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Operator: Good morning, and welcome to Orbia's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Diego Echave, Orbia's Vice President of Investor Relations. Please go ahead. Diego Echave: Thank you, operator. Good morning, and welcome to Orbia's Fourth Quarter and Full Year 2025 Earnings Call. We appreciate your time and participation. Joining me today are Sameer Bharadwaj, CEO; and Jim Kelly, CFO. Before we continue, a friendly reminder that some of our comments today will contain forward-looking statements based on our current view of our business, and actual future results may differ materially. Today's call should be considered in conjunction with cautionary statements contained in our earnings release and in our most recent Bolsa Mexicana de Valores report. The company disclaims any obligation to update or revise any such forward-looking statements. Now I would like to turn the call over to Sameer. Sameer S. Bharadwaj: Thank you, Diego, and good morning, everyone. Before we begin discussing this quarter's results, I would like to thank our global employees for their ongoing efforts through 2025 and their continued focus on solving our customers' challenges in difficult market conditions. I would also like to thank our customers for their ongoing partnership and trust. Turning to Slide 3. I will share a high-level overview of our fourth quarter and full year 2025 performance. Full year revenues of $7.6 billion increased 2% year-over-year and EBITDA of approximately $1.02 billion decreased by 7% compared to the previous year. Full year EBITDA included onetime items of approximately $90 million. Excluding these onetime items, full year adjusted EBITDA was $1.11 billion. Overall, global market conditions across Orbia's businesses were mixed but remained generally challenging in 2025, particularly across construction and infrastructure-related activities and regionally in much of Europe and Mexico. We did, however, see favorable trends emerge during the year in our Fluor & Energy Materials, Connectivity Solutions and Precision Agriculture businesses. In this environment, we remain relentlessly focused on exercising strong financial discipline. We continue to strengthen our leading market positions and to drive results through effective commercial and operational execution with a focus on both earnings and cash generation. Our cost optimization programs are on track and making important contributions as is our initiative to generate cash from noncore asset sales. We continue to look for more opportunities to simplify our business, further strengthen our balance sheet and drive cash generation to support our long-term strategic objectives. As we begin 2026, we expect market dynamics to remain challenging in some businesses with continued improvements in others. I will now turn the call over to Jim to go over our financial performance in further detail. Jim Kelly: Thank you, Sameer, and good morning, everyone. I'll start by discussing our overall fourth quarter results. Turning to Slide 4. Net revenues of $1.9 billion increased by 5% year-over-year, with growth coming from all business groups except Polymer Solutions. The increase was led primarily by higher volumes in Connectivity Solutions and better product mix in Fluor & Energy Materials. I'll provide a more comprehensive description of these factors in the business-by-business section. EBITDA of $227 million for the quarter increased 2% year-over-year, primarily driven by higher volumes and lower onetime costs in Fluor & Energy Materials and in Building and Infrastructure, partially offset by a decrease in Polymer Solutions. Adjusted EBITDA of $236 million declined 14% compared to last year, primarily driven by Polymer Solutions. Operating cash flow of $349 million increased by $67 million or 23% compared to the prior year quarter, driven by efficient working capital management and the absence of last year's unfavorable currency impacts, partially offset by net interest paid and higher taxes. The operating cash flow conversion rate for the quarter was 154%. Free cash flow in the quarter was $204 million, an increase of $80 million year-over-year, driven by an increase in operating cash flow and a decrease in capital expenditures. Turning to Slide 5. I'll now review our full year results for 2025. On a consolidated basis, net revenues were $7.6 billion, an increase of 2% year-over-year. Higher revenue came from all business groups with the exception of Polymer Solutions. The increase was led primarily by higher volumes in Connectivity Solutions and better product mix in Fluor & Energy Materials. EBITDA of $1.02 billion decreased 7% year-over-year with an EBITDA margin of 13.4%, a decrease of 124 basis points. These decreases were primarily due to lower volumes and prices in Polymer Solutions and onetime costs for Building and Infrastructure. These were partially offset by the absence of prior year onetime costs in Fluor & Energy Materials and higher revenues in Connectivity Solutions and Precision Agriculture. Excluding onetime items, adjusted EBITDA was $1.11 billion for the full year, representing a 7% decrease from the prior year and an adjusted EBITDA margin of 14.6% for the year. Operating cash flow and free cash flow were $645 million and $111 million, respectively, reflecting strong working capital performance and lower cash impacts from accruals, partially offset by lower EBITDA and higher taxes and net interest paid. The operating cash flow conversion rate for the full year was 63%. Free cash flow increased by $175 million year-over-year, driven by higher operating cash flow and lower capital expenditures. Capital expenditures of $405 million declined by approximately 15% compared to the prior year. Spending for 2025 included ongoing maintenance and investments to support the company's targeted growth initiatives. Orbia invested $144 million in strategic growth primarily dedicated to expanding capacity for medical propellants and custom electrolytes within our Fluor & Energy Materials business as well as advancing high-value product initiatives in Building and Infrastructure. The remaining $251 million was deployed to ensure operational safety and asset integrity. Net debt of $3.78 billion included total debt of $4.82 billion less cash of $1.04 billion. The net debt-to-EBITDA ratio was 3.70x at the end of the year, which decreased from 3.85x at the end of the prior quarter, driven by a decrease in total debt of $82 million and an increase in cash and cash equivalents of $49 million and an increase in the last 12 months EBITDA of approximately $5 million during the quarter. The leverage ratio increased by 0.4x compared to 3.30x at the prior year-end due to an increase of $162 million in net debt of which $147 million was due to the appreciation of the Mexican peso against the U.S. dollar and a decrease of $76 million in the last 12 months EBITDA, partially offset by an increase in cash and cash equivalents of $31 million. On an adjusted basis, net debt to EBITDA at the end of 2025 was 3.40x, which was a slight reduction from the level of 3.42x at the end of the prior quarter. For the full year, we recognized an income tax expense of $291 million compared to an income tax benefit of $127 million in the prior year. The change in the tax expense was primarily driven by the geographic mix of earnings, appreciation of the Mexican peso relative to the U.S. dollar, inflation-related adjustments and discrete items, including nonrecurring dividend repatriation and impairment charges. Adjusted for these items, the effective tax rate for the year would have been approximately 25%. Turning to Slide 6. I'll review our performance by business group. In Polymer Solutions, fourth quarter revenues were $558 million, a decrease of 6% year-over-year driven by lower operating rates in derivatives and lower prices in resins. This was partially offset by higher volumes in resins and higher prices in derivatives. Fourth quarter EBITDA was $33 million, a decrease of 55% year-over-year with an EBITDA margin of 5.9%, driven by lower prices and higher input costs. For the full year, Polymer Solutions had revenues of $2.4 billion, a 4% decline, driven by lower volumes in derivatives and lower prices in resins, partially offset by higher general resins volumes. Full year EBITDA declined 30% versus the prior year to $248 million with an EBITDA margin of 10.2%, driven primarily by lower resin prices, operational disruptions in derivatives and a key raw material supply disruption during the first half of the year. This was partially offset by lower fixed costs from cost savings initiatives. Excluding onetime items, adjusted EBITDA was $39 million in the quarter and $279 million for the full year, representing a decrease of 53% and 26%, respectively. Adjusted EBITDA margin was 7% for the quarter and 11.5% for the year. In Building and Infrastructure, fourth quarter revenues were $600 million, an increase of 4% year-over-year, driven primarily by higher volumes in Western Europe, Mexico and other portions of Latin America, favorable currency fluctuations and better pricing. This was partially offset by the impact of divestments of the India and Clay Pipe businesses that were completed earlier in the year. Fourth quarter EBITDA was $71 million, an increase of 34% year-over-year with an EBITDA margin of 11.9%. The increase was driven by lower onetime restructuring costs, better margins favorable product mix and continued benefits from cost-saving initiatives. For the year, Building and Infrastructure revenues were $2.5 billion, a decline of 1% year-over-year. The decrease was driven by the impact of completed divestments and weak demand in Mexico, partially offset by growth in Brazil and EMEA. Full year EBITDA of $246 million declined 10% year-over-year with an EBITDA margin of 10%, driven primarily by lower results in Mexico and Western Europe, higher material costs and higher onetime restructuring costs compared to last year. This was partially offset by better performance in the U.K. and Brazil and the benefit of cost savings initiatives. Excluding onetime items, adjusted EBITDA was $78 million in the quarter and $286 million for the full year, representing an increase of 20% and a decrease of 2%, respectively. Adjusted EBITDA margin was 13.1% for the quarter and 11.6% for the year. Moving to Precision Agriculture. Fourth quarter revenues were $279 million, an increase of 5%, driven primarily by strength in Brazil, Europe and Israel, partially offset by India and Mexico. Fourth quarter EBITDA of $33 million was slightly lower year-over-year with an EBITDA margin of 11.8%. The slight decrease in EBITDA year-over-year was driven by lower performance in the U.S., Mexico and Central America, partially offset by better performance in EMEA, Brazil and Turkey. For the year, Precision Agriculture reported revenue of $1.1 billion, an increase of 6%, driven by growth in Brazil, Peru and the U.S., partially offset by soft demand in Mexico. Full year EBITDA increased by 9% to $136 million with an EBITDA margin of 12.4%, primarily driven by Brazil, the U.S., Turkey and Peru, partially offset by negative impacts from currency fluctuations and Mexico. Excluding onetime items, adjusted EBITDA was $35 million in the quarter and $142 million for the full year, representing a decrease of 3% and an increase of 7%, respectively. Adjusted EBITDA margin was 12.5% for the quarter and 12.9% for the year. In Fluor & Energy Materials, fourth quarter revenues were $268 million, an increase of 21% year-over-year. The increase was primarily driven by higher volumes from pharma and upstream minerals and favorable prices across most of the product portfolio, partially offset by lower volumes in refrigerants. Fourth quarter EBITDA was $68 million, an increase of 107% year-over-year due to higher revenue in the absence of prior year onetime legal expenses, partially offset by higher raw material costs. EBITDA margin was 25.2%. For the full year, Fluor & Energy Materials revenues were $958 million, an increase of 11%, driven primarily by strong results across the product portfolio. EBITDA for the full year increased 14% to $267 million and an EBITDA margin was 27.8%. The full year increase in EBITDA was primarily driven by the absence of prior year onetime legal expenses, partially offset by higher raw material costs and higher operating costs in Mexico, driven by the appreciation of the Mexican peso against the U.S. dollar. Excluding onetime items, adjusted EBITDA was $68 million in the quarter and $267 million for the full year representing an increase of 3% and a decrease of 1%, respectively. Adjusted EBITDA margin was 25.2% for the quarter and 27.8% for the year. Finally, in our Connectivity Solutions segment, fourth quarter revenues were $226 million, an increase of 32% year-over-year. The increase in revenues for the quarter was driven by strong volume growth across all end markets and a favorable product mix, partially offset by lower prices. Fourth quarter EBITDA increased 61% year-over-year to $21 million with an EBITDA margin of 9.5%. The increase was primarily driven by higher revenues, higher capacity utilization and continued benefits from cost reduction initiatives, partially offset by lower prices. For the full year, Connectivity Solutions revenues were $918 million, an increase of 9%, driven by strong volume growth and favorable product mix, partially offset by lower prices. For the full year, EBITDA of $131 million increased 21% and EBITDA margin was 14.2%, primarily due to higher revenues, higher capacity utilization and the continued benefits from cost reduction initiatives, partially offset by lower prices. Excluding onetime items, adjusted EBITDA was $33 million in the quarter and $144 million for the full year, representing an increase of 105% and 23%, respectively. Adjusted EBITDA margin was 14.8% for the quarter and 15.7% for the year. Turning to Slide 7. I'd like to provide an update on our plan to improve operating performance, strengthen our balance sheet and reduce leverage as first outlined in our October 2024 business update. First, our cost reduction program continues on track, having delivered cumulative annual savings of approximately $200 million by the end of 2025 relative to the end of 2023 cost base. We've achieved approximately 80% of our targeted $250 million in savings per year by 2027. Second, the contribution from recently completed or close to complete organic growth initiatives, which are primarily focused on new product launches and capacity expansions, reached approximately $59 million of EBITDA during 2025. The goal is to achieve $150 million in incremental EBITDA from these investments by 2027. We expect an acceleration of these benefits in 2026, especially in Building and Infrastructure. We have signed agreements that generated proceeds of approximately $90 million from noncore asset divestments as of the end of 2025. We anticipate reaching our targeted $150 million or more by the end of 2026. Finally, as we indicated in the second quarter of 2025 results presentation, we have successfully extended all material debt maturities to 2030 and beyond, raising approximately $1.4 billion to refinance existing obligations. This proactive capital structure management enhanced our financial flexibility and helped to reduce near-term financial risk. With that, I'll now turn the call back over to Sameer. Sameer S. Bharadwaj: Thank you, Jim. On Slide 8, I will cover a few key milestones regarding our efforts on sustainability. In 2025, we remain focused on expanding and delivering sustainable solutions across all our businesses, staying aligned with our long-term strategy and customer needs. In Fluor & Energy Materials, we expanded our custom electrolyte facility in the U.S. and continued growing our portfolio of low global warming potential refrigerant gases and medical propellants. We also advanced construction of our new facility for next-generation medical propellant 152a in the U.K., which we expect to start production in early 2027. Within Building and Infrastructure, we enhanced our offering in urban water resilient solutions to address environmental challenges. We exceeded our 2025 sustainability-linked sulfur oxide emissions reduction target. Our progress was recognized once again by leading sustainability benchmarks in 2025. We maintained our standing in the S&P Dow Jones best-in-class MILA Pacific Alliance, the S&P Sustainability Yearbook, the FTSE4Good Index and the BMV ESG Index. Finally, we will publish our 2025 impact report on March 9, where we will provide further detail on sustainability performance. Turning to Slide 9. I will now discuss our outlook for 2026. The outlook for the year presents 2 distinct dynamics. We expect continued positive market momentum in Precision Agriculture, Fluor & Energy Materials and Connectivity Solutions. Meanwhile, Polymer Solutions and Building and Infrastructure end markets are expected to remain relatively weak. We expect growth in EBITDA from these segments due to the absence of the operational disruptions experienced in 2025 in the Derivatives business as well as from commercial initiatives and new product introductions in Building and Infrastructure. For 2026, the company expects that full year EBITDA will be in the range of $1.1 billion and $1.2 billion with capital expenditures expected to be approximately $400 million. The primary focus of capital expenditures will be investments to ensure safety and operational integrity as well as selective strategic growth projects, particularly in the Fluor & Energy Materials business group. Now looking ahead in each of our business segments for the year. Beginning with Polymer Solutions, the global PVC market is expected to experience continued excess supply. However, prices have recovered modestly compared to the trough levels seen in the second half of 2025. Recent governmental policy shifts, particularly in China and announcements of capacity rationalization in Europe and the U.S. should help support a firmer global pricing environment. The focus remains on maximizing production, maintaining strict control over fixed costs and cash and growing profitability. In Building and Infrastructure, market conditions are expected to remain subdued in Europe and moderate growth is anticipated in Latin America. Orbia anticipates incremental growth driven by greater adoption of new products, contribution from value-added solutions and ongoing benefits from cost optimization initiatives. In Precision Agriculture, we expect continued strong momentum across key markets led by robust demand in Brazil, solid project execution in Africa and the Middle East and sustained strength in U.S. permanent crops. The business will also advance growth initiatives through its new digital farming platform and new projects while capturing additional benefits from ongoing operational efficiency efforts. In Fluor & Energy Materials, we expect positive fluorine market trends to continue with strong demand to help offset the impact of raw material and mining cost inflation. Our operating philosophy is to ensure safe and stable mining and chemical operations and maximize the value of fluorine across minerals and chemical intermediates, refrigerants and medical propellants. Growth investments will focus on battery materials, next-generation medical propellants and mining infrastructure. And finally, in Connectivity Solutions, we anticipate growing demand driven by broadband expansion, new data center investments and the modernization of the U.S. electric power grid. Profitability is projected to improve, supported by these incremental volumes, higher plant utilization and the ongoing implementation of cost control initiatives. Consistent with our top priority to strengthen the balance sheet and the company's Board of Directors has resolved to approve and intends to propose to shareholders at Orbia's Annual General Meeting that no ordinary dividend be declared for 2026. In summary, our near-term priorities are to deliver on our commitments, delever the balance sheet, simplify operations and focus on our core business. We aim to improve EBITDA and cash flow through cost savings initiatives and growth from recently completed project investments, complemented by cash generated from noncore asset sales. These actions will enable us to improve our leverage and strengthen our balance sheet by the end of 2026 without relying on potential market recovery or further benefits from business simplification. We remain committed to meeting customer needs and generating long-term value for our shareholders. We are aware of recent media reports and market speculation concerning a potential divestiture of our Precision Agriculture business. We continually engage in assessing opportunities to optimize our portfolio and create value for our shareholders. As a matter of policy, we do not comment on market speculation or rumors. We are committed to providing material information to the market in accordance with our disclosure obligations and regulatory requirements. Any official announcements regarding Orbia's strategy, operations or financial structure will be made through press releases and filings in accordance with applicable law and stock exchange rules. Before we move to Q&A, I would like to share an important leadership update. After nearly 5 years of dedicated service as Chief Financial Officer, Jim Kelly has decided to retire from Orbia. Since joining us in 2021, Jim has reinforced financial and capital allocation discipline, enhanced reporting and internal controls and guided the company through a complex global environment with a clear focus on balance sheet strength, cash generation and long-term value creation. Importantly, Jim also built a high-performance finance function, developing leadership depth that positions us well for the future. He has been a trusted partner to our executive team and our Board. And as many of you know, he has played an outstanding role in engaging our external stakeholders, including debt and equity investors, analysts and ratings agencies. We are truly grateful for his contributions. He will remain with us through midyear to ensure a seamless transition internally and externally. Following a structured Board-led succession process, I am pleased to announce that Cristian Cape Capellino, a senior leader within a global finance organization has been appointed Chief Financial Officer effective March 15, 2026. Cape is a seasoned executive with over 23 years of experience, spanning public accounting and finance leadership roles within global industrial and manufacturing organizations. Since joining Orbia in 2020, he has held senior leadership roles across controllership, tax, financial planning and analysis and finance transformation within the finance leadership team. He worked in close partnership with Jim to strengthen governance, sharpen capital allocation rigor and modernize our global financial systems across more than 40 countries. Prior to Orbia, Cape spent more than a decade at Tenaris, an NYSE-listed global industrial company, where he held multiple senior finance and business leadership roles. Earlier in his career, he worked at Deloitte in audit and tax. He holds an MBA from the MIT Sloan School of Management and a public accountant degree from the National University of Cordoba. Cape understands our portfolio, our capital framework and our performance drivers. He is highly regarded by our global teams. His appointment ensures continuity and execution. Our strategic priorities and capital allocation plans remain unchanged. The Board and I are confident that this transition positions us well for our next phase of performance and value creation. Operator, we are now ready to take questions. Operator: [Operator Instructions] The first question today comes from Andres Cardona with Citi. Andres Cardona: Before I ask my question, I want to thank Jim for the partnership over the last 5 years and wish you very good luck in your next step. Sameer, the natural question at this point is the simplification idea of the business. Could you help us to understand the reach of this program if it is limited to noncore assets, relatively small divestitures? Or how can we think about this concept that seems to be at the center of the strategy of Orbia for the last year or so? Sameer S. Bharadwaj: Thank you, Andres. Let me address that question. As we've said before, our focus at Orbia, first and foremost, is to deliver on our results with a focus on EBITDA and cash generation and use the proceeds to delever and then simplify and focus our portfolio. So in that context, as we've shared before, the outcome of our strategy session late last year is that we will focus on our core value chains, okay? And there are potentially businesses that we see may not be directly linked with our value chains or not the best strategic fit, we will look for simplification opportunities. And as I have commented earlier, we continue to explore such opportunities in earnest. And if and when there is something material to report in accordance with our disclosure obligations, we will do so. Operator: The next question comes from Joao Barichello with UBS. Joao Pedro Barichello: I have 2 from my side here. So could you provide an update on [ Cora's ] new facility in the U.K. regarding how has been the project execution time line? What is the EBITDA contribution that you're expecting from it? And also, could you provide a little bit more of color on the main adjustments made in your adjusted EBITDA for the 4Q, but also for the full year of 2025? I mean, what were the main one-off events and how materially were they? That's it from my side. Sameer S. Bharadwaj: Very good, Joao. Let me take the first question, and I'll let Jim answer the second question. The investment that we are currently making in the U.K. is to build a large-scale industrial scale medical-grade 152a plant to support the commercialization of this next-generation global warming -- lower global warming potential medical propellant. As we've disclosed before, we already have a 600 tonne per year pilot reactor running, supporting the industry at this time with their qualifications and their scale up. And we have customer commitments to -- starting off early of 2027, where we will scale up this facility to 6,000 tonnes a year. And over time, as the industry transitions away from medical grade 134a to medical grade 152a, we have the asset required to serve the industry needs. So all the qualifications and scale-up is on track. We expect to complete construction of the facility towards the end of this year in time for the scale up at our customers. And the EBITDA contribution of this business, I do not want to talk about specific numbers right now, but is expected to grow very significantly over the next 2 or 3 years, okay? Jim Kelly: Thank you, Joao, for the question regarding the onetime items, the nonoperating items, we're strict in our definitions of what those are. And I'd say the definition really typically falls into 3 categories, one being particularly given the initiatives that we have on our delevering at this point in time, the restructuring costs that we incur in order to execute on those plans then as well any legal settlement or extraordinary legal costs that we have in defending historical cases that exist around the company. And then if there are any other true nonoperating impacts in any of the businesses that occur over the course of the year from an operational perspective. So let me go through in a little bit of detail on each of those. So for the full year, first of all, the number, as you would have seen, was $90 million. So that got us from the [ $1,020 million to $1,110 million ] going from reported EBITDA to adjusted EBITDA. The largest of the adjustments was in the restructuring area. That was about $45 million, and a lot of that was within our B&I business, where you've heard us speak about the footprint rationalization in Europe. So that -- we're in the middle of that process at this point in time. It's ongoing. And for that reason, we've incurred a number of restructuring charges there. And then smaller ones across some of the other businesses. There was a little bit in Polymer Solutions, et cetera, but the vast majority in B&I. Next after that was about $30 million of legal related. And of that, about $20 million was related to a settlement that took place during the year and the remainder is legal costs that were incurred to address outstanding cases that are -- that generally have long histories, go back in time and have nothing to do with what's taking place in the business right now. So again, in total, those were about $30 million and then on top of that, we had about $20 million that related to operational disruptions in one of our key suppliers in the Polymer Solutions business. We reported this back in the first quarter of the year. It was a little bit in first and second quarters that we incurred this. And again, that was about $20 million. So in total, those comprise the $90 million. If you're asking as well about Q4, the number was about $9 million in Q4, so not that material in the quarter. It was much more material in the earlier part of the year. Operator: The next question comes from Hernan Kisluk with MetLife. Hernan Kisluk: Congratulations to your career, Jim. So my question is on the revolving credit facility. I understand it has spring covenants that are not very far from being reached. So I'd like to understand if you are in conversations with the group of banks to amend waive or change the terms of the RCF, so you can maintain the availability? Jim Kelly: Thank you for the question. So you're correct in terms of the commitments that we have to meet. So in terms of the net debt to EBITDA, it's 3.5x or below and then interest coverage above 3.0. We are within those covenants at this point in time. So -- and also, remember, as you said, they are springing covenants. So they don't come into effect until or unless we have 2 of the 3 rating agencies saying that we are not investment grade. So with 2 of the rating agencies still supporting an investment-grade rating, the covenants are not in force. So right now, we are in a good situation. We have ongoing discussions with the banks that are part of the RCF. And should we get to a position where there is potential risk to the investment-grade rating, we would have discussions with them as to whether they would be willing to waive these covenants or not. Keep in mind, we do not draw on the RCF. We view it as, call it, an insurance policy for liquidity if or when we need it. But at this point, and it's been a while, a couple of years now since the last time we drew on the RCF. Sameer S. Bharadwaj: Yes. The only other thing I would add, Jim, is we have a highly focused plan to delever with or without portfolio simplification opportunities. And so we feel confident in our ability to do so over time. And portfolio simplification just allows us to get there sooner. Operator: The next question comes from Nicolas Barros with Bank of America. Nicolas Barros: I have 2 questions, right? The first one on your projects. Could you share the latest developments regarding the PVDF project and the same for the LiPF6, right, on time line, CapEx and EBITDA? And secondly, on tax reconciliation, right? So I would like just to clarify here the tax line, right? So taxes paid in 2025 were roughly $30 million, right, above 2024 despite your negative EBT, right? So should we interpret this as taxes coming from businesses that still generate positive EBT or I don't know, any further impact from the Mexican peso? And could you share expectations for cash taxes disbursement in 2026, please? Sameer S. Bharadwaj: Thank you, Nicolas. Let me take your first question, and I will let Jim answer the second question. Specifically with respect to the PVDF project that is in partnership with Syensqo. That project is currently on hold, subject to market conditions, and we will reevaluate the merits of those projects as we go along. With respect to the LiPF6 project, that project continues to proceed on track. And keep in mind, this is supported by a $100 million grant from DOE and close to $90 million in tax incentives from the state of Louisiana and federal tax credits. The total capital investment for the project, as we have said before and disclosed in our DOE grant materials is of the range of $400 million. And so the DOE grant as well as the tax incentive significantly reduce our upfront investment. The EBITDA contribution of the project with conservative pricing is in the range of $100 million to $120 million, okay? Now the market conditions remain quite favorable. Even in the last 6 months, the market dynamics for LiPF6 have tightened and pricing has gone up significantly to the tune of $25 per kg. Chlorine is also on the list of critical minerals. And so from a security of supply standpoint, the facility that we are working on the engineering of at this moment is going to be very well positioned to be successful when the plant is built. The market dynamics continue to strengthen with growth in energy storage, supported by the needs for stationary storage as well as EVs and hybrids. And given the fact that the industry is moving towards LFP-based cathodes, the amount of LiPF6 required for LFP-based cathodes is 50% higher than NMC-based cathodes. So all the dynamics are favorable for that project. And as I said, we are currently in the engineering phase, and this project will take about 3 years to execute. Jim, do you want to take the other question? Jim Kelly: Sure. So in terms of reconciliation of the tax rate, so as I discussed in my comments, you'd look at it on a normalized basis, you would look at a tax rate of about 25%. Now needless to say, the numbers you see are quite different from that, and there are a couple of factors that drive that. Operationally, where we earn income, so what we would call the geographic mix, of our earnings has a relatively material impact. And in fact, the issue there is that we have a lower share of our income in low tax jurisdictions. So that tends to have an upward effect on the rate. The more dramatic impact, I would say, and you see this on a year-to-year basis is the impact of the change in the Mexican peso to the U.S. dollar. So there's an FX and inflationary impact based on that. And that is largely driven by the fact that we have a U.S. dollar debt. And when there is a change in the Mexican peso rate, the reductions or increases in the debt balance are essentially treated as being taxable in Mexico. So with depreciation of 20% of the peso in '24 and an appreciation of 11% in '25, you see a dramatic swing in the effective tax rate year-to-year as a result of that. And then also internally, we had some cash movements, et cetera, some repatriations from other countries into Mexico, et cetera, that caused some rate implications as well. So that's the explanation on the rate. You also asked about cash taxes. So I would expect that for 2026, our cash taxes wouldn't change significantly from where we were in 2025, maybe some increase as we see increases in our overall EBITDA that we mentioned. But there are a lot of factors there that one would have to forecast, whether that be the change in the Mexican peso, the geographic split of the earnings, et cetera. But I'd say I would not expect a dramatic change in the cash outflows from taxes during the year. I hope that addresses your question. Operator: [Operator Instructions] Sameer S. Bharadwaj: If there are no further questions, let me try and wrap up the key messages. So first and foremost, we ended 2025 despite being a challenging year, we ended the year on guidance. And even though we were short on EBITDA, the company did extremely well from a cash standpoint. And with all of the initiatives that we said we would deliver on from a cost reduction standpoint, realizing benefits from growth initiatives and noncore asset sales and the reduction of working capital, we were able to end the year strong from a cash standpoint. Now looking into the year, even though Q4 was very challenging from a PVC pricing standpoint, we have seen a material change in Q1, and we will hopefully begin to see benefits in Q2 with China's elimination of VAT on PVC exported from certain types of facilities. And we've already seen the pricing of the various indexes go up by $60 to $70 a tonne. And eventually, that should start flowing through in our results as well. We are also hopeful of antidumping duties being imposed in Mexico and Brazil, which should also benefit the Polymer Solutions business. The Building and Infrastructure business continues to suffer from weakness, particularly in Northern and Western Europe and in Mexico. And with the reduction in interest rates and resumption of building and construction activity, and especially infrastructure projects, the operating leverage that we have created in that business should begin to benefit us. The other 3 businesses are bright spots. We are completely sold out in our Connectivity Solutions business running at very high utilization as demand from the telecom carriers as well as the growth in AI data centers and the power sector continue to drive demand growth. Fluor & Energy Materials, the supply chain is tight. The fluorine item is expected to remain tight over the course of the decade, and we are doing our best to optimize our production from the mine as well as place the fluorine into the highest value applications. And the pricing environment in that business continues to strengthen during -- over the course of the year. And then finally, the Precision Agriculture business ended the year strong and continues to have very positive momentum, especially in areas like Brazil and many of the excellent projects that we are doing in Africa, the business is on a continued improvement trajectory and should deliver stronger earnings year-over-year as well. So in summary, we are doing everything we can in terms of driving the top line, having strong discipline on our manufacturing costs as well as SG&A costs, driving lots of initiatives to optimize cash through working capital initiatives and noncore asset sales so that we can deliver the results, delever the company and then simultaneously have a continued focus on portfolio simplification so that Orbia can be more focused going forward. So with that, I'd like to wrap up the call and look forward to talking to you again on the April's earnings call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Q4 2025 Results Conference Call. I'm Moritz, your Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Anja Siehler. Please go ahead. Anja Siehler: Thanks, Moritz, and also a very warm welcome from the Nordex team in Hamburg. Thank you for joining the Q4 2025 and full year results management call. As always, we take -- we ask you to take notice of our safe harbor statements. With me are our CEO, Jose Luis Blanco; and our CFO, Dr. Ilya Hartmann, who will lead you through the presentation. Afterwards, we will open the floor for your questions. And now I would like to hand over to our CEO, Jose Luis. Jose Luis Blanco: Thank you very much for the introduction, Anja. As said, on behalf of the Management Board, a very warm welcome to all of you joining us today for the Q4 and full year 2025 results. Results that conclude a transformational period and a transformational year for Nordex. 2025 has been a landmark year. We delivered and exceeded our medium-term margin target ahead of schedule, generated positive free cash flow, achieved record order intake and strengthened our balance sheet. This very much sets the tone for the years ahead of us. Let's now walk you through what drove this performance and how it prepared Nordex for the next phase of profitable growth. Let's start with a short recap of how we were able to deliver as promised or on the upper end of the promise. Over the past 3 years, we have made consistent progress in strengthening the business and our profitability. 2025 is the year in which Nordex demonstrated that the operational and financial improvements we have been working on over the past 3 years are now full translating into our numbers. We delivered robust growth across all major KPIs, increased profitability substantially, generated strong free cash flow and strengthened our financial foundation. Combined, these achievements set a strong tone for our longer-term strategic ambitions. Moving on, 2025 was a milestone year for Nordex. We delivered record order intake of 10.2 gigawatts, reached an 8.4% EBITDA margin and generated EUR 863 million of free cash flow, all well above last year and ahead of our original plan. These results show that our strategy is working and that our business is now consistently delivering strong margins and is cash generative. Based on this track record, we now aim to set the tone for what is ahead of us. First, 2026 guidance, continued sustainable improvement, capital allocation, the introduction of our first shareholders' return policy; and third, our new strategic midterm target and upgraded EBITDA margin of 10% to 12%. Before we go into more details on the mentioned aspects, let's look at how we performed in terms of market position in 2025 first. 