue versus pass-through revenue in 2026. Just how changes in mix that are going to impact margins this year? Jill McConnell: Sure, Max. I mean in terms of the evolution of revenue, I think we're expecting continued growth in our clinical pharmacology business. both service fee, probably more stabilization to some of the points that Anshul made, more stabilization of pass-throughs rather than the significant growth we saw there last year, but it will still be a factor. It does impact clinical pharmacology revenue a bit differently, as you know, just the way revenue recognition works. And then I mentioned that we are expecting further headwinds in FSP. And then the -- so when you think about year-on-year, if I'm talking about [indiscernible] having stable pass-throughs, the reduction that we're projecting is related to our full-service business. And I think as Anshul said, we've been focused on increasing the pipe in those. But I think '25 was -- there was a phenomenon around a handful of studies some of which I've called out previously that we're driving really high rates of pass-throughs that 1 of them in particular, finished early. We hit the endpoint early as that winds down. We're seeing some of that impact in the numbers for next year. So when you think about the year-on-year reduction, it's roughly split about half and half between service fee and pass-through with [indiscernible] growing and then the impact on the other business. Operator: The next question comes from the line of Ann Hynes with Mizuho Securities. Ann Hynes: Just on the margins, I know you said you want to get to peers over time. Can you give us a sense, is it high teens, low 20s? Like what is your ultimate goal and maybe a timetable, that would be great. Anshul Thakral: I think that's a great question. I'm happy to give some foot there. I think it's hard to look at peers when most of our peers are not necessarily in the public market. But our belief is mid-teens is where a pure-play CRO like ours is the group have a large central labs business or other ancillary services like SMOs, et cetera, at the lungs. So that is our goal, and that's what we're targeting. It is a multiyear journey, and it is going to take some time to get there. I've been here for about 2 quarters at this point. I'd like to get a full year under my belt and I would like to spend some time doing some form of an Investor Day and actually having some discussions and giving more details around what that time line and time frame looks like well for later this year. Ann Hynes: Okay. Great. And then I don't know if I missed this, but did you talk about what -- how cancellations trended? And maybe gross bookings growth, that would be great as well? Jill McConnell: Ann, we haven't had a question on it. And I briefly mentioned in the remarks, we've actually continued to see historic low levels and cancellation trends, nothing made around of the ordinary. So just kind of par for the course. Anshul Thakral: It's been stable and consistent at this point. Operator: Our final question comes from the line of Justin Bowers with DB. Luke Sergott: Anshul, appreciate [indiscernible] on in the bottle with respect to AI. But with your comments on accelerating discovery is that -- is that something that you're seeing like more near term or in the last like 12 to 18 months? Or is that just sort of like a longer duration observation over the last several years. So that's part one. And then part 2 would be, when you think about the buckets in clinical trial ops, like, which functions do you think are most addressable in the near term? Anshul Thakral: Happy to talk about both. And just to be clear, I didn't let the [indiscernible] out of the bond, I think [indiscernible] escaped a couple of weeks ago, and that's been a conversation topic for everybody. Look, in terms of discovery, that's not an area we're in, but this is the conversations we have with our clients. And I would say that has been happening now for a period of time. I can't give you exact time frame, but it's not just the last few months. There's been a lot of conversation around how the use of not just AI, prior to AI in the use of data. and the ability to process large amounts of data, how can our clients get better at what's moving through the discovery funnel and what's getting out to the clinic faster and faster. And that conversation has continued. It continues to grow. I only offer that as an observation. And what I hear from our clients and where these tools are having the most impact early on. In terms of things that I talked about in earlier too, look, we see levels of task automation in pharmacovigilance. We're already doing it on our end. We have our own tools that have been deployed in pharmacovigilance, such as case being extra. We're seeing it in forms of centralized monitoring, where there's things that we're doing in terms of being able to issue alert earlier, being able to look at the data, being able to automate some fairly mundane tasks in centralized monitoring. We're already seeing some impact there. And we're starting to see some early impact in the world of data management when it comes to data cleaning, when it comes to being able to look at queries and being able to actually reduce some into labor in what we have to do in that space. We're not seeing an impact in anything that we would be doing at the site itself. Relationships or the size conversations with the sites, the actual physical monitoring of the data right now. Hopefully, Justin, that answers your question. I was just seeing if we were done with the questions, then I would close out, but I wanted to answer. Thank you. As we come to a close today, I want to thank you for your thoughtful questions. and continued engagement. Our performance this last quarter reflects the discipline and operational rigor we have really embedded throughout this organization. We continue to make progress against our strategic initiatives. We continue to strengthen our foundation and enhance our ability to serve clients globally. What matters to our clients is what matters to us most, and we remain focused on delivering high-quality execution and long-term value. The message is we are focused, we're disciplined, and we are focused on executing and executing well, and we're confident in the direction that the company is beginning to take. So with that, I thank you for your time. And for those that will be in town and look forward to seeing the Barclays conference on March 10. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and welcome to the Cheniere Energy, Inc. Fourth Quarter and Full Year 2025 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Randy Bhatia. Please go ahead. Randy Bhatia: Thanks, Operator. Good morning, everyone, and welcome to Cheniere Energy, Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. The slide presentation and access to the webcast of today's call are available at cheniere.com. Before we begin, I would like to remind all listeners that our remarks, including answers to your questions, may contain forward-looking statements, and actual results could differ materially from what is described in these statements. Slide 2 of our presentation contains a discussion of those forward-looking statements and associated risks. In addition, we may include references to certain non-GAAP financial measures, such as consolidated adjusted EBITDA and distributable cash flow. A reconciliation of these measures to the most comparable GAAP financial measure can be found in the appendix of the slide presentation. As part of our discussion of Cheniere Energy, Inc.'s results, today's call may also include selected financial information and results for Cheniere Energy Partners, L.P., or CQP. We do not intend to cover CQP's results separately from those of Cheniere Energy, Inc. The call agenda is shown on Slide 3. Jack A. Fusco, Cheniere Energy, Inc.'s President and CEO, will begin with operating and financial highlights as well as Cheniere Energy, Inc.'s growth outlook. Anatol Feygin, our Chief Commercial Officer, will then provide an update on the LNG market, and Zach Davis, our CFO, will review our financial results, 2026 guidance, and long-term capital allocation plan. After prepared remarks, we will open the call for Q&A. I will now turn the call over to Jack A. Fusco, President and CEO. Jack A. Fusco: Thank you, Randy. Good morning, everyone. Thanks for joining us today as we review our results from the fourth quarter and the full year 2025 and we look forward to 2026. Before we dive into the results and outlook, I would like to take a moment to acknowledge a significant occasion that occurred here at Cheniere Energy, Inc. earlier this week. On Tuesday, we celebrated the tenth anniversary of our first export cargo, a milestone achievement that not only ushered in a new era of prosperity for Cheniere Energy, Inc., but for the U.S. and global energy markets as well. The significance of that first cargo cannot be overstated. In fact, earlier this week, I participated in the Transatlantic Gas Security Summit in Washington, D.C., with Energy Secretary Chris Wright, Secretary Doug Burgum, as well as leaders and ministers from over a dozen countries where the anniversary of our first cargo was commemorated. Getting to the point of that cargo being exported was a Herculean effort. Cheniere Energy, Inc. charted an unprecedented path in order to realize our vision. In doing so, we resolved a myriad of project development challenges, enabling the energy abundance and affordability we enjoy here in America to reach international markets, while rewriting the LNG rule book on long-term contracting by leveraging the vast natural gas resource and in-place energy infrastructure of the United States. Now, ten years and nearly 5,000 cargoes later, we have cemented our position as the industry's gold standard. We lead the U.S. LNG industry thanks first and foremost to the Cheniere Energy, Inc. workforce and their steadfast commitment to safety and excellence, which they demonstrate every single day. We also would not be here today without the unwavering support of our over three dozen long-term customers, construction partner Bechtel, our community partners, regulatory agencies, and financial stakeholders. Together, we have achieved something truly transformative in our first ten years, and we are just getting started. Please turn to Slide 5, where I will highlight our key results and accomplishments for the fourth quarter. We had an excellent fourth quarter operationally, and we generated consolidated adjusted EBITDA of approximately $2,000,000,000, bringing our total for the full year to $6,940,000,000 at the high end of our guidance range. We generated distributable cash flow of approximately $1,500,000,000 in the fourth quarter and approximately $5,300,000,000 for the full year, which is approximately $100,000,000 above the high end of our guidance range. Net income totaled approximately $2,300,000,000 in the fourth quarter. 2025 was a record year for LNG production, totaling 670 cargoes, or over 46,000,000 tons. During the fourth quarter, we exported 185 LNG cargoes from our facilities. This is an increase of 22 cargoes compared to the third quarter as not only did we benefit from additional volumes from Stage 3, production reliability, and the seasonal benefit in production, we also had improved and reduced unplanned maintenance compared to the third quarter as our efforts to mitigate some of the feed gas-related challenges we addressed on the last call delivered positive results across the quarter. Looking ahead to the remainder of 2026, we are on track to set another annual production record aided by the expected completion of the remaining three trains at Stage 3. I am pleased to introduce our 2026 financial guidance of $6,750,000,000 to $7,250,000,000 in consolidated adjusted EBITDA, $4,350,000,000 to $4,850,000,000 in distributable cash flow, and $3.10 to $3.40 in per unit distributions at CQP. These ranges reflect our forecast for higher production in 2026 offset by lower margins on spot cargoes than last year, as well as the start-up of a number of long-term contracts over the course of the year. We look forward to once again delivering financial results within our guidance ranges. The 2020 Vision capital allocation plan we revealed in 2022 has been completed, and in typical Cheniere Energy, Inc. fashion on capital deployment and share buyback, it was completed ahead of schedule. We have deployed over $20,000,000,000 across our capital allocation priorities and have achieved over $20 per share of run-rate DCF. In conjunction with our advanced progress, our Board of Directors has increased our share repurchase authorization to over $10,000,000,000 through 2030 after approving a $9,000,000,000 increase. And lastly, early this morning, we announced a new long-term SPA with CPC Corporation of Taiwan for up to 1,200,000 tons per annum on a delivered basis. It commences later this year and extends through 2050, and will bolster our contracted profile as we continue to grow our platform. This is our second long-term SPA with CPC following the approximately 25-year, 2,000,000-ton SPA we signed in 2018, which commenced in 2021. This SPA is a salient reminder that our product provides customers with long-term visibility through commodity cycles, certainty, and reliable supply in light of the recent volatility in the market, and contracting appetite is not dictated by the trajectory of margins in the front of the curve, but to support the lasting demand for our product for decades to come. I am very proud that CPC has become another repeat long-term customer of Cheniere Energy, Inc. It is clear evidence of how much the market values the reliability and customer focus that has come to define our first ten years of LNG export operations. Turn now to Slide 6, where I will provide an update on our major growth projects. Construction progress on Corpus Christi Stage 3 has advanced to approximately 95% complete, with the substantial completion of Trains 3 and 4 in the fourth quarter. Our forecast for the expected substantial completion of Trains 5, 6, and 7 to occur in spring, summer, and fall respectively is unchanged from our last call but moving in the right direction based on recent progress. I am pleased to announce that first LNG has been achieved at Train 5 this week, supporting that forecasted timeline. On CCL midscale Trains 8 and 9, groundwork and site prep continues, progressing extremely well, with work streams currently focused on concrete piling, piling work is already halfway complete, as well as further materials procurement and spool and steel fabrication. All the piles for Train 8 have been set. Substantial completion for these trains is forecast in 2028. As construction progresses, I am optimistic we have some advancement on that timeline. And nearby at our Gregory Power Plant, work on the planned expansion and interconnect is going well. We are set to optimize our power strategy with a ramp-up of Stage 3 and midscale 8 and 9. The SPL expansion project is our next major growth project, and we are making significant progress along multiple parallel paths advancing the first phase of this project towards FID as our visibility and confidence in this project continues to grow. We have secured significant commercial support for this brownfield capacity expansion, we continue to prepare the CQP complex for conservatively financing