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Operator: Ladies and gentlemen, thank you for joining us, and welcome to the LandBridge Fourth Quarter 2025 Results Call. [Operator Instructions] I will now hand the conference over to Mae Harrington, Director of Investor Relations. Mae, please go ahead. Mae Harrington: Good morning, and thank you for joining LandBridge's Fourth Quarter and Fiscal Year 2025 Earnings Call. I'm joined today by our Chief Executive Officer, Jason Long; and our Chief Financial Officer, Scott McNeely. Before we begin, I'd like to remind you that in this call and the related presentation, we will make forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance and are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from results and events contemplated by such forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements. Please refer to the risk factors and other cautionary statements included in our filings with the SEC. I would also like to point out that our investor presentation and today's conference call will contain discussions of non-GAAP financial measures, which we believe are useful in evaluating our performance. The supplemental measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and the appendix of today's accompanying presentation. I'll now turn the call over to our CEO, Jason Long. Jason Long: Thank you, Mae, and good morning, everyone. 2025 was a year of accretive expansion for LandBridge with Q4 marking our seventh consecutive quarter of revenue growth as a public company. While Scott will delve more deeply into our operational and financial results, I'll start by highlighting the proven growth potential of our business model. In 2025, we grew revenues by 81% and adjusted EBITDA by 83% year-over-year and achieved an adjusted EBITDA margin of 89%. Fourth quarter results strongly contributed to that growth with revenue and EBITDA increasing 12% and 14% quarter-over-quarter, respectively. We have many compelling organic growth opportunities before us as well as accretive opportunities to expand our footprint, which now totals more than 315,000 mostly contiguous acres strategically located across the Delaware Basin. We often talk about LandBridge advancing the paradigm of active land management, and I want to spend a few minutes talking about what that means and how we're able to demonstrate those results. We are focused on acquiring strategic high-quality land positions that are well positioned for development across key industries such as energy, power, digital infrastructure and broader industrial development. In parallel, we work to drive capital-light growth on existing acreage through commercial efforts by leveraging our deep expertise in the Delaware Basin across multiple industries to attract and advance commercial opportunities on our acreage, maximizing each acre's revenue potential and creating compounding revenue across our position. Our active land management strategy is delivering long-term value across diversified revenue streams and driving gains in surface use economic efficiency, or SUEE. This metric, which we disclose on an annual basis for acreage with similar acquisition vintages, represents the average revenue per acre generated by our acreage portfolio over time. For example, our legacy acreage position of approximately 72,000 acres generated less than $465 per acre when we acquired it. And last year, it averaged also $1,160 per acre, representing nearly 150% growth since 2022. For 2024, vintage acreage, including the East Stateline and Wolf Bone Ranches, we achieved year-over-year growth of 145% in 2025. Across our full acreage portfolio of more than 315,000 acres, we delivered SUEE growth of 21% year-over-year, representing a dollar value growth of $543 per acre to $658 per acre on average. Over the past year, this significant growth was accompanied by increased diversification of our customer base across revenue categories, accelerating commercial growth with a record of approximately 450 new easements and agreements on our acreage including large-scale agreements with blue-chip partners. In the energy space, we executed 2 battery energy storage systems or BESS, facility development agreements with Samsung C&T Renewables in December granting exclusive rights to develop BESS facilities with an aggregate capacity of 350 megawatts. These BESS facilities, which could achieve commercial operation as soon as year-end 2028 are designed to enhance grid stability, support renewable energy integration, deliver clean power to the local grid and unlock more potential opportunities with Samsung in the future. Additional energy developments in 2025, including finalizing the sale of a 3,000-acre solar energy project with a proposed generation capacity of up to 250 megawatts and entering into a long-term lease with a subsidiary of ONEOK for a natural gas processing facility. We also entered into a strategic agreement with NRG Energy for the potential construction of a 1.1 gigawatt grid connected natural gas power generation facility intended to power our data center. Our agreements with Samsung, ONEOK and NRG reflect and emphasize our commitment to securing development across conventional and renewable energy while also positioning LandBridge as a key enabler of digital infrastructure development across West Texas, a geography that has all the necessary components for such development, in particular, low-cost synergy, abundant water volumes, proximity to fiber and favorable regulatory environment. These data center projects represent large, long-term, capital-intensive investments, and we support any potential counterparties in their due diligence on West Texas opportunities. Our team has significant experience with data center project underwriting and extensive relationships with West Texas counterparties who provide power, water and other key infrastructure to facilitate complex multiparty agreements and shorten time to value for our customers. Overall, our conviction in the West Texas value position for data centers has never been stronger and we look forward to the ultimate broader industrial impact of such important projects on West Texas and LandBridge specifically. Another key growth driver continues to be produced water royalties, where our ample high-quality pore space is an important differentiator. As forward-looking and capital-efficient E&Ps increasingly value the flow assurance offered by large-scale out-of-basin solutions, we expect that our synergistic relationship with WaterBridge will continue to contribute to growth as WaterBridge expands its water infrastructure across our acreage through projects like their Speedway Pipeline, where they recently announced an open season for its second phase. As we look ahead to 2026, we look forward to advancing our critical role in multi-industry development throughout the region. We are confident in our proven business strategy and are well positioned to continue delivering differentiated value for our shareholders. And now I'll turn the call over to Scott, our Chief Financial Officer. Scott McNeely: Thank you, Jason, and good morning to everyone joining today. As Jason noted, we entered 2026 from a position of strength with the momentum of a strong fourth quarter and a full year of growth. In the fourth quarter, we delivered total revenue of $56.8 million, up 12% sequentially and 56% year-over-year. And for the year, we delivered revenue of $199.1 million, representing 81% year-over-year growth. Sequential growth for the fourth quarter was driven by surface use royalties and revenues which increased 12%, primarily driven by increased royalties from WaterBridge's BPX Kraken development as well as new project easement payments. Resource sales and royalties revenues also rose 12%, attributable to water and sand sales. This growth came in spite of a 6% quarterly decline in revenue from oil and gas royalties driven by lower activity levels on our acreage. Our direct exposure to commodity prices remains limited. For the full year, oil and gas royalties represented less than 10% of LandBridge's total revenues. Our advantaged margins are evident in our adjusted EBITDA of $51.1 million for the quarter, up 14% sequentially and 61% year-over-year, representing a 90% margin. For the full year, we delivered $177 million in adjusted EBITDA, above the upper end of our guidance range, reflecting an 83% sequential increase and a margin of 89%. We generated free cash flow of $36.4 million for the quarter, representing a 64% margin. For the full year, we generated free cash flow of $122 million, representing a 61% margin. In November, we further optimized our balance sheet through an inaugural $500 million senior notes offering accompanied by a new $275 million revolving credit agreement. These new agreements enhance our balance sheet strength by improving our cost of capital, increasing our liquidity, reducing our interest expense and overall providing a more scalable and efficient financing solution to support any future accretive M&A. We ended the year with total liquidity of $236 million, including $31 million of cash and cash equivalents and $205 million undrawn under our revolving credit facility. Our covenant net leverage ratio was 2.8x at the end of Q4 as a result of the financing of the 1918 Ranch acquisition and our long-term net leverage ratio target remains between 2 and 2.5x. We will continue to deploy our free cash flow in a disciplined manner focused on creating long-term shareholder value across 3 priorities. First, we continue to prioritize value-enhancing M&A as we execute on our proven active land management strategy. We see significant opportunities in the market to acquire underutilized and undercommercialized land. Second, we are intent on maintaining a strong balance sheet with an appropriate capital structure. Our notes offering helped to further optimize our balance sheet and provides us with financial flexibility as we execute on our goals. And finally, we intend to return capital to shareholders over time through dividends and opportunistic share repurchases. This quarter, we declared a 20% increase to our quarterly dividend, bringing it up to $0.12 per share. Our Board also authorized a share repurchase program of up to $50 million in shares through December 2027, increasing the flexibility with which we can opportunistically buy back shares. Looking ahead, for full year 2026, we are excited to announce our 2026 adjusted EBITDA guidance of $205 million to $225 million which represents over 20% year-over-year growth at the midpoint. We are proud to have delivered another strong quarter and year of growth. We are focused on continuing to advance development, expand our partnerships and customer base and deliver compelling value to our shareholders. Finally, I would like to highlight our upcoming Investor Day scheduled for the afternoon of March 19 in New York City. The event will include presentations by our CEO, Jason Long; Chairman of the Board and Five Point's CEO and Managing Partner, David Capobianco and myself, along with other members of the LandBridge team. We expect to present an overview of West Texas macro backdrop across our key growth industries, detail how we view our surface acreage as a perpetual call option on growth opportunities and provide insight into the value proposition of our unique business model. In addition, the event will include a fireside chat with subject matter experts deep diving into the nuances and implications of the data center thesis for West Texas as well as insights from experienced data center leaders such as Power Bridge Founder and CEO, Alex Hernandez. We encourage all investors to attend. Please contact ir@landbridgeco.com to register, and we look forward to welcoming you. Thank you and we would now like to open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Keith Beckmann of Pickering Energy Partners. Keith Beckmann: I just wanted to get a sense on what the moving pieces were that drove the really strong sequential growth in produced water and maybe how you expect that to trend looking forward based on some of the projects we expect to come online here over the next year? Scott McNeely: Keith, I appreciate the question. Yes. So in the third quarter, we saw BPX Kraken bring -- WaterBridge bring the BPX Kraken project online and continue to see volumes ramp through the end of the year. So that was a major contributor as well as just increased activity on the East Stateline Ranch. So obviously, great momentum kind of stepping into '26. As we kind of look forward to 2026 and what is driving the increase in expectations for this year relative to '25, that's really going to be around both surface use royalties as well as other surface use revenues. As a reminder, WaterBridge's BPX Kraken project expects increased volumes through the course of the year. And additionally, the Speedway Pipeline comes online midyear, which will add a step change in volumes over the course of the summer. So great drivers there related to that WaterBridge activity. And then taking a step back, just kind of broader surface use expectations related primarily to oil and gas activity, really kind of serving as the 2 drivers in 2026 uptick in expectations. Keith Beckmann: That's very helpful. And then my second question just stems around. We saw the dividend increase and the buyback authorization, which were great. I think I noticed in the presentation, you guys are still prioritizing M&A as it comes. I just wanted to get a sense of kind of the current landscape of how deals are looking. Is it easier or harder to get things done right now in West Texas? And then maybe as sort of a follow-up to that, did you ever look at anything outside of West Texas that could potentially make sense? Scott McNeely: Yes. We --the opportunity pipeline for M&A is still is incredibly robust. I mean, we're actively pursuing a number of opportunities of different sizes. So we have not really seen a slowdown in that environment whatsoever. I think we're incredibly well positioned to continue to grow through M&A, and that remains our top capital allocation priority here for 2026. As it relates to looking outside of the Delaware Basin, we absolutely look at everything that comes across our plate. I think if we step into another region, we want to be very thoughtful about that. But we are actively looking and exploring kind of creative ways to continue to grow the platform here and stepping out the Delaware Basin is obviously one of those ways. Operator: Your next question comes from the line of John Annis from Texas Capital. John Annis: For my first one, regarding 2026 EBITDA guidance, are there 1 or 2 drivers in your assumptions that could lead you to the high end versus low end of your guide? Scott McNeely: Yes. John, I appreciate the question. No, absolutely. I think when we thought through kind of putting together our guidance for the year, really wanted to be thoughtfully conservative around ultimately what was baked in there. And so I mentioned on Keith's question, the step change really resulting from both Speedway and BPX Kraken kind of growing through the course of the year. There are a number of other projects that WaterBridge has in the pipeline that continue -- could continue to grow, produce water volumes meaningfully above expectations. If we just stay in kind of this mid-60s and above commodity price environment, I think the activity levels driven by that will easily exceed the expectations kind of baked into the forecast. And so I wanted to be mindful of kind of the macro environment and the movement in that through the course of our budgeting cycle, but I would say there is substantial, call it, asymmetric upside in terms of opportunities for us to outperform, which is by design. John Annis: That makes sense. For my follow-up, the 2024 vintage acreage saw surface use economic efficiency grow from $204 an acre to $499 in 1 year, which is an impressive jump while the 42,000 acres acquired in 2025 sits at $208 an acre. Based on what you know about the commercial opportunities on that acreage today, do you think a similar trajectory is possible? Scott McNeely: Look, absolutely. I mean, I think this is -- it's such a powerful metric because it really reflects the financial results of the active land management strategy as well as the opportunity set that exists coming off of the heavy M&A year. And so we saw obviously great growth from 2024 through 2025 on that vintage, as you kind of point out. When you think through the opportunity set for 2026 to outperform, I would point to 1918 Ranch that we just closed on in the fourth quarter. We have not baked in any kind of substantial uplift due to the commercialization of 1918 in that 2026 guidance. And so the opportunity set is there. We are kind of actively working through those efforts today. And that serves as a really obvious example of a potential upside driver relative to that baseline guidance that we provided. So the punchline is yes. We go out and we buy land that we think that we can commercialize quickly, and that is going to be a quick growth driver. And again, 1918 is a great example of one of those opportunities that we have in front of us for 2026. Operator: Your next question comes from the line of Alexander Goldfarb from Piper Sandler. Alexander Goldfarb: Maybe just switching quickly to the data centers and power plants. When you guys IPO-ed versus now, it would seem like the political conversation has definitely sharpened on the power needs of data centers versus a few -- a year or 2 ago when you IPO-ed. As you look at the opportunity set to expand or add data centers and all that, is your view that the political process, the approval process and everything involved is just as you imagined at the IPO a little under 2 years ago? Or has the process become either more difficult or required more approvals? Just trying to understand how this may have changed now versus what you originally planned. Jason Long: Alex, I appreciate the thoughtful question. I mean I think if you look at just the approval of the broader regulatory landscape, what we've really seen is the benefit of Texas', call it, more business-friendly regulatory environment. I mean as it relates to data centers, I want to say 2025 by orders of magnitude, saw more canceled data centers in other states than has ever been seen in history, and there's been a number of articles that have come out on challenges facing other states and proposed legislation to make future data centers that much more challenging because of this whole not in my backyard dynamic around the impact of power consumption and water consumption in major metropolitan areas. And so the more we see that getting out there, I think the more just kind of further reinforces just West Texas appeal as it relates to data centers. I mean it's easy to point to the fundamentals around water availability, power generation and so on, all of those things that really make West Texas such an attractive place for these folks to operate. The regulatory side doesn't get as much credit as it should because I mean, Texas is eager to find ways to bring data centers. And I would say it's just so much more receptive than what we're seeing kind of evolve in so many of these other states that have been more traditional footprints for data centers. Alexander Goldfarb: Okay. And then the second question is just sort of piggyback some of the others who have asked about the guidance and the EBITDA for '26. You guys talked about Speedway coming online. There's the WaterBridge contributions, the 1918 Ranch. How much -- if we think about sort of your 4Q run rate, how much additional revenue is factored into the EBITDA guidance, the $205 million to $225 million versus potentially upside to that? Just trying to -- because it seems like you guys have done a tremendous amount of activity and therefore, would have expected more EBITDA growth, but it may just be sort of timing of when these things come online or uncertainty. So just trying to understand how much of these additional items that you outlined are in the number versus not in the number and potentially upside to the range? Scott McNeely: Yes, it's a good question. So we've baked in, I could call it, the majority of the impact coming from Speedway and BPX Kraken and both of those either Speedway comes online over the course of the summer and BPX Kraken is expected to increase in volumes over the summer. And then the one other component, obviously, 1918 closing in fourth quarter, we'd see the benefit of a full year of that contribution although I flagged earlier on Keith and John's questions that we're not really baking in much in the way of upside commercialization of that asset, which I think we would certainly expect and are actively actioning at the moment. And so when we think through just what else could happen, we've been conservative around, call it, new development expectations. We've been conservative on volumes, as I've mentioned, conservative on 1918 commercialization and have not baked in any of these other kind of in-process projects that we've kind of alluded to on this call. And so there is just an ample amount of commercial opportunity and opportunity sets that we're working through at the moment that aren't included there. And so as we continue to kind of notch those wins, we would expect to come back to the market and voice over what is driving, hopefully, to beat expectations and the increased guidance, but wanted to be mindful stepping into the year in terms of where we are offsetting our expectations initially. And as we continue to get those wins, we'll continue to message that to the Street. Operator: [Operator Instructions] Your next question comes from John Mackay, of Goldman Sachs. John Mackay: I just want to go back to the revenue per acre metrics because we agree they're a pretty important thing to watch. When you're talking -- when you're looking at the '24 and '25 acquisitions sitting at, I guess, $500 and $200 right now versus where the legacy ones are, is that $1,000 an acre kind of structurally possible for those '24 and '25 packages? And maybe not to push you on a time frame for that, but maybe again, just walk us through kind of structurally what the overall platform could look like over time, let's say, precluding larger items like data centers? Jason Long: Yes. John, I appreciate the questions. Absolutely, $1,000 plus is very not just achievable, but I would say actionable in the near term. I mean, as a reminder, -- when we bought that legacy acreage, I know we speak to that $465 number being the jumping off point in 2022. But when we actually acquired that surface in 2021, it was meaningfully below $465. And that acreage is now sitting at $1,159 over the course of what has effectively been 4 years. We don't see any reason why that same trajectory isn't possible in the 2024 and 2025 acreage that we bought. We think the acreage itself and the opportunity set parallels that legacy acreage at a minimum, and we think that there's kind of incremental opportunities that we can continue to pursue kind of incremental to that. So -- no, look, we feel great about kind of that. Now where can this go in totality from here? We've spoken to kind of that $2,500 to $3,500 an acre range as a good, call it, medium- to long-term target. We still very much believe that, that is attainable over, call it, a 7- to 10-year time period. There's the expectation of just the continued compounding commercial activity that's baked into that. And so there are different ways we can go about achieving that $2,500 to $3,500 an acre. And to plug our upcoming Investor Day, I'll just wrap up by saying we plan on walking through a number of different ways and a number of different permutations in terms of the commercial bed down on our acreage that can ultimately get us there. Operator: Your final question comes from the line of Charles Meade of Johnson Rice. Charles Meade: Apologies, I hopped on the call a little late. So if I ask something that has already been covered, my apologies in advance. But I'm curious, I really like this new SUEE metric, and I suspect it's something you guys have been talking about internally for a while, but it's great to get the view -- great that you're sharing that view with us. I'm curious, the -- how is your -- how has the competition changed for acquiring new assets? And I'm particularly thinking about it if you guys -- are other competitors able to drive or what differentiates you and your ability to drive more SUEE? And is that -- does that make you more competitive? Or is it -- is this the kind of thing that's alternatively attracting a lot of other capital to the space that maybe is competing away some opportunities? Scott McNeely: Yes. Charles, I appreciate the thoughtful questions. I'll tackle it in 2 different pieces. I mean, first, as we think through the competitive landscape for acquisitions, there's obviously just an element of being called a victim of our own success where you do have more folks looking to see if this is a strategy that they can replicate. I would just -- I would point out to all of the advantages of our platform and kind of as part of the answer to the second question on why it's so tough for others to step in and be effective here. I mean, I think, first, every land position is unique and irreplicable. And you think through just the land positions that we're sitting on today, particularly along the Texas side of the Stateline, I mean, not just gives us an enormous advantage as we think through capturing oil and gas activity, particularly water, but serves as a fantastic platform to continue to scale that is near impossible to continue to replicate. And so just a great kind of moat in and of itself in that regard. But second, the partnership we have with our sister company, WaterBridge, is incredibly valuable. And it's not just a byproduct of call it WaterBridge bringing activity to LandBridge and exchange LandBridge serving as the floor space provider to WaterBridge. But the nature of having an operating team out there, boots on the ground just provides a kind of competitive intelligence that we can get day-to-day, macro update that we can get day-to-day on a very granular level, that would be impossible for a land-only company to be able to replicate there. Jason Long: Yes. I mean the one thing I'd add to that is not only everything that Scott just mentioned there on the WaterBridge side, but also being able to really leverage the technical side of it, the geological and electrical engineering and really understanding where infrastructure is, where these opportunities exist, and a lot of that skill set is not there on a lot of these start-ups. Scott McNeely: Yes, it's exactly right. And so ultimately, like having a sophisticated operation of scale kind of married with an operating company with that in-house technical expertise, just makes it very tough for a new entrant to come in even above and beyond that competitive mode we have from our existing asset base. And so look, we feel very good about continuing to affect both the commercial strategy that we have today as well as the acquisition strategy that we've effectively, I think, worked through to date, and we don't see that changing going forward. Operator: There are no further questions at this time. I will now turn the call back to Scott McNeely for closing remarks. Scott McNeely: Yes. Thank you, operator, and thanks for everyone joining us today. Again, very happy with the quarter, fantastic momentum stepping into 2026. We're incredibly excited about a myriad of opportunities we have to work through. And then my final plug, again, we look forward to outline just the broader strategy in a lot more detail in the upcoming Investor Day. So we hope to see you all there. Thank you again. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Certara Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Deuchler, Investor Relations. Please go ahead. David Deuchler: Good morning, everyone. Thank you all for participating in today's conference call. On the call from Certara, we have Jon Resnick, Chief Executive Officer; and John Gallagher, Chief Financial Officer. Earlier today, Certara released financial results for the full year ended December 31, 2025. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements, and actual results may differ materially from those expressed or implied in the forward-looking statements. Please refer to Slide 2 in the accompanying materials for additional information, which you can find on the company's Investor Relations website. In the remarks or responses to questions, management may mention some non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available in the recent earnings press release available on the company's website. Please refer to the reconciliation tables in the accompanying materials for additional information. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 26, 2026. Certara disclaims any obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I'll turn the call over to Jon Resnick for opening remarks. Jon Resnick: Good morning, and thank you all for joining today's call. I want to begin by thanking the Certara team for the warm welcome to the organization. I am also grateful to the Board of Directors for their trust and support. I've spent the last 30 years working at the intersection of health care policy, science and technology, where I've built and transformed data, technology and services businesses within the life science industry. Joining Certara on January 1, I am genuinely excited by the opportunity ahead. As the new CEO coming in with fresh eyes, I have approached the first 50 days plus with one priority, listening intently and learning from our stakeholders. I have spent most of my time speaking with customers and engaging directly with employees at all levels. These discussions have been invaluable. The conversations have reinforced the inherent strength of this organization and also highlighted where we must operate differently to unlock our full potential. Everything I have seen and heard affirms 3 things. First, there is a compelling market opportunity to transform how the life science industry drives innovation across research and development. Second, regulators worldwide are actively embracing technological solutions to accelerate drug development, reduce costs and shorten time lines. And third, Certara is uniquely positioned to lead in this evolving market with our AI-enabled technology, data and our model-informed drug development platforms, which are deeply embedded in industry workflows and utilized by regulatory bodies. This presents an extraordinary opportunity. To capture it, we must sharpen how we operate, focus our investments and execute with greater discipline and urgency. Our historic performance does not reflect the full potential of our market. Later in this call, I will outline our plans to improve. My conversations with our customers have made one thing clear to me. Our customers want us to drive innovation and play a larger, more strategic role. The pharmaceutical industry is spending more than $200 billion per year developing drugs with overall time lines now hitting 10 to 15 years. Now more than ever, our customers are looking for partners who can reduce total development costs, accelerate time lines, improve decision-making and respond to new regulatory requirements. AI, biosimulation and other in silico methodologies are expanding the relevance of Certara's offerings, validating our value proposition and opening new opportunities for us. Regulators are more favorably disposed to the use of new methodologies today than at any point in our history. Agencies are providing clear guidance that advances model informed and computational approaches and are actively encouraging the use of new approach methodologies to modernize drug development. Just recently, Dr. Martin Makary, the United States FDA Commissioner, noted that computational modeling can provide more insightful perspectives on experimental design in animal testing alone. In his words, now a computer can look at a drug and actually make better predictions. Additionally, in a recent New England Journal of Medicine article, the commissioner outlined a framework where only one pivotal trial would be required for approval. This creates an opportunity for developers to rethink and improve clinical trial designs and reduce overall time lines. This is what Certara is built for. It underscores the relevance of our platforms and services. Certara's credibility has been built over decades. Our 430 PhDs and MDs have directly contributed to hundreds of drug approvals. Worldwide, we have more than 2,600 customers and 23 agencies using our technologies. I see this foundation of one of Certara's greatest strengths and a powerful platform from which to lead in this expanding market. At the same time, we have not sufficiently converted that credibility into the level of growth the opportunity warrants and that I believe we should and can deliver. In fact, over time, Certara's business should be able to drive double-digit growth. There are 3 potential explanations for this disconnect. First, the true potential and market acceptance of AI-enabled technology, data, model-informed drug development has yet to be achieved. Second, external market conditions created market headwinds and/or third, internal execution gaps have impacted results. There are probably elements of all 3 of these at play. Let me address the market acceptance point, and then I'll return to discuss planned operational improvements. Through our work, we are seeing accelerated adoption of MIDD use cases earlier in research, expanded use cases across preclinical development and strategic applications in clinical and regulatory settings. Allow me to highlight a few recent examples that have delivered measurable impact for our clients. First, a top 10 pharma company used millions of quantitative systems pharmacology simulations or QSP, to prioritize 28 drug candidates against 26 unique targets. This predicted the drug target combinations with the highest likelihood of clinical success, demonstrating how our QSP technology has the ability to drive dramatic productivity gains in the R&D workflow. Second, an innovative biotech company used model-informed approaches to justify a first-in-human dose, 50 to 100x higher than what would be supported by standard methodologies. This change enabled the earlier selection of a more clinically relevant dose, which was the basis for a successful Phase I trial. Ultimately, this molecule was acquired. And in rare disease, MIDD opens up new avenues for developers to reach underserved populations. For example, in Pompe disease, we created virtual populations to evaluate the efficacy of a novel compound versus the standard of care and predictive clinical outcomes in these virtual patients. These examples illustrate the broader point that aligns with our mission and the opportunity ahead of us. MIDD is growing. Now let me turn to our broader technology and services offerings and share a few perspectives. While Certara continues to benefit from a strong legacy as a market-leading software provider, it is clear that we must sharpen our execution to fully capture the opportunity ahead of us. Our 4 core franchises remain highly differentiated, deeply embedded in customer workflow and integral to decision-making across the development life cycle. Importantly, clients affirm to me that there's a limited risk of AI-driven disintermediation. Instead, they are looking to Certara for leadership to advance AI model informed development, creating new avenues for us to add value and strengthen our strategic position. At the same time, despite stepping up our R&D investment in product enhancements and new products, we have not yet converted that investment into sustained organic growth. To address this, we are taking targeted actions to accelerate our sales and strengthen our go-to-market approach and to focus our portfolio with greater discipline. Now moving to our services business. I've been impressed by the caliber and depth of our scientific expertise and the longevity of our relationships. Our specialized services address our customers' needs and advance their goals delivering value both independently and in combination with our software. Certara's tech-enabled services continue to be a core part of our growth strategy and a critical enabler of MIDD adoption. When our consultants deploy our software and customer engagement, it surfaces new use cases and build stickier customer relationships. This expert in the loop helps to create an innovation flywheel. Certara grows faster when our software products are integrated with our scientific expertise. As with our software business, our services execution has room for improvement. Ultimately, we need to enhance our engagement with customers and more proactively match the right solution to our customers' needs. Lastly, we are in the final stages of the strategic review of our regulatory writing and operations business and expect to conclude that process in the near term. Coming in, it was important that I take the time to thoroughly evaluate all the options and ensure we are pursuing the course that best maximizes long-term shareholder value. Moving on to operations. Over the last several weeks, I conducted structured reviews with business leaders, reviewed P&Ls and go-to-market plans and met with nearly 100 employees. I went deep into our product portfolio. The talent and scientific capability inside Certara is exceptional. But as I've alluded to above, I am equally clear-eyed about the opportunity to grow and to improve. We must operate with greater focus. We must build with clear priorities and reliable execution. We must engage customers more proactively, and we must create a culture of accountability and financial discipline. Simply put, to grow faster, Certara must run differently. And as CEO, I intend to lead that change with urgency and clarity. We are moving forward with 3 strategic priorities. First, we are developing a more focused corporate strategy and product portfolio, anchored in customer needs, scientific rigor, innovation and disciplined investment. We will accelerate AI integration and double down on core R&D technologies in MIDD. Second, we will continue to put customers at the center with deeper engagement and greater senior level involvement. We will leverage our feedback from our customers to inform product road maps, AI initiatives and service priorities. This will lead to improved commercial performance and improved revenue growth. Third, we are raising the bar operationally, sharpening pricing, improving delivery and driving higher returns from our investments in sales and marketing and R&D. We will leverage AI to increase efficiency and scale our operations more effectively. Already, we have identified a path to approximately $10 million in cost avoidance relative to the initial 2026 plan. Our team will hold one another accountable for delivering on these improvements. We believe that these changes will reposition Certara for sustainable, faster growth, and I look forward to updating you on our progress. 2026 will be a transition year as we bring change to the organization and strengthen our focus. In this context, we are guiding to flat to low single-digit revenue growth, which reflects both market conditions and the operational improvements we plan to implement. Our balance sheet and cash flow generation remains strong. We intend to be strategic with capital deployment, including executing against our existing share repurchase authorization, which we view as a compelling long-term investment at current levels. Our focus will be to reinvigorate growth at Certara and drive shareholder value. With a sharper strategy, a customer-centric operating model and unflinching execution discipline, we would expect a faster growing, more predictable, mission-oriented and more valuable company. With that, I'll turn the call over to John Gallagher to walk you through the 2025 results and our 2026 guidance. John Gallagher: Thank you, John. Hello, everyone. Total revenue for the 3 months ended December 31, 2025 was $103.6 million, representing year-over-year growth of 3% on a reported basis and 2% on a constant currency basis. For the full year of 2025, total revenue was $418.8 million, representing year-over-year growth of 9% on a reported basis and 8% on a constant currency basis. Total bookings in the fourth quarter were $155.2 million, which increased 7% from the prior year period on a reported basis. Trailing 12-month bookings were $482.1 million, increasing 8% on a reported basis. Software revenue was $46.4 million in the fourth quarter, which increased 10% over the prior year period on a reported basis and on a constant currency basis. Growth in the quarter was driven by MIDD software and Pinnacle 21. Ratable and subscription revenue accounted for 61% of fourth quarter software revenues, down from 63% in the prior year period. For the full year, software revenue was $183.3 million, which grew 18% on a reported basis and on a constant currency basis. Chemaxon contributed $22.9 million to reported software revenue in 2025, making full year organic software growth 7%, which was in line with our plan. Ratable and subscription revenue accounted for 61% of 2025 software revenues, down from 65% in 2024 due to the impact from Chemaxon, which is mostly term license software. Software bookings were $56.1 million in the fourth quarter, down 6% from the prior year period. Fourth quarter software bookings were lower than our expectations, compounded by both external factors and execution challenges. Customer reorganization and reprioritization, slower clinical trial completions and weaker pipeline conversion of new and renewal software contributed to the bookings result. Trailing 12-month software bookings were $184.3 million, up 9% year-over-year. The software net retention rate was 107% in the quarter and 105% on the year, consistent with our plan. Looking at our software bookings performance by tier, we saw strong performance among Tier 3 customers in the fourth quarter and throughout the full year. Tiers 1 and 2 were slower in the fourth quarter, offsetting strength in Tier 3. Now turning to services revenue, which was $57.3 million in the fourth quarter, down 1% versus the prior year period on a reported basis and on a constant currency basis. For the full year, services revenue was $235.6 million, which grew 3% on a reported basis and on a constant currency basis. Services revenue in 2025 includes regulatory writing revenue of $50.4 million, which compares to $54.7 million in 2024. Technology-driven services bookings in the fourth quarter were $99.1 million, which increased 17% from the prior year period. TTM services bookings were $297.8 million, up 8% as compared to the prior year. In the quarter, we saw double-digit growth in MIDD services bookings with growth led by Tiers 2 and 3. For the full year, MIDD services bookings grew 8%. Regulatory writing bookings grew in the high teens versus the fourth quarter of 2024, driven by solid bookings across all customer tiers. For the full year, regulatory bookings grew in the mid-single digits. I would like to point out that we did experience better-than-expected spending commitments from our customers during the month of December, which helped drive higher-than-expected overall services bookings for the quarter. Total cost of revenue for the fourth quarter of 2025 was $39.2 million, an increase from $38.3 million in the fourth quarter of 2024, primarily due to higher employee-related costs and an increase in capitalized software amortization. Total operating expenses for the fourth quarter of 2025 were $63.6 million, an increase from $56.1 million in the fourth quarter of 2024, primarily due to higher employee-related expenses due to our investments in research and development. In 2026, our operating plan contemplates discretionary investments in research and development related to product development initiatives as well as minor investments in G&A and cost of sales. As Jon mentioned in his remarks, we have identified upwards of $10 million in cost avoidance in 2026 versus the prior planning. Adjusted EBITDA in the fourth quarter of 2025 was $32.5 million, a decrease from $33.5 million in the fourth quarter of 2024. Adjusted EBITDA margin in the quarter was 31%, in line with our expectations. For the full year of 2025, adjusted EBITDA was $134.5 million, an increase from $122 million in the prior year. Adjusted EBITDA margin was 32%, consistent with 2024. Wrapping up the income statement. Net loss for the fourth quarter of 2025 was $5.9 million compared to net income of $6.6 million in the fourth quarter of 2024. Reported adjusted net income in the fourth quarter of 2025 was $14.9 million compared to $24.7 million in the fourth quarter of 2024. Diluted loss per share for the fourth quarter of 2025 was $0.04 compared to earnings of $0.04 per share in the fourth quarter of 2024. Adjusted diluted earnings per share for the fourth quarter of 2025 was $0.09 compared to $0.15 for the fourth quarter of last year. During 2025, Certara repurchased approximately 3.3 million shares for $43 million. Moving to the balance sheet. We finished the quarter with $189.4 million in cash and cash equivalents. As of December 31, 2025, we had $295.5 million of outstanding borrowings on our term loan and full availability under our revolving credit facility. Now I would like to walk you through our guidance for 2026. We expect total revenue to be in the range of flat to 4% compared with 2025. We anticipate our end markets will remain stable and better execution will drive improving revenue growth throughout the year. We expect Q1 to be closer to the low end of the revenue range related to a tough comparison to the prior year and subsequent quarter acceleration related to new initiatives during 2026 as well as easing compares to year-over-year. We expect to achieve adjusted EBITDA margin in the range of 30% to 32%. As I mentioned earlier, our 2026 operating plan contemplates discretionary investments, which will be managed according to our commercial performance throughout the year. Adjusted EBITDA margin is expected to be lower in the first half of the year and will increase during the second half. We expect adjusted EPS in the range of $0.44 to $0.48 per share for the full year. Fully diluted shares are expected to be in the range of 160 million to 162 million, and we are modeling an effective tax rate of about 30%. With that, we will open up the call for Q&A. Operator, can you please open the line for questions? Operator: [Operator Instructions] Our first question comes from the line of Jeff Garro from Stephens. Jeffrey Garro: Maybe start with one for Jon R with your first call here. And I appreciate all the remarks in the prepared comments about your approach going forward and strategy for the company. I was hoping you could share a little more of your external perspective on what attracted you to Certara and maybe more, in particular, how you view the differentiation of Certara's software products and talent on the services side as something that can really be leveraged going forward. Jon Resnick: Great. Thanks, Jeff, very much for the question. Yes, as I said before, it is great to be here. I -- as you commented, it's been a pretty intensive 56 now 57 days. I've gone as deep as I possibly could go with capacity in the last couple of months really trying to understand pretty much exactly what you're asking about here. Gone deep into kind of each of our products, done probably 100 skip over conversations, talked to dozens of customers really trying to get a good feel for exactly how we do stand here as a business. I was attracted to come here pretty simply. I look at it and I look at the external marketplace, the amount of opportunity that sits here. This company sits on the right side of kind of every trend. Pharma $250 billion per year and what I'll call inefficient allocation of R&D spend and they're driving demand for efficiency, regulator acceptance and you have this company that sits there with so many assets and so many tools and such a phenomenal track record, it just struck me as an undervalued gem in this space with tons of potential upsides and tons of potential opportunity to grow and to build as this market continues to evolve. As I go through some of the different products, you said services, but services and software, I'd say that, first of all, on the software side, the software, I found those products to be incredibly differentiated. As you talk to customers, it's amazing how deeply embedded each of our major assets are in their workflow. These are -- there's decades of teams who've grown up using Simcyp and using Phoenix and using the capabilities that exist to do their job every day. There's a high degree of dependence on the asset. So they're not only market-leading, but just incredibly well entrenched. Equally, I think our relationships exist with 20 regulators around the world who are also using the assets. So you have this highly entrenched set of workflow used by regulators and used by the life science industry and in this kind of highly scrutinized space where documentation and validation and transparency are essential areas where they have incredibly high track record of. So a very strong proposition. And the services side, I see it's incredibly reinforcing. As I noted in my opening remarks, we're strongest when the technology, software products and the services work hand-in-hand. This ability not only to have market-leading computational capability and workflow capability, but to be able to wrap the world's leading scientists in QSP and PBPK and [ QSF ] around those capabilities makes it an enduring proposition. Jeffrey Garro: Excellent. Really appreciate that. And to follow up, I want to ask how a platform approach, cross-selling, integrating and automating workflows between software products factor into this more customer-centric go-forward strategy. I thought those were kind of prior focus items and maybe didn't hear as much of those in the script, but you're also speaking at a high level. So I want to hear more on whether or not those are kind of encompassed or to what extent those are encompassed in the go-forward strategy or whether there's some kind of deeper shift. Jon Resnick: No, I don't think you heard a radical shift in strategy. You have to kind of operate at the rate and pace at which your customers operate here as well. There's kind of -- as you look at the industry, there's kind of twofold here. There's kind of the power users who are sitting at levels in organizations who we serve with distinction and pride every day. And that at the senior levels of the organization, they're looking to drive kind of more innovation and more cross-section, but that's a slow process. So our focus is going to be twofold: continue to serve the users who use this every day, who sit here and rely on this to do their function and to build out a range of functionality and engagement at that more senior levels to start to work through some of those more longitudinal approaches to accelerate first in human, to accelerate regulatory time lines. We feel like we can tap into both of these with distinction. And no, our strategy won't change. It's both going to be to develop those product enhancements that the core expert teams are looking for and to look to stitch together a lot of the assets in differentiated ways to play to ensure that the same capabilities that are happening late in clinical development can move into preclinical and into development itself. Operator: Our next call is coming from Michael Cherny from Leerink Partners. Michael Cherny: Jon Resnick, welcome to the company. Maybe if I can just get into the guidance a little bit. Obviously, we all saw the bookings dynamics in 4Q and then the revenue guidance in particular, coming in below where your trend rate has been. As you think about the 0% to 4%, can you kind of give us a little breakdown of how much of it is what you're seeing in the market? How much of it is flow through to bookings? And is there any, at least in terms of the prioritization of revenue, strategic pullback on anything that's embedded in the specific '26 revenue guidance? John Gallagher: Mike, yes, as it relates to the guidance, I think about it in 2 components. One is services. Last several years, services revenue has been in low single-digit growth, although we had a very strong fourth quarter on services, which came with a surge in the pipeline in the month of December, which wasn't necessarily expected, but it's certainly a good indication of health in the end markets, and we do expect stable end markets as we approach the guide. But nonetheless, services performance has been low single digit. And then when you combine that with the software business that had some deceleration in bookings in the fourth quarter. Now mind you, software revenue in the fourth quarter grew 10%. Full year organic revenue was 7% right in the middle of the plan for the year. So we were pleased with that performance. But we did see some deceleration in the software bookings in the fourth quarter. And so when you take that combined and the tight correlation between bookings and the revenue going forward, combined with the services in the low single digits, puts total company expectations for 2026 in the low single digits, hence, the flat to 4% growth. Michael Cherny: And along those lines relative to the software bookings, it seems like data points around all things tied to clinical trials have been at least from a qualitative perspective, more positively than negatively skewed. You talked about some dynamics on decision-making, but also some dynamics on execution. Can you dive a little bit more into what encompassed the composition of the software Tier 1 bookings and the red arrow that it got in the deck, specifically tied to what was, call it, on your side versus what was market oriented? John Gallagher: Yes. Yes. So I mean, on the market side, you saw big pharma reprioritizing headcount reductions, slowness, as you said. Those customer dynamics have an impact on, for example, Phoenix seat licenses. We also saw study counts down a bit, which when you look at a product like Pinnacle 21, which has certainly penetrated the market very fully to the extent that studies are down, we're going to see a little bit of softness there. So those are a couple of the points around market. But execution also is, like you said, is a key component here, too, where we have pipeline visibility, and we didn't convert as much as we should have in the fourth quarter. And so that's why we did call out the element of execution. Jon Resnick: Michael, thanks for the welcome. It's Jon Resnick. I -- again, it's wonderful to kind of look at things as very kind of