2025 was also a year in which our market position strengthened further. We were again able to keep our #2 position globally, improving, not in the relative position, but in the market share of the global position. In Europe, we continue our strong momentum and achieved leadership position for the fourth year in a row. And this clearly reflects our competitive product range and our strong customer relationship and ability to deliver in our core region. The Americas, we continue to rebuild our market position, mainly driven that year by Canadian orders reaching an 11% market share in 2025, a solid step forward after the reset in previous years. Let's now start the usual chapters regarding the operational and financial highlights. Let me start with an overview of the fourth quarter and the full year. Q4 was another strong quarter operational. Our combined order book grew to EUR 16 billion with the turbine order book up 30% year-on-year to over EUR 10.1 billion and the service order book rising 20% to nearly EUR 6 billion. Financially, we closed the year with EUR 307 million EBITDA in Q4, an increase of 188% compared to the same period of 2024. Our EBITDA margin in Q4 reached 12.1%, up more than 7 percentage points year-on-year. Service EBIT margin increased further to 19%, marking another quarter of consistent increase. Free cash flow in Q4 reached EUR 565 million, more than doubling last year's level. And finally, our net cash position exceeded EUR 1.6 billion at year-end. We also successfully reached our medium-term EBITDA margin target of 8% already in 2025 and we believe we can deliver further margin improvements based on the levers we see. And with this, let me walk you through the operational performance in more detail. In Q4, we record EUR 3.2 billion of turbine order intake, an increase of around 10% compared to Q4 last year. This corresponds to 3.6 gigawatts, representing 9% growth versus Q4 2024. A few important aspects to highlight. First orders came from 12 different countries, demonstrating continued strong diversification. ASP remained stable at EUR 0.89 million per megawatt comparable to last year level. The largest markets in Q4 were Germany, Canada and France, supported by steady demand in our focus regions and countries. On a full year basis, turbine order intake reached 10.2 gigawatts, representing a record EUR 9.3 billion in order value, an increase of 25% year-on-year. Let's move to the next slide, the order book. Our turbine order book ended the year at EUR 10.1 billion, up 30% versus the same period of 2024. On the service side, our order book increased to almost EUR 6 billion, up 20% year-on-year. We now have almost 14,000 turbines covered by long-term service contracts, representing 48.3 gigawatts under term service contracts. And the combination of structurally larger projects order book and a steadily growing service base provides a strong visibility for revenue and margin delivery in 2026 and beyond. Let's talk about the service business. Our service business continued its predictable trajectory in 2025. In Q4, service revenue reached EUR 240 million. Service EBIT reached EUR 46 million, corresponding to 19% EBIT margin. This marks the eighth consecutive quarter of margin expansion in the service business, driven by improved efficiency, strong availability levels in our installed base and disciplined execution. Let me also highlight a few key operational KPIs. The average availability of our wind turbines under service remain high at around 97% and the average tenure of our service contracts continues to be around 13 years. Let's move to the next slide, our installation and production figures. Installations were up by 25% year-on-year, reaching around 2.1 gigawatts in the fourth quarter of 2025. In Q4, we installed 376 turbines, up from 283 in the same period of 2024. Full year installations reached 7.663 megawatts -- or gigawatts, compared to 6,641 megawatts in 2024. Turbine production increased to 519 turbines in Q4 compared to 445 last year. Paid production remained stable despite temporary delays at one of our suppliers in Turkey. And now I would like to hand over to Ilya for the financials. Ilya Hartmann: Thank you, Luis, and a warm welcome also from my side. So before I start with my usual slides, let's take a brief look at the past fiscal year and the achievements of our goals or targets. So the slides on the screen illustrates the highlights of the past year. Following the initial publication of our guidance for 2025, we made strong progress in our operational performance throughout the year. Jose Luis has talked about that. And as a result, we were able to further strengthen our profitability, which led us to upgrade our full year EBITDA margin guidance in last October. By year-end, we achieved and in some areas, even exceeded all of the targets we had. So let me use this opportunity to thank Team Nordex for their tireless efforts worldwide. We're very proud of you. And with that, let's move on to the next page, where I would like to share a few insights on the development of our income statement. After sales were temporarily affected by project mix and scheduling effects earlier in the year, we saw a significant rebound in the fourth quarter. Sales increased by 16% to around EUR 2.5 billion compared with EUR 2.2 billion in Q4 of the year before. Main contributors were Germany, Turkey, North America and Spain. For the full year, sales reached approximately EUR 7.6 billion, and so fully in line with our internal planning and almost right in the middle of our guided range despite some impacts from Turkey that we discussed with you last year. We continue to strengthen our gross margins, reaching 27.8% in the fourth quarter, up from 23% in the same period last year. For the full year, gross margin improved to 27% compared with 21% in the previous year. This corresponds to an EBITDA margin of 12.11% in Q4 2025, up from 4.9% in Q4 of 2024 and of 8.4% for the full year '25 compared to the 4.1% in the year before. Building on this operating performance, we ended the quarter with a net profit of EUR 184 million, compared to EUR 18 million in the fourth quarter of 2024. For the full year 2025, the net profit amounted to EUR 274 million, a significant improvement over the EUR 9 million recorded in 2024. With this, let's move on to the balance sheet. As we can see, our overall financial position at year-end remained solid and has further strengthened compared to the end of 2024, a reflection of the operational and financial performance throughout the year. Cash position at the end of the fourth quarter was around EUR 1.9 billion. Working capital came in at minus 12.4%, significantly better than our guided number of below minus 9%. Equity ratio improved steadily through the year and reached 19% at the end of the fourth quarter compared with 17.7% at the year-end 2024. This positive development is largely driven by the strong increase in our net profit. And now let's have a closer look how the other balance sheet KPIs have developed in the last quarter. Overall, all balance sheet figures continue to develop positively in the fourth quarter, continuing the trend we had already seen throughout the entire year. The operating performance in the fourth quarter led to a further increase in our net liquidity, which reached a record year-end level of EUR 1.625 billion. Again, the working capital ratio at the end of the fourth quarter was minus 12.4% or minus EUR 935 million in absolute terms. This improvement is largely attributable to the very strong order momentum we experienced in the final month of 2025. And now let's go to the cash flow and CapEx slide. Cash flow from operating activities amounted to EUR 631 million at the end of the fourth quarter, previous year was EUR 318 million and to over EUR 1 billion for the full year, previous year, EUR 430 million. And one more time, this development reflects our consistently robust operational performance throughout the year and especially the very strong fourth quarter. So in the fourth quarter of 2025, positive free cash flow totaled EUR 565 million compared to Q4 of the prior year of EUR 271 million. Full year, we closed with a positive free cash flow of EUR 863 million versus the EUR 271 million in 2024, supported, of course, by our order intake and further improvements in working capital. CapEx increased to EUR 72 million in the fourth quarter compared with EUR 42 million in the prior year quarter. And for the full year, CapEx totaled EUR 169 million, higher than last year's EUR 153 million, though still below our full year guidance of around EUR 200 million. And with that, I would now like to hand back to Jose Luis for the final chapter, our guidance and strategic outlook. Jose Luis Blanco: Thank you very much, Ilya, for walking us through the financials. Based on the strong foundations we established in 2025, we expect profitable growth to accelerate in 2026. Our guidance for '26 is as follows: sales will be between EUR 8.2 billion and EUR 9 billion, meaning a top line growth between 9% to 19% year-on-year. EBITDA margin is in the range of 8% to 11%. Again, as in previous years, we believe the midpoint is the most likely outcome as of today. Working capital ratio below minus 9% and CapEx approx EUR 200 million. This reflects continued margin expansion, steady volume growth and disciplined capital allocation. Regarding free cash flow, we don't provide formal guidance. However, based on the building blocks we have shared, you can likely conclude that we are positioned to deliver another solid free cash flow year. As mentioned at the beginning, today is not only about presenting our 2025 results and guidance, it's also about setting the tone for the years ahead of us. With that in mind, let me now walk you through the capital allocation policy we are introducing. Over the past years, many of you have asked for greater clarity on how we think about capital deployment once Nordex returns to a more normalized financial position. Let me summarize our approach. First, we remain fully committed to maintaining financial flexibility and a strong balance sheet and ample liquidity are essential to navigate market cycles in our industry. And this discipline will not change. Second, we continue to prioritize operational and strategic growth opportunities. That includes funding core organic investments across our supply chain, product enhancements and key research and development initiatives. We also want to retain the ability to pursue selective strategic opportunities, enhance our supply chain resilience and leverage opportunities to look in turbines via supporting our customers in advancing their project development pipeline. Third, with these foundations in place, we will consider returning cash to shareholders in a sustainable way. Today, we are introducing Nordex's first shareholder return policy. Under this framework, Nordex will target a minimum annual shareholder return of EUR 50 million to be delivered either through dividends or share buybacks and always subject to regulatory approvals, our capital structure priorities and stable market conditions. As many of you know, under German HEV rules, distributable profits sit within the stand-alone Nordex SE entity, and this will catch up in 2026 due to difference in local GAAP and IFRS. Therefore, we plan the first payout in 2027. This policy reflects our commitment to a disciplined, predictable and sustainable approach to capital allocation, balancing the needs of the business with attractive returns for our shareholders. And importantly, this is a first step. We remain open to refining the framework over time, always guided by the principle of maximizing shareholders' return. And moving on, let me now talk about our core markets and why we remain confident about the overall environment and our position within it. According to third-party researchers, onshore wind installation are expected to grow steadily throughout the decade. This growth is driven by 3 main factors: one, strong fundamentals in Europe and North America, which remain the core regions for Nordex; second, increasing electrification and industrial demand, which supports long-term renewables build-out. And third, selective upsides in markets such as Australia. And with this, given the structural improvements in our business and the visibility provided by our order book and the service portfolio, we are upgrading our midterm EBITDA margin ambition to 10% to 12%. The key levers here include: first, continued volume growth in Europe and the Americas and operating leverage from revenue growth. Second, higher service profitability with EBIT margin crossing the 20% mark. And third, further margin improvement via efficiency measures across production, logistics and fixed costs due to the bigger volume. As we had mentioned before, we have been working tirelessly to make this company much stronger over the last 3 years and 2025 shows the results of these efforts. And like Ilya, I really like to take this opportunity to thank our people for their tremendous efforts. Of course, our customers for their trust, support, banks and analysts and shareholders for the continued trust in Nordex, especially in difficult times. We believe we now have a good platform to deliver more profitable growth with the support of all of our stakeholders and remain committed to further strengthening the business in the years to come. And with this, let me hand over to Anja for Q&A. Anja Siehler: Thank you, Jose Luis, and thank you, Ilya, for leading us through the presentation. I would now like to hand over to the operator to open the Q&A session. Operator: [Operator Instructions] And the first question comes from John Kim from Deutsche Bank. John-B Kim: One question and a follow-up, if I may. First, congrats on the numbers. I wanted to understand when you think about capacity expansion and investment, I'd like you to speak a little bit about how we should think about factory loads. Any pinch points on supply chain? And I have a quick follow-up, if I may. Jose Luis Blanco: Yes. No, thank you very much for the question, John. I think we have provided you a view of EUR 200 million CapEx that should be sufficient to deal with the volume growth, even with the upper end of the volume growth considering in the guidance, and keeping our supply chain diversification strategy. We plan to keep Europe, eventually small growth. We plan to keep and grow India, and we plan to keep and grow China. At the same time, we are ramping up and growing U.S. So we don't plan major disruptions in supply chain, keeping the flexibility to shift volumes from region to region if needed. And we are confident and well equipped and provided for in the guidance. John-B Kim: Okay. And as a quick follow-up, can you just update us on the situation in Turkey, please, with blade supply? Jose Luis Blanco: Yes. I think we made substantial progress in derisking our situation in Turkiye. And we are, as we speak, ramping up blade production in Turkiye. We are committed with long-term investments in the market. We have been very successful in [GECA 4]. We hope to be equally successful or almost equally successful in [GECA 5] and we are ramping up the capacity to deliver our commitment to our customers and the government is, of course, happy with our commitment to the country. Operator: And the next question comes from Alex Jones from Bank of America. Alexander Jones: Two, if I can. The first one on the new capital return policy. Could you outline for us why you chose the EUR 50 million number rather than something smaller or bigger? I guess when I think about the midterm profits and therefore, cash flow of the group, I imagine they'll be substantially larger. So is there something constraining that number in the short term, be that German GAAP profits or whatever else? Jose Luis Blanco: No, thank you for the question. I think we try to share with you what our view is about the priorities, which is having a balance sheet fortress, if you will, to deal with cycles, but as well to deal with opportunities. And we think we will find opportunities to deploy capital at reasonable return, supporting our customers to make their projects through and consequently helping the company to grow further in the top line and in the profitability and achieve our midterm EBITDA target. And this is what we are -- where we are focusing now. Ilya? Ilya Hartmann: I think you said -- I would add maybe 2 thoughts. One is, first, this is an idea of a minimum EUR 50 million. So we'll always then decide in the given year if a different number if appropriate. And other than the point you mentioned of deployment is not only a fortress of the balance sheet, which I think is one of the key priorities, but also the flexibility of Jose Luis to help execution, derisking supply chain changes whenever needed to react that we have also the resources to do that. I think that's our set of priorities. Alexander Jones: That's very clear. Understood. And then if I can, on the installations in 2026. Can you give us any idea? The order intake has been very strong, above 10 gigawatts in '25. Some of that will take a while to come through, but could we see a year with installations above 9, for example, growing from the 7.6 you did last year? Jose Luis Blanco: I think we prefer to guide you in revenue and margin without going too much specific into the underlying operational figures. But definitely, we see growth in production and installation in '26. But remain that the year is very young, so we still need to sell a lot to contribute to PoC revenue and margin for 2026, and we need to grow the company in production and installation. Hopefully, the customers will not delay. Hopefully, we will not see major disruptions. We are prepared for that within a reasonable range. And I will say this is as far as I can go today. But growth is definitely expected in production and installation. Operator: And the next question comes from Sebastian Growe from BNP Paribas. Sebastian Growe: My 2 questions would be around Germany and then also the margin trajectory that you have updated. So let's start on Germany then. Apparently, we are seeing the German Economy Ministry planning to make changes to the support scheme for renewables, both from a grid access point of view, but also then from a pricing perspective with the move to CFDs. Can you comment on how that might impact turbine pricing? And what is your most important single market at this point? How has your customer base reacted to the current draft that has been linked to the public. If we could start there and then continue on the margin part later. Jose Luis Blanco: Let's do this together with you. So I know that there is a lot of -- or a slight unrest about the situation in Germany. I tend to see it quite positive. I mean the German market is going to deliver 10 years -- 10 gigawatts a year for the years to come. And this is amazing. This is record high historical volumes for the next couple of years ahead of us. Yes, 10 is not 13 or 14, fine, but it's 10. It's going to be maybe the biggest worldwide market second to China. And we have a fantastic market positioning in this market, just to set our view. Then like in any changes in system, this is -- could bring uncertainty and could slow down the market. We had a very bad experience in 2017 in Germany. So hopefully, all stakeholders learn from the mistakes, and we do the transition in a smart way that the volumes are not affected. Third, regarding the new system, I think wind onshore is by far the cheapest energy solution for Central Europe. And so we are part of the solution. We can help countries and societies to deal with affordability with energy independence, if they procure Western with technology independence and to foster electrification. Of course, the enabler for all those things is grid deployment. So I tend to think that we are in a great momentum, in a great momentum for our sector and for our company within the sector in a very important market despite some challenges that policymakers need to address in order to make this transition in the best possible way. And regarding the leak, I don't think we should comment on leaks. But my take is that wind onshore and our customers, we are part of the solution to lower electricity prices and to deliver society needs. And electrification is a must to deal with the competitiveness of Europe and Germany. And grid is the bottleneck that governments across Europe needs to address to make electrification a really powerful tool to address competitiveness. Ilya Hartmann: Yes. I mean, had anything to add, and that's really not much, I would say, agreeing with you, Jose Luis, not to comment on leakages of draft. However, I would probably remind all of us that this is a government of 2 parties. And 1 of the 2 parties was part of the previous government and has heavily supported the Wind industry. And that also led to what you were saying, Jose Luis, to the reconfirmation by this current government of the 10 gigawatt annual target in Germany. So let's see what comes out of the process. To the broader question, Sebastian, I'd say, for me, Germany with that is becoming a more normal market because now auctions from a system perspective start to work. And Germany will find a new normal across the value chain, the auction tariffs, the land leases, the developer fees, the equipment of BOP turbines. So after all, we're going to deal with a market that is very, very similar to many other markets in the world with similar economics. And then I think if anything to add, Jose Luis, that is something we have been considering when giving you this new midterm target. That is already considered. Sebastian Growe: That's a good segue indeed to my next question. In that chart on the margin walk to the 10% to 12% in the midterm, you haven't touched on the impact from price. So the question that I then would have around this is, am I right to assume that this very 10% to 12% range is a through cycle ambition? And as such, the strong volume visibility at attractive gross margin that you are enjoying right now might even result in a higher margin than this 10% to 12% range in a given moment. And it would rather than cater for if we did see this structural transition towards what is then a market price and not so much, say, determined price by a system, that this would then sort of be a normalized margin, but you would exclude at this point that you might even come out at a higher level. Is that the right way to think about it? Jose Luis Blanco: The way to think -- of course, we have made our view of what midterm prices could be and what the midterm market shares could be and what midterm volumes could be for our sector. And we are sharing with you our view and you are spot on. So we think that across the cycle, across the cycle margin. And let's not forget that the volume in Germany is going to be massive and the Central European price forward-looking 10 years for electricity are in the 70s. So -- and the best tool for lowering electricity is more wind onshore. So we are operating in a region that has certain price level in the -- for the final electricity pool. So I don't expect or we don't expect that the Central European electricity prices will drop like Finland or like any other countries like Spain in the medium term. And based on that, what we have from our view and guided you to that midterm target across the cycle. Ilya Hartmann: And maybe to the second question of Sebastian, I think your answer is perfectly in my view that this is exactly what we want to calibrate you for. Could it be better in a given year? I would not exclude it. Operator: Then the next question comes from Richard Dawson from Berenberg. Richard Dawson: Two from me. Firstly, on the U.S. market, I'm just wondering if your view in that market has changed at all. You secured the contract at the end of '25 for over 1 gigawatt. So it suggests that order momentum is picking up. But how do you see the opportunity in 2026? And where could your market share go in the U.S.? And then second question is on the EBITDA margin bridge up to that 10% to 12%. You mentioned in the presentation an opportunity to streamline costs further. You've obviously done a lot of this in the past, but could you provide some more details just on specific initiatives you have in mind for streamlining those costs? And I ask this against the backdrop of a business which is clearly growing both on the project side and the service side. Jose Luis Blanco: Thank you very much, Richard, for the questions. The U.S., let me share with you. I was 2 weeks ago there meeting customers. And I'm very pleased with the turnaround of the brand in the U.S. market after facing certain difficulties that you were aware with the former legacy platforms and quality issues. This is all behind us. So we managed to turn around this quality situation. We managed to turn around the stakeholders' relationships of the brand. Nordex brand is amazingly well perceived now by U.S. stakeholders. Current Delta for housing platform in U.S. is delivering market availability. And the team did a terrific job as well in restarting the West Branch facility and start to produce certain turbines for reservation orders we have. So we see momentum in the U.S. market. So customers are willing to keep investing in developments. Unfortunately, projects are pending, permits from the federal government. And this is something that honestly, nobody has a view of when those permits are going to flow. It's not that the permits or the determinations will not get to our customers to make their projects, it's a question of when. So there is no structural issue to reject those permits. It's a question of when those permits will be cleared, which reinforces our strategic decision to invest in that market long term. That market is facing a super cycle energy electricity increase demand cycle. And yes, maybe most of it is going to be delivered by gas, but wind plays a fantastic role to fit more with the demand profile of data centers, which is what is mainly driven electricity demand increase in U.S. So I'm without having firm orders, without having a clear view of when the firm orders are going to land to Nordex, I'm convinced that this was a very good strategic decision for Nordex. And I'm very pleased with the positioning of the plan in the marketplace. Second, talking about the EBITDA bridge margin regarding cost further improvements. I mean the key thing here is stay lean and let's make sure that we keep our overhead as lean as possible and definitely grow substantially less the overhead than the revenue to untap profitability improvement, number one. And number two, the volume brings always efficiencies, a little bit on the cost side, but as well in the underutilization. So we still run the company with certain level of underutilization. We want to have optionality to have 3 or 4 supply chain options. And the more volume we grow, the more we reduce the underutilization, the more we support the profitability improvement. Operator: The next question comes from Constantin Hesse from Jefferies. I'm sorry, it looks like the question was just withdrawn, then we go on with Ajay Patel from Goldman Sachs. Ajay Patel: Congratulations on the results. I have 2 questions, please. Firstly, I just want to focus on capital allocation again. I'm not sure I'm fully appreciating everything here. So it looks like over the course of '26, you're going to be towards EUR 2 billion in net cash. And you're not going to be really distributing too much on the dividend side until '27 and then that will ramp. It therefore, still implies there's going to be a lot of cash on the balance sheet. And I just wonder how should we be thinking about that? Like when you talk about the potential for opportunities to invest, are we talking manufacturing sites? Are we talking maybe adjacent types of business activities? I'm just trying to understand how that capital allocation thought works. And then if the cash is not being utilized maybe for distributions in at least the shorter term, could it be paying down debt or reducing use of facilities that we see a meaningful impact to interest costs? And if that's the case, what kind of improvement could we see? And then the second sort of set of questions is around the midterm target, the one on Page 23. The chart set up in a way that it looks at these 3 variables that gets us to the new midterm target, and it has it evenly distributed. And I'm wondering in my head, well, how much is actually in your own hands already and that you have enough visibility of auctions that have gone through Germany that eventually will convert to orders. You have enough of a pipeline in the U.S. You have a viewpoint on the efficiencies you're taking out of the business that are good amount of the targets under control? Or how much is it just dependent on market activity going forward? So I was just trying to understand how robust this is. Jose Luis Blanco: So let's start with the second question, Ajay. And so the year '26 is still very young. And we haven't sold what we need to sell to make the '26 guidance. So we still need to sell a lot of volume in Q1 and Q2. So definitely, this midterm target is subject to volume. Our assumption in this midterm target is that we will grow with the market. Some markets will grow, some markets will decrease. Germany long term will be an amazing market, but will be an amazing market of 10 gigawatts, not an amazing market of 14 gigawatts. Eventually, this will be compensated by U.S. picking up or other geographies. So this is a long-term view across the cycle, taking into account that we will grow with the market. So we are not taking the assumptions that we will grow market share. But of course, before talking midterm, we need to still deliver the '26 guidance for which we still need to sell. So we are exposed to the market dynamics for the midterm. With that being said, I think things don't change radically year-on-year. I mean the old product, if it's super competitive today, should remain at least competitive in the next year. So the market shares don't change dramatically over time year-on-year and markets given the capillarity we have and the number of countries where we operate, we should be able to compensate some markets with us. Regarding capital allocation, let's put this together, Ilya, I think the first priority, I mean, we need to have sufficient headroom to deal with situations like the one in Turkey last year or eventually more to come. We don't want to lose any opportunity to derisk the company, to further grow the company, to further improve the profitability of the company and some of those potential opportunities might require investments above the guidance that we have given to you, and we want to be prepared for that. Not saying that we have a concrete plan for that. Otherwise, we should share it with you, but we want to retain the option. And the first and foremost important thing is support our customers to make the projects reality. I think Germany, we heard that there are difficulties, and we want to use the liquidity of our shareholders because this company is the company of our shareholders to further invest this liquidity, supporting our customers, helping the company to further grow and to further improve profitability. Ilya Hartmann: Yes. And this is -- I think the recount of the priorities, maybe just -- I mean, very good question, Ajay. The point here is there is not much debt to pay for the company because there's only really a convert out there. And our interest is largely determined by the bond line, which is not debt that you repay with cash. And we've been working a lot on bringing the interest on the bond line down. So we will have positives there, but that's not done with the cash. And maybe to kind of support Jose Luis, thinking there is, I mean, for Nordex, that's the first time ever that in the history when it's as a listed company of more than 3 decades that it moves into the territory of those shareholder returns. And I think we should not forget that and where the company comes from. And on the other side, I'll repeat what I said maybe 10, 15 minutes ago, we're setting here a minimum. So when seeing the actual cash levels, the other opportunities that Jose Luis was describing, I think we will then come back with a more specific number. But that was to set the tone and introduce that shareholder return policy for the first time. So that would be my comment. Ajay Patel: May I just follow up on something? Just talking about the cash profile. Is it fair to say, look, these are very broad numbers, and I'm not asking you to sort of say these are right. But I think previously, we talked about 9 gigawatts of installations in the future, which effectively would move about EUR 10 billion of revenue on these types of margins, it would broadly imply EUR 1 billion to EUR 1.2 billion of EBITDA. And actually massive increase in EBITDA relative to what you've just delivered in '25. I just wonder if CapEx follows or actually the pace of which CapEx increases in this type of picture in broad terms isn't going to be as fast. And therefore, there's a much stronger picture of free cash flow developing. Jose Luis Blanco: Yes. I think the CapEx is going to depend a lot if we need to do one-off things, which we are not planning to do, and the rest building blocks, you can do the math of cash to EBITDA conversion more normalized levels than this exceptional year. But it's fair to say that '26, we expect to generate a good cash flow. Ilya? Ilya Hartmann: I will only add -- and I think, Ajay, your rough math is fully right when you say that in our core business, provide the unforeseen CapEx growth rate might be slower than the other building blocks you gave us. So yes. But then, of course, again, Jose Luis, listed a few priorities on where money might be deployed, always strengthening the core business, strengthening the balance sheet and helping our customers where needed to get projects over the hurdle in a bit of a difficult environment in some markets like the U.S. and others. And then second, yes, on the cash flow -- on the free cash flow, I probably to calibrate you, yes. If you plug an EBITDA to cash conversion rate of 50% to 60% into your models without guiding and the caveat and all that, I think then you get a -- you get a good picture of what we expect. Operator: Then the next question comes from Constantin Hesse from Jefferies. Constantin Hesse: Sorry, guys before I had some technical issues. I've got 3 questions on my side. One is, look, I think there's obviously one question mark that is basically being created around this potential risk of Germany updating their renewable energy target. But thinking about the order intake outlook into 2026, if you could maybe just provide some commentary on what you're seeing in Q1. And then I'm trying to think about the building blocks for '26. And unless -- I haven't seen any markets that have announced any kind of slowdown. I mean, Italy confirmed their numbers. Germany is doing 11%. U.K. is accelerating. Baltics continue to be good. Australia, Canada relatively fine. So is there -- are there any markets currently that you see as potential risks that could slow down orders? That's my first question. Jose Luis Blanco: Thank you, Constantin. Great to get your questions. Regarding order intake in '26, I think you know we don't guide for order intake and the year is starting. So it's very young. The quarter is not that so young. So we see a weaker quarter compared to the same period of last year. Let's see. But so far, we are presenting to you a guidance and a midterm target with our view. And on a quarterly basis, it could be changes depending timing, but we don't see substantial disruptions altogether. And markets that might be [indiscernible] which for us is important, is U.S. that this might or might not come. And we have certain contribution from U.S. in our order intake planning, not from a guidance perspective and P&L, but from an order intake planning for midterm target. Other than that, I tend to agree with you. I don't see any major crisis in markets for order intake. Constantin Hesse: Understood. And second question, just around the medium-term margin. I mean, most of my questions have been answered there, but one that remains is, I just saw an article that came out about 30 minutes ago, so Luis, where you comment on potentially having to negotiate prices down in Germany if auctions continue to come down. So when we look at the medium-term margin outlook, the 10% to 12% that you gave, are any potential cuts to pricing in Germany already included in that? Jose Luis Blanco: I think how can I phrase it? We don't plan or I think it's advisable to enter here into a price war. That's not the point. I think -- and we need to see this from a different angle. I think it's a huge volume in Germany and prices for Central Europe are at high levels, which might be reduced the more renewables you introduce. And this is what we consider into our midterm target. Of course, we need to support our customers to make the projects through. And this might somehow have a slight effect where, as Ilya mentioned, everybody needs to contribute their part to develop the land leases, the construction work and the turbine. I think we have sufficient action plan in-house to be able to contribute our part without deteriorating the margin. Constantin Hesse: Understood. But any price decreases are still -- I mean, some decreases are still included in the medium-term target is what I understood. Lastly, on capacity. I mean, you just booked 10.2 gigawatts of orders. Looking at installations over the next couple of years, it's pretty obvious that things continue to move up quite significantly. What is the current nameplate capacity of Nordex? Where do you get to the point where you would have to start building more space, more capacity? Jose Luis Blanco: That depends a lot product to product. And of course, on the 175, which is the product that over time will take over 163, we are building up capacity, and we might need to do more or less depending the timing of the installations on 163, I think we have sufficient capacity. It depends a lot about what type of capacity, assembly capacity. I think we are well -- we are running with flexibility and overcapacity structurally because of 2 reasons. First reason is derisking single geography dependency. Second is having optionality. Third is managing working capital. If you run too short in capacity, then you need to preproduce a lot and then you need a lot of working capital investment there, which we don't want to do. So we run with overcapacity. It means higher underutilization cost, which I think is the right investment to do versus flexibility and risk. In blade this is slightly different. But long history short, for this volume and for this additional volume that we put in the building block for the midterm target, I think we can do that within the range of CapEx that we gave to you in the guidance. Operator: And the next question comes from William Mackie from Kepler Cheuvreux. William Mackie: A couple of larger picture and some specific. First of all, focusing on supply chain and gross margin, but supply chain broadly, I think that ahead of the Chinese 15th 5-year plan, they have announced or declared a grand intention for wind installation domestically, which sort of looks in the region of a 40% increase in installation volumes. The impact of that, of course, is on their -- or the local manufacturing and supply chain. You have always been flexible and seeking partnership and qualifying suppliers from around the world to optimize your cost base and gross margin. So within the longer-term thinking and perhaps in the context of your chancellor in Germany, what is your thinking about the future relationship with China and how you can leverage that supply base to your benefit? Jose Luis Blanco: Thank you very much, William. I think that's a super, super good question. And we thought a lot about that many years ago. I think we -- as an industry, we need to leverage and as a company, we need to leverage on hardware economies of scale of Chinese supply chain. Software, we want to keep in Europe. Software and control, we want to keep in Europe. And within the hardware despite Europe is -- cannot be competitive in the current setup, we decided to keep a foot in Europe and support the policy about made in Europe and Net-Zero Industry Act. So depending how geopolitics works, we might need to ramp up Europe or not, but we want to have the possibility to do so. And we want as well to grow India as a balancing act for our supply chain strategy. So -- but fully committed with China, with our team in China, with our suppliers and partners in China, and they are part of our trajectory. And if geopolitics play a different role, we will adapt accordingly. William Mackie: You put together in your assumptions, input costs, tariffs, changing supply base, how do you see gross margins developing? Your gross margins, I think, exclude your direct labor costs. So it's effectively a direct input cost impact. So they seem to be plateauing. Is this a normalized level for your business? Do you envisage the scope for growth or expansion? Jose Luis Blanco: It's going to depend a lot of make or buy strategy, how much you do internal, how much you procure. But all things being equal, in the make or buy strategy or in the make or buy share on the make or buy strategy, that's a fair assumption. plateauing is a fair assumption. William Mackie: My second, I know we've been trying to understand your capacities from your internal capability. My question is more thinking about installation capability. I think historically, you've delivered maybe above 1,600 turbines or installed over 1,600 turbines in a year in the recent past, but with a different geographic mix. As we look forward, the mix is biased towards Western Europe and Germany and your installation partners, do you see sufficient capacity, whether it's crane lift, install, EPC completion, which enables you to run at higher rates as Germany and these other markets begin to increase their installation rates? Jose Luis Blanco: I think that's a super good question. And the answer is we have a plan for that but is not without risk, let's put it that way, because the record levels is going to put challenges everywhere from police escorts, to transportation permits, to building permits to all the supply chain needs to stay tuned and in focus and all government, federal and states and municipalities needs to support the journey, which so far, I think it's the case because it's a country mission, what we are discussing here, but it's not without challenges. I mean the volumes that we are going to install in Germany are massive and the number of special permits and the disruption in the highways at night, and this is going to be a challenge for the whole industry indeed. William Mackie: Super. The final question maybe for Ilya is financial. Just rounding back on an earlier question for clarification. I mean you're running an increasing level of bonding lines or project bonding lines. I think historically, you've used a number of sources for that capital, but your historic weak capital structure has resulted in higher costs. I think you were in negotiations to syndicate with new banks. Looking forward, as your capital structure increases, how could we expect your bonding line costs to change? Ilya Hartmann: Yes. Thank you. That's indeed a very good question. I alluded to it earlier a bit also when I was answering to Ajay's third question. I mean, without going to these other structure. Right now, we have been in the past year '25 ramping up a lot of bonding lines already on a bilateral basis with banks, whether that goes into syndication or continues to be bilateral. I think that is a matter of choice and terms and conditions. But for both concepts, fortunately, true is that now the costs for those bonds have come down significantly from those high levels you were talking about in the times of a weaker financial standing of Nordex. So in a like-for-like volume, at the end of this ride, they could almost half from the peak. So we could talking about half the cost, maybe even better than that. Of course, we're doing now more volumes. So we're using more bonds. Germany requires more bonds than other countries. So in absolute terms, the decrease might not be that much. But in relative terms, it would be almost 50% of the peak values. And if you want to do this for '26, and we've traditionally given you values of something like EUR 90 million to EUR 100 million of those interest costs. I think if you plug in for this year, again, we're still on the journey to recycle all those bonds. If you're talking more 70-ish number, I think this year, it's a good calibration. And then we hope to improve this further, as I said, during this year and then for the years to come. Operator: And the next question comes from Sean McLoughlin from HSBC. Sean McLoughlin: Congratulations from me also. Just coming back to German auctions, it sounds from your comments like we have seen pressure on turbine pricing as a result of the price compression in the latest onshore bids. So it sounds like this is not all getting competed out at the developer level. Just to understand what kind of change are you seeing in conversations with your developer customers in thinking of bidding at the next auctions? And how you're planning on remaining margin neutral? That's my first question. Jose Luis Blanco: I think our take there is -- and let's do this together, Ilya, is that Wind is an amazing part to solve the problem of competitiveness of Europe and Germany and lower electricity prices. The floor price of the auction is substantially lower than the 10-year forward prices of Central Europe. So we somehow wish that our customers take that into consideration. And we can support equally the German ambition without doing unnecessary or unsustainable changes in that. Ilya Hartmann: I subscribe to that. I think the one and probably many people here on the call as well have been following this industry for quite some time, and you and I have been in this industry for 20 or in some cases, 20-plus years. And we've seen a few cases where systems start to get into auctions. And Germany has officially started that in 2017, but since it was undersubscribed, it never really was an auction system. Now with the oversubscription really taking only place since '24 and really since last year, I probably see that '26 is one of those transition years. And in those markets we've been working with [indiscernible] in the past, be it in the U.S., be it in Latin America or South Africa, people need to find a new normal. And sometimes they take somewhat irrational decisions. But after a not so long time, markets normalize. And I would say, Jose to your point about the electricity pricing in Europe, sooner or later, we will see that new normal. So I wouldn't take the '26 auctions for too much. Let's see 3, 4 auctions down the road where the final pricing of electricity in these auctions has leveled out. Jose Luis Blanco: And especially after the new policy next year, let's figure out. I think I tend to see it positively in a way that is big volume, 10 gigawatts for the foreseeable future is big volume and the ultimate price in Central Europe is a decent price for everybody to be profitable. Sean McLoughlin: Just another question, just to understand a little bit the bottom end of the guidance range. You're implying a margin fall despite roughly 8% higher revenue. So just to understand what are your bearish assumptions to get to that bottom end of the range? Jose Luis Blanco: The biggest -- I mean, there are 2 or 3. I mean, one is substantial delay on the order intake. We still need to sell order intake this year for percentage of completion of products that we plan to manufacture this year. If the order intake doesn't come, we don't produce to stock. We produce to orders. Even if we produce to stock, if we don't have the orders, we cannot recognize revenue and margin. So this is the biggest risk. Second bigger risk is delays, either due to us or to our customers or to permits, installation delays, construction delays. And the third is disruptions in supply chain that we have factored certain minor disruptions if there is -- this will depend how much this disruption will affect your supply chain. Ilya Hartmann: And I think it's a very good question. We haven't mentioned it before because if we give you a range for both revenues and for EBITDA margin, of course, we shouldn't fail to calibrate you and also to mention it here, we would like to calibrate you for both those ranges from what we see today in the midpoint on the revenues. And in the EBITDA margin, it's a midpoint view and Jose Luis -- looking at you... Jose Luis Blanco: Midpoint plus. Ilya Hartmann: Midpoint plus. If you ask something, it's midpoint, but if you ask us is it's another midpoint minus or midpoint plus. I think our answer is this is a midpoint plus view on the EBITDA margin guidance. Jose Luis Blanco: And the rest is the scenarios, scenarios that we need to plan for. Hopefully, those downside scenarios will not materialize. But in case those materialize, we don't want to surprise you. Operator: And the next question comes from Vivek Midha from Citi. Vivek Midha: Congratulations again for myself as well. I have a few follow-ups, if I may. The first on the market. You mentioned that the U.S. is contributing to your order intake assumptions underpinning the midterm guidance. Could you help us understand what you have to share your assumption around that U.S. market volume within that guidance? Jose Luis Blanco: I mean you know that we don't discuss order intake guidance nor distribution of the markets within that, even in the year. So I feel we cannot be very specific there. But our ambition for U.S. was returning to our previous market share. And our view, and we might be completely right or wrong is that we don't see reasons why U.S. medium term is not a sizable market as Germany. Do we see that short term? We don't. But that's our assumption medium term that U.S. should be a sizable market as Germany and that we should be able to deliver there in our traditional 20% market share. Vivek Midha: Helpful. My other follow-up was on the cash flow side, following up on your comment, Ilya, around the sort of cash conversion, how we can think about that going into free cash flow. If I look at the key building blocks of EBITDA, working capital and the CapEx, that would appear to imply around EUR 450 million, in line with that view of 50%, 60%. That doesn't include any changes around the warranty provision topic. Should we expect any cash outflows from that? Is that material at all? Ilya Hartmann: Thanks. Very good question. I'm afraid I do my caveat one more time that I don't want to guide you for the free cash flow. But if I was accepting your number for a second, and you're always doing very well, the building blocks for us, then I would say that includes all potential outflows from anything on our provisions. Operator: And we do have a follow-up question from John Kim from Deutsche Bank. John-B Kim: More of a conceptual question. I'm wondering if you had a view as to longevity of the Delta4000 platform. As the market evolves, you tend to need to refresh. How should we think about a new platform in the next 3 to 5 years? Jose Luis Blanco: Let me see how I think our current platform with minor evolutions are very good to deliver what the market needs in the markets where we operate in Europe, where you have no restriction, logistical challenges, same applies to Canada, to U.S. So we are not going to be the ones first to launch a new platform to the marketplace. So in the horizon of what we see in the medium term, we don't see the need. Nonetheless, we need to be prepared in case our competitors do so. But I don't see the need because we can deliver the cheapest electricity source of energy in Central Europe with the current products, and there is no need for that. So let's see what the market does. And in our view, the best way for all stakeholders in the marketplace is reliable products. And reliability comes from testing, from field experience for operational platform and from taking the time to ramp up and staying at nominal capacity as many years as reasonably possible. That's the key for profitability and sustainability. So hope that the market remains that way as this has happened with Delta4000. John-B Kim: Okay. Helpful. If I can ask an unrelated question. Can you just comment on price cost dynamics in your service business? You had very strong sales. You have a very strong backlog here. But I'm wondering how we should think about cost to serve given the growth in the fleet and what levers you're throwing to kind of optimize that? Jose Luis Blanco: I mean, on our midterm target, we are considering that the service business should contribute with the growth and with slightly profitability improvement and the profitability improvement comes especially from more reliable turbines with less problems in the field to replace and repair. And then if the growth is coming as is expected in areas where you have a strong service business fleet, you don't need to grow up overheads and new capacity, but you take certain efficiency from the growth in existing geographies. And those are the levers. Our target, I mentioned in the speech, we should hit someday the 20%. Is this going to be a profitable business as the market leader? No, because we don't have the size of that business for the time being. Long term, maybe. But medium term, no, but definitely crossing the 20% is something that we are ambitioning. Operator: And we do have one more follow-up question from Constantin Hesse from Jefferies. Constantin Hesse: Just one quick follow-up on tax. Ilya, can you just remind us, I mean, after so many years of pretty substantial losses, you must have built quite a good portfolio of some tax loss carryforwards. How do you think about tax over the next few years? Ilya Hartmann: Yes, good question. As a company now that makes profit, so we need to think about taxes even in a more intense way than before. So of course, ultimately, the applicable tax rate, and that's what we're giving you on the P&L side is that German 30% rate. But when you think about cash taxes, you should more think about a 15% to 20% cash tax rate. I mean we're working on this. So take it as a very early nonguided number, but to give you an order of magnitude, that's where we're going using the losses from the past, and let's see how optimal we can get that. Constantin Hesse: And can I just ask you in terms of how long can this last for in terms of that range that you just discussed? Ilya Hartmann: I mean it will depend. I mean, according to our midterm target and now we're really entering a territory where we're typically on a public call. But of course, if we go at that rhythm and we're talking midterm, maybe of a common understanding here in 3 to 4 years, we might have absorbed and consumed all of those past losses. Operator: So it looks like there are no further questions at this time. So I would like to turn the conference back over to Jose Luis Blanco for any closing remarks. Jose Luis Blanco: Thank you. Thank you very much for the very good and intense Q&A session. Let us conclude with our key messages for today. First, '25 was a record year with a strong operational performance and major financial and operational improvements. Second, strong free cash flow and net cash position above EUR 1.6 billion, strengthening our strategic flexibility. Third, we are well positioned for 2026 and beyond. Fourth, our shareholder return policy is an important milestone in Nordex development in its first time ever. And finally, we reached our midterm EBITDA target ahead of plan, and now we are setting up to improve it further towards 10% to 12% across the cycle. Thank you very much for your time and wish you a wonderful day ahead. Operator: Ladies and gentlemen, the conference is now over. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Good morning, and welcome to Ionis' Fourth Quarter and Full Year 2025 Financial Results Conference Call. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Wade Walke, Senior Vice President of Investor Relations, to lead off the call. Please begin. D. Walke: Thank you, Keith. Before we begin, I encourage everyone to go to the Investors section of the Ionis website to view the press release and related financial tables we will be discussing today, including a reconciliation of GAAP to non-GAAP financials. We believe non-GAAP financial results better represent the economics of our business and how we manage our business. We've also posted slides on our website to accompany today's call. With me on the call this morning are Brett Monia, our Chief Executive Officer; Holly Kordasiewicz, Chief Development Officer; Kyle Jenne, Chief Global Product Strategy Officer; and Beth Hougen, Chief Financial Officer. Eugene Schneider, Chief Clinical Development Officer; and Eric Swayze, Executive Vice President of Research will also join us for the Q&A portion of the call. I would like to draw your attention to Slide 3, which contains our forward-looking language statement. During this call, we will be making forward-looking statements that are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors contained in our SEC filings for additional detail. With that, I'll turn the call over to Brett. Brett Monia: Thanks, Wade. Good morning, everybody, and thanks for joining us today. 2025 was a defining year for Ionis, marked by the successful execution of our first 2 independent launches and multiple positive data readouts across our rich pipeline. These achievements, together with our expectation for multiple additional value-driving events this year positions Ionis for continued success through 2026 and beyond. TRYNGOLZA, the first FDA-approved treatment for familial chylomicronemia syndrome, or FCS, exceeded expectations in its first year on market. TRYNGOLZA's excellent performance was driven by a compelling clinical profile and strong launch execution. TRYNGOLZA was also launched in Europe late last year, and we're pleased to see our partner, Sobi, bring this transformational medicine to more patients. In August, we kicked off our second independent launch with the FDA approval of DAWNZERA, prophylactic treatment for hereditary angioedema or HAE. As the first and only RNA-targeted medicine for HAE, DAWNZERA offers a compelling profile that is resonating with prescribers and patients. And just last month, DAWNZERA received European approval, enabling our partner Otsuka to bring important medicines to patients across the region. In 2025, we accelerated the strong momentum with the olezarsen pivotal results in severe hypertriglyceridemia, a broad patient population with high unmet need. Further extending our leadership in the development of innovative treatments for diseases associated with high triglycerides. Olezarsen showed highly significant and substantial reductions in triglycerides in an acute pancreatitis attacks establishing olezarsen as the first medicine to demonstrate a benefit in reducing acute pancreatitis risk in this patient population. Based on these groundbreaking Phase III results, we were pleased to receive breakthrough therapy designation from the FDA. Additionally, late last year, we submitted the sNDA and anticipate receiving acceptance very soon. Importantly, we are on track to be launch ready by June. We also delivered positive Phase III results for our innovative medicine, zilganersen, the first to demonstrate a disease-modifying benefit in Alexander's disease, a rare and orphan fatal neurodegenerative disease. We submitted our NDA in January, and we anticipate approval and launch in the second half of this year. Assuming approval, zilganersen will be our first independent launch from our leading neurology franchise. Together, these groundbreaking results meaningfully expand Ionis' commercial opportunity and showcase our commitment to innovation and the power of our platform to deliver first-in-class RNA targeted medicines for patients with serious diseases. Complementing our rich wholly owned pipeline is our partnered pipeline, which targets both rare and highly prevalent life-threatening diseases. We expect multiple Phase III data readouts this year from our partner pipeline. In January, we announced the first of these results with positive top line data for Bepirovirsen, a potential first-in-class medicine for chronic hepatitis B that demonstrated clinically meaningful and unprecedented functional cure rates in the Phase III program. GSK is preparing global regulatory submissions and assuming approval, expects to begin bringing Bepirovirsen to the millions of people living with chronic HBV later this year. Looking ahead, we anticipate results from 2 major cardiovascular outcome trials, the pelacarsen Lp(a) HORIZON trial midyear and the Eplontersen CARDIO-TTRansform trial in the second half of 2026. In addition, sefaxersen for IgA nephropathy and Ulefnersen for FUS-ALS are also positioned for Phase III readouts later this year. If positive, these outcomes position our partner pipeline to deliver 4 key additional launches by the end of next year, driving a meaningful increase in our total revenue through royalties and milestone payments for many years to come. With strong momentum across our business, including our first 2 independent launches and advancing wholly owned pipeline and a robust partner portfolio, Ionis is well positioned to deliver a steady stream of transformational medicines for patients thereby driving substantial value and sustained growth. In addition to our very important recent commercial and pipeline achievements, 2025 was also a strong year of financial performance for Ionis. Revenue increased more than 30% over 2024 with growing contributions from our marketed medicines. This significant revenue growth combined with disciplined investment enabled us to exceed our financial guidance and as Beth will discuss later in the call, this momentum underpins our strong 2026 financial outlook. Importantly, we remain on track to achieve our goal of reaching cash flow breakeven by 2028. Now before I turn it over to Holly, I'd like to take a moment to formally introduce her in her new role as Chief Development Officer. Since joining Ionis, Holly has played a central role in building and expanding our R&D neurology franchise, resulting in the creation of an industry-leading pipeline of RNA-targeted therapies for a broad range of rare and common neurological disorders. Holly has also played a strategic role more broadly in creating Ionis' leading research and development organization and brings a deep understanding of our technology. We are pleased to have Holly in her new role and confident she will continue to drive substantial value and continued success for Ionis and all Ionis stakeholders. Now over to you Holly. Holly Kordasiewicz: Thank you, Brett. I'm honored to lead our world-class development team, which has recently delivered multiple concept data readouts. I've had the privilege of working closely with many members in the development team over the years, and I look forward to building on that strong foundation. Looking ahead, our focus remains on innovation and ensuring strong execution to enable Ionis to continue delivering a steady cadence of transformational medicines to people with serious diseases for years to come. Olezarsen is a clear example of our leadership in discovering and developing transformational medicines. The ground breaking Phase III data generated from the CORE and CORE2 trials position Olezarsen to a new standard of care for the broad sHTG patient population. As previously presented and published, our pivotal studies evaluated Olezarsen and people with sHTG who had triglyceride levels substantially higher than the 500 mg per deciliter despite being on standard of care with the lowering therapies that they find, putting them at risk of life-threatening acute pancreatitis. In CORE and CORE2, olezarsen demonstrated highly statistically significant and clinically meaningful mean reductions of up to 72% and placebo-adjusted fasting triglycerides at 6 months, the primary end point. Olezarsen also significantly reduced acute pancreatitis events, making it the first and fully treatment to achieve this positive outcome in people with sHTG. Olezarsen achieved a highly statistically significant 85% reduction in adjudicated acute pancreatitis events. It's important to remember that the main goal of triglyceride management in sHTG is to prevent AP attacks and olezarsen is the first medicine to demonstrate it can do just that. This remarkable reduction in AP attack rate was also reflected in the number of patients needed to treat to prevent a potentially fatal pancreatitis attack. Just 4 patients needed to be treated with olezarsen for only 12 months to prevent 1 AP attack in the highest risk subgroup. For context, statins used for primary prevention have a number needed to treat in a range of 500 to 100 to prevent 1 cardiovascular event over 5 years. We believe these unprecedented results position olezarsen to meet the substantial unmet need of people with sHTG. We submitted the sNDA at the end of 2025 and it is currently within the FDA filing review period. We requested priority review and expect a decision from the FDA shortly. As Kyle will highlight, launch preparations are already well underway, and we look forward to bringing olezarsen to people with sHTG later this year. In addition to olezarsen, we're poised for another independent launch later this year. We plan to bring to zilganersen to patients with Alexander disease an ultra-rare leukodystrophy that profoundly impacts patients and families who today have no approved disease-modifying therapies. Our positive Phase III results for zilganersen mark the first time any therapy demonstrated a disease-modifying impact in this condition. We recently submitted our NDA based on these groundbreaking data. In the interim, we have initiated an expanded access program to provide eligible patients with access to zilganersen while the review is ongoing. We expect zilganersen to be the first of the numerous additional independent launches from our leading neurology pipeline. Underscoring Ionis' ability to consistently translate scientific leadership into important medicines for our patients. Turning now to our Phase III program for Obudanersen, previously referred to as ION582, our investigational medicine for Angelman Syndrome. Late last year, we received breakthrough therapy designation from the FDA. In recognition of Obudanersen promising mid-stage data and the serious unmet need in this disorder. Angelman Syndrome is a rare neuro developmental disorder that causes profound and lifelong physical and cognitive impairment. Estimated effect more than 100,000 people globally. Obudanersen is advancing in the Phase III REVEAL study with full enrollment expected this year and data next year. In addition to zilganersen and obudanersen, we have a rich neurology pipeline advancing in development, including ION464 for multiple system atrophy and ION717 for Prion disease. We're evaluating both investigational medicines and ongoing studies in patients. Based on the data generated to date, we're encouraged by the level of target engagement in the safety and tolerability profile. As a result, we plan to add additional dose cohort student programs to fully explore the therapeutic potential of these medicines. With these expansions, we now expect to report data from both programs next year. As we look to key upcoming events, in addition to those highlighted by Brett, we're looking forward to the anticipated approval of high-dose SPINRAZA, which has a PDUFA date of April 1. We're also evaluating -- we're also looking forward to the Phase III study start of Salanersen evaluating annual dosing for SMA and Sapablursen for polycythemia vera. We're over 3 mid-stage partner programs are set to read out this year, which in addition to multiple regulatory milestones position 2026 to be another catalyst-rich year. And with that, I'll turn it over to Kyle. Kyle Jenne: Thank you, Holly. With a strong first year for TRYNGOLZA, an encouraging start for DAWNZERA and 2 more anticipated independent launches this year, our commercial team remains focused on flawless execution to continue bringing our important medicines to patients. In the fourth quarter, TRYNGOLZA continued to gain momentum, generating $50 million in net product sales, reflecting a 56% increase in revenues quarter-over-quarter. And notably, December was our strongest month of 2025 underscoring continued growing demand. This performance drove full year revenue to $108 million. The efforts of our team, together with our innovative initiatives to identify patients continue to deliver positive results. We saw quarter-over-quarter expansion in both the breadth and depth of physicians prescribing TRYNGOLZA reflecting positive experiences among clinicians and patients. Q4 was a strong quarter of adding new prescribers who span a broad mix of specialties, including cardiologists, endocrinologists and lipidologists. Overall, approximately 75% of prescriptions came from these specialists. This provider mix and growing prescriber base positions us well as we prepare to expand into the broader sHTG population. Our leadership in establishing FCS access and coverage continues to benefit FCS patients and elevate TRYNGOLZA performance. Patients are gaining access to TRYNGOLZA quickly with time from prescription to first fill consistently exceeding our aggressive expectations. The current payer mix is approximately 60% commercial and 40% government and both clinically diagnosed and genetically confirmed patients continued to secure coverage. All the strong momentum we saw from TRYNGOLZA in 2025 has carried into the first part of 2026. There has been no meaningful impact on cancellation or discontinuation rates following a new market entrant. In fact, TRYNGOLZA continues to deliver strong growth in referrals and patient starts. Physicians continue to report very high satisfaction with both their prescribing experience and TRYNGOLZA's overall product profile, including efficacy, safety, tolerability and convenience. At the same time, pricing dynamics in the market are evolving. We are effectively managing these changes and preserving broad access and coverage for FCS patients. We are building on our leadership position in FCS as we prepare for the anticipated sHTG approval and launch later this year. Many people with sHTG struggle to manage to triglyceride levels with current treatments. In the U.S. alone, more than 1 million people have high-risk sHTG, defined as individuals with triglyceride levels above 880 milligrams per deciliter or above 500 milligrams per deciliter with a history of acute pancreatitis, or other high-risk comorbidities, including progressive cardiovascular disease and type 2 diabetes. Following our groundbreaking Phase III results, we conducted robust HCP demand research that confirmed strong enthusiasm for olezarsen and its potential to address patient unmet needs. HCPs found the low number needed to treat to prevent one potentially fatal acute pancreatitis attack, especially compelling. With the anticipated upcoming sHTG launch, we are continuing to engage with payers ahead of our planned price adjustment for the broader sHTG patient population. This work is anchored in olezarsen's compelling clinical profile and includes educating on the clinical and economic burden of disease and associated budget impact considerations. Ultimately, our goal is to provide the broadest access possible to patients and maximize the value of olezarsen. I am pleased to share that we now have our full field organization in place with approximately 200 field team members hired, trained and deployed. Our field team expansion materially increases share of voice and expands our reach to HCPs. Today, the team is actively supporting access to TRYNGOLZA for people with FCS. With our expanded team, we are positioned to effectively engage approximately 20,000 high-volume sHTG prescribers across the U.S., providing the scale and reach required for a successful launch in the larger indication. As we shared last month, based on the positive Phase III data and strength of olezarsen's product profile, we increased our annual fee revenue estimates for olezarsen to more than $2 billion. And today, we're even more confident in the blockbuster opportunity of olezarsen. Our groundbreaking data, strong HCP enthusiasm and first-mover advantage position olezarsen to realize its full potential as the new standard of care for people with severe hypertriglyceridemia. Turning to DAWNZERA. The launch is off to an encouraging start. We're seeing early adoption across all patient segments, including patients switching from prior prophylactic therapies patients previously using on-demand therapy only and treatment-naive patients. And we have seen strong participation in our free trial program with 100% conversion to paid therapy to date. Initial feedback from both physicians and patients shows high enthusiasm for DAWNZERA's differentiated mechanism of action, strong efficacy and patient-friendly profile, including a self-administered auto-injector and potential for the longest dosing interval, which is translating into increasing demand. Notably, we are also seeing a growing number of repeat prescribers due to the positive experience prescribers and patients are having with DAWNZERA. Additionally, we are seeing an extremely high conversion from referral to patient start. While it will take time to transition patients from other HAE therapies as we educate patients and physicians about the attractive profile DAWNZERA offers, we are confident we have the right drug, the right strategy and the right team to successfully bring DAWNZERA to people with HAE. Importantly, with strong launch fundamentals today, we expect DAWNZERA to meaningfully contribute to our growing commercial revenue this year and we reaffirm annual peak sales potential in excess of $500 million. Turning now to zilganersen for Alexander disease. We expect it to be the first independent launch from our neurology portfolio. Based on the Phase III results, zilganersen offers a potentially meaningful advance for patients and caregivers in a disease with no approved disease-modifying treatments. With the NDA submitted and acceptance expected soon, we are preparing to launch in the second half of this year. Ahead of launch, we are leveraging our strong relationships with the neurology community and patient advocacy groups to support awareness and diagnosis. Our medical affairs team is working with top leukodystrophy centers. Our marketing team is in place, and we will bring the customer-facing team on board ahead of approval. At launch, our priorities will include ensuring continued access for clinical trial participants, facilitating timely access for diagnosed patients, improving patient identification and ensuring availability. Importantly, we believe zilganersen could be the first of many first-in-class disease-modifying treatments from Ionis' industry-leading neurology pipeline. 2025 was marked by strong commercial execution. Looking ahead to 2026, the commercial organization is well positioned to build on this momentum. We remain focused on maximizing the full potential of TRYNGOLZA's in FCS, and DAWNZERA in HAE while preparing to execute 2 additional launches this year, further expanding Ionis' reach to even more patients in need of our medicines. With that, I'll now turn it over to Beth. Elizabeth L. Hougen: Thank you, Kyle. 2025 was a defining year for Ionis across our business, resulting in our impressive financial performance. We exceeded our guidance across all metrics through exceptional execution and disciplined financial management. This performance was underpinned by accelerating revenue growth from our marketed medicines, alongside sustained progress across our pipeline. We generated $944 million in revenue in 2025, representing a 34% increase year-over-year. Revenue was split between commercial products, which generated $436 million or 46% of our total revenue and R&D collaborations, which generated $508 million or 54% of our total revenue. These results underscore the value of our diversified revenue streams. Our marketed medicines provide growing recurring revenue and increasing operating leverage. While revenue from R&D collaborations acts as a financial accelerator. Together, our diversified revenue streams mitigate risk, enhance financial flexibility and create multiple pathways to sustained growth. 2025 was a strong first year for the TRYNGOLZA launch in which we earned $108 million in product sales with quarter-over-quarter growth throughout the year. This included $50 million of product sales in the fourth quarter, representing a 56% increase over the third quarter. We earned $8 million in DAWNZERA product sales in 2025 from the initial few months of launch. Since launch, we have been offering a free trial program, which has seen strong participation and 100% conversion to paid therapy to date. While still early, this provides encouraging visibility into anticipated DAWNZERA revenue growth. Royalty revenues increased 11% to $285 million in 2025. And anchored by meaningful contributions from SPINRAZA and growing royalties from WAINUA. Our R&D revenue also increased generating more than 20% growth year-over-year. driven by progress across multiple partner programs. The largest contributor was the Sapablursen license fee, underscoring our ability to monetize noncore assets to support our ongoing and planned launches and our pipeline. As planned, total non-GAAP operating expenses increased modestly year-over-year, highlighting our commitment to disciplined investment. The increase was primarily driven by investments related to the U.S. launch of TRYNGOLZA and DAWNZERA and accelerated investments to prepare for the sHTG launch following the groundbreaking Phase III data. Our excellent progress last year, coupled with disciplined financial management positions us well for accelerating growth and value creating. Our financial guidance for this year reflects Ionis' evolution to a commercial stage biotechnology company launching multiple medicines while remaining steadfast in our commitment to drive operating leverage as we advance our high-value pipeline. We project to earn revenue in the range of $800 million to $825 million from numerous sources, this represents an increase of approximately 20% over last year after adjusting for the onetime $280 million Sapablursen license fee. We expect the year-over-year increase to be driven by commercial revenue growth. As Holly mentioned, the sNDA is still within the review period. As a result, our guidance assumes a standard review for olezarsen which sets us up for anticipated sHTG approval in the fourth quarter. If we achieve priority review, we expect our guidance to improve. Since we are awaiting acceptance of the sNDA for olezarsen, we plan to provide TRYNGOLZA and DAWNZERA product level revenue guidance at our first quarter earnings call. So today, we will share some high-level perspective and directional insights to help frame expectations. We continue to see strong demand for TRYNGOLZA with FCS patients, and we expect continued patient growth this year. At the same time, we have been actively engaging with payers to ensure FCS patients continue to have broad access to TRYNGOLZA ahead of the anticipated sHTG approval. As a result, we expect a meaningful decline in TRYNGOLZA revenues throughout the year ahead of the sHTG launch, followed by accelerating growth as uptake build. As we prepare for the sHTG launch, we are establishing a reimbursement strategy designed to achieve broad access while maximizing the value of olezarsen drive sustainable long-term growth. Following anticipated approval, we expect to launch quickly with momentum building as we begin to bring olezarsen to this much larger patient population. And importantly, as Kyle highlighted, we are more confident than ever in the multibillion dollar opportunity for olezarsen. For DAWNZERA, we expect product sales to meaningfully contribute to total commercial revenue growth and to grow steadily as the launch progresses throughout the year. Given that HAE is primarily a switch market, and we remain in the early stages of launch, we expect patient conversion from existing therapies to take some time. That said, with strong launch fundamentals, including increasing demand, a high referral to start conversion rate positive patient-reported outcomes and rapid uptake of our free trial program, we are confident we have the elements in place to drive substantial growth. from our partnered commercial programs, we anticipate earning substantial royalties for medicines on the market today. We expect SPINRAZA to remain resilient and WAINUA to continue its upward trajectory this year. Collectively, our expanding commercial portfolio positions us for robust revenue growth and is expected to represent an increasing share of total revenue year-over-year. Our R&D revenue from existing collaborations remains a meaningful contributor to our total revenue guidance. As such, it's an important financial accelerator. With a rich pipeline and many partnered programs advancing, we have the potential to earn numerous milestone payments throughout the year. So far this quarter, we've already earned $65 million including $15 million for the EU approval of DAWNZERA and $50 million when Roche initiated a Phase I trial for an investigational medicine for Alzheimer's disease. Additionally, we are eligible to earn milestone payments for the Phase III initiations of Salanersen and Sapablursen as well as numerous regulatory milestone payments for Bepirovirsen and pelacarsen. Overall, our 2026 revenue outlook reflects the strength of our unique financial profile which includes numerous commercial and R&D revenue streams that enable us to achieve growing revenue through multiple pathways. We project our 2026 operating expenses to increase in the low-teen percentage range compared to last year, with revenue growing faster than expenses, driving improved operating leverage. This modest increase reflects our commitment to financial discipline as we bring multiple medicines directly to patients and advance their pipeline. Our planned expense growth will continue to be driven by our sales and marketing expenses as we invest to support the success of our multiple ongoing and planned launches. 2026 will be an important year of disciplined commercial investment as we prepare for our first launch in a broad indication with annual peak sales projected to exceed $2 billion. We expect our R&D expenses to remain steady this year, similar to last year. As late-stage studies reach completion, we are redeploying our resources for the drugs in our pipeline that we expect to fuel our next phase of growth. With sizable revenues and modest expense growth, we are projecting a non-GAAP operating loss between $500 million and $550 million. This represents a similar level compared to 2025, excluding the onetime sapablursen license fee last year and assuming a standard review for olezarsen. Importantly, we project to end the year with a well-capitalized balance sheet, including cash and investments of approximately $1.6 billion. The projected year-over-year change in cash reflects the use of $433 million earmarked to repay the remaining 2026 convertible notes. In addition, it reflects our prudent fiscal management as we make strategic investments to bring our medicines directly to patients, including inventory build for the anticipated sHTG launch and continued advancement of our wholly owned medicines in development. Looking beyond this year with 2 launches underway and more planned for this year and next, Ionis remains well positioned to achieve our goal of accelerating revenue growth and achieving cash flow breakeven by 2028, driving long-term value creation. And with that, I'll turn the call back over to Brett. Brett Monia: Thank you, Beth. 2025 was indeed a defining year for Ionis. We successfully transitioned into a fully integrated commercial stage company. Our first 2 independent launches were initiated, highlighted by TRYNGOLZA for FCS, which drove significant revenue growth. Importantly, we delivered multiple landmark data readouts that position us to continue driving accelerating value. We expect growth in 2026 to be driven by several key catalysts this year, some of which we've already achieved. Notably, we are on track for 3 additional launches, 2 of which are independent, including Ionis' first launch in a broad patient population sHTG. We are also on track for 5 late-stage data readouts across our partnered portfolio with 1 positive readout already achieved. With strong commercial momentum and advancing high-value pipeline and a clear path to cash flow breakeven by 2028, we believe Ionis is exceptionally well positioned to deliver transformational medicines for patients and accelerating value for shareholders for years and years to come. And with that, we'll open the call up for questions. Operator: [Operator Instructions] And this morning's first question comes from Yaron Werber with TD Cowen. Yaron Werber: Congrats really a lot of solid progress. Maybe just one question, Beth, for you on the guidance. I mean, so it sounds like you're not -- your guidance right now is not assuming any sHTG sales. You're assuming really not a lot of new royalty income from all the potential milestone payments and you're expecting that TRYNGOLZA will get impacted, it sounds like you're potentially matching the price of REDEMPLO. Is that correct? And then if you don't mind, I have a quick follow-up more on WAINUA on the study coming up. Elizabeth L. Hougen: So let me kind of -- there were a few things in there, so let me see if I can break it all down. So we are assuming sales and revenue from olezarsen in the sHTG patient population. But with the assumption of standard review, that would be in really just the fourth quarter of the year. So it will be a FCS driven revenues for TRYNGOLZA between now and the launch of SHTG after approval. Obviously, priority review would improve that guidance we expect. We do anticipate that WAINUA will continue to grow. We do anticipate that there could be revenues from bepirovirsen for example, once it were to get to market. Right now, that's going to be late in the year most likely. So there's not a lot of contribution in that in our guidance. We're really focused on the regulatory initiatives, the acceptance of the NDA as well as the approvals to drive R&D revenues for bepirovirsen as well as the potential NDA acceptance for pelacarsen assuming positive Phase III data. So I think overall, looking at a really strong guidance given that we're assuming standard review. It's a 20% or so increase year-over-year on a like-for-like basis by taking the sapablursen out of the equation. That puts us on an apples-to-apples basis. And I think that 20% increase is really strong. Kyle Jenne: And as it relates to pricing for this year, we are continuing to actively engage with payers. Obviously, those are confidential discussions. But really, what we want to make sure first and foremost is that we continue to ensure broad access for TRYNGOLZA prior to the sHTG approval. Those discussions are going very well. Based on those discussions, we do expect a meaningful decline in TRYNGOLZA revenues throughout the year ahead of the sHTG launch, as Beth reflected in her comments. But post the approval in sHTG, we expect accelerating growth, as you would expect, right, as that launch progresses throughout the balance of the year. Really, our focus remains on balancing the broad patient access with long-term value realization for this program. And so we're continuing to do that work. We're on track to deliver on that work, and we'll announce price when we conclude that work later this year. Eugene Schneider: Yaron you had a question about... Yaron Werber: Yes. Just on the cardio transform as we're now beginning to really kind of focus on that next everybody. Can you give us a sense of what percentage of patients are honest, a stabilizer at baseline because it was mostly an add-on strategy? And maybe what percent will only be on WAINUA alone essentially head-to-head against placebo, if you can, any color. Brett Monia: I'll start. Eugene, please jump in if you want to add anything. So Yaron what we've been saying and is playing out very nicely is that we have a good balance at baseline of patients not on stabilizer tafamidis versus patients on tafamidis at baseline. It's not quite 50-50, we have more patients on tafamidis than naive at baseline, but it's well balanced. It's not capped, but we do not have -- but that's where we ended up. We have had some drop-ins during the course of the study, but it's not meaningful. It hasn't been that many. And we are working on a baseline presentation. We don't know the timing of that presentation yet. But we are working on it, and we'll be able to share that data hopefully at some point soon. Eugene, anything more to add? Eugene Schneider: No, great one Brett. Operator: And the next question comes from Salveen Richter with Goldman Sachs. Salveen Richter: Just maybe help us understand what you're seeing for reimbursement in FCS given the competitors' lower price. And then just help us understand kind of this end pricing dynamic between the competitor and yourselves for sHTG and how that would essentially provide broader population access for yourselves. But I'm just trying to understand how to think about the differential there. Kyle Jenne: Yes. So let me first say, again, what a strong year that we had last year, $108 million in total, $50 million in Q4, a 56% increase quarter-over-quarter. We continue to see very, very strong patient demand, even as we kick off 2026. So there's been no meaningful impact from a competitive standpoint, and we continue to have very broad access for our patients in FCS today. The work is ongoing. The goal that we have, as I mentioned, is to maximize the value, so the highest price possible, but also provide the broadest access possible when we get to sHTG. So we're having the right conversations today. We're leading the way with payers in those engagements. We did a great job in 2025 to execute that. We're doing the same in 2026. But it will take us a little bit more time before we complete the conversations and our research with the payers so that we come to a final decision on pricing. Brett Monia: And I'll just add to that, Salveen, again, as Kyle mentioned in his prepared remarks, we've had no meaningful impact of a new market entrant on the demand for TRYNGOLZA. The demand for TRYNGOLZA continues to be very, very strong. Patients are doing very well on the medicine and we're seeing reauthorizations over and over and over again. So we're very pleased with the performance of TRYNGOLZA, but we're in that period right now in which we -- we're preparing to transition for the sHTG launch. Operator: And the next question comes from Jason Gerberry with Bank of America. Chi Meng Fong: This is Chi on for Jason. I want to go back to a comment that you made, Kyle. You said you -- obviously, you guys have recently increased the peak revenue for olezarsen to over $2 billion. And I recall is based on higher volume assumption. And today, Kyle, you mentioned you're even more confident in the blockbuster opportunity. Is it more confident in hitting that $2 billion number? Or is it more confident in hitting a potentially higher peak number? What drove the higher confidence? Is it based on any reason research? And is it high assumption on price or volume? And if I may squeeze in a quick one on the second question. I wanted to ask about ION532, which was licensed to AstraZeneca for APOL1-mediated kidney disease. Curious your thoughts about the market opportunity there, target profile of PS relative to competition? And lastly, when might we see Phase II data? Kyle Jenne: Yes. On the $2 billion, Chi, we shared this last month, we had these conversations. That $2 billion is really based on the strength of the product profile and the positive Phase III data. In addition to that, we've done extensive prescriber demand research, and that's what drove us to increase to greater than $2 billion. I think what's increasing our confidence is the strong underlying demand trends that we're seeing that I just explained, not only ending last year, but also that are continuing here early in 2026. Brett Monia: And your second question, Chi, I'll take is really best ask for AstraZeneca. It's a program that we've been working on for quite some time. We published on preclinical data for targeting APOL1 for FSG, particularly for people with mutations in the APOL1 gene across kidney disease. The preclinical data is very strong. The unmet need is very significant. There's a potential to go after patient populations that do not have -- that are not APOL1 carriers if the APOL1 carrier data is strong enough to go in that direction. So it's a significant market opportunity for renal disease. The decision by AZ to go to Phase II after we licensed it to them was based on day-to-day conducted in Phase I that showed strong target engagement and, of course, with good safety. So they advance it to Phase II. And as for time of data, that's a question for AZ. Operator: And the next question comes from Michael Ulz with Morgan Stanley. Michael Ulz: Congratulations on all the progress as well. Maybe just one related to the sHTG filing. Just wondering if you can give us any color on any recent FDA interactions there? And then secondly, has your thinking on the potential for a priority review changed at all recently? Brett Monia: I'll start with the second one and I'll ask Eugene to talk about how things are going. So for priority review, we can't speak for the FDA, but we believe that based on the unmet medical need and the compelling product profile, for olezarsen and sHTG that it deserves priority review designation, but we're in that window, we're in that evaluation window right now. And of course, again, I will remind you, we did receive breakthrough therapy designation. As far as regulatory interactions been on track, right? Eugene Schneider: So far, so good. It's early days, of course, as you said. Brett Monia: Yes. We're within that window, Mike. Operator: And the next question comes from Luca Issi with RBC Capital. Luca Issi: I don't want to maybe just double down here on this prior review versus standard review. I think in the past, you came across as pretty confident about prior overview, but obviously, you're now guiding assuming a standard review. So just wondering kind of hinting has changed? Or maybe this is just kind of standard conservatism? Like any thoughts there, I'd be much appreciated. And then maybe on Angelman, Holly, I think when I go on clinicaltrial.gov, I don't see any European sites there for your program, I think, except for the U.K., so versus, I think, your competitor Ultragenyx has many European sites. So is that because the European regulators prefer sham controlled trials? Is that a placebo-controlled trial? Or is that kind of more complex than that? Any thoughts much appreciated. Brett Monia: I'll let Holly address the Angelman in a moment, Luca. But as far as priority review, there's not really much more to add beyond the answer that we described from the previous question. We're in the evaluation period by the FDA. We submitted our supplemental NDA late last year. We're in that window. We believe the medicine deserves priority review, but we can't speak for the FDA. And the FDA usually takes the time that they need to draw a conclusion and I think