the project, and we are working diligently on project cost with Bechtel while advancing the project through the permitting process. We currently expect to be in a good position to receive our permits by the end of this year and make FID on the first phase in 2027. Back at Corpus Christi, our major CCL expansion is advancing well, with the critical path items and FID timeline of a brownfield Phase 1 approximately six months to a year behind the same at SPL. The full FERC application was submitted earlier this month. We have line of sight to accretively grow our LNG platform by approximately 50% from today, meeting the Cheniere Energy, Inc. standard while adhering to our disciplined capital investment parameters, including the Phase 1 expansions at Sabine Pass and Corpus Christi. We are full steam ahead on these development projects and have excellent line of sight to bring both of these projects to life and deliver market-leading contracted infrastructure returns to our stakeholders. With that, I will now hand the call over to Anatol to discuss the LNG market. Thank you again for your continued support of Cheniere Energy, Inc. Anatol Feygin: Thanks, Jack, and good morning, everyone. Before I get into the LNG market update, first some comments about the SPA we announced this morning with our longtime customer CPC. It is not only a core long-term transaction in its own right, but also an all-but-perfect summation of our strategy and value proposition. Like most of the transactions we have executed in this cycle, it is with a repeat customer. Reliable LNG supply is absolutely critical to Taiwan’s rapidly growing economy, and we take pride that CPC put its trust in our ability to perform. It is approximately a 1,200,000-ton contract that is yet another transaction we have executed that extends beyond the middle of this century. We look forward to starting this incremental tranche later this year with our usual unwavering commitment to our multi-decade partner, CPC. It features a number of bespoke components, as buyers continue to value Cheniere Energy, Inc.’s customer-focused tailored solutions. All of the things that set us apart from the competition—safety, operational excellence, customer-first approach, and a stellar execution track record chief among them—have and will continue to contribute meaningfully to our commercial approach and ability to sign contracts like this one that support our disciplined growth plans. Together with constructive LNG market fundamentals supporting a clear need for more capacity, we will continue to leverage our advantages in the market to accretively commercialize our brownfield growth projects and target market-leading multi-decade returns to shareholders. Now please turn to Slide 8. As you can see from the chart on the left, 2025 was another year of generally elevated and volatile spot prices. A key driver supporting the overall elevated prices relative to historical norms was the strong pull on LNG cargoes from Europe as demand rose approximately 27% year over year in the fourth quarter and remained above the levels seen over the past four years. Trade disputes and geopolitical conflicts fueled uncertainty and sent prices soaring at various points throughout the year. Europe set a new annual record for LNG imports in 2025, reaching about 125,000,000 tons, aided by new LNG supply and the replenishment of underground storage inventories, which were approximately 20 BCM at a 14 BCM deficit today, about 25% behind last year, in fact, with a cold snap in January spiking prices once again. European storage levels are once again starting the year at five-year lows, or approximately 140 cargoes. Until additional volumes come to relieve the market, Europe will likely maintain its premium pricing to ensure readiness for next winter. Furthermore, a 17 BCM year-on-year reduction in pipeline from Norway, North Africa, and of course, Russia, were more than offset by LNG imports, as shown on the top middle chart. We expect these drivers will help keep LNG demand in Europe resilient, especially in light of the EU Parliament's vote to ban all residual Russian gas including Russian LNG by 2027. In contrast, Asian LNG imports in aggregate contracted slightly last year, likely as a consequence of the still-elevated levels of TTF spot prices in 2025 incentivizing greater deliveries into Europe. Asia's LNG consumption was down about 4% in 2025, lowered by 12,400,000 tons year on year to 270,000,000 tons but still comfortably within the five-year range for the region. A mix of factors were at play across Asia driving these import levels. Seasonal demand was impacted due to milder weather in the region, while China, the largest and most diverse LNG market in the world, continued to redirect cargoes to markets of higher margin, namely Europe, as it took advantage of its LNG delivery flexibility. While many of the major markets in Asia saw year-on-year declines, China's was the largest, as LNG imports declined 16% or 12,100,000 tons year on year due to muted industrial demand, macroeconomic challenges, and optimizing some of its LNG into higher value markets. Gas demand growth of about 3% in China in 2025 was below the 7% average in recent years. Additionally, higher piped gas flows from Russia, which were up 30.6% year on year, and increased domestic gas production, up 6.3% year on year, also contributed. With that said, as we watched LNG prices fall in November and December and into January, we saw a rapid increase in Chinese LNG imports and active restocking in South Korea, highlighting the at-the-ready price-sensitive depth of demand for LNG. Both of which were partially offset by lower gas burn in Japan. The year-on-year growth in the market area was supported across JKT. LNG imports were up 1.4% or 1,900,000 tons in 2025. We continue to expect robust growth in China's appetite for LNG to become the LNG industry's first market to meaningfully surpass 100,000,000 tons per annum in the medium to long term. In contrast, LNG imports to South and Southeast Asia decreased by 3.8 or 2,600,000 tons year on year. India’s imports were down 7% to 25 MTPA, while those in Pakistan were down 15% to 6.7 MTPA, in large part due to milder weather versus 2024 as well as these being price-sensitive markets. High spot prices, coupled with efforts to reduce gas sector circular debt in Pakistan, led to levy and tariff increases which curtailed LNG imports amid macroeconomic challenges following the devastating monsoon floods of last year. In summary, slightly lower LNG imports year on year across Asia are in large part due to sustained elevated price levels in 2025, but we are steadfast in our expectation that moderating pricing going forward will generate a market increase in gas and LNG consumption, as evidenced by the late-year surge in imports when prices moderated, as well as the continued strength in long-term contracting across the region as counterparties seek to secure and diversify their gas supply into the second half of this century. Additionally, given the record level of U.S. FIDs taken last year, we expect the price trajectory to continue to normalize as supply additions increase. We saw this starting to materialize at the end of 2025 when production from our Corpus Christi Stage 3 trains, among others, began to ramp up in scale and size. Let us turn to the next page to expand on this. We see fairly ratable supply growth over the next five years, which we expect to further moderate and stabilize the forward price outlook to bring the depth of LNG demand to the forefront. These projects are expected to enter service by the end of the decade. Commercial activity in 2025 enabled project sponsors to greenlight over 60,000,000 tons per annum of LNG capacity in the U.S. and about 10 MTPA in other regions, which, along with a few additional projects vying for FID this year, should support a steady stream of supply additions extending into the early 2030s, creating the next LNG supply wave. The escalation between feast and famine in relatively short cycles in the industry in recent decades has made it challenging for price-sensitive demand segments to grow and prosper. This has particularly been the case in the emerging markets of Asia, where there has been limited aggregate import growth since 2021 amid the current multiyear period of low supply growth and high spot prices. The region's price elasticity is clearly illustrated by the correlation between the spot price of LNG and the rate of growth in LNG consumption in the price-sensitive markets in Asia excluding JKT. During the five-year period to 2021, spot prices in nominal terms averaged approximately $7 per MMBtu, and Asia's price-sensitive markets grew imports by a compounded average rate of almost 20%. In contrast, the compound annual growth rate for these same markets dropped to just 1.7% in the period from 2021 to 2025 when JKM averaged $18 per MMBtu. We expect lower LNG spot prices with the coming growth in supply to stimulate demand in these markets over the coming years. While the scale of impact and specific growth drivers vary by market, the overall net growth in each of the Asian regions is expected to be above, and in most cases well above, the levels seen over the past four years. In summary, 2025 marked the end of a multiyear period of low supply growth. We see 2026 as the start of a multiyear LNG supply cycle, one that will improve availability and affordability of reliable supply and in turn stimulate price-sensitive Asian LNG demand that has historically driven this industry. With two long-term contracts signed with two of the largest Asian LNG buyers in the last six months, we continue to do our part to support the long-term energy priorities and long-term demand growth of the region with our flexible and reliable LNG supply. We believe that safely, reliably, and affordably supporting this growth will allow us to capture incremental long-term commitments to fully underwrite much of our growth up to 75,000,000 tons per annum. With over 95% of our capacity for the next ten years contracted, we are well positioned to further execute on our capital allocation strategy through the cycles. We have sufficient contracts in place today in support of our disciplined, accretive brownfield growth strategy. With that, I will turn the call over to Zach to review our financial results and guidance. Zach Davis: Thanks, Anatol. Good morning, everyone. I am pleased to be here today to discuss our financial results and plans going forward. Turn to Slide 11. For the fourth quarter and full year 2025, consolidated adjusted EBITDA was approximately $2,000,000,000 and $6,900,000,000, and distributable cash flow was approximately $1,500,000,000 and $5,300,000,000 respectively. We generated net income of approximately $2,300,000,000. EBITDA came in at the high end of the guidance range, and DCF ended up above the high end of the range despite being close to fully sold out on our open capacity as of the last call. This outperformance can be attributed to further optimization locked in during the fourth quarter, higher lifting margin due to higher year-end Henry Hub pricing, and certain end-of-year cargoes being delivered in 2025 instead of early 2026. Compared to 2024, our 2025 results reflect higher total volumes of LNG produced across our platform, primarily as a result of the substantial completion of Trains 1 through 4 at CCL Stage 3, which resulted in almost doubling our spot capacity year over year from approximately 2 to approximately 4,000,000 tons that we were able to proactively lock in for 2025 at similar levels as the year prior, at over $8 per MMBtu margins on average. The year also benefited from higher Henry Hub pricing and more volume supporting lifting margin, and greater optimization activities upstream and downstream of the sites compared to 2024. These increases were partially offset by higher O&M costs primarily related to the substantial completion of the initial midscale trains at Stage 3 and the major maintenance turnaround at SPL during the year. While we have many significant achievements to highlight from 2025, I am particularly proud of the execution of our long-term capital allocation objectives and the early completion of our 2020 Vision capital allocation plan, ahead of schedule this quarter after a strong 2025. Last year, we deployed over $6,000,000,000 towards accretive growth, shareholder returns, and balance sheet management. We paid out approximately 60% of our distributable cash flow towards shareholder returns in the form of share repurchases and dividends. During the year, we repurchased over 12,100,000 shares for approximately $2,700,000,000, and the fourth quarter was the second consecutive quarter of over $1,000,000,000 in share buybacks. This brought our shares outstanding down to approximately 212,000,000 as of year-end. As of last week, we are down to approximately 210,000,000 shares outstanding, with less than $1,000,000,000 remaining on the $4,000,000,000 share repurchase authorization from 2024, once again highlighting the power of the plan to accelerate to be opportunistic and value-accretive during periods of share price dislocation, representing over $450,000,000 for common shareholders. We remain committed to growing our dividend by approximately 10% annually through the end of this decade, bringing total dividends declared for 2025 to $2.11, while maintaining the financial flexibility essential to our long-term capital allocation plan and our disciplined approach to accretive growth with an investment-grade balance sheet. In 2025, we repaid $652,000,000 of long-term indebtedness, fully retiring the SPL 2025 notes, partially redeeming the SPL 2026 notes, and amortizing a portion of the SPL 2037 notes. Earlier this month, we paid down the remaining $200,000,000 of SPL 2026 notes, leaving us with no debt maturities anywhere in the Cheniere Energy, Inc. complex until 2027. Our strategic management of our balance sheet earned us five distinct credit rating upgrades during the year, highlighting our trajectory to a mid- to high-BBB investment-grade corporate structure. In 2025, we equity-funded approximately $2,300,000,000 of CapEx across our business, including $1,200,000,000 on Stage 3 and deployed over $800,000,000 towards the midscale 8 and 9 debottlenecking project. During the year, we also began drawing on our CCL term loan during the fourth quarter with a $550,000,000 draw. In the context of almost $6,000,000,000 and over $1,000,000,000 funded to date for Stage 3 and midscale 8 and 9, respectively, this highlights part of how we have strengthened the balance sheet over time. In addition, we continue to deploy capital towards the SPL expansion as we progress development and permitting, and CCL expansion projects Jack highlighted, as well as on our Gregory Power Plant at Corpus to support incremental power needs over time as Stage 3 and Trains 8 and 9 are completed. We maintain substantial liquidity with approximately $1,600,000,000 in consolidated cash and billions of dollars of undrawn revolver and term loan capacity throughout the Cheniere Energy, Inc. complex. We are ideally positioned to fund our disciplined growth objectives while retaining significant financial flexibility fundamental to our capital allocation framework. Turn now to Slide 12, where I will discuss our 2026 financial guidance and outlook for the year. Today, we are introducing our full-year 2026 guidance ranges