kind of fresh eyes and clean eyes. First of all, in general, I think our view on the market is that it is strengthening, I think, consistent with what others are reporting. I was pretty encouraged by the December services bookings. From my standpoint, services tend to be a more discretionary item, which ebbs and flows over time. And independent of some of the slowdown that we saw last year or 2 years ago, that seems to be a really good leading indicator for us of some opening and perhaps a leading indicator of more spend into '26. The other thing I'd say on seat licensing, in particular, things like with Pinnacle, there tends to be a little bit of a lag. You're still going to pay for the reduction in studies from a couple of years ago. I think we're all looking at the same data that seat licensing is starting to come back up. And as that starts to rise, you'll start to see some improvement in Pinnacle as well tied to studies -- sorry, tied to study. So as the number of studies starts to elevate -- starts to lift, you'll start to see stronger performance, but there's a little bit of a lag time between the 2. So yes, look, I think as we enter '26, I think we're cautiously optimistic similar to what I've heard other peer companies and observers talk about things a lot of the trends seem to be moving in the right direction and that December discretionary spend number is one certainly I'm anchoring on and asking the team to work hard on the execution side. Operator: Our next question comes from the line of Luke Sergott from Barclays. Anna Kruszenski: This is Anna Kruszenski on for Luke. It would be great to hear more about which areas you see the most opportunity on AI enablement. And specifically, how are you thinking about the balance of investing in AI capabilities to support a more innovative portfolio versus leveraging the productivity gains to drive more near-term margin expansion? Jon Resnick: Sorry -- this is Jon. I missed the name upfront. Anna Kruszenski: This is Anna Kruszenski on for Luke. Jon Resnick: Anna, how are you. Nice to meet you. So look, I think that's a great question. So AI, in general, is a huge change agent here internally. And I think we think about it on a couple of different dimensions. We think about our software side of the business, AI is being actively embedded into all of our core assets. A good example would be Phoenix, where a bunch of modules and increased functionality are all AI-driven, consistent with the way we're approaching a bunch of the other businesses. We have a handful of products that have been launched in the last -- end of last year and will be launched early this year, which also are highly kind of AI-driven products, which we're excited about one, which was launched last year, was CertaraIQ, which is in the QSP space, which is a very fast driving area for us, heavy kind of AI backbone to it. We're really optimistic about not only the product side there over time, but also the intersection between that and our QSP services. We also have a number of things. There was an earlier question about stitching together. We have a number of stuff that aren't exactly horizon 1 offerings, but things that help stitch together stuff in more of a true kind of AI native way, which are groundbreaking and innovative. So there's a lot of things happening on the core kind of product side, which we'll be taking a close look at and accelerating. As you'd imagine, there's equally as much going on and opportunities on the core execution side. So on the software development side, huge push over the last 6 weeks, 8 weeks really to make sure we're using best-in-class process, rolling out tools, accelerating our internal time lines. That will be an ongoing effort and initiative this year to accelerate our internal builds and to ensure that we're moving at rate and speed and with a high degree of efficiency. More broadly, on the AI side, there's a range of opportunities we see to enable our services business to help fix some of our operations infrastructure. So it will be a major push internally that we believe will drive both short-term and midterm productivity and efficiency enhancements. Anna Kruszenski: That was super helpful color. And then one follow-up. You talked about the efforts underway to revamp the commercial organization. Just curious, what do you see as the lowest hanging fruit here? And then any initiatives that will require a heavier lift? Jon Resnick: Yes. Great. Thanks. So look, both on the portfolio side and the go-to-market side are areas in which I'm going to take a close look. I think I'm looking at the same data that you guys are looking at, which is our investments over the last couple of years have gone up pretty steadily and the translation into organic revenue growth hasn't materialized. So as a new leader in this business, you start to ask a bunch of questions about the shape of those investments and how you can start to optimize them, and we'll be focused both on the portfolio and go-to-market. On go-to-market, I think there's a couple of different dimensions of it. We talked about customer centricity is one key piece. How do we optimize the relationships that we have and really bring the best of the issues that they're facing into our organization so we can respond to them most effectively. There's elements of pricing and contracting and kind of just core kind of operational elements that we have. There's an organizational focus around getting a number of our executives out in front of clients and having kind of that second order, second level nature of conversation. I'm a big believer in targeting and AI-driven productivity around kind of sales initiatives and sales efforts. And so how are we doing in terms of kind of automating our initiatives and making sure we're having the right conversations with the right people at the right times. Obviously, then there's a range of other questions in terms of do we have the right people in the right places. We've got a diverse portfolio with a combination of services and kind of tech services and pure SaaS offerings, which all have slightly different service offerings. So how do you kind of rationalize across those 3 to make sure that you're optimizing it directly with customer. Low-hanging fruit will be things like pricing and customer centricity initiatives and targeting and incentives, things that you'd expect and then more medium term, really looking to transform some of the types of relationships we can have with the client. Operator: Our next question comes from the line of Scott Schoenhaus from KeyBanc. Scott Schoenhaus: Welcome, Jon Resnick. I guess a follow-up to that question in fourth quarter software bookings. As you look to sort of automate the process and put these price incentives in, how much of that pipeline that didn't get converted, do you think can be converted over the next 90 days? And then when can we see a bookings reacceleration on the software side? John Gallagher: Yes, Scott. So -- the pipeline conversion piece on the execution side here, we don't -- you heard in the prepared remarks, we don't necessarily see that coming back in Q1. We indicated that Q1, we expect to be at the lower end of the overall flat to 4% revenue growth guidance range. Some of that's due to a tough compare to the prior year. And then we're expecting to see some acceleration in the subsequent quarters. Some of it due to increased conversion and visibility and then some of it because the comps get a bit easier as we move through the year, too. Scott Schoenhaus: And as a follow-up on the regulatory writing business grew nicely in the quarter. Just your thoughts there on the divestiture, the timing of it and maybe what's embedded in your services growth guidance on the regulatory writing side? Jon Resnick: Yes. Let me tackle Scott, the first question. So I appreciate a number of you have been asking about this for a long period of time. I have the luxury of 50 days or so to take a look at it. It's a bit of a riddle here, right? So you have a business that's clearly been compressing year-over-year. What you'd expect, I guess, along with market trends, right, you kind of -- you saw some of the dislocation in pipelines around IRA and some of the rebalancing over the last couple of years, you'd expect that business to decline. You saw that sharp increase in book-to-bill, 1.5 book-to-bill in Q4. And you have to remember, at its core, it's a pretty profitable offering. So the first thing I did when I joined and we were active in strategic review was really look at the options on the table to ensure that we were, a, fully evaluating, for example, the contributions to the profit margin, those paid dividends in terms of our ability to invest in MIDD and invest in some of the other areas of high growth. So I wanted to make sure we had a good hard look at that and that any potential options that we have take into consideration not only the strengthening of that underlying business, but the contributions that it makes on a bottom line basis. That said, I think we're in the final stretches here. We should have a resolution answer for you in the near term. It's something that I think everyone on this side wants to move forward with, and we're well on our way to have a clear answer for you very quickly. Operator: Our next question comes from the line of David Windley from Jefferies. David Windley: John Resnick, good to talk to you live and John Gallagher to you again. On the software sales, the software bookings, is the pipeline conversion there a reflection at all of customers perhaps hitting the pause button as they evaluate how AI might influence how they use tools like this? Jon Resnick: David, good to talk to you. And I have an answer to the question you asked me on my first day here, talked directly. The -- look, I don't hear that. As I said, I spend a lot of time talking to customers. And I asked this question very directly to every single one. And I tried to get to all of our major accounts in multiple levels in terms of the way that they were -- they're thinking about their technology stacks and the role that we see us sitting. Yes, is there an industry-wide set of questions about where are they going to make investments, how are they going to make investments, it does cause some paralysis on the client side. Yes, clearly, we see that across segments and across different components. I don't think that's the issue here. Nobody who I spoke to is thinking within that context. I think what you ended up having here is just a little bit of issues around that lag on the Pinnacle side with studies, the newness of some of the new products that we have and the time it's going to take to get those to market, some dynamics around the conversion as we start to convert clients to cloud, by the way, which we're very excited about the newness of the CertaraIQ offering, which had a soft launch, which we expect to continue to accelerate in the year. So I think you've got a little bit more of a function of timing, a little bit of market events. I don't hear and I didn't hear AI as being the driver. There was -- every sales rep, every client I spoke to, there was -- there's no indication that that's the driver of that slowdown in Q4. David Windley: Got it. And John -- or Jon R, is maybe a little unfair given what did you say, 56 or 57 days still. But as you come into the business and kind of evaluate where do you aim sales efforts and where do you aim innovation investments, it seems like there's -- there has been a trade-off between like later-stage clinical development and opportunities to streamline there have perhaps bigger bang for the client and bigger TAM for Certara versus some of the recent maybe acquisitions or discussion and strategy at the company has aimed at early development, say, maybe not discovery, but kind of late discovery preclinical stage in more of a capture the molecule mindset. How do you weigh those 2 options and which one do you lean into? Jon Resnick: So that's not the question I thought you're going to ask me. I thought you're going to ask me the TAM versus execution question. There is definitely -- the market exists to the question you've asked me directly before... David Windley: That too, if you like... Jon Resnick: I mean, I think we addressed that in the prepared remarks pretty clear. There is a -- this market is ripe for growth. And as I said in my opening remarks, I think there's a lot more opportunity for us to drive execution. I am -- whether it's on the debt side, later on in the debt side or earlier discovery, there's trade-offs of those different markets, price point size, fragmentation. There's a lot of different things that are going to play. So I think we'll be a little bit selective around how we're choosing what to do. I think -- and John Gallagher alluded to this in his remarks, if you kind of look at the core MIDD portfolio that we have, it grew in those double-digit numbers that I think, David, you'd be expecting from this franchise. So the core kind of where we're doing the biosimulation and the computational work, that is 10%. Now there's a range of places you can deploy that. You can deploy that at the point of regulatory submission. You can deploy that in trial optimization and trial design. Some of the case studies and examples that we're highlighting, we were intentionally pointing you to earlier things, use of QSP to pick targets and as we kind of integrate Chemaxon and D360 and some of the different offerings that we have that are closer to the discovery stage, we think there's going to be a lot more value by integrating PBPK and QSP earlier into that cycle. So I don't know if the trade-off is much around do you play in discovery to play in that as much as how can we focus around those kind of core growth areas with our strong legacy and strong differentiation. I think those are the types of things that you'll be seeing from us over the next couple of weeks and months. Operator: Our next question comes from the line of Brendan Smith from TD Cowen. Brendan Smith: Welcome, Jon. I wanted to follow up actually on your commentary in the prepared remarks, I know you just expanded a little bit on this, but where you said Certara should be able to drive double-digit growth over time. Can you maybe just expand a bit more on what you kind of mean there and over what time frame you think this is feasible? Are there maybe certain benchmarks over the next couple of years you think the company needs to hit to derisk that ramp to 10% plus growth? And maybe just related to that, curious how you're thinking about software growth specifically over the next couple of years, just given that I think some of your peers are in the space are benchmarking about 10% to 15% there. So wondering how we should interpret that within your kind of blended flat to 4% guidance. Jon Resnick: Let me -- John, I'm going to take a quick stab, and then I'll turn to you for some of the thinking. Yes. So first of all, I think you definitely kind of picked up on the points that we were there. Look, I don't know why our expectations would be any different than anyone else in this peer group. There are no shortage of opportunities out there. We're not going to provide a multiyear path today. We will certainly get that to you over the course of this year. We're in the process of kind of updating those LRPs and those processes, and I will give you a very clear answer to timing and expectation at that point. The commentary that we had today is very clearly if you look at the opportunity, you look at the potential for this, you look at the range of use cases this can be deployed into and you look at what I alluded to around some of the opportunities around just execution, there's huge windows for improvement in what we do. But we will get you those answers over the course of the year, if not at the next set of calls early into Q3, we'll be providing that multiyear guidance and a clear direction and path for you. Do you want to add anything? John Gallagher: Yes. Yes. I think maybe just to add on to that, then the view to double digits, of course, is predicated on all the things that Jon just said, some help from the end markets, which we seem to be getting like when you look at the performance of the services business, as Jon was saying earlier, perhaps a good leading indicator on discretionary spend that we could be entering a time of at least some stability, maybe even some tailwind from the end market, combined with some of the execution points that we've discussed here would set us on that path. And we look forward to giving an update in the coming quarters on just what that time line looks like. But when you look at adoption of MIDD versus where we are today and the growth rates that we have today versus the market-leading position that Certara has in this space, then we feel very optimistic about the future. Operator: Our next question comes from the line of Sean Dodge from BMO Capital Markets. Thomas Kelliher: This is Thomas Kelliher, on for Sean. Welcome, Jon. Maybe going back to pricing. How would you characterize the pricing environment across the different solutions and customer tiers? Are there more specific areas you'd call out we're seeing a bit more pressure? Or on the flip side of that, do you see some areas where you have an opportunity to maybe better align price with value? Jon Resnick: Yes. Thanks, Thomas. It's a good question. I want to answer your question directly without necessarily communicating to the entire world what our pricing strategy is going to be on some of these dimensions. Look, I think there's a handful of ways to think about it. There's some core products in the portfolio that probably should be thinking in a little bit more disciplined way around how to -- for pricing, for opportunity. So there's a segment of products that fit right into that category where I think that there is more pricing potential. And I think it's fair and commensurate with the value of the product and the level of investments that we're putting into the product and the value that adding to the organization. I mean I think one of the questions -- behind the questions, I presume, is also how is the pricing environment changing as you start to extend the SaaS model and start to extend some of what you're doing internally, the offerings that we bring, we believe add a tremendous amount of value. When -- if you look at some of the case studies that we provided today or even other things in the public domain around impacts that we're having, whether it's trial avoidance or optimized trial or the ability to do meta-analysis on things and save considerable money, I think we think we're bringing considerable value to our clients. And we certainly are looking at how do we better align things that we do to ensure that we're participants in some of that value creation. I think the world of flat -- thinking the world about user fees and seat licenses and other things, I think it's going to evolve considerably over the next few years. And I think we sit in a nice spot where we can partner with clients in a more longitudinal way and kind of demonstrate areas in which we're helping them avoid cost, accelerate time line, derisk trials in a way that we can tap into a little bit more value. So that's the focus that will be going on. I'm trying not to give you the 100% detail on it, but I think we have a good forward approach here, which we think will align nicely to where our clients want to go as well. Thomas Kelliher: I totally appreciate some of the sensitivity there. Maybe going back to the Tier 1 bookings, there's kind of a disconnect between software and services. How should we think about that? Is demand for maybe some of the regulatory services, for example, could those be potential leading indicator on the software side of the business as well? Any color there would be helpful. John Gallagher: Yes, yes. The strength in the services bookings in Q4 is a good indicator of the overall market, we think, as John was saying before, it's probably a good indication of the appetite for discretionary spend. And we saw it not only in the reg business. We did see -- we had a strong Q4 bookings number in reg, but also in biosim services. So on both sides of that, we -- and as we approached the year looking at 2026, we entered the year with a bit more optimism and a view toward a more stable end market environment as a result of that. Operator: Our next question comes from the line of Max Smock from William Blair. Christine Rains: It's Christine Rains on for Max. Hoping you can walk through the relative magnitude of the factors driving your expected step down in adjusted EBITDA margin in 2026, just if it's predominantly revenue driven, maybe any headcount growth expected, innovation investments you discussed or other strategic or commercial change programs you're putting in place? John Gallagher: Christine, yes. So the margin guide of 30% to 32% is in line with the guide we provided last year. And we had noted that it was a year of investment, which you certainly saw that show up in our R&D expense during the course of 2025. 2026 is similar in the sense that we've guided a similar margin range. It is a step down, as you pointed out, from where we exited the year, and we did a full year of 32% last year. And that's because we do have further investments in R&D related to MIDD and unifying our platforms and these are investments that we're going to continue to make. We launched 4 new software -- or sorry, 3 new software products in Q4 of last year. We intend to continue that path of launching new software and enhancements to our existing software during 2026. And so that's where we're at. Now I balance that with the fact that, yes, we put 30% to 32% out. Last year, I think we did -- I'd like to say we did a good job of managing the investments that clearly we were making, you see them show up in R&D. We're finding operational efficiencies and still coming at the high end of that guide. As we look at this year, we're already starting to look at how we can make the investments this year while also looking at the cost structure. And you heard Jon mention cost avoidance that we've looked at already in the '26 plan of $10 million. So hopefully, that gives you a sense of how we're thinking about it. We are investing this year. You're going to see that in R&D and hence, the guide of 30% to 32%. Christine Rains: Great. That's super helpful. Given this innovation ramp, I'm hoping you can discuss your CapEx and free cash flow assumptions for this year. John Gallagher: Yes. We don't guide those particular metrics. But I think that what you've seen is like if you're looking at capitalized expense, then that's largely due to the R&D investment. So if you think about what it is we're doing, we're investing in R&D, we're developing new software products or enhancements to our platforms. We're unifying our tech architecture, all of which are capitalizable. And as a result of that, you've seen us capitalize a bit more. So the trend that you saw in 2025 or the levels of capitalization that you saw in 2025 would be similar based on the earlier comments that I made would be similar in 2026. Operator: Our next question comes from the line of John Park from Morgan Stanley. John Park: I'm on for Craig. Earlier in the prepared remarks, you talked about matching the right solution for clients. Do you think you have all the pieces together when it comes to personnel or IP? Jon Resnick: Personnel or IP, is that the question? John Park: Yes. Or like what -- do you think you have all the pieces together to really find the right solution for clients? Jon Resnick: Look, I think anyone would say they never have all the right answers. I mean that's the honest answer. This is a dynamic space with a range of different things. I think we feel pretty darn good about our ability to respond to a range of questions. I think strategically, we always kind of have our eye on what else is out there with complementary capabilities to what we do. But there's no shortage of ability for us to match kind of client demand. You take the toughest questions that our clients have about trial, trial design, execution, chemical entity business design, we can answer a range -- a massive range of things. So I have no concern about the fitness of the current portfolio to execute. Obviously, we'll always continue to look for things to complement us and things to continue to help us create scale and grow as a business and round out our offering. But on the whole, we have more than enough in the current portfolio to very actively work with our clients on any number of challenges that they're facing. John Park: I know you mentioned a lot of the FDA remarks up top in the prepared remarks. Have your clients seen any changes in the FDA other than statements? I know it's probably way too early for drug approval rates change, but are they optimistic when it comes to maybe going one phase to another? Jon Resnick: So I think -- look, I think I would answer the question slightly different, if you don't mind. The way I tend to think about it is, are we seeing a shift towards more of our services as the FDA starts to push people to more computational and modeling-based approaches. And I think the answer is certainly, yes, the FDA and the life sciences industry does not move quickly. These cycles are long. So you get changes in regulatory guidance, you have in-flight trials, you have a whole range of other things that take time to move. But if you look at underneath the growth in our QSP business and the core growth in our PBPK business, those are reflective of these alternative approaches being used and growing acceptance. So look, as we kind of look -- we look at the direction of travel, the FDA, we certainly think that's a huge tailwind for our offerings. We're starting certainly to see the leading indicators in some of our core service offerings and the technology that underpins them. So we're optimistic about the way those guidelines and the direction of travel for the regulatory bodies and how that plays into our ability to support clients in a broader and more helpful. Operator: Thank you for your participation in today's conference. This does conclude the question-and-answer session and concludes the program. You may now disconnect.
Operator: Greetings, and welcome to the Crescent Energy Q4 2025 Results Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Reid Gallagher, Investor Relations. Thank you. Reid Gallagher: Good morning, and thank you for joining Crescent's Fourth Quarter and Full Year 2025 Conference Call. Today's prepared remarks will come from our CEO, David Rockecharlie, and our CFO, Brandi Kendall. Our Chief Operating Officer and Executive Vice President of Investments, will also be available during Q&A. Today's call may contain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties, including commodity price volatility, global geopolitical conflict our business strategies and other factors that may cause actual results to differ from those expressed or implied in these statements and or other disclosures. We have no obligation to update any forward-looking statements after today's call. In addition, today's discussion may include disclosure regarding non-GAAP financial measures. A reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure, please reference our 10-K and earnings press release available under the Investors section on our website. With that, I'll hand it over to David. David Rockecharlie: Good morning, and thank you for joining us. 2025 was a transformational year for Crescent. Our team delivered strong performance by executing on our consistent strategy, and capitalizing on our leading combination of investing and operating skills. As a result, we entered 2026 better positioned than ever with more scale, more focus and more opportunity. As always, I'd like to begin with 3 key takeaways. First, our base business continues to deliver impressive results. In 2025, we generated significant free cash flow exceeded expectations on both production and capital and demonstrated the durability of our investing and operating model, and we are bringing that significant momentum into our 2026 plan. Second, we are now a focused and scaled operator in 3 premier basins, the Eagle Ford, the Permian and the Uinta, and we see tremendous upside potential across our portfolio. Our investing and divesting activity materially upgraded the quality and scale of our portfolio. In total, we executed nearly $5 billion of transactions in 2025. We closing over $4 billion of acquisitions at less than 3x EBITDA and divesting nearly $1 billion of noncore assets at over 5x EBITDA. This is how we compound value recycling capital out of noncore positions and into higher return, scalable assets where we can apply our operational playbook to drive value for years to come. You have seen us successfully execute our strategy in the Eagle Ford. Over multiple years, we have built a top 3 position while generating strong returns and hundreds of millions of annual synergies. It is just the beginning for us in the Permian, but we are off to a strong start, and we are doubling our original synergy target. And third, our equity value proposition is even more compelling. We will continue to build long-term value through strong free cash flow and returns from our base business, but we also have significant upside catalysts embedded in our business. We are excited to introduce one of those key catalysts today, our world-class minerals platform, present royalties. Let me now discuss our strong fourth quarter in more detail. We produced 268,000 barrels of oil equivalent per day for the quarter, including 106,000 barrels of oil per day and generated approximately $239 million of levered free cash flow. In the fourth quarter, our activity was focused predominantly in the Eagle Ford gas and condensate windows to capitalize on strength in the natural gas curve. Early performance has been strong and our ability to allocate capital across both oil and gas weighted inventory enhances the durability of our returns in a volatile commodity environment. Operationally, we continue to raise the bar across our asset base. Over the past year, we have increased drilling and completion efficiencies, extended lateral lengths and expanded the use of final frac operations across our footprint. These initiatives drove a 15% reduction in drilling and completion cost per foot year-over-year and contributed to full year CapEx outperformance. Our operational expertise is foundational to our strategy of buying assets and making them better and we intend to apply the same proven playbook to our newly acquired Permian assets, which gives us confidence in our increased synergy target. Our entry into the Permian was a defining step in Crescent's evolution. Today, we operate scaled positions across 3 premier basins, the Eagle Ford, the Permian and the Uinta, which is complemented by a substantial and world-class minerals portfolio. This combination provides inventory depth, commodity flexibility and a durable free cash flow profile that positions us to outperform through cycles. Turning to our new Permian assets. Integration has progressed seamlessly. As we have spent more time with the assets, our conviction in the value creation opportunity has increased. This acquisition remains one of the most compelling we've evaluated with immediate accretion across key metrics and highly attractive cash-on-cash returns. Importantly, our synergy targets are now 100% higher than what we underwrote which meaningfully enhances expected investment returns. That increase reflects clear visibility into incremental operational efficiencies, overhead optimization, marketing improvements, and additional balance sheet opportunities as we implement the Crescent playbook. Looking ahead to 2026, our plan reflects the consistent execution of our long-term free cash flow strategy. Our focus is on maximizing free cash flow while maintaining operational and capital allocation flexibility. We expect to run a 6- to 7-rig program across our asset footprint. Four rigs in the Eagle Ford will span multiple phase windows, providing flexibility to pursue the highest returns across commodity cycles. One rig in the Uinta will target our core Uteland Butte formation and continue prudent delineation of the upside across our significant resource base, following the success of our Eastern JV. And in the Permian consistent with our acquisition announcement, we are rightsizing capital and operational intensity with a disciplined 1- to 2-rig program. Our upgraded portfolio enhanced capital efficiency and commodity flexibility position us to generate some of the strongest development returns we have seen in recent years despite the current commodity price volatility. In addition to upgrading our operated portfolio, we're excited to announce the formation of Crescent Royalties. This is a major milestone in our strategy to build a leading royalties business. We have been active buyers of minerals and royalty assets for nearly 15 years and have built one of the largest and most established minerals and royalties platforms in the sector. anchored by a core position in the Eagle Ford under world-class operators. Today, our minerals portfolio contributes approximately $160 million of annual cash flow. By placing these assets within a dedicated capital structure, we enhance strategic flexibility and create additional pathways for long-term value recognition. With Crescent's differentiated knowledge, experience, and sourcing pipeline, we see meaningful opportunity to continue scaling this platform in a value-accretive manner. Our transformation in 2025 was significant and a testament to the power of our consistent strategy. We are relentlessly focused on building a great business with a great team that talented people feel proud to be a part of. With our success in 2025, we are well positioned to continue on our trajectory with more scale, more focus and more opportunity than ever before. With that, I'll turn the call over to Brandi. Brandi Kendall: Thanks, David. Crescent delivered another quarter of strong financial performance, generating approximately $536 million of adjusted EBITDA with $226 million of capital expenditures and approximately $239 million of levered free cash flow. These results underscore the significant free cash flow generation capacity of our portfolio and the strength of our lower capital intensity operating model. Our free cash flow enables what we view as an all-of-the-above return to capital framework. First, it provides substantial coverage of our fixed dividend. We declared a $0.12 per share dividend for the quarter, equating to an approximate 5% annualized yield, and our cash flow profile provides significant cushion to support and sustain that return. Second, it allows us to meaningfully strengthen the balance sheet. During the quarter, we repaid more than $700 million of debt, and we retain the capacity to continue deleveraging throughout the course of 2026. And third, it gives us flexibility to repurchase shares when market dislocation occurs. We increased our buyback authorization to $400 million, providing the ability to repurchase a meaningful amount of shares when we believe doing so represents an attractive use of capital. Our balance sheet remains strong. Our liquidity is significant, and our capital allocation framework is disciplined, flexible and focused on long-term per share value creation. With that, I'll turn the call back to David. David Rockecharlie: Thanks, Brandi. Let me close by reiterating our 3 key messages. First, our base business is strong, improving and generating meaningful cash flow, and we are bringing significant momentum into our 2026 plan. Second, our 2025 investing and divesting activity materially upgraded our portfolio. We entered the Permian at compelling value with significant synergy potential and exited noncore assets at attractive multiples. And third, Crescent's value proposition has never been more compelling. We combine investing discipline with operational expertise. We generate substantial and durable free cash flow, and we have multiple pathways to drive long-term per share value creation. We are larger, more focused and better positioned than we've ever been and we believe we are just getting started. Thank you for your time this morning, and I will now open it up for Q&A. Operator: [Operator Instructions] The first question is from Bert Donnes from William Blair. Bertrand Donnes: On Crescent royalties, could you maybe help us understand where we are in the value creation process. It seems evident to us that the value is not really showing up in the shares if you use peer multiples. And you noted scaling the business is probably maybe the next step. But what options are you open to or what options are you not open to eventually monetize the assets? David Rockecharlie: Yes, it's David. Great question. I think the most important place to start is that this has been a core business of ours. We've built a scale portfolio over the last 15 years. It's world-class assets and there is significant embedded value in the company, and we want to make sure that investors and Crescent understand what they are. The other couple of key messages I would give, these assets that we've put together are among the lowest cost in the Lower 48. We think they've got tremendous upside potential in just what we already own. But we see significant future growth potential just like we do in the rest of the business. I'll let Clay give you a little bit more color on that. John Rynd: Yes, the only thing I'd note is, we view this as realist on in terms of value creation in terms of allowing our shareholders to kind of recognize the value that we see embedded in the business. As David mentioned, we kind of see clear pathway for growth. We've been able to compound this business at 20% annual growth over the last 5 years. We continue to see a pathway for kind of accretive growth for the business. And then we're committed in 2026 to continue in to unlock value for our shareholders with this business. Bertrand Donnes: Sounds great. And then maybe just one for Brandi. On the -- maybe the [ Vanilla ] upstream M&A. We've kind of heard both sides of the story that this is a seller's market, prices are reaching high watermarks but also that inventory is drying up, and you should probably be grabbing inventory while you can. So just wondering if Crescent thinks this is a time where maybe you do whatever it takes to win a bid like maybe the Canadian Curling team? Or is it smarter just take a step back and catch a few low-priced silvers like the hockey team? David Rockecharlie: Bert, it's David. I'll take that one, and thanks for an amazing setup. What I would say a couple of things. Your comment just makes me want to communicate how many significant catalysts that we think we have in the company. But to run through them on the M&A side, we've just completed a transformational year. We think we made a great entry into the Permian a fantastic value. That integration is going great. As you know, our #1 thing when we make an acquisition is to get that right. What you should hear from us today is that it's going really well. We think it's going to be a tremendous long-term opportunity for us. From a preparedness perspective, we're active in the market all the time, and we're ready to be opportunistic. From an actionability perspective, which is very different, what we're telling you is we see a huge amount of opportunity even within the company. So we're focused on driving value with what we already own. We're focused on making sure investors understand all the levers we have in the business, including, as we've talked about, the royalties assets, which, again, are world-class and scaled. And the market, from our perspective, we'll be ready when it's there. So it's an interesting time right now, but we're kind of always in the market. But the #1 thing is, are we prepared to be opportunistic? And yes, we are. Operator: The next question is from Charles Meade from Johnson Rice. Charles Meade: Good morning David, to you and your whole team there. On the desire to grow the mineral royalty position, can you talk about what advantage Crescent has in that process. My impression is it's generally a pretty competitive market, but it's less competitive. There's fewer players as you get to the size you guys are playing in. But what do you view or your advantages that let you compound this value 20% year-over-year? And perhaps are there -- is there one geography over another where you think there's the most opportunity? David Rockecharlie: Yes, I'd say a couple of things, and it goes back to just the core of kind of who we are as a company, which is we're investors and operators. So we've got the core skill set and activity on the technical and operational side that we're looking at assets that we operate every day and paying attention to what others are doing. And then on the investing side, not only are we disciplined we're very active. It's a core competency. So we see -- and we try to see everything. So when you put that together, at the end of the day, we're obviously, there is no difference in how we go about growing. We're investing in minerals and we do the operating business. it's about patience. It's about sticking to the returns and asset profiles we want. And what we found is we've been able to compound in both of these asset classes over time as long as we're patient and disciplined and prepared and acquiring the assets that we want to own. So I do think the track record speaks for itself. But the inherent advantages we have are really who we are as a company and just really what we've built, how integrated team we are and how well we combine investing and operating expertise. Charles Meade: Got it. And then if I could ask a question that drills down on your Midland Basin position. I know it's relatively new for you guys. But there's another operator that made a big -- really a big review about the Barnett, the prospective of the Barnett in the Midland Basin. And I know there's been operators who -- it's not new that companies have been targeting the Barnett, but there were some new information with some, frankly, impressive rates. So I'm curious, I know you guys have only had your hands on those assets since December, but have you -- do you have any kind of estimate on Barnett potential that you'd be able to share? David Rockecharlie: David again, and then I'll let Joey and Clay also give you some more context on your broader Midland question. But very specifically, I'd say 2 things. We think we've made a phenomenal entry into the basin. We feel really good about it. It's going well, and we think we got it at great value. So we don't feel any, what I'll call, pressure to do anything other than make sure we get that integration and then synergy capture right. The second thing I would say, kind of before I hand it off is if you look at really our strategy in action and what we've been able to do in the Eagle Ford, we put together a very significant position really over a decade. We're now a top 3 producer in that basin. And a lot of the resource that we're developing today was not thought to be there or thought to be economic at the time we acquired it, which is fantastic. So I would just say we have high hopes for our entire business in terms of the long-term inventory potential without trying to comment specifically on the Barnett. But I'll let Joey and Clay also give you some more perspective just on how the Midland and Permian is going. John Rynd: Yes. The only thing I'd add, Charles, is clearly, we mentioned a lot when we talk about M&A, how active we are. And in the market. I think the same thing would apply to resource expansion. And so you'd expect us to be kind of very actively following where the market there and what opportunity we have. And as David mentioned, I think one of the big reasons you're hearing so much excitement for us on the on the Permian entry is that we think there's a ton of opportunity around that asset base. So really excited about where we sit today. Jerome Hall: Yes. And Charles, in regard, we've seen the same announcements on the Barnett and we just consider that potentially more upside to what we've already highlighted. And so looking forward to exploring that with everybody else and seeing what we can do with it. Operator: The next question is from Michael Furrow from Pickering Energy Partners. Michael Furrow: I'd like to stick on Crescent Royalties quickly. We appreciate your comments that the strategy sounds quite clear towards adding scale. But given that this is a different business model, are the acquisition rate is going to be consistent with legacy Crescent 5-year payback period at a 2x multiple of invested capital? John Rynd: Yes, that's right. It's the same lens we bring, right? So as you know, right, this is cash flow orientation on the royalty side, clear focus on 2x multiple money and very clear focus on NAV per share and free cash flow per share accretion. So what we are excited about in the business is we've been able to build it the way we built it. with those as kind of our core focus, and that is the opportunities that we see going forward. Michael Furrow: All right. That's great. I appreciate the color there. As a follow-up, I was hoping for some clarification on one of your slides in the deck, Slide 11 here. So by our math, it looks like the implied oil rate for the fourth quarter in the Permian was nearly 70,000 barrels a day, represent a pretty meaningful step up from the 3Q level of like 61,000 and even more impressive is that you're disclosing 0 turning in the fourth quarter. So are there moving pieces here in terms of what was disclosed or maybe some M&A or other transactions that occurred? Just trying to square that circle. Brandi Kendall: Michael, so no additional transaction I would say that our base business outperformed production expectations in the fourth quarter. I think we're carrying forward good momentum into 2026. I will also flag though that Vital did not bring on any new wells since early October. So that business was in decline, and that's ultimately what's translating into a pretty flat oil production cadence for 2026. Operator: The next question is from Philip Jungwirth from BMO. Phillip Jungwirth: Congrats on the successful Vital integration and increase on synergies. On the well costs, I know these numbers are not always apples-to-apples across companies, but I think you're at $700 per foot in the Midland, $875 in the Delaware. I know there's a lot of tough competitors in these basins, but it does feel like there's a nice gap you could reduce. I know we're just getting started, but just wondering how much runway do you see to lower in Permian well cost beyond what's being underwritten currently in the asset. Jerome Hall: Philip, thanks for the question. Yes, we're going to be working the DMC piece of it diligently. We do see some great opportunity for improvement. We've already seen some even in the short time that we've had things moving forward. The other part of it that I always like to encourage people, point out to people is just the value of slowing down the fact that we slowed down, get the opportunity to catch our breath, understand from the past learnings from Vital and apply the things that we're going to do going forward. Just a slower pace gives us a better opportunity for higher capital efficiency and reducing costs. So we're very bullish on our opportunity to reduce well cost in the Permian. Phillip Jungwirth: Okay. And slowing down is actually going to be my follow-up here. Just on the base decline, Vital used to give us a year-end figure for oil and BOE. Last year, it was 42% for oil and 36% per BOE. So I'm guessing this is a lot lower today, but any sense on where the Permian base decline is now or by year-end '26? And just to confirm an earlier comment, can we imply that Permian oil production is also going to trend flat through the year similar to the Total company? Brandi Kendall: Philip, this is Brandi. I think similar to my prior comments, I would expect relatively flat oil volumes, both in the Eagle Ford and in the Permian throughout the course of 2026. Phillip Jungwirth: Okay. Great. And then anything on the base decline? Brandi Kendall: Yes. On a corporate level, we did pick up post the merger pro forma for divestitures were in the high 20s that across the base -- the broader business, but expect to kind of get back to our corporate target of 25% or below over the next 12 to 18 months. Operator: The next question is from Jarrod Giroue from Stephens. Jarrod Giroue: Congrats on a strong quarter. So my first question is around synergies from the Vital acquisition. In your release, you stated that Crescent had already hit $40 million plus in synergies from the deal, and it's causing you to double your annual target of about $190 million. I was hoping you could give a little color on what you -- what savings you've already seen and what you expect to get to the $190 million? Brandi Kendall: Hey Jarrod, it's Brandi. I'll start, and then I'll turn it over to Joey. So with respect to the $40 million that has been captured to date, I would say, largely overhead, duplicative public company expenses as well as cost of capital synergies. Of the 100% increase on synergies, I would say 50% of that is op related. And then the remaining 50% is additional overhead, incremental marketing synergies and then additional opportunities to further drive down cost of capital. Jerome Hall: And Jarrod, one of the things since I've been here at Crescent that's been incredibly impressive. This has gone back in history their 16th asset that they've acquired since going public and have a very good, tried and true playbook on integration. I've been incredibly impressed efficiently. We've been able to integrate these assets. The team integrations and operational performance are exceeding our expectations. Just some color on some things specifically. Going forward, we'll be increasing the number of wells per pad, which will allow us to implement simulfrac. We're also increasing lateral lengths by doing land trades. So we'll be able to increase our capital efficiency there. The supply chain opportunities are starting to come to us now that we're a company of scale, combining services and contracts. Some specific examples, combining contracts on generators, compression, chemicals, tubulars, and as I was explaining to Charles, just don't underestimate the value of slowing down. Slowing down gives us better operational planning, which drives better execution. Also on the LOE side, huge opportunity on the artificial lift side with our cash flow focus free cash flow focus. We're focusing on long-term value versus short time rates. So that affects the ESP sizing and how we do the timing of artificial lift spots. The list is pretty long. All of these opportunities will be feathering in over 2026, but we're pretty excited and looking forward to getting through 2026 and capturing all the synergies. Jarrod Giroue: That's great. And then just my second question, with the earnings release, you announced an upsized and extended share repurchase authorization of $400 million. So just kind of curious how Crescent prioritizes shareholder return between the base dividend, shareholder returns and debt reduction in 2026? Brandi Kendall: Jarrod, this is Brandi. So no change to kind of key capital allocation priorities. The balance sheet and the dividend or top. We're prioritizing deleveraging well so retaining the flexibility, right? We kind of talked about all of the above return to capital program. But again, I think in the immediate term, it's all about the balance sheet, the increase in the buyback, though does allow us to be opportunistic. It allows us to move the needle with the authorization program if the stock is significantly dislocated. Operator: The next question is from Jonathan Mardini from KeyBanc Capital Markets. Jonathan Mardini: Just given the capacity or the ability for minerals companies to run at higher leverage ratios, the latest spotlighting of Crescent royalties change the way you think about leverage over time? Or would you target that 1.5x ratio at the minerals level? So just how we should think about leverage on a consolidated basis trending through this year? Brandi Kendall: Good question. I would say no fundamental change. It's how we think about leverage across the broader business, long-term target continues to be 1x. We do believe that we were pretty conservative financing these latest minerals acquisitions. We expect to be below 1.5x by year-end. And then there's clearly just significant asset coverage given where this asset class trades relative to that leverage target. Jonathan Mardini: Okay. I appreciate the details. And moving upstream on your Eagle Ford asset slide, we show laterals your Central and Southern regions increasing by about 2,000 feet compared to 2025. Can you just talk about what's driving this expected step-up and maybe how we should expect this to impact D&C cost per foot in 2026? John Rynd: Jonathan, this is Clay. I'm happy to start, and then I'll turn it to Joey. I think part of that is, as we've talked about, our ability to kind of build scale in the Eagle Ford has given us a huge opportunity to continue to drive capital efficiency by extending laterals assets of joint ventures, just blocking and tackling in terms of putting the position together and giving ourselves the best shot on capital efficiency. But turn to Joey also. Jerome Hall: Yes, Jonathan. Obviously, one of the simplest ways to become more efficient is to drill longer laterals. So it's really as simple as that. But I also point to the fact that we're increasing the pad sizes as well which allows us to increase the percentage of simulfrac. We'll be up to 70% of our pads in South Texas regional beyond simulfrac. So those 2 things combined really push our capital efficiency higher and higher. So it's all good things happening. Operator: The next question is from John Abbott from Wolfe Research. John Abbott: I'll just jump to the Uinta for a moment here. I mean, part of your program this year is sort of delineating the other zones in that area.When you think about that asset, how do you think about the optionality of the Uinta at this point in time that is not as significant part of your portfolio as in the past? David Rockecharlie: John, it's David. Great question. I'd say a couple of things. Just to hit optionality immediately and succinctly in our control, how we want to handle it. So that's just a fantastic asset to have. It's obviously intentional on our part as well as part of our strategy. So we feel really good about 2 things in that area. We can deliver really strong returns in a I'll call normalized oil market. We're making great returns there and been view now. And then just the resource potential there is incredible. We've seen our offset operators continue to expand that opportunity. We entered there below PDP value. So we feel great about what I'll call just methodically going through the opportunity and expanding it over time. And as Joey said, the ability operationally to just go at the pace you want to go just provides tremendous optionality. But we think of it as more or less a 1 rig area for us and just slow and steady continued expansion of the opportunity is what we expect. John Abbott: Appreciate it. And then the follow-up question is really on maintenance CapEx and long-term oil. Based off your current plans, I guess, you could exit the year, with 1 rig maybe in the Permian. Let's say, maintenance CapEx long term. I was talking to Brandi about last night, it's $1.3 billion to $1.4 billion long term, well, maybe about 130,000 barrels per day. I guess my question is, is if we do see a more constructive environment in the second half of this year and as we sort of look out to 2027, '28, could you decide to plateau at a higher level? Or is 1 rig in the Permian really where you want to be? Or could you decide, hey, if we have a more constructive environment, let's just be a little bit higher than 130 long term? David Rockecharlie: John, it's David again. I'm happy to take that. Long story short is we feel really good about what I'll call running the business at a target reinvestment rate, and we've done that all the time. Our key goal is returns and free cash flow. So yes, back to your topic of optionality. We've got the ability to do more everywhere, which means not that we're going to do more everywhere, but we can allocate our development activity to the best return. So if oil development is higher returning, you will see us allocating more capital towards oil and vice versa. You've seen the gas market strengthen. We've had more allocation there. So I think it will be purely a function of rate of return. -- and then we actually have oil opportunity in the Eagle Ford and the UN in the Permian. So I think we could do it anywhere. But yes, you're correctly pointing out that we've got good optionality in the Permian. Operator: The next question is from Lloyd Byron from Jefferies. Unknown Analyst: Congrats on all the progress. Can I just go back and get a couple of clarifications. I don't know if it was Joe that was talking about costs, but another way to kind of ask it, is there an optimal scale for you guys going forward? And I'm just thinking about in the Permian or the Uinta, you've done such a good job in the Eagle Ford with scale. David Rockecharlie: This is David. I'll give you a sort of simple response and then Brandi give you maybe a little more context strategically. What we are seeing is that we've got the scale we need to continue to drive value within the current business. around operations. We see tremendous upside in continuing to drive efficiencies across these assets. And in particular, as you know, the newest assets in the company are recent, call it, 12 to 18 months ago, Eagle Ford acquisitions and then the entry into the Permian. So we feel like we've got plenty of scale there to continue to drive value. However, we think this industry through cycle presents significant opportunity for our business strategy to grow through acquisition opportunistically. And so we also see significant scale potential beyond what we already have, in particular, in the Eagle Ford and the Permian. And so I think that's what we're looking for. But those acquisitions are all going to stand on their own, and they're going to be, because we think the value is right because we think we're ready to do them and we see an ability to do what we do, which is buy assets and make them better. I think we would tell you we've got the scale we need today to drive significant value on our existing footprint. Unknown Analyst: Okay. That makes sense. And then let me come back to [indiscernible] and a little bit. And I know you're -- it's a nice steady growth going forward, but are there any bottlenecks at this point, takeaway rail, permitting? Could you grow it faster if you wanted to, I guess, my question. Brandi Kendall: Lloyd, I'll start. So we could grow it faster if we want it. I think we've always thought about this asset as kind of a 1-rig asset but the basin has really transformed over the last couple of years given rail, given kind of debottlenecking on the gas side of things. So I would say no constraint from an oil or gas midstream perspective. Operator: There are no further questions at this time. I would like to turn the floor back over to David Rockecharlie for closing comments. David Rockecharlie: Perfect. Thank you all again. We really appreciate again, the opportunity every quarter to share how we're doing. And hopefully, the key takeaways all came through, which is base business, high performing with a lot of momentum. We completely transformed the portfolio last year into a much more focused scale business. And again, we think the company has a tremendous amount of catalysts both on the existing assets, but also one of the things we really are highlighting this quarter is the opportunity in our Minerals business in that segment. So we'll continue to keep you updated as we move forward. And again, thank you for the support. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. This is the conference operator. Welcome to the LFL Group Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Jonathan Rose, Investor Relations for LFL Group. Please go ahead. Jonathan Rose: Thank you. Good day, everyone, and welcome to LFL Group's Fourth Quarter and Full Year 2025 Conference Call and Webcast. LFL's fourth quarter and full year 2025 financial results were released yesterday. The press release, financial statements and management's discussion and analysis are available on SEDAR+ and on our website at lflgroup.ca. Joining me on the call today are Mike Walsh, President and Chief Executive Officer; and Victor Diab, Chief Financial Officer. Today's discussion includes forward-looking statements. These statements are based on management's current assumptions and beliefs and are subject to risks, uncertainties and other factors that could cause actual results to differ materially from these assumptions and beliefs. We encourage listeners to refer to the risk factors outlined in our management's discussion and analysis and annual information form, which provide additional detail on the risks and uncertainties that could affect future results. This call also includes non-IFRS financial measures. Definitions, reconciliations and related disclosures for these measures can be found in the management's discussion and analysis and press release issued yesterday. Forward-looking statements made during this call are current as of today, and LFL Group disclaims any intention or obligation to update or revise them, except as required by applicable law. All financial figures discussed today are in Canadian dollars unless otherwise noted. With that, I will turn the call over to Mike Walsh. Mike? Michael Walsh: Good morning, everyone, and thank you for joining us. In 2025, LFL Group delivered strong operational and financial performance. We grew system-wide sales by 2.8%, expanded gross margins, delivered 16.5% growth in normalized adjusted diluted EPS and increased our quarterly dividend by 20%. As you would have seen, I'm also excited that yesterday, the Board approved a $0.50 special dividend. These results reflect the efforts of our associates across the country to deliver solid performance day in and day out for our customers and our shareholders. Consumers were cautious and value-focused during 2025, leading to a challenging backdrop for retailers. At the same time, trust, service and confidence in the retailer became increasingly important in purchase decisions, a dynamic that plays directly to our strengths. It's worth emphasizing what execution like this requires. Strong performance in 2025 wasn't just about being more promotional. It was about discipline and judgment. Knowing where to flex in response to the consumer, how to flex and when not to is something that's built over time. That hard-earned knowledge is what enables us to maintain customer loyalty while delivering solid financial results and maintaining long-term pricing power in our core categories. I'm very pleased with how our teams delivered, driving consistent market share gains that translated into strong financial performance. Furniture was definitely the standout category in 2025 and an important contributor to our results, growing 6.3% for the year. We continue to execute on a focused assortment strategy, narrowing where appropriate, going deeper in our best-performing SKUs and selectively broadening into areas of opportunity. Strong performance we generated in the category during the year was a direct result of these decisions. Our appliance category, led by the commercial channel, also contributed meaningfully to results in 2025, supported by the delivery of previously booked multiunit residential projects. We continue to make solid progress across the replacement and property management segment and we're expanding our geographic reach. Appliance Canada has historically focused its builder and developer partnerships in Ontario. When anticipating a moderation in that market and recognizing that many of these partners operate nationally, we proactively made the decision to pilot a store within a store concept inside our Leon's location in Richmond, BC. This format gives developers a dedicated destination for customer upgrades while making efficient use of infrastructure we already have in place. In-store execution remains solid in 2025. As we discussed last quarter, our e-commerce platform continues to play an important role in driving more purposeful store visits. We're seeing higher intent customers walking through our doors and our associates are well-positioned to serve them. They know the product, they understand the customer and are focused on helping them find the right solution. Turning briefly to the fourth quarter. While we anticipated the impact of Canada Post disruptions on flyers, distribution during key promotional windows, the quarter brought some additional headwinds, increased promotional intensity in certain categories, selective consumer spending, particularly on larger discretionary items and tougher winter weather comparisons. That said, in the context of the broader market, we're satisfied with how we performed. We managed the business with discipline and delivered profitability for shareholders. Looking ahead to 2026, we're confident in our strategic position. We do anticipate some carryover of the fourth quarter headwinds into early 2026, but our model is built for an environment like this. Same focus that has driven our performance will continue to guide us, serving customers with the value they need, growing sales and market share, protecting gross margins, maintaining cost discipline and translating it all into earnings growth. From a category standpoint, we're building on what worked in 2025. Furniture remains our core strength and we'll continue to go deeper where we have scale, sourcing advantages and a clear value proposition. At the same time, we're taking a disciplined test-and-learn approach to selectively expanding our offering where we have relevance and where it makes sense for the customer across all of our focus segments. We also see meaningful growth potential for our warranty, insurance and service businesses over the coming years. These businesses complement the core retail platform, but we also see them becoming more meaningful contributors to results in their own right. We're also taking a selective approach to growing our store network in 2026. We expect to add a small number of new locations, 2 corporate stores and up to 5 franchise stores weighted towards the back half of the year. In parallel, we plan to move forward on some capital-light renovations and refreshes where targeted investment can enhance customer experience and drive returns. As we've talked about before, our strategy has never been about maximizing store count. These are destination format locations with larger catchment areas built around a full-service experience and every decision we make, whether it's a new opening, a renovation or a refresh gets evaluated through the lens of 4-wall profitability and long-term value creation. The historical results of that discipline give us the confidence to continue to grow at a measured pace rather than pursuing unit expansion for its own sake. Beyond the store footprint, we continue to make disciplined investments in the organization to better leverage our platform and support LFL's future growth. We have added senior talent across digital and technology, diversified businesses, commercial operations and real estate. These investments are about building capability, enabling us to move faster, integrate opportunities more effectively and execute with greater consistency across the business. We've been steadily strengthening our technology stack to improve how we operate, how we serve our customers and how we make decisions. This includes piloting artificial intelligence tools as well as deploying automation across the business in marketing, supply chain, forecasting and document management, among other areas, to drive productivity and organizational efficiency. We are in the early stages of this work, but we are encouraged by what we are seeing. Our focus remains on building a stronger, more capable organization for the long term. We have a proven track record of navigating cycles like this. Our scale, sourcing capabilities, distribution network and financial strength position us well to manage near-term variability and continue gaining market share over time. With that, I'll turn it over to Victor to walk through the financial details and provide more context on the quarter and the year. Victor Diab: Thanks, Mike, and good morning, everyone. I'll start with the full year walk-through, move to a discussion of the fourth quarter and then touch on capital allocation and a few considerations as we enter 2026. Overall, we're very pleased with our performance in 2025. For the year, revenue was $2.57 billion, up 3% year-over-year. Growth was led by furniture, along with a solid contribution from the appliance categories led by the commercial channel, as Mike highlighted. In commercial, performance reflected the completion of previously secured multiunit residential projects that moved through deliveries during the year. As we've outlined, we expect developer-related revenue to moderate and we're beginning to see that trend emerge in the early part of 2026. Gross margin expanded 65 basis points to 45.04%. This improvement reflects both the impact of higher-margin furniture sales and our continued focus on strengthening sourcing and vendor engagement. We've deepened relationships with our top vendors and increased purchasing penetration through our First Ocean subsidiary, driving improved cost efficiencies and supply consistency. At the same time, disciplined promotional activity and optimized pricing strategies have supported margin improvements across categories. SG&A rate improved to 36.48% compared to 36.72% in 2024. This improvement was primarily driven by lower retail financing fees due to declining interest rates. We also maintained strict cost discipline and realized leverage as we grew the top line, even in an environment where there was an upward cost pressure across many areas of the P&L. Net income for the year was $157 million or $2.29 per diluted share. Normalizing for the one-time gain from the CURO settlement, adjusted net income increased by $22.2 million or 16.6% and adjusted diluted earnings per share increased 16.5%. We're also pleased with where inventory levels sit today. Our written-to-delivered relationship is in good shape. We've continued to go deeper on certain SKUs, which has enabled us to tighten the written-to-deliver time line. We headed into 2026 with a healthy in-stock position, good availability across key categories and no material constraints on flow. Turning to the fourth quarter. Revenue was $671.4 million, up 0.7% with same-store sales up 0.6%. The story is consistent with what we've seen through the year. Growth was led by furniture, where a stronger inventory position and an improved assortment enabled us to capture demand and by appliances, where we continue to see solid growth in the commercial channel. Gross margin in the quarter was 46.08%. The year-over-year improvement reflects a favorable mix shift into higher-margin furniture as well as a better furniture and appliance margin rate from the assortment and sourcing work we've done over the past year. This was partly offset by a higher mix of sales in the lower-margin commercial channel. SG&A as a percentage of revenue was 35.51%, an increase of 13 basis points versus last year. The change was primarily driven by higher occupancy and amortization with the lease commencement of our Edmonton distribution center and other renewals, higher sales commissions and a slight deleveraging of fixed costs. These were partially offset by lower POS retail financing fees as Bank of Canada interest rates moved lower. On a reported basis, adjusted diluted EPS for the quarter was $0.74, down from $0.98 last year, reflecting the onetime $23.4 million legal settlement we recorded in Q4 of 2024. If you normalize for that item, adjusted diluted EPS increased modestly year-over-year to $0.74 from $0.73, an increase of 1.3%. It's important to view our fourth quarter results in the context of the market-related headwinds that Mike described earlier. Even considering those factors, we continue to execute and delivered growth in normalized earnings. From a balance sheet perspective, we generated strong cash flow through 2025 and ended the year with $603 million in unrestricted liquidity, including cash, marketable securities and our fully available revolver. We also increased the quarterly dividend by 20%, underscoring our confidence in the strength of the business and our ability to continue generating solid cash flow. In addition, we stay attuned to returning capital to shareholders where it makes sense to do so. And as Mike said, yesterday, our Board approved a $0.50 special dividend. Maintaining this level of liquidity is a deliberate strategic choice and one we're comfortable with. Our approach to capital allocation has been guided by a consistent focus on returns and that means being strategic about liquidity, holding more in certain environments, less in others. Our track record reflects that discipline. And with a liquidity position that very few others in this market have, we're well-positioned to act when and where it makes sense for the long-term growth of the business. Our approach to capital deployment remains disciplined and consistent with our long-term focus. We prioritize reinvestment in the business where we see attractive returns, maintain a strong balance sheet and return capital to shareholders over time with a primary focus on our regular dividend. We also remain attuned to acquisition opportunities that fit strategically and create long-term value. Looking at 2026. On reinvestment, we expect maintenance capital expenditures to be modestly higher than our typical range. Historically, we've talked about maintenance CapEx in the $35 million to $40 million range. This year, we expect that to be approximately $45 million to $50 million, reflecting an increase in planned renovations and category level refreshes across a portion of our network in addition to our typical maintenance program. On the growth side, we expect to open 2 new corporate stores along with up to 5 franchise locations towards the back half of the year. Importantly, this level of maintenance and growth investments remains very manageable and enables us to continue generating strong free cash flow. In addition to store investments, we continue to look for opportunities to improve operating efficiency across the network. Centralized distribution is a core part of our long-term strategy as we transition from the legacy-attached warehouse model toward a more efficient hub-and-spoke network over time. The closure of our Mississauga warehouse in February of 2025 delivered expected operational results, including SG&A savings and working capital benefits and we continue to track key service level metrics as part of that evaluation, including customer experience and written-to-deliver time line. Based on what we learned from Mississauga, we're evaluating a further centralized distribution initiative in another region. This would be a phased measured test designed to build confidence on a larger scale. These initiatives take time to implement, but the objectives are clear: reduce inefficiencies and inventory flows, improve working capital management and drive meaningful SG&A efficiencies over the longer term while maintaining service levels. The most significant opportunity is in Ontario, which is our largest market. We are approaching this deliberately and we'll continue to provide updates as we make progress. We will continue to be opportunistic in our approach to buybacks, taking advantage of volatility where it aligns with our long-term strategy. We did not repurchase any shares under our existing NCIB during the fourth quarter of the year. On M&A, we continue to evaluate opportunities that align with our core categories and retail focus, involve recognizable brands, offer a clear runway for growth and are synergistic with our broader ecosystem. In an environment like this, opportunities can emerge and our balance sheet puts us in a position to act if the right fit presents itself. I also want to briefly address tariffs as this is an important topic for the sector. Steel derivative tariffs were implemented by the government of Canada on December 26, 2025. Inventory already in transit was not impacted. For new orders placed after December 26, we're evaluating the impact and we'll adjust pricing where appropriate. Any pricing increases would be surgical, carefully balancing customer value with financial returns as we have done many times before across a range of market conditions. This is an industry-wide factor and we are well-positioned to manage it given our scale, sourcing relationships and supply chain capabilities. One item to flag on comparisons. As we move through 2026, we are lapping strong performance in 2025, which creates more demanding year-over-year comparisons, particularly in the first half. This is most evident in Q1, where results last year benefited from a timing dynamic that pulled some sales forward from Q4 2024 into Q1 2025. Before handing it back, I'd like to briefly address the previously announced initiative to create a real estate investment trust. This remains an important strategic priority for us. The timing will be driven by market conditions and regulatory approvals and we'll share additional updates when appropriate. That's the only update we can provide on today's call. As Mike mentioned, we've also strengthened our real estate capabilities by adding a dedicated senior resource to provide in-house expertise across our property portfolio. This role is focused on helping us drive greater value from our assets, supporting our development agenda and ensuring we are making informed strategic decisions across the portfolio that both strengthen our core business and create value for shareholders. Entering 2026, we remain confident in our positioning. Our approach to managing the business will be consistent as we move forward regardless of the environment. We remain focused on outperforming the market and gaining share while protecting gross margins, staying disciplined on SG&A and driving profitability. Overall, our scale, disciplined sourcing, promotional strategies and solid balance sheet provides the foundation to continue driving profitable growth and shareholder value over the long term. With that, I'll turn it back to Mike for closing remarks before we open the line for questions. Michael Walsh: Thanks, Victor. To wrap up, 2025 was a strong year for LFL and one that demonstrates the consistency of our execution. In a challenging environment for many retailers, we grew revenue, expanded margins, delivered solid earnings growth and increased our dividend. More importantly, we did that by staying focused on the fundamentals, disciplined merchandising, targeted promotions, strong execution in our stores and a clear focus on value for the customer. These results weren't driven by short-term actions. They are a direct product of how we built this business, the scale to negotiate directly with suppliers and secure advantaged pricing. Banners that Canadians trust coast to coast, backed by a large and growing omnichannel presence and integrated logistics infrastructure, including one of the largest final mile delivery networks in the country. That sets us apart in how we serve customers from the store to their door. Together, these are durable advantages that matter most when consumers are being more deliberate with their spending and they are the foundation we continue to build on. As we move into 2026, our focus on execution and on continuing to gain market share in our core categories. We're investing thoughtfully where we see opportunity and we're doing so from a position of strength with a solid balance sheet and durable competitive advantages that will enable us to continue to win across cycles. Before we open the line, I want to truly thank our associates across the country in our stores, distribution centers and support teams for their continued commitment. Their work drives the results every day. And to our shareholders, thank you for your continued support. With that, we'll be happy to take your questions. Operator: We will now begin the analysts question-and-answer session. [Operator Instructions] Our first question comes from Ty Collin from CIBC. Ty Collin: So yes, maybe just to start off on the same-store sales growth. How can we kind of understand the deceleration in Q4 compared to your fairly brisk year-to-date pace up to then? And maybe specifically, you can just touch on how you've seen consumer behavior evolve into Q4 and to start off 2026 so far. Michael Walsh: Great question, Ty. I think how I'd characterize the Q4 was it was a little choppy. We started out the first quarter or the fourth quarter with the Canada Post strike. And as you know, that's one of our highest ROI channels with the consumer. So definitely, that impacted. So 50% of our network didn't have flyers going out to them, which really impacted Ontario and Quebec. The weather disruptions, so our 2 biggest days of the year, Black Friday and Boxing Day, which had both had weather events. And it's really tough because in 2024, in the fourth quarter, we had Canada Post strike, but it started later in November. And this year -- or in 2025, it started in September. And so as you look at Boxing Day, Boxing Day is kind of a month or 2-month event now given what happened in the pandemic. And so it's spread out over a period of time. And so leading up to Black Friday, we had literally 50% of our flyers not going out. And for sure, we lean more heavily into TV, digital, SEO, SEM and e-mail. But those channels don't fully replace the lost flyer impressions. Victor Diab: And then just to add there, Ty, just to build on Mike's point. So I think, obviously, a slower start to the quarter, just given the 50% of our network was either fully or partially impacted with no flyers. And then I would say we did see -- on top of weather, we did see a consumer slowdown, a broader slowdown in December just across our brands, which tells us it's a bit of a macro thing to Mike's point, the shopping period is getting -- holiday shopping period is getting longer and longer. By the time you get to December and between Black Friday and Boxing Day, we just noticed a bit more of a lull period there. That tells us and we did see this throughout the year, shoppers are waiting for more value. They're waiting for the bigger days. Our bigger promotional days outperformed our average days. And we continue to see evidence of a strained consumer and that we're seeing trade-down happening. So all of that just tells us the consumer is being cautious. They're constrained. They've got to prioritize where their share of wallet is going. So that's just a bit more color there. Ty Collin: Okay. Great. So is it fair to say that you've seen that more cautious consumer behavior in December kind of carrying over into the first couple of months of 2026 so far? Victor Diab: Yes. I think what we saw in December, which is a little tricky, right? It was a combination of weather and the consumer pulling back. What we've seen in January is similar in that really cold January, lots of snowfall. So we think that impacted traffic in addition to a more cautious consumer. So we did see that to start the year as well. Ty Collin: Okay. Great. And then maybe for my follow-up, I'm just wondering if you could comment a little more on the promotional environment, which you called out in your comments. I mean, is there any particular set of competitors where that increased promotional activity is coming from? And is there any sign of that abating so far in 2026? Michael Walsh: No, I think Q4 carried into Q1 from a competitive set, I think consumers are value-driven right now and they have been as we've stated in previous quarters. And I think all retailers are trying to play in the value prop game on different channels. And so that's going to continue, and I don't see that abating throughout 2026. Operator: The next question comes from Ahmed Abdullah from National Bank of Canada. Ahmed Abdullah: On the commercial appliance growth that's been helping some of the top line, you've mentioned that it's a lower margin mix. As you see some weakness perhaps in other higher-margin categories, what levers do you have to kind of protect your margins if commercial keeps outperforming? Michael Walsh: Well, we -- as we stated in previous quarters, we continue to focus on the category of furniture because that's got one of the highest gross margins that we have. And so we continue to focus on that through a reduced assortment and going deeper on our inventory. So we have the product available and we can spin up the delivery time between -- and the lag time between written and delivered. We also, as we said, Appliance Canada is primarily in Ontario, but they have lots of their customers that are in other parts of Canada. And so leveraging a store within a store in Richmond, BC really helps us to enable Appliance Canada to play outside of Ontario, which has been severely impacted from a development perspective. Victor Diab: Yes. And then just to answer the mix question there, to build on Mike's point there, Ahmed. Like we said, we know and we've signaled that the commercial business is slowing down. So from a sales mix perspective, we're not necessarily expecting the same level of growth going forward. We're expecting moderation. And it is a lower margin category. So the way we've been offsetting despite tremendous growth in that channel over the last couple of years, our margin rate has been improving and that's because we've been improving rate on the retail side through stronger furniture sales mix and some of the rate initiatives that we've had. So net-net, we don't expect that to be a margin headwind going forward from a mix standpoint. Ahmed Abdullah: Okay. So on the flip side of that comment, are you thinking about your promotional cadence into 2026 to drive margin tailwind as such that would push your adjusted EBITDA margin for 2026, assuming there's revenue growth higher? Victor Diab: Yes. I think the way you got to look at rate, right, we're pretty -- we operate pretty proud of sort of the improvement that the team has been able to make over the last couple of years. We're happy with kind of where we are at this level. We've got to balance a few things. Obviously, sales mix. The way we've done it is primarily through sales mix and rate -- core product rate improvements, not through price. And so we've got to keep the consumer in mind there, right? So our primary focus is to provide value to the consumer, grow market share and grow it profitably. And we tend to operate margin within a range, right? So if you look at our history, we're pretty disciplined. We're consistent and we gradually improve over time. But we pick and choose when we're going to do that. And we've got to be very cautious in this environment in a value-oriented environment in terms of when we flex up or down on categories and overall. So again, I would kind of point you to, we've made good improvements. We're kind of satisfied at this level today. There is upside in the medium and longer term, but it will depend on overall sales mix. It's kind of the way we look at it. Ahmed Abdullah: Okay. And just if I can squeeze one more follow-up. On Ty's comment around the Canada Post disruption, clearly, you see value in the medium and continuing the use of flyers going forward. Were you able to estimate or quantify the impact that Canada Post cost you this quarter? Victor Diab: Look, the way I would answer, we're not going to throw out numbers. Obviously, there's lots of variables in terms of sales and we're not going to specifically break those things out. But I would point to, again, the key drivers in terms of -- one, we thought the quarter in the grand scheme of things, we thought the top line growing sales, growing profitability, that's a good result, right? I think the momentum heading into the quarter and your comment about the step back, I think those are 3 factors that we talked about. The flyer impact to start the quarter, the broader December slowdown and weather on some of our -- weather just in general, but on some of the bigger days like Boxing Day and leading up to Black Friday was adverse weather conditions, especially relative to last year. So I would just kind of look at it like that, but we're not going to throw specific numbers out there. There's just too many variables. Operator: Our next question comes from Martin Landry from Stifel. Unknown Analyst: It's [ Jesse ] filling in for Martin. I was wondering how promotions performed over the last year and how you expect them to perform going to go over into the new year? And particularly maybe get some color on which campaigns worked and which didn't. Victor Diab: Yes. Listen, thanks for the question. Like as I said maybe earlier, what we saw throughout the year is our bigger promotional days just outperform on our average days. So it does tell us that our promotions are working. The one sort of element for LFL, just in general is we're -- our objective is to provide value to the consumer throughout the year, right? So we're always focused on value. We leverage our scale and we leverage it well to provide value throughout the year. But we did see, in general, our bigger promotional days outperform our average days and that just tells you where the consumer mindset is, but it does tell us that our promotions are working really well for us. Unknown Analyst: Okay. Great. And maybe -- I know you touched on it a little bit this call, but I was wondering about the replacement business. Can you maybe provide a little bit more color on that? I know the builder pipeline was moderating a little bit. So if you could touch on that, that would be helpful. Michael Walsh: Yes. I think we signaled it 12 to 18 months ago that the pipeline for the builder segment was going to be a challenge in '26 and '27. So we pivoted to increase our replacement business, which we have been doing and continue to do. It won't necessarily make up the shortfall from the development segment, but it definitely helps. But it's a continued focus that we have on the replacement business. Operator: [Operator Instructions] And our next question comes from Nevan Yochim from BMO Capital Markets. Nevan Yochim: I appreciate the color so far on the January trends. Hoping you could just give an update here on what you're seeing across product lines and region to start the quarter. Victor Diab: Yes, it's a good question. So we continue to see strength out West. We're seeing a bounce back in BC and more softness in East Ontario in general, just a bit slower to start the quarter. But in general, I think January just has been colder, more snow and I would characterize it as a bit tepid across the board. But it's our smallest month of the quarter. So we'll continue to see how the quarter progresses. And we're optimistic as we think about the back half of the year. We're optimistic in terms of, hopefully, some of the macro headwinds ease and we're optimistic about some of our initiatives going forward in terms of, again, being positioned for value and continuing to outperform the market and gain share across our categories. Nevan Yochim: Okay. Great. And is it fair to say that the trends you saw in Q4 in terms of product lines that those have continued into the year as well? Victor Diab: Well, listen, as we think about Q1, I think a couple of things we need to flag, right? So last year, we would have highlighted to you that we had a shift in written to delivered from Q4 into Q1. That's primarily a furniture category dynamic, right? So we're going to see a bit more -- as we think about category performance in Q1, we're going to see a bit more pressure on the furniture category because of that shift. Otherwise, I would characterize the performance sort of across the categories as pretty consistent with our historical trend. We're still pretty bullish on our ability to drive share growth in furniture, we believe we're really well-positioned in that category, but that comparable year-over-year, especially in Q1, is going to be hard to comp, especially as it relates to the furniture category. And then again, we're off to a slower start in January as we characterized. So Q1 will be a tougher comp and then we feel pretty good about our positioning for the balance of the year. Nevan Yochim: Great. And then just on the commercial appliances, I know some details so far. Just hoping you could expand a little bit. Is there a certain quarter in 2026 where you begin to lap these tougher comps? And can you frame the headwind on same-store sales growth? Victor Diab: Yes. So I think with respect to commercial, look, it is moderating. It's going to be tough to comp. That category, that channel, we've seen tremendous growth over the last since -- frankly, since 2019, that category has grown at a CAGR of 6-plus percent just to kind of put it out there. So we're expecting a bit of a moderation, but we've gained a lot of share in that category. So our goal is to obviously mitigate that through the replacement business, mitigate that through geographical expansion, as Mike highlighted in his comments. And -- but nonetheless, it's probably going to moderate this year. And it will -- our objective is to mitigate that as much as possible. We still feel like we're outside of Q1. We think we're going to drive good growth across our retail business. We plan to open a few -- like we said, we're going to grow our network. We have a couple of corporate stores planned to open this year in the back half of the year. We've got up to 5 franchisee locations that we're going to open. So all of that is going to help with top line growth. Nevan Yochim: Okay. And then maybe just one more for me. You talked about renovating the stores. Are you able to provide a bit more detail on the cost per store, maybe the payback period and how you're thinking about returns on those investments? Victor Diab: Yes. No, for sure. I mean, when we think about our renovations, we look at it as major, minor and sort of refreshes. And we've obviously got a couple of new stores like we said. So it all has to fit within our return framework. We have pretty high hurdle rates, well above our cost of capital. So these are pretty high-returning projects. We're basing it on some of the comps that we've seen in our network, some of the recent renovations that we've seen where we've seen really good results and we're quite pleased. We're very selective. As Mike said in his comments, we're pretty capital-light in our approach. The major renovations obviously cost more than the minor renovations and the refreshes. But -- and then I'm going to add in their category level refreshes. So in some cases, we'll go into a store and refresh the furniture category or the mattress category and not do an entire refresh. So it really depends on the store itself, the market, what we're seeing as an opportunity and it needs to fit within our return framework. And again, our hurdle rates are pretty high. I'll leave it at that. Michael Walsh: Yes. I think the only thing I would add is that retailers have to consistently look at their stores, the refresh, concept renewal, payback. And I think one of the things coming out of the pandemic, we had 2 or 3 years where you weren't touching stores. And so it's really difficult to try and catch that up in 1 year. And so over time, we want to be able to continue to refresh our stores and look at a go-forward and a go-back strategy, what's working in any new developments or any concept renewal and take that back to the broader groupings of stores. So it's just something retailers have to consistently look at and do. Operator: There are no further questions at this time. This concludes today's conference call. Thank you for participating and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the Neinor Homes Full Year 2025 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, José Cravo. Please go ahead. Jose Cravo: Hi. Good morning, everyone. My name is José Cravo, and I'm the Head of Investor Relations at Neinor Homes. Today, we are going to go over results for the fiscal year 2025. And as usual, we are here with Borja Garcia-Egotxeaga, our CEO; Jordi Argemí, our Deputy CEO and CFO. We will start the presentation with the key highlights in Section 1. Then on Section 2, we will provide an update on the closing of the AEDAS transaction. On Section 3, we will review financial results. And on Section 4, we'll finish with key takeaways. After the presentation, there will be a Q&A session to answer any questions you may have. Now I hand over the presentation to our CEO, Borja Garcia-Egotxeaga. Borja Garcia-Egotxeaga Vergara: Thank you, Jose. Good morning, and thanks, everyone, for joining. Let me be very clear about the most important message we want to convey during this presentation. We are executing today, and we are accelerating tomorrow. That is the story. Let's break it down. First, results. Full year 2025 is the seventh year in a row that we delivered on our operational and financial targets, 7 years, not 1 or 2, 7. In a fragmented market through cycles and through volatility, we have consistently done what we said that we would do. That is the value created by this management team. It's discipline, it's execution and focus. Second, AEDAS. In less than 8 months, we have secured full control, doubled the scale of the platform. This is not incremental. This is transformational. With AEDAS, we created the national champion in a highly fragmented market. We moved from being a strong operator to being the clear consolidation leader. Third, the market. The macro is strong. GDP in Spain is growing fast. Employment is solid. Population is increasing and household leverage remains low. At the same time, supply is structurally tight. And when supply is scarce, price move up. But -- and this is important, affordability for our clients remains healthy. We operate in a market where demand fundamentals are real and sustainable, not speculative. That is what we call HALO, Heavy Assets, Low Obsolescence in a structurally scarce environment. That combination creates resilience and long-term value. And fourth, Grow. We are very well positioned. We have a scale. We have the best land, we have visibility, and we have a proven capital allocation framework. We will continue to grow, but we'll do so the same way we have delivered 7 consecutive years of results with discipline, with focus, and with equity-efficient execution. So again, we are executing today. We are very focused in AEDAS integration, and we are accelerating tomorrow. Now let's move to Slide #5, and let's see the numbers. We have closed the year with a land bank of almost 38,000 units. Around 25,000 of those are currently under production and more than 12,000 are in work-in-progress or already finished. That is production capacity. That's multi-year visibility. Our order book stands at record levels of nearly 9,000 units, representing more than EUR 3 billion of future revenues. And during the year, we have delivered close to 3,000 homes to our clients. On the right side of the slide, you have the financials. Jordi will go through them in detail later, but let me highlight 3 points. First, we reached the high end of our guidance. Second, operating margins remained solid with 27% gross margins. Third, at the bottom line, net income came in 7% above guidance, excluding AEDAS. On the balance sheet, leverage increased versus last year as expected, but it remains fully aligned with our strategy and supported by a strong cash flow visibility. Finally, shareholder value creation has been strong with 25% growth in NAV per share plus dividends distributed. So when we say we are executing today, this is exactly what we mean. Please follow me to the next slide to see how the platform has transformed in just 3 years. Now let's zoom out. The Spanish residential market is highly fragmented. Even the largest players have a very small market share. Neinor's platform today is 2, 3 or 4x larger than most of our peers. And in a fragmented market, a scale wins. Look at the evolution since 2023. Our order book is up by almost 7x. Our units under construction tripled. Our active portfolio is up by 4x, and our total land bank has more than doubled. This is not incremental growth. That is a structural expansion. But let me be clear, this is not growth for the sake of growth. It's rooted in a disciplined strategy. It's grounded on our equity-efficient model, and it is designed to create value for our shareholders. Yes, the scale is important, but quality is even more. Please, let's go to next slide. Now let's turn to the quality because scale with the quality doesn't create value. More than 80% of our GAV is concentrated in 8 regions. These are the areas with the strongest economic growth, the strongest demographics and the tightest supply in Spain. This quality land bank is worth more than EUR 10 billion in future revenues. And more important, it was acquired through a disciplined investment strategy. This provides meaningful downside protection and a clear upside in the current market environment. It is important to highlight also the segment in which we operate. We focus on the mid- to mid-high segment, selling homes at EUR 300,000 to EUR 400,000, more than 90% to Spaniards who are buying a residence where they will live. Around 30% of our clients buy with cash, while those that use leverage do so conservatively with an average loan-to-value of 65%. As a result, our buyers enjoy structurally strong affordability metrics with house-price-to-income 40% below the national average. Moreover, in recent years, when house prices started to accelerate due to the structural imbalance of demand and supply, affordability for Neinor clients remains at the same levels or even is improving a little bit. This combination of premium locations, disciplined land acquisition and resilient demand positioning underpins the quality of our earnings profile. Please follow me to next slide so that we can explain why Spain continues to be one of the safest residential markets worldwide, which further strengthens our current setup. For many years, we have been saying that Spain is one of the safest residential markets worldwide. And we say so for a structural reasons. It is true that most residential markets in developed countries are undersupplied. Spain is not unique in that sense. Their real difference lies on the demand side and in the financing structure. The Spanish economy is performing well. Employment is growing. Population is increasing. But more important, the Spanish housing market is much less leveraged than the others. In Spain, typical loan-to-value ratios are around 70% to 80%. While in many other countries, it is normal for buyers to get 90% of the purchase price. Moreover, the cost of financing is also very different. In Spain, our clients are signing long-term fixed mortgages close to 2%, while in other markets, mortgage rates can easily be double that level. So lower leverage and lower financing costs make the Spanish market more resilient to shocks. So when we think about the housing cycle and evolution of house prices, the key variable is not only supply, it is affordability under stress. In markets with high leverage and higher mortgage rates, affordability can deteriorate quite quickly when interest rates move. In Spain, the impact is much more limited. Buyers use 20% to 30% less leverage when buying. They lock in long-term fixed rates 30 years versus mixed rate to more short term in U.K., for instance. And household balance sheets are stronger than in previous cycles. That is why we believe Spain is structurally more resilient. And that is why we believe this market can sustain moderate price growth without undermining affordability, especially in our segment. Now let me step back and explain why we believe Spain offers structural growth opportunities beyond the economic cycles. Over the last years, Spain has accumulated a housing production deficit of more than 800,000 units. To put that into perspective, this deficit is equivalent to roughly 8 years of current annual housing production. As you can see on the chart, household formation is exceeding year-by-year housing production, especially after '21. The gap keeps increasing, and it is expected to do so in the following years. This tells us something fundamental. Spain simply doesn't build enough homes to meet underlying demographic demand. And as population growth accelerates and household formation continues, this deficit does not correct itself. That's why we believe Spain residential is supported by structural fundamentals, not just macro momentum. For a scaled industrial platform like ours in a quality land bank and embedded execution, this creates a long runway for disciplined growth and value creation. And now let me pass the word to Jordi to see a little bit more of AEDAS transaction and financials. Jordi Argemí García: Thank you, Borja. Let's go through the key milestones of the AEDAS transaction, which we have successfully executed in just 8 months. In December, we acquired almost 80% of AEDAS by purchasing the stake from Castlelake. At the end of January, the CNMV authorized the mandatory tender offer and confirmed the price as equitable. Shortly after, we reorganized the Board of Directors, securing full operational control of the company. And since then, we have already implemented decisive actions. First, we have restructured the corporate debt using the Bolus facility. Second, we signed a management agreement so that we are in charge of the key strategic decisions and have full control of cash management. And third, we canceled AEDAS shareholder remuneration policy to fully align capital allocation with Neinor strategy. As you know, the acceptance period of the mandatory tender offer will finish tomorrow, and the final results will be published next week. Regardless of the final percentage that we will own, the strategic objective of this transaction has already been achieved. We have control, integration is well advanced and synergies are underway. With that said, let's move to Section #3 to review the 2025 financial results. On the left-hand side of the Slide 13, you see 3 columns. First, our original guidance for the year. Second, the reported results, excluding AEDAS, which are fully comparable to our guidance. And third, the actual results, including the impact of AEDAS from the 22nd December onwards. Let's start with deliveries. We neutralized around 1,900 units, out of which 1,565 units correspond to build-to-sell projects with an average selling price of EUR 421,000 and 352 units correspond to build-to-rent projects. As anticipated during the year, the higher average selling price reflects the delivery of Santa Clara development, where units are sold above EUR 1 million each. In addition, the build-to-rent projects divested were for an amount of EUR 70 million. And remember that these are recorded directly as margin in the P&L due to the applicable accounting standards. As you can see, revenues from the asset management business are amounting around EUR 20 million, while construction and other revenues contributed approximately EUR 30 million. In total, revenues reached close to EUR 700 million. And this is basically the higher end of our EUR 600 million to EUR 700 million guidance range. In terms of profitability, gross margin stood at 27%, also above our 24%, 25% objective. EBITDA reached EUR 110 million, also at the high end of guidance. And at the bottom line, net income came in at EUR 70 million, representing a 7% beat versus guidance of EUR 65 million. Regarding leverage, we closed the year with an LTV of 16%, which is below our target of 23% and this already includes the dividend distribution executed earlier this month of EUR 92 million. So overall, solid operational execution and cash flow generation from the underlying business. Now looking at the third column, which includes the impact of the transaction, you can see that AEDAS contributed 26 units at an average selling price of EUR 412,000. Basically, it adds EUR 12 million of revenues and bringing group revenues to EUR 709 million. At EBITDA level, the impact is minimal, around negative EUR 1 million, mainly due to the structural costs and the margins for finished products, which are lower. The most relevant impact is at net income level, I would say, due to the purchase price allocation accounting with a positive contribution net of transaction costs and net of one-offs of EUR 52 million. That implies that the net income increases from EUR 70 million Neinor stand-alone to EUR 122 million at a consolidated basis. Note that this is a non-cash item that was triggered by the badwill arising from the M&A transaction. This extraordinary profit represents an anticipation of the EUR 450 million target net income we announced in June of last year. And if you look at the net debt, it increases to EUR 1.1 billion. This basically implies a loan-to-value of 36%, which again is slightly below to our 37.5%, 40% target, including guidance. So with that said, let's move to the Slide #14. Let' s zoom out for a moment and go back to basics. We operate a highly industrialized and