we'll just leave it there. And as far as assuming standard review for guidance, we think that's the responsible thing to do at this stage. As Beth mentioned, we will adjust guidance if we receive priority review, and we'll inform everybody. Holly? Holly Kordasiewicz: For Angelman, you hit on it. So we have submitted to Europe. We're waiting to hear back from them for that and we need that approval of spending forward with those sites. But we do plan to open up sites in Europe as soon as that approval comes through. Operator: And the next question comes from [indiscernible] with Guggenheim Securities. Moritz Reiterer: This is Moritz on for Debjit. First, a quick follow-up on TRYNGOLZA sHTG pricing. You previously said that you're expecting to price TRYNGOLZA at approximately 20,000 net price should that still be our base case assumption at this point? And then secondly, a question on the blood brain barrier penetrating platforms. During your Innovation Day, you highlighted both the VHH and the bicycle delivery systems to potentially cross the blood-brain barrier. When can we expect updates on those platforms? Kyle Jenne: On the pricing question, we're finalizing the payer research. We'll provide those details once we finalize everything and get that out. But 20,000 net is what we had assumed in the greater than $2 billion peak sales revenue number that we've been using. So that's still consistent. We haven't updated that at this point in time. Brett Monia: And as far as the BBB work, it continues to go exceptionally well. I think as we mentioned previously, we selected our first BBB wholly owned molecule that's now in manufacturing. It does utilize the VHH technology. We're making great progress on bicycle as well for BBB overcoming the BBB for CNS diseases. We anticipate initiating IND supporting toxicology studies later this year for the VHH BBB molecule. And although we have not laid out definitive plans yet, I expect you'll get an update in the second half of this year on where we are with our BBB strategy. Operator: And the next question comes from Joseph Stringer with Needham & Company. Joseph Stringer: A quick one on the GSK partnered HBV program. When can we see functional cure rates from the Phase III program? And what are your GSK's expectations for potential peak sales as a functional cure? And maybe more directly, what net revenue assumptions to Ionis are baked into your projected peak royalty revenues from this partner program. Brett Monia: Yes. Sure. Beth will take the peak sales estimates because I can't keep them all straight from our partners and the revenue what they're projecting. But as far as the presentation, yes, the data is will impress. The data shows it's unprecedented functional cure rates in this massive patient population with very high unmet medical need, millions of people. And GSK plans to present the data at EASL in May, the European Association for the Study of the Liver. And what they've said is that the functional cure rates are clinically meaningful. Beth? Elizabeth L. Hougen: So GSK has talked about peak sales in the about USD 2.5 billion range. We've got a royalties that go from 10% to 12% in addition to the regulatory milestones, many of which we anticipate earnings this year as they move through the regulatory filing acceptance and approval process in multiple countries. So we've baked their peak sales estimate with our royalty tiers 10% to 12% into our overall peak royalties from -- from sorry. We've baked their peak sales and our royalties into our estimated peak royalties, which are about, I think, several billion dollars. Operator: Next question comes from Andy Chen with Wolfe Research. Andy Chen: So I know you talked about Alexander quite a bit today. So just curious how fast that ramp would be or how big the eventual opportunity would be? And if you can compare the opportunity to other rare diseases, such as DAWNZERA or FCS, that would be great. Brett Monia: I'd let Holly just talk about what she's hearing from the community first with Zilganersen. It's really exciting. And that, of course, affects the ramp like what we're hearing. And then Kyle to take on how he anticipates expectations for the launch. Holly Kordasiewicz: Just quick to remind everybody, last year, we read out our Phase III study, and we hit statistical significant clinical meaningful differences on our primary endpoint, which is a motor functional test. And then we also, in key secondary endpoints had favorable results all favoring Zilganersen. The community, of course, has been overwhelmingly positive. They are excited for the drug. We've opened up an early access program. We already have folks coming into that as well. And so it's very encouraging to see how the response has been from the community that they're just waiting for that medicine. Kyle Jenne: Yes. And related to the launch, there are approximately 300 people living with Alexander disease in the United States today. We believe that about 50% of those have been identified. There are about a dozen or so major leukodystrophy centers that we'll focus on at the launch. So we can do that with a very modest-sized team. Our medical affairs group is already out. We have a neurology-focused group that's been working in this area for quite some time, that and on other programs that we have. We'll add some account specialists and then some of our patient education managers to help the reimbursement and transition on to treatment and keep patients taken care of, et cetera, through the process. We have guided to greater than $100 million in peak revenue for this program. And we'll work on that launch later this year with an expected approval sometime towards the fourth quarter. We'll get the team in place and get launched. And so it will be modest this year and then grow into 2027. Brett Monia: The Zilganersen opportunity, of course, is incredibly meaningful for the patient community. It's going to provide meaningful revenue for Ionis once we get there. But also, it's really important to understand and recognize the strategic value for our neurology wholly owned pipeline Zilganersen is the first coming from Ionis that we're going to deliver to patients, commercialize ourselves. Behind that is our Angelman's program and then we have a rich pipeline of medicines that are wholly owned for neurology, not just for rare diseases, but also from broad disease indications. So it really gets us started. Operator: And the next question comes from Akash Tewari with Jefferies. Manoj Eradath: This is Manoj on for Akash. Just one from our end. Can you provide some color on your expectations around the upcoming HORIZON Lp(a) Phase III? What could be a commercial viable risk reduction bar in the setting do you consider any potential deeper risk reduction in the other near-term Lp(a) readouts could change the commercial outlook for pelacarsen? And also, can you comment on the current status of your next-gen or like full on Lp(a) targeting asset. Brett Monia: Yes. I'll let Eric talk about the next gen and why we're so excited about its profile. With respect to the HORIZON trial, I mean we remain quite confident in the outcome, recognizing the risk of doing something for the first time, it's Ionis tradition. It's in our DNA to be first. We've done it so many times and for Lp(a) will be the first to test the Lp(a) CBD hypothesis. But based on the epidemiology based on the conduct of the study, based on the clearance of 2 interim analyses very positively already and based on everything we're seeing from our partner, Novartis, in the trial, we remain confident. Of course, the risk is that no one's ever done this before. But that's an enormous opportunity as well. The patient -- the mean Lp(a) levels in the study have been reported already. I believe they're the median, I should say, 109 milligrams per deciliter. So it's quite a sick patient population. The vast majority of patients with prior cardiovascular disease, more than 80% have had myocardial infarction. The rest are stroke or serious peripheral artery disease to be qualified for the study. It's a very well-conducted study. It's going to give the answer to the Lp(a) hypothesis. And as far as competition goes, it's -- pelacarsen has a meaningful first-mover advantage in this massive market opportunity. And we've seen no drug profile out there that we believe will be superior to the Lp(a) lowering effects that we saw -- that we're seeing for pelacarsen. So stay tuned, midyear this year, we'll get an answer. Eric, what about the follow on? Eric Swayze: Yes, sure. Because we believe in the market opportunity and the indication and that lowering LP(a) can give value for patients with cardiovascular disease. Some years ago, we started looking for drugs that extend the dosing interval. And that really was the goal of our program was to extend the interval of dosing. We've been working with siRNA technology for some time now. We recently reported some nice positive data on ION775 with siRNA that extends dosing frequency in -- for lowering ApoC-III and triglycerides in humans. And we've been making equal better progress on LP(a) with our siRNA platform. Goal is to get it to 6 months extended dosing or perhaps a year depending on how the drugs perform. We're very encouraged by the ION775 performance. And preclinically, the LP(a) siRNA looks better. So hopefully, we can demonstrate that in humans soon. Brett Monia: We have several programs coming forward into the clinic that are offering strong durability twice a year, once a year dosing 775, of course, is the olezarsen follow-on for ApoC-III, we reported data last year in Phase I. It looked excellent, and we're going to be in sHTG patients in Phase II this year. And we believe that, that will be replicated with the pelacarsen follow-on, which is now in IND supporting toxicology studies. Operator: And the last question comes from Jay Olson with Oppenheimer. Oppenheimer has dropped off the line. That does conclude the question session. So I would like to turn the floor back over to Brett Monia for any closing comments. Brett Monia: Great. Thank you for all the great questions. Thanks for everybody's participation. Obviously, we are incredibly proud of the pivotal year we had in 2025 for Ionis, and we're building on that momentum to set us up for an even more pivotal, more exciting year for Ionis in 2026. We've already achieved a great deal and we're well positioned to achieve a great deal more. And with that, we'll close the call. Thank you again for your participation. We look forward to providing further updates throughout the year. Goodbye for now. Operator: Thank you. And as much the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good afternoon, and welcome to Navitas Semiconductor's Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Tuesday, February 24, 2026. I would now like to turn the conference over to Brett Perry of Shelton Group Investor Relations. Brett, please go ahead. Brett Perry: Thank you, operator. Good afternoon, and welcome to Navitas Semiconductor's Fourth Quarter 2025 Financial Results Conference Call. Joining us on today's call are Navitas President and CEO, Chris Allexandre; CFO, Todd Glickman. I'd like to remind our listeners that the results announced today are preliminary, as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10-K for its year ended December 31, 2025. In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including Form 10-K and Form 10-Q. In addition, any projections as to the company's future performance represent management's estimates as of today, February 24, 2026. Navitas assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law. Additionally, in the company's press release and management's statements during this conference call will include discussions of certain measures and financial information in both GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days in the Investor Relations section of Navitas' website at www.navitassemi.com. And now, it's my pleasure to turn the call over to Navitas' President and CEO. Chris, please go ahead. Chris Allexandre: Good afternoon, and we appreciate you joining us today. I'm pleased to be hosting my second quarterly conference call as Navitas CEO. We closed out the year with a productive fourth quarter, as we continue to accelerate our pivot to Navitas 2.0 and align the entire organization to focus on addressing high-power markets. In fact, it has been energizing 5 months since I joined the company, and my conviction in our industry-leading GaN and the high-voltage SiC solution has only grown stronger and that our strategic pivot is on the right path to successfully scale the company to the next level. Before providing comments and updates specific to the quarter, I want to briefly reiterate several key elements on our previously communicated strategic transformation and our vision to what we call Navitas 2.0. First, we're accelerating our pivot away from the company's historical mobile and low-end consumer business to focus on high-power markets, where our GaN and high-voltage SiC products can deliver real differentiation and value through higher density, efficiency and reliability. We are laser-focused on 4 high-growth, high-value market segments: AI data center, energy and grid infrastructure, performance computing and industrial electrification. Collectively, this segment represents a serviceable addressable market of $3.5 billion by 2030, split roughly 50-50 between GaN and high-voltage SiC with a combined CAGR of more than 60%. Although the largest portion of this $3.5 billion SAM are within AI data centers and grid and energy infrastructure, I want to emphasize that AI is a shared underlying catalyst across our 4 target markets, driving a rapid acceleration in terms of re-architecture infrastructure, customer expectation and the adoption of the new high-voltage technology. We're leveraging our proven 10-year track record as a pioneer of GaN at scale, having shipped over 300 million unit GaN devices, coupled with a deep expertise in system and application as well as our leadership in high-voltage SiC through our GeneSiC technology. The end goal of Navitas 2.0 strategic transformation is straightforward, to rapidly penetrate, secure expanded customer engagement and achieve scale, resulting in a more sustainable, consistent and future profitable growth for Navitas. Turning to a brief recap of our fourth quarter results. As initial progress of our pivot to Navitas 2.0, we've completed a realignment of the entire organization, both in terms of skills and geography to focus on addressing high-power markets. This includes fully redeploying organizational resources, road map and focus accordingly. Revenue in the fourth quarter came at the high end of our guidance range at $7.3 million, coupled with the fourth quarter being the first time that high-power market represent the majority of our total revenue. We remain confident that the fourth quarter was the bottom. Notably, our Mobile business declined sequentially from a majority of revenue in Q3 to less than 25% of total revenue in Q4. We expect Mobile to continue going down as a percentage of quarterly revenue and become insignificant by the end of '26. Also, consistent with our comment last quarter, we're guiding to quarter-over-quarter growth for Q1 and anticipate continued sequential growth throughout '26, driven by increasing sales traction in the high-power market. Over the last several months, as part of my expanded meetings with customers and partners, I've seen numerous proof points that the new technology adoption is accelerating. AI is a catalyst, changing the game across markets. Existing technologies and architecture are no longer sufficient. The industry is moving faster than it ever has in terms of technology adoption with customers clearly moving in to take advantage of GaN and high-voltage SiC technology. As previously mentioned, AI is a primary catalyst that's driving momentum and broadening the adoption of high-power solutions across all 4 of our target high-power markets. Every interaction with customers has confirmed the market is undergoing secular change and that AI is sparkling revolution we're focused on. This impelling inflection point in architecture, design and technology adoption is highly favorable to GaN and high-voltage SiC, putting Navitas 2.0 at the center of this revolution. As outlined in our last call, the Navitas 2.0 transformation to a high-power company is being backed by decisive actions and grounded in 4 pillars that include market focus, technology leadership, operational efficiency and financial discipline. Let me now review with you the major progress that we've made in each of these areas since our last earnings call. Starting with market focus. As I mentioned earlier, we're sharply focused on the high-power market of AI data center, energy and grid infrastructure, performance computing and industrial electrification. In AI data center specifically, Navitas is uniquely positioned as one of the leaders in GaN and high-voltage SiC, supporting all major AI data center architectures. The density of compute power will require the higher efficiency and power density. It's driving the acceleration of GaN in next-generation data center. During the quarter, we've accelerated sampling of product and solution delivery with our 100-volt GaN and 650-volt GaN targeted at AI data center, 800-volt HVDC and 48-volt IBC HV buck architecture. Samples are currently available in different package sites and are being evaluated by more than a dozen customers. More recently, on February 9, we announced our breakthrough 10-kilowatt DC-DC design platform. This is an all GaN 10-kilowatt 800-volt to 50-volt DC-DC platform, which employs advanced 650-volt and 100-volt GaNFast FETs in a 3-level half-bridge architecture with synchronous electrification. This platform has delivered a 98.5% peak efficiency, which we believe is the best in the industry so far. This full-brick package design platform achieved leading power density and support plus or minus 400-volt VDC standard for AI data centers. This is a great example on how Navitas is able to leverage our 10 years of GaN and system expertise. We're setting the benchmark for scalable, high-performance AI infrastructure. Our product portfolio enabled unprecedented power density to support rapid large-scale expansion of AI data center while also allowing hyperscalers and OEMs the ability to maximize compute density and reduce energy loss in support of deploying next-generation AI workload. On the SiC front, we are very active supporting customers in their AC-DC PSU designs for current AI data center architecture with our latest 1.2 kV SiC devices, leveraging our latest fifth-generation GeneSiC technology announced earlier this month. This product brings improved figures of merit and best-in-class thermal behavior, the topside cooling Q-DPAK package that are being well received by customers. In the grid and energy infrastructure market, the energy grid is in the process of a major transformation and modernization to support the AI catalyst, but also overall growth in energy demand. This is not a short cycle, but rather a multi-decade secular and sustainable trend that will transform grid and energy infrastructure. As a result, we are seeing an acceleration in the design cycles here as well. We are leading this effort with our new ultra-high voltage 2.3 kV and 3.3 kV SiC modules and road map to even higher voltage. We are now in evaluation with over 15 OEMs globally, mostly in the U.S. and Europe with notable acceleration in the U.S. In performance computing, we continue to see increased GaN adoption in high-power chargers and power units for high-end computing and AI notebooks replacing silicon. We have more than 15 projects in production and approximately twice that number in designing across 170-watt, 200-watt, 250-watt, 240-watt and up to 360 watts with leading global computing companies. We expect to continue gaining momentum in the performance computing market throughout '26. And lastly, in industrial electrification, we're starting to see GaN and high-voltage SiC action in high-performance applications spanning industrial pumps and heavy equipment electrification like DC-DC converters and megawatt chargers. Turning to our second pillar, technology leadership. We continue to prioritize innovation across GaN and high-voltage SiC technology, including both product and solutions, supported by expanding customer engagement and co-development projects. One example of this innovation and system expertise was our breakthrough 10-kilowatt DC-DC platform that I just discussed previously. Another highlight was our announcement during the last quarter of our 2,300-volt and 3,300-volt ultra-high-voltage SiC module portfolio, which we have accelerated sampling to more customers. These modules feature proprietary Trench-Assisted Planar technology for AI scalability, advanced robustness and performance in mission-critical applications across grid-tied infrastructure, energy storage and megawatt scale fast charging. These products are available in SiCPAK G-plus power modules, discrete packages and known good die format with extended AEC-plus reliability testing. As mentioned earlier, we announced last week our Gen 5 technology and upcoming new 1.2 kV SiC Q-DPAK product targeting PSU AC-DC for AI data centers. Our new Gen 5 SiC technology continues to improve the figure of merits of our leading GeneSiC technology. It leveraged our Trench-Assisted Planar TAAP architecture, best-in-class thermal behaviors and topside cooling in Q-DPAK. We're now sampling our first new 1.2 kV Gen 5 SiC product to multiple OEM and ODMs designing high-power PSUs and AC-DC for AI data center. On our third pillar, operational efficiency, we have taken actionable steps to create a more streamlined and rebalanced geographically deployed organization. We have been receiving strong employee buy-in and seeing tangible benefits from these efforts. Also, on November 20, we were pleased to announce a long-term strategic technology and manufacturing partnership with GlobalFoundries to accelerate GaN technology design and manufacturing in the United States. This partnership enables secure, scalable solution for our target high-power market and ensures that Navitas can deliver the performance, efficiency and scale our customer demand. It also provides Navitas the opportunity to manufacture our solution in critical and national security applications in U.S. Development began a few weeks ago, and both companies are deeply collaborating with production expected to begin later in the year and accelerate in 2027. Over time, we expect to transition to 8-inch in order to lower product costs and increase scale. Also, during the quarter, we executed actions to restructure and optimize our go-to-market strategy. This included significant consolidation of distribution channel partners from approximately 40 to less than 10 distributors. We have the ability to scale and are well suited for serving high-power market while removing previously mobile-centric distributors. And our fourth pillar, financial discipline, centers on resource realignment in support of our focus on high-power market. This includes a very targeted 19% reduction in headcount in the fourth quarter, offset by realignment action to support the Navitas 2.0 shift, including hiring new employees well equipped for high-power markets, in particular within the United States. As evidenced by our fourth quarter revenue mix, we have made tremendous progress. We also brought in new additional leaders with skills in sales and marketing, R&D and operations with a focus on enabling stronger execution. These collective actions focus the entire company on the high-power market and provide a foundation for efficient and effective execution going forward. Even with a larger market opportunity, our resource realignment allows us to efficiently focus our quarterly spend on the high-power market. As a result, we're targeting to maintain operating expenses flat throughout the coming year. We also expect to drive gradual margin expansion throughout '26 through improving scale and mix of high-power business. Lastly, to further strengthen our balance sheet and fund future operations, we completed a private placement of common stock in November with net proceeds of approximately $96 million, contributing to a quarterly end cash balance of $237 million. These proceeds further support our Navitas 2.0 strategy, accelerating our transformation and funding working capital for scalable growth and long-term value creation. In closing, I am very pleased with the overall progress we achieved in a relatively short period of time. Speed is a financial element of our company's culture, and it's clearly working. We are positioning Navitas 2.0 as a high-power company, sharpening our focus on execution to enable scalable growth. Looking ahead, we anticipate a return to top line sequential growth starting in the first quarter, fueled by increased revenue from high-power markets. When combined with the benefit of our optimized cost structure, streamlined go-to-market approach and accelerated product roadmap, we're also positioned to achieve gradual improvement in gross margin and bottom line results over the coming year. I'm incredibly proud of the team's dedication, hard work and agility in pivoting to Navitas 2.0 vision. I also want to thank our customers for their support to our new strategic direction as well as ongoing contribution to mutually beneficial collaboration and partnership. With that, I'll turn the call over to Todd to review our fourth quarter and full year results as well as our first quarter guidance. Todd Glickman: Thank you, Chris. In my comments today, I will take you through our fourth quarter and full year 2025 financial results. And then, I'll walk you through some of the important Q4 achievements and market dynamics as well as our outlook for the first quarter 2026. I will then return it to Chris for final remarks before we take questions. Revenue in the fourth quarter of 2025 exceeded the high end of guidance at $7.3 million compared to $10.1 million in the third quarter of 2025. As expected, revenue for the quarter reflects our strategic decision to deprioritize our low-power, lower-profit China mobile and consumer business as well as our efforts to streamline our distribution network to align our focus on high-power markets. As Chris mentioned, our high-power markets represented a majority of our quarterly revenue for the first time in the company's history, with mobile declining to less than 25%. This is a very important milestone and representative of our strategic shift. As mentioned before, we believe that Q4 represented the bottom for revenue, as our strategic actions support driving increased contribution from our high-power business going forward. Before addressing gross profit and expenses, I'd like to refer you to the GAAP to non-GAAP reconciliations in our press release. In the rest of my commentary, I will refer to non-GAAP measures. I would also like to point out that our GAAP results for the fourth quarter included a $16.6 million restructuring and impairment charge that consisted of approximately $10 million of distribution contract terminations, $4 million of fixed asset impairments and $2 million of workforce reduction expenses associated with realigning the entire organization and distribution channel to focus on addressing high-power markets. Of the $16.6 million restructuring and impairment charge in the quarter, $3.8 million was noncash related items. Gross margin in the fourth quarter was $38.7 million, which was flat sequentially with the prior quarter, reflecting the ability to maintain our margin profile despite the lower quarterly revenue. At these revenue levels, we do not yet have the leverage to overcome our fixed costs, but we expect this to improve as we further grow revenue from high-power markets. As mentioned in our last earnings call, we expect to deliver expanded margins, as we pursue a mix change towards higher power markets and away from mobile and low-end consumer. During the fourth quarter, we executed on a 19% workforce reduction, mostly deployed to mobile and consumer and an organizational realignment towards U.S. high-power customers and markets, thereby reducing operating expenses sequentially from $15.4 million to $14.9 million. This is part of our strategic plan to realign the company's resources to the Navitas 2.0 focus. Operating expenses were comprised of SG&A expenses of $6.8 million and R&D expenses of $8.1 million. These expense levels align with our cost reduction targets. The fourth quarter of 2025 loss from operations was $12.1 million compared to $11.5 million in the third quarter of 2025, as the reduction in operating expenses did not fully offset the decrease in revenue. Our weighted average share count for the fourth quarter was approximately 222 million shares. For the full year 2025, revenue was $45.9 million compared to $83.3 million in 2024. Gross margin for the full year was 38.4% compared to 40.4% last year. 2025 operating expenses were $63.6 million compared to $83.4 million in 2024. The full year loss from operation was $46 million versus $49.7 million last year. As Chris mentioned, the fourth quarter represented the bottom in quarterly revenue, and we expect to return to top line sequential growth throughout 2026, as we continue our transition to high-power markets. Turning to the balance sheet. Accounts receivable was down to $3.6 million from $9.8 million in the third quarter, reducing our DSOs to 45 days. Inventory decreased to $13.3 million from $14.7 million last quarter. Cash and cash equivalents at quarter end were approximately $237 million, reflecting net proceeds of approximately $96 million from our completed private placement of common stock in November 2025. The company continues to carry no debt. Our balance sheet remains very strong as we exit the year with a high level of liquidity and improved working capital position. Moving to guidance for the first quarter of 2026. We expect revenue to increase sequentially to between $8 million and $8.5 million. This represents the first quarter-over-quarter growth since the company's pivot. As I just mentioned, we expect sequential growth to continue throughout the year, driven by increasing revenue contribution from high-power markets. Gross margin for the first quarter is expected to be 38.7%, plus or minus 25 basis points. We continue to anticipate the technological innovations to bring to high-power, high-growth markets will result in progressive expansion of future gross margins. Turning to operating expenses. We anticipate operating expenses to remain approximately $15 million for the first quarter. We expect to continue to allocate resources and expenses, as we redeploy company resources towards higher power customer end markets, particularly within the U.S. This redeployment of resources is expected to offset the strategic downsizing of our facilities to result in flat operating expenses. For the first quarter, we expect our weighted average share count to be approximately 230 million shares. In closing, we are pleased with our initial progress and accelerated pivot to Navitas 2.0, as evidenced by high-power products representing the majority of our quarterly revenue for the first time. We expect to increasingly benefit from the broadening adoption of our GaN and high-voltage SiC products in targeted high-power markets. Together, with our recent actions to reallocate resources, optimize operational efficiencies and restructure distribution channels, we believe that Navitas is on a path to deliver improving margins and bottom line results. I'd now like to turn the call back to Chris for some final comments before opening the call to questions. Chris Allexandre: As we close today's call, I want to address one additional matter. After an extraordinary 10 years of dedicated service, Todd has decided to step down as CFO to pursue other opportunities. He has been an invaluable partner to everyone in the company, bringing financial discipline, strategic insight and weathering integrity that helped steer us through periods of both growth and challenges. Todd has also been a great partner over the last 6 months, helping to pivot and transition the company to Navitas 2.0. On behalf of the entire Board and executive team, I want to extend our gratitude for all of his contribution over the past decade. We have strong financial organization in place, and Todd is fully committed to assisting in a seamless transition until his successor has been made. We expect to communicate in the coming weeks regarding Todd's replacement and Navitas' new CFO. We enter in this new chapter with confidence in our strategy, our momentum and our ability to continue delivering long-term value for our shareholders. Thank you again for joining us today. Operator, we might now open the call to questions. Operator: [Operator Instructions] And our first question comes from the line of Kevin Garrigan with Jefferies. Kevin Garrigan: Chris and Todd, congrats on the results. And Todd, best of luck on your next path forward. Can you guys just walk us through how each of the high-power end markets performed in Q4? And how we should think about the trajectory for each of those markets in Q1? Todd Glickman: Yes. Well, obviously, our quarter-on-quarter growth in revenue was due to the high-power markets. So they are performing well. We're not going to sort of break out the high-power markets at this time, but we do expect all of them to be performing on a go-forward basis as mobile becomes immaterial, as we move through the year. Kevin Garrigan: Okay. Got it. And then as a follow-up, can you just update us on the progress of the 800-volt architecture opportunity? And can you give us a sense of a timeline on customer decisions? Chris Allexandre: Kevin, this is Chris. As we talked last time, there's a lot of work going on between us and the hyperscalers, not only one, but multiple of them on the adoption of the 800-volt HVDC. We sampled, as we mentioned in the press release and in the script, some of the new products that will be used in this type of architecture. We also announced a leading-edge 800-volt to 50-volt DC-DC brick that demonstrates the performance we can get with those products. So there's a continuation of collaboration. It's a bit too early to kind of tell you when this will be confirmed, but I think we are getting closer and closer with our customers. Kevin Garrigan: Okay. Great. Congrats again on the results. Chris Allexandre: The one thing I would add, Kevin, is everybody refers to the 800-volt HVDC as a step function for power content in the AI data center, and this is true, especially with the adoption of GaN replacing silicon as you move to the 800-volt HVDC, right? But I would outline that in AI DC, and you heard it from multiple vendors, is that there is an acceleration of demand also in using the classic architecture, which is AC-DC, right, using SiC. And we see a growth throughout the year ahead of the step function with GaN in HVDC. Operator: Our next question comes from the line of Kevin Cassidy with Rosenblatt. Kevin Cassidy: Congratulations on the progress. Just as you mentioned you're working with the hyperscalers. Is this -- are you working directly with them? Would they be building their own power supplies? Or is that going to be a pull to -- from the current power supplies -- suppliers to the hyperscalers? Chris Allexandre: Kevin, it's actually all of the above, okay? So the hyperscalers, partly 2, are driving the new architecture, right, both in terms of what they expect in terms of density and power level in the AC-DC PSUs as well as the 800-volt either 50-volt or even lower voltage HVDC architecture, right? Now, we don't work only with the hyperscalers. If you think about PSU, which is clearly designed in OEMs and ODMs that are serving those hyperscalers, and if you look at the HVDC, a lot of these that are classic merchant power companies serving the hyperscalers, are also doing designs on this new architecture. So we work with everybody. I would tell you that the driver of the change of the architecture comes from the U.S. and the hyperscalers, but a lot of the OEM and ODM in Taiwan, in China, but also in the U.S. are driving that. And as you know, we just announced this board, right, which I mentioned, which was basically a co-development with the customer. And that's basically to showcase the level of efficiency you can get by using GaN on the primary side and GaN on the secondary side in 800-volt to 50-volt DC-DC brick. And you're going to see more of those reference implementation in the future as well. Kevin Cassidy: Okay. Great. And have any of your customers or the hyperscalers giving you an idea of when that inflection point would be of when they start doing the installations? Chris Allexandre: I mean, the thing I would say is, as I said just earlier on Kevin's question, there are 2 stream, if you prefer, of the AI data center growth. Number one is more data centers, more power, and that drives more PSUs, higher-power PSUs and that drives the growth in SiC, which we are seeing throughout '26. When it comes to the 800-volt HVDC, which I think is your question, when there is a discontinuity and you cannot use silicon anymore on the primary side because you're 800-volt and you have to move to high-voltage GaN. This is really driven by not the GPU change, but the rack architecture change. As you compact more GPUs into a single rack and you get to megawatt rack, you cannot get the power density and the efficiency with silicon. And that's this discontinuity. I would say, as we said before, this is really about '27. Will GaN be used slightly earlier? It could. There is a case where you can use GaN in the 48-volt IBC replacing silicon, as I mentioned in the script, where GaN brings higher efficiency. You can do it with silicon, but you get higher efficiency. And this might be the first time you see GaN in data centers. But the real step function is really coming from the 800-volt DC, which is really kind of linked to the Kyber rack, which is the higher integration of GPUs in '27. Kevin Cassidy: And also I'll give my best wishes to Todd, pleasure working with you. Todd Glickman: Thanks, Kevin. Operator: Next question comes from the line of Quinn Bolton with Needham. Quinn Bolton: Congratulations on the progress on the transformation to Navitas 2.0, and best wishes to you, Todd. I guess, Chris, I wanted to come back on the 800 HVDC solution, especially as you think about the primary side of that 800-volt rail. There are still a lot of folks in the industry that I think are talking about using silicon carbide in that 800-volt conversion step. You guys are obviously pushing the GaN solution. But I guess, can you say -- what are you seeing from the leading GPU and hyperscaler vendors that are looking at the 800-volt or the 400 plus/minus rack architectures? Are they pushing more for GaN? Are they open to both GaN and silicon carbide solutions? Just how do you see this playing out from a technology perspective between GaN and silicon carbide? Chris Allexandre: Thank you, Quinn. It's a very good question actually because I think there is some level of confusion. First of all, I would tell you that we are not pushing anything. We have both SiC and GaN, and we welcome SiC being used on the primary side if it's needed and GaN being used on the primary side if that's needed. So we're not pushing anything. We are being pulled. We've not seen any significant use case of board implementation of customer evaluation using SiC on the primary side. SiC is being used widely at 1.2 kilovolt, as I mentioned, in the classic AC-DC, right, which is basically prior to the 800-volt DC. But when it comes to 800-volt DC, we've been pulled by customers. And I'm talking about hyperscalers to Kevin's question here that are really driving the GaN adoption because it's more efficient and more driving higher density. Quinn Bolton: Okay. And then, Chris, you also talked about your 10-kilowatt all GaN brick solution. Can you give us a sense is that more of a reference platform? Or would that be a solution that Navitas would look to source that entire brick level product? Because I imagine it includes a fair amount of additional componentry. And so just thinking about to the extent you're selling the full brick solution, I imagine that might be pretty high-dollar content. So could you just talk about whether you would really just sell the GaN solutions as part of that brick? Would you sell the entire brick? And if you did sell the entire brick, what would the margin implications be? Chris Allexandre: So, of course, it's a very good question. Thank you, Quinn. We view this as an enabling solution enabling technology for the customers. So first of all, as I mentioned, this is something we've done with the customer. We have not done that in a vacuum on our own, right? This is something that we've co-developed with a leading customer, number one. Number two is we don't compete with customers, okay? At this stage, we don't see a path where we're going to sell the modules. Now, that design is shared with our customers and the hyperscalers as well as the ODM and OEM that are looking at how we've been able to achieve that high level of efficiency, right, 98.5%, which we believe, based on what we've seen and some of our competitors' feedback on top of customers, are one of the best in the industry, right? So I would tell you, this is for us -- this is what we've done in GaN historically. We pioneered GaN in mobile by demonstrating and helping customers to get to highest level of efficiency, lowest EMI, highest level of density. And we are doing the same in AI data center. And this is what I talk about -- when we talk about 2.0, we're leveraging the benefit and the skills of 1.0, right? And this system expertise makes a difference. At the end of the day, we are in the business of selling GaN and silicon carbide and enabling our customers. As a matter of fact, on that board, we're using some of our competitors in our silicon and other technologies and products that we don't have. But the focus is how to show and help the customers to accelerate the adoption of GaN in HVDC. Operator: Next question comes from the line of Jon Tanwanteng with CJS Securities. Jonathan Tanwanteng: And I'll join the queue in wishing Todd well wishes on his journey. If you could start, maybe talk a little bit about the competitive landscape in supplying the 800-volt data center. What are you seeing just in terms of who you're bidding against in these sockets, if they're outpricing you or doing better in technology? And on top of that, how is your partnership with Infineon evolving in that space as well? Chris Allexandre: So thank you for your question, Jon. So I'll start with the end. We continue our partnership with Infineon. We have a cross license, as you know, and we share the same vision, which is to enable the accelerated adoption of GaN and silicon carbide in the AI DC, right, so SiC as the traditional architecture and GaN in the 800-volt DC, right? So there's a lot of dialogue between the 2 companies on that front, right? Number two, you all have seen that there are multiple vendors having been listed on the 800-volt AI factory kind of ecosystem. As a matter of fact, I think it's up to 13 vendors today. But we don't see all of them in each of the socket we target. So I would recommend that you look at how many of those 13 are actually in the high-voltage GaN, so how many of them have a 650-volt GaN in the right package to be able to enable 800-volt HVDC, how many of them have mid-voltage GaN to enable the 50-volt secondary side. Some of them are listed as a silicon vendor, okay? We are listed as a GaN vendor. The other thing is, as we talked about SiC being used on the AC-DC as well, there is a natural pull on more SiC as we get to higher voltage, and also outside of data center, to do the 800-volt HVDC, you need to enable a change of the grid architecture. This is a pure high-voltage, ultra-voltage SiC play. So what I will tell you is there's a lot of competition, but not everybody is competing on the same thing. And there are not many of the vendors being listed that have both high-voltage SiC or ultra-voltage SiC, either competing in the AC-DC with 1.2 kV or in the grid with 2 kV and above and having high-voltage and mid-voltage GaN. So this competition pool is actually being reduced. That's why we are very clear about what we do. We don't play in the silicon. We play in the GaN, high-voltage, mid-voltage and in the high voltage and high-voltage SiC. Jonathan Tanwanteng: Got it. And then second, could you update us on the incremental margin of either this 800-volt data center products or high-power products in general, especially as you roll out new suppliers? Chris Allexandre: So first of all, as Todd said, right, we expect continuous gross margin expansion. So remember that the growth this year is coming from all high-power markets and basically mobile going down, right, being less than 25%. What I would tell you is the scale is going to help more gross margin. As we grow revenue, some of our fixed costs absorb that and that drives margin expansion. Number two is the high-power products in the high-power market are coming at a higher margin than mobile was, okay? And that mix is going to change. And the third one is we are very active in ramping new suppliers, particularly on the package side that will help us to reduce costs, right? So there's multiple aspects of how we are confident to see gross margin expansion, as we clearly outlined for the rest of '26, right? And as we scale further in '27, we expect that