of $6,750,000,000 to $7,250,000,000 of consolidated adjusted EBITDA and $4,350,000,000 to $4,850,000,000 of distributable cash flow, and $3.10 to $3.40 per common unit of distributions from CQP. Compared to 2025 results, these ranges reflect additional production from a full year of operations of Trains 1 through 4 of Stage 3, the substantial completion of Trains 5 through 7 across this year, higher levels of contractedness as several new contracts will commence during the year, and lower margins on spot cargoes as prices have moderated. We also have a one-time benefit from the confirmation of the alternative fuel tax credit in the first quarter, contributing over $300,000,000 to EBITDA and DCF in our cost of sales. Our production forecast remains approximately 51,000,000 to 53,000,000 tons of LNG across our two sites this year, up approximately 5,000,000 tons year over year, inclusive of forecast Stage 3 volumes from Trains 5 to 7 and planned maintenance and resiliency efforts across both sites. With approximately 4,000,000 tons of incremental contractedness in 2026, or approximately 46 to 47,000,000 tons of long-term contracts, approximately 1,000,000 tons of commissioning/in-transit timing volumes, and over 4,000,000 tons of volumes forward sold by CMI to date, which is up from approximately 1,500,000 tons as of the last call. We now forecast less than 1,000,000 tons, or less than 50 TBtu, of unsold open capacity remaining in 2026, underscoring the cash flow visibility of the contracted platform. Despite having little open volumes exposed to the market, consistent with our prior practice of initial guidance, we are introducing these $500,000,000 guidance ranges as results could still be impacted by a number of factors, including variability in our production forecast, the ramp-up and specific timing of substantial completion of Trains 5 through 7 at Stage 3, contributions from optimization activities during the balance of the year, the timing of certain cargoes around year-end, and the impact that Henry Hub volatility can have on lifting margin. As we move through the year and the potential impact of these variables on our financial forecast reduces, we expect to tighten the guidance ranges. Also consistent with precedent, the year-over-year decline in the 2026 DCF guidance range is primarily due to the discrete tax benefit that we had in 2025. Our distribution per unit guidance at CQP for 2026 is wider than it had been last year, as the wider range provides the flexibility to potentially reinvest some of CQP's distributable cash flow towards limited notices to proceed for the 2027. Turn now to Slide 13. We are proud to announce the completion of our 2020 Vision capital allocation plan. We introduced the plan in 2022 with the goal of deploying over $20,000,000,000 of available cash across our capital allocation pillars of shareholder returns, accretive growth, and balance sheet management, to reach over $20 per share of run-rate DCF by 2026, and under that program, we have now surpassed those objectives almost a year ahead of schedule. Under the plan, we repaid approximately $5,500,000,000 of long-term indebtedness, which has led to 22 distinct credit rating upgrades, bringing our issuer rating at CEI from high yield when we started the plan to solidly investment grade today. We deployed approximately $6,500,000,000 towards equity funding our growth CapEx. While most of this spend was for Stage 3, the initial trains of which have come online ahead of schedule, we also funded CapEx related to the midscale Trains 8 and 9 project, as well as development and engineering related to the SPL and CCL expansion projects and CapEx related to our Gregory Power Plant adjacent to Corpus. Most significantly, we redeployed almost $9,000,000,000 towards shareholder returns in the form of share buybacks and dividends. Under the plan, we repurchased approximately 40,000,000 shares, or over 15% of our shares outstanding, for over $7,000,000,000. We also increased our quarterly dividend by approximately 68% since our inaugural dividend in 2021, representing approximately $1,500,000,000 of dividends declared under the plan. Given our accelerated progress under our $4,000,000,000 share repurchase authorization, with only $1,200,000,000 remaining as of year-end and aided by the fact that our LNG platform is over 95% contracted through 2030, our Board of Directors has approved an upsize of our share repurchase authorization to enable over $10,000,000,000 from 2026 through 2030. This $9,000,000,000 upsize to our authorization is a major extension of our comprehensive capital allocation strategy and a clear mark of confidence in our business model's contracted cash flow visibility and our capital investment discipline that has been developed to withstand the cyclicality of commodity markets. We now have the financial strength to not only opportunistically deploy approximately $10,000,000,000 into share repurchases over the next five years—approximately 20% of our market cap—but simultaneously grow our dividend by 10% per annum the rest of this decade and budget for FIDs at the Cheniere Energy, Inc. standard at both sites. The all-of-the-above capital allocation strategy for Cheniere Energy, Inc. remains firmly intact. These initial phases of the SPL and CCL expansion projects, developed to maximize brownfield economics, are expected to bring our total liquefaction capacity up to approximately 75,000,000 tons per year, with a risk-adjusted return profile unmatched in this industry and supported by decades of take-or-pay contracted cash flows from creditworthy counterparties. Accordingly, we are resetting our target run-rate DCF per share to reach approximately $30 by the end of this decade after the full deployment of the repurchase authorization, approximately 175,000,000 shares outstanding, and the completion of the first phases of our brownfield expansions at both Sabine Pass and Corpus Christi. Even before accounting for the growth, we are now in position to reach $25 of DCF per share by simply following through with our upsized share repurchase authorization. As we have done since our first export cargo ten years ago, we will continue to leverage our many advantages to create sustainable and growing long-term value for our shareholders while supplying our global customer base with our secure, reliable, and affordable LNG through cycles and for decades to come. That concludes our prepared remarks. Thank you for your time and your interest in Cheniere Energy, Inc. Operator, we are ready to open the line for questions. Operator: Thank you. If you would like to ask a question, please press star 1. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up question. Again, press star 1 to ask a question. The first question will come from Jeremy Bryan Tonet with JPMorgan. Jeremy Bryan Tonet: Thanks for all the detail today in the slides. Anatol, I want to turn to Slide 9 and the big uptick you see in Asia there. Could you talk a bit more about how demand across Asia from 2026 through 2030 might be influencing the tone of commercial conversations as you look to lock in more supply agreements? And separately, we have seen some weather activity here locally and force majeure from some gas producers, predominantly in the Haynesville. Did that have any impact on Cheniere Energy, Inc.? Anatol Feygin: Sure, Jeremy. Good morning, and thank you. Look, we have always been of the view that moderate prices are good for this industry. As we have said over the last few years, one of the things that we expect to change as this wave of supply moves through the market is that the world will recalibrate its outlook on 2040 and that 700,000,000-ton outlook. But even with the 700,000,000-ton outlook, we do expect—obviously—long-term contract economics have been much lower than spot prices over the last few years, and we think that continues to be appealing. Reliable, stable, very secure product is something that the world will need more of, and we think that our reliability and security of supply are very valuable. Even in the fourth quarter, the world signed over 17,000,000 tons of long-term contracts, primarily driven by Asia. So we are very, very constructive on what global LNG demand is going to look like over the coming decades, and we are proud to be part of that wave, and we will continue to find these core opportunities to work with customers that value our reliability and our security of supply. Jack A. Fusco: Hi, Jeremy. It’s Jack. On the weather-related events, first and foremost, I was really pleased with the way our winter emergency preparedness at the facilities and operating teams were able to position ourselves and take care of the facilities to make sure that there was no harm to either our employees or to any of the equipment. They once again far exceeded storm firm. There was not anything material one way or the other. We saw price blowout and producers declaring force majeure; we were able to manage around that, operate in the system to help support some of the local areas, and it was a slight positive to optimization for the first month of the year. Zach Davis: Yeah, that’s right, Jeremy. Overall optimization for the first month of the year is baked into the guidance we just gave you for this year, but only for January. And just to be clear on how we think about optimization and guidance, if it is not officially locked in, it is not in the guidance. So as things accrue into February and for the rest of the quarter, we will give a clearer update on the May call. We have a ways to go to catch up to the amount of optimization EBITDA that was generated in 2025 for 2026, and that is part of the upside to the current guidance that we just provided. Operator: The next question will come from Spiro Michael Dounis with Citi. Spiro Michael Dounis: Thanks, Operator. Good morning, team. First question just on commercial progress, a bit of a two-part question. As you noted, you have about 10,000,000 tons per annum signed up now to support the next set of growth projects. Does the next SPA that you sign from here start to underwrite the expansions beyond Phase 1 of Sabine and Corpus? And where would you say market LNG contracted margins are right now, especially in light of some competing projects being rationalized? Anatol Feygin: Yes, thanks, Spiro. I would say at this point, the first train of our super brownfield expansions is spoken for, and we have some modest amount of work to do on the second one. Obviously it depends on the economics and on the volume of the SPAs, but I think some single-digit millions of tons still need to be contracted to get us into the right position for Train 2 of the expansions, namely the large-scale train of Corpus that we filed for. In terms of market margins, you are absolutely right—it is a very competitive market. We had over 60,000,000 tons of FIDs in the U.S. last year. A number of those tons are still not contracted, so that is a dynamic we see in the market as well as those few projects that are still trying to get to the finish line. But as you also know, we do our utmost not to compete in that commoditized market of the 20-year CP product, and everything that you will see from us going forward is a relatively bespoke product that receives the premium that we think we deserve for our reliability. Jack A. Fusco: And, Spiro, this is Jack. In my conversations—and in my keynote address—having ten years of export capability here at Cheniere Energy, Inc., over 5,000 cargoes delivered, and never missing a foundation customer cargo means a lot to the JERAs and the CPCs and the POLINs—you can go on and on. Those building gas infrastructure now want to ensure that they get the LNG they need, and the deals that Anatol and the team have been able to execute reflect a premium customers are willing to pay to ensure that reliability. Zach Davis: And the fact that we are well over 95% contracted now, not just through 2030 but 2035, is why we were able to make the announcements we did today. The cash flow visibility is basically unparalleled, solidifying the run-rate guidance—if not better—comfortably within our range. So we are in a good place right now. If someone does not have that in their model—let’s say, the first phase of Sabine—and increased shareholder returns, that $10,000,000,000 of buyback better be finished a lot sooner. Message received. Spiro Michael Dounis: Alright, message received. Second question: Jack, you noted in your prepared remarks that you had already started to benefit on the nitrogen and inert gas side even in the fourth quarter. Last call you indicated a long-term plan to deal with excess nitrogen. Have you beaten that estimate? Would you say you have dealt with that issue, or is there still more to go? Jack A. Fusco: There is still more to go. It is a combination of issues, Spiro. The nitrogen is just an inert gas—it takes up space, so we have to evacuate it. What caused us a hiccup in the third quarter was variability in feed gas with heavies—C12 to be exact. The process engineers and operating folks put their heads together with suppliers and some oil companies, and we figured out different operating modes that are starting to pay dividends. We have adjusted operating modes, and we have been able to buy and inject certain solvents as fast and as much as possible. Some of the capital that Zach referenced is for longer-term resiliency of our facilities to make sure the front end can handle variability in gas coming from anywhere. Zach Davis: And I will credit the whole team that maybe we were at the lower end of production last year in our range, but still got to the high end of our financial guidance as we proactively sold open capacity. Stage 3 progressed really well and came online with four trains, and the optimization came through. This year, the production guidance that stayed intact since last call bakes in a healthy amount of planned maintenance for these resiliency efforts. If that does not take as long, we will update both production and financial guidance. Operator: The next question will come from Theresa Chen with Barclays. Good morning. Theresa Chen: Great to see the continued commercial success in your second DTC SPA. Maybe putting a finer point on the economics of the commercialization process at this point, can you provide any quantitative color on your outlook for the production fees based on your recent success and ongoing commercialization—what would you say is the range at this point? And more broadly, going back to Anatol's comments and the earlier question about elasticity, what evidence of demand elasticity have you seen already in your commercial discussions for long-term contracts, taking into account the significant incremental liquefaction capacity set to enter the market through the end of the decade and beyond? Anatol Feygin: Yes, Theresa. As Zach and I have said for many quarters now, we are very comfortable with the $2.50 to $3.00 range, and we are really doing things above the midpoint of that range. But as we have said to you and others, I cannot tell you that if we needed to contract 20,000,000 tons of additional volumes to get to super brownfield economics and meet our investment parameters, we would be able to maintain that. So to your question and Spiro's, the “market economics” are not at that level; we would say they are below that level for U.S. product. It is our performance, reliability, and commercial engagement—our flawless