scalable platform in a fragmented market. Our business consists of buying raw land and transform the plots into new homes for our clients. And as you can see, over the last 9 years, we have perfected this model, delivering more than 16,000 homes across Spain. Financially, this translates into more than EUR 5 billion of revenues, industry-leading gross margins of 28%, more than EUR 900 million of EBITDA and more than EUR 600 million of net income. And that profitability has not remained in our balance sheet. It has been returned to shareholders through dividends and share buybacks. If we focus on our strategic plan, we have distributed EUR 450 million with a further EUR 400 million forecasted for the upcoming 2 years. In practical terms, these companies will return approximately 80% of its market cap as of March 2023 to shareholders in only 5 years. And we have done this while doubling the size of the company. Originally, the plan contemplated to reduce the size of the company by 30%, but instead, we are doubling earnings per share. So we have demonstrated that we are disciplined and be sure we will continue being. And now I hand over the presentation back to Borja for the key takeaways. Borja Garcia-Egotxeaga Vergara: Thank you, Jordi. So let me close by summarizing the investment case in 4 clear points. First, our positioning. We operate in heavy tangible assets, land and housing. These are real assets with very low obsolescence risk. In a world increasingly exposed to technological disruption, our business is structurally protected. People will always need homes and the real raw material is the land, not the metaverse. Second, our asset base. We control the largest and highest quality land bank in Spain. Fully permitted land in prime regions is scarce. Scarcity protects value and scarcity embeds margins. When you own the right land in the right locations with permits in place, you control both timing and profitability. This is a structural competitive advantage. Third, the market environment. As we have seen, Spain is structurally undersupplied. At the same time, the housing market is under leveraged with conservative mortgage structures and resilient affordability. That combination makes the Spanish residential market one of the safest globally. And importantly, this structural imbalance does not disappear if GDP moderates. Supply constraints are long term. Demand fundamentals are demographic. This is not a short-cycle story. And fourth, growth. We will continue to grow, but with discipline. Every investment must be equity efficient. Every transaction must be value accretive. Scale is important, but discipline is what creates value. That is why we believe Neinor is positioned not just for this cycle, but for the long term. Thank you very much. Jose Cravo: Operator, we can now start the Q&A session. Operator: [Operator Instructions] We will take our first question. And the question comes from the line from Ignacio Domínguez from JB Capital. Ignacio DomÃnguez Ruiz: I have a question on outlook for the next few years. What gross development margins do you expect to deliver on a consolidated basis, particularly as the combined Neinor, AEDAS platform stabilizes? Jordi Argemí García: Everything regarding the business plan and the future, we prefer to wait because, as you know, we are in the middle of the Mandatory Tender Offer. So results should come -- will come next week. And after it, we try or our intention is to present the business plan and all the guidance at the AGM that will be in April. So a few weeks from that. We don't expect any changes to what we presented in the tender offer in all the guidance for the JVs. But in any case, it's better to wait for the final result of the tender offer to answer. Operator: We will take our next question. The question comes from the line of Fernando Abril-Martorell from Alantra. Fernando Abril-Martorell: I have 3 questions, please. First, on execution. So what is your target for new housing starts in your fully owned portfolio in 2026? And also would like to -- if possible, if you can elaborate a little bit on the constraints you may be facing in launching new developments and whether you see any change in the stance from public authorities regarding permits and approvals. Second, on land purchases. I don't know, you've raised -- you've done another capital increase aiming for new growth opportunities. So I don't know if you can comment a little bit more on this. And if you have any -- I don't know if you have any land acquisition target for this year as well. And third, maybe you will not answer much on this based on what Jordi just said. But if we assume that you paid the remaining EUR 150 million dividends this year, I don't know if you can comment on your year-end net debt target or loan-to-value based on this assumption. Borja Garcia-Egotxeaga Vergara: I will start with the first question that was regarding -- I understood about what we are going to launch in this year for the year '26 which target. As we said during the tender offer, the new size of the company of the whole group between Neinor and AEDAS will lead us into a situation where we will be delivering between 5,000 to 6,000 units per year. So right now, we are just closing, as Jordi was saying, the business plan. And therefore, all the portfolio is being adapted into that metrics that I'm telling you. So more or less, you can consider that during the year, we should launch enough to recover in year '28, '29 those 5,000 to 6,000 units. Regarding the situation with the politics and the permissions, well, you know that in Spain, the situation with the house crisis is getting louder year-by-year. And this is making most of the regions we are seeing in all the regions, in fact, where we are working, how the rules are changing. Basically, what all the regions are trying to do is to do it easier to get the licenses to short times and to try to increase the supply. All of this is good for our business. So we are happy with the situation in terms of the action of the politicians that we have been asking for, for so long. Regarding your second question, the land purchase, I give the word to Mario. Mario Lapiedra Vivanco: Okay. Well, as mentioned, we are closing the investment strategy. And in the coming weeks, we will provide further details. But as of today, we can say that we have a good pipeline of above EUR 500 million in the different living verticals, both in build-to-sell in Senior, in Flex and in strategic land. We will keep discipline. So we know that today, we are the rock stars of the sector, but our main mantra is to keep the discipline that has allowed us in the last years to invest more than EUR 3 billion, but providing IRRs of above 20%. So that's a bit of what we can say today. Jordi Argemí García: I take the last one, the net debt target. As I said before, Fernando, we prefer not to close down mandatory tender offer, and we will come back in a few weeks to explain the business plan in details. In any case, as I was saying before, whatever comes will be aligned with what we presented in June. And remember that the debt target there was 20% to 30% Neinor HoldCo Level on a consolidated basis should be around 40%. Then it will go down because we will deleverage AEDAS. Fernando Abril-Martorell: Okay. Just a quick follow-up on the politics. Are you willing to play via affordable housing or not it's not a priority for the moment? Borja Garcia-Egotxeaga Vergara: Well, Fernando, regarding the affordability houses, we must say that right now, more or less every year, we are delivering around 200 houses of protection. We are delivering, for instance, last year, we did 500 units that we deliver what we call affordable housing that at the end is houses that instead of EUR 300,000 to EUR 400,000 case, as I have said in the presentation, cost between EUR 225,000 to EUR 275,000 and we deliver this type of houses, for instance, near Madrid in the places where we can get to buy land at cheap price. Regarding affordable housing in the rental segment, we have an active program now with Llei de l'Habitatge de Catalunya that we are building for them 4,700 units. We keep looking the different opportunities that we are seeing with Plan Vive Madrid and others in Valencia or in Navarra. Basically, we need to be very sure before we enter into these operations that we have a clear exit when we get in and that the rentability -- the profitability of the transaction is enough for that exit. So being a priority to contribute in the affordable housing solution in Spain, we are also very close to the design of these programs in order to try to make them, I think, more profit -- a little bit more profitable and it's something that, for sure, Neinor will play an important role in the following years. Today, it's not in our business plan, but it's something that we work with. Operator: [Operator Instructions] We will take our next question, and the question comes from the line of Manuel Martin from ODDO BHF. Manuel Martin: Gentlemen, just one follow-up question and then 2 other questions from my side, please. The potential 5,000 to 6,000 units deliveries per annum, more or less. Just to make sure, this is build-to-sell and from your own portfolio as far as I understood. Borja Garcia-Egotxeaga Vergara: Yes. Basically, right now, we are delivering more than just small amounts of affordable housing that are more for the rental segment that both Neinor and AEDAS we are doing, but not too many units. Most of it is build-to-sell product. build-to-rent, private build-to-rent, we are not launching many, many developments because there was a loss of interest in the markets. Manuel Martin: The 2 other questions, one general question. I don't know if you can answer that before your AGM comes. In terms of future growth, would it be able for you to indicate whether you would like to grow through JVs or through other acquisitions in the future? Do you have a preference there, which you can share? Or is it a bit too early? Mario Lapiedra Vivanco: I'll take this one, Manuel. Mario here. Well, we are monitoring always the full on balance investment and the JV co-investment vehicles. We have a queue of investors in our offices. That's the reality because there are less players and the appetite has increased in the last months. So we are selecting very well, which deals we do directly and which ones we prefer to do on that vehicles. So we have flexibility in the budget depending on the best option for our shareholders. Manuel Martin: I see. Okay. And third and last question, actually, maybe a bit technical and for curiosity, the Purchase Price Allocation gain you had for 2025, the EUR 50 million to EUR 60 million roughly. Can you give us an insight how you arrived to that amount? Why is it EUR 50 million? Why not EUR 150 million, just for curiosity? Jordi Argemí García: It's a good curiosity. The only thing that this is -- for us, this is not good because as I said before, this is a non-cash item. We -- this implant anticipate part of the future revenue, accounting revenue that we set in the guidance. So for us, the preference was to be at 0 being honest. But this is impossible because accounting rules do not allow that. So what we have done is working with the auditor to try to minimize as much as possible this level or this amount. It comes from the difference between the valuation from third party, in this case, Savills, non-CBRE and the purchase price finally paid, but also we have included additional structural costs because obviously, one thing is the asset value. Other thing is a corporate company, a corporate that needs to deliver those units. And obviously, we have some structure. So it's a combination. But again, our preference was to be at 0 being honest. Operator: There seems to be no further phone questions, if you wish to proceed with any webcast questions. Jose Cravo: Thank you. So we'll go with the webcast now. We have here only one question. It's with regard to the results of the tender offer, the mandatory tender offer that will come out next week. If we can give some details on what is the strategy if we don't reach the squeeze out. Jordi Argemí García: Okay. I take it. I mean, let's see what happens next week. If we get the squeeze out, fantastic. If we don't get the squeeze out as you are questioning, for us, it's also fantastic. I mean, for us, the deal is completed already independently on the percentage that we finally own by next week. We control the company. We control all the policies that's what matters to us. So once the mandatory tender offer is finished and imagining a scenario in which we don't get the squeeze-out -- our focus day after will be the activity of the company. We will not be there trying to buy again those minority shareholders that want to keep and be in the company, fantastic, we welcome them. But our priority will be completely on activity. That's the reality. Also, that means that the dividend we canceled because we prefer to use the cash to deleverage the company. So dividend distribution is not something relevant today at AEDAS level. This doesn't mean that in Neinor Homes, we will have capacity to reach the guidance we set, and we don't need actually the cash coming from AEDAS to accomplish with these targets for the next 2 years. Remember that AEDAS has around EUR 300 million of corporate debt; that is the bond plus the commercial paper. As I was saying, that's our priority for the coming 1 year or even 2 years. So whoever is there because we don't reach the squeeze-out, should be a medium- to long-term investor together with us. And one last comment from my side is that in a delisting tender offer, normally, the company, the buyer needs to allow during 1 month potential purchases if minority shareholders want to sell 1 month later, the tender offer. In this case, it's not a delisting. So Neinor is not obliged to continue buying once the mandatory tender offer is fully completed. Jose Cravo: Thank you, Jordi. We have no further questions on the webcast. So that concludes the conference call. Thanks, everyone, for joining. Jordi Argemí García: Thank you. Borja Garcia-Egotxeaga Vergara: Thank you. Mario Lapiedra Vivanco: Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and thank you for standing by. Welcome to the Dorman Products Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to Alex Whitelam, Vice President of Investor Relations. Thank you, sir. Please go ahead. Alexander Whitelam: Thank you. Good morning, everyone. Welcome to Dorman's Fourth Quarter 2025 Earnings Conference Call. I'm joined by Kevin Olsen, Dorman's Chief Executive Officer; and David Hession, Dorman's Chief Financial Officer. Additionally, Charles Rayfield, who will officially step into the role of Chief Financial Officer following our upcoming filing of the 2025 10-K is in attendance. Kevin will provide a quick overview, along with an update on each of our business segments and their respective markets. Then David will review the consolidated results before turning it back over to Kevin for our outlook and closing remarks. After that, we'll open the call for questions. By now, everyone should have access to our earnings release and earnings call presentation, which are available on the Investor Relations portion of our website at dormanproducts.com. Before we begin, I'd like to remind everyone that our prepared remarks, earnings release and investor presentation include forward-looking statements within the meaning of federal securities laws. We advise the listeners to review the risk factors and cautionary statements in our most recent 10-Q, 10-K and earnings release for important material assumptions, expectations and factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. We'll also reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our earnings release and in the appendix to this earnings call presentation, both of which can be found on the Investor Relations section of Dorman's website. Finally, during the Q&A portion of today's call, we ask that participants limit themselves to 1 question with 1 follow-up and to rejoin the queue if they have additional questions. And with that, I'll turn the call over to Kevin. Kevin Olsen: Thanks, Alex. Good morning, and thank you for joining our Fourth Quarter 2025 Earnings Call. As Alex mentioned, I'll start with our achievements in 2025, a high-level review of the results for Q4 and updates for each of our segments before turning it over to David. Let me start on Slide 3. As you'll recall, in last year's Q4 earnings call, we laid out a clear set of strategic priorities for 2025, critical areas where we plan to commit time, resources and investments to advance our long-term goals. I'm pleased to report that we delivered on what we said we would do. First, innovation. We had an exceptional year with record sales from new products, launching thousands of new SKUs, including some home runs like the electronic power steering rack, along with many singles, doubles and triples. We also made meaningful investments in our product development function. Our current new product pipeline is as strong as it's ever been with a growing mix of opportunities involving complex electronic solutions, an area where we believe we have a distinct competitive advantage. Innovation remains the lifeblood of Dorman and the progress we made this year positions us extremely well for the future. Second, operational excellence. We advanced productivity across the organization, including deploying new automation technologies in our distribution centers. These initiatives improved service levels for customers, enhanced availability for end users and generated tangible savings. We see continued opportunity here, and we'll keep driving efficiency and performance across our facilities. Third, supply chain excellence. Despite a complex tariff environment, we executed as planned. In 2025, we further diversified our global sourcing footprint, meeting our goal to reduce supply from China to below 40%. Strengthening supply chain resilience remains a key priority, and we continue to build deep strategic relationships with suppliers around the world. 2026, we expect our supply from China will further be reduced to approximately 30% of our total spend. Fourth, channel expansion. In both heavy-duty and specialty vehicle, we expanded our reach and won new business. With Dayton, we drove wins by leaning into categories where we had competitive advantages. And with SuperATV, we expanded our dealer network and nondiscretionary portfolio. And finally, strategic growth. While M&A activity in the aftermarket was quiet overall in 2025, we capitalized on organic growth opportunities across each of our segments and end markets with category and customer wins. On the M&A front, we deepened relationships with potential sellers and continue to evaluate new opportunities. We're hopeful that the coming quarters will bring more activity to the M&A market. Overall, our priorities were clear, and we executed with discipline. We're proud of what we achieved in 2025 and even more confident in the foundation we built for continued growth and value creation. Turning to Slide 4. These accomplishments translated into outstanding financial performance for the year. Let me cover a few of the highlights. Net sales reached $2.13 billion, up 6% year-over-year. Growth was driven by strong demand in our light-duty segment during the first half as well as successful execution of our tariff-related pricing initiatives in the back half. While broader market conditions presented some headwinds for heavy-duty and specialty vehicle, the teams executed on their commercialization initiatives during the year. We also delivered meaningful margin expansion and earnings growth for 2025. Although cash flow was impacted by increased tariffs, our earnings strength and cash management strategy allowed us to continue investing in the business, further strengthen the balance sheet and return capital to our shareholders. Our achievements and performance in 2025 are the direct result of the hard work and dedication that our contributors bring to Dorman every day. So I'd like to take a minute to thank and recognize everyone across the organization who worked tirelessly to navigate through the dynamic changes and challenges faced throughout the year, all while driving innovation, delivering operational improvements and putting our customers and end users at the forefront of everything we do. I'm proud of the talented team we have at Dorman and what we've accomplished together. I look forward to building on the success in 2026. Speaking of talent, I also want to welcome Charles Rayfield as our new CFO. Charles comes to Dorman with extensive CFO experience in both privately held and publicly traded companies. I know a few of you have had the opportunity to make quick introductions, and we're looking forward to having Charles on our future calls and getting out on the road in coming quarters. Next, on Slide 5, let me touch on the high-level results for the fourth quarter. Consolidated net sales were $538 million, up slightly from Q4 2024, but below our internal expectations. Our tariff-related pricing actions supported modest growth. However, shipment volume was down year-over-year due to a larger customer adjusting their ordering patterns in the quarter, which I'll cover in a moment. Despite lower-than-expected net sales in the fourth quarter, gross margins exceeded our expectations, allowing us to deliver adjusted diluted EPS for the year at the high end of our guidance range. A couple of factors I'll highlight contributed to this result. First, we shipped more pre-tariff lower cost inventory, driven in part by lower-than-expected volume in the quarter. Second, our team did a nice job managing expenses across the organization. Together, these drivers allowed us to report adjusted diluted earnings per share of $2.17 for the quarter. As we anticipated, cash generation improved sequentially with $42 million in operating cash flow in Q4. Additionally, we further strengthened our balance sheet and returned $25 million to shareholders through share repurchases. Finally, we are issuing 2026 guidance that demonstrates our confidence in delivering strong top line growth through innovation and commercialization initiatives and reflects the timing impacts relating to tariffs. I'll walk through that outlook in more detail shortly. So while there are several moving parts in the quarter, I'm pleased with our year-end results and have confidence in our team's ability to continue executing on our strategy and drive strong long-term profitable growth. Next, let me provide our results and market observations for each of our business segments while highlighting some of our recent accomplishments in each. Turning to Slide 6. I'll begin with our light-duty business. Net sales in the fourth quarter were $429 million, up slightly over the same period in 2024. We estimate that POS at our large customers was up mid-single digits year-over-year for the fourth quarter. And when you look at POS over the entirety of 2025, it directionally aligned with net sales. As I just mentioned, the team did an excellent job executing on our pricing initiatives. This helped offset lower shipment volume resulting from a larger customer that significantly shifted their ordering pattern during the quarter to reduce inventory. Also, keep in mind that last year's fourth quarter was exceptionally strong with execution on a number of large programs. As it relates to the specific customer ordering change, we expect to see continued order fluctuations in the first quarter of 2026, with stabilization returning in the second quarter. Overall, we believe the nondiscretionary nature of our product portfolio and our new product development strategy will allow us to drive outperformance over the long term. Next, we drove stronger-than-expected gross margin, given more lower cost pre-tariff inventory shipped during the quarter, partially as a result of lower-than-expected volume. We also drove continued savings with our ongoing supplier diversification and productivity initiatives. Operating margin was down slightly year-over-year, largely because of the higher factoring costs related to tariffs. Looking more broadly at the light-duty market, macro trends continue to remain positive with VIO and vehicle miles traveled increasing year-over-year. Additionally, OEM platform changes continue to present opportunities for our new product development strategy, especially in complex electronics. On this point, we continue to invest in our complex electronic capabilities as EV, hybrid and ICE vehicles are increasingly being equipped with more digital systems. We have the infrastructure and expertise to address complex electronic failures with more than 15 years of experience with data logging, electronics design and co-development to provide our customers with sophisticated software-enabled solutions. Our current new product pipeline includes the highest proportion of complex electronics in our history. As an example of this, we recently launched a fuel pump driver module for a wide range of Toyota and Lexus models. Assembled in the U.S., this solution is precision engineered to replace the original equipment module, which can fail after exposure to heat and environmental elements. Fuel pump driver module showcases Dorman's ability to apply OEM-level electronics engineering and manufacturing in high-volume applications. With more than 2.5 million vehicles in operation across Toyota and Lexus platforms. This module allows us to bring our advanced power electronics capabilities to drivers looking for extended vehicle life with an easy-to-install and cost-effective solution. Great job by our product development team for identifying and bringing this opportunity to market. Next, let me turn to Slide 7 for our heavy-duty business. Net sales grew 6% year-over-year in the fourth quarter despite continued pressure in the trucking and freight industry. The heavy-duty team did a nice job executing on the pricing front while also driving more business wins. Operating margin expanded 130 basis points year-over-year as a result of the timing around tariffs, similar to our light-duty business. We remain focused on improving both our commercial and operational execution in the heavy-duty segment to achieve our long-term goal of mid-teens operating margin. Looking across the sector, the great freight recession continued in the fourth quarter, where tariff and general market uncertainty continue to add pressure on the trucking and freight industry. That said, softer new vehicle sales across the last several years have led to an increase in the average heavy-duty vehicle age, a trend which we expect to continue for the next several years. All in all, there continues to be mixed signals within the market, making it hard to predict the timing of rebound. But we're tracking it closely, controlling what we can control and investing where appropriate to capitalize on business wins. One example of this would be the recent expansion of our medium-duty product offering and omnichannel approach. Medium-duty vehicles are typically part of larger fleets focused on last-mile delivery. used in ports, large campuses, industrial settings and for deliveries to our homes and businesses. These are high mileage vehicles, making many stops, so they experience quite a bit of wear and tear. Historically, fleet managers will rely on their dealer relationships for key repairs in their medium-duty fleet. However, through our wholesale distribution network and direct sales relationships, we're approaching this channel with improved focus to provide fleet managers with more optionality and cost savings while maintaining these critical assets. On Slide 8, I'll provide an overview of the Specialty Vehicle segment. Top line growth in the fourth quarter was flat year-over-year with pricing initiatives on certain categories offsetting softer spending in the overall segment. Operating margin was down year-over-year in the fourth quarter, primarily due to increased wage and benefit expenses. I'd note that the overall change in profit dollars is relatively low, and the team did a nice job managing expenses in specific areas of the business that are more controllable. Again, longer term, we are targeting a high teens margin profile for the business, supported by expanding new product pipeline, especially with nondiscretionary parts. While market challenges persist, UTV and ATV ridership remains strong. This condition remained consistent through 2025. So we're not seeing an impact to overall end-user demand for these products, just timing delays in purchases. New machine sales are also rebounding in the 2024 and 2025 levels and dealers have generally rightsized their vehicle inventory positions. We expect that as economic conditions improve, riders will resume enhancing and repairing their vehicles. On the new product development front, SuperATV continues to demonstrate its speed and agility in bringing solutions to the evolving aftermarket. We recently launched a 4-inch and 6-inch portal gear lift for the CF Moto UForce U10. As CF Moto's newest high-demand UTV hit the market, SuperATV was the first and currently the only manufacturer to deliver portal lift solutions for this model. Our portals enable riders to customize and elevate performance with the durability and capability SuperATV is known for. This patented early to market position reinforces our strategic advantage, the ability to evaluate new vehicle platforms quickly, engineer high-quality components and release fully tested products ahead of competitors. Congrats to the SuperATV team on another successful launch. With that, I'll turn it over to David to cover our results in more detail. David? David Hession: Thanks, Kevin. Turning to Slide 9. Let me provide more detail on our consolidated results. Net sales in the fourth quarter were $538 million, up $4 million or approximately 1% year-over-year. As Kevin highlighted, our net sales performance across the enterprise was largely driven by our pricing initiatives. In addition to the tough comparison we had in Q4 2024, where we had strong growth, volume this year was impacted by a larger customer that significantly changed their ordering pattern during the quarter to reduce inventory. That said, we believe these timing shifts will normalize through the second quarter of 2026. Adjusted gross margin came in higher than expected for the quarter at 42.6%. This was a 90 basis point increase compared to last year's fourth quarter. As Kevin mentioned, this margin expansion was driven by more pre-tariff lower cost inventory shipped during the quarter, partially as a result of lower-than-expected volume. Supplier diversification and productivity initiatives across the organization also contributed to our strong margin performance. Adjusted SG&A expense as a percentage of net sales was 25.2%, up 100 basis points compared to the same period last year. The uptick was largely tied to increased expenses related to funding the higher tariffs, along with higher wage and benefit costs in the quarter. Adjusted operating income was $93 million and flat compared to last year's fourth quarter. Adjusted operating margin was 17.4%, down slightly compared to the same period. As we discussed in prior quarters, there has been continued pressure on the trucking and freight industry impacting our heavy-duty segment. As a result, we recorded a noncash goodwill impairment charge in the fourth quarter of approximately $51 million after taxes. This is reflected in our GAAP results included in our press release, but has been adjusted out in adjusted diluted EPS. With that, adjusted diluted EPS in the fourth quarter was $2.17, down 1% year-over-year, but up against a very strong fourth quarter 2024. Interest expense was lower on debt reduction, and our tax rate was lower in the fourth quarter of 2024 due to discrete items that did not repeat this year. Let me quickly cover our full year results on Slide 10. As Kevin mentioned in our 2025 highlights, net sales increased 6% year-over-year with the first half driven by strong demand in our light-duty business and our pricing initiatives related to tariffs driving our performance in the second half. New products saw a record year of sales and the commercialization initiatives we've discussed throughout the year were positive drivers of our top line results. Operating income increased 17% over 2024 and operating margins were up 170 basis points to 17.8%. Again, this margin performance was driven by tariff-related timing dynamics, along with the supplier diversification and productivity initiatives driven by our segments. Let me also provide some additional color on our earnings. Adjusted diluted EPS was $8.87 for 2025, a 24% increase compared to the year prior. Now with full visibility of the impacts that the additional tariffs had on our results for the year, we thought it would be helpful to quantify this impact for the investment community. When including the timing dynamics of price and costs, along with the onetime miscellaneous expenses associated with tariffs, we estimate a full year impact of approximately $1.25 to our adjusted diluted EPS. While this is purely an estimate, we thought it would help contextualize pre-tariff comparison to 2024 and set a framework for our 2026 guidance, which Kevin will cover in a moment. Turning to our cash flow on Slide 11. As we expected, cash generation improved sequentially from Q3 to Q4. While tariffs continue to impact our inventory spend, we drove $42 million in operating cash flow during the quarter, a $30 million improvement from Q3. This allowed us to repay $16 million of debt and resume our share repurchases with approximately $25 million deployed in the fourth quarter. While we covered this extensively throughout the year, our full year operating cash flow was down 51% in 2025 compared to 2024. With capital expenditures essentially consistent, free cash flow was down 61% year-over-year. Again, the majority of this decline was tied to higher cost inventory as a result of tariffs. Looking ahead in 2026, we expect operating and free cash flow to continue improving before normalizing in the back half of the year. I'll reinforce that we ended 2025 with a strong balance sheet and liquidity position. Throughout the year, we successfully managed tariffs and higher cost inventory with our asset-light operating model and cash management, all while investing in key organic growth opportunities for the organization. As you can see on Slide 12, net debt was $391 million at the end of the year, which was down $42 million compared to the same time the year prior. Our net leverage ratio was 0.89x adjusted EBITDA compared to 1.12x at the end of 2024. And finally, our total liquidity was $648 million at the end of 2025, up from $642 million at the end of the prior year. I'll conclude by commenting how proud I am of the work our team has done to build the financial foundation that the company sits on today and look forward to seeing where Kevin, Charles and all my fellow contributors take Dorman into the future. To the analysts and investors that I've had the pleasure of working with over the past 7 years, thank you for all of your support and confidence in our team. With that, I'll turn it back to Kevin to cover guidance before we get into the Q&A. Kevin Olsen: Thanks, David. Let me dive into the guidance we are providing for 2026 on Slide 13. As we discussed in our Q2 and Q3 earnings calls, tariffs created timing nuances related to when price and costs took effect on our results. This created a tale of 2 halves in 2025, where the first half was on a typical price and inventory cost schedule and then pricing took effect in the second half without the associated higher cost inventory selling through. As we discussed today, this continued into the fourth quarter as we shipped out less inventory with the highest levels of tariffs. Therefore, we expect to see the higher cost inventory hit more in the first half of 2026 before normalizing later in the year. Starting with the top line. We expect total net sales growth to be in the range of 7% to 9% for the year and directionally the same range for each of the segments. This growth target reflects both a modest level of volume improvement over 2025, along with the impact of pricing. Two factors to keep in mind. First, we had a strong first half of 2025 from a volume perspective. Second, as we've covered in our last several calls, 2025 only saw increased tariff pricing begin to take effect in Q3. So the full year impact is a positive. Let me provide a bit of additional color around cadence for the year. From a margin perspective, we expect operating margin will reduce temporarily in the first quarter, but we expect our margin profile will meaningfully improve through the back half of the year. This is because of the FIFO lag on reduced costs from lower tariffs, along with our continued supplier diversification, productivity and automation initiatives driving more savings throughout the year. For the full year, we expect to deliver an operating margin in the range of 15% to 16% with a more normalized high teens rate as we exit 2026. As a reference point, if you look back to our performance in 2023, with the inflationary environment following the global pandemic, we had a similar situation where the business began the year with subdued margins and then finished the year strong. We're expecting a similar cadence with operating margins this year. Point is we've managed through inflationary cycles before, and we have the playbook to handle the timing nuances. Next, for 2026, we expect a full year tax rate of approximately 23.5%. This could vary from quarter-to-quarter as discrete items are recognized. Finally, for adjusted diluted earnings per share, we expect 2026 to be in the range of $8.10 to $8.50. Let me provide some additional context around this range. As David mentioned, we estimate that the additional tariffs that took effect in 2025 had an impact of $1.25 on our full year adjusted diluted EPS. Excluding this benefit, our adjusted diluted EPS would have been approximately $7.62 or a 7% increase over 2024. And our 2026 EPS guidance range represents a growth rate of 6% to 12% on a comparable basis. Again, this is purely an estimate, but we felt it was important to help outline the overall impact tariffs have had on the business. From a cadence perspective, we expect that EPS will see the toughest year-over-year comparison in the first quarter, with growth rates normalizing towards the end of the year. I'll mention that this is more color than we ordinarily provide. But given the complexities and nuances with the timing impacts of tariffs and price, we hope it might be helpful context as we think about 2026. All this said, we continue to live in an environment with significant uncertainty as it relates to tariffs and global trade dynamics. The recent IEEPA ruling by the Supreme Court last week and the new Section 122 global tariffs announced over the weekend have added additional complexity and uncertainty. For clarity, our guidance today reflects an assumption that future tariff levels will remain generally consistent with those that were in place prior to the IEEPA ruling, and therefore, we expect the overall impact to our business will likely be directionally the same. Additionally, our guidance does not reflect any potential IEEPA-based tariff refunds that may be issued or claimed in the future. Should any material changes to tariffs or trade disruptions significantly impact our business or alter our expectations, we may look to update our guidance. Just to finish up on Slide 14, I'd like to reiterate my congratulations to our entire team for delivering strong performance in 2025 and operationally executing exactly what we said we would do. While there are a number of moving parts in 2026, our guidance reflects our ability to navigate through the challenges tariffs have presented and deliver strong long-term growth for our shareholders. We'll continue driving innovation for our customers and end users, further improving our commercial and operational execution and strategically investing in opportunities where we can win in our respective markets. We value your partnership, and thank you for your support. Finally, I wanted to take a moment to thank and recognize David as this will be his last earnings call. Since joining the company in 2019, David has played an integral role in our success, helping lead through a global pandemic, supply chain disruptions and 2 rounds of tariffs. Now I understand why you're retiring. In all seriousness, David, your mark on Dorman will be felt for a long time. So thank you for your service, and we wish you all the best in retirement. With that, I would like to now open the call up for questions. Operator? Operator: [Operator Instructions] Our first question comes from Scott Stember from ROTH Capital. Scott Stember: David, congrats on your retirement, and it was great working with you. David Hession: Thanks, Scott. It's been a pleasure. I appreciate it. Scott Stember: So beyond the tariff noise within the guidance, I'm just trying to make sure I get a sense of how, I guess, the light-duty business is doing. It sounds like mid-single-digit POS growth. There was a lot of pricing in there as well. But I know you typically don't parse this out, but I'm just trying to get a sense of what volume looks like on a POS basis. Just trying to get a sense of how you guys are matching up with what the O'Reilly's and the AutoZone's are saying. Kevin Olsen: Yes, Scott. Yes, thanks for the question. Good question. Look, the light-duty business, the macros remain very strong. I mean the sweet spot of the vehicle, the 7- to 14-year-old vehicle continues to increase. Miles driven continue to be up. The age of the vehicle now is approaching 13 years. So overall, we see a very constructive environment as we go into 2026. As you said, our POS was up mid-single digit in the quarter, very similar to what we saw in the third quarter. So not a lot of change there. The one dynamic, obviously, that we pointed out in our prepared remarks was, obviously, sales were down a bit as it related to POS because of the one customer who changed their order patterns in the fourth quarter. But other than that, we remain real constructive on the aftermarket here as we move into 2026. Scott Stember: Got it. And your guidance for 7% to 9% growth for the year, very robust. Obviously, it sounds like there'll be some additional pricing actions coming through. But maybe talk about POS versus sell-in. Are we basically saying that you would expect that POS would be up in that mid- to high single-digit range for the year? Kevin Olsen: Yes. I mean we're assuming roughly mid-single-digit POS as we move through 2026. There is -- you mentioned new pricing. I'll just clarify that a little bit. It's more of a wrap of the pricing, a full year impact of the pricing that we already put in place in 2025. So there will be a bit of a favorable benefit to that. Outside of that, we'll see POS growth that will drive our sales growth on top of new product. So we had -- as we mentioned in our prepared remarks, we had a very robust year in 2025 from a new product standpoint. As a matter of fact, we had a record year for new product sales, which will carry over and we'll get a large bump from a full year impact of that. And we're anticipating another real strong year for new product sales as well. Operator: Our next question comes from Bret Jordan from Jefferies LLC. Bret Jordan: When we look at the inventory growth year-over-year, could you sort of parse out what of that is in tariff price, units versus cost in that inventory? Kevin Olsen: Yes, Bret, the largest proportion of inventory growth that you've seen really starting at midyear at Liberation Day is the higher tariff cost. There is some additional lift there just because volume was up, but also we did purchase ahead of the tariffs that temporarily lifted our inventory levels as well. But the largest component is increased cost from tariffs. Bret Jordan: Okay. And then I guess when you think about the customer base ex the advanced math, about the POS, the cadence through the quarter, and I guess maybe if you could give us any color on early '26. Are you seeing the underlying traction improving at the sort of end user demand? Kevin Olsen: Yes. So as we mentioned, Bret, POS was very similar in the fourth quarter that we saw in the third quarter. And as we rounded into 2026, January was essentially in line with what we saw in the fourth quarter, and we did see a modest uptick in February. As you know, March is a pretty key month for the aftermarket as we get ready for the spring selling season. So obviously, we're hoping that, that continues that progress that we saw in February. Operator: Our next question comes from Jeff Lick from Stephens Inc. Jeffrey Lick: David, best of luck. David Hession: Thanks, Jeff. Jeffrey Lick: So if you just look at the exit rate of sales. Light-duty flat, heavy-duty 5% and specialty 0. What gives you confidence? Your guidance of 7% to 9% assumes there's going to be quite an acceleration. I was wondering if maybe you could just give a little more granularity. And then am I right to interpret that you're still going to see some tariff benefit in Q1 and Q2? And then maybe if you could peel back. You also made a comment, Kevin, I think, to Scott's question about POS sales with the customer with the auto -- the order pattern change, were they actually down then? So maybe just kind of what gives you -- the 7% to 9% implies an acceleration. So maybe just a little more granularity. Kevin Olsen: Yes. Sure. So full year sales growth in 2025 was about 6%. What happened in the fourth quarter, Jeff, I'm glad you brought this up. We had one of our largest customers shift their order patterns in the fourth quarter as they're going through some supply chain and distribution center consolidation. If that -- if we saw order rates kind of continue like we did in the third quarter, we would have been well within the guidance that we issued to TheStreet. Just to give you a little context, orders were down from that customer nearly 40% from the third quarter. That's obviously not going to continue as we move through 2026. We see -- we're going to continue to see some disruption early this year, which we've seen that starting to normalize. And as we exit the first quarter, we should be back to more normal ordering patterns as it relates to POS. So if you kind of take that and you add that to the new product, which always will drive above-market growth for us, which it has historically. And then the pricing, the full year wrap of the pricing, we'll get a full year of that, whereas in 2025, that really didn't start taking effect until midway through the third quarter. You add those kind of together, we're pretty confident with the sales guide that we put out there. Jeffrey Lick: And then just as a follow-up on gross margin. So if I'm correct in recalling, you guys have use pricing increases to increase dollar for dollar as opposed to percentage. So naturally, you're going to recoup the gross profit dollar, but that implies your gross margin will be down with that kind of pricing strategy. So am I correct then that the bigger impact as these -- as the COGS catch up will be Q1 and Q2 and then I guess, margin would be down in Q3 and Q4, but just not as much. Is that fair? Kevin Olsen: Well, it's why we gave some additional clarification, Jeff, to the margin outlook, which we haven't done historically. So when you think about -- you are correct, when we did pass through tariff pricing, it was dollar for dollar, and that will have an impact on margin percentages, but not margin dollars, as you point out. We've guided to an operating margin percent of 15% to 16% for full year 2026 with exiting at a higher rate than that, high teens. Just for some context, back in 2024, before tariffs were implemented, our operating margin was 16%. So we believe as we work through this higher tariff inventory in the first half, we have visibility to kind of the cost in our -- that has built up in our inventory. On top of that, when -- after Liberation Day, we obviously went right to work on negotiating better prices from our suppliers, further diversifying our supply chain, going from higher tariff regions to lower tariff regions, working on productivity initiatives. All those savings essentially are baked into the inventory and will come through in the back half of the year. Remember, any time we either have a cost increase to an input cost or cost decrease, it usually takes about 7 to 8 months to work its way through our inventory because of FIFO accounting. And that's what's causing a lot of the confusion with our numbers. I also point out that if you step back and kind of take out the timing issues of 2025 and 2026, our implied guidance for 2026, 2-year growth rate will be about 15% compared to 2024, the 2-year stack. EPS growth will be about 16.5% over 2024. So again, if you kind of step back and take out all the timing noise, those are really the levels that we have historically driven, and we continue to believe that we can continue to drive those levels of growth going forward. Jeffrey Lick: That's awesome. Listen, I really appreciate the color and granularity and I'm sure everyone else does as well. Kevin Olsen: You got it. Operator: Our next question comes from Tristan Thomas-Martin from BMO Capital Markets. Tristan Thomas-Martin: A broader kind of question. You called out like complex electronics growth. How should we think about kind of like your content TAM on an EV versus an ICE vehicle? Kevin Olsen: Okay. So I'll start off -- good question, by the way, Tristan. I'll say that we're -- as we view ICE vehicles or pure plug-in electric vehicles, I guess that's what you're calling an EV or hybrid vehicles, we're drivetrain agnostic. So whatever the drivetrain is going to be, we have the capability to develop parts that fail for either of those drivetrains or systems. As we look at complex electronics, it continues to be a larger and larger portion of our portfolio, whether that be ICE, plug-in electric or hybrid. And so I -- and if we look at the product funnel, our new product opportunities looking out 3 years. Complex Electronics is the highest proportion of that funnel than it's ever been, which, as we've talked about before, we believe that is our competitive moat as we look around at competition around the aftermarket. So it's obviously -- we view it as a very favorable dynamic. And obviously, Complex Electronics carry a much higher ASP than a pure mechanical part. Tristan Thomas-Martin: Yes. And then just switching to specialty vehicles. I think you used the term rebound in your kind of slides and script. So how are you thinking about kind of new vehicle kind of end market sales in '26? Kevin Olsen: Yes, good question. We didn't -- I don't think we call the market rebound. I think what we said was new vehicle sales have rebounded a bit, which they have. Hopefully, that trend continues. And we see that inventory in the dealer channel has stabilized and we believe at healthy levels. So listen, we're not waiting or banking on a big market rebound. We're just working on the factors that we can control, continue to expand our footprint, particularly on the West Coast, which we've had a lot of success with, continue to drive new product development growth, particularly on the nondiscretionary repair side, which has been a big initiative of ours and taking market share. We're just -- and frankly, controlling our costs. The market will be the market. I can't control that. But we feel real confident in the actions that we've taken to continue to look to drive growth. When the market does return, I think we're going to be very well positioned. Tristan Thomas-Martin: Got it. David, enjoy the retirement. David Hession: Thank you, Tristan. Appreciate it. Operator: Our next question comes from David Lantz from Wells Fargo. David Lantz: David, congratulations again. David Hession: Thank you. I appreciate it. David Lantz: So light-duty order fluctuations are expected to continue in Q1, but I just wanted to make sure the message is that segment sales should still grow in the quarter and then accelerate through the year from there. And then within the 7% to 9% top line sales for the year, curious if you can parse out how you think your subsegment performance will shake out relative to each of the broader categories. Kevin Olsen: Yes. I mean -- David, I'll say that we didn't break out how much is going to be price and volume in the 7% to 9%. I think I've covered in general, why we're comfortable with the growth guidance that we put out there. Look, I mean, not a lot has changed. I mean we feel that we've got good growth opportunities in all 3 segments. Light-duty, new product development, as I said before, we had a record year in 2025. We think we're going to have another strong year in 2026. Ordering patterns from our large customer will come back into line. We see very solid growth in the LV business in 2026, and we got the pricing ramp that I mentioned earlier. You have some similar dynamics, frankly, in the other 2 segments. In heavy duty, I'll just kind of remind everyone that heavy duty is probably the least exposed to tariff. But we've seen a couple of good quarters of growth. We had 6% growth in the fourth quarter. Again, we're not calling a rebound in the market for sure. We're just going to focus on the things that we can control and continue to take market share and deal with any tariff pricing that we're exposed to in that market, too. So that will drive a little bit of the uptick. And same with specialty vehicle. I kind of covered that on Tristan's calls, but we continue to drive further market share gains as we expand in underserved regions in the country and continue to drive new product development growth, which we've been successful with. So that's what gives us the confidence to hit the guide that we put out there. David Lantz: Got it. That's helpful. And then on the balance sheet, it's really healthy. So curious if you can walk through how you're thinking about M&A in 2026 between potential tuck-in opportunities and geographic expansion and then balancing that with share repurchases. Kevin Olsen: Yes. Look, our capital deployment strategy really hasn't changed. I mean, first, we're going to look at debt levels. We've obviously paid down significant levels of debt since our previous large acquisition of SuperATV and our leverage ratios are very moderate levels right now. Second, we look to invest in organic growth, new product development. That obviously is our highest area of returns, and we're going to continue to invest there. And third, as you point out, we look to deploy capital for M&A. We have a lot of dry powder right now given our debt structure and our leverage