to continue. Operator: [Operator Instructions] Next question comes from the line of Jack Egan with Charter Equity Research. Jack Egan: I had kind of a follow-up on the gross margin question before me. So as mobile is getting smaller and smaller, I'm kind of curious about the longer-term outlook. Are your gross margins more so going to be driven by mix as in data center and non-data center end market mix? Or is it more kind of the technological innovation, I guess, that Todd mentioned that -- it sounds like it's referring to new products with higher ASPs? So I guess I'm trying to look at what the driver of the margins -- that margin expansion is, whether it's end market mix or better product margins? Todd Glickman: So it's actually going to be a combination of both. So definitely end product mix, right? As mobile decreases, the high-power markets are going to give us higher margin. Those are more based on reliability and performance. But then on -- as we sort of scale and as these new products come into the high-power markets, we do expect like further expansions through like optimized process, yields and packaging costs, which will help drive our product cost down, thereby driving our margins up as well. Chris Allexandre: The one thing I would add, Jack, is, okay, scale, cost reduction and basically higher-margin product, right, as Todd said. But the one thing I would say is that, again, the growth this year, and I think we've been very clear that we are very confident that Q4 was the bottom, we are guiding up for Q1, and we said we're going to grow quarter-over-quarter throughout the year with margin expansion, I would reemphasize again that the growth is coming from whole high-power markets. Yes, AI data center is a big part of the future outlook. And if you look at the SAM that we shared just a few weeks ago, it's nearly half of the SAM that we see for us in 2030. But I would outline that performance computing is growing this year, okay? It will continue to grow and also help on the margin mix. Grid infrastructure is really accelerating. And I think you're going to see higher ASP products, higher-margin products coming in play there, where it's more about reliability and performance and less about cost. Of course, costs matter. And then, as we talked about in AI data center, which is a cost-sensitive market, it's all about efficiency right now, okay? And I think you're going to see all those markets contributing to the growth expansion in gross margins, right? So I just wanted to kind of calibrate a little bit your question to make sure that we don't see the gross margin expansion only coming from AI data center. Jack Egan: Sure, Chris. No, that's super helpful then. And then I guess, kind of from a higher level, I know you're not supplying as much into some of the automotive and industrial type markets, but silicon carbide has gone through -- just broadly speaking, has gone through a period of pretty significant oversupply. And so I was just kind of curious, what are your expectations on when that supply and demand in some of the other markets might balance out, whether for Navitas or whether the industry as a whole? I know that you're dealing with some large volume wins that so it might not apply to you as much, but just any commentary there would be helpful. Chris Allexandre: I mean, to be honest with you, John (sic) [ Jack ], I think, first of all, as an industry veteran, I would say it's going to take some time, but I think you should ask that to the vendors that are supplying into EV. We don't. We don't play in the same league of SiC, okay? You've seen me being very clear about the fact that we compete and focus on 1.2 kV for the PSUs for AI data center and 2 kV and above up to 5 kV and even more for the grid. This is where -- this is not about scale of supply, this is about how reliable and efficient and high performance is your technology. So I think for some of the SiC vendors operating at 450-volt, 650-volt, 800-volt focusing on EV, that's a valid concern. For us, it's about scaling with the ultra-high voltage, okay, which is nothing really related to supply at this stage. Operator: Next question comes from the line of Richard Shannon with Craig-Hallum. Richard Shannon: Apologies to ambient noise, I just jumped off the plane here and I missed a bit of the call here. So I hope I don't repeat any questions here. But Chris, one thing I'd love to ask you is in the AI data center opportunity here. To what degree are your opportunities coming from your partnership and kind of drafting behind, if you will, from Infineon versus other ways? And then also, are there any -- is there any cross-fertilization of wins within the rack between point of load and the 800-volt down? Do those kind of cross-fertilize and give you additional benefit at all? Chris Allexandre: So -- a very good question. As I mentioned, we partner with Infineon. We have a cross-license. We've done that a couple of years ago. We continue to drive collaboration to enable GaN adoption, both the high-voltage and mid-voltage. I would say that we don't leverage or benefit from Infineon. What you will see is -- I think I got a question earlier from Kevin, who are you bumping into most of the time? I would say it's probably Infineon and surely Infineon because they have the same vision. They have the same technology, high-voltage GaN, mid-voltage GaN and SiC and ultra-high-voltage SiC as well for the grid infrastructure. So there are very similarities. So we bump into each other. We follow each other, but I would not say that we leverage Infineon, right? Now, interestingly enough, when we released the package, we found that we -- because we talk to the same customers, we think the same way is we end up seeing the technology the same way. That's what I would say. On your question about expansion of portfolio, that's something we are looking at. My focus right now was to pivot the company, okay, and put every eggs we have, every engineer we have, every focus we have on the 4 high-power markets and the high-voltage GaN and GaN in high-voltage SiC. But we are looking at opportunity to expand the portfolio. As you get higher voltage in the data center, you're going to need circuit protection, and that's something we're going to look at in the future, right? But for now, we are laser-focused on execution with the product we have and we just released. Richard Shannon: Okay. Fair enough. And the second question probably for Todd, just on the gross margins. If I caught the end of his prepared remarks, talked about not having enough scale to really drive leverage on gross margins quite yet here. Is there a revenue level by which that happens here? And kind of what's that fall-through margin when you start to see that trajectory? Todd Glickman: Yes. That's a great question. As our mix changes, obviously, our margins will grow. But right now, we have that scale issue. We do see margins starting to expand again in Q2 and beyond. So that's sort of the tipping point right now. Chris Allexandre: What I would tell you, Jack, is the high-power markets and the high-power product in the high-power market are coming at higher margins. The mobile is going down. We said that in Q4, it was 25%, and we said it's going to continue to go down and get insignificant by the end of '26, right? So I think we are very confident that the mix of the mix change, the higher power product in the high-power market increase as a percentage of the company and the new product and the cost reduction we have will yield to gross margin expansion. So you'll see it right and clear, okay, starting not very far from now. Richard Shannon: Okay. Appreciate that detail. And, Todd, good luck on your next endeavor. Operator: Our last question comes from the line of Quinn Bolton with Needham. Quinn Bolton: Chris, you spent a lot of time talking about the high -the 800-volt data center opportunity. But you also talked about needing to re-architect the grid. And I just wondered if you could spend a second talking about the opportunity for the high-voltage silicon carbide and the solid-state transformers, sort of where are you in the design process for some of those solid-state transformers? And is there a way you can ballpark like what's the dollar content opportunity? I don't know if it's on a per megawatt basis or a per unit basis, but is there a way to size what the amount of high-voltage SiC that goes into a solid-state transformer, as they start to be deployed as the grid is re-architected? Chris Allexandre: Thank you, Quinn, for this follow-up question. Actually, I'm glad you asked that question because everybody focused on AI DC data center, and everybody is focusing on the 800-volt HVDC architecture, which is important because it's a discontinuity in the architecture. It's a replacement of silicon by GaN, right, or by high-voltage technology. But none of this is possible if the grid is not changing. And this is not just about getting a more efficient grid, it's a change of the architecture. And you refer to SSTs, which is basically getting from 35,000-volt AC super-high-power, high-voltage lines down to 800-volt DC at the highest level of reliability. That drives the change. And I tell you, I've never seen the grid infrastructure changing that fast. So you asked me, and I think we said it in the script and in the press release, we are accelerating the sampling of our 2.3 kV and 3.2 kV. Applications are any grid type application, SST, of course, but battery energy system, megawatt chargers, solar farm at the grid type level. Any of those applications are in accelerated designs, we are very busy talking to all those customers. That's why I said it's 2 legs, okay? We have 4 high-power market. But if I look at the future, those 2 legs, the AI DC and the grid are equally important. And this is a pure high-voltage SiC play. And to the earlier question about EV, this is not the same technology because what you have to deliver is high reliability technology, high reliable modules. So it's a different play, right? So I'm glad you asked the question. We see an accelerated design momentum. Of course, it's going to take time. This is longer design cycle than computing. It's longer design cycle than AI DC. But I think you'll start to see a significant revenue growth starting '27. To your question about content, in the last investor meeting we had, we basically referred to $25,000 to $35,000 per megawatt of total content for Navitas as a SAM, which is based again on ultra-high voltage, high-voltage SiC, so 1.2 kV and 2 kV and above and GaN and about $10,000 to $12,000 is actually outside of data center. So you think about $25,000 to $35,000, $10,000 to $12,000 of this is outside of data center, which is purely SST, BESS and all those application, right? So -- and again, inside data center, you have a share between SiC for PSUs and GaN as you move to 800-volt DC. But we should not underestimate the importance and the potential of the grid infrastructure. As a matter of fact, we released a couple of weeks ago a detailed SAM analysis that shows that both GaN and SiC are 50%-50%, okay, in 2030 in terms of the potential for Navitas to the $3.5 billion that we referred earlier. And you can see that the grid is not far off the SAM of data center. And the other thing I would say is this is just the beginning. So if you think about grid, this is a multiple-decade transformation that will drive higher voltage continuously. We started with 2 kV. We're getting to 3 kV. We're going to get to 5 kV and above. And that's going to drive transformation for the next multiple decades. Operator: That concludes the question-and-answer session. I would now like to turn the call back over to the management team for closing remarks. Chris Allexandre: Thank you, everybody, for attending this call. As you could tell, we are very proud of the progress we are making. The first 5 months and 6 months since I joined was about pivoting the company and being clear about where we are going. I think we've done that. We are focusing on accelerating samples of our technology. We have 4 pillars of the transformation, which I mentioned: market focus, technology leadership, operational efficiency and financial discipline. And we'll continue to update you on how we make progress. And I think we have a bright future ahead of us. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.
Operator: Hello, and welcome, everyone, joining today's AMC Entertainment Holdings, Inc. Fourth Quarter and Full Year 2025 Earnings webcast. [Operator Instructions] Please note this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to John Merriwether, Vice President, Capital Markets. Please go ahead. John Merriwether: Thank you, Stephanie. Good afternoon. I'd like to welcome everyone to AMC's Fourth Quarter and Full Year 2025 Earnings Webcast. With me this afternoon is Adam Aron, our Chairman and CEO; and Sean Goodman, our Chief Financial Officer. Before I turn the webcast over to Adam, I'd like to remind everyone that some of the comments made by management during this webcast may contain forward-looking statements that are based on management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. Many of these risks and uncertainties are discussed in our most recent public filings, including our most recently filed 10-K and 10-Q. Several of the factors that will determine the company's future results are beyond the ability of the company to control or predict. In light of the uncertainties inherent in any forward-looking statements, listeners are cautioned against relying on these statements. The company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events. On this webcast, we may reference non-GAAP financial measures such as adjusted EBITDA and constant currency, among others. For a full reconciliation of our non-GAAP measures to GAAP results, please see our earnings release posted in the Investor Relations section of our website. After our prepared remarks, there will be a question-and-answer session. This afternoon's webcast is recorded -- is being recorded, and a replay will be available in the Investor Relations section of our website at amctheatres.com later today. With that, I'll turn the call over to Adam. Adam Aron: Before I begin today's call, I'd like to make a personal comment, if I can. As you undoubtedly know, in early December, upon my return to AMC's home base in Kansas City, I put out a press release, which advise you all that just before Thanksgiving, during a business trip to London, I suffered a minor stroke. Fortunately for me, I got immediate care at a superb London hospital run by the United Kingdom's National Health Service, and it was envisioned that I would have a speedy and full recovery. There was no cognitive problem at the time of the stroke, no issue with reasoning or logic or decision-making or memory other than that for a day or so, I completely lost my ability to speak. That was 14 weeks ago. You can hear for yourselves my voice today. My voice is back. I am delighted to report to you all that I am in fighting shape and fully ready to do battle. Speaking of which, let's talk about AMC. As we close the books on 2025, one thing is clear. This was a year of meaningful progress with AMC, both operationally and financially. While it is frustrating for us that the industry recovery unfolded at a much more measured pace than many, including ourselves, originally expected or hoped, even so, the trajectory clearly remained positive, and AMC once again distinguished itself through consistent outperformance, exceeding the expectations of many who guided us. Even in a softer industry environment for the fourth quarter, of 2025, where the North American box office declined by some 4.4%, AMC nonetheless demonstrated strength and resilience. For the fourth quarter, AMC generated approximately $1.29 billion in total revenue, $134 million of adjusted EBITDA and notably, $127 million of cash from operating activities. Along the way, especially our domestic U.S. theaters once again delivered with a 140 basis points of industry outperformance as we continued to capture increased market share. That's a testament to the strength of the marketing and loyalty platforms at AMC, the growing consumer preference for our industry-leading premium large-format and extra large-format offerings and our commitment to deliver the very best in theatrical entertainment experiences. We believe that AMC has a powerful and commanding market lead. Our market share confirms that AMC represents more than 1 out of 4 of all the box office dollars generated in the United States. AMC is about 50% larger in size than the second or the third largest U.S. players. And everyone else in our highly fragmented industry has only a 1% or 2% market share or even less than that. Sean will discuss our full year financial results in more detail, but let me point you to this. In 2025, continuing an improvement trend that has been the case for several years now, we worked so hard at AMC to make our company more efficient. Globally, our attendance in the full year was down 2.1%, but our adjusted EBITDA was up 12.7%. That's a striking contrast. And there's so much operating leverage in our company. I cannot emphasize this point enough. The operating leverage in our company is meaningful. Approximately 2/3 of the incremental revenue dollar drops down to the adjusted EBITDA line. So if and when our revenues are growing, our adjusted EBITDA at AMC can grow and do so meaningfully. That's our expectation for 2026. No one's crystal ball is perfect, but most knowledgeable forecasters have the 2026 movie slate being considerably richer than that of the past 3 years -- the past 6 years. And that is so vital because candidly, the economic levels that we experienced in 2025 are simply not sufficient to carry the day. But we are optimistic and we are confident. Disney and Universal have what looked to be fabulous movie slates. Warner Bros says that it will be releasing more movies in 2026. Paramount says that it will be releasing more movies in 2026. Amazon MGM says that it will be releasing more movies in 2026. Theatrically, even Netflix has the capability to be releasing more movies and smaller operations like A24 and Angel Studios, among others, also seem poised to embrace theatrical exhibition with ambition. With an increased count of widely released film titles coming out in 2026, it is our firm expectation at AMC that the industry box office will grow markedly in 2026, that AMC's market share will remain compelling and that the very real operating leverage inherent in our business will kick in, in such a way that it can cause dramatic improvement in AMC's financial results. 2026 has only just begun, but encouragingly, January was off to a strong start with the North American box office up approximately 16% compared to last year and growth in the European market has been even more significant. Across the 12-month year ahead, the film slate is shaping up to be one of the most compelling in recent memory, anchored by an extraordinary lineup of films that can only be described as a parade of juggernauts that are ideally suited to AMC's industry-leading network of highly productive, high-grossing theaters. Based on the strength of the upcoming release slate, we believe that the North American box office in 2026 could increase by approximately $500 million to as much as more than $1 billion greater than was the case in 2025. And as I just articulated, and as previously reported AMC financial results prove out to be true with rising revenues, the growth in AMC's adjusted EBITDA can be substantial. I'm not going to take you through the list of 2026 movies title by title. That impressive cavalcade should play out during the year. Suffice it to say, though, that we expect to see a rising industry-wide box office in 2026, the biggest since 2019. And with the operating leverage of incremental revenues translating to incremental adjusted EBITDA, rising 2026 revenues bode well to engender a material and positive impact on AMC. I do want to be clear, though, that we will likely need at least a strong 2027 film slate as well, which we do expect, by the way, for AMC to be cash flow positive in outer years, but the considerable progress that we expect to make in this year, 2026, should fill us all with heightened confidence as to our future. Now let's turn from operating leverage to financial leverage and the improvements taking place within the AMC balance sheet. Strengthening the AMC balance sheet remains an extremely important strategic priority for this company. Since the end of 2020, AMC has reduced total debt by approximately $1.8 billion, including a $1.4 billion reduction in the principal balance of our outstanding debt and an additional $420 million repayment of COVID-related theater rental lease deferrals. During 2025, AMC continued to take capital markets actions to strengthen our balance sheet and prepare for the anticipated box office recovery that we think is coming this year. In July of 2025, we closed a series of transformative transactions, including receiving more than $240 million in cash from new debt issuance and the equitization of $183 million in debt with the potential to equitize even more up to a total of approximately $337 million. These transactions address all, I repeat, all of our 2026 debt maturities, pushing them out to 2029. In addition, just last week, we launched yet another transaction to refinance another approximately $2.4 billion of our debt. If successful, that refinancing will extend the maturity of that debt from 2027 and 2029, all the way out to 2031. Simply put, at AMC, we continue to do exactly what we said we would do, take decisive action for AMC Entertainment to fortify our financial foundation, to bolster our cash reserves and to enhance our flexibility. With that, I'll now turn the call over to Sean Goodman, our CFO. Sean? Sean Goodman: Thanks, Adam, and good afternoon to everyone. As Adam noted, 2025 did represent a year of meaningful operational and financial progress. Although the industry box office did fall short of expectations, AMC performed exceedingly well in the areas that are within our direct control. For the full industry box office increased by a modest 1.5% and industry attendance in the European markets in which we operate declined by approximately 3% versus 2024. Nonetheless, at AMC, we grew consolidated revenue by 4.6% versus 2024 to more than $4.8 billion as we welcomed more than 219 million guests to our theaters across the globe and we grew adjusted EBITDA to approximately $388 million, a nearly 13% year-over-year improvement, all of this in an essentially flat industry box office environment. We achieved these consolidated financial results with record-setting per patron revenue and per patron profit metrics. Admissions revenue per patron grew 5.9% to a record of $12.09. Food and beverage revenue per patron grew 5.1% to a record of $7.62, and total revenue per patron grew 6.8% to another record of $22.10. Importantly, our contribution margin per patron, this is defined as total revenue less film exhibition and food and beverage costs divided by attendance, this metric grew 7.2% to yet another record-setting $14.80. This measure of per patron profitability is now 51% higher than in pre-pandemic 2019, underscoring the meaningful improvements that we have made to the business over the last few years. Breaking down our results by segment, starting with U.S. operations, we outperformed the North American box office, growing our admissions revenue by 3.9%, 240 basis points in excess of the overall industry growth. This outperformance helped drive total revenue growth of 4.6%, along with a nearly 15% increase in adjusted EBITDA. And consistent with the overall consolidated trends I referenced earlier, our U.S. theaters delivered record-breaking per patron metrics for admissions, food and beverage and total revenue with total revenue per patron growing 5.3% to $23.79. In addition, the business generated a record per patron contribution margin of $15.69, a 5.7% improvement over the prior year. Domestic total revenue per patron is now 48% -- is now up 48% versus pre-pandemic 2019 and domestic contribution margin per patron is now up 56% compared to pre-pandemic 2019. Now turning to our international operations. Note that the results are impacted by an increase in foreign currency exchange rates of approximately 4.5% year-over-year. With attendance at our international theaters down 5.5% versus the prior year, revenue grew by 4.6% or was flat in constant currency, and adjusted EBITDA declined by 2.1% or 10% in constant currency. Our international theaters also delivered record-breaking per patron metrics for admissions, food and beverage and total revenue with total revenue per patron growing 10.6% or 5.8% in constant currency to a record-setting $17.97 and contribution margin per patron growing 11.3% or 6.4% in constant currency to a record-setting $12.61. Total international revenue per patron is now up 32% versus 2019, and international contribution margin per patron is up 37% compared to pre-pandemic 2019. Our results for 2025 reflect the effectiveness of our industry-leading loyalty programs, innovative pricing strategies, leadership in premium formats and innovative food and beverage offerings, complemented by a relentless focus on the efficiency of our operations and optimization of our theater footprint. In that regard, we continue to execute a transformation of our theater portfolio, negotiating more favorable lease economics, exiting underperforming locations and selectively acquiring high-quality theaters that enhance our network. During 2025, we closed 21 locations, and we opened 3. Since 2020, we've now closed 213 locations and opened 65 locations for a net reduction of 148 theaters or roughly 15% of our portfolio. This ongoing reshaping of our footprint reflects our commitment to improve asset productivity, expand margins and position AMC for sustainable long-term growth. Now let's move to the balance sheet. We ended the year with $428 million of cash. This excludes restricted cash. Our free cash flow for the year was a use of cash equal to $366 million. It's very important to note that this negative free cash flow was entirely related to the first quarter of 2025, and that for the 9 months ending December 31, 2025, we generated positive free cash flow of $51 million. As you may recall, our traditional working capital cycle is closely tied to the seasonality of the box office. Generally, this has resulted in a positive cash impact from working capital in the second and fourth quarters with a negative cash impact in the first and third quarters, the first quarter typically representing the largest negative cash impact. This pattern held true in 2025. And assuming similar box office seasonality, we would expect this cadence to exist in 2026. As Adam said, strengthening our balance sheet has been and will continue to be a top priority. This includes maintaining robust liquidity and continuing to pursue opportunities to extend debt maturities, reduce debt servicing costs and decrease the principal balance of our debt. As Adam noted as well, we recently launched a refinancing transaction targeting our $2 billion term loan due in 2029 and our $400 million Odeon notes due in 2027. This new debt offering, if successful, will address the vast majority of our 2027 debt maturities, extend a significant portion of our debt maturities to 2031, simplify our capital structure and reduce our debt servicing costs. In addition, we're also in the market with an at-the-market equity offering. Proceeds from the offering will be used to strengthen our balance sheet and also allow us to continue to invest in our core business to elevate and differentiate the moviegoing experience for our guests. As of last Friday, we received $26.2 million of gross proceeds from this equity offering. Our capital allocation priorities are clear and consistent. First, maintain robust liquidity and strengthen the balance sheet; and second, invest in our core business to elevate the guest experience. This disciplined approach to capital allocation reflects our commitment to building an increasingly strong and resilient company to deliver long-term shareholder value. From a capital expenditure standpoint, our 2025 CapEx net of lease incentives totaled $200 million, exactly at the midpoint of our previously communicated $175 million to $225 million range. And we expect 2026 CapEx net of lease incentives to be between the same range of $175 million to $225 million. Looking ahead, we see an exceptionally strong film slate in 2026 and beyond. And the operating leverage inherent in our business, coupled with continued success in growing that per patron revenue and per patron profit metrics means that we are very well positioned to meaningfully increase adjusted EBITDA, improve free cash flow and strengthen our balance sheet with the box office growth that is anticipated in 2026 and beyond. And with that, I'll turn this call back over to Adam. Adam Aron: Thank you, Sean. Our 2025 results and our optimism for 2026 underscore that AMC remains firmly playing on offense, focused on bold strategic initiatives that elevate the moviegoing experience and reinforce AMC's position as the clear leader in theatrical exhibition. One year into our forward-looking AMC Go Plan, the results are both tangible and encouraging as AMC continues to delight our guests and AMC continues to position ourselves for sustained growth in 2026 and beyond. As one example, laser projection with its brighter, sharper screen images now exists in fully half of our U.S. theater circuit. And how can we not revel in the leadership position that AMC enjoys in the availability of premium large-format and extra large-format screens. As you know, they command sizable price premiums, and they're about 3x more productive than a standard screen. It's no accident that AMC has more premium large-format screens and more extra large-format screens than any other exhibitor on earth. So it's obvious why we are so glad that our count of IMAX screens and our count of upgraded IMAX with laser screens is growing, that our count of ever so popular Dolby Cinema screens is growing. You know that with CJ's ScreenX and 4DX offerings as well as for increases to the numbers of our PRIME and iSense house brand PLF offerings. I am especially pleased to by the story surrounding AMC's XL or extra large-format screens. They were created out of thin air and piloted by our Odeon team in Europe less than 2 years back. And given their success, we now are expanding the reach of XL broadly across our U.S. theaters as well. We now have just right around 170 or so XL screens globally, and I would expect that, that number will literally double by the end of 2026. Moving beyond the auditorium, our world-class AMC marketing and loyalty programs continue to evolve smartly in 2025. In January 2025, we introduced a new successful AMC Stubs loyalty tier called AMC Premiere GO that allows consumers to trade up to Premier status or a modified Premier status through increased patronage at our chain without having to pay an added fee. That's taken our member enrollments all the way up to some 39 million households in the United States accounting for an impressive 51% of our total U.S. attendance during the year playing for points in our frequent moviegoer loyalty program. That level of engagement not only deepens guest loyalty, but also provides valuable insights given our extensive database containing as it is a myriad of purchase transactions guest by guest that enable us to smartly and more targeted basis, create marketing efforts to our best customers on an ongoing basis. Another important pricing action within the scheme of our loyalty program was price increases, considerable price increases in our A-List loyalty program -- subscription program that occurred in the month of May. And while those are examples of price rises with a keen focus for having raised prices during peak demand periods and to the most frequent of our guests, it is also true that AMC simultaneously has remained committed to appealing to the value-conscious consumer as well. So in July of 2025, our marketing team reimagined our long-standing discount Tuesdays program by launching an intriguing and attention getting new 50% off Tuesdays and Wednesdays initiative. Importantly, our analysis shows that the incremental attendance generated on these 2 weekdays now has not cannibalized our weekend attendance and to the contrary, has increased the business generated in our theaters midweek, an outcome that benefits both AMC and our studio partners and of course, benefits the movie going public in addition. And we did not stop there. At the end of 2025, we introduced the AMC Popcorn Pass to our loyalty members an innovative annual offering that allows AMC Stubs members to enjoy 50% off pricing all year long on a large AMC Perfectly Popcorn for a onetime fee of $29.99 plus tax per year. In only the first 2 months after launch, more than 120,000 guests have already paid us this $30 fee for a Popcorn Pass. Beyond delivering exceptional value to the guest, the Popcorn Pass also encourages more frequent theater visits and deeper guest engagement. If those were things that we did in 2025, I would like to tease you today with one of what I think will be one of AMC's best new marketing ideas for 2026. Later this year, AMC will introduce preferred so-branded premier seating where we will block and reserve the best seats in the house in our theaters to be accessed first only by our A-List and our Stubs premier members. That's the 2 VIP tiers within our Stubs program. At no added charge at AMC, we will assure that the best seats in our auditoriums are held out only, at first anyway, for our best customers. We think it will be a considerable consumer benefit that our most frequent guests will notice and greatly appreciate, further cementing their brand loyalty to AMC. There are 2 other things I'd like to highlight before turning this call over to your questions. First, you may recall that a few months ago, AMC and Netflix made the joint decision to partner together. This was a significant departure from our 2 companies staying at arm's length from each other over a period of many years. That effort started in bringing Netflix's popular K-Pop Demon Hunters to AMC theaters over the Halloween weekend. That collaboration between AMC and Netflix proved highly successful with AMC delivering to Netflix approximately 35% of the film's total attendance during that holiday weekend time frame. Building quickly on that momentum, our dialogue with Netflix continued, resulting in AMC's hosting the series finale of Stranger Things in some 231 AMC theaters across the United States over New Year's Eve and New Year's Day. The response to that AMC Netflix offering in theaters wildly exceeded all of our expectations. We initially only put on sale about 105,000 seats or so, but one with all done a month later, AMC had the privilege to welcome more than 753,000 Stranger Things fans, collecting approximately $15 million in cash from Netflix fans watching the Netflix product in an AMC theater. In just 2 days, it was a powerful demonstration of the demand for shared theatrical experiences tied to culturally significant content. The success of our recent collaboration with Netflix highlights the strategic opportunity that lies ahead, and I am certain that we'll have more adventures together cooperatively with Netflix. With roughly 2/3 of AMC Stubs loyalty members also subscribing to Netflix, the audience overlap between our 2 companies is both significant and compelling. As a result, our companies -- our 2 companies should be the best of friends. And I can confirm to you that AMC is enthusiastic about the prospects of expanding our relationship with Netflix. We look forward to working together to create innovative, mutually beneficial theatrical events that drive value for both companies. The second thing that I like to mention before closing, with the recent meteoric rise in the share price of Hycroft Mining Company, I could not be more pleased to report to you that our investment in Hycroft has met and exceeded attractive financial hurdle returns. In November of 2025, we monetized just more than $24 million from a partial sale of our Hycroft stake. But importantly, at the time, we said that we would retain a significant number of shares and warrants to continue to experience upside. Those remaining shares and warrants in Hycroft are worth right about $39 million at today's market closing price. So that $63 million or so in total compares quite favorably to the $29 million that we invested in Hycroft 4 years ago. For those of you who scoffed at our Hycroft investment at that time, and there were many of you, you were wrong and we were right. As we conclude, AMC's resilience continues to set us apart. While the industry recovery has progressed more gradually than anyone might have originally anticipated or wished to see it the curve. Even so, AMC has remained agile, disciplined and firmly focused on long-term value creation. AMC has demonstrated our ability to navigate a dynamic environment. Some would say an extremely difficult and challenging environment, but all the while we did so, we also strengthened our competitive position, and we emerged poised to capture gain from the opportunities that we believe are ahead. That opportunity is now at hand. We expect the box office to rise in 2026. And please remember from this call, the 2 most important words that are relevant to AMC, operating leverage. An increase in our revenues in 2026 has the prospect of leading to many a smile as we watch our adjusted EBITDA levels as the year unfolds. As we have had to say far too many times over the past 6 years, we are not out of the woods yet, and there are challenges ahead still, but the signposts for 2026 are indicating a significantly strengthened year ahead. With that, let's turn the call over to our operator to pull analysts for their questions from equity research analysts. And then Sean, I'll give the podium to you, and you and I will review some questions submitted by our retail investors. Operator: [Operator Instructions] Our first question comes from Chad Beynon with Macquarie. Chad Beynon: Adam, great to hear that you're feeling and sounding much better here. I wanted to ask, I know, Sean, in the prepared remarks, you talked about the screen or the theater count reduction in '25 and in the past couple of years. How are we thinking about your fleet or portfolio at this point given the strong outlook for content in '26? And then related to that, are there expected to be any new builds that are in that CapEx number? Sean Goodman: Chad, as I've said in my prepared remarks, we've done significant activity, closing over 200 theaters over the last 6 years and opening around 65-odd. We will continue to take actions to close theaters, to reduce leases as we go forward. About 10% of our leases come up for renewal each year. So that's about 85 leases coming up for renewal. And each time these leases come up for renewal, we have that opportunity to improve our overall theater economics. The portfolio has improved significantly over the last 6 years. It's one of the reasons that our per patron metrics and our per patron profitability is so much higher than it was before. But we believe there continues to be a very significant opportunity. Like most organizations or companies with a retail footprint, our theaters are a kind of normal distribution, and there is a tail of underperforming or loss-making theaters. And we see an opportunity to close those theaters or renegotiate leases and then take on new theaters that are significantly -- very significantly more profitable. So I think you're going to see the similar sort of pace going forward. We'll be closing more theaters than we open, but the new ones that we opened are generating significantly more profit than the ones that we closed. And to your question about sort of the CapEx level, there'll be a small number of new theater locations in 2026 and going forward, and that is included in our CapEx projections in the $175 million to $225 million range. Adam Aron: I might add that look, everything we've been doing smartly over the past few years, we've been capital-light. So you specifically used the phrase new build theaters. New build theaters are considerably more expensive than what we call spot acquisitions, where we can take over a theater where most of the capital has already been spent, and we maybe pop $500,000 to $1 million just to upgrade it and bring it into the AMC fleet and apply our marketing programs and our product experiences and expertise. And when we've done this in the past, we've seen substantial rises in the revenues of the theater and the efficiencies of the theater that we've taken over. So as Sean said, I'm sure we'll close some underperformers, which makes us money. It doesn't cost us money. And we'll probably add a handful of spot theaters -- spot acquisitions as well. Sean Goodman: And maybe it's worth pointing out the example of the growth, right, which in Los Angeles that we took over as a spot acquisition. And that theater used to be #28 in the country in terms of annual box office receipts. Now we're adding the AMC secret sauce that theater is now #5 in the country in terms of receipts. And that's just one small example of the benefits that we bring and the attractiveness of AMC as a tenant for landlords in their developments. Chad Beynon: Okay. Great. And then my unrelated follow-up. I think you mentioned most are expecting the U.S. box office to be up somewhere between $500 million and $1 billion. I think that's where most analysts are in this high single-digit, low double-digit growth rate. International is a little harder for, I think, us in the industry to pinpoint. Do you have a gut feel if international admission revenues could be higher or lower than kind of what we're seeing in North America this year? Adam Aron: Well, we've completed 7 weeks or 8 weeks of -- almost 8 weeks of '26, and we know already that Europe is recovering faster than the United States from the 2025 box office. So if I had to be a betting man, we'd say Europe is going to be stronger than the U.S. And some of you like to report in constant currency and some of you like to report as the dollars come in. The dollar has been pretty weak, which means that our overseas revenues and overseas EBITDA is coming back in U.S. dollars in even stronger levels. So this could be -- year-over-year, this could be Europe's best year of the last 6. Operator: I'm showing no additional questions at this time. I'd like to now turn it back to Sean Goodman for retail shareholder questions. Sean Goodman: Thank you, operator. Adam, we have a couple of questions here. Firstly, relating to the food and beverage business. As you and I both know, our food and beverage per patron numbers have just been spectacular post pandemic. And I think there's really exciting opportunities for us ahead there. But the question is sort of what future changes of innovations can people expect on the food and beverage side? Adam Aron: This is really important because if you look at why this company has been able to navigate really turbulent waters over the past half decade. Our strength in food and beverage sales has been a big reason. If you look at our contribution per patron, it's up not quite 50%, but almost 50%, which means that we don't actually need the box office to recover all the way back to 2019 pre-COVID levels. And that's a direct result in part because of our food and beverage success. I think at this point, there's a lot of finessing that's going on within our food and beverage operation where we're using menu experimentation to please the guests and help our bottom line. As one example, we just introduced in the fourth quarter of '25, freshly baked chocolate chip cookies, which not only taste great, but smell great in the theater lobbies, and they replaced doughnut holes, which we're not selling as well at our concession stands. We just introduced at our dine-in theaters a much better pizza than we've had in modern memory. It looks like real pizza. It tastes like real pizza. It is real pizza, and it's really good. I've tested it myself in the kitchens, and I'm a pizza buff. But -- so those are 2 examples. Another thing that's really important, though, of what's happened in our concession stands is not what you eat, but what you buy 3 years ago, AMC didn't sell essentially any movie-themed merchandise. And our movie-themed merchandise now has become a sizable business for us. In 2025, it was $65 million in the United States, another $10 million to $15 million in Europe. This was a business that didn't drive literally $0.01 of revenue or EBITDA 3 years ago, and it's now doing $80-ish million of business today and the profit margins in this thing are -- it's about 50% or so margin business, like that's substantial. And I think that this movie-themed merchandise business is poised to grow again dramatically in 2026. I wouldn't be surprised if it grows by 20% or more as we enter our fourth year of successful effort in and around our concession stands in our theaters. Sean Goodman: So there's a lot going on in the industry at the moment. And there's questions about -- just for you to comment on our relationships and relations with studios, what's going on with windows, update on union negotiations and the potential for a strike later this year? Adam Aron: Sure. When you talk about what's our relationship with studios, it sure helps when you sell more movie theater tickets for every single studio than anybody else on earth, especially if you