performance and ability to continue to deliver day in and day out—that give us the ability to capture these premium contracts. On price elasticity, even in the rearview mirror, the LNG market has had periods where in the aggregate it has consumed about 600,000,000 tons. As you look at where price-elastic markets can land, the numbers are comfortably above what we have operating and under construction today. There is well over 1,200,000,000 tons of regas capacity, growing to 1,400 with what is under construction. Markets like Vietnam—obviously from a very small base—grew over 200%, and that market alone will likely be well north of 10,000,000 tons by early next decade. Asia should grow from the roughly 270,000,000-ton level, where it has been stuck due to high prices, to well over 400,000,000 tons as affordable supply—ratably affordable over years—stimulates investment. We remain sanguine, and as long as we keep contracting at those economics and underwriting disciplined expansion plans, we hope the market remains constructive and continues to grow. But we are quite immune from those dynamics given our contracted platform. Theresa Chen: That is very helpful. Thank you. Switching gears, as gas-fired power demand reaches new highs across the U.S., partly driven by growing data center electricity needs, there are concerns that rising LNG exports could exacerbate domestic affordability pressures. What is your view on this? Do you see these dynamics affecting Cheniere Energy, Inc.'s ability to permit and/or commercialize incremental capacity? And how do domestic affordability issues reconcile with LNG's importance as a strategic trade and geopolitical lever for the U.S.? Jack A. Fusco: I will start, then hand it to Anatol. Theresa, it takes us 18 months to two years to get a permit, our pipeline plans are filed with FERC and made public, and then it is another three to four years for construction. In all cases, we buy firm transportation—we have it to all five basins. We process 24/7 and provide stability in cash flow to producers and midstream companies that has never existed before in their lifetime, allowing them to grow significantly. When the first cargo left Sabine Pass in February 2016, U.S. gas production was around 67–68 Bcf/d. Today it is well over 110 Bcf/d, in part because they see the exports coming. Having been on the gas-to-power side most of my career, gas-to-power generally does not like buying firm transportation or paying forward for gas—they prefer interruptible supply at the cheapest price possible to price into real-time markets. That can help in the short term but is not helpful longer term for production growth. We are starting to see that whole paradigm on exports shift in Washington as we explain how the markets really work. Anatol Feygin: Three quick points. One, we do not think we compete for molecules with those incremental demand centers. By definition, they will try to build in places with trapped resource and limited infrastructure to access markets, whereas we rely on points of liquidity—quasi-religion for us as we supply our customers. Two, even the EIA says 2026–2027 will not see the same level as 2024 for gas-for-power, so we think the market may be disappointed by the rate at which gas demand into power grows. Three, for our product and our customers, NYMEX is a pass-through, and we do not expect tremendous competition in the Southwest Louisiana pool that is NYMEX for those molecules. We are optimistic the domestic resource is there to meet all needs, and we are careful about how we approach expansions; our current infrastructure is more than sufficient to avail us of the molecules that we need. Operator: We will go to Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Hi. Good morning. In 2025, there was significant EPC CapEx escalation in LNG greenfield costs. Can you talk about the drivers of that and whether that has begun to moderate? And as a follow-up, is CapEx escalation impacting brownfield projects like yours as materially? Jack A. Fusco: Jean Ann, as you know, we FID’d Trains 8 and 9 and did so within our financial parameters that Zach laid out. We do see some escalation and are working through it with Bechtel. We have managed it by issuing limited notices to proceed on longer lead-time items. At this point, lead times worry me more than inflation. We also optimized our plan to get economies of scale and reduce dollars per ton for both SPL and CCL expansions. We asked for identical repeat trains—another SPL 6 for SPL 7, and another CCL 3 for CCL 4—which should help on all fronts. Zach Davis: And on the math, it is transparent—we file quarterly CapEx and PP&E. We basically have the lowest cost per ton, the best or highest SPAs, the lowest leverage, and the least amount of equity partners. We are well placed for the FIDs of Train 7 and Train 4. We are permitting more than that, but we see a path to hold to the standard by being as super brownfield as possible right now. Jean Ann Salisbury: Very clear. Thank you. Operator: Moving on to Michael Blum with Wells Fargo. Michael Blum: Thanks. In terms of your December FERC filing to increase CCL Stage 3 and midscale 8 and 9 by 5,000,000 tons, can you talk about the timing to achieve that expansion, and how to think about the use case for that incremental capacity? Zach Davis: Those filings reflect continued debottlenecking and engineering of the site that we plan to take advantage of over time. That increment is to accommodate peak production at certain times of the year at Corpus. It folds into the broader story that we will likely FID a train at each site plus debottlenecking projects—that is how we get to 75,000,000 tons. Ideally, a first phase of a Train 4 at Corpus plus other items will make the economics crystal clear as accretive and within our parameters. Michael Blum: Got it. And on the new CPC contract you announced this morning, when do you expect it to kick in during 2026? Anatol Feygin: It starts midyear. Some of how we structure transactions includes flexibility we can take advantage of as we debottleneck. That is why we are a little cagey with the 1,200,000 tons—this is the number for the vast majority of the term, but it includes some flexibility starting mid-2026. Michael Blum: Understood. Thank you. Operator: The next question comes from Jason Gabelman with TD Cowen. Jason Gabelman: Hello. Thanks for taking my question. You mentioned the ramp-up in Corpus Stage 3 is going very well, and it seems like those trains could come online earlier than contemplated in your volume guidance. How do you think about the upside to that volume guidance? And as a follow-up, on additional expansions beyond the very brownfield trains at Sabine and Corpus: Anatol, you mentioned roughly 20,000,000 tons’ worth of SPA opportunities. Do those support the higher margin guidance embedded in your economics, and do they support higher-cost trains beyond the initial brownfield opportunities? Zach Davis: Still early in the year, and note we did not update substantial completion dates of Trains 5 through 7 in guidance. We just achieved first LNG at Train 5 earlier this month. To put some math on it, if all three trains were a month early, at current margins, that is comfortably over $50,000,000 of incremental EBITDA over the year. We are already four-for-four, and it is looking like five-for-five of being early, but in February it is too soon to tell. We will update as trains come online through the year. Anatol Feygin: Jason, to clarify, if we had to do 20, we would not be able—at current “market” levels—to maintain the $2.50 to $3.00 standard. Market economics today are below $2.50. Our performance, reliability, and commercial engagement allow us to capture premium contracts and maintain brownfield economics to meet our investment parameters. Beyond that, it is a step-function change in CapEx per ton that today’s market economics do not support for meeting our parameters. Zach Davis: Jack’s whiteboard got us to 75,000,000 tons, and we will go from there. Jason Gabelman: Got it. Thanks. Operator: Our last question will come from John McKay with Goldman Sachs. John McKay: Hey, thanks for the time. Back to the macros for you, Anatol. On Slide 9 you are showing strong growth for China through 2030. What price do you think underwrites that growth? And on coal-to-gas switching, what is your framework for magnitude? Anatol Feygin: Our guess—subject to hedging—is delivered LNG in the $8 to $9 range against $60–$65 Brent. China is massively fragmented and distributed—dozens of companies, multiple business models and competing fuels. The market is approaching 300,000,000 tons of regas capacity, mostly coastal, and over 200 GW of installed gas-fired capacity. At the right price, it can consume substantial volumes. In 2025, for a host of reasons, it behaved as a quintessential invisible hand and redirected cargoes to where most profitable. At high single-digit delivered prices, we think China comes roaring back like 2018–2019. John McKay: Super interesting. Last quick one for Zach, maybe Jack as well. Latest thoughts on the dividend—where that could grow over time, especially with the $30 per share framing—and how that plays relative to buybacks? Zach Davis: We are following through on what we have said: committed to growing the dividend by about 10% a year through the decade. Over time, we will get to something over a 20% payout ratio—different than most in midstream. Our shareholder return policy is on average 60% of DCF, with roughly 50% of that 60% as buybacks. This flexibility lets us self-fund equity for Stage 3, Trains 8–9, and first phases at both projects, while being opportunistic on buybacks, as we were the last couple of quarters and earlier this year. We like this approach; the 10% compounding gets powerful later this decade. John McKay: That is clear. Thank you. Appreciate the time. Operator: And that does conclude the call.
Operator: Good day, everyone, and thank you for joining us for the Gray Media, Inc. Q4 2025 Earnings Release Call. To signal for a question, please press star followed by the digit one on your telephone keypad. Also, today's meeting is being recorded. I am pleased to turn the floor over to Chairman and CEO, Hilton Hatchett Howell, for opening remarks and introductions. Welcome, sir. Hilton Hatchett Howell: Thank you, operator. Good morning, everyone. As the operator mentioned, this is Hilton Hatchett Howell. I am Chairman and CEO of Gray Media, Inc., and I want to thank all of you for joining our fourth quarter 2025 earnings call. As usual, all of our executive officers are here with me in Atlanta: Donald Patrick LaPlatney, our President and Co-CEO; Sandy Breland, our Chief Operating Officer; Kevin P. Latek, our Chief Legal and Development Officer; and Jeffrey R. Gignac, our Chief Financial Officer. And joining us for the first time is Alan Steven Gould, our newly appointed Vice President of Investor Relations, who many of you know from his prior role as a sell-side analyst. Alan joined us in December, and we are thrilled to have him on board. We will begin with a disclaimer that Alan will provide. We believe his insights will help us better engage with investors at a time when much is changing in our business. Alan Steven Gould: Thank you, Hilton. Good morning, everyone. I want to say how thrilled I am to join Gray Media, Inc. and work with this outstanding team. After many years as a sell-side analyst covering the media industry, I have tremendous respect for what Gray Media, Inc. has built and the strategic direction Hilton and the team are charting. Today, we filed with the SEC our Form 8-K, our fourth quarter earnings release, and updated slides. Later today, we will file with the SEC our annual report on Form 10-K. Net retransmission revenue and certain leverage ratios are among the non-GAAP metrics we may reference. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in its analysis and valuation of our company. Further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on our website. All statements and comments made by management during this conference call, other than statements of historical facts, should be deemed forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors that are contained in our most recent filings with the SEC. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. I now return the call to Hilton. Hilton Hatchett Howell: Thank you, Alan. Today, we are very pleased to announce that our results for 2025 compared very favorably to our previously issued guidance for both revenues and expenses. Total revenue in 2025 was $792 million, above the high end of our guidance for the quarter. Total operating expenses before depreciation, amortization, impairment, and gain or loss on disposal of assets in the fourth quarter were $618 million, which was $5 million below the low end of our guidance. Notably, within these results, our broadcasting expenses actually declined as compared to fourth quarter 2024. On a full-year basis, broadcasting expenses declined by $78 million, or about 3%, in 2025 as compared to 2024. Net loss attributable to common stockholders was $23 million in 2025. Adjusted EBITDA was $179 million in 2025. Political advertising revenue of $12 million finished above our expectations for an off-cycle period. There is one particular item I would like to highlight from our fourth quarter financial results: our net retransmission revenue, which is our retransmission revenue less our network affiliation fees, returned to growth in 2025 as compared to 2024. You have heard us talk in prior quarters about the need to create a more sustainable model in light of subscriber trends. Returning to growth in net retrans is a clear sign of progress on this multiyear effort. On a full-year basis, our net retransmission revenue stabilized at $547 million in 2025, similar to 2024. In addition to these operating results, we have now completed our recently announced acquisition of WBBJ-TV in Jackson, Tennessee from Vaheckel for $25 million. We are continuing to work towards regulatory approvals and expect to close our other announced transactions in the next several months. We also continue to make progress in strengthening our balance sheet during 2025. We opportunistically issued a $250 million add-on to our second lien notes through a private placement. Now I will let Jeff provide additional details on that opportunistic transaction. We are entering 2026 poised to close our delevering M&A transactions, and we expect to both reduce our debt and leverage ratio through what we believe will be a fantastic 2026 political cycle for Gray Media, Inc. Our newscasts continued to attract engaged local audiences in 2025, we continue to enhance our local content offerings and have won prestigious journalistic honors, including a total of 10 national Edward R. Murrow Awards, the most of any media company in the United States. This honor underscores the culture of journalistic excellence that is across our company. We have added a number of local and regional live sports broadcasts throughout our portfolio. InvestigateTV premiered its third season in September and also launched a multiplatform project to educate viewers about AI. Yesterday, we announced a new program called Aging Untold that will launch across our footprint next week. This new series features a panel of experienced industry professionals offering insight and solutions for people entering a new chapter of life as well as their families and caregivers. We believe the program addresses the most important lifestyle topics that nearly everyone faces now or will soon face, and yet no one is really covering in-depth. We have also continued to renew and expand our local professional sports portfolio. And another example, just yesterday, we reached an agreement to broadcast an additional five A’s baseball games and will now broadcast 20 A’s games in Las Vegas. Meanwhile, our digital team is now very busily rolling out the transition of all of our digital apps and websites to the Quick Play platform powered by Google Cloud. This personalized streaming platform will revolutionize how our viewers find and connect with our content, and we are honored and excited to be Google’s first broadcast partner for Quick Play. In December, we renewed our affiliation agreement covering our 54 NBC markets for three additional years. Earlier this month, we renewed and expanded our Telemundo portfolio to include 47 markets, reaching 1,600,000 Spanish-speaking households. This was good timing with NBC hosting a very successful Super Bowl and the Winter Olympics, and the NBA All-Star events all this month, and with Telemundo providing the only Spanish-language broadcast for both the Super Bowl and this summer’s FIFA World Cup. Finally, we are continuing our efforts to bring in the right development partners to further monetize our investment at Assembly Atlanta. Our net capital investment in Assembly in 2025 was essentially zero. But we expect to have more announcements about the next phase of development as we move through 2026. One additional issue I would like to add is that we have struck a deal with Intense Tennis that will begin actually competing in June, and we will be carrying it here locally in Atlanta and on our Peachtree Sports broadcasting network. 