and our -- frankly, our cash flow, which we really haven't talked about yet, but cash flow was much improved in the fourth quarter as compared to the third quarter. We generated about $76 million of free cash flow last year in 2025, well below what we would normally generate due to the tariffs. As you -- as we look at 2026 from a free cash flow standpoint, I think we'll be -- you can kind of look back to 2024, more normal levels of free cash flow. We generated close to $200 million. So I think we're expecting a more normalized free cash flow year as we move forward. And then if M&A opportunities don't present themselves, we look to return capital to shareholders. And historically, we've done that opportunistically through share repurchases and which we resumed here in the fourth quarter of 2025. So look, just in general, on the M&A front, I'd say that as we pointed out in our prepared remarks, 2025 was a real quiet year, I mean, for obvious reasons. I think with all the turmoil with tariffs, it was kind of tough for companies to get a good handle on what valuations should be. I think that's kind of getting behind us now. And so I think we'll see a much higher level of activity here in 2026. Operator: Our next question comes from Gary Prestopino from Barrington Research. Gary Prestopino: Kevin, you're doing real well with Complex Electronics, new products and all that. And at times, I think you've been a little bit reticent to talk about just the growth that's being contributed there by the new products. But if you could give us an idea on your top line, is it 50 basis points, 100 basis points, 200 basis points? It seems that is going to be, I think, a key driver of growth going forward. And then I have a follow-up on Complex Electronics. Kevin Olsen: Yes, Gary, I'd point you to -- look, historically, we have not broken out how -- for competitive reasons, and I think you hope you can understand that, the scale of our Complex Electronics portfolio we believe we have a competitive moat there, and we really like to protect that moat. And in terms of new product, I'll point you to -- we continue to launch thousands of SKUs. That will come out in the 10-K that will be issued on Friday, tomorrow. But you'll see a nice growth in SKUs. We continue to point out, we did highlight from a new product sales growth dollars was a record in 2025. And I think we continue to drive increased throughput. The amount of the funnel that we have, that's our forward-looking repair opportunity funnel continues, as we've talked about publicly, it's the highest that it's been historically. We feel real good. Look, Gary, you look back at our growth trajectory over the last 5, 6, 7 years, as we've said, we feel real comfortable that we can deliver outsized growth compared to market. The aftermarket has grown anywhere from 3% to 4% historically. We've delivered between 7% and 8% growth historically. We believe we can continue to do that. Gary Prestopino: Okay. That's fair. And then I just -- in the context of, and I think another question was raised about the TAM on complex electronics, but I think it was more or less directed towards the EV side. I mean, in general, what are you seeing as far as that TAM goes across all the vehicles in operation? I mean, are you seeing the need for a doubling of what you can provide to the market on a complex electronics side as cars get more technologically advanced? Kevin Olsen: Yes. I'm not going to -- yes, Gary, very good question, and it is related to the one I answered earlier. I would say that I'll reference back to what I mentioned earlier. As we look forward to repair opportunities, we have pretty good headlights as to what's failing in the marketplace. And when you look at that universe of opportunities, Complex Electronics continues to be a larger and larger proportion of that universe. And that's going to continue, right? I mean, if you look at the technology that's on vehicles coming off the line today, it's much different than it was 5 years ago, 10 years ago for sure. So those repair opportunities are going to continue to grow. I'm not going to really comment on the doubling, but I will tell you that one of our major focuses is how do we continue to increase our throughput there and how do we reduce our development time on Complex Electronics. And because we're going to see more and more electromechanical part opportunities in the future. Gary Prestopino: Okay. David, best of luck and hit them straight in your retirement. David Hession: Thanks, Gary. I appreciate it. I've enjoyed working with you. Gary Prestopino: All right. Have a good one. David Hession: Thanks. Operator: Our next question comes from Justin Ages from CJS Securities. Justin Ages: Congrats on the retirement, David. David Hession: Thanks. I appreciate it. Justin Ages: Question on heavy duty. It's been a couple of quarters now where you've highlighted some new business wins. So I just wanted to dig in a little bit what's driving those new business wins? And how should we think about -- is it coming as share gains? Or is it new products? Just want a little more color on that. Kevin Olsen: Yes. Great question, Justin. It's a combination of both, right? We did mention that we do have a bit of a lift in the fourth quarter from tariff pricing, but the majority of that gain is due to competitive wins. And that comes in the way of just share gain execution in the marketplace, but also new product development. As we've talked about before, one of the reasons why we really like the heavy-duty platform and Dayton products in particular, was that we could port over our new product development process and really drive outsized growth there. I think -- and that takes some time as we need to get that flywheel going, which we've been doing. So we're really comfortable in terms of our prospects of growth as we continue to build out our portfolio and our categories with above frame products. And so yes, it's why -- it's one of the major reasons why we really like the heavy-duty business, the opportunity to drive new product development growth. Justin Ages: Great. And then on margin, in '25, you highlighted outside of pricing increases, some productivity initiatives that helped margins expand. And you mentioned them into '26 as well. So I just wanted to get a little more color on what some of those productivity and automation initiatives are that you're looking towards. Kevin Olsen: Yes, sure. I mean there's a suite of things, Justin. Great question. I mean if you think about -- I mentioned earlier, obviously, we're -- first and foremost, as tariffs have come into the frame again, we're obviously looking to get the best acquisition cost that we can around the globe. So we're constantly in negotiation with our manufacturing partners around the world. Secondly, we have now built a global supply chain team that is very capable around the world in many different countries. We're able to look to optimal manufacturing locations that -- where we get the best value proposition overall, kind of cost, quality, price proposition. So we continue to do that. And lastly, as you mentioned, productivity in our -- kind of inside our 4 walls would be -- we made some significant investments in automating our DCs, which is a high cost for us. Those investments have been very successful. We continue to see great productivity being driven on the direct labor front. That will continue. We view that as early innings, frankly, in terms of where we are on the automation curve. So we'll continue to focus on that as we move forward. And then we're constantly looking to look to ways to increase productivity in all of our functions around the business. For instance, we drove outsized new product development growth and SKU growth this year without adding that commensurate level of resources. And that's process improvement, tools, better tools, better organizational structure. So we're going to continue to look to do things like that to drive productivity. Operator: Our next question comes from Bret Jordan from Jefferies LLC. Bret Jordan: Just a quick follow-up on Complex Electronics. You talked about the ASP being higher. Given the lack of aftermarket competitors in that space, is the gross margin substantially higher as well? Kevin Olsen: Yes. Good question, Bret. I think we've -- yes, we've talked about this previously. Look, certainly, it depends on the ASP. But in most cases, when we're just competing against the OE, that's going to be our highest level of gross margin percentage, just in general, whether it's a Complex Electronic or not. So obviously, we look to maximize margins where we have a high level of investment like we do in Complex Electronics, we're clearly looking to make sure that we make those commensurate returns as well. So yes, in a lot of cases, it's a high level of gross margin. Operator: That concludes the question-and-answer session, and this concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Welcome to Nuveen Churchill Direct Lending Corp.'s Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I'd now like to turn the call over to Robert Paun, Head of Investor Relations for NCDL. Robert, please go ahead. Robert Paun: Good morning, and welcome to Nuveen Churchill Direct Lending Corp.'s Fourth Quarter and Full Year 2025 Earnings Call. Today, I'm joined by NCDL's Chairman, President and CEO, Ken Kencel; and Chief Financial Officer and Treasurer, Shai Vichness. Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the company, our current and prospective portfolio investments, our industries, our beliefs and opinions and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-K and supplemental earnings presentation are available on the News and Investors sections of our website at ncdl.com. Now I would like to turn the call over to Ken. Kenneth Kencel: Thank you, Robert. Hello, everyone, and thank you all for joining us today. I'd like to start by discussing our results for the fourth quarter and full year, and then I'll provide some thoughts on the current market conditions, economic environment, portfolio positioning and our forward outlook for 2026. I'll then hand the call over to Shai for a more detailed discussion of our financial performance. Before getting into the results for NCDL, I think it's important to reflect on the past year. 2025 was littered with headlines, including a change in administration, tariffs, interest rate reductions, geopolitical tensions and a few large bankruptcies. Private credit also garnered significant media attention, largely, we believe, due to the meaningful growth of the industry over the past decade. All of these headlines led to temporary market fears and a pullback in BDC stock valuations. In our view, the disruption in the sector has created a compelling investment opportunity. We remind investors that direct lending has been around for several decades. It did not appear overnight. And the investments in our portfolio are primarily directly originated and negotiated loans. At Churchill, we remain intensely focused on generating attractive risk-adjusted returns. We believe we are uniquely positioned with our focus on the traditional core middle market and our distinct sourcing advantage. Our conservative underwriting strategy and long-term track record of nearly 20 years have produced strong returns for our investors and stakeholders over time. Overall, NCDL had a successful year in 2025. NCDL generated an ROE of nearly 11% on net investment income. We paid total distributions of $1.90 per share, equating to a 10.7% yield based on our year-end 2025 net asset value. We took an important step to optimize our balance sheet and capital structure by issuing $300 million of unsecured notes in the first quarter of 2025. And finally, NCDL's portfolio performed well as we ended the year with only four portfolio companies on non-accrual status, representing 0.5% of the total portfolio at fair value. Now turning to the results. Despite the noise in the market, we are pleased with NCDL's operating performance and the stability and quality of our investment portfolio. This morning, we reported net investment income of $0.44 per share during the fourth quarter compared to $0.43 per share in the third quarter. Gross originations totaled approximately $59 million in the quarter compared to $29 million in the third quarter. Additionally, the Churchill platform continued to see strong asset growth and new originations during the fourth quarter of 2025, as I will discuss a little later in my prepared remarks. NCDL's investment portfolio remains healthy and resilient, and our portfolio companies continue to perform well, largely due to the strength of our senior loan investments. Net asset value was $17.72 per share at year-end compared to $17.85 per share at September 30, 2025. The modest decline quarter-over-quarter was primarily due to a slight decrease in the fair value of certain underperforming portfolio companies. In terms of the current market environment, the broader U.S. economy proved more resilient in 2025 than originally expected. U.S. GDP increased at an annual rate of 1.4% in the fourth quarter and 2.2% for the full year, reflecting a strong, resilient economy. M&A activity also continued its positive momentum in the fourth quarter of last year, building on the rebound in the third quarter. We believe stabilizing market conditions and renewed private equity sponsor confidence in the macro environment contributed to increased transaction activity. In our view, the ingredients for continued improvement in M&A and LBO activity are still intact. Lower financing costs, improving buyer and seller alignment and pressure on sponsors to transact should create a more constructive environment for increased deal flow and investment activity in 2026. During the fourth quarter, the Federal Reserve continued its interest rate cut cycle with two 25 basis points cuts in October and December. This marked the third consecutive cut. As many expected, the Fed paused in January of this year as they held interest rates steady. However, markets continue to price in two more 25 basis point cuts in 2026. Despite the reduction in interest rates and the potential for further cuts, we continue to see an attractive risk return profile for private credit and direct lending, especially on a relative basis compared to other fixed income asset classes. And it also goes without saying that we will not compromise our conservative underwriting strategy by stretching for returns in a declining interest rate environment. Turning to our investment activity. During the fourth quarter, we continued to see an increase in transaction activity, particularly new deals for high-quality assets that are in resilient business sectors. At the Churchill platform level, the number of deals reviewed in the second half of the year increased 23% from the first half. And for the full year 2025, Churchill closed or committed $16.3 billion of investments across 389 transactions, driven by a record-setting first quarter and a resurgence of activity in the second half of the year. In NCDL, we continue to operate at the upper end of our target leverage range, and we remain focused on actively reinvesting cash received from repayments and sales into high-quality assets. We also continue to benefit from attractive opportunities and activity at the Churchill platform level, particularly in senior lending, which represents approximately 90% of the fair value of the overall portfolio. During the fourth quarter, investment fundings totaled $80 million and repayments and sales totaled approximately $84 million. We think it's important to remind everyone that at Churchill, we focus on the traditional core middle market, benefiting from our differentiated sourcing and long-term track record. We continue to target companies with $10 million to $100 million in EBITDA, which we believe helps insulate us from the more aggressive structures and loosening terms prevalent in the upper middle market and broadly syndicated loan space. We believe that risk-adjusted returns in this segment of the market remain among the most compelling in private credit, particularly for scaled, highly selective managers with deep private equity relationships. We see the core middle market as a durable opportunity to generate long-term value and enhanced portfolio diversification for our investors. Now turning to our investment portfolio and credit quality. The continued strength of our portfolio reflects healthy overall performance from our borrowers as well as the quality of deal flow we've experienced over the past several years. In addition, our rigorous underwriting, high selectivity and focus on diversification have been critical to minimizing losses and generating strong returns across multiple market cycles. That same discipline extends to today's shifting macro landscape. At December 31, 2025, our weighted average internal risk rating was 4.2, in line with the prior quarter and versus an original rating of 4.0 for all of our investments at the time of origination. Our internal watchlist remains at a manageable level. It's approximately 8% of fair value. Credit fundamentals within the NCDL portfolio remains strong with portfolio company total net leverage of 5x and interest coverage of 2.3x on traditional middle market first lien loans. These metrics are a direct result of conservative structuring and relatively low attachment points that we target when underwriting new transactions. NCDL added one new non-accrual during the fourth quarter with a cost of $5.7 million and fair value of $2.7 million at year-end. As of December 31, non-accruals represented just 0.5% of our total investment portfolio on a fair value basis and 1.2% on a cost basis. We believe these percentages continue to compare extremely well versus current BDC averages and the long-term historical BDC average. We continue to believe the strength of our platform, including our experienced workout and portfolio management teams will continue to drive favorable results. At year-end, we had 227 companies in our portfolio, and our top 10 portfolio companies represented approximately 13% of total fair value. This diversification remains a key focus of ours and is critical as we seek to maintain exceptional credit quality and originate additional attractive investment opportunities. We've achieved this diversification with a continued high level of selectivity, facilitated by the significant proprietary deal flow, our sourcing engine is able to generate from the breadth and depth of our PE relationships. Before I conclude my remarks, I'd like to take a moment to talk about our software exposure and investment strategy in this sector. Recent market concerns around AI's potential disruption of software businesses have raised a lot of questions around private credit portfolios software exposure. Churchill's platform does not have meaningful exposure to the types of software companies in the headlines, susceptible to displacement from AI and has limited exposure to software in general. NCDL's high-tech industry sector, where software businesses fall, accounts for only 4% of the total portfolio. Within this industry categorization, the exposure is largely weighted towards specialized managed service providers, systems integrators and cybersecurity consultants. NCDL's portfolio exposure to true Software-as-a-Service or SaaS businesses is around 2% of the total portfolio. Additionally, it is important to note that we have avoided annual recurring revenue or ARR loans, which have been common in the technology sector. The software platforms that we have invested in, these are cash flow generating mature businesses with high customer retention. These businesses are also typically modestly levered, ingrained within the operations of the customers they serve and non-discretionary. Churchill has been monitoring AI as a potential positive and negative catalyst across the portfolio long before these headlines emerged. We maintain an active dialogue with the senior management teams of all of our borrowers as well as the private equity firms that own them so that we have an informed and real-time view of this and any other risks our borrowers may face. As we look forward, there are many reasons to be excited about the future of our business and the tailwinds of the private credit market. We are encouraged by the steady growth in our pipeline and the quality of businesses seeking financing solutions. During the second half of 2025, we experienced a resurgence of M&A activity, leading to a buildup in our traditional middle market pipeline. Additionally, we believe corporate management teams are now more focused on long-term strategic initiatives and investing in their businesses for sustained growth. This, coupled with an interest rate cut cycle, will lead to increasing deal flow and financing opportunities in 2026 in our view. At the same time, we also acknowledge the impact on our earnings and the return profile of NCDL from recent interest rate cuts, projections for further cuts as well as the competitive market environment in which spreads have remained below 500 basis points on average. Given these market dynamics, we have declared a $0.40 per share quarterly distribution in the first quarter of 2026, which consists of a base distribution of $0.36 per share and a supplemental distribution of $0.04 per share. Our total first quarter distribution of $0.40 per share equates to an annualized yield of 9%, which we believe is competitive in today's market environment. Shai will discuss our distribution policy in more detail during his remarks. Finally, although 2025 was a challenging year for BDC's stock prices, we continue to believe our portfolio remains healthy and resilient, and we believe the current share price offers a compelling investment opportunity. As a result, today, we announced that the Board authorized a new $50 million share repurchase program. And now I'll turn the call over to Shai to discuss our financial results in more detail. Shaul Vichness: Thank you, Ken, and good morning, everyone. I will now review our fourth quarter financial results in more detail. As Ken outlined, NCDL reported net investment income of $0.44 per share for the fourth quarter compared to $0.43 per share in the third quarter of 2025. Total investment income declined slightly to $50 million compared to $51.1 million in the third quarter of 2025. This was primarily driven by the decline in portfolio yields as a result of underlying loan contracts resetting to lower base rates. At year-end, our gross debt-to-equity ratio was 1.27x compared to 1.25x at September 30, while our net debt-to-equity ratio, net of cash was 1.2x, in line with the end of the third quarter. In January, we paid our Q4 dividend of $0.45 per share. And as Ken mentioned earlier, for the first quarter of 2026, we have declared a $0.40 per share dividend which consists of a regular dividend of $0.36 per share and a supplemental dividend of $0.04 per share. Both distributions will be paid on April 28 to shareholders of record as of March 31. Consistent with our communication to the market on our dividend policy since we IPO-ed in January of 2024, we intend to operate with a supplemental dividend program that sees us paying out a portion of the excess earnings over and above our regular dividend. This should allow us to deliver the benefits of higher returns to shareholders when market returns are higher as well as provide stability to NAV while allowing us to reinvest earnings for growth. We have assessed various scenarios related to interest rates, asset spreads, financing costs and credit performance, and we've concluded that a regular quarterly distribution of $0.36 per share is an appropriate level that we feel our earnings will comfortably cover for the medium to long term. On an annualized basis, our first quarter 2026 total dividend of $0.40 per share equates to an approximately 9% yield on our December 31, 2025, NAV. Our total GAAP net income for the fourth quarter was $0.32 per share compared to $0.38 per share in the third quarter of this year. Our fourth quarter net income included $0.12 per share of net realized and unrealized losses primarily due to a decrease in the fair value of certain underperforming portfolio companies. Our net asset value was $17.72 per share at the end of the fourth quarter compared to $17.85 per share at September 30. At year-end, NCDL's investment portfolio had a fair value of $2 billion, consistent with the third quarter. Gross originations totaled $59.4 million and gross investment fundings totaled $80.4 million, compared to $29.2 million and $36.3 million of gross origination and gross investment fundings, respectively, in the third quarter of 2025. During the fourth quarter, repayments sold $84.3 million a rate of approximately 4%, slightly lower than our long-range assumption of 5% per quarter, but also slightly up from the prior quarter of roughly 3%. We had full repayments on six deals totaling $73 million and partial repayments for another $9 million. As we mentioned on our prior call, we expect to continue to redeploy capital received from repayments with a view towards maintaining leverage at the upper end of our target range. We also remain focused on redeploying capital into traditional middle market transactions across the capital structure with the vast majority of new investments into senior loans. At December 31, 2025, our total investment portfolio consisted of 227 names compared to 213 names at the end of the third quarter. We continue to remain highly focused on diversification within our portfolio with the top 10 portfolio companies representing only 13.1% of the fair value of the portfolio down from 13.6% at September 30. Our largest exposure is only 1.6% of the total portfolio, and our average position size is 0.4%, down from 0.5% in the prior quarter. As far as deployment and asset selection goes, our new originations during the fourth quarter were again weighted towards senior loans with $47.5 million out of the $59.4 million of gross originations deployed into this strategy. The balance was deployed into subordinated debt and equity in the fourth quarter. We strongly believe that our focus on the traditional middle market segment will benefit NCDL shareholders over the long term as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market as compared to the upper middle and BSL markets. Spreads on new investments in the fourth quarter were consistent with the prior quarter with the average spread on first lien loans at approximately 470 basis points. Our weighted average yield on debt and income-producing investments at cost declined to 9.5% at the end of the quarter compared to 9.9% as of the end of the third quarter. This decrease in yield was primarily due to lower base interest rates. As far as portfolio allocation, at year-end, first lien loans represented approximately 90% of the total portfolio, while junior debt and equity comprised approximately 8% and 2%, respectively. Our allocation strategy remains unchanged as we continue to target a portfolio comprised of roughly 90% senior loans with the balance allocated to junior debt and equity. Turning to credit quality. And as Ken mentioned earlier, we continue to be very pleased with the overall health and strength of our investment portfolio as the performance of our portfolio companies remain strong. During the quarter, we placed one investment on non-accrual status. And at year-end, NCDL had only four names on non-accrual, representing just 0.5% on a fair value basis and 1.2% at cost. This compares to 0.4% on a fair value basis and 0.9% at cost at the end of the third quarter. At December 31, our weighted average internal risk rating was 4.2%, consistent with the prior quarter and our watchlist consisting of names with internal risk ratings of 6 or worse remains at a relatively low level of 8% at the end of the fourth quarter, slightly up from the 7.3% in the prior quarter. And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage across the portfolio of 5x and interest coverage of 2.3x as of the end of the quarter. With respect to our debt capitalization. Our debt-to-equity ratio at December 31 was relatively unchanged quarter-over-quarter at 1.27x compared to 1.25x since September 30. On a net basis, our debt-to-equity ratio was 1.2x at December 31, net of our cash position at quarter end. As we spoke about on prior calls, our goal is to redeploy capital received from repayments and maintain leverage towards the upper end of our target range of 1x to 1.25x debt-to-equity. Our focus for the near term is on optimizing the asset mix within the portfolio and actively reinvesting cash received from repayments and sales into high-quality assets. Subsequent to quarter end, in February of this year, we closed the refinancing of the NCDL CLO-II transaction, reducing borrowing costs from SOFR plus 250 basis points to SOFR plus 144. In addition, we were able to secure a 5-year reinvestment period. Pro forma for this transaction, NCDL's weighted average cost of debt declined by 17 basis points to SOFR plus 186. This strong capital markets execution reflects the reputation that NCDL and Churchill have in the debt capital markets and represents a meaningful improvement in borrowing costs for NCDL. We will continue to look for ways to optimize the debt capital structure of NCDL going forward. Finally, as Ken highlighted earlier, our Board has authorized a new $50 million share repurchase program, which is designed to take advantage of discounts in the trading price of our shares relative to NAV. This move reflects our confidence in the overall strength of our portfolio and our cycle-tested investment approach. I'll now turn it back to Ken for closing remarks. Kenneth Kencel: Thank you, Shai. In summary, while the stock performance of NCDL and the entire BDC industry was underwhelming in 2025 to say the least, we believe NCDL had a successful year from an operational and financial standpoint. We also believe NCDL is well positioned for 2026 with an experienced investment team and our ability to originate high-quality investments in the context of a diversified portfolio and strong capital structure. I would like to thank our entire team for their hard work and dedication during this past year. Thank you all for joining us today and for your interest in NCDL. I will now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question is from Douglas Harter with UBS. Douglas Harter: Can you -- with your commentary that you look to stay at the upper end of the leverage target, can you talk about how you would weigh share repurchase versus making new loans and kind of just a little bit on the thought process there? Shaul Vichness: Yes. Doug, it's Shai. Yes, look, I mean, I think it's the classic sort of capital allocation thought process that we will go through, sort of evaluating the level of the discount and reinvesting in our portfolio that we've obviously conveyed confidence in the health of that portfolio and our ability to buy it at a meaningful discount, obviously, is an attractive opportunity. At the same time, we're also continuing to see attractive investment opportunities in the market. So I think it will be a question of sort of analyzing those two. As we have done in the past with our share repurchase programs, they are essentially programmatic, so designed to take advantage of discounts in the trading price and sort of operating independently. So we'll keep an eye on that activity and do all of that with a view towards maintaining leverage within our target range of 1x to 1.25x and as we've stated, sort of operating towards the upper end of the range given our confidence in the portfolio, the diversification and our ability to run that level of leverage against the type of portfolio that we have. So hopefully, that helps. Operator: [Operator Instructions] Our next question is from Arren Cyganovich with Truist Securities. Arren Cyganovich: The investment activity was really strong in 2025. Maybe you could share your thoughts on what the recent public market volatility has -- how that may have shaped your outlook for activity in 2026? Should we kind of expect it again to be a little bit more back-end weighted given the kind of near-term volatility we're seeing? Kenneth Kencel: Yes. Thanks, Arren. It's Ken. I'd say a few things. One is, as I think we pointed out, across the platform, we had an extraordinarily busy year and actually quarter-over-quarter going into third quarter, fourth quarter and now even into the first quarter, deal activity has been extraordinarily busy and that really hasn't slowed. We entered the year with probably our largest pipeline overall as a firm in January. And we continue to see a very, very significant level of activity and obviously, in the core middle market. That said, I think that some of the dynamics in the public markets probably does shift some of the pricing power back to us. So on a marginal basis, I think it does put lenders like ourselves in a better position to get better structures and potentially even tighter covenants. And certainly, some of the spread tightening we saw developed earlier in 2025 has really subsided. Spreads have, in our view, stabilized around that kind of 450 to 475 level. So we think they've reached a floor. We certainly don't see any material tightening as we go through the first half of 2026. But I do think interest rates overall, as they come down, will continue to drive and unlock sponsor activity, sales of companies, M&A that obviously is a big driver of our efforts. So I would say the broader trend remains very, very good both with respect to deal activity and spreads. A little bit of volatility in the public markets has generally worked in favor of us as a mid-market lender. But overall, the trends have been very good, and we haven't seen any change in that in more recent activity. Arren Cyganovich: And I appreciate the commentary on software. Clearly, you have a very small exposure to there, much smaller than a lot of the peers in the BDCs. Maybe you could share a little bit of why you've avoided that historically and why that's not an area because, obviously, it was a very kind of steady earnings business or industry for a long time. Kenneth Kencel: Sure. So look, I think when you think of us in our underwriting approach from a credit perspective, we are very traditional, right? So we are looking at fundamental cash flow metrics, free cash flows of the business, both gross and net cash flow. We're looking at the fundamentals of the company with respect to the stability of those businesses and the ability to service the leverage profile that we're underwriting. So that traditional approach leads us to a number of conclusions. One is that we have never, in our history, in our 20-year history, ever done an ARR loan. And from our perspective, that's just not -- financing recurring revenue is not, in our view, an appropriate risk profile for our platform. We finance recurring cash flow, right? And so, if you look at the types of businesses that has led us to within the software area, it's been principally specialized managed service providers, systems integrators, cybersecurity consultants, businesses that are more traditional and away from Software-as-a-Service or SaaS businesses, which represent, as I mentioned, only about 2% of our portfolio. So when you think about the fundamentals, cash flow-generating businesses, mature businesses, where we are financing and obviously looking at things like customer retention, these are businesses are typically modestly levered, ingrained within the operations of the customers they serve and generally non-discretionary. So it really comes down to the fundamentals of our underwriting approach. But the reality is, not only are we not an ARR lender, we're also generally not looking at those very, very highly levered are deals that are being done in the upper middle market and the broadly syndicated market. So I think this is yet another situation where our focus on the fundamentals on the core middle market against the backdrop of some of the -- backdrop of some of the noise in the market actually shows very well for us. Operator: [Operator Instructions] There are no further questions at this time. I'd like to hand the floor back over to Ken Kencel for any closing comments. Kenneth Kencel: Great. Well, thank you very much, and thank you all for joining us today. We appreciate your support and look forward to moving forward with hopefully continued great performance and feedback to you all as we continue in the business. Thank you. Operator: This concludes today's conference call. You may disconnect your lines at this time. Thank you again for your participation.
Operator: Hello, everyone. Thank you for joining us, and welcome to the DXP Enterprises Fourth Quarter 2025 Earnings Release. [Operator Instructions] I will now hand the call over to David Little, CEO. Please go ahead. Kent Yee: Well, thank you, Jade. This is actually Kent Yee. I'll jump in here and have a small disclaimer in front of the call, and then I'll turn it over to David Little, our CEO and Chairman. This is Kent Yee, and welcome to DXP's Q4 2025 Conference Call to discuss our results for the Fourth Quarter and Fiscal Year Ending December 31, 2025. As I mentioned, joining me today is our Chairman and CEO, David Little. Before we get started, I want to remind you that today's call is being webcast and recorded and includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. DXP assumes no obligation to update that information as a result of new information or future events. During this call, we may refer both GAAP and non-GAAP financial measures. Reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to David Little, our Chairman and CEO, to provide his thoughts and a summary of our fourth quarter and fiscal 2025 performance and financial results. David? David Little: Thanks, Kent, and thank you to everyone who is joining us today for DXP's Fourth Quarter and Fiscal 2025 Earnings Call. I am pleased to report that 2025 was an exciting year for DXP with strong performance across all our key financial metrics, including sales, sales per business day, gross profit margins and adjusted EBITDA margins. These results reflect the continued strength of our DXPeople, products and operating model and our ability to serve customers across a broad and diverse set of end markets. On behalf of more than 3,286 DXPeople you can trust, I want to thank our customers, suppliers and shareholders for their continued trust and support. Fiscal 2025 was a year of execution, and our results demonstrated the benefits of diversification, scale and disciplined capital allocation. For 2025, DXP sales grew 11.9% to $2 billion, while gross profit margins expanded 67 basis points to 31.5%. Adjusted EBITDA reached $22.3 million -- $225.3 million with an 11.2% margin. This was a record year for both sales and adjusted EBITDA margins, and it marked an important milestone as we continue to scale the business. Operating income increased 21.7% year-over-year to $176.9 million. And diluted earnings per share improved to $5.37, up from $4.22 in fiscal 2024. Sales per business day continued to improve throughout the year, averaging $7.57 million in the first quarter and increasing to $8.51 million by the fourth quarter and fiscal year 2025 average sales per business day of $8 million as compared to $7.1 million in fiscal year 2024. These results reflect solid organic growth and contributions from accretive acquisitions, all while maintaining a focus on operating efficiencies. A core component of our strategy continues to be diversification of end market exposure while building scale in markets where we have a strong competitive position. At the physical -- at our fiscal 2025, energy represented 22% of DXP sales, followed by water and wastewater at 15%, general industry at 15%, chemical at 10%, and food and beverage at 7%. This diversification has meaningfully reduced our cyclicality and helped drive more consistent performance over the last several years. We are encouraged by the interplay of these markets as we move into fiscal '26. Note that over the last few years, energy market has been flat and our other markets like water and wastewater have grown substantially. We continue to pursue growth markets and battle increased market share on our other markets. Thank you, DXP sales and operation professionals for teaming up together and winning for our customers and stakeholders. Thank you to our corporate support team for their efforts to support both our internal and external customers. Thank you, DXP, for an awesome year. During the year, we continued to execute on our capital allocation priorities. We completed 6 acquisitions, including Arroyo, McBride, Moores Pump, APSCO, Triangle Pump and Pump Solutions, all of which strengthened our capabilities and expanded our reach. We also continue to execute on our share repurchase program, returning $17 million in capital to shareholders, and we refinanced our debt in the fourth quarter, improving flexibility and positioning DXP for both growth and acquisition growth and organic growth and acquisition growth in 2026. From a segment perspective, Innovative Pumping Solutions led the way, growing 26.4% year-over-year to $390.3 million. Growth was driven by strength in energy, water-related project activity, along with contributions from recent acquisitions. In terms of IPS, our Innovative Pumping Solutions, it bears repeating that we have 2 broad businesses tied to capital budgets or what we refer to as project work, DXP's heritage energy-related project work and DX Water. Within IPS, DXP's Water represented 55% of the segment sales in 2025, up from 46% last year. As we have grown this platform, we have seen improvements in both gross and operating income margins. The DXP Water backlog continues to grow organically and through acquisitions, including Triangle, APSCO and Pump Solutions. Energy-related bookings and backlog remain at an all-time at our long-term average, although they have pulled back in Q3 and Q4, and we look to Q1 to see if we have any trends emerging. As we move to 2026, we feel good about how this backlog translates into revenue given the large projects that we are still in the process of completion. But we look to this quarter of 2026 to see if we get new bookings. Service Centers delivered 11% total sales growth, including 9.8% organic growth, driven by the diversity of end markets and our multiple product MRO-focused operating model. A few growth initiatives that are helping DXP growth percentages include technical products like automation, vacuum pumps, new pump brands for water and industrial markets, process equipment and filtration. New markets like data centers, need pumps, water, power, cooling, filtration, which DXP has continued to add and expand. We have added an e-commerce channel for the generation that wants to buy pumps and parts electronically, which had a record year for DXP in 2025. Growth was broad-based geographically, but regions with experienced notable sales growth year-over-year included Ohio River Valley, Southeast, Texas Gulf Coast and California. We also had continued strength year-over-year in air compressors, U.S. Safety Services and metalworking. Supply Chain Services experienced a modest decline year-over-year, primarily due to customer facility closures and reduced activity at certain energy-related sites. That said, SCS continues to invest in its customer care model and remote technologies, allowing us to expand service offering to customers with some smaller sites while improving efficiencies. We believe demand for SCS services is increasing and these capabilities gain traction, we will look for sales growth in 2026. From a margin, cash flow and financial position standpoint, DXP's overall gross profit margins for the year were 31.5% or a 67 basis point improvement over 2024. IPS delivered the largest year-over-year expansion with 166 basis point improvement, followed by Supply Chain Services with 121 basis points and lastly, Service Centers with a 59 basis point improvement as compared to 2024. These gains reflect a combination of mix, pricing and execution as well as the impact of accretive acquisitions. In terms of cash flow, we generated $94.3 million in cash from operating activities, which translated into $54 million of free cash flow during fiscal 2025. This reflects our focus on generating cash while continuing to invest in working capital and growth capital expenditures to support DXP. Our balance sheet remains strong, providing flexibility to continue executing on acquisitions and returning capital to stakeholders -- shareholders. As we move into fiscal 2026, our focus remains on maintaining margin discipline while driving organic growth, executing on strategic acquisitions and improving operational efficiency as we scale. We continue to see constructive demand across energy, water and industrial markets, and we remain mindful of inflation dynamics and supply chains variability. Since 2022, DXP has grown sales at a 15% compounded annual growth rate, and we believe our strategies and our operating model positions us well to continue this trajectory over the long term. In closing, I want to thank our DXPeople for their passion, teamwork and commitment. Their efforts continue to differentiate DXP and create value for our customers and stakeholders. With that, I will now turn it to Kent to review the financial model in more detail. Kent Yee: Thank you, David, and thank you to everyone for joining us for our review of our fourth quarter and fiscal year 2025 financial results. Fiscal year 2025 was another record year for DXP, reaching new highs in sales, gross profit margins and adjusted EBITDA. It is also our first year of sustained 11% plus adjusted EBITDA margins and our third fiscal year of 10% plus adjusted EBITDA margins. We are excited to report this year's financial results. Additionally, with the consistent upward movement in our stock price and growth in our market capitalization, we are now an SEC large accelerated filer, and we are excited to report fiscal 2025 financial results under a quicker time frame. Thank you to everyone who made this happen. Turning to our financial results. Fiscal year 2025 financial performance reflects our ability to drive the following: strong sales growth within IPS, along with an accelerating contribution from DXP Water, record Service Center performance marked by continued growth in sales from Q1 through Q4 and gross margin strength and stability, consistent consolidated gross margin performance with 2025 gross margins up 67 basis points year-over-year, consistent operating leverage leading to sustained adjusted EBITDA margins, more notably, our first fiscal year of 11% plus adjusted EBITDA margins, continued execution of our acquisition strategy, completing 6 acquisitions contributing $96 million in sales in 2025, the successful refinancing and repricing of our Term Loan B, including raising an incremental $205 million in capital and reducing interest costs by 50 basis points and continued capital return to shareholders through our share repurchase program, a great year. Total sales for the fourth quarter increased 11.9% year-over-year to a record $527.4 million. This reflects an improvement in average sales per business day increasing from $8.03 million per day in Q3 with 64 business days to $8.51 million sales per business day in Q4 with 62 business days. Acquisitions that have been with DXP for less than a year contributed $21.9 million in sales during the fourth quarter. Total sales for DXP for fiscal 2025 were $2.0 billion, increasing 11.9% compared to fiscal 2024. For the full year, acquisitions contributed $96 million in sales. Average daily sales for fiscal 2025 were $8 million per day versus $7.13 million per day in fiscal 2024, a 12.3% increase. Adjusting for acquisitions, average daily organic sales were $7.6 million per day for fiscal 2025 compared to $6.7 million per day in fiscal 2024. That said, the average daily sales trends during fiscal 2025 improved from $7.6 million per day in Q1 to $8.5 million per day in Q4 or an increase of 12.5%. In terms of our business segments, Innovative Pumping Solutions sales grew 26.4% in fiscal year 2025 versus 2024, followed by Service Center sales growing 11% year-over-year and Supply Chain Services sales declining 1.4% year-over-year. In terms of Innovative Pumping Solutions, we continue to experience strong backlogs in both our energy and water and wastewater business. On a comparative year-over-year basis, our average energy-related backlog finished the year up 36.9% compared to 2024. That said, our Q4 energy-related average backlog declined another 9.3% from Q3. This is the second quarter of decline in the energy-related backlog, but the backlog continues to be ahead of all our averages. Additionally, January grew 5.3% over December. As David mentioned and as we have been discussing on previous earnings calls, we have booked a few large projects in both energy and water that we have recognized some revenue in 2025 and will continue into 2026. Now we will be looking to see what happens to our Q1 2026 average energy backlog. The conclusion continues to remain that we are trending meaningfully above all notable sales levels based upon where our backlog stands today. We also see strength in our IPS Water backlog as it continues to grow due to a combination of organic and acquisition additions. In terms of our Service Centers, our Service Center performance reflects our internal growth initiatives, along with our diversified and evolving end market dynamics. On a comparative basis, fiscal year 2025 is now our strongest year with $1.4 billion in sales and sets a new sales high watermark. Regions within our Service Center business segment, which experienced year-over-year sales growth include the Ohio River Valley, Southeast, Texas Gulf Coast and California. From a product perspective, we also experienced strength in our air compressors, metalworking and U.S. Safety Services divisions. Supply Chain Services sales performance reflects a 1.4% decrease year-over-year. Supply Chain Services sales performance reflects pullback in activity at oil and gas and our diversified chemical customer sites. Overall, we experienced reduced spend from existing customers while continuing to drive efficiencies and streamline purchasing that we bring to our customers. As expected, Q4 was impacted by seasonality with there being fewer billing days as SCS customers have facility closures and holiday hours. However, interest in demand for SCS services is increasing because of the proven technology and efficiencies they perform for all their industrial customers, and we expect a stronger 2026 as we onboard new customers. Turning to our gross margins. DXP's total gross margins were 31.54%, a 67 basis point improvement over fiscal 2024. This improvement is attributed to strength in gross profit margins across all 3 business segments with Innovative Pumping Solutions showing 166 basis point improvement from last year and Supply Chain Services improving 121 basis points. Additionally, the contribution from accretive acquisitions at higher overall relative gross margin versus our base DXP business helped drive consistent gross margins within consolidated DXP. Acquisitions continue to be accretive to both gross and operating margins. That said, from a segment mix sales contribution, Service Centers contributed 68%, Innovative Pumping Solutions, 19% and Supply Chain Services was 13%. This sales mix positively impacts our gross margins as we see an uptick in contribution from IPS compared to fiscal 2024. In terms of operating income, all 3 business segments combined increased 40 basis points in year-over-year business segment operating income margins or $38 million versus fiscal 2024. Service Centers, IPS and Supply Chain Services each had 14.54%, 18% and 8.7% operating income margins, respectively. The consistency in Innovative Pumping Solutions reflects the impact of our water and wastewater acquisitions at a higher relative operating income margin and a growing percentage of revenue or sales mix. DXP Water has gone from 22% of sales of IPS in 2023 to over 55% of IPS at the end of 2025. Total DXP operating income was $176.9 million or 8.8% of sales for fiscal 2025 versus $145 million and 8.1% of sales in fiscal 2024. Our SG&A for fiscal 2025 increased $48.2 million to $459.1 million. The increase reflects the growth in the business, the addition of acquisitions as well as incentive compensation and DXP investing in its people through merit and pay raises. Additionally, this also reflects an increase in our insurance premiums, continued investment in technology and our facilities as well as acquisition costs and growth initiatives. SG&A as a percentage of sales decreased slightly or 3 basis points year-over-year to 22.8% of sales. We still anticipate that DXP will benefit from the leverage inherent in the business despite increased operating dollars supporting our growth and the impact of acquisitions. Turning to EBITDA. Fiscal 2025 adjusted EBITDA was $225.3 million. Adjusted EBITDA margins were 11.2%. This is our third fiscal year with adjusted EBITDA margins in excess of 10% and our first year with adjusted EBITDA margins in excess of 11% for all 4 quarters. We will look to continue to expand margins in 2026 as recent acquisitions should enhance our margins and internal initiatives focused on efficiency extract operating leverage. In fiscal 2025, this translated into 1.5x operating leverage. In terms of our EPS, our net income for fiscal 2025 was $88.68 million. Our earnings per diluted share for fiscal 2025 was $5.37 per share versus $4.22 per share last year. Adjusting for onetime items, adjusted earnings per diluted share for fiscal 2025 was $5.42 per share. Turning to the balance sheet and cash flow. In terms of working capital, our working capital increased $70.7 million for December -- from December, excuse me, of 2024 and decreased $2.9 million from September of this year to $361.7 million. As a percentage of fiscal year 2025 sales, this amounted to 17.9%. This is an uptick from fiscal year-end 2024 and reflects the impact of acquisitions, business mix and an increase in DXP's capital project work. As we move into fiscal 2026, we will continue to grow into the working capital as a percentage of sales, specifically the impact from recent acquisitions. That said, we do anticipate further acquisitions, which could cause a move upwards, albeit we are focused on managing working capital as efficiently as possible as we scale and grow. In terms of cash, we had $303.8 million in cash on the balance sheet as of December 31. This is an increase of $155.5 million compared to Q4 of 2024 and $180 million since September. This reflects the refinancing of our existing Term Loan B in the fourth quarter and the strong cash flow generation we experienced during the fourth quarter, which we will touch upon later in my comments. As it pertains to our Term Loan B, similar to last year, during the fourth quarter, we announced that we refinanced and repriced our Term Loan B, maintaining our maturity of October 2030. We successfully repriced the Term Loan B, reducing our borrowing cost by 50 basis points to SOFR plus 325 versus SOFR plus 375 while also raising an incremental $205 million in capital to support our acquisition and investments program over the next 9 to 12 months. Over the last 2 years, we have successfully reduced our borrowing cost by over 150 basis points while raising an incremental $310 million in capital, and we have deployed $218.3 million for acquisitions through 2025. We look forward to an exciting acquisition year and the continued scaling of DXP. In terms of CapEx, CapEx for fiscal 2025 was $40.3 million versus $25.1 million in fiscal 2024. This increase reflects investing in some of our facilities and equipment, software and related investments to drive improvement and efficiencies on behalf of our employees. That said, a majority of our CapEx is growth-oriented and controllable, and we have the ability to pivot if and when necessary. As we move forward, we will continue to invest in the business as we focus on growth. As mentioned during the second quarter, over the short to medium term or the next 1 to 2 quarters, we should see CapEx lessen, and we will look for it to be less overall in 2026. Turning to free cash flow. We generated solid operating cash flow during the fourth quarter as we did during the second and third quarter. During Q4 and for fiscal 2025, we had cash flow from operations of $42.6 million and $94.3 million, respectively. For fiscal 2025, this translated into $54 million in free cash flow. This does reflect the improvements in profitability along with elevated CapEx, which is primarily growth oriented, and we expect to taper again in fiscal 2026. Additionally, we continue to focus on tightly managing our capital projects, which we see as an opportunity to further generate and optimize cash flow. We have highlighted this in the past as recurring investments in inventory, product and costs in excess of billings. That said, we continue to focus on tightly managing this aspect of our business from a cash flow perspective and look to align billings with the investments and we look to make further strides here in 2026. Return on invested capital, or ROIC for fiscal 2025 was 39.2% and continues to be measurably above our cost of capital and reflects the improvements in EBITDA and operating leverage inherent within the business. Additionally, it also points to our recent acquisitions performance and their positive contribution and accretive impact to both gross profit and EBITDA. As of December 31, our fixed charge coverage ratio was 2.1:1 and our secured leverage ratio was 2.3:1 with a covenant EBITDA for the last 12 months of $241.1 million. Total debt outstanding on December 31 was $846.8 million. In terms of liquidity, as of December 31, we were undrawn on our ABL with $31.5 million in letters of credit with $153.5 million of availability and liquidity of $457.3 million, including $303.8 million in cash, which a portion of has been used to purchase Mid-Atlantic, PREMIERflow and Ambiente, which we've closed subsequent to fiscal year-end. We are excited to have all 3 recent acquisitions as a part of DXP, and they will start reporting with us for the first quarter of 2026. All of you, welcome to DXP. DXP's acquisition pipeline continues to grow and the market continues to present compelling opportunities. Looking forward, we expect this to continue through fiscal 2026, and we look forward to closing a minimum of 1 to 3 additional acquisitions by the middle of the year. We remain comfortable with our -- with our ability to execute on our pipeline and valuations continue to remain reasonable. In terms of capital allocation, we repurchased or returned $17 million to shareholders via our share repurchase program in fiscal 2025 or a total of 182,000 shares of DXP stock. In summary, we continue to remain excited about the future of building the next chapter and evolution of DXP. We will keep our eyes focused on those things we can control and what is ahead of us. With that, I will now turn the call over for questions. Operator: [Operator Instructions] Your first question comes from Zach Marriott of Stephens. Zachary Marriott: Is there any color you can share on the daily sales trends by month for both Q4 and Q1 thus far, please? Kent Yee: Zach, great to hear from you. Absolutely. We'll walk through Q4. And then given the fact that we filed earlier this year and being a large accelerated filer, we just really have January, but we'll give some color there. Starting in October, $7.5 million per day; November, $8.2 million per day; December, $9.8 million per day for a quarterly average of $8.5 million per day. January was $6.9 million per day. To give you context, that's up year-over-year 2%, if you will. January also typically is, if not the lowest month in the year, typically is always typically our slowest month in the year. So that's what we have at this point in time and feel good with how February is shaping up. Zachary Marriott: Understood. And then is there anything that should drive a meaningful margin difference, whether up or down when comparing 4Q with 1Q? Kent Yee: You mean on a go-forward basis. We don't necessarily specifically provide any guidance, Zach. But once again, to the comments we made during our script, water continues to be accretive to both gross and operating income margins. And in Q4, obviously, this year, a little bit different than last year, we closed 3 acquisitions: APSCO, Triangle and Pump Solutions. So if they perform what we saw from a due diligence standpoint, that should be accretive to our margins here in Q1. Operator: There are no further questions at this time. This concludes today's call. Thank you so much for attending. David Little: Wait a minute. I'd give Zach more time if he needs it. Operator: Absolutely. One moment please. Zachary Marriott: Sure. I got one more. Just looking for some color on the positive dynamics that you guys called out developing in energy in the second half of this year. Would this be conversion backlog or something else? Kent Yee: I'll let David comment on the overall tone, but just in terms of from a backlog perspective, Zach, what our comments were is in transparency, we did see another decline in Q4. That said, the tone in our business planning was everybody was quoting jobs and there was a fair amount of quote activity. And so the early expectation, the way I put it is for 2026 from an energy perspective potentially to be more back-end weighted. But I'll let David comment and see if he has anything. David Little: Yes. From our operating perspective, we're just seeing a lot of quoting activity. So we go back to the third quarter and fourth quarter, and so our bookings seem to be light. So we followed up with what our quoting activity and what about the projects in the future and et cetera. And so I think in general, people felt like that people had things on hold a bit and maybe that was political, maybe it wasn't. I'm not sure. But they just felt like that things would start being turned loose sort of at the beginning of the year. And then, of course, that affects sales towards the end of the year. Anything else, Zach? Zachary Marriott: No, sir. Operator: Okay. At this time, there are no further questions. I will now turn the call back to David Little for closing remarks. David Little: Yes. My remarks basically to all the stakeholders and DXPeople. Just -- we had an awesome year. We feel like that between organic and inorganic growth that we're going to have another good year. And so thanks for that. Thanks for all the hard work on trying to drive whether that's new computer systems or new sales processes, et cetera. I know we work to improve continuously. And even though our SG&A only modestly improved, it did improve. So I'm happy about that. And -- but anyway, thanks for a great year, and we look forward to next year. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Fourth Quarter 2025 Results Conference Call and Webcast for Canadian Utilities Limited. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Colin Jackson, Senior Vice President, Financial Operations. Please go ahead, Mr. Jackson. Colin Jackson: Thank you, and good morning, everyone. We are pleased you could join us for Canadian Utilities Fourth Quarter 2025 Conference Call. On the line today, we have Bob Myles, Chief Executive Officer; Katie Patrick, Chief Financial and Investment Officer. Before we move into today's remarks, I would like to take a moment to acknowledge the numerous additional territories and homelands on which our global facilities are located. Today, I am speaking to you from our ATCO Park head office in Calgary, which is located in the Treaty 7 region. This is the ancestral territory of the Blackfoot Confederacy comprised of the Siksika, the Kainai and the Piikani Nations, the Tsuut'ina Nation and the Stoney Nakoda Nations, which includes the Chiniki, Bearspaw and Goodstoney First Nations. I also want to recognize that the city of Calgary is home to the Metis Nation of Calgary, Districts 5 and 6. We honor and respect the diverse history, languages and ceremonies and cultures of the indigenous people who call these areas home. Today's remarks will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please refer to our filings with the Canadian securities regulators. During today's presentation, we may refer to certain non-GAAP and other financial measures, including adjusted earnings, adjusted earnings per share and capital investment. These measures do not have any standardized meaning under IFRS, and as a result, they may not be comparable to similar measures presented by other entities. Please refer to our filings with the Canadian securities regulator for further information. And now I'll turn the call over to Bob for his opening remarks. Robert Myles: Thank you, Colin, and good morning, everyone. To begin, I'm really pleased to tell you about the strong results we achieved in 2025. Notably, we overcame $57 million of headwinds last year. This is a major feat highlighting our ability to deliver earnings growth in the phases of challenges. This is a testament to our strong work ethic, discipline and resiliency. Katie will speak to this more in the financial update. I want to reiterate the key pillars driving our strategy and where we will focus our efforts in 2026. First, we have growth and prosperity. This is reflective of our project pipeline across all of our business segments. Next, we have operational excellence, which includes continuous modernization of our operating model with safety, reliability and resiliency at the forefront. And lastly, we remain focused on financial leadership, which includes our funding strategy and financial performance. Beginning with our first pillar, growth and prosperity. 2025 was a transformational year at Canadian Utilities. The team at ATCO Energy Systems saw significant growth with over 19,600 new gas connections. This is the largest number of gas connections we've had in a decade, and we are projecting to continue this momentum into 2026. With our largest assets located in Alberta, we remain optimistic for the year ahead. Throughout 2025, Alberta experienced the strongest population growth, leading the country amongst all provinces. As shown on this slide, this population growth, along with industrial development is also driving the increasing electricity load forecast for Alberta. We continue to believe that significant investment will be required in our service territory, reinforcing our view that Alberta is leading Canada's energy future. Aligned with Alberta's growth forecast, we are spurring investment and capitalizing on growth opportunities in front of us. Today, we announced a $12 billion 5-year capital expenditure plan across all of our regulated utilities, which I'm proud to say is our most ambitious plan in the history of Canadian Utilities. As shown on this graph, you can see a significant increase in our natural gas transmission spending in 2026 and 2027. This is directly correlated with the Yellowhead pipeline project, which I will expand upon later in my remarks. Although 2028 will see a year-over-year decline in capital spend following the completion of the Yellowhead project, I want to highlight on this slide that our 2028 to 2030 plan will still be significantly above historical levels as we focus on 3 key areas: customer growth, system reliability and safety and climate and technology. I will also note that the forecast does not account for any prospective major projects that may be approved to alleviate existing capacity constraint on the natural gas or electric transmission systems, nor does it reflect the possible approval of new interprovincial electric transmission lines. These potential projects would be additional growth not currently recognized in the forecast. Our strategic capital plan is driving our 5-year compound annual growth rate or CAGR of 6.9%, an increase from our previously announced 3-year forecast of 5.4%. This CAGR includes our regulated utility businesses and the impact from the Yellowhead pipeline project. I would like to remind everyone that it does not include the growth ambitions from our nonregulated assets and only reflects regulated distribution and transmission, allowing for further growth for our organization. We are pleased to confirm that our Central East Transfer-Out project, or CETO, continues to progress on time and on budget with our 85 kilometers of the transmission line on track to be energized by June of this year. This $255 million investment directly mitigates grid congestion challenges and remains a critical piece of energy infrastructure in the province, improving the efficiency of our grid. Beyond CETO, further opportunities exist to improve congestion of the electricity system as our transmission lines are located in key areas that will bring generation to consumers, including industrial development. Opportunities that we expect will drive long-term growth include the Northwest area transmission development. This is one area where the ISO has initiated needs identification development work for transmission reinforcements in the Grande Prairie area of Alberta to support existing demand, future load growth and reliability. The size of this opportunity will be clear as we progress through 2026 with a preliminary cost estimate of $500 million. The McNeill converter station is another opportunity we continue to progress. As shown on the map, the McNeill converter station is currently the only intertie point between Alberta and Saskatchewan. Currently, the ISO-led work is being undertaken for an end-of-life replacement of the McNeill converter. Once complete, this will enable more generation to flow between Alberta and Saskatchewan, representing the next step in addressing regional congestion and supporting system reliability. Due to the scope involved with this opportunity, preliminary cost estimates are approximately $1 billion, and we would expect the majority of the costs to fall outside of our 5-year capital plan. And finally, we believe there are a number of opportunities for us related to substations and interties. On substations, I'm proud to announce we recently had 2 new substations approved by the AUC in Fort McMurray and in Northwest Alberta, which will be in service in late 2026 and the first half of 2027, respectively. Beyond these projects, we continue to work on other substation development opportunities throughout the province of Alberta. As it relates to interties, we are optimistic about the collaboration referenced in the Alberta, Canada MOU, which is expected to significantly increase the intertie transfer capability between the Western provinces, which we expect will be an opportunity for our utilities. Moving to our largest infrastructure opportunity, the Yellowhead pipeline project. This project will be a key conduit to connecting supply to demand growth while debottlenecking Alberta's existing natural gas network. Ultimately, the Yellowhead pipeline will relieve pressure on the entire Alberta integrated system, making it a key infrastructure investment in the province. The Yellowhead pipeline is fully situated in Alberta, running through Treaty 6 territory. We continue to pursue partnership arrangements with indigenous partners, First Nations and Metis as meaningful participation remains essential and closely linked to our company values. In 2025, the project reached several milestones, including the approval of the needs application from the AUC. In late 2025, we also filed a facility application with the AUC. This facility application includes a detailed technical and environmental plan, along with our consultation data, a requirement for construction approval. We expect to receive approval of the facility application by the third quarter of this year, which will enable us to commence construction. Other Yellowhead milestones accomplished in the last quarter include the procurement of steel pipe, the securing of major equipment for compressor facilities and the advancement in the selection of a number of service providers. We continue to work collaboratively with the AUC to progress this project, and I'm proud to share that the Yellowhead pipeline project is now 100% contracted, reinforcing the need for this natural gas pipeline in Alberta. Moving to Australia. I'm also proud to say that ATCO Gas Australia continues to deliver strong results, particularly under the new access arrangement, AA6. For the 5-year AA6 period, the return on equity is 8.23%. Coupled with the arrangement, the Australia government forecasts significant population increases from which we will benefit and expect to grow by 80,000 new customers during the AA6 period. Our 5-year capital plan has $500 million of investment in our Australian gas business, and we remain confident that we will continue to see growth in Australia in the years ahead. As I look at the non-reg side of the business, we have a strong base of assets that align with our strategic pillars of energy storage, generation and cleaner fuels. Notwithstanding the challenges renewable generation is facing in Alberta, we remain committed to the long-term strategic potential of power generation. In the fourth quarter, we acquired a 100% ownership interest in Northstone Power Corporation, an independent 18.6 megawatt power producer located near Grande Prairie, Alberta. Northstone primarily operates as a gas peaking facility, supplying power during periods where there is low renewable generation. This acquisition provides differentiated economics and follows a distinct operating strategy, complementing our existing assets and strengthening our generation profile. As you can see on the slide, we have a balanced portfolio of gas-fired wind, solar and hydro generation assets. As previously mentioned, and based on our inability to get Government of Canada support for rail infrastructure expansion, we've made the decision to pause further work on the Alberta Hydrogen Hub project. We did stage gate this cleaner fuel project opportunity, and we will reevaluate the project at a later date should investment in cleaner fuels like hydrogen become more economically feasible and market conditions become more favorable. The project remains part of the portfolio and our long-term cleaner fuel strategy. But in the near term, we require appropriate policy frameworks to make the project investable. As part of our cleaner fuel strategy, we continue to move ahead with the first phase of the Atlas Carbon Storage Hub in partnership with Shell Canada. This project serves as a centralized storage facility for carbon emissions in Alberta's Industrial Heartland region. Construction has begun and once it reaches commercial operations in late 2028, Atlas will be another key nonregulated asset within our portfolio. Optionality allows us to choose growth opportunities we wish to pursue. Natural gas storage remains a valuable asset for our business, generating consistent and predictable cash flow based on long-term secure contracts. The growth in our storage business has allowed us the ability to offset the reduction in our generation earnings and still achieve our overall nonregulated financial targets. We remain on track to expand the capacity of our carbon and Alberta hub assets from 117 petajoules today to 130 petajoules by the end of 2026. This expansion will support future natural gas storage financial performance. Outside of these accretive organic growth opportunities, we continue to review strategic opportunities for additional growth in both natural gas storage capacity and power generation, including M&A. We are well positioned to capitalize on these market fundamentals, and I look forward to sharing further updates as we progress through 2026. Our second pillar, operational excellence, is anchored on safety, reliability and operational outperformance. Despite a challenging wildfire season with the number of fires in 2025, well above the 5-year average, we were able to maintain strong operational performance, reinforcing the strength and reliability of our infrastructure and systems. As evident by the year-over-year performance on this slide, we saw a significant improvement in the overall reliability of our Alberta distribution utilities despite headwinds caused by wildfires. These results can be directly attributed to the teams across our company who seamlessly coordinated their efforts while responding with remarkable efficiency and unwavering dedication to the safety of our people. As we look at safety across Canadian Utilities, we were able to achieve 0 recordable incidents across our nonregulated businesses in 2025, a wonderful accomplishment. Throughout 2025, our team members continue to show their commitment to continuous improvement. And as we enter 2026, safety, reliability and operational outperformance will continue to be at the forefront of our operations. Our third pillar is financial leadership. And with that, I'll pass the call to Katie to discuss this in further detail. Katie Patrick: Thank you, Bob, and good morning, everyone. Following the financing plan I have discussed for the Yellowhead pipeline project in previous quarters, I'm very pleased to share that our portion of the equity investment of the project is fully funded. This was completed via combination of hybrids, preferred shares and cash from operations without the need to issue common equity. We continue to pursue partnership arrangements with indigenous partners for up to 30% of the remainder of the equity investment. Looking at the full year 2025 performance for Canadian Utilities, we are very proud to have delivered year-over-year earnings growth despite many challenges put in front of us. Canadian Utilities achieved adjusted earnings of $658 million or $2.42 per share, up from $647 million in 2024. As you can see on the graph, this was an exceptional accomplishment as we were able to overcome $57 million of headwinds we faced. The first of these was a decrease in the 2025 return on equity and the completion of the efficiency carryover mechanism at the end of 2024. These factors immediately created a $26 million gap to overcome. As Bob discussed, changing government policy also created significant earnings deficit from our renewables portfolio of $12 million. And lastly, as you can see on the slide, our strategic decision to redeploy capital from the sale of ATCO Energy to our core regulated business did create an earnings obstacle relative to 2024. However, redeployment of this capital contributed to the $36 million of Alberta utility rate base growth and other outperformance. Adding to this, our successful regulatory outcome and move into AA6 in Australia added $21 million of growth to Canadian Utilities. And finally, we had $11 million of growth within our Storage and Industrial Water segment, an impressive 30% increase over 2024. Our continued adjusted earnings growth in the face of these headwinds highlights the strength and resiliency of the company's portfolio. I would particularly highlight the impact of targeted capital recycling out of ATCO Energy into our core utilities, which created an immediate positive impact to our shareowners. As we look ahead, we are well positioned entering 2026, and we expect to deliver further adjusted earnings growth on a full year basis. Looking at the specific business units, ATCO Energy Systems delivered adjusted earnings of $642 million in 2025, $10 million higher year-over-year. When factoring in the impact from the change in the ROE and completion of the efficiency carryover mechanism, ATCO Energy Systems drove an impressive $36 million of growth within its regulated utilities, driven primarily by growth in rate base and a prudent focus on delivering cost efficiencies. Within ATCO EnPower, we successfully delivered comparable results to the prior year. As shown in this graph, this was due to the strong performance of our Storage and Industrial Water segment, which, as I mentioned, delivered adjusted earnings growth of 30% year-over-year. This segment continues to generate consistent earnings growth. And as Bob spoke to, we continue to progress our expansion of key facilities that will result in additional storage capacity for us by the end of this year. ATCO Australia had an excellent year and was a key driver of growth at Canadian Utilities, delivering adjusted earnings of $69 million, up $21 million year-over-year. This is an almost 45% increase in year-over-year adjusted earnings, and I want to congratulate the team's effort in transitioning seamlessly into the new access arrangement, AA6 and their focus on driving efficiencies and outperformance across all of our operations in Australia. From a cash flow perspective, our cash flow from operating activities increased by $144 million. Our strong foundation of regulated utilities continues to drive cash flow, earnings and our long and consistent history of dividend growth. In 2026, we will continue to execute our proven strategy and focus on finding efficiencies across the business to ensure we create shareowner value. I will now turn the call back to Bob for his closing remarks. Robert Myles: Thanks, Katie. As we close out 2025, we have positive momentum heading into 2026. In the year ahead, we will continue to advance strategic initiatives that reinforce our stability, expand our capabilities and position the business to capture long-term value. I hope you agree it was an outstanding year as our team worked very hard to overcome many headwinds to drive earnings growth. That concludes our prepared remarks. I'll turn the call back to Colin for questions from the investment community. Colin Jackson: Thank you, Bob, and thank you, Katie. [Operator Instructions] I'll now turn it over to the conference coordinator for questions. Operator: [Operator Instructions] The first question comes from John Mould with TD Cowen Securities. John Mould: First of all, I'd just like to touch on the renewable impairments, a bit of a 2-part question. One, how much of this is due to planned versus actual curtailments since you bought the assets versus uncertainty around future congestion policy and where financial transmission rates are going? And then sort of flowing from that, EnPower generated about $60 million of EBITDA in 2025. How much lower could this go under the scenario that underpin that impairment decision? Robert Myles: John, I'll start, Bob here. On the curtailment, when we, I guess, got into the renewables business 3, 4 years ago, there was a policy of 0 congestion in the province. That has since changed. And to give you a sense, probably 12 to 15 months ago, we were seeing 0 congestion on our largest facility, our 40-mile wind project. We're now seeing upwards of 40% curtailment. So it's pretty significant. We're obviously working hard with the ISO and the government to actually address that. But as of right now, that's a pretty significant impact on our ability to generate power in the area. Katie, why don't you comment on the financials? Katie Patrick: Yes, John, I mean, I think when you think about how we look forward for the renewables business, I mean, it's a very challenging market, as we've highlighted before, but I think you can see comparable year-over-year. We expect comparable earnings profile going forward. I can't exactly translate it to EBITDA, but I'm sure we can give you some help with that offline as well. John Mould: Okay. No, that's helpful. I appreciate that. And then just maybe on the gas side of things, you highlighted looking at gas M&A and the peaker you bought. How much of what you're potentially looking at is additional acquisitions of smaller gas in Alberta? Is there a potential for you to build a bit of a peaker portfolio there? Are you looking outside the province? Or -- and would you consider development opportunities in any circumstances just being mindful of the merchant nature of the market? Robert Myles: Yes, John, I mean, as we've said in our capital forecast, that's the regulated side, and I'm sure you saw that as well. On the non-reg side and specifically in generation, we have been looking at different gas -- peaker gas generation opportunities. Would we look outside Alberta? Yes, we would. We see some opportunities in Australia to basically develop as well as to acquire. So we would look at both organic and inorganic opportunities. But the thing that I would really stress is that it's got to be economic. We are not going to do things just for the sake of doing a deal. Operator: The next question comes from Mark Jarvi with CIBC Capital Markets. Mark Jarvi: [indiscernible] the equity for that is fully covered. How would you frame the overall funding as you look out over the 5-year plan to 2030? Would there be a need for any external equity to fund the growth? Katie Patrick: Yes. Thanks, Mark. Yes. No, we're really happy that we have cleared away the headwinds that were in front of us in terms of headwinds in terms of trying to make sure we had a clear funding strategy for Yellowhead. I think that was an important step for us. And as you know, we've released the new 5-year capital forecast. I think as we move forward, we should see higher cash flows obviously coming from the investment in Yellowhead and the renewed rate base. But we will continue to look to maximize the funding plan for shareowner value. And as we get closer to those investments, roll out a more specific funding strategy as we are with Yellowhead right now in the near term. Mark Jarvi: In the past, you've mentioned potentially some minority asset sales or even noncore asset sales. Is that something that's still on the table beyond Yellowhead? Yes. Katie Patrick: Yes, absolutely, we would consider any option that's going to maximize returns to investors and capital recycling is part of the mix in terms of how we would fund future growth. Mark Jarvi: And then, Bob, just on Yellowhead facility application, you're trying to get it by Q3. Can you just comment in terms of time lines, if it slips a little bit, any implications, what that could do for the project in itself? Robert Myles: Yes, Mark, we -- knock on wood here, we're optimistic that we will receive it. We have a hearing date set with the regulator right now, which is actually about 3 weeks ahead of what we had in our original plan. So that's encouraging. We -- obviously, we want to be in construction in late Q3 is kind of our time line. The current plan is we're still on track to do that. If it slips, then, of course, it would -- the construction onstream date would slip as well. We have some room to be able to move on that. But we're definitely taking a look at the schedule. I'm not going to say on a daily basis, but definitely on a weekly basis, we're evaluating the schedule and making sure that we have some ability to have some float in that schedule. Mark Jarvi: Typically, if something gets delayed a little bit, there's some cost increases. Is your view though that, that would be fully put back to the ratepayers? Or would there be a view that maybe you'd have to reevaluate even the scope of the project somehow? Robert Myles: We have been working with the regulator, Mark, specifically on some plus or minus in our estimate. We filed an application of $2.9 billion, plus or minus 20% because we still don't have final design, and we don't have all of that schedule locked down yet for the reasons you've mentioned. But we are working with contractors quite closely to partner around how we can definitely execute this on time and on budget. Operator: The next question comes from Maurice Choy with RBC. Maurice Choy: Just wanted to come back to the rate base CAGR. Previously, I know that you've mentioned a long-term CAGR of 4% to 5%. And obviously, today, you've further increased it from 5.4% to now 6.9%. Is there -- if I look at some of the commentaries that you made today, it sounds like there is even more to come as well. So just curious whether or not this 4% to 5% long-term CAGR is still valid or not? Robert Myles: Yes, Maurice, I am quite proud to say that we have increased our CAGR. As I mentioned, there are opportunities that we're pursuing to allow us to increase that further. We just want to make sure we're comfortable with the numbers that we put forward. We do think there is potential, but we want to -- again, we want to make sure that whatever we put forward that we can actually execute on that. Maurice Choy: Maybe just a quick follow-on to that. When I think about your philosophy of what's baked into this $12 billion of CapEx, you mentioned it doesn't include prospective projects such as those on Slide 11. Is it fair to say that the projects in this $12 billion pipeline are projects that either have been approved or have effectively been sanctioned such as the Yellowhead project? Robert Myles: Yes, exactly, Maurice, is you might say that's a conservative way of looking at it, but we do want to feel very confident in the projects that we put into our capital forecast. We have been working with the ISO. We have been working with the regulator on those projects. There is, as you know, the time delay from pursuing some of these projects to getting them into rate base, which we obviously are working on that issue as well. But yes, I would say that we're pretty comfortable with the numbers that we're putting forward. Maurice Choy: Understood. And if I could just finish off with discussion about guidance and more specifically EPS guidance. I know you guys don't put that out. And I suppose you have at least 2 moving parts here, one being the annual update to your Alberta ROEs. And secondly, any equity raises that you may do seeing us -- it doesn't sound like you're ruling that out from an earlier response. So beyond these 2 items, can you just discuss some of the top things that could prevent you from delivering an EPS CAGR that's similar to your updated 6.9% rate base CAGR? Katie Patrick: Yes. Thanks, Maurice. It's Katie. I think you hit on the 2 big ones that are moving factors when we look at how we will deliver earnings per share growth in the future. And the other one, obviously, would be the outperformance. And we have a long history of strong outperformance, but as we move through, as you know, we've moved through a number of different PBR cycles as well as different characteristics associated with our transmission applications. And so those can create some upside or can create some headwinds in terms of how we would deliver precise sort of earnings related to that rate base growth. So I think those are a few of the -- some of the biggest items that we would -- can have a bit of volatility in them. Maurice Choy: And do you envision the non-reg business to provide -- I'm sure there's upside, but material upside beyond just the infrastructure -- regulated infrastructure category? Katie Patrick: Yes. Sorry, apologies. And that rate base growth, of course, would not include any growth that we would have from the nonregulated side, but we are definitely looking for not insignificant growth, but we are looking for that to be a big driver of growth for us in the future. Operator: [Operator Instructions] The next question comes from Ben Pham with BMO. Benjamin Pham: I wanted to follow up on Mark Jarvi's question on funding. I just didn't totally get it or crystal clear from my standpoint. In your CapEx plan you have now, do you need equity to fund that? Or can you self-fund the $12 billion? Katie Patrick: To be clear, I think that as we get further out, there probably will be the need for some form of capital recycling or equity component to that $12 billion capital plan. But we are very focused on the near term and delivering successfully on the project at Yellowhead, which we have now fully funded. So for the next few years, I think we're in a good position, and we'll keep people posted on how it looks for the outer years of that capital plan. Benjamin Pham: Okay. Got it. And on the top of acquisitions, you now have the 7% rounded rate base CAGR. You have maybe some upside beyond that in acquisitions or nonorganic growth opportunities. I'm just curious then, I mean, that's generally pretty good growth rate in North America as a leading point. Why are you pursuing acquisitions than when you're considering just the balance sheet right now to and where it's going forward. Is that sort of strategic angle you're looking at? Is it relative valuations versus organic growth? Maybe enlighten us a bit on the acquisition strategy? Robert Myles: Ben, I would say one of the big things is, obviously, we want to try to continue to increase our earnings per share and which is why I said earlier that not really interested in acquisitions if they're not going to be accretive and not going to really make economic sense. But the other benefit of looking at acquisitions for us is geographic diversification. And Australia is an area that I really believe is a great opportunity for us. And so an acquisition in Australia would be something that we would consider. Just to give you an example of that. But also as we grow our portfolio, it's got to be the right acquisition. And so it's more around those items, I would say. Operator: The next question comes from Patrick Kenny with National Bank. Colin Jackson: Sorry, Patrick, we're having some trouble hearing you. So maybe we'll just continue on with the call. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Colin Jackson for any closing remarks. Please go ahead, Colin. Colin Jackson: Thank you, and thank you all for joining us today. We appreciate your interest in Canadian Utilities and look forward to speaking to you again in the future. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Thank you for standing by, and welcome to the Enovix Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program will be recorded. And now I'd like to introduce your host for today's program, Robert Lahey, Head of Investor Relations. Please go ahead, sir. Robert Lahey: Thank you. Hello, everyone, and welcome to the Enovix Corporation's Fourth Quarter and Full Year 2025 Financial Results Conference Call. With me today are President and Chief Executive Officer, Dr. Raj Talluri; and Chief Financial Officer, Ryan Benton. Raj and Ryan will provide remarks followed by Q&A. Before we begin, please note that today's call contains forward-looking statements that are subject to risks and uncertainties. These statements are based on current expectations and may differ materially from actual future results due to various factors. For a discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission. You can find these materials on our website at ir.enovix.com. All statements made on this call are as of today, February 25, 2026, and we undertake no obligation to update them, except as required by law. Additionally, during the call, we may reference non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP measures in the materials posted on our Investor Relations website. With that, I'll turn the call over to Raj. Raj Talluri: Good afternoon, everyone, and thank you for joining us. The fourth quarter represented continued progress as we transition from qualification into early commercialization across multiple end markets. First, we continued advancing smartphone qualification for the AI-1 platform with our lead mobile customer. Second, engagement expanded across smart eyewear and other AI-powered devices. We view smart eyewear as an earlier commercialization pathway for AI-1 due to lower qualification barriers and thresholds. We are currently preparing production to support initial high-volume demand from our lead smart eyewear customer. Third, defense and industrial programs continue to provide revenue, operational validation and manufacturing execution experience as we prepare for consumer scale production. Finally, we ended the year with a strong liquidity position, giving us flexibility to execute our commercialization road map while maintaining disciplined capital allocation, including recently authorized share repurchase program. Overall, we believe 2025 positions us well for the next phase, moving from qualification towards commercialization across smartphones, smart eyewear and additional defense applications, and we'll walk through that progress today. For the full year 2025, revenue grew 38% year-over-year to $31.8 million, with the defense shipments remaining our largest contributor and batteries for naval munitions specifically being our top product in Q4. Full year non-GAAP gross margin improved to 23%, reflecting higher production volumes and improved mix shift towards higher-margin defense batteries following our April 2025 asset acquisition. We ended the year with $621 million in cash, cash equivalents and marketable securities, supporting qualification completion, commercial scale-up and additional potential strategic transactions. To support this next phase, we strengthened our operational leadership. Kihong Park, or KH, as he prefers to be called, now leads our global manufacturing organization, bringing decades of battery production experience and deep operational knowledge from our South Korea platform to our Malaysia scale-up efforts. We also welcomed Ed Casey to lead advanced manufacturing engineering, adding significant expertise in scaling complex high-volume manufacturing environments across global networks. Together, this leadership alignment reinforces our focus on manufacturing execution as we prepare for high-volume production. We continue to improve yield and throughput across Fab2. As we discussed in our previous call, Zone 1 laser dicing remains the primary rate limiting factor, and we are methodically addressing that constraint through process optimization and alternative dicing approaches. We believe in our ability to unlock higher production rates as we transition towards commercialization. In 2026, we are capable of qualifying other new products and customers in the very production line they will use and meeting demand for smart eyewear customers. Our overall company focus remains on disciplined execution, advancing smartphone qualification while expanding into adjacent markets that support earlier revenue and manufacturing scale and leading in smart eyewear markets with our silicon battery shipment. You'll see how these pieces come together through today's presentation. Now let's talk about markets. Last quarter, we introduced this framework for outlining the end applications where our technology can create a durable moat. The smartphone market represents the fastest path, the large scale and is ideal for our technology. An independent study from Polaris Labs previously validated our energy density leadership in smartphone batteries. And this quarter, we extended the validation through a second apples-to-apples comparison against the leading competitor using identical methodologies. The results confirmed that AI-1 delivers a meaningful volumetric density advantage versus commercially available silicon-doped lithium-ion batteries. We expect AI-2 and AI-3 to further expand our technology lead with performance gains well beyond historically industry advancement rates. This quarter, we updated this slide by breaking out smart eyewear and drone applications as distinct growing addressable markets where our engagement has progressed. Smart eyewear adoption is presently accelerating as AI workloads migrate to compact always-on devices. We expect to ship our first smart eyewear batteries for use in AI/AR devices in the second half of 2026. Exceptional growth in this market is expected to continue throughout this decade with display-enabled architectures that significantly increase power demand and require higher energy density for constrained form factors. We believe smart eyewear battery TAM could exceed $400 million by 2030, and we are targeting meaningful participation based on early engagement with key partners and strong technical suitability. Drones represent another priority area of focus where we see an attractive TAM and a strong competitive advantage. Western drone platforms, both defense and commercial, are increasingly prioritizing higher energy density, extended flight time and supply chain diversification. This battery segment is projected to be approximately $1.5 billion this year. Breaking these markets out reflects growing conviction that we are well positioned across multiple high-growth platforms. With that context, let me walk you through our smartphone qualification progress and the defined pathways we see towards commercialization. Turning to our smartphone commercialization plan. We remain engaged with 7 of the top 8 global smartphone OEMs by market share and validation efforts have expanded this year with multiple leading OEMs, including those serving the U.S. market. Our near-term focus, though, remains on 2 Asia market leaders with Honor being our lead customer. We commenced their formal product qualification process in the third quarter of 2025. Most of the requirements have now been met, and cycle life testing remains the primary gating item to complete qualification and move into system integration and production planning. Because cycle life testing is often misunderstood, particularly for silicon anode batteries, let me spend a minute explaining what these tests actually measure and why they matter for real-world smartphone usage. The key point, and what we want to clarify next is that cycle life results are complex and depend heavily on test protocols, which is especially important when evaluating next-generation silicon anode technology. When we say cycle life testing, we are referring to multiple tests based on different charge and discharge rates, or C-rates. This is a standardized measure how quickly a battery is discharged relative to its total capacity, where a 1C rate means the battery can be fully discharged in 1 hour and a 0.2C rate means battery discharge in 5 hours. This slide illustrates relative C-rates across common smartphone applications. The highest power consuming activity is video recording, which requires approximately 0.17C discharge rate. We include a host of other popular consumer applications as well as scenarios for running multiple applications simultaneously to account for use cases such as using ChatGPT while also playing a Netflix movie. When we refer to our lead customers' primary qualification requirement of 1,000 cycles, that is based on a rate of 0.2C. As you can see that everything below this level, which is why smartphone as well as smartware OEMs rely on this test to ensure batteries provide a positive experience for a wide range of consumer usage patterns. A test purely based on this rate would take a year to complete though. So most companies compress the test time to 4 months by using an accelerated 0.7C rate for a majority of the cycles where the battery is fully discharged in 1.4 hours. Smartphone OEMs also included in their qualification process, a secondary requirement of 800 cycles for just the 0.7C cycles, though this C-rate is well beyond any single app consumption we are aware of. For the parts shipped in December, customer qualification testing for cycle life began in January. This testing is progressing in parallel under customer control protocols. On this slide, you can see how batteries we send to our lead customer perform in our 0.2C cycle test. We made improvements over our initial version submitted in July, and our internal test indicates we are now likely to exceed the requirement of 1,000 cycles at 0.2C rate. This is a significant achievement that is indicative that our product is approaching readiness for integration into commercial products. However, these same batteries are not currently on track to exceed the accelerated 0.7C target. As it is the first time a 100% silicon anode smartphone battery has been brought to the market, we are working closely with our customer on alternative pathways for testing that is more suitable for silicon anode batteries. So while customer testing ultimately determines qualification, this internal data set gives us increasing confidence that the current batteries are tracking towards the required performance. Because there has been no 100% silicon battery qualified in a smartphone, there are no defined testing protocols for qualification. Based on current test results, we're discussing multiple pathways to qualification with our lead customer. The first scenario is approval based on our 0.2C results and acceptance of the 0.7C cycle life below their current requirement. A second scenario involves adoption of new accelerated testing protocol tailored for silicon anode batteries. Finally, we're also continuing to develop improved electrochemistry variation to hit the 0.7C target. While we believe our battery platform is ready for deployment, we also understand that we are entering the largest consumer electronic market in the world. Customers appropriately maintain a high qualification bar for new entrants. We look forward to meeting all the necessary standards in 2026 and transitioning into commercial production. Initial smartphone-related revenue in 2026 is expected to support system integration and launch preparation, positioning us for a larger scale commercialization in late '26 or beginning in 2027. Now let's turn to smart eyewear. We view smart eyewear as an earlier commercialization pathway for AI-1 due to shorter qualification cycles and lower durability thresholds. We believe this market represents a compelling near-term expansion opportunity for the platform, where our high energy density architecture is well aligned with product requirements. Our engagement in this category began early, and we're working with partners we believe are well positioned to lead in this market as it scales. Compared to smartphones, where an incumbent is deeply entrenched, this creates a more direct path to initial adoption. Our focus now is execution as we prepare for initial volume shipments to lead smartware platform later this year. Today, the eyewear market is dominated by products without displays, largely focused on audio, connectivity and basic AI assistance. However, over the balance of this decade, we expect more than 5x unit growth as display-enabled ecosystem emerge, which translates to even higher battery TAM expansion as ASPs increase over the same time frame. Display-enabled eyewear materially increases the power demand. Always-on AI processing, image capture and augmented reality overlays create sustained energy draw in highly constrained form factor. That combination, compact design and higher sustained power consumption is precisely where volumetric energy density matters most. Based on current engagement, which has accelerated rapidly, we expect smart eyewear to represent an earlier commercialization pathway for the AI-1 relative to smartphones. As this market matures, we estimate the smart eyewear battery TAM could exceed $400 million by 2030, and we believe AI-1 is well suited to participate meaningfully in this market. This slide illustrates how our platform aligns with smart eyewear cycle life requirements. Importantly, in this segment, customers typically require less than 1,000 cycles durability at 0.2C rates and do not have a pure 0.7C cycle test. Our energy density architecture is optimized for constrained space and sustained power draw. And because we architected AI-1 first for smartphones, the segment which has the highest technical qualification standards in consumer electronics, we believe extending the platform into smart eyewear is comparatively more straightforward from a performance standpoint. Once we designed for the most demanding use case, adjacent applications become natural extensions of the same core architecture. That allows us to prioritize energy density and power efficiency while comfortably meeting eyewear durability thresholds. In addition, we expect this market will have a mix of smaller customers who address a wide range of fashion preferences and use cases that are also enabled by the budding Android XR ecosystem. This means our future sales mix may include meaningful percentage of off-the-shelf products in addition to customized products for the market leaders. We are seeing this dynamic play out already with multiple wins we announced at CES earlier this year. Let me now turn to defense. Defense continues to provide both revenue and operational validation of our technology and manufacturing capabilities. We operate 2 differentiated defense-focused platforms across our global footprint. In Malaysia, we're advancing our 100% silicon anode architecture, our largest format AI-1 variation optimized for high energy density applications. These batteries are well suited for next-generation soldier systems, including augmented reality headsets and wearable power systems. We have supported U.S. Army programs since 2021 and recently provided deliveries under the conformal wearable battery program. In Korea, we have a conventional architecture platform utilizing graphite and silicon anodes. This facility has an extensive operating history in Korean defense markets and supports a wide range of battery sizes and configurations optimized for high discharge rate applications, including drones, subsea systems and munitions for several Korea's large defense contractors. Naval munitions specifically were the largest growth driver in 2025, and our pipeline is increasingly focused on expanding our presence in the aerial drones market. In 2024, we kicked off a campaign to introduce our technology to U.S. and European military contractors who are attracted by our diverse supply chain and internal manufacturing capacity. Establishing initial programs and building a pipeline has required time, but