combine the ticket selling in quantity with the amount of effort that AMC devotes to our studio interactions. I can say with confidence that AMC enjoys a very strong special relationship with each and every studio, every single one, we think highly of them because our lifeblood depends on it. And I believe that they think highly of us because that they know at the end of the day, we're going to outperform for them above everybody else. So in terms of studio relations, it's all great. An interesting development when I think of studios is not just the traditional studios, the majors, but we've had surprisingly good interactions of late with some of the streamers who historically were not major theatrical exhibitors. Last year, we had real success with Apple in their film F1. We leaned into it in a big way. We were very successful with the film. They were very successful with the film. We appreciate our relationship with them. I know they appreciated the support that we put forward. I'm looking forward to big things coming from Apple original films going forward. Amazon is now telling us that their goal is to release 15 theatrical movies in 2027 and that they'll probably get up to 10 to 13 theatrical movies on their slate in 2026. That's news. Amazon MGM was only good for a movie or two 5 years ago. They've become a real player in Hollywood. And then there's Netflix. We had this September meeting where we sorted through how we could work together and that it would be advisable to work together. And the first 2 efforts out of the shoot were extraordinarily positive. I know that we're excited about doing more with them, and I know that they were pleased with AMC's effort on their behalf towards the end of 2025. You mentioned in your question, union negotiations. For good or for bad, we're not a party to those union negotiations. We have a vested interest in their outcome, but we're not at the table. I do know that the studios have taken these negotiations seriously. They've started the negotiation process earlier than they did last time around. I think the general consensus is that the 2 strikes a couple of years back were devastating to everyone connected to the movie business, devastating to the members of the union, have devastated -- devastating to movie makers. I would sure hope that we don't have to repeat anything like that and that the union studio negotiations transpire in such a way that deals are met and that the production of movies goes along without interruption. Sean Goodman: And then our final question here is on CapEx spend. We've guided to $175 million to $225 million a year, which is the same in 2026 as it was in 2025. Just questions on how we're allocating our CapEx spend, sort of what are the focus areas for our CapEx spend? Adam Aron: Well, very round numbers, right, very round numbers. $150 million of that number is what I'll call maintenance capital to keep our theaters in good shape. Roofs aren't leaking, HVAC systems working, IT systems being overhauled as needed to continue to have AMC be a strong player from an IT standpoint. AI is capturing some of our money now because there are ways to make our company more efficient through the adoption of AI techniques. Beyond that, though, in a capital-light way, we continue to be very committed to upgrading the theater experience. And we're going to add more IMAXs. We're going to add more Dolby Cinemas. We're going to add more PRIMEs and iSenses. We're going to double the number of XL screens. This is all good. At the same time, a decade ago, AMC was quite experienced and practice in renovating whole theaters expensively, ripping out seats, putting in the so-called recliner seats, which are very popular with guests. But we have a problem. And the problem is we have a number of theaters that -- where the volumes are so high that we can't afford the seat loss of pulling a lot of seats out of the auditoriums. It reminds me of the old Yogi Bear quote, "Nobody goes there anymore because it's so crowded," as he once said. So there's -- it was easy to decide how do you renovate a theater if you got to rip everything down to the studs and put them in recliner seats with 6 feet of leg room for row. But now we're at a point where that's pretty much behind us. And we're looking at how do we keep the product top flight in some of our highest volume theaters where more traditional seating is going to be the norm. And we came up with what we think is the answer. And interestingly, Sean, it's also a capital-light solution. We had a theater in Burbank that was the single highest grossing theater in the United States, but it was in kind of ratty condition 2.5 years ago. The seats were tired and old and stained. And we knew we had to replace all the seats, the Burbank Theater, but we also knew that we -- the volumes were so high at the theater, we were going to need a similar seat count to what we have at the time. So we -- a lot of studies, we investigated dozens and dozens of different potential seats. And we came up with what is now -- if you look at our website and app, is branded as the AMC Club Rocker. It's a very comfortable seat and much superior than anything that's in our traditional seating theaters today. It's kind of a leathery look. I'm not sure it's actually leather, but looks like an leather, it feels like leather, it smells like leather. It's got a lot of padding and cushioning. It's wider than the older seats, and it rocks. It moves around a little bit, so people can adjust the seat to their own comfort. And it was a massive hit when we put it in Burbank 16. So we took that same exact seat, and we put it into our Empire Theater in Manhattan -- in our Lincoln Square theater in Manhattan. And week after week after week, I was seeing in our reports that of our 550-ish theaters in the country, the 3 highest grossing for AMC were Burbank, Empire and Lincoln Square, week after week after week. What is them common, the Burbank seat. We have since put it into some of our other theaters. For those of you who are knowledgeable about a theater on the upper East side in Manhattan called Orpheum 6, we're going to put that seat into Orpheum 6 sometime this year. We're going to greatly expand the legroom to 48-inch seat pitch, which is a lot. I love to say 4 feet for your 2 legs. And the combination of a lot of legroom and that very comfortable new club rocker seat is going to turn that theater into what is now a tired substandard old Loews theater from ages ago into a real powerhouse on the Upper East side. And we're also going to look to take that club rocker seat into others of our theaters as well. And it's a very inexpensive effort to redo a theater and make it nice, but do so in a smart capital-light way. So those are examples of where the money is going. There was an earlier question about will we just crack theaters or will we add some? We will do both. So when we take over a theater, we might spend $0.5 million or $1 million to bring the theater into our system if it's in relatively good shape. If it needs a little bit of renovation money, maybe we work with the theater landlord to jointly put up $2 million, $3 million, $4 million to bring some theaters into our fleet in very good condition. Hopefully, the landlord would pay a significant chunk of that cost through tenant allowances and the like. So that's another thing that's going on within the CapEx budget. But as you said, we've got a fairly tight constraint. A couple of years ago, we were spending $400 million, $450 million, $500 million of CapEx. We believe that rounding to the $200 million range is something that we can -- plus or minus $25 million is something that we can do going forward in the near term. So that's the update. Sean Goodman: And that concludes the retail investor questions. Adam Aron: So let me just end the call by thank you all for listening to us today and participating with us. It is going to be the strongest slate of moviegoing that this industry has seen since 2019. The year is starting up in double digits, which is a nice way to start. And I leave you with this one thought that's dominating our thinking and my comments on this call, that notion of operating leverage, as revenues rise, EBITDA rises, and it does so at a geometric pace. So we won't be all the way to where we need to be at the end of '26, but we expect to make a dramatic amount of progress. So this should be a year that makes us all smile. Thank you for joining us today. See you at the movies. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Q4 2025 Results Conference Call. I'm Moritz, your Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Anja Siehler. Please go ahead. Anja Siehler: Thanks, Moritz, and also a very warm welcome from the Nordex team in Hamburg. Thank you for joining the Q4 2025 and full year results management call. As always, we take -- we ask you to take notice of our safe harbor statements. With me are our CEO, Jose Luis Blanco; and our CFO, Dr. Ilya Hartmann, who will lead you through the presentation. Afterwards, we will open the floor for your questions. And now I would like to hand over to our CEO, Jose Luis. Jose Luis Blanco: Thank you very much for the introduction, Anja. As said, on behalf of the Management Board, a very warm welcome to all of you joining us today for the Q4 and full year 2025 results. Results that conclude a transformational period and a transformational year for Nordex. 2025 has been a landmark year. We delivered and exceeded our medium-term margin target ahead of schedule, generated positive free cash flow, achieved record order intake and strengthened our balance sheet. This very much sets the tone for the years ahead of us. Let's now walk you through what drove this performance and how it prepared Nordex for the next phase of profitable growth. Let's start with a short recap of how we were able to deliver as promised or on the upper end of the promise. Over the past 3 years, we have made consistent progress in strengthening the business and our profitability. 2025 is the year in which Nordex demonstrated that the operational and financial improvements we have been working on over the past 3 years are now full translating into our numbers. We delivered robust growth across all major KPIs, increased profitability substantially, generated strong free cash flow and strengthened our financial foundation. Combined, these achievements set a strong tone for our longer-term strategic ambitions. Moving on, 2025 was a milestone year for Nordex. We delivered record order intake of 10.2 gigawatts, reached an 8.4% EBITDA margin and generated EUR 863 million of free cash flow, all well above last year and ahead of our original plan. These results show that our strategy is working and that our business is now consistently delivering strong margins and is cash generative. Based on this track record, we now aim to set the tone for what is ahead of us. First, 2026 guidance, continued sustainable improvement, capital allocation, the introduction of our first shareholders' return policy; and third, our new strategic midterm target and upgraded EBITDA margin of 10% to 12%. Before we go into more details on the mentioned aspects, let's look at how we performed in terms of market position in 2025 first. 2025 was also a year in which our market position strengthened further. We were again able to keep our #2 position globally, improving, not in the relative position, but in the market share of the global position. In Europe, we continue our strong momentum and achieved leadership position for the fourth year in a row. And this clearly reflects our competitive product range and our strong customer relationship and ability to deliver in our core region. The Americas, we continue to rebuild our market position, mainly driven that year by Canadian orders reaching an 11% market share in 2025, a solid step forward after the reset in previous years. Let's now start the usual chapters regarding the operational and financial highlights. Let me start with an overview of the fourth quarter and the full year. Q4 was another strong quarter operational. Our combined order book grew to EUR 16 billion with the turbine order book up 30% year-on-year to over EUR 10.1 billion and the service order book rising 20% to nearly EUR 6 billion. Financially, we closed the year with EUR 307 million EBITDA in Q4, an increase of 188% compared to the same period of 2024. Our EBITDA margin in Q4 reached 12.1%, up more than 7 percentage points year-on-year. Service EBIT margin increased further to 19%, marking another quarter of consistent increase. Free cash flow in Q4 reached EUR 565 million, more than doubling last year's level. And finally, our net cash position exceeded EUR 1.6 billion at year-end. We also successfully reached our medium-term EBITDA margin target of 8% already in 2025 and we believe we can deliver further margin improvements based on the levers we see. And with this, let me walk you through the operational performance in more detail. In Q4, we record EUR 3.2 billion of turbine order intake, an increase of around 10% compared to Q4 last year. This corresponds to 3.6 gigawatts, representing 9% growth versus Q4 2024. A few important aspects to highlight. First orders came from 12 different countries, demonstrating continued strong diversification. ASP remained stable at EUR 0.89 million per megawatt comparable to last year level. The largest markets in Q4 were Germany, Canada and France, supported by steady demand in our focus regions and countries. On a full year basis, turbine order intake reached 10.2 gigawatts, representing a record EUR 9.3 billion in order value, an increase of 25% year-on-year. Let's move to the next slide, the order book. Our turbine order book ended the year at EUR 10.1 billion, up 30% versus the same period of 2024. On the service side, our order book increased to almost EUR 6 billion, up 20% year-on-year. We now have almost 14,000 turbines covered by long-term service contracts, representing 48.3 gigawatts under term service contracts. And the combination of structurally larger projects order book and a steadily growing service base provides a strong visibility for revenue and margin delivery in 2026 and beyond. Let's talk about the service business. Our service business continued its predictable trajectory in 2025. In Q4, service revenue reached EUR 240 million. Service EBIT reached EUR 46 million, corresponding to 19% EBIT margin. This marks the eighth consecutive quarter of margin expansion in the service business, driven by improved efficiency, strong availability levels in our installed base and disciplined execution. Let me also highlight a few key operational KPIs. The average availability of our wind turbines under service remain high at around 97% and the average tenure of our service contracts continues to be around 13 years. Let's move to the next slide, our installation and production figures. Installations were up by 25% year-on-year, reaching around 2.1 gigawatts in the fourth quarter of 2025. In Q4, we installed 376 turbines, up from 283 in the same period of 2024. Full year installations reached 7.663 megawatts -- or gigawatts, compared to 6,641 megawatts in 2024. Turbine production increased to 519 turbines in Q4 compared to 445 last year. Paid production remained stable despite temporary delays at one of our suppliers in Turkey. And now I would like to hand over to Ilya for the financials. Ilya Hartmann: Thank you, Luis, and a warm welcome also from my side. So before I start with my usual slides, let's take a brief look at the past fiscal year and the achievements of our goals or targets. So the slides on the screen illustrates the highlights of the past year. Following the initial publication of our guidance for 2025, we made strong progress in our operational performance throughout the year. Jose Luis has talked about that. And as a result, we were able to further strengthen our profitability, which led us to upgrade our full year EBITDA margin guidance in last October. By year-end, we achieved and in some areas, even exceeded all of the targets we had. So let me use this opportunity to thank Team Nordex for their tireless efforts worldwide. We're very proud of you. And with that, let's move on to the next page, where I would like to share a few insights on the development of our income statement. After sales were temporarily affected by project mix and scheduling effects earlier in the year, we saw a significant rebound in the fourth quarter. Sales increased by 16% to around EUR 2.5 billion compared with EUR 2.2 billion in Q4 of the year before. Main contributors were Germany, Turkey, North America and Spain. For the full year, sales reached approximately EUR 7.6 billion, and so fully in line with our internal planning and almost right in the middle of our guided range despite some impacts from Turkey that we discussed with you last year. We continue to strengthen our gross margins, reaching 27.8% in the fourth quarter, up from 23% in the same period last year. For the full year, gross margin improved to 27% compared with 21% in the previous year. This corresponds to an EBITDA margin of 12.11% in Q4 2025, up from 4.9% in Q4 of 2024 and of 8.4% for the full year '25 compared to the 4.1% in the year before. Building on this operating performance, we ended the quarter with a net profit of EUR 184 million, compared to EUR 18 million in the fourth quarter of 2024. For the full year 2025, the net profit amounted to EUR 274 million, a significant improvement over the EUR 9 million recorded in 2024. With this, let's move on to the balance sheet. As we can see, our overall financial position at year-end remained solid and has further strengthened compared to the end of 2024, a reflection of the operational and financial performance throughout the year. Cash position at the end of the fourth quarter was around EUR 1.9 billion. Working capital came in at minus 12.4%, significantly better than our guided number of below minus 9%. Equity ratio improved steadily through the year and reached 19% at the end of the fourth quarter compared with 17.7% at the year-end 2024. This positive development is largely driven by the strong increase in our net profit. And now let's have a closer look how the other balance sheet KPIs have developed in the last quarter. Overall, all balance sheet figures continue to develop positively in the fourth quarter, continuing the trend we had already seen throughout the entire year. The operating performance in the fourth quarter led to a further increase in our net liquidity, which reached a record year-end level of EUR 1.625 billion. Again, the working capital ratio at the end of the fourth quarter was minus 12.4% or minus EUR 935 million in absolute terms. This improvement is largely attributable to the very strong order momentum we experienced in the final month of 2025. And now let's go to the cash flow and CapEx slide. Cash flow from operating activities amounted to EUR 631 million at the end of the fourth quarter, previous year was EUR 318 million and to over EUR 1 billion for the full year, previous year, EUR 430 million. And one more time, this development reflects our consistently robust operational performance throughout the year and especially the very strong fourth quarter. So in the fourth quarter of 2025, positive free cash flow totaled EUR 565 million compared to Q4 of the prior year of EUR 271 million. Full year, we closed with a positive free cash flow of EUR 863 million versus the EUR 271 million in 2024, supported, of course, by our order intake and further improvements in working capital. CapEx increased to EUR 72 million in the fourth quarter compared with EUR 42 million in the prior year quarter. And for the full year, CapEx totaled EUR 169 million, higher than last year's EUR 153 million, though still below our full year guidance of around EUR 200 million. And with that, I would now like to hand back to Jose Luis for the final chapter, our guidance and strategic outlook. Jose Luis Blanco: Thank you very much, Ilya, for walking us through the financials. Based on the strong foundations we established in 2025, we expect profitable growth to accelerate in 2026. Our guidance for '26 is as follows: sales will be between EUR 8.2 billion and EUR 9 billion, meaning a top line growth between 9% to 19% year-on-year. EBITDA margin is in the range of 8% to 11%. Again, as in previous years, we believe the midpoint is the most likely outcome as of today. Working capital ratio below minus 9% and CapEx approx EUR 200 million. This reflects continued margin expansion, steady volume growth and disciplined capital allocation. Regarding free cash flow, we don't provide formal guidance. However, based on the building blocks we have shared, you can likely conclude that we are positioned to deliver another solid free cash flow year. As mentioned at the beginning, today is not only about presenting our 2025 results and guidance, it's also about setting the tone for the years ahead of us. With that in mind, let me now walk you through the capital allocation policy we are introducing. Over the past years, many of you have asked for greater clarity on how we think about capital deployment once Nordex returns to a more normalized financial position. Let me summarize our approach. First, we remain fully committed to maintaining financial flexibility and a strong balance sheet and ample liquidity are essential to navigate market cycles in our industry. And this discipline will not change. Second, we continue to prioritize operational and strategic growth opportunities. That includes funding core organic investments across our supply chain, product enhancements and key research and development initiatives. We also want to retain the ability to pursue selective strategic opportunities, enhance our supply chain resilience and leverage opportunities to look in turbines via supporting our customers in advancing their project development pipeline. Third, with these foundations in place, we will consider returning cash to shareholders in a sustainable way. Today, we are introducing Nordex's first shareholder return policy. Under this framework, Nordex will target a minimum annual shareholder return of EUR 50 million to be delivered either through dividends or share buybacks and always subject to regulatory approvals, our capital structure priorities and stable market conditions. As many of you know, under German HEV rules, distributable profits sit within the stand-alone Nordex SE entity, and this will catch up in 2026 due to difference in local GAAP and IFRS. Therefore, we plan the first payout in 2027. This policy reflects our commitment to a disciplined, predictable and sustainable approach to capital allocation, balancing the needs of the business with attractive returns for our shareholders. And importantly, this is a first step. We remain open to refining the framework over time, always guided by the principle of maximizing shareholders' return. And moving on, let me now talk about our core markets and why we remain confident about the overall environment and our position within it. According to third-party researchers, onshore wind installation are expected to grow steadily throughout the decade. This growth is driven by 3 main factors: one, strong fundamentals in Europe and North America, which remain the core regions for Nordex; second, increasing electrification and industrial demand, which supports long-term renewables build-out. And third, selective upsides in markets such as Australia. And with this, given the structural improvements in our business and the visibility provided by our order book and the service portfolio, we are upgrading our midterm EBITDA margin ambition to 10% to 12%. The key levers here include: first, continued volume growth in Europe and the Americas and operating leverage from revenue growth. Second, higher service profitability with EBIT margin crossing the 20% mark. And third, further margin improvement via efficiency measures across production, logistics and fixed costs due to the bigger volume. As we had mentioned before, we have been working tirelessly to make this company much stronger over the last 3 years and 2025 shows the results of these efforts. And like Ilya, I really like to take this opportunity to thank our people for their tremendous efforts. Of course, our customers for their trust, support, banks and analysts and shareholders for the continued trust in Nordex, especially in difficult times. We believe we now have a good platform to deliver more profitable growth with the support of all of our stakeholders and remain committed to further strengthening the business in the years to come. And with this, let me hand over to Anja for Q&A. Anja Siehler: Thank you, Jose Luis, and thank you, Ilya, for leading us through the presentation. I would now like to hand over to the operator to open the Q&A session. Operator: [Operator Instructions] And the first question comes from John Kim from Deutsche Bank. John-B Kim: One question and a follow-up, if I may. First, congrats on the numbers. I wanted to understand when you think about capacity expansion and investment, I'd like you to speak a little bit about how we should think about factory loads. Any pinch points on supply chain? And I have a quick follow-up, if I may. Jose Luis Blanco: Yes. No, thank you very much for the question, John. I think we have provided you a view of EUR 200 million CapEx that should be sufficient to deal with the volume growth, even with the upper end of the volume growth considering in the guidance, and keeping our supply chain diversification strategy. We plan to keep Europe, eventually small growth. We plan to keep and grow India, and we plan to keep and grow China. At the same time, we are ramping up and growing U.S. So we don't plan major disruptions in supply chain, keeping the flexibility to shift volumes from region to region if needed. And we are confident and well equipped and provided for in the guidance. John-B Kim: Okay. And as a quick follow-up, can you just update us on the situation in Turkey, please, with blade supply? Jose Luis Blanco: Yes. I think we made substantial progress in derisking our situation in Turkiye. And we are, as we speak, ramping up blade production in Turkiye. We are committed with long-term investments in the market. We have been very successful in [GECA 4]. We hope to be equally successful or almost equally successful in [GECA 5] and we are ramping up the capacity to deliver our commitment to our customers and the government is, of course, happy with our commitment to the country. Operator: And the next question comes from Alex Jones from Bank of America. Alexander Jones: Two, if I can. The first one on the new capital return policy. Could you outline for us why you chose the EUR 50 million number rather than something smaller or bigger? I guess when I think about the midterm profits and therefore, cash flow of the group, I imagine they'll be substantially larger. So is there something constraining that number in the short term, be that German GAAP profits or whatever else? Jose Luis Blanco: No, thank you for the question. I think we try to share with you what our view is about the priorities, which is having a balance sheet fortress, if you will, to deal with cycles, but as well to deal with opportunities. And we think we will find opportunities to deploy capital at reasonable return, supporting our customers to make their projects through and consequently helping the company to grow further in the top line and in the profitability and achieve our midterm EBITDA target. And this is what we are -- where we are focusing now. Ilya? Ilya Hartmann: I think you said -- I would add maybe 2 thoughts. One is, first, this is an idea of a minimum EUR 50 million. So we'll always then decide in the given year if a different number if appropriate. And other than the point you mentioned of deployment is not only a fortress of the balance sheet, which I think is one of the key priorities, but also the flexibility of Jose Luis to help execution, derisking supply chain changes whenever needed to react that we have also the resources to do that. I think that's our set of priorities. Alexander Jones: That's very clear. Understood. And then if I can, on the installations in 2026. Can you give us any idea? The order intake has been very strong, above 10 gigawatts in '25. Some of that will take a while to come through, but could we see a year with installations above 9, for example, growing from the 7.6 you did last year? Jose Luis Blanco: I think we prefer to guide you in revenue and margin without going too much specific into the underlying operational figures. But definitely, we see growth in production and installation in '26. But remain that the year is very young, so we still need to sell a lot to contribute to PoC revenue and margin for 2026, and we need to grow the company in production and installation. Hopefully, the customers will not delay. Hopefully, we will not see major disruptions. We are prepared for that within a reasonable range. And I will say this is as far as I can go today. But growth is definitely expected in production and installation. Operator: And the next question comes from Sebastian Growe from BNP Paribas. Sebastian Growe: My 2 questions would be around Germany and then also the margin trajectory that you have updated. So let's start on Germany then. Apparently, we are seeing the German Economy Ministry planning to make changes to the support scheme for renewables, both from a grid access point of view, but also then from a pricing perspective with the move to CFDs. Can you comment on how that might impact turbine pricing? And what is your most important single market at this point? How has your customer base reacted to the current draft that has been linked to the public. If we could start there and then continue on the margin part later. Jose Luis Blanco: Let's do this together with you. So I know that there is a lot of -- or a slight unrest about the situation in Germany. I tend to see it quite positive. I mean the German market is going to deliver 10 years -- 10 gigawatts a year for the years to come. And this is amazing. This is record high historical volumes for the next couple of years ahead of us. Yes, 10 is not 13 or 14, fine, but it's 10. It's going to be maybe the biggest worldwide market second to China. And we have a fantastic market positioning in this market, just to set our view. Then like in any changes in system, this is -- could bring uncertainty and could slow down the market. We had a very bad experience in 2017 in Germany. So hopefully, all stakeholders learn from the mistakes, and we do the transition in a smart way that the volumes are not affected. Third, regarding the new system, I think wind onshore is by far the cheapest energy solution for Central Europe. And so we are part of the solution. We can help countries and societies to deal with affordability with energy independence, if they procure Western with technology independence and to foster electrification. Of course, the enabler for all those things is grid deployment. So I tend to think that we are in a great momentum, in a great momentum for our sector and for our company within the sector in a very important market despite some challenges that policymakers need to address in order to make this transition in the best possible way. And regarding the leak, I don't think we should comment on leaks. But my take is that wind onshore and our customers, we are part of the solution to lower electricity prices and to deliver society needs. And electrification is a must to deal with the competitiveness of Europe and Germany. And grid is the bottleneck that governments across Europe needs to address to make electrification a really powerful tool to address competitiveness. Ilya Hartmann: Yes. I mean, had anything to add, and that's really not much, I would say, agreeing with you, Jose Luis, not to comment on leakages of draft. However, I would probably remind all of us that this is a government of 2 parties. And 1 of the 2 parties was part of the previous government and has heavily supported the Wind industry. And that also led to what you were saying, Jose Luis, to the reconfirmation by this current government of the 10 gigawatt annual target in Germany. So let's see what comes out of the process. To the broader question, Sebastian, I'd say, for me, Germany with that is becoming a more normal market because now auctions from a system perspective start to work. And Germany will find a new normal across the value chain, the auction tariffs, the land leases, the developer fees, the equipment of BOP turbines. So after all, we're going to deal with a market that is very, very similar to many other markets in the world with similar economics. And then I think if anything to add, Jose Luis, that is something we have been considering when giving you this new midterm target. That is already considered. Sebastian Growe: That's a good segue indeed to my next question. In that chart on the margin walk to the 10% to 12% in the midterm, you haven't touched on the impact from price. So the question that I then would have around this is, am I right to assume that this very 10% to 12% range is a through cycle ambition? And as such, the strong volume visibility at attractive gross margin that you are enjoying right now might even result in a higher margin than this 10% to 12% range in a given moment. And it would rather than cater for if we did see this structural transition towards what is then a market price and not so much, say, determined price by a system, that this would then sort of be a normalized margin, but you would exclude at this point that you might even come out at a higher level. Is that the right way to think about it? Jose Luis Blanco: The way to think -- of course, we have made our view of what midterm prices could be and what the midterm market shares could be and what midterm volumes could be for our sector. And we are sharing with you our view and you are spot on. So we think that across the cycle, across the cycle margin. And let's not forget that the volume in Germany is going to be massive and the Central European price forward-looking 10 years for electricity are in the 70s. So -- and the best tool for lowering electricity is more wind onshore. So we are operating in a region that has certain price level in the -- for the final electricity pool. So I don't expect or we don't expect that the Central European electricity prices will drop like Finland or like any other countries like Spain in the medium term. And based on that, what we have from our view and guided you to that midterm target across the cycle. Ilya Hartmann: And maybe to the second question of Sebastian, I think your answer is perfectly in my view that this is exactly what we want to calibrate you for. Could it be better in a given year? I would not exclude it. Operator: Then the next question comes from Richard Dawson from Berenberg. Richard Dawson: Two from me. Firstly, on the U.S. market, I'm just wondering if your view in that market has changed at all. You secured the contract at the end of '25 for over 1 gigawatt. So it suggests that order momentum is picking up. But how do you see the opportunity in 2026? And where could your market share go in the U.S.? And then second question is on the EBITDA margin bridge up to that 10% to 12%. You mentioned in the presentation an opportunity to streamline costs further. You've obviously done a lot of this in the past, but could you provide some more details just on specific initiatives you have in mind for streamlining those costs? And I ask this against the backdrop of a business which is clearly growing both on the project side and the service side. Jose Luis Blanco: Thank you very much, Richard, for the questions. The U.S., let me share with you. I was 2 weeks ago there meeting customers. And I'm very pleased with the turnaround of the brand in the U.S. market after facing certain difficulties that you were aware with the former legacy platforms and quality issues. This is all behind us. So we managed to turn around this quality situation. We managed to turn around the stakeholders' relationships of the brand. Nordex brand is amazingly well perceived now by U.S. stakeholders. Current Delta for housing platform in U.S. is delivering market availability. And the team did a terrific job as well in restarting the West Branch facility and start to produce certain turbines for reservation orders we have. So we see momentum in the U.S. market. So customers are willing to keep investing in developments. Unfortunately, projects are pending, permits from the federal government. And this is something that honestly, nobody has a view of when those permits are going to flow. It's not that the permits or the determinations will not get to our customers to make their projects, it's a question of when. So there is no structural issue to reject those permits. It's a question of when those permits will be cleared, which reinforces our strategic decision to invest in that market long term. That market is facing a super cycle energy electricity increase demand cycle. And yes, maybe most of it is going to be delivered by gas, but wind plays a fantastic role to fit more with the demand profile of data centers, which is what is mainly driven electricity demand increase in U.S. So I'm without having firm orders, without having a clear view of when the firm orders are going to land to Nordex, I'm convinced that this was a very good strategic decision for Nordex. And I'm very pleased with the positioning of the plan in the marketplace. Second, talking about the EBITDA bridge margin regarding cost further improvements. I mean the key thing here is stay lean and let's make sure that we keep our overhead as lean as possible and definitely grow substantially less the overhead than the revenue to untap profitability improvement, number one. And number two, the volume brings always efficiencies, a little bit on the cost side, but as well in the underutilization. So we still run the company with certain level of underutilization. We want to have optionality to have 3 or 4 supply chain options. And the more volume we grow, the more we reduce the underutilization, the more we support the profitability improvement. Operator: The next question comes from Constantin Hesse from Jefferies. I'm sorry, it looks like the question was just withdrawn, then we go on with Ajay Patel from Goldman Sachs. Ajay Patel: Congratulations on the results. I have 2 questions, please. Firstly, I just want to focus on capital allocation again. I'm not sure I'm fully appreciating everything here. So it looks like over the course of '26, you're going to be towards EUR 2 billion in net cash. And you're not going to be really distributing too much on the dividend side until '27 and then that will ramp. It therefore, still implies there's going to be a lot of cash on the balance sheet. And I just wonder how should we be thinking about that? Like when you talk about the potential for opportunities to invest, are we talking manufacturing sites? Are we talking maybe adjacent types of business activities? I'm just trying to understand how that capital allocation thought works. And then if the cash is not being utilized maybe for distributions in at least the shorter term, could it be paying down debt or reducing use of facilities that we see a meaningful impact to interest costs? And if that's the case, what kind of improvement could we see? And then the second sort of set of questions is around the midterm target, the one on Page 23. The chart set up in a way that it looks at these 3 variables that gets us to the new midterm target, and it has it evenly distributed. And I'm wondering in my head, well, how much is actually in your own hands already and that you have enough visibility of auctions that have gone through Germany that eventually will convert to orders. You have enough of a pipeline in the U.S. You have a viewpoint on the efficiencies you're taking out of the business that are good amount of the targets under control? Or how much is it just dependent on market activity going forward? So I was just trying to understand how robust this is. Jose Luis Blanco: So let's start with the second question, Ajay. And so the year '26 is still very young. And we haven't sold what we need to sell to make the '26 guidance. So we still need to sell a lot of volume in Q1 and Q2. So definitely, this midterm target is subject to volume. Our assumption in this midterm target is that we will grow with the market. Some markets will grow, some markets will decrease. Germany long term will be an amazing market, but will be an amazing market of 10 gigawatts, not an amazing market of 14 gigawatts. Eventually, this will be compensated by U.S. picking up or other geographies. So this is a long-term view across the cycle, taking into account that we will grow with the market. So we are not taking the assumptions that we will grow market share. But of course, before talking midterm, we need to still deliver the '26 guidance for which we still need to sell. So we are exposed to the market dynamics for the midterm. With that being said, I think things don't change radically year-on-year. I mean the old product, if it's super competitive today, should remain at least competitive in the next year. So the market shares don't change dramatically over time year-on-year and markets given the capillarity we have and the number of countries where we operate, we should be able to compensate some markets with us. Regarding capital allocation, let's put this together, Ilya, I think the first priority, I mean, we need to have sufficient headroom to deal with situations like the one in Turkey last year or eventually more to come. We don't want to lose any opportunity to derisk the company, to further grow the company, to further improve the profitability of the company and some of those potential opportunities might require investments above the guidance that we have given to you, and we want to be prepared for that. Not saying that we have a concrete plan for that. Otherwise, we should share it with you, but we want to retain the option. And the first and foremost important thing is support our customers to make the projects reality. I think Germany, we heard that there are difficulties, and we want to use the liquidity of our shareholders because this company is the company of our shareholders to further invest this liquidity, supporting our customers, helping the company to further grow and to further improve profitability. Ilya Hartmann: Yes. And this is -- I think the recount of the priorities, maybe just -- I mean, very good question, Ajay. The point here is there is not much debt to pay for the company because there's only really a convert out there. And our interest is largely determined by the bond line, which is not debt that you repay with cash. And we've been working a lot on bringing the interest on the bond line down. So we will have positives there, but that's not done with the cash. And maybe to kind of support Jose Luis, thinking there is, I mean, for Nordex, that's the first time ever that in the history when it's as a listed company of more than 3 decades that it moves into the territory of those shareholder returns. And I think we should not forget that and where the company comes from. And on the other side, I'll repeat what I said maybe 10, 15 minutes ago, we're setting here a minimum. So when seeing the actual cash levels, the other opportunities that Jose Luis was describing, I think we will then come back with a more specific number. But that was to set the tone and introduce that shareholder return policy for the first time. So that would be my comment. Ajay Patel: May I just follow up on something? Just talking about the cash profile. Is it fair to say, look, these are very broad numbers, and I'm not asking you to sort of say these are right. But I think previously, we talked about 9 gigawatts of installations in the future, which effectively would move about EUR 10 billion of revenue on these types of margins, it would broadly imply EUR 1 billion to EUR 1.2 billion of EBITDA. And actually massive increase in EBITDA relative to what you've just delivered in '25. I just wonder if CapEx follows or actually the pace of which CapEx increases in this type of picture in broad terms isn't going to be as fast. And therefore, there's a much stronger picture of free cash flow developing. Jose Luis Blanco: Yes. I think the CapEx is going to depend a lot if we need to do one-off things, which we are not planning to do, and the rest building blocks, you can do the math of cash to EBITDA conversion more normalized levels than this exceptional year. But it's fair to say that '26, we expect to generate a good cash flow. Ilya? Ilya Hartmann: I will only add -- and I think, Ajay, your rough math is fully right when you say that in our core business, provide the unforeseen CapEx growth rate might be slower than the other building blocks you gave us. So yes. But then, of course, again, Jose Luis, listed a few priorities on where money might be deployed, always strengthening the core business, strengthening the balance sheet and helping our customers where needed to get projects over the hurdle in a bit of a difficult environment in some markets like the U.S. and others. And then second, yes, on the cash flow -- on the free cash flow, I probably to calibrate you, yes. If you plug an EBITDA to cash conversion rate of 50% to 60% into your models without guiding and the caveat and all that, I think then you get a -- you get a good picture of what we expect. Operator: Then the next question comes from Constantin Hesse from Jefferies. Constantin Hesse: Sorry, guys before I had some technical