2025 was a pivotal year for Gray Media, Inc. We are excited about entering 2026 on a firm foundation that will lead to enhanced value for all our stakeholders. At this time, I will turn the call over to Pat to address our operations. Donald Patrick LaPlatney: Thank you, Hilton. Fourth quarter core advertising revenue started strong in October, which was up low double digits versus a comp from 2024 that included significant political displacement, including financial, health, and home improvement. Finished the quarter slightly above the high end of our guidance, up 3% compared to 2024. In terms of our core advertising categories, we saw continued strength in services; legal again showed strong growth in Q4, and that trend continues as we look ahead to our guidance for 2026. There was also a nice pickup in gaming and lottery/gambling in the fourth quarter that is also reflected in our Q1 2026 guidance. Automotive finished fourth quarter down low single digits. Recall that in 2025, we were down 8% primarily on tariff uncertainty. For the full year, core finished down 3%. And it is encouraging that 2025 finished in positive territory versus the second half 2024. And our new local direct business continued to grow low single digits over the same period in 2024. Digital continued its healthy growth in the fourth quarter, up low double digits. Our sales teams continue to perform admirably in a challenging environment. Political ad revenue exceeded our expectations in fourth quarter 2025. Our guide for 2025 was $7 million to $8 million and our actual results came in at $12 million. Once again, we saw some revenue from issue advertisers supporting the President’s legislative priorities. We also saw good results in Virginia from the 2025 state governor and attorney general races. Our first quarter 2026 guidance is for core ad revenue to be approximately flat with 2025. Super Bowl generated $11 million on our 54 NBC affiliates and 47 Telemundo affiliates in 2026, compared to $9 million on our FOX affiliates in 2025. We will also benefit from the Winter Olympics on NBC in 2026, and 47 Telemundo affiliates in 2026. We are excited about the upcoming midterm election season. Across categories in the first quarter, as I mentioned before, legal services and lottery/gaming are bright spots. We are also seeing signs of improvement in auto, which is currently flattish. We estimate that our net revenue from the Games will contribute $15 million in the quarter versus $8 million during the 2022 Games. Our first quarter 2026 guidance for political is to be $25 million to $30 million, which compares to $26 million in 2022, which is a comparable period for the 2026 midterm elections. The map in 2026 looks to be very favorable for our TV station footprint, with all 10 competitive Senate races, nearly all of the 13 competitive gubernatorial races, and countless other competitive races in markets where we operate top-ranked local news stations. Jeff will now address the key financial developments. Jeffrey R. Gignac: Thanks, Pat. As Hilton mentioned earlier, we made further progress on our balance sheet during the fourth quarter. We completed a $250 million add-on to our 9.58% second lien notes at 102 and used a portion of the proceeds to call $125 million of our 10.5% first lien notes at 103. We finished fourth quarter with over $1.1 billion in liquidity and $232 million in availability under our open market debt repurchase authorization while also reducing our interest cost. Our leverage metrics at year-end 2025 were 2.43 times first lien leverage ratio, 3.65 times secured leverage ratio, and 5.8 times total leverage ratio, each using the calculation in our senior credit agreement. We expect that our delevering M&A transactions together with political revenue in 2026 will help us make significant progress on our leverage during 2026. Our expense reductions are once again reflected in our results. In 2025, our broadcasting station operating expenses, excluding network affiliation fees, were down $10 million, or 3%, compared to fourth quarter 2024. Let me elaborate a little bit more on net retrans as this is important to understanding our financial picture. Hilton mentioned the return to growth in fourth quarter 2025 versus fourth quarter 2024. In fourth quarter, our network affiliation expenses declined by 13%, while our retransmission consent revenue declined by 7% versus fourth quarter 2024. Remember, the WANF moving to an independent station affected both the revenue and expense sides of the net retransmission equation starting in third quarter 2025. That also means that our results are not comparable to our peers when you look at these numbers in isolation. Fourth quarter 2025 is the first quarter where the full impact of that change is reflected in our results. Our fourth quarter guide was for a slight decline in net retransmission revenue, but we ended up with growth in net retrans of about $4 million, which is largely attributable to better-than-expected subscriber trends. For the full year, net retransmission revenue finished at $547 million in 2025 versus $550 million in 2024, which is essentially flat. Our first quarter guide of $148 million to $156 million indicates that we expect continued modest growth in net retransmission revenue. And without giving a full-year guide, our current expectation is that net retransmission revenue will grow slightly for full year 2026 as compared to 2025. You will also notice that we are guiding Q1 broadcasting expenses to be down 3% at the midpoint versus 2025. This would be a similar decline to full year 2025, but less than the 7% year-over-year decline reported in fourth quarter 2025, which is primarily due to the timing of certain annual expenses as well as normal inflationary adjustments at year-end. We finished 2025 at $74 million of capital expenditures excluding Assembly Atlanta, which is in line with our revised guidance. Net of reimbursements related to public infrastructure at Assembly Atlanta, our net capital investment in Assembly Atlanta during 2025 was $1 million. We currently estimate that our 2026 company-wide CapEx will be approximately $140 million as we take advantage of bonus depreciation during political years. For some context, we have historically invested about $25 million more during political years. For 2026, the increase will be a little more than usual. We will also have several building-related construction projects within the TV business that we intentionally scheduled to coincide with our stronger cash position this year. This concludes my prepared remarks, and I will return the call back to Hilton. Hilton Hatchett Howell: Thank you, Jeff. And now, operator, we will open up the call to any questions that anyone may have. Operator: Thank you, gentlemen. And to our audience listening today, a reminder that it is star and one on your telephone keypad if you would like to join today’s question queue. Reminder also, if you are joining today on a speakerphone, initially we ask that you limit yourselves to one question and one follow-up. And then if you have additional, you are invited to resignal using star and one. We will hear first today from the line of Daniel Louis Kurnos at Benchmark. Daniel Louis Kurnos: Great. Thanks. Good morning. Nice results, guys. Outside of Nexstar, I mean, we will see a lot of moving pieces there. But if it does get done, Nexstar after the tweet seems pretty confident they are going to get their deal done by the end of the second quarter. If Hilton, just first for you, I have been asking everybody this. Does that change the way that you guys think as assets become available? It takes some of the risk off the table. The change had you guys maybe approach anything either larger, more transformative in addition to all of the accretive stuff you have already done? And then, Jeff, just a quick one for you. Appreciate the color on net. I know there is going to be timing delta with when you guys have renewals, but is modest growth in net retrans the right way to think about the trajectory from here on out with just some lumpiness in years when you do not have renewals? Thank you. Jeffrey R. Gignac: I will tackle the question for me first. So, yes, Dan. We have talked about the multiyear effort to get to a sustainable model on the net retrans side, which would start to look maybe more like inflationary growth type of arrangement. So that is what we are—that is, I think, the right way to think about that. Hilton Hatchett Howell: I am happy about it. I can reiterate Nexstar’s optimism about our own transactions. We have five different transactions before the FCC and the DOJ, and we are very optimistic about getting that closed, hopefully, very early in 2026. And then with regard to, you know, if Nexstar-TEGNA closes, sure, that will present a number of issues competitively. And it may put a little impetus on our company to get larger. But that is something that the whole industry is just going to have to take a look at. I wish Nexstar all the best. They, like we, believe that consolidation is important for the industry because it is critically important that we maintain local news in all of the markets, all the 210 markets across the United States. And as our industry faces broader competition from the massive companies, from Google to Meta to all the rest, getting larger is an absolute requirement. So, you know, we are delighted that they are optimistic, and I am personally looking forward to clarity in terms of what the rules are because you hate to launch a deal and then not be able to get it to completion. But we have got new optimism on that potential. Operator: Great. Thanks, Hilton. Thanks, Jeff. We will move forward to the line of Steven Lee Cahall at Wells Fargo. Steven Lee Cahall: Thanks. So a couple of questions pertaining to leverage. So, you know, Jeff, you said significant progress to leverage in 2026. I think the M&A deals you have announced are about a quarter turn of deleveraging. I think about something that sort of rounds to four times as, like, what significant progress means and if it maybe could get you towards that ZIP code to unlocking your equity value. And then sort of a bigger-picture follow-on, you know, you have done a lot to bring down leverage. But it is gradual. You know, an equity merger with synergies could do that in a much shorter amount of time or to a greater extent. I know you are being very patient and deliberate in terms of looking at those types of transactions. But could you just give us an update on the state of industry conversations between maybe yourselves and other levered broadcast and how we should just think about that continued opportunity? Jeffrey R. Gignac: Steven, we are not going to talk about private conversations. We have consistently said that we are—we will look at any transaction that we think makes sense for us and whoever the partner is. From the announced M&A, yes, about a quarter turn. If you could tell me exactly what the political number is going to be this year, I could give you a pretty good direction on exactly where we will land. But when I say progress, we have been pretty clear in our actions about what we are doing on the leverage side: managing the top of the capital structure, making sure we are proactive in having the runway that we need. We know the longer-term objective is to get back towards that four times. So now we have this political cycle plus the next one before our next maturity. We will continue to be judicious in lowering the quantum of debt outstanding and proactively addressing maturities as we have in the past. And then, so that is another avenue to help us accelerate that deleveraging. Steven Lee Cahall: And if I could squeeze in a quick follow-on, I certainly get the constructive direction of net retrans. Just to help us understand since WANF is in there right now, would it look even better if the WANF noise was not in there in 2026? Jeffrey R. Gignac: Look, WANF is in there, so I cannot speculate about what it would look like if it were not. It was all part of a broader negotiation, and you are seeing the results of not just that but a whole bunch of other negotiations that are out there and, importantly, the improving subscriber trends. So it is hundreds of contracts, like we have talked about, that all result in the number. And part of the reason we went to giving that number is both the gross retransmission revenue and the network costs create a lot of noise for us relative to peers. But the point here is that our net is getting back to growth, which is critically important. Part of what we have been doing is chasing the denominator because of the drag from net retrans. So that is also why we are pointing people to that, because that will also help us as the denominator flattens out and hopefully returns to growing here in the not-too-distant future. All of that will help us get to a better spot from a leverage point of view. Operator: Our next question today comes from the line of Aaron Watts at Deutsche Bank. Aaron Watts: Hi, everyone. Thanks for having me on. I had two questions, if I may. The first on advertising. Can you just talk a bit more about the health of the core ad backdrop? Based on what you are seeing so far in the year, what optimism do you have that core ad can grow as you move through 2026, acknowledging your first quarter guide and the robust political that is going to roll through? Donald Patrick LaPlatney: Yeah. So look, Aaron, it is Pat LaPlatney. I think given the large expected political, looking for growth in this kind of year can be challenging. And in Q1, we are calling