it is starting to pay off. We enter 2026 with a global pipeline of approximately $100 million, including opportunities with multiple Tier 1 defense contractors. Recent design win traction in Q4 has strengthened our confidence in pipeline conversion. As programs progress, we expect to provide greater visibility into customer engagements as we convert pipeline to backlog. Aerial drones represent a compelling battery growth opportunity with an estimated $1.5 billion TAM this year. Next-generation drone platforms require higher energy density to extend flight time and strong discharge capability to support power intensive missions. As autonomy and AI capabilities expand, power requirements will continue to increase. Our platform aligns well with these needs, enabling longer flight times, sustained high discharge performance and diversified supply chains through our manufacturing in Korea and Malaysia. We are building on deployed defense cells and existing customer relationship to expand into next-generation silicon anode drone applications. This segment demonstrates how our architecture scales beyond smartphones and supports a diversified growth strategy. This slide highlights our energy density progress in drone applications. Today, we have deployed defense cells supporting high discharge drone programs. We are now advancing a higher energy drone cell in development with internal testing achieving approximately 342 watt hours per kilogram. Looking ahead, our next-generation silicon anode road map targets energy density above the 400 watt hours per kilogram to support increasingly autonomous platforms. The road map shows clear progression, deployed cells today, higher-energy product launches next and next-generation silicon anode performance that expands mission capability. Now I'll turn it over to Ryan to talk about our financials. Ryan? Ryan Benton: Thanks, Raj. First, a few highlights on the fourth quarter results. Fourth quarter revenue was $11.3 million, a record for Enovix, up 16% year-over-year and above the top end of our guidance range of $10.5 million. This performance was driven by continued strength in defense and industrial shipments out of Korea. Non-GAAP gross profit was $2.9 million for a non-GAAP gross margin of approximately 26%. While margins can fluctuate quarter-to-quarter based upon product mix, Q4 benefited from higher volumes and operational improvements in Korea. Non-GAAP operating expenses were consistent with our planned investment levels, reflecting continued investment in smartphone and smart eyewear qualification programs as well as Fab2 readiness. Non-GAAP loss from operations was $28.9 million, modestly better than the guidance range of $30 million to $33 million. Non-GAAP net loss per share attributable to Enovix was a loss of $0.14, also better than the guidance range of a loss of between $0.16 and $0.20. With respect to the balance sheet, we ended the year with approximately $621 million in cash, cash equivalents and marketable securities, providing substantial liquidity to execute on our commercial plans as well as enabling us to evaluate strategic opportunities from a position of strength. Additionally, the Board authorized a share repurchase program, reflecting confidence in our long-term strategy and adding another tool to our capital allocation framework as we focus on long-term shareholder value. Turning to the full year results. For the full year 2025, revenue totaled $31.8 million, a record for the company, representing 38% year-over-year growth. This growth reflects sustained execution in defense and industrial markets, while new products in the smartphone and smart eyewear markets advance towards commercialization. Full year non-GAAP gross margin improved to 23%, benefiting from higher volumes and demonstrating substantial progress in manufacturing execution. Capital expenditures for the year were disciplined and aligned with our staged manufacturing expansion plans. Overall, we exited 2025 in a stronger financial and operational position than we entered it, with growing revenue, improving margins and substantial liquidity to execute upon our road map. Now turning to Q1 2026 guidance. For Q1, we expect revenue in the range of $6.5 million to $7.5 million, reflecting normal seasonality and program timing of defense shipments. We expect non-GAAP loss from operations between $29 million and $32 million, reflecting continued investment in product qualification and manufacturing readiness. We expect capital expenditures between $9 million and $11 million, primarily related to Fab2 equipment. Actual cash payments in Q4 were lower than previously guided due to the timing of equipment and vendor payments. The majority of those payments are expected to occur in the first half of 2026. This is primarily timing, though we also made a couple of intentional near-term adjustments. Coincident with the operations leadership transition, we made 2 adjustments to our capital plan. First, we deferred initiation of the NPI line in Korea to allow KH time to fully evaluate priorities and sequencing. Second, given the high demand for products from our Korea factory, we are accelerating adding incremental capacity there. This is a relatively modest investment supported by high customer demand and opportunities. On the M&A front, to provide a little bit more color there, we continue to actively evaluate a range of opportunities, both smaller and larger, that could accelerate commercialization or strengthen our manufacturing and technology position. We will only deploy capital with a focused and disciplined approach, especially with respect to strategic fit and price. And with that, I think we're ready to take questions. Operator? Operator: [indiscernible] Q&A session. Please note that this call is being recorded. Before we go to live questions, we're going to read the 2 most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is, how does your current strategy differentiate Enovix from competitors? Raj Talluri: Thank you for that question. So Enovix, we use 100% active silicon anode. Most of our competitors use graphite for the anode. Silicon anodes can store much more lithium. So we are able to provide much higher energy density because of that. One of the problems with replacing graphite with silicon is that the silicon tends to swell when using a battery when doing a charge and discharge. We've got an architectural advantage where we figured out how to enable the silicon anode from not swelling while maintaining the energy density advantage. That is our main advantage, and that is how we differ from most of our competition because we provide much higher energy density due to using 100% active silicon anodes. Operator: Thanks. The second question is, at our current burn rate, how long is our cash runway? And under what conditions will we need to raise additional capital? Ryan Benton: I'll take that one, of course. First, we ended the year with approximately $621 million in cash, cash equivalents and marketable securities. So we're operating from a position of strength, in my opinion. Second, I'd caution against thinking about runway purely in terms of static burn rate because our spending is tied to a very specific qualification and commercialization milestone set. As those programs progress, the working capital and capital expense profiles will evolve as well. As we said in the prepared remarks, we believe we have sustained liquidity -- substantial liquidity to execute on our commercialization strategy without needing to raise capital in the near term. That said, as we've discussed before, beyond that, we will always evaluate capital allocation options such as strategic M&A opportunistically but with process rigor. Operator: [Operator Instructions] Our first question comes from Mark Shooter with William Blair. Mark Shooter: Can you hear me? Raj Talluri: Yes, go ahead. Mark Shooter: Great. So I appreciate you getting into the details and geeking out with us a bit on the smartphone C-rates test requirements. The 0.7C rate life cycle test is definitely overkill for smartphones, but it's an incumbent standard, and they're notoriously sticky and difficult to change once established. So I'm wondering in your engagements with Honor, how receptive were they when you suggested the change? And given that cycle life and energy density are always paired to trade-offs, would Honor take a formulation that hits that 0.7 rate cycle life spec with a slightly lower energy density? Raj Talluri: Yes. Thanks, Mark. Thanks for the question. Yes, I think the first thing is to -- the reason I showed some of the material in this talk is to actually show that most of the use cases in the smartphones, as the batteries get bigger and bigger and more and more capacity, are under 0.2C discharge, which basically means that we have a battery that now we believe under 0.2C average discharge rate, goes over 1,000 cycles. So we essentially -- we feel we have a battery that meets the requirements of the smartphone market. Now as I said, one of the challenges is if you want to test if the battery meets the requirements at the -- how the normally battery is used in the phone, it's going to take a year to at least to run that because if you run at 0.2C, it takes a long time. So customers typically use a higher rate of discharge, like 0.7C, to cut the amount of time it takes to test. This is very similar to people used to use a burn-in test, for example, for chips, high-temperature ovens, try to find the early failures. When you change technology from graphite batteries to silicon anode batteries, silicon anode batteries behave differently when you discharge them very fast, in this 0.7C. So Honor and our other smartphone customers, we've talked to them, they understand that. They realize that this test is a proxy and an accelerated test and not a true test. But, like you said, this is a test they have been using. So we are in discussions with them. We see 3 pathways forward. One is, we're able to convince them that this is not a real-life test and the real-life test is really 0.2C, and we can get a waiver on less cycle life for 0.7C, for example. By the way, this has got nothing to do with energy density. It's purely about cycle life testing. So it's not like they need to take a lower energy density. They just have to take a lower cycle life on 0.7C, which is not a real test, an accelerated test. The second one is we have to find together with them another accelerated test that is more representative, if you will, for silicon anodes. And we have some ideas on what that is, and we are discussing with them on that. The third one is we'll just have to modify our electrochemistry just to pass this test at 0.7C. So we are working on all 3 of those. Ultimately, there is a lot of interest from our customers in wanting to use our batteries because of the higher energy density we provide. And the road map, even higher energy densities because of 100% silicon anode. And those conversations are going well. But ultimately, we need to solve this passing of this test to a way where they and us both are comfortable, that in the real-life use case, when ultimately the battery is put in the phone, it's going to do really well and everyone is happy with the performance. Mark Shooter: I appreciate all the color there. If I can switch over to the opportunity in smart glasses. In the presentation, you gave a lot of information there on the TAM as well. The performance advantage with Enovix's cell and technology goes up, but the battery application requirements get easier. So I can see this is your faster commercialization path. But you did mention an initial production demand in your -- in the release statement. So I mean, should we think about that as a purchase order? Or is that a next step? And can you frame what the revenue opportunity might be for '26? Or is this a '27 story? Raj Talluri: Yes. Good question. So as you alluded, when the battery gets smaller but still the energy requirements or capacity requirements are high, we have a disproportionate advantage because the smaller it is, the efficiency we have is more -- better compared to our competition because the additional stuff we put in there for holding the cell from not expanding is not as much of a penalty, right? So that's why I think it's much -- we are much more competitive there. And also the cycle life requirements are much, much lesser. They don't need to do 1,000 cycles because people probably change their glasses much quickly. So those 2 are very good. And also, the battery in smart glasses is the limiting factor. I mean, if you guys actually buy some of the smart glasses in the market today and start using them, you'll find that almost none of them come all day. Smartphones come all day, but most of these things will die in multiple hours. So a better battery makes the product. That's why there's a lot of interest from our customers on using our battery. And also, there's lots of different kinds of applications, lots of different kinds of products. This is what I mean by -- there could be sport glasses, there could be utility glasses, there could be fashion glasses. And as I mentioned, when Android XR ecosystem comes, there will be even more products using that. So that's why the TAM is now suddenly much larger we expect it to be in the next few years than we ever thought before. So I think that's why we are very excited by this market and the fact that we can get there. Yes, you absolutely should think of the question you asked as a purchase order, and we are manufacturing them now to our lead customer. We are very excited by that. The whole team -- I was in Penang last week. The whole team is focused on executing that and building those products and setting it out. Initial volumes will be lower just because they're just starting. But I think that '27, '28, we expect the market to really grow and be meaningful for us. So we're excited by that. Ryan Benton: Yes. If I can just jump in and chime in. Had an old boss, used to say, "All dollars are not equal." It's a very important order for us. Operator: The next question comes from George Gianarikas with Canaccord Genuity. George Gianarikas: Incredible level of detail in presentation. Appreciate it. So maybe first question, you pointed to sort of a little bit of an issue with the electrode dicing and the manufacturing process getting yields up there. How much have you been talking with your potential future customers around fixing that issue maybe together in anticipation of ramping production towards the end of this year? Raj Talluri: Yes. I think, firstly, as I mentioned, the yields on almost -- on all steps are above 80%, as you saw in our -- 80% or above, as I mentioned. On the dicing side, they're close to 80% but not quite there in fourth quarter. But this quarter to date, we're at 80%. So we feel confident that as we make progress, it will sort itself out. But that's because we just started making 2 batteries, right? We just started making the smartphone battery and smart eyewear battery. We've been sampling a lot of batteries last year. We're now focused on 2 of them, one on Agility Line, one on H-volume line -- high-volume line, and we'll continue to work on each state to get it better. Our customers have visited our factories. They have seen it. We've got man through multiple customer audits. We have enough supply to meet all the requirements for 2026. And we're looking at various options to increase the throughput and get even more cost-effective than laser dicing methods to actually get the volumes up. So yes, a lot of focus on that, and we are working with our customers on that. George Gianarikas: And maybe with regard to the drone opportunity, can you sort of talk about the different variations of chemistries that you have to work with them? I'm assuming these are silicon-doped cells, not 100% silicon that you're approaching the market with first. And so how many different chemistries do you need to approach that market? And do you need, like, any additional salespeople to sort of attack it? Raj Talluri: Yes. Great question. This, we have been making. We haven't really talked about it too much in the past. We have been making very high performance, high rate of discharge cells because we were selling into -- a lot into the Korean military from our Nonsan facility. And some of the requests came from drone batteries, and we started making those. What we find now is, with the market expanding fast, because as you guys have seen in the more recent political situations, there's lots of drones being deployed, both in commercial and also in military, we have now combined -- used some of our knowledge on using 100% silicon anodes with our Nonsan team. And now we dope those batteries also with silicon anode -- with silicon -- the graphite with silicon and to increasing amounts. As I mentioned before, when we put more and more silicon, the cells, the batteries swell. So that problem hasn't gone away. But since they are inside things like drones, even if those cells swell 10%, 15% or more, there's space inside to accommodate that. So we have now found that we can make high gravimetric energy batteries that do swell a little bit, but still good within the application. Whereas in a smartphone, if you swell, it's not acceptable because it's very space constrained. So they are both -- so in that sense, I think it's been a really good thing for us. As I mentioned, we have a strong road map now, and you will see us sampling much higher watt hours per kilogram cells this year and just continuing to increase that through next year. And we have a lot of customers now helping us with that, too. Operator: Our next question comes from Colin Rusch with Oppenheimer. Colin Rusch: Can you guys hear me okay? Ryan Benton: Yes, sir. Raj Talluri: Yes, Colin, go ahead. Colin Rusch: So guys, exciting that you're moving into the drones. Can you talk a little bit about the form factors that you're working on there as well as the diversity of electrolyte and binder materials and binder processes that you can -- you feel comfortable talking about at this point? Just want to get a sense of the full ecosystem here and potential product diversification that you might see within that opportunity. Raj Talluri: Yes, sure. Again, like I said, it's a pretty big market and all of them are not same, right? There are subsea drones. There are aerial drones. There are big aerial drones that carry a lot of weight. There are smaller ones that carry some munitions and maybe onetime use and just used for a few times. So we have different chemistries and different electrolytes to address that market. Here, this is one of those areas where we can trade off cycle life for energy density, for weight and so on because you don't need to charge them 1,000 cycles, right? So that's really not a requirement here. 300 is plenty. So suddenly, a lot more opportunities open up for us in terms of the electrochemistries we use. And our team in Korea has been doing this for a long time. So we have multiple chemistries going after that, some purely graphite, some graphite doped with silicon, a different kind of cathodes. So multiple form factors, multiple products. But we understand this market pretty well. And the other important thing is, in this market, having your own factory is really a big deal because manufacturing -- that's something that our customers tell us that the fact that we own our factories and we can make them in Korea or Malaysia is a big advantage compared to some of our competition who actually have to use contract manufacturing in China and other places. So these are sensitive areas where having our own captive manufacturing helps us quite a bit. Ryan Benton: And I'll add to it. I think I was going to say part of the question, I do expect that we'll add to the sales and business development organization to support that. So it's kind of the time to build that group out. Raj Talluri: That's right, yes. Colin Rusch: Great. And given what's going on in the U.S. in terms of trying to migrate manufacturing and secure supply chains back into the U.S. over the next few years, even from Korea, can you talk about some of your capital planning on a multiyear basis as you enter that market in terms of having to have some localized or regionalized supply in the Western Hemisphere to serve some of the [ U.S. military ]? Raj Talluri: Yes. I mean, at this point, as Ryan mentioned, we were fortunate to acquire this facility in Korea last year from SolarEdge that added 300,000 square foot of total capacity we have -- factory we have in Korea now, with a very capable team that's been building batteries for defense for like 20 years and industrial applications. So we have a large footprint there, and we are now going to invest more into that this year to get more capacity there. And again, so far, I think manufacturing in Korea, our manufacturing in Malaysia seems perfectly acceptable. We'll continue to see if it makes sense to bring something into the U.S., but we are quite -- our customers are quite comfortable right now with those 2 facilities. Operator: The next question is from Jeff Osborne with TD Cowen. Jeffrey Osborne: I appreciate all the detail on the call so far. I wanted to know, Raj, relative to the last earnings call, 3 months ago or so, the 0.7C metric that you mentioned, is that new? Because you referenced sort of a 4-month testing period. I'm just curious like when the parameters changed? And then when that -- I think you referenced a 4-month sort of shot clock to proceed through the testing process and procedures. Did the 4 months start 3 months ago and you'll know next month? Or did you get that new homework assignment, so to speak, in the past few weeks? Raj Talluri: No, that's always been there as a requirement. And our thinking was that we will figure out a way to -- I mean, we will pass that requirement also. But I think what we find now is with 100% silicon anode batteries, 0.2C requirement is something we can pass because that's -- we have data now that shows that. When you discharge a battery like 100% silicon anode battery at 0.7C rapidly, which is not a real use case, as I mentioned, you just do it for convenience. It doesn't behave like the graphite batteries do. It behaves differently. So in that sense, it's one of those cases where the accelerated test itself has to be adapted a little bit for the kind of battery we are using. And we showed this to our customers, and they understand it. So we're not discussing what the right way to resolve this is, right? So it's not a new homework assignment. The results is what we have now, is we've solved the 0.2C problem, which I believe is a real problem in terms of how a battery is used in the phone. Now we are working on how to resolve the 0.7C accelerated test in a way that both us and our customers are comfortable. Jeffrey Osborne: And do you think that can still be done in a 4-month window that started at some point this quarter? I'm just trying to understand like when do you expect, knowing what you know now, to pass the Honor test, so to speak? Raj Talluri: Yes. Like I said, I think there are 3 pathways for us. One is, we have results now on 0.7C that don't go all the way to the cycle life that they want. But we are talking to them about how real is this, like it's a proxy test, can we get comfortable? And for example, get a waiver that you pass these many cycles, it's okay as long as the 0.2C is holding 1,000 cycles. That's one pathway. That may be the shortest one. The second one, maybe we come up with a different accelerator test, which we believe is more representative or better -- makes them comfortable that silicon anodes, if we accelerate test like this, they behave like how they would in real-world use case. We are working on that, which is a different testing protocol. And the third one is they say, "No, you just got to pass this." In which case, we'll have to change the electrochemistry and find a way to pass this, which we have some ideas on how to do. The team is working on that. That might take longer. So depending upon which one we are able to convince them, we'll gate how much the time is. So we do believe that one of these things we'll be able to convince them before the end of the year and get some volume. Jeffrey Osborne: Got it. And then maybe for Ryan, just given Raj's answer on the 3 different outcomes there, as it relates to sort of modeling the business over the next few quarters, I know you only give formal guidance 1 quarter out, but I assume we should think about eyewear as the main driver outside of the Routejade facility for the next 6 months or so? That is part A of the question. And part B, can you just remind us of what you expect seasonality to be for defense? You've got a pretty precipitous decline in Q1. How should we think about that rebounding in Q2 to through the rest of the year? Ryan Benton: Yes. Thanks, Jeff. The first part of your question, the answer is yes. So for the first -- the near term, that's -- you heard it right. So smart eyewear is the more near-term opportunity. And then the second part of your question in terms of seasonality, exactly right. So if you look at the same pattern in terms of revenue that we had last year, Q1 tends to be soft based on the order pattern of these long-term defense contracts and then the back half of the year tends to be much stronger. Kind of evidenced by our Q4 that we just printed, which was record quarterly revenue. Jeffrey Osborne: Got it. And then maybe last one quickly for you. Just CapEx for the year, should we think about $50-plus million? Or what's the expectation? Ryan Benton: We don't give -- apologies, we don't give guidance beyond the quarter. I think we gave guidance for just Q1 and just speak broadly about Q1 in general, we talked about the HVM-2 line. We've already started placing some orders for some of the long lead, but we'll reevaluate all of our plans now with KH, who's in this new role of Head of Operations, who's wonderful to work with, and we'll just be smart and prudent how we phase those orders out over the year. Operator: The next question comes from Will Peterson with JPMorgan. William Peterson: I wanted to come back to the question about your Korean operations. Can you give us a sense for what the combined, the 2, Routejade and the other one, can support in terms of megawatt hours or revenue? Just trying to get a sense of the run rate you could support at sort of max capacity? And then how much capacity do you plan to add? And what -- can you give us any sort of sense on what investment you're considering? Ryan Benton: Do you want to take that or me? Raj Talluri: Go ahead. Ryan Benton: I'll go. Again, with that, we haven't given out specific numbers in terms of megawatts, but we -- I think we've talked publicly about how this is a facility that will support significantly higher revenue streams, maybe 2x, and we're investing -- we're making decisions in terms of deploying capital right now, which would incrementally add to that. Again, I don't want to quote an exact number, but it's -- we recognize what a great opportunity we have here in some of these markets that we've talked to, and we've got a great team to support. So we're starting to invest dollars. But again, the -- I think you can see the type of numbers that we've invested in Korea over the last couple of years compared to the dollars that we're investing in PEP-2, they're relatively small, but they're really important in terms of the ROI that they can return both in terms of dollars and strategic return. Raj Talluri: Yes. One other color I'd add is, we have a much larger facility now. Like I said, we have a fairly large facility that we acquired with a lot of machines. So we will be adding incrementally and in a scalable manner. So some of it that we acquired is usable. For example, we have a huge coater that we acquired from there that the coating -- we don't have to add new capacity, and coater is very expensive. But then we can add more to the dicing and stacking in a scalable manner. So we don't have to do it all at once. The facility is there, so we can prudently add it as and when we see the demand and the qualifications materialize. So it's been very fortuitous that we got this facility and now the demand is coming to us. William Peterson: I appreciate that. And then coming to the key, I guess, your first smartphone customer, trying to get a sense for the key learnings from the chemistry reformulation process. And how many more, I guess, options do you have with this customer? And you gave, I guess, a pretty clear example of cycle life. I guess is there differences in requirements between the various customers? Anything you can kind of give us to better understand what, I guess, opportunities you have ahead? Raj Talluri: Yes. I mean, look, the learning here is this for me, right? I think the learning is we wanted to give a lot more color on this call and our report on exactly what it is. And what we have learned over this is the smartphone requirements are very, very difficult because this is the largest market for portable batteries and consumer electronics, great margins because they provide clear value, huge TAM. But when you make a battery for that, the rest of the markets are much easier because this is the toughest one. And to replace an existing graphite battery and existing graphite battery ecosystem with 100% silicon anode battery, one is, meeting all the requirements. Second is, helping and learning with the customers on accelerated tests or other tests that they have put together, have to be updated a little bit for this particular kind of technology. It was kind of like thinking about when you started to add -- I don't know, I remember in my past, we added fingerprint sensors to phones. So now you've got to face ID. It's completely different, right? So it's still a biometric authenticating system, but the test cases are different and the way you use is different. So whenever you introduce a new technology, you have to work with the customer in enabling that. The reason that the customers are interested in, although it's different, is because we can provide an energy density road map that's not possible to do by just graphite batteries. And that is an absolute requirement. As I mentioned when I first took this job, the AI use case is only getting more and more and the demands are getting higher and higher. And now as I mentioned, I think a few calls ago that I expect these batteries to go to 10,000 milliamp hours, and now you see that. And they can't keep getting bigger because the phones can't get any bigger. So the customers are highly motivated to help us get this technology to market. But when you totally change the graphite anode to silicon anode, here, we have to work with them to make that to qualify. So if you look at the progress we've made, it's tremendous. I mean, I think we showed -- we have specs of like 75 different specs, and we passed most of them. So we are converging, and it's been a fantastic learning. But at the same time, other markets like eyewear are much easier to do because of this. And there are so many other markets like that, that are much easier, like if you think about wearable cameras and so many other markets where AI at the edge is really creating, there are great opportunities for us once we get this smartphone battery done or even before as we've gained a lot of technology advancements in the last few years working with our smartphone customers. Operator: Our next question comes from Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: I was curious if switching out the dicing technology sort of resets any part of the battery qualification process. Obviously, your customers want to make sure you guys can scale and putting aside any of the cycle life testing, might the change to the dicing technology push back that qualification process at all? Raj Talluri: Look, any time you have a customer qualify one particular product, if you change some steps within it, we will need to communicate what those steps are and what it changes, and we will need to run some form of qualification again. That's just the way it is. Even when you move from one fab to the other, you got to do that. But the way we would do it is, these are all by different zones. For example, dicing is Zone 0 and then Zone 1 and then stacking is Zone 2. So there's many ways in my experience, we've done this. We established equivalents. We show similar performance. We can do a subset of the qual. So there's many different ways to do it, but it's still a little bit early. Right now, we are doing laser dicing on all of them. When we do some other form of dicing, we'll work with the customers to gradually phase it in. Derek Soderberg: Got it. And then just a quick follow-up. Are there any remaining technical milestones to shipping commercial volumes in the back half of the year for the augmented reality market? Raj Talluri: Any technical milestones was your question? Ryan Benton: For smart eyewear. Raj Talluri: Yes. So I mean, look, we now have seen the products from our customers with our battery in them. Very exciting. We saw a few at CES. We saw a lot more in private demos. The performance is fantastic. They really like it. They really like what it's able to do and what the AI is able to do. We don't see any big technical obstacles. But this is a new market. It's a new application. So the applications are evolving. So they are doing testing of different applications. And as and when they find them, we'll figure out how to adjust it. We did learn about one thing after we first sampled in terms of how to -- different rates and different pulses and so on, and we quickly adapted that, and now we have a new battery that meets that. So my team is very capable of quickly reacting to those now. But right now, the battery we have, we feel meets all the requirements. That's why we got a production PO, yes. Derek Soderberg: The next question is from Alek Valero with Loop Capital. Alek Valero: This is Alek on for Ananda. So my first question is, what is a good way to think about the cadence of testing and production over the next few years for smartphone, eyewear, PCs and drones? Additionally, what do the capacity needs look like over that time frame? I have a quick follow-up. Raj Talluri: Cadence of testing, how do you mean by that? Maybe you can ask a little bit better. In terms of timing you mean, how long it takes or... Alek Valero: Yes. I guess what's the timing of the phases of the testing? Raj Talluri: Yes. So my experience in the last 3 years has been that typically, we provide a standard size cell to the customers that one we have. And they give us a set of requirements in terms of cycle life, energy density, rate of charge, discharge, swelling requirements and so on. And they'll do a bench level test of that. That takes a few months. When they're comfortable with that, they come back to us and ask us, hey, we want a particular -- if they are happy with that particular size and then they put it in a product and then there's a product level testing that takes a few more months. But if they want us to change the size, it will take us multiple months to come up with a different size, like when I say size dimensions, X, Y, Z and so on, to fit in that. That becomes a long pole, maybe 3 to 4 months to build that. And then they will put in the product and do the testing again. And then when all of them have passed, they place the PO. And they do system-level testing now. They put it inside a product, test to make sure the product is performing like it's always supposed to perform, and then they go to production. So if you -- and that whole cycle can take anywhere between 1 year to 1.5 years for a brand-new customer starting from scratch. Now if the requirements are not as stringent and we already have a technology that meets those requirements, for example, it can be much shorter because we don't really have to change anodes and cathodes and electrolytes and so on. Like, for example, when we have a product that meets the smartphone requirements, we were able to quickly react and make small adjustments and meet the smart glass market -- smart eyewear market. So that -- so now it's much shorter. Now if your cycle life is 1,000 cycle requirement, well, that testing takes like 4 months. But if your cycle life is only 300 cycles, it takes much shorter time. So it depends based on the end application, whether you need a custom cell or not, whether you can use a standard technology or not. So it's -- the question -- maybe a little long-winded answer, but that's just the nature of these lithium-ion batteries in custom applications. Ryan Benton: And drones? Raj Talluri: And drones I think can be much shorter. Yes, sorry, go ahead. Alek Valero: No, sorry, go ahead. Apologies. Raj Talluri: No, I was just saying drones, very similar. But like I said, the cycle life requirements are much shorter. And the space requirement is not as bad in the sense that there's more room there, so you don't need to exactly make this exact dimension of the cell. Sometimes they stack multiple cells to get the performance. So they may be able to use the cells that we have and stack multiple of them to meet the power. So that time of making a custom cell will come down. Alek Valero: I appreciate the detail. Super helpful. And actually, just a quick follow-up and on that same note. So you mentioned the drones, and I believe you said that's one of the products that could handle a little bit more swelling. Can you speak to other markets besides drones that are maybe similar like this where you could get a little bit more swelling? Is there any markets there that seem attractive that you may want to penetrate in the future? Raj Talluri: Yes. I mean I would say industrial markets that have large space, for example, I don't know, think about forklifts, stuff like that, where there's a lot more room to put the batteries in and you put it inside a big pack and you can design the pack to enable some amount of room inside that, right? That -- those are the kind of markets. But if it's a small form factor like earphones or smart glasses or cameras or consumer, they're a lot less forgiving. I would say industrial and defense are probably a little bit more forgiving. Operator: There are no further questions at this time. With that, I'd like to turn it over to Dr. Raj Talluri for closing remarks. Raj Talluri: Yes. Thank you. Thank you all for your attention today to listen to the call. I really appreciate all the support, and we look forward to talking to you guys next quarter. Thank you.
Operator: Thank you for standing by, and welcome to the Ridley Corporation Limited, RIC 1H FY '26 Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Quinton Hildebrand, Managing Director and CEO. Please go ahead. Quinton Hildebrand: Thank you, and good morning to everyone. Thanks for your attendance on our conference call today. I have with me Richard Betts, who will present his final set of financial results before retiring from Ridley after 5 successful years. We also have Chris Opperman, incoming CFO, who started at Ridley on the 5th of January. Chris joins us from Energy Australia, where he was CFO. And prior to that, he was with Dyno Nobel, where he held a number of executive leadership roles, including CFO and later President of Incitec Pivot Fertilisers. For this morning's address, I'll be talking about the slides that are uploaded on the ASX website. So starting on Page 2, the financial summary. The business delivered a first-half underlying EBITDA of $55.4 million, a 9% increase on PCP. This result included 3 months' contribution from the new Fertilisers segment and a strong performance in Bulk Stockfeeds, which carried the softer outcome in the Packaged and Ingredients segment. I'll speak to the performance of each of these segments in the next few slides. As you will see, we had a very positive operating cash flow, and this has reduced our net debt, with the leverage ratio post-acquisition now at 0.8x. On the back of this performance, the Board determined a progressive dividend of $0.051 per share, fully franked. Moving to Slide 3. The Bulk Stockfeeds segment delivered an EBITDA of $27.1 million, up 25% on PCP, a very pleasing result, especially when you consider that there were $1.7 million in lost earnings in FY'25 from the Wadley feed mill, which was sold on the 30th of June 2025. This result was achieved by 13% volume growth in ruminant sales and 7% volume growth in monogastric sales, together with higher-margin supplementary feeding of beef and sheep at the start of the period. Once again, Ridley Direct, now in its fourth year, was able to generate profit by leveraging our grain and co-products procurement flows and accessing a broader customer network. Moving to Slide 4. As we foreshadowed at the AGM in November, the Packaged and Ingredients segment had to contend with a number of short-term challenges, which decreased the EBITDA by 28% to $25.6 million. Short-term ovine supply constraints at OMP due to lower lamb slaughter rates across Australia impacted sales through this period. We endured lower prices for protein meals when compared to the prior year. And lastly, we experienced some temporary processing challenges. The first was due to a slip in the main cooling dam wall during a rain event at the Maroota rendering facility. This made this dam inoperable and imposed processing constraints, requiring us to incur costs diverting material to Laverton and other processes. The second temporary processing challenge has been with the commissioning delays at the new OMP Timaru greenfield facility, which has impacted our daily throughput and yields. On the positive front, the raw supply volumes to the rendering plants grew 7%, and the packaged dog sales also grew 7%, taking up the extrusion capacity vacated from the aquafeed transition. So a challenging period for the Packaged and Ingredients segment, which should correct itself through the second half as we've added additional supply of land bones to OMP and are addressing the processing constraints with capital projects, and I'll address these in greater detail later in the presentation. Moving to Slide 5. The Fertilizer segment delivered an EBITDA of $10.3 million, above the top end of our expectations and above the PCP under the previous owner. This was achieved through good cost control and margin management in a period that is known to be the lowest seasonal demand quarter. To provide some context, on the right-hand side of the slide, we've provided the average monthly volumes dispatched by Incitec Pivot Fertilisers over the past 7 years. This clearly illustrates that our Q2 is the lowest seasonal demand period and also shows how our dispatches build in Q3 and Q4. The table below the graph offers some more detail on the timing of the various crops and the volume intensity in each month. I'll now hand over to Richard, who will take you through the financial results in more detail. Richard Betts: Good morning, everyone, and thank you, Quinton. I will now present the financial results for the first half of FY'26, beginning with the profit and loss summary on Slide 7. Quinton has already talked you through the operating segments, which delivered a combined EBITDA for the half of $63 million. The corporate costs increased by $0.8 million to $7.6 million, with the increase primarily associated with the employee incentive schemes, which now incorporate all the employees of the IPF business. The reported underlying EBITDA of $55.4 million represents a 9% increase on the PCP. During the period, the business reported net individually significant gains after tax of $31.4 million, which related to the acquisition of the IPF fertilizer business. I will cover this in greater detail in a later slide. Depreciation and amortization for the period was $18.6 million, a $3.5 million increase on the PCP. This relates to the depreciation and amortization of the newly acquired IPF business, which totaled $3.6 million. The underlying depreciation included several significant capital projects that were depreciated for all or part of the period, including the recently completed debottlenecking projects. As anticipated, finance costs increased from $4.9 million to $8.7 million on the back of debt funding relating to the acquisition of the fertilizer business, which was partially offset by the interest received from the half 2 FY '25 capital raise. The income tax expense for the underlying operations decreased by $1.6 million as a result of the lower profit before tax. The underlying effective tax rate was 29.9%, an increase from prior periods, but in line with the lower available research and development deductions. Turning now to Slide 8 and the balance sheet. The balance sheet looks significantly different from 30 June 2025 following the acquisition and related debt financing. The pro forma balance sheet highlights the impact of the acquisition on the movement since 30 June in order to better understand the movements that relate to operations. Excluding the acquisition, working capital has reduced by $72.5 million during the period. This gain will be covered in further detail on a later slide. Property, plant, and equipment has increased by $15.3 million, with the increase relating primarily to the Ridley growth projects, including OMP's new facility at Timaru and the debottlenecking projects within both bulk stock feeds and rendering. Net debt reduced by $22.4 million, driven by improved EBITDA and the reduction in working capital, partially offset by the increase in CapEx, dividends, tax, and interest payments, all associated with the higher earnings. Now turning to Slide 9. As outlined on the previous slide, the group working capital increased significantly following the acquisition of IPF, where the business acquired $387 million of working capital. In line with what the business would traditionally hold at a September balance date, together with the additional inventory held to support the transition of the Single Super Phosphate business, or SSP, from being a manufacturing business based out of Geelong to an import-only model and the associated longer supply chain. Subsequently, the fertilizer working capital has reduced by $98 million. This was due primarily to the timing of receipts and payments associated with the export products sold by fertilizers from the Phosphate Hill facility, and management's focus on ensuring working capital reduced to align with the seasonal sales cycles. The working capital for the Ridley business units increased by $26 million, with $14 million related to receivables associated with the increased volumes. Debtor days remained at a very healthy 33 days, in line with the prior period. Payables reduced despite the higher volumes due to the shorter payment terms associated with the strategic decision to purchase increased volumes of raw materials directly from Farmgate. Moving to Slide 10, capital management net debt. During the period, net debt increased by $321 million, with $358 million used to fund the acquisition of the fertilizer business, with the difference relating primarily to the cash from operations that was used in part to fund the CapEx and the increased dividend. The business has increased its available funding lines by $500 million to $690 million through a combination of a $200 million revolver facility and a new $300 million working capital facility. Our existing and new revolver facilities have been split between 3- and 5-year tenors to provide greater certainty regarding the long-term financial capacity of the company. The working capital facility is uncommitted and provides the flexibility to manage the annual seasonal highs in the working capital cycle of the new fertilizer business. Bank leverage for covenant purposes was 0.8x, comfortably within covenant levels despite the recent acquisition of the fertilizer business. Turning now to Slide 11 and the capital allocation framework. First implemented in FY '21, this remains pivotal in prioritizing the capital within our business and ensuring we are aligned to making the best investment decisions to maximize shareholder returns. This will become an even greater priority now that have acquired the fertilizer business. During the period, the business delivered strongly against the model, including ensuring the improvement in underlying business translated to a very healthy operating cash flow of $128 million. We continue to prioritize reinvestment in our underlying asset base through the focus on maintenance capital, with spend of 60% of depreciation aligned to our committed range. We continue to deliver on the targeted leverage range, supporting the decision to increase the interim dividend to $0.0510 per share, up from $0.0475 in half 1 FY '25 and in the middle of our targeted range at 59% of underlying NPAT. Pulling all this together, the business has been able to deliver the acquisition of IPF for $357 million and still report a covenant bank leverage that is below the 1.2x targeted range. On Page 12, we have set out the individually significant items that were reported during the period as a result of the IPF acquisition that occurred on 30 September 2025. The total consideration for the fertilizer business was $433 million, which included a cash outlay of $357 million. This is $57 million higher than originally reported as we acquired higher working capital, mostly associated with the take-on balances associated with the Geelong SSP business, the higher inventory associated with the Geelong SSP business, which totaled roughly $30 million. The fair value of the assets acquired has been assessed at $489 million, which is primarily made up of $386 million of acquired working capital. Following the acquisition for less than net assets, the business has booked a provisional gain on bargain purchase of $56 million. The gain is provisional as further work will be required in half 2 to finalize the carrying values of land and buildings, long-term leases, and any future additional site rehabilitation costs. Partially offsetting the provisional gain was acquisition costs of $17.8 million, which related to stamp duty, legal, and advisory fees for the acquisition. And separately, the business has incurred $1.7 million of project office and IT integration costs. The business also incurred a cost of $5 million relating to the unwinding of the inventory step-up created as part of the provisional gain on bargain purchase. The unwind was required as the inventory has now been sold. The net effect on profit of this item during the period was nil. All of these items resulted in a net gain of $31.4 million. Before I hand back to Quinton, as he said, this will be my last official duty as CFO. And as such, I want to thank all of you that I have worked with over the journey. The 5 years have been a great ride. And as I look at these results for the half, they align with what we reported for the full year just over 5 years ago. The acquisition of IPF was a career highlight, and I genuinely believe represents a golden opportunity to transfer this company again. I wish Quinton and the team all the luck in this journey. And as a significant shareholder, I will be watching with interest from the golf course or racetrack. I will now hand back to Quinton, who will take you through the remaining slides. Quinton Hildebrand: Thanks, Richard. I'll just take you through the strategic progress on the year-to-date and starting Slide 14. I'm very pleased with the progress we're making with the transition and integration of Incitec Pivot Fertilisers. Having owned the business for 4 months, and being confident that our pre-acquisition thesis of a regional distribution model is correct. In the last few weeks, we flattened the structure and reduced the matrix model with the appointment of regional general managers in 5 regions. They'll each have responsibility for both the sales and the execution of those sales through the primary distribution centers, making us more responsive to the customer and driving accountability for cost control. This is the model that we applied in the Bulk Stockfeeds business back in 2019, and has seen us grow to the business that we are today. The outcome of this initial restructure is the removal of 45 roles, reducing costs by $8 million per annum from FY '27 with a one-off cost of around $3 million in FY '26. The migration from Dyno Nobel's SAP platform to Ridley's Microsoft Dynamics platform is expected to take place in calendar year '26 at an estimated cost of $30 million. And once complete, should release corporate synergies of $7 million per annum from calendar year '27. And lastly, just to keep you informed, the urea offtake agreement with Macquarie Commodities is on track to commence in FY '28 upon the commissioning of the Perdaman facility. And the decision on the future supply contract with Phosphate Hill is expected in this financial year as Dyno Nobel run a process to find a buyer for that business. Moving to Slide 14, the Bulk Stockfeeds strategic progress to date. Ridley's flywheel strategy continues to drive momentum in this period, and we've secured significant new layer and dairy business. On the back of additional demand and as we are already operating 7 days a week at the Lara feed mill, we have committed to a $5.7 million debottlenecking project to complete in calendar year '26. And in November, we completed a 1.6 million concentrates production line at the Gunbower feed mill, adding a new product to our offering. On Page 16, we outlined the investments we are making in the underlying assets within Packaged and Ingredients to improve our processing performance. The first 2, the commissioning at Timaru and the replacement of the billing dam at Maroota are to address the short-term impacts we have endured in recent months. And the third additional small pack line at the Narangba extrusion plant is to replace labor and meet new customer expectations. All these investments provide the runway to significantly improve the operating cost base and deliver incremental volumes. Turning to the outlook statement. Ridley's diversified businesses and market exposures provide the group opportunities and resilience in commodity and weather cycles. In FY '26, Ridley expects group earnings growth to be driven by 9 months contribution from the Fertilizer segment, including the second half seasonal peak demand, increased market share and volume-related operational efficiency in the Bulk Stockfeeds segment, processing improvements from capital investments in the Packaged Feeds and Ingredients segment and modest commodity price recovery in the second half. For the longer-term outlook, this will be presented in the form of the FY '26 to '28 growth plan at the Investor Strategy Day on the 10th and 11th of March 2026. On the next page, we've included the program for the Strategy Day and site visits, and we're excited to take you through the expanding opportunity in