issues. I've got 3 questions on my side. One is, look, I think there's obviously one question mark that is basically being created around this potential risk of Germany updating their renewable energy target. But thinking about the order intake outlook into 2026, if you could maybe just provide some commentary on what you're seeing in Q1. And then I'm trying to think about the building blocks for '26. And unless -- I haven't seen any markets that have announced any kind of slowdown. I mean, Italy confirmed their numbers. Germany is doing 11%. U.K. is accelerating. Baltics continue to be good. Australia, Canada relatively fine. So is there -- are there any markets currently that you see as potential risks that could slow down orders? That's my first question. Jose Luis Blanco: Thank you, Constantin. Great to get your questions. Regarding order intake in '26, I think you know we don't guide for order intake and the year is starting. So it's very young. The quarter is not that so young. So we see a weaker quarter compared to the same period of last year. Let's see. But so far, we are presenting to you a guidance and a midterm target with our view. And on a quarterly basis, it could be changes depending timing, but we don't see substantial disruptions altogether. And markets that might be [indiscernible] which for us is important, is U.S. that this might or might not come. And we have certain contribution from U.S. in our order intake planning, not from a guidance perspective and P&L, but from an order intake planning for midterm target. Other than that, I tend to agree with you. I don't see any major crisis in markets for order intake. Constantin Hesse: Understood. And second question, just around the medium-term margin. I mean, most of my questions have been answered there, but one that remains is, I just saw an article that came out about 30 minutes ago, so Luis, where you comment on potentially having to negotiate prices down in Germany if auctions continue to come down. So when we look at the medium-term margin outlook, the 10% to 12% that you gave, are any potential cuts to pricing in Germany already included in that? Jose Luis Blanco: I think how can I phrase it? We don't plan or I think it's advisable to enter here into a price war. That's not the point. I think -- and we need to see this from a different angle. I think it's a huge volume in Germany and prices for Central Europe are at high levels, which might be reduced the more renewables you introduce. And this is what we consider into our midterm target. Of course, we need to support our customers to make the projects through. And this might somehow have a slight effect where, as Ilya mentioned, everybody needs to contribute their part to develop the land leases, the construction work and the turbine. I think we have sufficient action plan in-house to be able to contribute our part without deteriorating the margin. Constantin Hesse: Understood. But any price decreases are still -- I mean, some decreases are still included in the medium-term target is what I understood. Lastly, on capacity. I mean, you just booked 10.2 gigawatts of orders. Looking at installations over the next couple of years, it's pretty obvious that things continue to move up quite significantly. What is the current nameplate capacity of Nordex? Where do you get to the point where you would have to start building more space, more capacity? Jose Luis Blanco: That depends a lot product to product. And of course, on the 175, which is the product that over time will take over 163, we are building up capacity, and we might need to do more or less depending the timing of the installations on 163, I think we have sufficient capacity. It depends a lot about what type of capacity, assembly capacity. I think we are well -- we are running with flexibility and overcapacity structurally because of 2 reasons. First reason is derisking single geography dependency. Second is having optionality. Third is managing working capital. If you run too short in capacity, then you need to preproduce a lot and then you need a lot of working capital investment there, which we don't want to do. So we run with overcapacity. It means higher underutilization cost, which I think is the right investment to do versus flexibility and risk. In blade this is slightly different. But long history short, for this volume and for this additional volume that we put in the building block for the midterm target, I think we can do that within the range of CapEx that we gave to you in the guidance. Operator: And the next question comes from William Mackie from Kepler Cheuvreux. William Mackie: A couple of larger picture and some specific. First of all, focusing on supply chain and gross margin, but supply chain broadly, I think that ahead of the Chinese 15th 5-year plan, they have announced or declared a grand intention for wind installation domestically, which sort of looks in the region of a 40% increase in installation volumes. The impact of that, of course, is on their -- or the local manufacturing and supply chain. You have always been flexible and seeking partnership and qualifying suppliers from around the world to optimize your cost base and gross margin. So within the longer-term thinking and perhaps in the context of your chancellor in Germany, what is your thinking about the future relationship with China and how you can leverage that supply base to your benefit? Jose Luis Blanco: Thank you very much, William. I think that's a super, super good question. And we thought a lot about that many years ago. I think we -- as an industry, we need to leverage and as a company, we need to leverage on hardware economies of scale of Chinese supply chain. Software, we want to keep in Europe. Software and control, we want to keep in Europe. And within the hardware despite Europe is -- cannot be competitive in the current setup, we decided to keep a foot in Europe and support the policy about made in Europe and Net-Zero Industry Act. So depending how geopolitics works, we might need to ramp up Europe or not, but we want to have the possibility to do so. And we want as well to grow India as a balancing act for our supply chain strategy. So -- but fully committed with China, with our team in China, with our suppliers and partners in China, and they are part of our trajectory. And if geopolitics play a different role, we will adapt accordingly. William Mackie: You put together in your assumptions, input costs, tariffs, changing supply base, how do you see gross margins developing? Your gross margins, I think, exclude your direct labor costs. So it's effectively a direct input cost impact. So they seem to be plateauing. Is this a normalized level for your business? Do you envisage the scope for growth or expansion? Jose Luis Blanco: It's going to depend a lot of make or buy strategy, how much you do internal, how much you procure. But all things being equal, in the make or buy strategy or in the make or buy share on the make or buy strategy, that's a fair assumption. plateauing is a fair assumption. William Mackie: My second, I know we've been trying to understand your capacities from your internal capability. My question is more thinking about installation capability. I think historically, you've delivered maybe above 1,600 turbines or installed over 1,600 turbines in a year in the recent past, but with a different geographic mix. As we look forward, the mix is biased towards Western Europe and Germany and your installation partners, do you see sufficient capacity, whether it's crane lift, install, EPC completion, which enables you to run at higher rates as Germany and these other markets begin to increase their installation rates? Jose Luis Blanco: I think that's a super good question. And the answer is we have a plan for that but is not without risk, let's put it that way, because the record levels is going to put challenges everywhere from police escorts, to transportation permits, to building permits to all the supply chain needs to stay tuned and in focus and all government, federal and states and municipalities needs to support the journey, which so far, I think it's the case because it's a country mission, what we are discussing here, but it's not without challenges. I mean the volumes that we are going to install in Germany are massive and the number of special permits and the disruption in the highways at night, and this is going to be a challenge for the whole industry indeed. William Mackie: Super. The final question maybe for Ilya is financial. Just rounding back on an earlier question for clarification. I mean you're running an increasing level of bonding lines or project bonding lines. I think historically, you've used a number of sources for that capital, but your historic weak capital structure has resulted in higher costs. I think you were in negotiations to syndicate with new banks. Looking forward, as your capital structure increases, how could we expect your bonding line costs to change? Ilya Hartmann: Yes. Thank you. That's indeed a very good question. I alluded to it earlier a bit also when I was answering to Ajay's third question. I mean, without going to these other structure. Right now, we have been in the past year '25 ramping up a lot of bonding lines already on a bilateral basis with banks, whether that goes into syndication or continues to be bilateral. I think that is a matter of choice and terms and conditions. But for both concepts, fortunately, true is that now the costs for those bonds have come down significantly from those high levels you were talking about in the times of a weaker financial standing of Nordex. So in a like-for-like volume, at the end of this ride, they could almost half from the peak. So we could talking about half the cost, maybe even better than that. Of course, we're doing now more volumes. So we're using more bonds. Germany requires more bonds than other countries. So in absolute terms, the decrease might not be that much. But in relative terms, it would be almost 50% of the peak values. And if you want to do this for '26, and we've traditionally given you values of something like EUR 90 million to EUR 100 million of those interest costs. I think if you plug in for this year, again, we're still on the journey to recycle all those bonds. If you're talking more 70-ish number, I think this year, it's a good calibration. And then we hope to improve this further, as I said, during this year and then for the years to come. Operator: And the next question comes from Sean McLoughlin from HSBC. Sean McLoughlin: Congratulations from me also. Just coming back to German auctions, it sounds from your comments like we have seen pressure on turbine pricing as a result of the price compression in the latest onshore bids. So it sounds like this is not all getting competed out at the developer level. Just to understand what kind of change are you seeing in conversations with your developer customers in thinking of bidding at the next auctions? And how you're planning on remaining margin neutral? That's my first question. Jose Luis Blanco: I think our take there is -- and let's do this together, Ilya, is that Wind is an amazing part to solve the problem of competitiveness of Europe and Germany and lower electricity prices. The floor price of the auction is substantially lower than the 10-year forward prices of Central Europe. So we somehow wish that our customers take that into consideration. And we can support equally the German ambition without doing unnecessary or unsustainable changes in that. Ilya Hartmann: I subscribe to that. I think the one and probably many people here on the call as well have been following this industry for quite some time, and you and I have been in this industry for 20 or in some cases, 20-plus years. And we've seen a few cases where systems start to get into auctions. And Germany has officially started that in 2017, but since it was undersubscribed, it never really was an auction system. Now with the oversubscription really taking only place since '24 and really since last year, I probably see that '26 is one of those transition years. And in those markets we've been working with [indiscernible] in the past, be it in the U.S., be it in Latin America or South Africa, people need to find a new normal. And sometimes they take somewhat irrational decisions. But after a not so long time, markets normalize. And I would say, Jose to your point about the electricity pricing in Europe, sooner or later, we will see that new normal. So I wouldn't take the '26 auctions for too much. Let's see 3, 4 auctions down the road where the final pricing of electricity in these auctions has leveled out. Jose Luis Blanco: And especially after the new policy next year, let's figure out. I think I tend to see it positively in a way that is big volume, 10 gigawatts for the foreseeable future is big volume and the ultimate price in Central Europe is a decent price for everybody to be profitable. Sean McLoughlin: Just another question, just to understand a little bit the bottom end of the guidance range. You're implying a margin fall despite roughly 8% higher revenue. So just to understand what are your bearish assumptions to get to that bottom end of the range? Jose Luis Blanco: The biggest -- I mean, there are 2 or 3. I mean, one is substantial delay on the order intake. We still need to sell order intake this year for percentage of completion of products that we plan to manufacture this year. If the order intake doesn't come, we don't produce to stock. We produce to orders. Even if we produce to stock, if we don't have the orders, we cannot recognize revenue and margin. So this is the biggest risk. Second bigger risk is delays, either due to us or to our customers or to permits, installation delays, construction delays. And the third is disruptions in supply chain that we have factored certain minor disruptions if there is -- this will depend how much this disruption will affect your supply chain. Ilya Hartmann: And I think it's a very good question. We haven't mentioned it before because if we give you a range for both revenues and for EBITDA margin, of course, we shouldn't fail to calibrate you and also to mention it here, we would like to calibrate you for both those ranges from what we see today in the midpoint on the revenues. And in the EBITDA margin, it's a midpoint view and Jose Luis -- looking at you... Jose Luis Blanco: Midpoint plus. Ilya Hartmann: Midpoint plus. If you ask something, it's midpoint, but if you ask us is it's another midpoint minus or midpoint plus. I think our answer is this is a midpoint plus view on the EBITDA margin guidance. Jose Luis Blanco: And the rest is the scenarios, scenarios that we need to plan for. Hopefully, those downside scenarios will not materialize. But in case those materialize, we don't want to surprise you. Operator: And the next question comes from Vivek Midha from Citi. Vivek Midha: Congratulations again for myself as well. I have a few follow-ups, if I may. The first on the market. You mentioned that the U.S. is contributing to your order intake assumptions underpinning the midterm guidance. Could you help us understand what you have to share your assumption around that U.S. market volume within that guidance? Jose Luis Blanco: I mean you know that we don't discuss order intake guidance nor distribution of the markets within that, even in the year. So I feel we cannot be very specific there. But our ambition for U.S. was returning to our previous market share. And our view, and we might be completely right or wrong is that we don't see reasons why U.S. medium term is not a sizable market as Germany. Do we see that short term? We don't. But that's our assumption medium term that U.S. should be a sizable market as Germany and that we should be able to deliver there in our traditional 20% market share. Vivek Midha: Helpful. My other follow-up was on the cash flow side, following up on your comment, Ilya, around the sort of cash conversion, how we can think about that going into free cash flow. If I look at the key building blocks of EBITDA, working capital and the CapEx, that would appear to imply around EUR 450 million, in line with that view of 50%, 60%. That doesn't include any changes around the warranty provision topic. Should we expect any cash outflows from that? Is that material at all? Ilya Hartmann: Thanks. Very good question. I'm afraid I do my caveat one more time that I don't want to guide you for the free cash flow. But if I was accepting your number for a second, and you're always doing very well, the building blocks for us, then I would say that includes all potential outflows from anything on our provisions. Operator: And we do have a follow-up question from John Kim from Deutsche Bank. John-B Kim: More of a conceptual question. I'm wondering if you had a view as to longevity of the Delta4000 platform. As the market evolves, you tend to need to refresh. How should we think about a new platform in the next 3 to 5 years? Jose Luis Blanco: Let me see how I think our current platform with minor evolutions are very good to deliver what the market needs in the markets where we operate in Europe, where you have no restriction, logistical challenges, same applies to Canada, to U.S. So we are not going to be the ones first to launch a new platform to the marketplace. So in the horizon of what we see in the medium term, we don't see the need. Nonetheless, we need to be prepared in case our competitors do so. But I don't see the need because we can deliver the cheapest electricity source of energy in Central Europe with the current products, and there is no need for that. So let's see what the market does. And in our view, the best way for all stakeholders in the marketplace is reliable products. And reliability comes from testing, from field experience for operational platform and from taking the time to ramp up and staying at nominal capacity as many years as reasonably possible. That's the key for profitability and sustainability. So hope that the market remains that way as this has happened with Delta4000. John-B Kim: Okay. Helpful. If I can ask an unrelated question. Can you just comment on price cost dynamics in your service business? You had very strong sales. You have a very strong backlog here. But I'm wondering how we should think about cost to serve given the growth in the fleet and what levers you're throwing to kind of optimize that? Jose Luis Blanco: I mean, on our midterm target, we are considering that the service business should contribute with the growth and with slightly profitability improvement and the profitability improvement comes especially from more reliable turbines with less problems in the field to replace and repair. And then if the growth is coming as is expected in areas where you have a strong service business fleet, you don't need to grow up overheads and new capacity, but you take certain efficiency from the growth in existing geographies. And those are the levers. Our target, I mentioned in the speech, we should hit someday the 20%. Is this going to be a profitable business as the market leader? No, because we don't have the size of that business for the time being. Long term, maybe. But medium term, no, but definitely crossing the 20% is something that we are ambitioning. Operator: And we do have one more follow-up question from Constantin Hesse from Jefferies. Constantin Hesse: Just one quick follow-up on tax. Ilya, can you just remind us, I mean, after so many years of pretty substantial losses, you must have built quite a good portfolio of some tax loss carryforwards. How do you think about tax over the next few years? Ilya Hartmann: Yes, good question. As a company now that makes profit, so we need to think about taxes even in a more intense way than before. So of course, ultimately, the applicable tax rate, and that's what we're giving you on the P&L side is that German 30% rate. But when you think about cash taxes, you should more think about a 15% to 20% cash tax rate. I mean we're working on this. So take it as a very early nonguided number, but to give you an order of magnitude, that's where we're going using the losses from the past, and let's see how optimal we can get that. Constantin Hesse: And can I just ask you in terms of how long can this last for in terms of that range that you just discussed? Ilya Hartmann: I mean it will depend. I mean, according to our midterm target and now we're really entering a territory where we're typically on a public call. But of course, if we go at that rhythm and we're talking midterm, maybe of a common understanding here in 3 to 4 years, we might have absorbed and consumed all of those past losses. Operator: So it looks like there are no further questions at this time. So I would like to turn the conference back over to Jose Luis Blanco for any closing remarks. Jose Luis Blanco: Thank you. Thank you very much for the very good and intense Q&A session. Let us conclude with our key messages for today. First, '25 was a record year with a strong operational performance and major financial and operational improvements. Second, strong free cash flow and net cash position above EUR 1.6 billion, strengthening our strategic flexibility. Third, we are well positioned for 2026 and beyond. Fourth, our shareholder return policy is an important milestone in Nordex development in its first time ever. And finally, we reached our midterm EBITDA target ahead of plan, and now we are setting up to improve it further towards 10% to 12% across the cycle. Thank you very much for your time and wish you a wonderful day ahead. Operator: Ladies and gentlemen, the conference is now over. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Good day, and welcome to the Royal Vopak Full Year Results 2025 Update Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand you over to your speaker of today, Fatjona Topciu. Please go ahead. Fatjona Topciu: Good morning, everyone, and welcome to our full year 2025 results analyst call. My name is Fatjona Topciu, Head of IR. Our CEO, Dick Richelle; and CFO, Michiel Gilsing, will guide you through our latest results. We will refer to the full-year 2025 analyst presentation, which you can follow on screen and download from our website. After the presentation, we will have the opportunity for Q&A. A replay of the webcast will be made available on our website as well. Before we start, I would like to refer to the disclaimer content of the forward-looking statements, which you are familiar with. I would like to remind you that we may make forward-looking statements during the presentation, which involve certain risks and uncertainties. Accordingly, this is applicable to the entire call, including the answers provided to questions during the Q&A. And with that, I would like to hand over the call to Dick. D.J.M. Richelle: Thank you very much, Fatjona, and a very good morning to all of you joining us in the call today. I would like to start with the key highlights of the year. 2025 was another year of disciplined strategy execution and sustained momentum for Vopak. We delivered record financial results, executed our growth strategy and showed our commitment to create and distribute value to our shareholders. Demand for our services remains strong, which is reflected in a healthy occupancy rate of 91.4%. Despite currency headwinds, we delivered a record level EBITDA in 2025. We further optimized the portfolio, divesting our terminals in Korea, in Barcelona and Venezuela, while establishing our footprint in Oman and completing the IPO of AVTL in India. We also made good progress on executing our growth strategy. Some of our largest projects like REEF LPG terminal in Canada and Gate 4th tank in the Netherlands are progressing well. We have now committed around EUR 1.9 billion to growth projects since 2022 and are well positioned to reach our ambition of investing EUR 4 billion through 2030. We see this not as a target to spend, but rather as an opportunity to invest in attractive growth opportunities. Finally, we showed our commitment to distribute value to our shareholders. In line with our disciplined capital allocation priorities, we are announcing a shareholder distributions program of around EUR 1.7 billion through year-end 2030. Before we dive deeper into the results, let's have a look at where we stand in the execution of our strategy. In 2022, we launched our improve, grow and accelerate strategy. And in the first phase, we significantly strengthened our foundation, applying strategic portfolio management while increasing the exposure to gas and industrial terminals that led to an improvement of the operating cash return from 10.2% in 2021 to 15.6% in 2025. Our strengthened foundation positions us well to increase the pace of our investment commitments and growth CapEx in 2025. We are focused on executing our major projects, delivering them both on time and on budget. As these assets come online from 2027, we expect them to positively contribute to our return profile. And this will further accelerate our growth strategy execution as we look for continued ways to accelerate our investments in attractive growth projects. As we execute our growth strategy, we remain committed to distribute value to our shareholders. Since 2021, we have distributed around EUR 1.2 billion in dividends and share buybacks. And in line with our disciplined capital allocation priorities, we're making a step change now by announcing a shareholder distributions program of around EUR 1.7 billion through year-end 2030. Now back to our results. As mentioned, 2025 was a strong year in terms of strategy execution. We continue to improve the performance of our portfolio, generating a record level of operating free cash flow, leading to an operating cash return of 15.6%. In addition, we completed the IPO of AVTL in India, and we added additional investment commitments during 2025, of which the majority is allocated to grow our base in gas and industrial terminals. With regards to the accelerate strategic pillar, the developments of new supply chains for CO2 and ammonia as hydrogen carrier are moving at a slower pace than we initially anticipated. At the same time, we're pleased with the investments in the Netherlands and Malaysia on low-carbon fuels and sustainable feedstock infrastructure as well as the early stages of battery developments. Now let's look at our sustainability performance, where we have safety always as our top priority. And while these metrics demonstrate best-in-class performance, they fall short of our ultimate safety ambitions. Looking at the emissions, we're making good progress in achieving our long-term goals. With regards to diversity, despite our ongoing efforts, we've not yet realized the level of gender representation to which we aspire and are committed to improving this. Looking at the financial performance for the different terminal types we operate, we see an overall strong performance with higher results compared to last year despite currency headwinds. LNG markets remained well supplied while global LPG trade was marginally higher than 2024. Mainly due to some planned out-of-service capacity and a positive one-off last year, 2024, the results of the gas segment went down year-on-year. In the Industrial segment, growth is contributing and together with the one-off in the second quarter in 2025, we see a 15% increase, notwithstanding the uncertainty in the macro environment. Chemical markets were challenging for our customers in 2025, while our terminals continue to perform relatively stable despite some locations seeing lower occupancy rates. Energy markets, which we serve with our oil terminals continue to see strong demand and performance is driven by increased throughputs, higher rates and contract indexation. All in all, this has led to an increased proportional EBITDA to EUR 1,184 million and a strong operating cash return of 15.6%. Now let's move to the execution of our growth strategy. Since the start of our Improve, Grow and Accelerate strategy, we've committed a total of EUR 1.9 billion. Around EUR 550 million of this EUR 1.9 billion has been committed since the beginning of 2025. We're well positioned to achieve our ambition of investing EUR 4 billion by 2030, supporting our long-term operating cash return ambition of 13% to 17%. During 2025, we made good progress in expanding our capacity. The construction of our LPG export terminal in Western Canada and the 4th tank at our Gate terminal in the Netherlands are progressing as planned. Also, we're expanding our capacity in Asia with multiple FIDs taken in China, India, Malaysia and Thailand. In the Latin America region, we're expanding our capacity in Brazil and in Colombia. As mentioned, we've realized strong momentum in executing our growth strategy. We've already commissioned around EUR 650 million, and these projects are contributing to our results. Around EUR 1.3 billion is still under construction, and we expect to commission around EUR 775 million around year-end 2026, and that's related mainly to Gate 4th Tank and LPG in Canada. In the period '27, '28, we expect to commission around EUR 325 million and around EUR 175 million in 2029 and beyond. The already commissioned growth projects as well as the growth CapEx under construction will further reinforce our long-term stable return profile. 70% of our revenues are generated from contracts longer than 3 years, a 10% point increase from around 60% in 2021. Currently, around 40% of our EBITDA is generated by assets in gas and industrial. Looking ahead, we expect continued strong momentum. We've shown strong business performance in the recent years. The market indicators for storage demand remain firm, supporting the delivery of our growth projects and the resilient performance of our existing business. We expect this momentum to continue, and this is reflected in our long-term ambitions. We've raised our long-term operating cash return ambition to an annual range of between 13% to 17% and are well on track to invest EUR 4 billion growth CapEx through 2030. So let's wrap it up on this slide. We have an unparalleled global infrastructure portfolio, proven to be resilient in uncertain times. We expect a robust energy demand through 2030. And through our strategic locations and the critical link they provide will support further growth opportunities leading to long-term stable returns. With our ambition to allocate EUR 4 billion growth CapEx through 2030, of which EUR 1.3 billion currently under construction, we deliver clear tangible levers for growth. And last but not least, we have a strong focus on creating and distributing value to our shareholders through cash dividends and share buybacks. With that, I'd like to hand it over to Michiel to give more details on the full year and fourth quarter numbers. Michiel Gilsing: Thank you, Dick. And also from my side, good morning to all of you. As mentioned by Dick, 2025 was a strong year for Vopak with record results. We reported a record level of operating free cash flow, driven by our continued strong profitability and EBITDA to cash conversion. On a per share basis, proportional operating free cash flow increased by 7% to EUR 7.13. We reported a 68% increase in earnings per share, driven by higher net income and a lower share count. Net income increased by EUR 228 million, mainly due to a dilution gain of EUR 113 million resulting from the listing of our AVTL joint venture and an impairment reversal of EUR 181 million in cash-generating unit of the Europoort terminal. These results highlight the strength of our well-diversified portfolio, particularly in times of increased uncertainty and volatility. Simultaneously, we continue to ramp up our investments in attractive and accretive growth projects while returning value to our shareholders, which we will discuss in more detail later in the presentation. Let's take a closer look at the performance of the portfolio. Our operating cash return improved to 15.6%, driven by an increased operating free cash flow of EUR 823 million and a slightly decreased capital employed. Demand for our services remained healthy. Adjusted for currency movements and divestments, the proportional EBITDA increased by 4.3%, which we will detail further in the next slide. Moving on to our business unit performance overview. Excluding negative currency exchange effects of EUR 33 million and EUR 2 million divestment impact, the proportional EBITDA increased by 4.3% compared to 2024. A large part of this growth can be explained by the strong EBITDA contribution of EUR 20 million from our growth projects, particularly in China and the Netherlands. The results in our Asia and Middle East business unit were primarily driven by the results of a commercial resolution in the second quarter. Across the remaining business units, the performance was relatively stable. We are continuously focused on generating predictable growing cash flows to create value for our shareholders. We achieved this by growing our revenues while improving our profitability and cash conversion. In 2025, we improved on both our EBITDA margin, reaching 58% and our cash conversion reaching 70%. Driven by revenue growth, increased profitability and increased cash conversion, we have grown our operating free cash flow by 49% since 2021. As we have funded a fair share of our growth investments by divesting assets with lower cash generation abilities, the amount of capital employed has not significantly changed since then. The significant improvement in cash generation with a stable capital employed has led to a 5.4 percentage point increase in our operating cash return. Let's take a closer look at the drivers of improvement with regards to our cash flow per share. We can clearly see that the increased profitability is the main driver of improvement since 2021, driven by strong contributions from our growth projects and the resilient performance of the existing assets, our proportional EBITDA increased by EUR 184 million. This has had a net impact of around EUR 1.50 per share. Also, our cash conversion has significantly improved, primarily driven by a decrease in operating CapEx of 28%. This has had a net impact of around EUR 0.70 per share. Finally, we have executed 2 share buyback programs since 2021 with a total value of EUR 400 million, reducing our share count by around 8%. And adding these drivers together, we increased our proportional operating free cash flow per share by 62% since 2021. Shifting from proportional figures to consolidated figures, we get a good picture of the cash flow that became available for capital allocation on the holding level in 2025. Our cash flow from operations, which includes a healthy upstreaming of dividends from our joint ventures remains strong, showing a 2% increase compared to 2024. After deducting operating CapEx and IFRS 16 lease payments from CFFO, we arrive at the consolidated operating free cash flow of EUR 691 million, an improvement of 5% versus 2024. Factoring in the taxes paid and the financing cost, we arrive at a levered free cash flow of EUR 506 million. This represents the available cash before debt financing that we can strategically allocate to pay dividends, invest in growth or buy back our own shares. Our capital allocation framework consists of 4 distinct pillars, aiming to maintain a robust balance sheet, distribute value to shareholders, invest in attractive growth opportunities and yearly evaluate share buyback programs. In the next part of the presentation, I will highlight our key capital allocation achievements. Starting at our first priority, the balance sheet. Proportional leverage, which reflects the economic share of the joint venture's debt decreased to 2.6x compared to the end of 2024 when it was at 2.67x. If we exclude the impact of assets under construction, which do not contribute yet to EBITDA, the proportional leverage is at 2.06, which is the lowest level in the last 5 years. Our ambition for the proportional leverage range is still between 2.5 and 3x. To facilitate the development of growth opportunities that enhance our operating cash return, Vopak's proportional leverage may temporarily fluctuate between 3x and 3.5x during the construction period, which can last 2 to 3 years. Additionally, we maintain control of our financing expenses by limiting the exposure to volatility in interest rates. And we achieved this by borrowing predominantly at fixed rates. As mentioned, we have the long-term ambition to generate reliable and attractive returns for our shareholders. This is why we have announced a shareholder distributions program of around EUR 1.7 billion through the year-end 2030. This program will enhance our dividend policy while introducing a multiyear share buyback program. With regards to the dividend, we have the ambition to grow our payments by 5% or more per year. Also, we will increase our dividend payment frequency to semiannual. We propose a dividend per share of EUR 1.80 over 2025, representing a 50% increase compared to the payment made in 2021. To be clear, the proposed EUR 1.80 will still be paid in full in April of this year, subject to AGM approval. The first interim payment will be announced at the publication of our 2026 first half year results. Looking at the second component of the shareholder distribution program, the share buybacks, we have the ambition to buying back EUR 500 million through the year-end 2030, of which we expect to execute the first tranche of up to EUR 100 million over the next 12 months. As shown in the graph on the right, we have distributed around EUR 1.2 billion in dividends and share buybacks in the last 5 years. The announced shareholder distribution program of around EUR 1.7 billion through the year-end 2030 marks a significant step change. Moving on to the growth. Investing in growth opportunities is a key part of our capital allocation policy. We have the ambition to invest EUR 4 billion on a proportional basis by 2030 to grow our base in gas and industrial terminals and to accelerate towards energy transition infrastructure. At this point, we have already committed around EUR 1.9 billion to growth investments since 2022, of which EUR 650 million has been commissioned and is already contributing to our results. Around EUR 1.3 billion of growth projects are currently underway with the majority of them being delivered by the end of 2026. Once these projects become operational, we expect them to further contribute to the increasing free cash flow of our portfolio. This is why we feel confident in raising our long-term ambition for the OCR to between 13% and 17%. We continue to see attractive growth opportunities in the market that we will pursue in order to grow the cash generation of the portfolio. Our ambition remains unchanged to actively support our customers with infrastructure for the ongoing energy transition and to invest when opportunities arise at returns in line with our portfolio ambition. Let's bring it together in this slide. Since 2021, we have made significant improvements. Our financial performance improved with a double-digit increase of revenue and EBITDA. On the back of increased cash conversion, this growth has boosted our cash generation. The operating free cash flow per share, our main KPI for assessing value creation has increased by 62%. It is, of course, equally important that this increased cash flow is allocated in a way that is creating long-term value for our shareholders. And as you can see, that has been clearly the case. We decreased our leverage while significantly ramping up our growth investments. At the same time, we raised our dividend and reduced our share count. All in all, we're proud of the results that we have achieved. Before we move to the outlook 2026, let's take a brief moment to address our exposure to foreign exchange. If we look at the proportional EBITDA split by currency, we can see that 28% of our EBITDA is generated in euro, which means that for the remainder of the EBITDA, we face translation risk in our P&L. To be a bit more specific, we show on this slide the sensitivity of our proportional EBITDA to changes in U.S. dollar, Sing dollar and Chinese renminbi on an annual basis. For example, a 0.10 change in euro to U.S. dollar has a full year impact on an annual EBITDA of around EUR 32 million. The translation impact that arises from recent currency volatility is something we take into account in our outlook for the remainder of the year. We have updated the currency rates at the end of the year. Based on these updated rates, we expect a negative foreign exchange impact of around EUR 20 million in 2026 compared to 2025. Furthermore, taking into account the positive one-off in the first half year of 2025, we arrived at a rebased proportional EBITDA of around EUR 1.14 billion as a base for the outlook of 2026. For 2026, we expect EBITDA to be between EUR 1.15 billion and EUR 1.2 billion, reflecting an autonomous growth rate between 1% and 5%. We also expect a proportional operating free cash flow of around EUR 800 million for 2026. Operating free cash flow is a driver of value and distribution, and hence, we will start guiding on it. For the longer term, our ambition remains unchanged with regards to our leverage and growth projects. As mentioned, we are raising our ambition for OCR to between 13% and 17%. For shareholder distributions, we have announced a shareholder distribution program of around EUR 1.7 billion through the year-end 2030. Bringing it all together in this slide, 2025 was a strong year for Vopak. We reported a record level of operating free cash flow driven by our continued strong profitability and cash conversion. We have realized a significant step change, increasing our proportional operating free cash flow per share by 62% and increasing our OCR from 10.2% to 15.6%. Simultaneously, we continue to ramp up our investments in attractive and accretive growth projects while returning value to our shareholders. And with that, I hand it over back to you, Dick. D.J.M. Richelle: Thank you, Michiel. And with that, I'd like to ask the operator to please open the line for question and answers. Operator: [Operator Instructions] And the first question is coming from Jeremy Kincaid from Van Lanschot Kempen... Jeremy Kincaid: Congrats on the results. Three questions from me. The first 2 on the share buyback. Firstly, has HAL indicated what it plans to do with regards to the share buyback? Secondly, you've obviously kept your long-term CapEx ambitions, but obviously, you've talked to some larger potential CapEx programs in the future like South Africa or Australia. I was just wondering if you could provide us a bit of an update on either of those projects and how they fit into the outlook given this new share buyback and shareholder distribution framework. And then my third question is on REEF. There's been a couple of articles recently about a dispute with the First Nations community there. I was just hoping if you could provide an update and your thoughts on that dispute and whether it could impact your REEF development. D.J.M. Richelle: Thank you, Jeremy. First question, what we announced this morning is we do not have any agreement with any of the shareholders related to the share buyback program. That's been a standard language that we've used in the last 2 programs. So that's what we know for now. So no further news on the HAL position. But obviously, we know that if we were to have an agreement with HAL, that would have been noted in the press release. An agreement, meaning that they would like to sell as part of the share buyback program. That agreement is not in place. So I think that's one related to HAL. Then the second one, the long-term CapEx outlook, I think we're pretty clear in the confidence that we have in our ability to execute our growth ambition of the EUR 4 billion. Australia and South Africa are developing, I would say, in line. So maybe first, a few things on Australia, where we moved into definitive phase to prepare for an FID hopefully in the later part of 2026. That means the FSRU is secured. That means that the permit application is submitted, that all the technical details related to the location and environmental impact assessment has all been done and is currently subject to review questions and further due process. So we're well on track, I would say, for the Australia project. South Africa, I would say, in general, an environment that is a bit more complicated in terms of the permit process. It will take -- it's always hard to make the full estimate of how long that permit process is going to take. We're here dependent as well on power plant development in the area of Richards Bay, where we are planning the site. So we are still confident on the need for the country on our role that we can play on the location. But as you can see with these projects in an early development stage, it takes a bit of time to see how they will unfold. I think whether -- there are obviously big projects in our portfolio, both especially, I would say, Australia, but also South Africa. At the same time, we can also see that the pipeline of projects that we have is a healthy pipeline and the development is healthy. And on that basis, we are indicating and guiding the market on our confidence that we have for the EUR 4 billion in 2030. I think that's hopefully giving you a bit of background on that long-term CapEx plan and where and why the confidence is. And then towards your last question related to REEF and the news on some of the First Nations comments that have been made. We are obviously aware of what's happening. We are, at the moment, focusing on delivering the project, and that is going well. So the delivery of the project to be in service end of this year within the time line that we originally set and also within