it flat. Obviously, we have a lot of NBC affiliates. The month of February for us has been pretty strong with the Olympics and the Super Bowl. You have to remember that we also have non-NBC affiliates too. It is helpful. We are optimistic about the market, but we have to be fully aware that political is going to get really, really heavy once you get into August, September. And so that is going to impact the core numbers. Aaron Watts: Okay. That makes sense. And then if I could just ask one more: The potential for the NFL to reassess its TV rights this year has raised some concerns around economics and also potential dilution of content to digital platforms. Do you still view this potential renegotiation as an overall positive for the space and for Gray Media, Inc.? And I guess specifically on the side, you just renewed your affiliation agreement with NBC, who is in the midst of their first season with the NBA. Any learnings from that renewal that can be informative of how sports rights price increases absorbed by the networks might trickle down to the local affiliates? Like yourselves. Kevin P. Latek: You know, in general, extending the NFL contracts is a big, big positive for the industry. The NFL is a huge driver of audience for our TV stations. Keeping the NFL on broadcast is critical, and we fully believe that will happen. There is a lot of speculation out there—speculation around the platforms coming in, picking up a package. I am not going to comment on the NBC–NBA deal or anything else that is out there. It is a negotiation at the end of the day. I mean, there is going to be dialogue around how sports rights work their way through the ecosystem like they always do. I am not sure you can compare one directly to another, but net-net, keeping marquee sports on broadcast remains a positive for affiliates and viewers. Operator: Thanks. Craig Huber with Huber Research Partners, your line is open for our next question. Craig Anthony Huber: Great. Thank you. Just a housekeeping question. You said a few times here that your subscriber trends for retrans have improved. Can you just quantify that for us? I mean, how much better was the year-over-year that impacted your revenues in the fourth quarter versus how it was trending a year before? How much better is it, please? Kevin P. Latek: Hi, Craig. This is Kevin. We have not disclosed subscriber numbers, I think, ever. What we have said is our trends are similar to what is reported publicly for the ATV industry, given that we are fairly well dispersed from large markets to small markets. There are still declines overall in our ATV subs, but the rate of decline has slowed. We are seeing some improvement in the traditional MVPDs. There are still increases in virtual MVPDs. The net result is that there is still a rate of decline, but the rate of decline has slowed. Hilton Hatchett Howell: And I am not sure any other companies are providing much more clarity than that. So we are not going to provide more detail on that, and I do not think any of our peers are either. We pretty well disperse with the U.S. population. We have markets from Atlanta, Georgia to North Platte, Nebraska. So we are similarly situated to the broader ecosystem. Craig Anthony Huber: Okay. And then the second question on Atlanta Assembly, just update us, if you would, then as I typically like to ask you: How much money have you put into it on a net basis so far? The overall net cost of that project, and how much further out do you think until you will start to get a real proper return off that in terms of leasing out the space, etcetera, that you will be happy with versus that overall cost. Much further out is that that you think at this stage? Hilton Hatchett Howell: This is Hilton. We actually will have a number of transactions that we will likely be announcing through the course of 2026 that are not producing, you know, that we purchased when we bought the General Motors plant. And right now, we have got 80 plus or minus acres. And we have got a lot of potential joint ventures that will be opening up there soon, and we will be announcing. But right now, we cannot say too much about that one way or another. Jeffrey R. Gignac: To answer the other part of your question, Craig, it is around $630 million as of 2025, net of all of the reimbursements that we received through the end of the year. Craig Anthony Huber: That is a net number, right? Jeffrey R. Gignac: Net of reimbursements, yes. Craig Anthony Huber: Okay. Great. Thank you. I do have a follow-up. On the AI front, can you just give us some examples of how AI is helping you from a cost efficiency standpoint? Speed of what you guys provide on your services—news, advertising, etcetera. What is the benefit of AI so far? What are the examples that you are most excited about that you are implementing? And if it is not replacing human beings, how would you categorize that? I assume it is too hard to figure out how much potential cost savings it may have at this stage on an annual basis? Sandy Breland: We are seeing benefits really across the company. We unveiled our own app, Gray AI—sort of our own ChatGPT, if you will—and we are really finding it allows us to be much more efficient for time-consuming tasks, things that can be automated. For journalists, for example, it can help in converting a broadcast story to a story that will air on or run on other platforms. So things that previously would take hours can literally be done in a matter of minutes, allowing our journalists to spend more time on their important work of reporting and enterprise reporting. One thing to note, though, is that our internal policy is any final product is signed off on by a human. That is really important to us. But it certainly has allowed us to be much more efficient. And even in things like sales—prospecting, for example—the opportunities there allow us to really focus on the important core work and free up time for that work. It is a little early to quantify annualized cost savings. Quite honestly, we have really been using it to make us more efficient, more productive, and more responsive to our communities. Hilton Hatchett Howell: Listen. The way we are using Gray AI across the company is like having a thousand extra interns that we are not paying for. There are a lot of mechanical tasks like building a sales pitch or converting a story for the web or building and adding information to databases that people do that takes away from their creative energies. And if we could offload that to an intern—or a thousand interns—we would do that. And just like our intern policy, everything gets reviewed by a Gray employee before it becomes final. So if you want to talk expense savings, it is like saving the cost of a thousand interns. It is making us more productive, but we are thinking about this as efficiency to provide better, faster, more, and not about saving money. But it is one way to quantify a cost—it is like saving the money on a thousand interns. Operator: And we thank each of our audience members who shared their questions and comments today. Mr. Howell, I am happy to turn the floor back to you, sir, for any additional or closing remarks that you have got. Hilton Hatchett Howell: Thank you. So in closing, our fourth quarter was very busy, and we accomplished numerous objectives like the rest of 2025, and that will have long-term benefits for our company. We will continue to take actions to enhance our value for advertisers, our investors, and for the communities we serve. We thank everyone for joining the call today, and we look forward to our Q1 call coming up soon. Thank you. Operator: Ladies and gentlemen, this does conclude today’s Gray Media, Inc. Q4 2025 earnings conference call. We thank you all for your participation. You may now disconnect your lines.
Operator: Star Bulk Carriers Corp. Conference Call on the fourth quarter 2025 financial results. We have with us Mr. Petros Pappas, Chief Executive Officer; Mr. Hamish Norton, President; Mr. Simos Spyrou and Mr. Christos Begleris, Co-Chief Financial Officers; Mr. Nicos Rescos, Chief Operating Officer; Mr. Constantinos Simantiras, Head of Market Analysis; and Mrs. Charis Plakantonaki, Chief Strategy Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. I must advise you that this conference is being recorded. We will now pass the floor to one of your speakers today, Mr. Spyrou. Please go ahead, sir. Simos Spyrou: Thank you, operator. Thank you, operator, and I would like to welcome you to our conference call. Good morning, ladies and gentlemen, and thank you for joining us today. For the 2025 financial results, before we begin, I kindly ask you to take a moment to read the safe harbor statement on Slide number two of our presentation. In today's presentation, we will review our fourth quarter 2025 company highlights, financial performance, capital allocation initiatives, cash evolution during the quarter, operational performance, our continued investments in the fleet, developments on the regulatory front, and our perspective on industry fundamentals. Adjusted EPS was $0.16. The fourth quarter was characterized by solid profitability and our perspective on industry fundamentals. Turning to Slide three, developments on the regulatory front, adjusted EBITDA was $126,400,000, demonstrating even in a moderate rate environment the strong cash-generating capacity of our platform. We continue to actively return capital to our shareholders. During the fourth quarter, we repurchased 1,200,000 shares, totaling $37,900,000. Year-to-date during 2026, we have repurchased approximately 1,900,000 shares. In addition, our Board of Directors declared a $0.37 per share dividend for the fourth quarter, payable on March 19, to all shareholders of record as of 03/09/2026. For the 2025, our net income amounted to $65,200,000, while adjusted net income reached $74,500,000. Our balance sheet remains a key strategic advantage. Total cash and cash equivalents are approximately $459,000,000, outstanding debt is approximately $1,000,000,000, and we have an undrawn revolving capacity of $110,000,000. Importantly, we also have 27 debt-free vessels with an aggregate market value of approximately $630,000,000. This unencumbered asset base provides substantial financial flexibility to fund growth opportunities. Dividend policy. Going forward, we intend to distribute 1% of our free cash flow of $0.5 per share. We have also authorized a new $100,000,000 share repurchase program on substantially the same terms as the prior program. This dual-track approach—dividends plus opportunistic buybacks funded from vessel sales—allows us to dynamically allocate capital depending on the market conditions and the discount or premium of our shares relative to the intrinsic value. These initiatives reflect both our confidence in the company's forward cash flow visibility and our commitment to maintaining a competitive and sustainable capital return profile. On the top right side of Slide number three, you can see our per-vessel daily performance metrics for the quarter. Time charter equivalent came at $19,012 per day per vessel. Combined daily operating expenses and net cash G&A expenses came at $6,444 per day per vessel, resulting in a daily cash margin of approximately $12,570 per vessel per day before debt service and CapEx. These numbers highlight the operating efficiency of our platform and our ability to generate meaningful cash flow even at mid-cycle rate levels. Slide number four summarizes our capital allocation track record over the last five years. Since 2021, we have executed approximately $3,000,000,000 in value-enhancing actions including dividends, shares repurchases, and debt repayment. During this period, we have returned $13.49 per share in dividends, representing approximately 55% of our current share price. We have reduced our total net debt by 47%, bringing leverage to a level where it is below 65% of the current demolition value of the fleet. At the same time, we expanded the fleet opportunistically through accretive fleet acquisitions, issuing equity at or above NAV, thereby increasing scale while protecting per-share value. The result is a larger, more efficient platform with materially lower financial risk and significantly enhanced free cash flow per share potential. Slide number five illustrates the movement in our cash balance during the fourth quarter. We began the quarter with $457,000,000 in cash and generated $101,000,000 in operating cash flow. In summary, during the fourth quarter, we delivered solid profitability, strengthened our liquidity position, continued to delever, returned meaningful capital to shareholders, and preserved significant optionality for future capital allocation. Our balance sheet resilience, operating efficiency, and disciplined capital allocation framework position us well to navigate market volatility while continuing to enhance per-share value. With that, I will now pass the floor to our COO, Nicos Rescos, for an update on our operational performance and the continued investments we are making in our fleet. Please turn to Slide seven, covering our operational performance. Nicos Rescos: We continue to run one of the most cost-efficient platforms in the drybulk sector. Star Bulk Carriers Corp. continues to rank at the top amongst listed peers in RightShip safety scores. Daily operating expenses for Q4 came in at $5,045 per vessel, and net cash G&A at $1,399 per vessel. This operational cost discipline has not come at the expense of quality, as illustrated. Moving to Slide eight, on the newbuilding front, all eight of our customers’ newbuildings are on track for delivery during 2026. Importantly, we outline our fleet-wide investment program. Financing is well advanced. We have secured $130,000,000 of debt against the five Qingdao vessels and expect a further $74,000,000 against the three Qingling vessels. Our vessel upgrades made meaningful progress during 2025, fitting 13 additional vessels with energy-saving devices and six with high-efficiency propellers. In total, we have now completed 55 out of 80 ESD total installations across the fleet, with another 14 planned for 2026. We have also nearly completed our telemetry rollout with digital monitoring equipment, which totals approximately $55,600,000, with around 1,585 off-hire days for the full year. At the bottom, you can see our expected drydock schedule for 2026, and the top right of the page shows our CapEx schedule, illustrating both the newbuilding payments and our vessel efficiency upgrade spending alongside the corresponding debt financing. Turning to Slide nine for our fleet update. Continue to optimize our fleet through selective disposals, prioritizing the sale of older non-eco tonnage to reduce our average fleet age and improve overall efficiency. During Q4, we delivered three vessels to their new owners: the Supramax and Panamax Star Runner, Star St. Piper, and Star Remy. In December, we agreed to sell Star Stomington, an Ultramax, which was delivered to her new owners in February. Looking into Q1 2026, we have committed two additional older vessels for sale—an inefficient Capesize and a Kamsarmax, Tascar and Star Mariela—with deliveries expected in April. We will continue to maintain seven long-term chartering contracts which provide commercial flexibility across market cycles. Star Bulk Carriers Corp. operates one of the largest dry bulk fleets among U.S. and European listed peers, with 141 vessels on a