Australian agriculture and how we can position ourselves as #1 in each business sector to give ourselves a competitive advantage. We'll outline what we are doing to support our customers to become a critical player in their supply chains and how we look to unlock value from the fertilizers acquisition. Ultimately, we want to demonstrate to you the resilience and opportunity of our diversified portfolio and to give you some appreciation for the platform that we are establishing for future growth. That concludes the formal part of our presentation, and I'll now hand back to the moderator and ask to facilitate the questions. Operator: [Operator Instructions] Thank you. The first question is from the line of Apoorv Sehgal from Jarden. Apoorv Sehgal: First question, just on the core business EBITDA, excluding the fertilizer contribution. I think going back to the AGM, you were indicating modest growth for the core business for FY '26. I can't see your line in the presence for that today. But are you still expecting the core business EBITDA to grow modestly in FY '26? Or has the weakness in that Ingredients segment potentially changed that? Quinton Hildebrand: We are AP for the full year expecting modest growth. We expect there to be ongoing momentum in the Bulk Stockfeeds segment, and we expect a modest recovery in the Packaged and Ingredients segment in the second half. So the combination of those playing through to the statement. Apoorv Sehgal: Let's unpack the Ingredients segment a bit more then. So the Ingredients segment EBITDA was down $10 million year-on-year. Could you maybe allocate that across the different dot points you got there on Slide 4, I'm just sort of calling out 3 things. You've got the OMP issues with the slaughter rates and the Timaru delays. You've got the lower protein meal prices and then the capacity constraints at Maroota. Could you like just allocate that the $10 million headwind across those different buckets? Quinton Hildebrand: Well, I'll give you a high-level split on that. And as you can appreciate, there are some positives as well that are partly offset. So on Slide 4, we've got the volume increases in rendering and the packaged performance there. So I think the first impact, which is the reduction in land bones in Australia for supply to OMP would account for roughly half of what we're considering here. And then lower protein and meal prices would be about half of the balance quarter and the capacity constraints at both Maroota and Timaru accounting for the final quarter. Apoorv Sehgal: Then if we're then looking into the second half, how much of those headwinds do you think you can recover? So I guess looking at the commentary here, okay, you're expecting higher commodity prices in the second half. So there's a little tick up there. That's good. I would presume the Maroota and Timaru commissioning issues get fixed. But the slaughter rate issue, which is obviously the bulk of the earnings fall, I think slaughter rates are still pretty weak, aren't they looking at the MLA data over the last sort of 1 or 2 months. So just keen to explore into the second half, to what extent do those headwinds kind of recover? Quinton Hildebrand: So just starting with your last point first, which is the slaughter rates. Our supply of bones into OMP in Australia is back on track. And as I indicated just in the address, we have brought on some additional supply. So whilst slaughter rates across the sector are not back up substantially, we've sourced additional raw material. So in the second half, we are processing back at the level that we would expect. I just flagged that our main market is North America, and there's a lag in the supply chain. But for the majority of the second half, we will see that recovered position. Then in terms of the Maroota dam wall, subject to weather, that should be complete within a month, and that would return us to that position. As we progress the commissioning of the Timaru facility, we would expect incremental improvements during the second half. Apoorv Sehgal: And actually, the one headwind I missed, I'm not sure if it was discussed on the pro. remember the $3.5 million or $3 million to $4 million hit you had from the avian AI export restrictions back in the second half of '25. Did that impact from those restrictions remain all the way through the first half of '26 as you're working through the excess inventory? And if that's the case, are we now back to normal in the second half of '26? Like is that a headwind that now gets recovered? Quinton Hildebrand: So AP, the AI that led to the excess poultry meal in the marketplace, yes, that's there are still higher volumes in the market. And this is a combination of both that we started with high levels from avian influenza. But if you look at alternative protein sources, canola meal, soybean imports, those the protein complex was lower priced in this first half. And there is some improvement now, and that should also facilitate the movement of stocks. Apoorv Sehgal: Yes. Sorry, last final follow-up before I jump back. Overall then, just to round out the Ingredients business, should the Ingredients segment EBITDA grow for the full year of '26 versus full year '25? Or is that too optimistic? Quinton Hildebrand: That's too optimistic. I think where we see it, AP, is that we will see improvement in the second half over the first half. But as we reported at the AGM, that won't be caught up in terms of delivering a stronger result in terms of the PCP. Operator: We have the next question from the line of James Ferrier from Canaccord Genuity. James Ferrier: Richard, thanks very much for all of your efforts and support over the last few years and good luck with the next stage of your career. Can I ask, first of all, on the fertilizer business. So that from an EBITDA perspective, you talked about the growth on PCP being driven by cost control and margin management. Firstly, how did volumes compare to PCP just thinking about the sort of the tail end of winter cropping and whether or not you're seeing any early season pull forward sales volumes for the upcoming season into the quarter. So firstly, just how volumes were in that 3-month period? Quinton Hildebrand: So it is traditionally the lowest demand quarter. Volumes were slightly lower than the prior than PCP. But as we indicated, more than offset by margin and cost control. James Ferrier: So on that basis then, Quinton, if you think about that early run rate of cost control and margin management, which that's the sort of hitting zone for what Ridley is trying to achieve and focus area for improvement. When you look at that run rate and appreciate it's only 3 months and it's the smallest seasonal period, but how do you think that compares if you extrapolate it to the full business case earnings for the business and assuming all else equal, how do you think you're tracking relative to that business case earnings on an annualized basis? Quinton Hildebrand: I think Ridley's philosophy is starting to get early traction. within the business. And our recent restructure and focus will support that together with the savings in the underlying cost base. So yes, early signs, but we think there's more to come through engaging the teams, particularly in the regions to be able to embrace the new approach. And obviously, some of this will be shared with customers as we grow, but that will support our volume position, which is what we see as a critical advantage relative to competitors. James Ferrier: On the margin management side of things, a lot of what you've referenced today with organizational structures and the like is probably more OpEx centric. But within margin management, can you talk a bit about where gross margins are for the business at the moment and whether or not it's sort of BAU there or perhaps there's some management-led improvement coming through there as well? Quinton Hildebrand: Yes. We're being very cautious in that area. We need to make sure that as we take on the business, we manage those risks effectively. And so we're engaging directly with the expertise and the team that we've inherited, where we have some significant strengths. Then Chris Opperman joining and bringing his previous experience to this part of the business is also all part of the key process for us transitioning the business into Ridley. So we're taking a conservative approach in how we manage the supply chain in that regard, although we do think as a business, we should be able to bring our general commodity risk management philosophy over time and make sure that we act decisively in the process. James Ferrier: The second topic is on the Bulk Stockfeeds segment. AP covered a lot of the content in the packaging ingredients. But on bulk, I mean, that was a super impressive result. And we could see the volume growth accelerated from what was achieved in FY '25 across both Ruminant and monogastric. And you've referenced there some of the mix of the volumes with supplier margin subs volumes coming through. So I get that. But I'm just interested in your views on where the bulk business sits today from an operating leverage perspective and asset utilization perspective. On the assumption that volumes keep growing in this business, are you still in a sweet spot in terms of incremental volumes and the operating leverage you get from that? Or are you starting to bump up against capacity limits. And so maybe in the period ahead, you don't quite get as much operating leverage before your debottlenecking efforts kick on again? Quinton Hildebrand: Yes. So in the South, so Victoria, Tasmania, we have got high utilization rates. And it's for that reason, expanding Lara gives us further runway. And as you can appreciate, we do operate as a network. So you do a relatively significant expansion at Lara, and it gives you all your monogastric feed mills some capacity. So in the South, where we are highly utilized and we're continuing our debottlenecking journey. In the North, so the 2 mills in New South Wales and the 2 mills in Queensland, at those facilities, we're underutilized still as in we were using only 1 or 2 shifts a day over a 5-day operation. So we have got growth capacity. They have been running at high utilization within those shifts, which is very positive. But we've got further capacity should dry conditions support increased demand. James Ferrier: And last one for me, and maybe you could try this one to your colleagues, given you've been carrying all the load there, Quinton. Working capital expectations going into the second half, noting where you were at the December balance date for the existing business and for fertilizer? Richard Betts: Yes. I mean, look, James, as we've always said, this business tracks against the seasonal sales cycles. So we will head into a period of significantly higher working capital within the fertilizer business. And in fact, we'll probably peak somewhere in the area of around $200 million higher than where we are at December. That is fully funded within the facilities and was always assumed in our thesis. So June will obviously be a little bit dependent upon which side of -- because obviously, June is right smack in the middle of the peak season. So there will be a little bit of where are we against that. But certainly, by the time we get to June, we will see a significantly higher utilization of the new working capital facility to allow us to adequately fund all the working capital requirements to take full advantage of that peak season. James Ferrier: Yes. And any callouts on the business expert? Richard Betts: Business expert? James Ferrier: From a working capital perspective. Chris Opperman: You're spot on. You are going into the highest point of the season, especially in February, you get the ultimate high February and March and your stock holding and you start to sell that down. And your June, July is really your 2 months that could swing around your working capital. But your general swing is about that 200 up, could be less depending on how good we go with sales in June, and that's all pharma demand. Operator: [Operator Instructions] We have the next question from the line of Richard Barwick from CLSA. Richard Barwick: I just wanted to do a more general discussion given the rainfall outlook looks pretty ordinary, at least on a 3-month view. So for starters, just from a Bulk perspective, I'd imagine that presents quite an attractive backdrop. And so just interested to hear your comments just then about the Queensland facilities being underutilized. How quickly can they be ramped up? And then if you got capacity in the North, but you're constrained in the South, you did mention that you operate as a network, but that network effect, does that work across the full geography? I'm just wondering if we do have a dry period, how can the Bulks actually respond? Quinton Hildebrand: Yes. So in Bulk, the network is more regional, so state-based. So transporting finished feed from Victoria to New South Wales happens only at the margin. And what we have done in the past is set up temporary depots in the dry areas in New South Wales, and we've shipped full loads of feed direct into those regions. So we can at the margin. How quickly can we ramp up? In Queensland and New South Wales, it requires additional shifts. So it just takes training. You're looking at a 3-month period to get to full capacity as we stretch. And in the past, we have said that in an extended period of dryness, so with buildup, there's a circa $5 million EBITDA potential upside per annum in the Bulk Stockfeeds from supplementary feeding in a drought. Richard Barwick: And that comment would relate to a widespread drought as opposed to something that we've seen more recently is very centered in the South. Quinton Hildebrand: Yes. Yes. For the full benefit, so to speak, for the Bulk Stockfeeds business, that would have to be across the network. Richard Barwick: And then from a ferts perspective, you talked about the other situation. So if we are running into a dry period, I know obviously, you haven't owned the business very long, but I don't know to the extent that you can see the historical data, how much of a swing factor which might we expect in the ferts business from the same conditions. So extended dry across the eastern growing regions and how negative might that be for the fertilizer business? Quinton Hildebrand: If we look back over the history, the range in volumes is about 1.8 million tonnes a year up to 2.2 million tonnes a year. So that would demonstrate the extremities of the fertilizer volume exposure. As you can appreciate, we're geographically well spread from the North Cairns all the way through to Tasmania, South Australia Port area. So if you look at across that, you normally have a fair bit of diversification. But nevertheless, your point is absolutely right. And I think I would expect the diversified portfolio of Ridley, the fertilizer impact in a drought circumstance would be greater than the benefit to the Bulk Stockfeeds. And hard to know and all depends on what region, what timing. But if Bulk Stockfeeds is $5 million EBITDA you might find that fertilizer could be double that to the negative. So that's sort of how we're interpreting it at this point. Chris, anything to add to that? Chris Opperman: Yes, Quinton, I think you're right, especially the width of the swing isn't that much because the 1.8 billion you were talking about, that's really extreme dry weather conditions. We're not seeing that at the moment. And then just for in year, more specifically, the business do write contracts throughout the season going into the high season. So as we stand today, we've already got a fairly large position written, which you can basically lock in. Quinton Hildebrand: So I hope that answers your questions, Richard? Richard Barwick: Yes, it does. And just the last one on the first. Just looking at the map in a very simplistic view. I look at some of the placement of the blue dots and the red or pink dots, some of them sit pretty close together. So in the fullness of time, do you see opportunities here for potentially some consolidation in the number of sites? Quinton Hildebrand: So yes is the answer. We bought the distribution-only part of the business and Incitec Pivot used to be a manufacturing and distribution business. So the footprint can be enhanced as we go forward over time, and that is part of our planning. So if you're able to attend the Strategy Day on the 10th and 11th of March, we'll give a bit more color to that. Operator: There are no further phone questions at this time. I'll now hand the conference back to Mr. Hildebrand for closing remarks. Quinton Hildebrand: Great. Thank you, Myron. And thank you, everyone, for your attendance today and appreciate the questions. I just want to take the opportunity to publicly thank Richard for his contribution to Ridley over the last 5 years. And during that time, we have substantially driven the earnings of the business, and he has played a significant role in that. Then culminating in the acquisition of IPF last year and the mountain of work that he did in concluding that transaction. So I'd just like to thank Richard and appreciate the conscientious handover that he's done with Chris. We look forward to working for him as a critical shareholder on the other side. So thank you, everybody, for your attendance today, and thank you to Richard. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Sverre Flatby: Good morning, everyone. I am here with my colleague and CFO, Einar Bonnevie, and we thank you all for joining today. Let me start clearly. The fourth quarter 2025 was a record quarter, and 2025 was a record year. So, we have interesting topics for you to go through today, and these are the main highlights. We're going through the fourth quarter highlights, the full year '25 and of course, AI, which is important. We'll go through that deeply. [Audio Gap] Status when it comes to M&A. And as you see, we will have a presentation for about 25, 30 minutes, and we will have a Q&A session at the end of the session. So please, if you have any questions, type them in as we go, and then we will attend to them at the end of the presentation. So, let's start and talk about the fourth quarter 2025. Reported revenue, NOK 135 million. That is 17% growth compared to the fourth quarter 2024. We are quite happy with that and also happy with the fact that the reported EBITDA in that quarter is NOK 31 million and the reported EBITDA margin is 23%. And even there are some one-offs as usual, this is the reported margin without any adjustments. And then the full year, it didn't just end on the high note with the fourth quarter. The full year 2025 is also a structural step-up for Omda. NOK 496 million in sales and revenue for 2025, which exceed our guiding for '25. That is 16% growth compared to 2024. And that also means that the operational baseline, the operating baseline into 2026 is very, very strong based on what has happened in 2025. So, the profitability and performance in '25, NOK 117 million, which is good, and that also implies 24% reported EBITDA margin for 2025. So next topic will be AI. And of course, when you look at AI in the market today, there's a lot of discussions, a lot of noise and predictions, and we have to respect AI as an important topic for all businesses, including our own. What we have to do is to explain properly what we are doing and how it is affecting us. The good thing for Omda is that we operate, as you see here in the picture, in a regulated, certified specialized health care and emergency environment. And what is going on in there? It is mission-critical. It has to do with life-critical treatments and reliability and compliance is, of course, much more important for customers than speed to change things in these environments. And also, if you think about the switching cost of a situation like this, it's not only about software and code. So the stability and the mechanisms in this specialized market will stay the same, although AI will have an impact, which I will get back to in a few minutes. So, if you look at this, a user using a software in the process working in these environments, the value is not necessarily only in the code. The value is, of course, in regulatory trust in specialized workflows and expertise that we deliver and, of course, in cooperation with the customers and their demands and needs. So, if you look at it that way, AI for Omda gives us a stable situation from the customer side, but it is rather an acceleration tool for us when it comes to be more efficient, a productivity accelerator really. So that is what I'm going to explain to you. It's more like what are we actually using AI for in Omda. And these 2 pictures will give you an idea. I think many analysts have already seen what's going on. And I think it's clear that a company like Omda can use development tools with AI agents to completely change the development processes and make them much, much more efficient. So, we are using, like in this picture, a senior developer, the new era gives the possibility to get added code, testing, documentation and much more efficient workflow processes using the agents rather than a lot of other colleagues helping out creating code, for instance. And this was in '24, it was experimental. In '25, we already started projects to make sure that we could do something both in our business units, but also centrally for Omda to create toolboxes for our business units to accelerate this in 2026. So, it's no longer experimental. It's our operating model going forward. So, this is going to accelerate in 2026. And then you will ask yourself, what is the impact on our business? And if you look at this graph, and let me explain it simply to the left, the percentage is self-explanatory. But then again, you see the topping here, the 3 dimensions. One thing is what we have delivered, our guidance for this year, which my colleague will go through in a minute, and then the ambitions and the long-term targets. So, what does this mean really? If you look at the gray curve here, CapEx, which is the same as investments in our own software. We think that investments in our own software will continue with the absolute value level that we have today. But that also means that the CapEx and investment in software compared to our revenue will decline over time as we show you in this curve. And if you look at the green curve, obviously, when you reduce CapEx like that, it will give more cash from operations. So that means the cash EBITDA margin or so-called EBITDAC will, of course, then increase. And this is really the important thing for Omda. So, AI in our company is not a hype. It's actually a tool set that helps us create a much more profitable business. So that means we have delivered a very strong fourth quarter '25 and also a strong year '25. So now it's time to dive deeper into that. And Einar, if you're still awake, the floor is yours. Einar Bonnevie: Thank you, Sverre. Thank you. Good morning, everyone. Let's have a deep dive into the financials. And let's start with the quarterly comparison, the fourth quarter '25 versus the fourth quarter '24. And we see it's -- yes, it is a record quarter. And there's one -- you can say, one-off or anomaly here. It's the sales of hardware and usually large hardware order in the fourth quarter made us beat the expectations. But if you adjust for that, I think we are very much within the guidance of -- in the upper range of what we guided more than a year ago for the year. And when we look at earnings, a very marked improvement in earnings. When you look at the EBITDA or cash EBITDA, you see a very strong margin improvement in the fourth quarter. And also, if you look at the whole year, the same thing here, we see a very strong year, ending -- very much ending on a high note. And the earnings was not only a quarter or 2, we actually met or beat the expectations each quarter in 2025. And ending, as Sverre said, on a record high EBITDA and cash EBITDA. I think it's also worth noting that even though we had a very large hardware order in the fourth quarter and that for the year, actually, hardware sales doubled compared to 2024. Our gross margin was still improving. COGS is coming down and the gross margin is still improving. So, taking note of that. And that also points to where we will be in 2026 and going forward. The margin improvement should continue. In a nutshell, NOK 117 million in EBITDA. We had a CapEx of NOK 47 million, so slightly less than 10%. That was our guidance and cash EBITDA, EBITDAC. We have received some questions from various investors, why do you focus on EBITDA? Why don't you only focus on cash EBITDA? And some say EBITDA is better is more general. The thing is we need both for, say, bond purposes and current tests, et cetera, measured on EBITDA, and it's more common, so you can compare it to other companies. Cash EBITDA, on the other hand, that is what we use internally. So, let me be very, very clear. Business unit leaders, they relate to cash EBITDA and not EBITDA, all right? And that is mainly because CapEx, that is a capital allocation decision. And that is one of the few decisions that are still centrally managed. So, capital allocation is centrally managed. You can get the approvement for a capital allocation for a CapEx project or not don't go to the highest bidder, so to speak. So that is why we have them, and we need them both, and I hope this explains it. As you know, we focused a lot on recurring revenue. And in the past, we have discussed recurring software revenue, but it's not only the software that is recurring. And a few analysts also have taken notice of this that they've said your professional services, they seem to be very, very stable. And yes, indeed, they are. So, in the past, we referred to professional services as semi-recurring, but we split those and started -- as from the third quarter 2025, we started splitting the professional services in the recurring part and nonrecurring part. And what we define is that customers of ours that were also customers 1 year ago, they are defined as recurring professional services or recurring professional services customers. So, we view those as recurring, and applying that logic, you get a very different perspective on what is recurring and the stability of our business. So, we see that the recurring software business takes us up to approximately 80%. And then we can add another 15% or so on recurring professional services. That brings the real recurring or the true recurring income or recurring revenue in number up to almost 95%. So, it's an extremely predictable business and an extreme stability there to the benefit of shareholders, but also, of course, to bondholders. This really gives you a stability that you don't see very many other places. And combine this with very limited churn on the software. We have guided in the past less than 2% per annum. We can restate that guidance. Churn is limited. And speaking of churn and speaking of predictability, with the earnings in 2025, and you see the cash earnings, the EBITDA and the EBITDAC, cash earnings are coming up. Revenue is growing. Cash is stabilizing. We are moving into what we call a very low leverage territory. Here, okay, let me explain the bars, 3 bars, the blue on the left, that is the last 4 quarters EBITDA. That's how they are measured. EBITDA is measured in the bondholder agreement for incurrence test purposes. Then we have the orange bar, that is the run rate. So, if the current quarter is a template for the other quarters as a run rate, and then we have on the green bars, that is the forward-looking the next 4 quarters because what is ahead of us, it is not the past. It's the future, and we have a 2026 guidance. So, the green bars, they are based on the guidance for 2026, okay? Then the blue line, the upper blue line is the incurrence test. So, we have to be below that in order to do a tap issue on the current bond. And then we have the purple line that is at 2.5, and that is what typically is referred to as low leverage, low gearing. And you see that if you look at the first quarter -- fourth quarter '25, first quarter '26, where we currently are, you see and especially if you look at the leverage compared that to, and relate that to the next 4 quarters earnings, you see that we are indeed moving into a very low leverage territory. So, low leverage, combined with high predictability on income and earnings, that is where we currently are. And this also makes -- if you, again, taking a capital allocation perspective, what shall we -- how to spend our money most wisely. Debt repayment is probably not one of them, but maybe we can improve the debt terms. And that is exactly what we are now considering. Very strong performance on the top line, on the bottom line and low leverage that points to possibilities for refinancing of the current debt. I think, as most of you have observed, and some of them are also comment to us, saying that of the approximately NOK 70 million in cash EBITDA, a large chunk of that -- of those cash earnings from operations, they go to payout interest. And paying interest, that's the largest cash items in our P&L. And of course, that costs as all other costs, we like to reduce the cost and increase the earnings. Looking at the current bond that was issued in December '23. It's callable in December '26 and at NOK 104.3. And until then, it's a so-called make-whole clause. But the bond has been trading well, and we see that the spread has been narrowing. And the last I saw was actually a spread starting with the #3. So, we are around 400 basis points -- so 400 basis points, 4 percentage points, 4%. And the current bond is dominated in NOK. So, it's 3-month NIBOR plus 4%, translates into approximately 8%. That is where the bond is currently trading. And we have higher ambitions. And currently, the bond is trading in NOK. We will have to evaluate other jurisdictions also. So, when the bond was issued, and Omda went public, we were a very Norwegian company. As you have seen on the distribution of earnings, you can see that in the report, where are our customers, where are our employees. You see from an operational perspective we are more Swedish than Norwegian. That was on finance, and what we think there's room for improvement there. Let's move on to the guidance. We know where we are, where are we heading. Okay. We will repeat our guidance for 2026. So, we will end with revenues of NOK 500 million to NOK 525 million, ending at NOK 494 million. And even if you knock off the hardware for 2025, it shouldn't be Mission Impossible. And this is just the organic part. So, this is without any new acquisitions. This is just the organic part. We forecast a margin between 28% and 32% on the EBITDA. And as Sverre just pointed out, we will compress the CapEx. So, the cash EBITDA, the EBITDAC margin should be somewhat higher than the EBITDA. So, CapEx should be less than 10%. We forecast -- we guide on 9% for 2026, and that should absolutely be possible. Not guidance, but targets. What we just saw, they were guidance. This is where we think we're going to end up. These are what we see now are our targets. They haven't changed much since what we presented in the third quarter presentation but let me be even more specific and even more clear. We restate organic growth, 5% to 10%. That includes CPI adjustments and the like. We restate that we aim for target inorganic growth or growth through acquisitions, 10% to 20% on top of that. And EBITDA in excess of 30% CapEx going forward over the next 5-year period, we see it shrinking from where we have been in the past around 10% of sales or revenue to 5% of revenue. We see COGS. As I said, in spite of the unusual large hardware order in the fourth quarter, gross margin was still improving. COGS are still coming down from around 7%, 7.5% in '24 to 6.5% in 2025. And it should be -- there's more to come. It's not an overnight sensation, but we have gradually -- if you look 5 years back, 10 years back, you see we have constantly been improving. That improvement will continue. And we see that we can bring it down to at least 2% to 5%. Salary and personnel, we have constantly bringing it down. We have been trimming the number of FTEs compared to total revenue, to 55% at the end of the fourth quarter. In percent of total revenue, down from 70 to 65 to 60% to 55%, 54%, 55% ending -- exiting 2025, and we see we should bring it down to below 50%. Other costs currently at around 13% of sales. The original target was to bring it down to 15%. We are already there and actually beyond. We see now that the next target is to bring it down to 10%. Partly still trimming your nails and also as part of that, they will remain constant, and the top line will grow. And then last but not least, on the bond loan, it's currently NOK 500 million. If we just maintain that level, I'm not saying that we will, but just take that as a starting point, we should be able, with the improvement that we have displayed already and what is to come, to bring an end to an interest rate closer to 5% than 10%. Now I'm not saying 5%, I'm saying closer to 5% than 10%. Some analysts, have said maybe you should reach 7%, well, 7% is closer to 5% than 10%. But we are ambitious, and we are ambitious based on the strong underlying performance. Okay. And with those assumptions and targets, we will end up with revenues something like this. And you can do your own calculation, do your own math. Here, I have used those expectations to see where we end up on revenues on the organic side and on the acquired side. And you can use it in your own spreadsheets, for calculations. You can apply the speed and how fast you think we'll reach the margin improvement, and you will end up with robust margins, and you can do your own math on what you think the valuation of a company like Omda should be. Okay. Let me round off by addressing the M&A. We have a huge pipeline. We do most of the sourcing ourselves. We have a lot of targets on the radar screen. We have an active dialogue with someone between 5 and 10 companies. So, we are absolutely active in the space. In short, and some may say, well, you haven't announced anything. That is true. But as the old statistics professor once told me, absence of evidence is not evidence of absence. So don't think for a single minute that the fact that we haven't announced anything is not because we haven't been active. And sometimes, the only thing you end up with is a successful DD. But we maintain the goal of 10% to 20% inorganic growth. We will consider. Should we do bolt-ons or should we do large, more transformative deals? Sometimes the bolt-on may be less money for more value. So that is always a consideration. In the current market, we've seen there has been turbulence in the market on valuation, everything from us stocks or compounders or software companies and the AI turmoil, but that also gives opportunities for us as an acquirer. And then speaking of acquisitions, this, again, is a matter of capital allocation, and we need to spend money wisely. And we also need to reconsider this, I mean, how is it undervalued compared to other things we can buy in the market? So, share buyback is also something we need to keep considering. And last but not least, since we are moving into positive cash flow, good cash territory, smaller deals may be financed with cash from operations without having to issue any new capital in any form. That was a snapshot, and let's move into the Q&A. Einar Bonnevie: And there are a few questions here, and most of them seem to be to myself. And there's one question from John here, and it's related to the last topic, M&A. And the question is, with the incurrence test being met, and you have been expecting that for a while, given your goals, what's the next outlook on getting the M&A engine humming in the next quarters? Okay. As I just said, and you can add some comments to this, Sverre. But as I just said, it has been humming. So, it hasn't been turned off. And again, we haven't announced anything, but that doesn't mean that we haven't done anything on the subject. So, it is indeed humming. Would you like to add anything, Sverre? Sverre Flatby: Yes. I think what is important is actually that the value creation behind M&A has to do with the sequence of things. So, when we have dialogues going on for many years with many targets, we're also very good at looking at when to put things together. So, there is a very, very high activity, much more than you think, when we look at this. And I think what's going on now is that we will stick to the guidance of 10% to 20%, and they will come out, as Einar mentioned, probably of a handful of smaller acquisitions rather than a big one. So, all in all, we are very happy to tell you about the M&A processes going on because these are what will make us reach our goals in the next 5 years as well. Einar Bonnevie: Okay. Thank you. Another question here from John, and that's about the bond agreement. And the question is, remind us of your buyback opening in the bond agreement. Yes. The current bond agreement gives us the opportunity to buy back shares. And we haven't done anything for the last year or so. But the bond agreement gives us an opportunity to continue to buy back bonds. What it doesn't allow currently is to delete the buyback shares. We can buy back and continue to buy back. We still have room to buy back more shares, but we cannot delete them under the current bond agreement. But that was a trade-off we made when we borrowed money the last time, but that is something we will look into because that is one way of making the implicit dividend more effective. So, we can continue to buy back shares, but we can't delete them. Okay. There's one question pending. [Operator Instructions] And this is from Balas, and it's related to net working capital. And the question is, can you please elaborate on net working capital dynamics? It looks like this year; net working capital was a drag on cash generation. And I can understand the question and the reason behind it. Okay. We have a very active net working capital view. And as you saw in the 2024 fourth quarter, we had a minus 31%. Our official target is that we should be below minus 10%. We ended 2 years ago in '24 at minus 31%. That was a record. In 2025, we end at minus 26%, which is still very good, but not as good as last year. There are always some dynamics there. As you know, we like to invoice annually upfront as much as we possibly can and then pay our bills as late as we can to use the capital effectively. But in 2025, we issued invoices and sometimes the invoices, are paid just before New Year's Eve and other times, they are paid just after. And in '25, some of them were delayed to be paid in early January. So that is what you see. There are a few bumps there, but nothing to lose sleep about. There are now 6 new questions. So let me continue. And this is one for you, Sverre. It relates to artificial intelligence. And it goes like this. Can you explain in more detail, Omda's product moat against AI in the long run? So, contract, security relationships. So, I mean, how does AI protect us? Sverre Flatby: Yes. I think, first of all, what protects us is really what I was into when it comes to what is the priority on the customer side here, which is the regulated business they have and the reliability and compliance is critical and the life-saving activity is critical, and these are run through extremely complex workflows. So, the ability to change things is, of course, there, but the business case to change things is one thing. It's really not that relevant. It's not only the code. It's a very, very complex completeness there. And then secondly, of course, the ability to replace things is one thing. But the timeline, it takes years in these areas, not because you change the code, but because you have to refactor a lot of other things and you have to handle procurements, rollout projects, et cetera, that takes years in the complex environments. So, it's really not the AI itself that protects that part of us, but we are protected in that sense that the collaboration long-term, as you ask for here as well, the contracts, what we do now with our customers is to actually have the dialogue, how are we going to deliver add-on components that includes AI functionality. But that is not easy because you also have to certify components like that. So maybe we would use 1 or 2 years to certify, but still the customer will use maybe some years even to implement because of the criticality. So, this is why it takes time. But on the good side, although it takes time to implement on the customer side, the speed of the value creation on the inside of Omda is really what is the good thing at the moment because that is no longer, as I mentioned, experimenting with tools. These are agents that actually already now are actually giving us the ability to increase the cash from operations. Einar Bonnevie: Okay. Thank you, Sverre. There's another question about AI. So, I suggest we continue that. That's also from Matt. Thank you, Matt, for submitting your questions. Which division or business area, business unit is most at risk from AI competition? And you mentioned specifically emergency or ProSang or blood management. What will you say? Sverre Flatby: Yes, that's a good question. But it's none of those 2, that's for sure. I would say it's quite the opposite. Those are quite protected given how these systems are handled. So, it's difficult to change the engine when you have a flight over the Atlantic. So that is not the places to see. However, the specific questions, my theory would be that the analytics part of our business would probably be more competitive from outside because the usage of large data and the functionality around this is probably the area that will have more competition because they are not so tied into actual clinical and emergency critical processes. So that would be my take. However, I see already that we are using AI and working with AI components inside our analytics software and the customers would like to acquire more from us -- so it's -- please remember, we have contracts there as well and customers that want to add on. So, it's not only a competition in the market with tenders. We have existing customers that want more. Einar Bonnevie: Thanks, Sverre. There's 6 more questions pending. Thank you for submitting them. And there's another one that relates to AI also from Matt. Let's take that one before we move on to other topics. What is your average contract length? And do you have enough time to integrate AI innovations before the next round of tenders. How does this work Sverre? Sverre Flatby: Yes, that's a good question. It's important to understand that when you choose a strategy like we have done and when you focus only on these very sticky software types that could be there since you mentioned in your questions, ProSang, which has more than a 50-year history with the same customers being the same -- being customers, of course. When it stays that long, that is really what's the fact here that it won't be -- it won't change because of the fact that it's tied to the workflow processes in these areas. Einar Bonnevie: Okay. There are some more questions on the financial side and also from Matt. And the question is, do you see already an impact on private valuations and M&A targets following the current software sell-off? That is a very good and relevant question. I think I tried to sum it up on the very last slide, the M&A short slide and say bolt-ons versus larger transformative deals, we see that bolt-ons are typically -- what you are referring to, the smaller private valuations. Yes, I think it's probably now an opportunity to pay less money for more value. And also, as I said, the current market provides more opportunities than challenges from an M&A perspective if you are the buyer. Because after the -- what I say, the hype in maybe 2020, 2021, '22 and expectations were going sky high. I think a lot of the private owners, they have summed up and much more realistic expectations now than maybe at least 2 or 3 years ago. And another one on acquisitions and capital allocation also from Matt. And at current share price of NOK 38, so that's approximately 2x sales or 7x, 8x EBITDA, isn't share buyback the best capital allocation? Yes. And that is also something on the very last slide that we try to sum up. Yes, share buybacks, et cetera, is to be evaluated. It's all about capital allocation. Should we increase working capital? No. Should we invest more in R&D? No. We will use AI to be more efficient. Shall we buy companies? Yes. But again, maybe the bolt-ons rather than the larger deals, again, the best return on your investment. And as you point out, yes, if you compare Omda, I mean, from an outside in view, not speaking as a CFO, but maybe more like a financial analyst from outside in view, Omda is very attractive compared to a lot of companies that we can buy. So that has to be a part of the equation. But I think it's probably not an either/or, maybe it's -- you can have that calculated too. There are still 4 questions. And this is from Mark, and I think it goes to you Sverre, it's about M&A and start-ups with AI. And he says, in terms of M&A, do you see interesting start-ups with AI agent tech that you could add to the portfolio? Please expand on venture capital funding dynamics in the Nordics in the space. Sverre Flatby: Yes, I think the most important answer to that is that our strategy when it comes to M&A is related to customer code competence. That means we acquire companies that has a proven track record within the customer space. Of course, we look at additional AI companies that has interesting technology, but this is not our strategy. And also, because, as I mentioned, it takes many years to implement on the customer side, the type of customers we have. So, what we have -- one example of how we approach this would be the last acquisition of one of the last 3 that was Dermicus, which is an AI-based app that handles wounds or cancer -- skin cancer, for instance. And these type of components that are in production that we can integrate and add and have synergies for our own business, that will be the preferred acquisition of AI companies from our side. So, I don't think the speed of -- even if the new technology comes out, the speed on the customer side will still be the same. So, for us, we will still continue to buy customer code competence in that order. Einar Bonnevie: Okay. Let's continue on the M&A topic, and this is one from John. And he writes, with your aim for small bolt-ons for M&A, do you foresee any material impact to your expected 2026 margin guidance in that year or future years? And how far can bolt-on take you versus your targets over the years? I think I can address those. Those are 2 questions combined in one. And first, on the margin side, I guess the background for the question may be that in the past, we've done some larger deals. When we IPO-ed, we were at NOK 200 million in sales. And a couple of years later, we reached NOK 400 million. So, we doubled in size. And a lot of those we acquired were turned around or turn better candidates, they diluted our margin. Now if you look at the current guidance and we say on the current business, we grow 5% to 10% organically, and we will improve the margins. We will take down the COGS. We will take down salary and personnel. We will take down CapEx. We will take down other costs. That's on the current business. Now if you add to that bolt-ons or small acquisitions, and we said our guidance and target is 10% to 20%, that would mean that we would add NOK 50 million to NOK 100 million in sales roughly for million and you have 0 margin on that in the year it turn around -- turn better candidate and you have 0 in EBITDA. Still the dilution wouldn't be very noticeable. And it would dilute maybe the margin in percentage points with a couple of percentage points, but it wouldn't dilute the absolute number, all right? So, we expect that there may be some margin dilution on the total, but not if you look at the underlying business and that on top. And it shouldn't be dramatic. So, we're not speaking of from 30% down to 10% or something like that, but knock off a few percentage points. That should be your expectation. And how far can bolt-on takes us? Okay. Again, it comes down to what is the definition of a bolt-on. But say it's -- say we're acquiring a business, there are a lot of businesses between NOK 10 million and NOK 20 million in sales. So, 3 of those would amount to approximately NOK 50 million, 10%. So that would -- 3 bolt-ons would take us into the lower part of our guided range. So absolutely doable. There are still 3 questions. We still have 15 minutes. So, if there are any more questions, keep typing in. One question here from Draven, and that goes to you Sverre. And it goes like this. Are there any success stories from this year that you are particularly proud of that demonstrate to you the strength of the business? Sverre Flatby: Yes. I think the results speak for itself. And I think actually, the most important thing is the combination of the decentralization that we have and the ability that each business unit leader have had to work much closer to the customers. So the result of that has been a much more predictable business, and there are many smaller and bigger success stories inside those business units. But I think seen from my side, the successful transition to a decentralized organization is definitely what has changed everything and has created a new operating baseline for Omda, which is going to be very strong from '26 and onwards. Einar Bonnevie: So what are you saying Sverre is 3 things. Capital allocation is important, decentralization is important. And then in a decentralized organization, have the right people on board of the bus. So, if you control those 3, things are going pretty well. Sverre Flatby: Yes. Einar Bonnevie: Okay. Let's continue to do that. There's another question from John here, and that is directly relates to a potential bond refinancing. And the question is, have you had talk with investors in the Swedish market or banks to take advantage of the difference in STIBOR versus NIBOR. And the general answer is, yes, we have Norwegian investors, we have Swedish investors. We have American, Anglo American, French. So, we have investors, and we absolutely -- and we love to have a dialogue with our investors. And yes, we, of course, also have dialogue with our Swedish investors. And again, yes, and we have dialogue with several investment banks, and we bounce ideas. And the effect then on STIBOR versus NIBOR, the STIBOR is around 2% and the NIBOR is around 4%. So of course, if we were refinancing just as an example, I'm not saying -- this is not a guidance. This is not a target, just as an example, if we were to refinance in Swedish krona on STIBOR 2% plus where the bond is currently trading 4%, that would yield 6%. So just as an example, for those of you who are watching this call and are not that into NIBOR, STIBOR and the whole interest rate universe. There's one more question, and this one goes to you, Sverre. So, you have the -- and that is also from David. Across Europe, many health care organizations are cutting staff and budgets. How does Omda work with customers to support them to maintain standards with less staff? Has this been an opportunity for cross-selling or -- how is that? How can we support our customers? Sverre Flatby: Yes, that is a very good question. And it's a quite interesting thing, combined with the previous question about the average length of a contract because it's really not a contract we're talking about. Contracts are tools that we have to have, the way the stickiness is coming from the fact that customers are using our software. And since the situation is like that, of course, we have the dialogue with the customer on how we could help and combine offerings from our own business. So, we are doing that inside our business areas with different business units working together and come up with the broader offerings to our customers. So that will help to be much more efficient. So that is one way. But also, between different business areas, since we have a strategic dialogue with large customers and key customers, we have the ability to look at a strategic approach years ahead as well and talk about what's going on. And explicitly, you're quite right in defining the fact that the economy is very, very complex and it's hard times for health care. That is a good thing for Omda because we can help them. The cost of our recurring software is quite small compared to everything else in these businesses. So yes, we are working with the customers to make sure that they can also get much more benefit of our current software and new software. Einar Bonnevie: Okay. There we are. There is actually one more question that came in while you were addressing this one, Sverre, and this is -- also goes to you. And the question is about the pricing models. And the question is, please comment on your pricing model on seat versus usage based. This is typically from -- I take it from a SaaS perspective of thinking like how does the pricing model actually work in Omda? Sverre Flatby: Yes. First of all, there are differences between different business units. However, in general, if you look at the complex widely used national, regional, highly specialized solutions, which is the backbone of our business. This is coming from contracts many years ago and where the idea is that we pay for the usage of the software normally as a site license or a predefined pricing model might add extra for an extra department or things like that, but it's much more a conservative model from the beginning here. So, it's not like a SaaS thing as such where you can -- as you do with your Netflix account that you add it or you cancel it. So, this is much more from the beginning, a more stable income that is not related to users directly. However, we have some areas where we have volume-based, but I would say more than 80% of our recurring revenue is based on these stable long-term and many times over decades contracts. Einar Bonnevie: Okay. Thank you, Sverre. There seems to be no more questions. Happy we have addressed them all. Thank you all for watching. Thank you all for submitting questions. We very much treasure the opportunity to have a dialogue with all our investors. We hope you have enjoyed this presentation and the numbers. Tune in again on the 21st of May, that is when we are going to present the numbers for the first quarter of 2026. And before that, we will also release the annual report that will be released in April. But until we speak again, our minds and souls meets, do you some napkin calculations using the numbers we have guided on. Enjoy your day. Take care and stay safe.
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