fully delivered basis and an average age of approximately 12.1 years. Thank you. Please turn to Slide 10. I will now pass the floor to our Chief Strategy Officer, Charis Plakantonaki, for an update of recent global environmental regulation developments, where we highlight our progress across ESG priorities. Charis Plakantonaki: Despite the one-year postponement of the IMO net-zero framework in October 2025, we remain committed to our strategy to reduce greenhouse gas emissions from our fleet operations. Alongside the ongoing renewal of our fleet, we continue to enhance energy efficiency of our vessels through targeted technical and operational measures, including the successful testing of hull cleaning robots and silicon antifouling coatings. In 2025, the Star Bulk Carriers Corp. fleet achieved an average C rating in the RightShip greenhouse gas rating. We also maintained our B score in the 2025 Carbon Disclosure Project Water Management submission, effective environmental management. Comply with FuelEU Maritime, and consistent with last year, we entered into a pooling agreement with an external party to cover 100% of our CO2 deficit for 2026 and part of 2027, purchasing surplus units, the most cost-effective compliance strategy. On the technology front, we completed the deployment of Starlink and installed onboard firewalls across the fleet. As part of our artificial intelligence strategy, we delivered the company's first custom-built AI application while continuing to leverage AI within existing systems to develop new tools to further automation and optimization. The well-being of our people remains a priority. During Q4 2025, we contracted a comprehensive company-wide employee survey to listen closely to our teams and identify tangible actions to better support them in their roles. I will now hand the floor to our Head of Market Analysis, Constantinos Simantiras, for a market update and his closing remarks. Constantinos Simantiras: Thank you, Charis. Please turn to Slide 11 for a brief update of supply. During 2025, 36,200,000 deadweight was delivered and 5,200,000 deadweight sent to demolition, resulting in net fleet growth of 31,000,000 deadweight, or 3% year-over-year. The newbuilding orderbook has grown over the past three years, reflecting limited shipyard capacity through 2028, high shipbuilding costs, and ongoing uncertainty around wind propulsion technologies. Contracting remained under control, decreasing to 45,800,000 deadweight during 2025, but remains at relatively low 12.8% of the fleet. The IMO's recent decision to postpone adoption of the net-zero framework will likely extend this uncertainty into 2026. That said, we have seen a noticeable uptick in contracting in the Capesize segment over the past few months. Meanwhile, the fleet continues to age, and by 2027, approximately 50% of the existing fleet will be over 15 years old. Moreover, the rising number of vessels undergoing the third special survey and drydocks is estimated to reduce effective capacity by approximately 0.5% during 2026 and 2027. On the operational side, average fleet steaming speeds have recovered from last year's historical lows, stabilized at around 11.1 knots over the past two quarters, incentivized by firmer freight rates and lower bunker costs. Over the coming years, stricter environmental regulations are expected to continue to support slow steaming and help constrain effective supply. Finally, for 2026, we anticipate congestion to follow typical seasonal patterns, though there could be some upside for the supply and demand balance. Global port congestion dropped to a six-year low during the fourth quarter 2025 but has since returned to long-term average levels. Let us now turn to Slide 12 for a brief update of demand. Moving to Clarksons, total drybulk trade grew 1.3% in volume and 2.1% in ton miles during 2025. This was driven by record bauxite and minor bulk exports plus a solid recovery in iron ore, coal, and grain volumes. Strong Atlantic exports, longer Pacific distances, and ongoing ore-related inefficiencies supported ton miles growth throughout the year. Red Sea crossings improved somewhat during the fourth quarter after the October ceasefire, but they are still roughly 40% below 2024 levels and geopolitical risk in the region remains high. China's total dry bulk imports were essentially flat during 2025, as the 4.2% decline during the first half was fully offset by a 4.1% rebound through the second half, with iron ore and coal imports reaching new all-time highs during December. Meanwhile, imports to the rest of the world continue to recover in 2025, with notable strength in the second half amid reduced uncertainty in international trade relationships, supported by lower commodity prices, a weaker U.S. dollar enhancing affordability, and resilient demand in key regions. Non-China import volumes grew 3.2% throughout the year. Growth was mainly driven by Southeast Asia, India, and the Middle East, with additional support from Africa and intra-Asian trade. Looking ahead, drybulk demand is projected to grow by 0.6% in tons and 1.9% in ton miles during 2026. The IMF recently raised its 2026 global GDP forecast by 0.2% to 3.3%, with upward revisions of 0.3% for both the U.S. and China. The trade truce between the U.S. and China, new agreements with major partners, and the recent decision by the U.S. Supreme Court on presidential authority to invoke reciprocal tariffs should reduce uncertainty, support economic activity, and demand for raw materials. That said, elevated Chinese stockpiles across a range of commodities, slower industrial production, and softer fixed asset investment present downside risk, though these should be partly offset by new mine capacity ramping up. Breaking it down by key commodities, iron ore trade grew 2.2% during 2025 and is projected to rise 1.9% in 2026. For the first time since 2020, China crude steel production fell below 1,000,000,000 tonnes, down 4.5% overall in 2025 and 11% in Q4, as a result of policy curbs on steel supply and the ongoing real estate slowdown, while steel output in the rest of the world increased by 1.2%. Domestic iron ore output declined by 2.5% in 2025, while stockpiles at Chinese ports currently stand close to all-time highs after the Q4 import surge. Looking ahead, Chinese iron ore imports are expected to remain broadly flat in 2026, while stronger Brazil volumes and the gradual ramp-up of high-quality exports from West Africa should support ton mile growth over the coming years. Coal trade contracted 5.6% during 2025 and is projected to decline another 2.5% in 2026. Volume experienced a strong recovery in the second half but stayed below 2024 levels. Strong renewable expansion in China should continue to pressure demand. Domestic production in China and India is outpacing consumption growth and stockpiles remain high. Indonesian coal exports are expected to decline further in 2026, following announced production cuts of up to 25%, which could tighten volume but potentially support ton miles through longer-haul flow from Southeast Asia and global focus on energy security. Furthermore, domestic production in China and India is outpacing consumption growth and stockpiles remain high. Indonesian coal exports are expected to decline further in 2026, following announced production cuts of up to 25%, which could tighten volume but potentially support ton miles through longer-haul flow. Furthermore, global focus on energy security should provide support for coal trade over the next years. Grain trade grew 2.9% in 2025 and is projected to serve 7.8% in 2026. Second-half 2025 volumes jumped 10%, led by robust exports from Brazil, Argentina, and Australia, plus better-than-expected U.S. shipments. Black Sea exports remain subdued but should gradually recover over the next two years. More important, China’s resumption of U.S. soybean purchases under the trade truce will carry into 2026, boosting ton miles. Minor bulks grew 5.2% in 2025 and are projected to expand by 2.1% in 2026. Minor bulks carry the highest correlation to global GDP and continue to benefit from healthy macro outlooks across major economies. That said, growth should moderate somewhat next year due to rising protectionism and a slowdown in growth of West African bauxite volumes after last year's 33% surge. As a final comment, underpinned by a favorable supply backlog, tightening environmental regulations, and easing trade tensions, we remain optimistic about the drybulk market outlook. In a period of heightened geopolitical uncertainty, we remain focused on actively monitoring our diverse scrubber-fitted fleet to capitalize on market opportunities and deliver value to our shareholders. Without taking any more of your time, I will now pass the floor over to the operator to answer any questions you may have. Operator: Thank you. We will now be conducting a question-and-answer session. And our first question will come from Christopher Robertson with Deutsche Bank. Christopher Robertson: Thank you, operator, and good morning, team. My question is just related to the underlying demand and ton mile expansion happening in the iron ore market with Brazil and West Africa, where, let us say, underlying demand for the commodity remains flattish, similar dynamic or maybe even slightly weaker, but ton mile demand has held stable or expands because of the geographical dispersion of where the commodities are coming from. Are there any other commodities that have a similar dynamic or tribal commodities that have the geographical dispersion of where the commodities are coming from? Any commentary around that would be helpful. Petros Pappas: Hi, Chris. So besides bauxite and iron ore, we see a very strong trade on grains, which are going to be increasing by about 7.5% to 8%. And as most of them are coming from Brazil, we will get extra ton miles from there. We also see demand from West Africa on smaller vessels, and that is going to create congestion as well because of construction projects that they got. I think this is going to be a positive as well. Now, minor bulk coal—coal minor bulk coal—coal exports. This might also increase ton miles as imports may have to come from further away. So we think that overall there is other possibilities as well. But the bauxite and the iron ore trade are actually going to be big pluses. Christopher Robertson: Yes, it makes sense. Thanks for the color there. Just kind of following up on the potential for greater congestion in West Africa. Are there any of the projects, whether it is rail or trucking or the ports themselves, etcetera—are there any projects right now to build out that infrastructure a bit more to make the supply chain more efficient? Kind of what is going on there that may lead to congestion maybe going up in the short term, but being alleviated in the long run? Petros Pappas: Well, I do not know details about that. What I know is that Supramax/Ultramax calls in West Africa have increased by about 30% during the past year. Now if our analyst knows anything about the projects, he can— Constantinos Simantiras: I would add that it is exactly what you said, Chris. We expect that we will have in the short term an increase in congestion and, over the next few years as the infrastructure is upgraded, this will gradually go down, but this is not something that would take place in one to two years. Christopher Robertson: Got it. Yeah. That is super helpful. Thank you very much. I will turn it over. Petros Pappas: Thank you, Chris. Operator: We will go next to Omar Nokta with Clarkson. Omar Nokta: Good afternoon. I just wanted to ask maybe just about the capital return policy. The decision, I guess, to boost the dividend payout, does that come about simply just given the strong share performance we have seen here recently? Or is there more to it? Clearly, move back to 100% payout or maybe somewhat similar to how it was prior to the focus on the buybacks last year. Just a bit more detail on that. Hamish Norton: Hi, Omar, it is Hamish Norton. Basically, the better the share does, the stronger the incentive to pay dividends as opposed to a share repurchase. And, you know, so there is nothing really more to it than that. Omar Nokta: Okay. Thank you. And then just a follow-up into that. As we think about free cash flow, is earnings a good representation of that—approximate what free cash flow looks like? I know quarter to quarter is going to be changes. Or any color you can give on that? It is not terrible. But is earnings a good way to look at it? Do you think it understates free cash flow? Christos Begleris: So if I may add—hi, Omar, this is Christos. A few things. First of all, debt repayment is slightly higher than depreciation, and therefore, the free cash flow is lower than net income. And also, as you will see, the change in net working capital—so in a market that rises fast, you would expect the working capital change to be greater, thereby reducing the free cash flow. Whereas in a market that is reducing, the change in working capital will be positive, and therefore, that is boosting the free cash flow available for dividends. Omar Nokta: Okay. Thanks, Christos. And thanks, Hamish. That is it for me. Thank you. Petros Pappas: Thank you, Omar. No closing comments, operator. Thank you very much. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to management for closing comments. You may disconnect your lines and have a wonderful day. Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference.
Operator: Press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press star 1. I would now like to turn the conference over to Brian Dingerdissen. You may begin. Christopher H. Franklin: Shareholder approval in record speed compared to similar deals over the years, and we are very proud of that. As we move to slide six, you can see that by year-end 2025, we completed the seven filings in the states required. This was another substantial accomplishment in an incredibly short period of time and I truly appreciate the efforts of our teams involved. At this point, we have received the initial procedural schedules in most of the states, and based on those schedules, we continue to believe that we will close the transaction in 2027. As you may recall, three states have statutory timelines, but the others do not. I may not be able to promise this regulatory approval phase will proceed in the same record speed as our shareholder approval, but I can certainly say I am proud of the constructive regulatory relationships that we have built over the years, and I firmly believe that this mutual trust that we have built will lead to a constructive outcome. So let us turn our focus to reviewing the past year's successes on slide seven. 2025 was truly a banner year for Essential Utilities, Inc., and I am very proud of what our team across every function has accomplished. I would like to highlight some of these as I think they speak to the drive for consistency and excellence I have emphasized in our calls over the years. Financially, we delivered 2025 earnings per share of $2.20, above our guidance range of $2.07 to $2.11. Even without some of the nonrecurring, I will call beneficial items, noted in our 10-Qs and 10-K throughout the year, we would have ended up above the guidance range. This represents our continued commitment and legacy of delivering on the guidance that we provide investors. And Dan will discuss this outperformance in more detail, but suffice it to say, we delivered another strong year of earnings. Alongside growing earnings per share, we also increased the quarterly dividend by 5.25% in July. That is 35 increases in 34 years for anybody keeping score, and 80 consecutive years of paying dividends. I am also happy to report that this earnings per share and dividend growth was achieved while we increased capital investment for the benefit of our customers. In 2025, we invested a record $1.4 billion in regulated infrastructure, helping to improve reliability and resiliency for our communities. Operationally, 2025 saw our water business adding more municipal wastewater systems across Pennsylvania and North Carolina. We continue executing on our industry leadership on this issue. We are also pleased for our natural gas segment. I am just so proud of what the team accomplished in 2025. Of course, both businesses have continued robust main replacement. Throughout the year and across both segments, we replaced or retired over 400 miles of main in 2025. It is really worth noting that these successes demonstrate that our work on the merger did not distract us from our core operational goals and obligations to our customers. These are fundamental to our success as a company and our fidelity to its mission. In 2025, we were also named to USA TODAY's America's Climate Leaders for the third consecutive year. Essential Utilities, Inc. has been named as one of Newsweek's America's Most Responsible Companies for the fifth consecutive year. Regarding sustainability, I have been consistent and steadfast in my message to you over the years. Our focus on the environment, our focus on the community, and our focus on people continue to guide us through 2026. American Water shares a similar commitment, which makes our combination only more compelling. Another central area of focus for us tied to sustainability is maintaining our commitment to delivering high-quality, affordable service for our customers. Amid ongoing national and state discussions around affordability, particularly the impact on customer bills, I want to reiterate that our approach is grounded in making responsible investments in replacing aging infrastructure, sustaining high-quality water, and strengthening system reliability while carefully managing our operating costs. By balancing these priorities, we work to support customer affordability while at the same time sustaining our financial performance. And with that, let me turn the call over to Dan to review our financials for the year. Daniel J. Schuller: Thanks, Chris, and good morning, everyone. Let us begin on slide nine with a high-level view of the full-year results, and then we will get into the details on the waterfalls. As Chris described, our 2025 was very strong with revenues up 18.6%. Let us recall that this year-over-year GAAP EPS comparison includes previously disclosed prior-year items related to the gain on sale of the Pittsburgh-area energy project, as well as the unanticipated weather we experienced in 2024. On slide 10, we have the revenue waterfall for the year. Revenue has increased $388.5 million, or 18.6%, from about $2.1 billion a year ago to near $2.5 billion this year. Approximately $177.6 million of that increase is the result of regulatory recoveries. Purchase gas tax repair credits to customers contributed $57.2 million, while the “other” category of $30 million consists of reduced weather normalization credits to our gas customers due to colder-than-normal weather in 2025. Next on slide 11, our O&M slide, we see O&M expenses up about $52.3 million, or 0.9% year over year, with an increase of $8.5 million in water production costs, contributing increases in power, purchased water, and chemicals. Operating expenses related to newly acquired water and wastewater systems added $1.7 million. The “other” category reduced O&M by $2.6 million, including the positive impacts of higher capitalization in the gas business, lower spending on materials and supplies, and some insurance-related benefits, offset by expenses related to the merger with American Water. If we normalize out the merger expenses, insurance proceeds, and growth, we get to a year-over-year increase more in line with historic norms. Moving to slide 12, our earnings per share waterfall. We begin with 2024 GAAP EPS of $2.17. As a reminder, we made a few adjustments to arrive at a non-GAAP income per share of $1.97 for 2024. These adjustments included the removal of the one-time gain from sale of the Pittsburgh-area energy project, and adjustments for unanticipated weather along with the associated tax impact. You will find the reconciliation in the investors section of our website and as an appendix to this deck. In 2025, we picked up $0.46 from regulatory recoveries, an additional $0.15 from higher gas volumes, and an incremental $0.01 from water growth. These are partially offset by $0.02 from lower water volume, $0.09 from higher expenses, and $0.48 from “other.” Now, “other” includes $0.24 from the prior-year gain on sale from the energy project, as well as increased depreciation, amortization, interest, and taxes. As we have discussed in the last couple of earnings calls, in 2025, our expectation was that we would achieve GAAP earnings per share above our guidance range of $2.07 to $2.11 due to nonrecurring benefits, and indeed, we finished the year with full-year GAAP EPS of $2.20. Let me point out a few nonrecurring items from our 10-Qs and the upcoming 2025 10-K that contributed to this favorability. We had the release of an income tax reserve regulatory liability based on the February 2025 Aqua Pennsylvania rate order, and we had a favorable regulatory asset adjustment based on the February 2025 Aqua Pennsylvania rate order. We had the closure of the P&G sales and use tax audit. And then in the second quarter, we had a benefit related to decreased bad debt expense. A second of those was actually tied to a COVID-related reserve. And in the first quarter, we had a benefit from insurance proceeds. These were partially offset by merger-related expenses for banking, legal, and other matters. However, even excluding these one-time items, both good and bad, we still had strong financial performance that would have exceeded our range. We remain committed to our long-term goal of delivering 5% to 7% EPS growth for the three-year period of 2024 through 2027. Given the impact of one-time items in the 2025 results, for a better sense of 2026, I would use that long-term CAGR of 5% to 7% off the non-GAAP income per share of $1.97 in 2024. I will conclude my remarks on slide 13 with a discussion on regulatory activity. In 2025, Essential Utilities, Inc. completed regulatory recoveries that total $101.5 million of incremental annualized revenue, with $92.6 million of this related to our water and wastewater business, and the remainder to our gas business. Thus far in 2026, Essential Utilities, Inc. has completed regulatory recoveries that total $12.4 million across our water, wastewater, and natural gas businesses. Looking ahead now, our water and wastewater segment has filed for regulatory recoveries with a requested annualized revenue increase totaling $101.9 million. We continue to manage our regulatory activity to minimize regulatory lag, maintain safe and reliable service, and earn an appropriate return on the capital we invest, while always considering affordability for our customers. This will, in a similar manner to the past, continue throughout 2026 as we approach our anticipated combination with American Water. And with that, I will turn it back over to Chris. Christopher H. Franklin: Alright. Thanks, Dan. Let us move to slide 15 to recap our water and wastewater acquisitions for the year and take a look forward. During 2025, Essential Utilities, Inc. completed three acquisitions of water and wastewater systems for approximately $58 million, which represent over 12,700 new customers. I want to touch on some recent news you may have heard regarding the city of Chester and the Chester Water Authority. We respect the court's ruling. The Supreme Court in Pennsylvania communicated its decision regarding the city of Chester and the Chester Water Authority. We stand ready to participate in any process where our company can be part of an overall solution that assists the city of Chester to exit bankruptcy and ensure utility customers in the region receive quality water at affordable rates. Now looking forward, we have three signed purchase agreements for systems in Pennsylvania and Texas, which we expect to close in 2026. Notably, last month, the Pennsylvania Public Utility Commission approved Aqua Pennsylvania's acquisition of the assets of the Greenville Municipal Water Authority without modification. I will remind you that progress on our DELCORA transaction, the fourth pending item listed here, continues to be stalled by a stay put in place by a federal bankruptcy court judge related to the bankruptcy of the city of Chester. As we noted in November on our third quarter 2025 earnings call, we remain optimistic about the consolidation of water and wastewater systems in the United States, and look forward to leveraging the combined resources of Essential Utilities, Inc. and American Water to accelerate our business development work through 2027. Hopefully, we will see some movement on DELCORA now that the Supreme Court has ruled. All right. Let me conclude my remarks on slide 16. We are reaffirming our 5% to 7% multiyear earnings per share guidance. As Dan noted earlier, this 5% to 7% CAGR should be applied to our 2024 non-GAAP income per share of $1.97 as this strips out the favorability of nonrecurring items in 2025. This includes acquisitions expected to close in 2026 but excludes DELCORA. We also remain committed to maintaining a strong balance sheet, improving cash flow and debt metrics, and delivering consistent dividend growth, while keeping our payout ratio between 60–65%. In 2026, regulated infrastructure investments are expected to be $1.7 billion. And finally, I want to reaffirm our PFAS commitments. We are continuing to execute our multiyear plan to ensure that finished water does not exceed the federal maximum contaminant level of EPA-regulated PFAS chemicals as we embark on EPA timelines and our anticipated merger with American Water. Listen. All in all, I commend the 2025 performance of the entire Essential Utilities, Inc. team for an excellent year, and I reiterate our company's commitments to all its stakeholders as we embark on what I anticipate will be another strong year and a productive lead-up to our anticipated merger with American Water. I am going to conclude the formal remarks for the day, and we will open it up for questions. Operator: We will now open for questions. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking a question. Our first question comes from Paul Zimbardo with Jefferies. Please go ahead. Paul Zimbardo: Hi. Good morning, team. Hi. Good morning. How are you? I am good. I am good. Thank you for taking the questions. The first was, and I apologize I have missed it, did you quantify what the non-GAAP 2025 would be if you made those adjustments, both sort of positive items, and then we noted the transaction costs as well? Daniel J. Schuller: No. We did not say it specifically. We just gave you the nonrecurring items there. You can find all those numbers in the Qs and then in the 10-K that will be released later today. You will see that we still sit favorable to our guidance range, really, as we have projected throughout the course of the year. Paul Zimbardo: Okay. Understood on that. And broadly, on the regulatory strategy, could you describe what is the timing for the next round of Pennsylvania rate cases? Daniel J. Schuller: Yeah. So the way I think about it, we have not announced it officially. But for both PNG and Aqua Pennsylvania, we have been on a two-year cadence historically. So I would use that same cadence. That would have us filing relatively quickly here. Paul Zimbardo: Okay. Okay. Then the last one I had was just I noticed that the small tweak on the language on the credit metrics is 12% plus versus the prior range. Anything to read into or things that you are trying to communicate from that? Daniel J. Schuller: I guess all we would probably say is, as we finished out the year and concluded our financial reports, it looks like we are in a nice position there in terms of FFO to debt. We should be above that 12% threshold for Moody’s and for S&P. So we feel good about those credit metrics. Paul Zimbardo: Thank you very much, team. Operator: Our next question comes from Travis Miller with Morningstar. Please go ahead. Travis Miller: Thank you. Hi, everyone. With some of your plans for regulatory activity with the merger, is there any chance that you could combine regulatory sign-off for the merger? Or would those be two separate filings in any of the states? You are about rate cases? Rate cases or surcharges, any kind of rate-related type of regulatory activity? Is that something you could combine somehow, either settlement or through the proceedings? Or are they all considered separate? Daniel J. Schuller: They are separate dockets and will be adjudicated separately in each case. I do not see those being combined, Travis. Travis Miller: Okay. Just thought I would check there. And then when you talk about the participate in along those lines? Take me through what might develop or what you could participate in along those lines? Christopher H. Franklin: It is such a great question. Now that the Supreme Court has ruled and said that the water authority, the Chester Water Authority, is actually owned by itself, right? The city argued that it should be owned by the city. And in that case, the city could sell the asset and exit bankruptcy with the proceeds. Now that the city does not have an asset to sell, somebody has to figure out—obviously, the receiver in this case along with the bankruptcy court judge—how they are going to exit bankruptcy or declare bankruptcy. And I think that is what is happening in the background. Where I think it is important for us is for DELCORA. You will remember that there is a small reversionary stub piece, if you will, of the contract that says if DELCORA sold, in this case to us, that the city assets, the Chester city assets, that were subject in place in 1972 when this addendum was put together, would revert to the city. I think there is an opportunity here for us to pay something for those assets. It is not going to nearly cover bankruptcy. We are talking maybe a little bit above our current purchase price at rate base. It is a minor amount in comparison to the almost $350 million they owe. But it could be a help in some way. At this point, what we would like to see is the bankruptcy judge allow the PUC proceeding to take place on DELCORA, and then we can begin this negotiation on the reversionary portion of the contract. Is that clear? As clear as I suppose it could be. It is a fun type of option for all of us. Travis Miller: Yep. No. That is all I had. Operator: This concludes the question-and-answer session. I would now like to turn the call back over to Chris for closing remarks. Christopher H. Franklin: Thank you. Operator: Thank you. You may now disconnect. This concludes the call. Thank you for joining. Brian Dingerdissen: Thanks for joining. As always, we are available for follow-up questions that you might have. Have a great day. Thanks for being with us.