the budget that we originally set that is well underway. We continue dialogue with the relevant First Nations and all the relevant stakeholders. This is not only the First Nations, but it's local court, it's the federal government to engage in a very constructive manner to see how we can find a solution that works for everyone involved, while at the same time, also protecting our legal rights. And those are linked to the fact that we are currently constructing the terminal in line with the contracts and the permits that we have. And it's based on a contract with our customer, AltaGas, who is also our partner in the development of the REEF terminal. So that's probably the best I can say for now on this. Operator: And this question is coming from Thijs Berkelder from ABN... Thijs Berkelder: Congrats on the cash return announcement. Happy to see those. First question, yes, maybe more geopolitical. Can you indicate what is currently happening at your terminals in Fujairah? Looking at the JV result in Q4, it was clearly higher and also your proportional occupancy in Middle East, Asia has jumped to 96%. Secondly, can you maybe describe what 1 year with the Trump government. Can you describe what's the impact on your U.S. terminals business of the governmental change maybe? And thirdly, what grip can we have on the timing of, let's say, the new contracts for EemsEnergy? And what kind of costs are you assuming for EemsEnergy in '26? D.J.M. Richelle: Thanks, Thijs. Maybe first on VHFL -- on Fujairah, results overall continue to be healthy. The reason that the fourth quarter was significantly better than the third had to do with a contract that we started in the fourth quarter, in tanks that were empty in the third quarter. So that -- and it was quite a large capacity. It was planned to be taken up by the customer, but that was the reason that the results went up, but also occupancy-wise, it was sizable and therefore, had an immediate impact on the occupancy. I wouldn't say it's something that is linked to a structural change that happened from the third to the fourth quarter. You should look at it much more as a, I would almost say, a natural rollover from one party to another party that takes up capacity. And sometimes it's a few months without occupancy and then it's picked up again by the customer. So this was more or less planned and has nothing to do with geopolitical developments in that area. In general, as you know, Fujairah is -- has a very strategic location outside of the Strait of Hormuz. And that's one of the reasons that it remains a very attractive location, and that's what we expect also going forward. Your second question, we could spend the rest of this call on probably, but not related to the Vopak position, but just in more generic terms. Let's stick maybe to the pure Vopak position. Zooming in, I would say, on the U.S., just to put it in perspective, our U.S. position currently is 8 terminals and roughly, give or take, 15% of our EBITDA. And that continues to be relatively stable going forward. You have to kind of dive into the detail of it. The role of the terminals is either industrial, Corpus Christi or the Via terminals, ex Dow sites. So that's 4 out of the 8, and that's long-term contracts, yes, with a bit of variability, but long-term contracts and relatively stable. Then we have Deer Park that has a strong position and also quite some industrial connectivity to the production sites around. And a lot of what Deer Park is doing is actually local distribution in the U.S. There's not so much import happening over there. So yes, there's a bit of export that happens, but we haven't seen a big impact in 2025 on our Deer Park facility. And last but not least, we have a position on the West Coast, and that is supporting very specifically trade and bunker fuels with airports, or air travel in Los Angeles and the environment. So also there, we see a relatively normal demand for our services. So by and large, I would say, specifically to your question on what the impact of the Trump administration in the U.S. has been, this is the picture. I think if you look at it from a more broader perspective, obviously, the uncertainty that especially the tariffs are creating does not necessarily help create stability for investment and big investment decisions does not necessarily create a lot of stability around product flows around the world. So we've seen changes, and we've commented on that also during 2025 that we sometimes see changes in product flows. But I think the strength of our global portfolio and the diversification of the portfolio means that sometimes you see a bit of a drop in one location being picked up at another location. So I would almost say, by and large, it has -- it did not have in the short term, a big impact on what we see. For the longer term, it's probably -- well, you see how our outlooks are for the investment program, but also the return profile of the company towards 2030 and the announcement we make today. So we feel our position, strategic locations, diversified strong resilient network gives us confidence that the demand for our services will remain quite healthy in the coming period. Then your last comment on EET, a few things to mention over there. We indicated in '25 that we were working on that technical solution related to minimum send-out capacity of the terminal. That solution is now in place, still runs into the first quarter with minimum compensation to the impact of our customers, but then we run into a steady-state situation until '27. That's one. And then second, we're currently going -- as we are indicating in the press release, we're currently going through the process of the renewal of the terminal in 2028, and that process is ongoing. And that's too early to comment on it, but we expect in the coming months to be able to indicate what the next steps are going to be. And that's -- we're just in the middle of all of that at the moment. So I hope that gives you a bit of sense, yes. Thijs Berkelder: Yes. One add-on question on Asia and Middle East results. So the JV results and the proportional occupancy rates spiked because of what you described. But why is the proportional EBITDA then in Q4 down versus Q3? Is that something in Malaysia or so or India? D.J.M. Richelle: It's probably an element in Australia. It's a claim that we booked in Australia. That's the only thing I can probably indicate, Thijs. There's nothing fundamental. So it's more of a one-off element that we saw in Q4 in our oil terminal in Sydney coming up. But that has been. Thijs Berkelder: How large was that claim? Michiel Gilsing: Yes, that was quite sizable, so around EUR 2 million. And then we had in Darwin, we had the long-term contract came to an end in end of September. And then you see effectively, we have a drop in income in Darwin of around EUR 2 million as well. So those 2 together. So one is structural and the other one is more incidental. Operator: [Operator Instructions] And the next question in the queue is coming from David Kerstens from Jefferies. David Kerstens: I've got 3 questions as well, please. Maybe first of all, you indicated the phasing of the commissioning. And I think you said that in 2026, you expect EUR 775 million of growth projects to be commissioned. What is baked into your guidance in terms of EBITDA contribution for 2026? And what do you expect this EUR 775 million will start contributing in 2027? And I think you said EUR 650 million has so far already been committed. What is the EBITDA contribution related to what's currently already operational? And then my second question is on the oil storage market in the Port of Rotterdam. Can you explain what's happening there that triggered such a large reversal of the impairment? And is this only limited to the Port of Rotterdam? Or do you see the market conditions improving elsewhere as well? And then finally, maybe also a follow-up on the HAL question. I think HAL so far has not participated in the share buyback program. And as a result, their stake has increased. Can you update us on the ownership percentage following the latest share buyback that you carried out in 2025, please? Michiel Gilsing: Sure. Yes, on the phasing of growth CapEx, indeed, we don't disclose all the EBITDA contributions in terms of, let's say, exactly what has been contributed by which project, so not on an individual basis. We have given indications to the market on what gas infrastructure and infrastructure energy is going to contribute. So this 5x to 7x EBITDA then on new energy infrastructure, 6x to 8x, and on conversions of existing capacity, 4x to 6x. So the EUR 650 million, which has been commissioned is contributing in line with those multiples. So -- but we don't disclose each and every project. So you could take an average and think EUR 650 million, well, divided by whatever you think would be the average. That's one. And then the contributions going forward, yes, obviously, we don't give any specific guidance, but at least what we do is we give guidance on the strength of, let's say, the cash flow of the company by also announcing, let's say, confidence in our shareholder distribution program. So that means that these projects have to start contributing in line with, let's say, the expectations we have given to the market. Part of it indeed '26, but the bigger part of it in '27 because then the REEF project and the Gate project here in Rotterdam are going to contribute in full. So that is the guidance we're giving. And we're also giving guidance that by bringing these projects on stream, our cash return is not going to be diluted. So effectively, we've now upgraded the above 13% range to 13% to 17%. There's obviously always a bit of volatility in our existing business. But with bringing growth projects on stream, we should be able to be in that bracket of 13% to 17%. So that's what you may expect from us. And you also know, let's say, which kind of capitals we are allocating to the growth CapEx. So -- so in other words, things could be worked backwards from a lot of numbers we have given to the market, but we don't give any specific indications on the projects. That's on the first question. The second question, yes, the oil market in Rotterdam is much stronger than we thought a few years ago. And remember, when we took the impairment, it was the Russian invasion into Ukraine. The business was really down at that moment in time. We had quite a hard landing in the first half of 2022. Since then, we have recovered quite well in the Europoort. So we continuously look at the performance. We have updated our business plans for the Europoort, you see effectively in the coming years, we still expect strong results there. In the long, long, longer run, so obviously, there will be an energy transition impact, but we still think that the Europoort is well positioned to also be a viable terminal in an energy transition world. So overall, we came to the conclusion there is no other way than that we should reverse this impairment. And effectively, that means that all impairments, the significant impairments we took in 2022, which were related to SPEC, the Botlek terminals and Europoort are all being reversed now because we had a book profit on the Botlek. We reversed the SPEC one last year, and we reversed now the Europoort. So that's an indication that the business is relatively strong, and you see that back, obviously, in our cash flows of the company. And then the third question, yes, the ownership of HAL is presently at 52%. There is no -- as I said, there's no agreement, like Dick already mentioned, there's no agreement with anybody related to the upcoming EUR 100 million tranche. So you may expect that as a result of that, the HAL percentage will increase above the 52%. And then to be seen what will happen for the rest of the share buyback program because we will announce it tranche by tranche. Operator: Okay. We're going to carry on with the next question in the queue. And this question is coming from Kristof Samoy from KBC. Kristof Samoy: Yes. Congrats on the results and the improved cash distribution policy. A few questions, if I may. Regarding alternative energies, the fact that you've been revising your cash distribution policy considerably, can we read into that, that we shouldn't expect any major FIDs there in the coming years? And then I had also a question on Antwerp. We saw the news that Maersk will not continue with it plans to open a green plastic factory in Antwerp. Does this have any impact on your business plan for Vopak Antwerp Energy? And then finally, on REEF, could you elaborate a little bit deeper into the court ruling that has been made? And was it a ruling in substance, and is there still now a court case running or is there potential to open up a new case? D.J.M. Richelle: Thanks, Kristof. Maybe first one on the alternatives. So on the Accelerate pillar, I think we made it very clear in the release today, and I can only reconfirm it now that for the overall program of EUR 4 billion that we announced, we are confident that we can execute that program and to realize that ambition between now and 2030. I think that's the first part. The second part is related then, and we are also vocal about that. We see that in the -- our Accelerate bucket, so that's the infrastructure investments to support the energy transition that consists of 4 elements. It's low carbon fuels and feedstocks -- it's the CCS value chain and supply chain and it's the hydrogen supply chain, mainly with ammonia investment. And the fourth one is batteries. So if you take the second and the third, so CO2 and ammonia, we definitely -- well, we continue to see a slowdown in some of the developments over there and delay in some of the major decisions that we are dependent on to set up those supply chains. At the same time, we are still confident that batteries as well as low carbon fuels and feedstocks give us sufficient opportunities to realize the ambition that we set for ourselves in the Accelerate bucket. So it's a bit of a long answer, but the conclusion is the fact that we come up with an increased share buyback program or a share buyback program over the period of time is independent of the developments that we see in a specific segment where we identified growth opportunities. So confident with the overall growth portfolio and pipeline that we have and that we can execute that side-by-side the share buyback program that we announced today. I think that's the first part. And the second is related to Antwerp and Vioneo that is backed by A.P. Moller.So disappointing to see that they were not able to make a case for their big investment in Antwerp, disappointing for us, but I think even more so for Antwerp and to a bigger extent to Europe. It's a product that is in need in Europe, green plastics. There's a whole lot of logic on why it would make sense to do it over there, but they couldn't make it work despite the fact that they put a lot of effort in it had a lot of discussion with all the relevant stakeholders, but they unfortunately could not make it work and now are potentially shifting the production to China, which is a pity to say the least. I think for our plans in Antwerp, we had hoped that this would be a start in the Antwerp development, but we're not singly or single-handedly dependent only on the Vioneo development. We're happy with the developments on the land, making it ready for construction. We have a few other leads that we have been vocal about that we are following, and we're confident that, that location and the plans that we have will lead to an attractive development in the middle of the Port of Antwerp. So we will continue to inform you about the main steps there. And then last but not least, on REEF, I think the court ruling has been an interim ruling to get something dismissed in the court and the court basically said, no, it's not going to be dismissed. So the court case will still be held as originally planned, and that will have its course in '26 and '27. So only if the court would have said we would dismiss the case, then the whole case would have been gone now. That is not the case. So the court has basically said, as originally planned, we will hear the case in '26, '27. It will take some time. I think that's a bit more detail on the court case itself. Operator: Okay. And maybe as a follow-up, can you give us an update on Veracruz? D.J.M. Richelle: In what sense of the capacity over there? Kristof Samoy: Yes. And the reconversion plans. D.J.M. Richelle: Well, maybe a few things that we're still looking for parties to fill up the capacity in Veracruz. In 2025, second part of 2025, we've not been able to find that particular customer. We're working through getting the permits of making the change from the fuel distribution capacity to fill it up with chemicals. That is going according to plan, but will take some time in '26. I don't expect any capacity to be filled from the conversion in '26, and we continue to engage with a number of parties in this year to find someone that will occupy the tanks in -- for fuel distribution. There's definitely a logic for it, but it's not that easy. So we continue to push for that. Operator: We're now going to the last question in the line, and this line is coming from Quirijn Mulder from ING. Quirijn Mulder: So I have a couple of questions. My first question is about chemicals in China. You're now traveling on in this country for, I think, for 4 years now in the suffering from the chemical decrease or whatsoever, how you call it. So what are your plans with regard to Zhangjiagang for example, and your, or let me say, trading terminals? That's my first question. And my second question is about Eemshaven. So you expect for Eemshaven to have somewhat better results in 2026 compared to 2025. And the open season was closed, as we understand, there is a consideration to expand the capacity with an FLNG conversion of an FLNG transport vessel into an FSRU. Can you maybe comment on that sort of message we have heard about this? And then my final question about the share buyback program. If I make a comparison with SBM, for example, they have also a program, but they have left some room depending on the growth and the developments there with regard to the cash flow. Is that something you have also taken into account into your program? Or you -- let me say you are saying this is EUR 500 million, that's it, we don't have any upside here left. D.J.M. Richelle: All right. Maybe Zhangjiagang, specifically, no big change indeed in the situation of the terminal, relatively low occupancy in Zhangjiagang. Remember, that's the only wholly owned terminal. So that's the one that is in the occupancy also coming up and therefore, is being flagged. In terms of pure result and result contribution, it's minimal because let's not forget our China business, all the other terminals is in joint venture and is ITL, so industrial terminals with long-term contracts have developed strongly. So we've divested a few of the relatively smaller distribution facilities in that area, we've now also divested, although not China, but South Korea, we've divested Ulsan terminal at the end of '25. So the dependency on, as you call it, the distribution facilities has been reduced. And yes, we need to continue to look at Zhangjiagang and do everything that we have in our ability to make Zhangjiagang more attractive for the group. But again, it's not the one who has the main impact on our China business. I think the second question, EET, does it have better results expected to be in 2026? The answer is yes, probably because the MSO impact in '25 was there, and that is expected to be much less in 2026. The expansion and the fact that we've announced an agreement to change an LNG vessel and FSU into an FSRU basically allows us to -- for the expansion in -- or the expansion, I should say, in Eemshaven to basically have 2 FSRU vessels from the same FSRU owner and to actually adjust that second new vessel better to what the market services are that we want to offer. So it's actually a bit of an upgrade of the terminal, and we're happy with that opportunity. And as I said earlier to one of the earlier questions, we're currently going through the motions of the results from the open season and follow-up discussions that we're having with customers. So more to follow in the course of '26. And on the [indiscernible], Michiel will comment. Michiel Gilsing: Yes. On the share buyback, yes, we're confident that we can combine the share buyback, the dividend distributions with our growth ambition at the EUR 4 billion proportional CapEx, we would like to invest up to 2030. What we have tried to do is at least show that confidence by also announcing the shareholder distributions up to and including 2030 so that there is a good match. Yes, what there might always be reasons to change, let's say, the share buyback program, of course, but that wouldn't be the case if the EUR 4 billion is becoming the EUR 4 billion. But it could, for example, be the case if we do a major acquisition, but then we still need to prove to the market that, that acquisition is better than buying back our own share. And similar, if we would go far beyond, let's say, the EUR 4 billion, if we find growth opportunities, which are reaching a next level, but then obviously, we also need to update the market on a revised growth plan going forward. And we don't see that yet. But yes, those might be reasons to change our share buyback program over time. But as long as we stick to the EUR 4 billion, we will also have -- we also are confident that we can execute the share buyback program. Quirijn Mulder: However, if I look at what you said about your leverage at 3, 3.5x in periods of construction, if you look at 2026, then the construction of REEF is finished, and that means, of course, that you need something for 2027 quite big when you -- or '28 is quite big if you're going to reach that 3 to 3.5x in my view. Michiel Gilsing: Yes. But if you would think about an Australia project, that's going to be a sizable project. So that will drive up the leverage again. And obviously, we will have -- this year, we will do an increased dividend, but we also do an interim dividend, which is also going to increase the leverage. Then obviously, you have a few more investments which we could take maybe on the energy transition infrastructure, maybe on the battery side. So there's definitely new investments coming into play. And there's always a bit of volatility, of course, in our existing business. So it's not like -- of course, our cash flows are much more sustainable than what they were. But there's still volatility in the business, and that's what we also take into account. So yes, we still may reach, at a certain moment in time, somewhere between 3x and 3.5x for a certain time. And we gave an indication like up to maybe 2 or 3 years. But yes, that is to be seen still. That's also very much dependent on timing of growth -- big growth CapEx projects. Operator: Okay. Thank you very much. This concludes today's conference call. Thank you for participating. You may now disconnect. Thijs Berkelder: Thank you. Michiel Gilsing: Thank you.
Operator: Good morning to all participants, and welcome to Grupo Comercial Chedraui's Fourth Quarter 2025 Commercial Conference Call. [Operator Instructions] Participating in the conference call today will be Mr. Jose Antonio, Chedraui's -- CEO of Grupo Comercial Chedraui; Mr. Carlos Smith, CEO of Chedraui USA; Humberto Tafolla, CFO; and Arturo Velazquez, IRO for the company. We will begin the call with the initial comments on Grupo Comercial Chedraui's fourth quarter financial results by the company's CEO, Mr. Jose Antonio Chedraui; and Chedraui's USA CEO, Carlos Smith. Thank you. You may begin. Jose Antonio Chedraui Eguia: Good morning to all, and welcome to our presentation of Grupo Comercial Chedraui's Fourth Quarter 2025 Results. I want to begin by sincerely thanking our valued customers for choosing to shop at our stores, especially during this challenging economic environment, both in Mexico and the U.S. Your continued trust inspires every day. I also want to probably recognize our employees unwavering dedication to advancing our 3 strategic pillars throughout 2025, their commitment to delivering a unique shopping experience, providing the best assortment at the lowest prices and consistently exceeding expectations has been crucial to strengthening our customers' loyalty. In Mexico, our same-store sales have once again outperformed ANTAD's self-service segment by 164 basis points, making an outstanding 22nd consecutive quarter of outperformance. For the full year, our same-store sales growth exceeded ANTAD's self-service by 140 basis points, making this the fifth consecutive year of remarkable achievement. At Chedraui USA, although sales were impacted by continued immigration enforcement and the U.S. government shutdown in October and November, EBITDA margin improved by 178 basis points to 8.6% and by 6 basis points to 6.9% when including additional noncash accruals made for general liability and workers' compensation claims in the quarter. This was supported by rigorous expense management and efficiencies from our Rancho Cucamonga distribution center. Finally, I'm pleased to note that we completed the most aggressive store opening year in Chedraui's history, and we surpassed our store openings target. In Mexico, we opened 65 stores during the quarter for a total of 142 stores in 2025. As such, we ended 2025 with a total of 1,067 stores in Mexico and the U.S. Our organic expansion will continue throughout 2026 as we expect to open 147 stores in Mexico, of which 17 of these are larger store formats and the remaining are Supercito. While in the U.S., we expect to open 5 stores, 4 El Super and 1 Fiesta. Now to start our presentation, please turn to Slide 4, where I will highlight key achievements of the quarter. Chedraui Mexico's same-store sales grew 3% in the fourth quarter of 2025 and surpassed ANTAD's 1.4% growth for the 22nd consecutive quarter. Chedraui Mexico's total sales increased 6.9% due to higher same-store sales and a 4.4% sales floor expansion. Consolidated EBITDA increased 101 basis points to 8.6% and 7 basis points to 7.7%, including extraordinary items in the quarter. Chedraui Mexico's EBITDA margin stood 8.7% and 8.5%, including an extraordinary payment to fiscal authorities from prior fiscal years. Chedraui USA's EBITDA margin increased by 178 basis points to 8.6% and 6 basis points to 6.9%, including extraordinary noncash accruals for claim liabilities. Net cash to EBITDA improved to minus 0.28x in the fourth quarter of '25 compared to the minus 0.18x in the fourth quarter of '24. We accelerated our organic growth in Mexico by opening 65 stores in the quarter for a total of 142 stores in 2025, above target. In the following slides, I will comment in more detail about our fourth quarter results. Turn to Slide 5, please. During the fourth quarter, consolidated sales declined 3% compared to the fourth quarter of 2024, primarily reflecting the currency translation effect for Chedraui USA sales from a 10% appreciation of the Mexican peso against the U.S. dollar. Consolidated EBITDA increased by 9.7% and EBITDA margin stood at 8.6%, a 101 basis point improvement. If extraordinary items for the quarter are included, EBITDA declined 2.2% to MXN 5,793 million, and EBITDA margin rose by 7 basis points to 7.7%. This performance reflects effective inventory and promotional management as well as a disciplined expense control across all business units. On Slide 6, our strategic M&A investments and organic growth strategy have continued to support the positive long-term trend in consolidated net income. Over the past 4 years, net income has achieved a compounded annual growth rate of 17.4%, highlighting the effectiveness of our growth strategy and disciplined financial management. Our return on equity has recently been affected by RCDC transition costs and nonrecurring items for the quarter. However, even after considering these factors, our long-term strategic focus drove 167 basis points increase in ROE in 2025 compared to 2021. This demonstrates our commitment to creating long-term value for our shareholders. In the following slides, we will review the main highlights of our businesses in Mexico and in the U.S. On Slide 7, our continued commitment to offer the lowest prices and targeted customer promotions with an assortment of products that our clients prefer and a unique shopping experience enabled us to achieve a 3% increase in same-store sales, outperforming ANTAD's self-service segment by 164 basis points in the quarter. During the last several months, we have focused on enhancing our e-commerce strategy to give customers diverse shopping options. As such, our e-commerce sales penetration increased by 70 basis points to 3.9% in the fourth quarter of '25 in Mexico compared to the same quarter in 2024. This performance was driven by higher customer satisfaction and stronger repeat purchase rates across our digital channels, in addition to our strong third-party partnerships with platforms such as Uber, Rappi, DiPi and Rappi Turbo, which have continued to enhance our growth. Please turn to Slide 8. Despite a weaker-than-expected consumption environment in Mexico, total sales in the quarter increased 6.9% compared to the fourth quarter of 2024, supported by a 3% increase in same-store sales and a 4.4% expansion in sales floor area. As commented, Chedraui Mexico incurred an extraordinary onetime payment to tax authorities corresponding to the revision of prior fiscal years, which impacted EBITDA margin by 20 basis points. EBITDA in the fourth quarter of 2025 increased 8.2% and EBITDA margin expanded by 11 basis points to 8.7%, driven by strict expense control, along with enhanced inventory and strategic promotional management, which was able to offset higher labor costs. If the extraordinary item for the quarter is included, Chedraui Mexico's EBITDA grew 5.8% year-over-year to MXN 3,271 million, while EBITDA margin declined 9 basis points to 8.5% of sales. I will now turn the meeting over to Carlos Smith, CEO of Chedraui USA, for his comments on our U.S. operations. Carlos, please go ahead. Carlos Matas: Thank you, Antonio. Good morning, everyone. Chedraui USA continues to operate in an environment with stricter immigration enforcement, and this quarter was further impacted by the U.S. government shutdown that occurred in October and November. Although we were able to increase our average sales ticket, these events negatively impacted the number of transactions at our stores, bringing our same-store sales negative for the quarter. As we stated on last quarter's call, we implemented strict expense controls to help navigate these headwinds, which were effective in mitigating our loss of operating leverage in the quarter. As Antonio referenced earlier, it's important to note that operating expenses were affected by additional noncash accruals made during the quarter relating to general liability and workers' compensation claims, which impacted EBITDA margin by 171 basis points. While the number of new claims is trending down, the cost to resolve these claims has increased, not only for us but across the retail industry. We continue to take actions to reduce the frequency and cost of these claims. I would like to highlight our commitment to delivering solid long-term results despite short-term challenges. Despite current trends, both El Super and Fiesta same-store sales have grown considerably over the last 4 years. When comparing 2025 data with 2021, the same-store sales compounded annual growth rate for El Super is 6.2% and 6.6% for Fiesta. Also, EBITDA margins over the same period increased by nearly 41 basis points for El Super and 310 basis points for Fiesta, even when considering the headwinds we faced in this fourth quarter. Now we will review the results of the fourth quarter. Please turn to Slide 9. Chedraui USA same-store sales declined by 2.8% in U.S. dollar terms compared to the same quarter of last year. This is explained by a decline in transactions at El Super and Fiesta due to immigration enforcement, the delay and partial release of SNAP benefits as a result of the government shutdown and a high same-store sales base comparison to the prior year. At Smart & Final, same-store sales decreased 0.9% in U.S. dollar terms, primarily due to lower transactions in Southern California, where immigration enforcement has been stricter than in other regions, coupled with the impact on SNAP benefits due to the government shutdown. Overall, Chedraui USA's total sales decreased by 2.2% in U.S. dollar terms. Additionally, the 10% appreciation of the Mexican peso against the U.S. dollar contributed to a sales decline of 11.6% in Mexican pesos. Please turn to Slide 10. EBITDA increased 11.4% in Mexican pesos while EBITDA margin rose 178 basis points to 8.6% as a result of disciplined expense control across the organization. If accrued noncash claim provisions are included, Chedraui USA's EBITDA in Mexican pesos declined 10.8% less than sales and EBITDA margin of 6.9% increased 6 basis points compared to the fourth quarter of 2024. The combined El Super and Fiesta EBITDA margin reached 8.5% compared to 8.9% in the fourth quarter of '24, mainly explained by the pressure on transaction count experienced at El Super. When accrued noncash claim provisions are included, EBITDA margin stood at 7.2% in the quarter. Finally, Smart & Final's EBITDA margin of 8.7% improved 379 basis points compared to the same quarter of 2024 and 171 basis points, including additional claim accruals. This is explained by the improvements in the RCDC operations and the aggressive perishable pricing campaign in the fourth quarter of 2024. This concludes our report on the U.S. operations. Jose Antonio Chedraui Eguia: Thank you, Carlos. Now we turn to the consolidated financial results on Slide 11. Consolidated sales of MXN 75,221 million declined 3% compared to the fourth quarter of '24, mainly explained by a 10% appreciation of the Mexican peso when consolidating Chedraui USA sales. Gross profit rose 2.9% due to favorable inventory and promotion management in Mexico, reduced RCDC costs at Chedraui USA and Smart & Final's price campaign in the fourth quarter of 2024. Gross profit as a percentage of sales stood at 23.2% in the quarter compared to the 21.8% in the prior comparative quarter. Consolidated operating expenses, excluding depreciation and amortization, decreased by 0.8% as a result of a strict expense control. When including extraordinary items in the quarter, operating expenses, excluding depreciation and amortization, increased 5.5% compared to the fourth quarter of '24. Consolidated operating income increased 19%, with operating margin increasing 101 basis points to 5.5%. If extraordinary items are included, operating income of MXN 3,403 million declined 1.4% compared to the fourth quarter of '24 with an operating margin of 4.5% at similar levels to that of the fourth quarter of 2024. Consolidated EBITDA increased 9.7% and EBITDA margin was up 101 basis points to 8.6%. When including extraordinary items, EBITDA declined 2.2% and represented 7.7% of sales, a 7 basis points increase compared to the prior comparative quarter. Financial expenses remained flat, explained by lower interest expense on Chedraui USA's debt and the appreciation of the Mexican peso against the U.S. dollar in the last 12 months. The prior was partially offset by lower financial income in Mexico, driven by lower interest rates. Consolidated net income amounted to MXN 1,846 million and MXN 1,344 million if extraordinary items are included. Finally, please move to Slide 12. We closed the year with a net cash position of MXN 6,923 million, and our net cash-to-EBITDA ratio improved to minus 0.28x from minus 0.18x in the same period last year. CapEx for the 2025 totaled MXN 8,549 million, representing 2.9% of sales and coming in below the prior year due to the significant investment in RCDC in 2024. Now please allow us to move on to the question-and-answer section. Operator: [Operator Instructions] The first question comes from Bob Ford with Bank of America. Robert Ford: Antonio, given the difficult economic environment in Mexico and the U.S., how are key value drivers evolving? And how are you thinking about differentiation and retention strategies? And then also, how are you thinking about channel opportunities over the intermediate term, particularly when it comes to small box and e-commerce in Mexico? And then lastly, with respect to the labor claims, I was curious if these are for cumulative trauma, right, something like a repetitive stress issue? And what steps you can take to protect against frivolous lawsuits, particularly in California? Jose Antonio Chedraui Eguia: Thank you, Bob. Well, I will comment about Mexico and then Carlos can talk about the U.S. Well, in Mexico, as you've seen, we're seeing a slowdown in consumption, ANTAD reported very low growth in sales. So we believe that what we're doing is trying to increase our penetration in every market within the formats that we already have put in place. We believe that there are still room in certain cities for the big boxes, which are very efficient and profitable. And then in other areas, we're going with the smaller boxes, mainly Super Chedraui and Supercitos. So we believe that with the formats that we have for physical stores, we are just in the right place where we want to be. On the other hand, as you mentioned, we're focusing a lot on the e-commerce side. We believe that we can increase our sales penetration closer to 5% this year. We're being very successful with our own platform as well as with the third-party operators. That includes Turbo, where we have a lot of expectations in the near future. delivering customers in less than 15 minutes. So that's a huge opportunity, not only to penetrate the markets where we have presence at the moment but even going to other markets without having to open a physical store. So we feel that we have the right physical formats and the focus in the e-commerce to reach our sales projections for this year, Bob. Carlos, maybe you can... Carlos Matas: Yes. Bob, Carlos here. Yes, the adjustment that we made is really related mostly to general liability claims in our stores, which is customer accidents, slip and falls and things like that. And as you probably know, this has been an industry-wide issue as it relates to the increase in costs as it relates to closing a claim. So if a claim cost us $10 4 years ago, those claims today are costing us 3x that. And this has been an industry-wide problem, as you can see through everyone's reporting. And the key for us is really to address frequency, frequency at our stores. What are we doing to make sure that our stores are -- that we're providing a safe environment for our customers. And the second portion of it is to be very aggressive in our claims handling process. So we've invested quite a bit of money internally to ensure that we sniff out what you call fraudulent claims, which there's always some. But our position is we take every single claim extremely, extremely seriously, and we try and process it as quickly as possible. So the key here moving forward is ensure that our frequency is down through our operations team and that once we do have a claim that, that claim gets closed as quickly as possible. Operator: The next question comes from Rahi Parikh with Barclays. The next question comes from Antonio Hernandez with Actinver. Antonio Hernandez: Just wanted to know how are you seeing consumer trends so far this year? I mean you already provided some guidance some weeks ago but wanted to get a clear picture on whether so far this year in both Mexico and the U.S. looks like what you expected previously or any changes in that? Jose Antonio Chedraui Eguia: Antonio, I barely heard your question but I understand that it's basically consumer trends, what you're asking about Mexico and the U.S. Is that correct? Antonio Hernandez: Exactly. So far this year in both Okay. Jose Antonio Chedraui Eguia: Okay. Well, consumption, we believe -- I'll talk about Mexico. We believe Mexico will continue to be slow in consumption, even though we have the soccer World Cup, which will help for sure. We still see that there is no reason why to think that consumption will pick up strong in the coming months, except for this particular reason of the World Cup. Being that said, we believe that we can achieve our guidance to be able to grow at least 3% same-store sales. We believe that's achievable. We are prepared for that. We have a strategy for every format of our physical stores as well as focusing in the e-commerce segment where we believe we can grow double digit. So we believe we're prepared for that. We're adjusting the assortment. We are being very aggressive in our pricing strategy and the new stores and the remodeling stores, we're making sure that the atmosphere, the service involved in those particular stores meet the expectations of the customer segments that we are trying to serve. So that would be about Mexico. Carlos Matas: Antonio, in the U.S., obviously, we operate in areas of high Hispanic densities, and that consumer is still a little bit weary through all of the immigration enforcement activity. So we're very aware of that dynamic in our markets. But in general, I will tell you that the consumer is stretched thin. Things are more expensive. And our customers are willing to shop in multiple places. So as they look for value to stretch their dollars. So it's imperative for us to execute properly on our strategy with our pricing, with our perishable assortment in order to provide that value that they're looking for. Operator: The next question comes from Froylan Mendez with JPMorgan. Fernando Froylan Mendez Solther: Can you hear me? Jose Antonio Chedraui Eguia: Yes, we hear you. Fernando Froylan Mendez Solther: First question is on the U.S. on the margin expansion on Smart & Final. It was really amazing to see the margin expansion. I know there are some benefits from RCDC. But should we think of this margin level as a sustainable one going forward? And if that is the case, should we think that there is some phase on the guidance for next year in terms of margin expansion in the U.S. That's my first question. And second, on -- more on Mexico regarding your first comment on the formats and how you are extending. Is there a very big difference in profitability between the big box and the smaller box formats? Color on that would be great. Carlos Matas: Froylan, this is Carlos. Yes, we had a very nice result in terms of margin expansion at Smart & Final. Last year, we started a very aggressive price campaign at Smart & Final. Our buying gross margin grew significantly quarter-over-quarter. A lot of that is related to now starting to see the benefits of our RCDC materializing but our team has done a fabulous job in other areas to lower cost of goods. And we've been able to maintain that aggressiveness in pricing, not only in our produce departments but also in other perishable categories as well as center store where our pricing indices versus our competitors are very, very strong. So we feel very good about our pricing position at Smart & Final. And yes, these are not only sustainable margins but we still see an opportunity to increase them. Jose Antonio Chedraui Eguia: And well, about format profitability, even though all formats meet our goals in return on invested capital and that it's quite similar in every format. The smaller formats tend to -- due to a lower investment tend to be more profitable. So we're always trying to focus on the opportunities that we have, the land opportunities and the customer we are trying to meet. If we could, we would maintain the combination of expanding a little bit faster in the smaller formats but maintaining the big boxes growing because they are profitable as well. Operator: The next question comes from Ulises Argote with Banco Santander. Ulises Argote Bolio: A quick one from my side. I was wondering if you could help us quantify there out of the 133 basis points improvement we saw in the gross margin. Can you help us understand a little bit with how much of that came from the RCDC benefits and how much of that was kind of other impacts that we had there in the quarter? Carlos Matas: Ulises, yes, the majority of the benefit comes from our gross margin line, which is a combination of improvements in our buying gross margin. I mentioned a little bit about that at Smart & Final. But if you look at Smart -- Super, I'm sorry, on an annualized basis, our purchasing gross margin grew 124 basis points. So you can really start seeing now the benefits of the RCDC materializing in cost of goods, which is great. And the second portion of that is that we are seeing great operating stability at our RCDC. Our productivity is improving every day. We're not exactly where we want to be. So we still have some room to grow, but we're happy with our progress. And our freight charges are continuing to come down. So the things that we mentioned as benefits of the RCDC are beginning to flow through, which is what we expected. Jose Antonio Chedraui Eguia: And in Mexico, well, I think we are getting better managing inventory but it's also important to mention that focusing on the customer base of MiChedraui customers and being able to promote more efficiently has benefited us lowering the cost of promotional activities that we would have in the past. Remember that we have almost 40 million customers in our loyalty program, and we are starting to do particular promotions to sets of customers. And we believe that in the near future, we can even go deeper and do particular promotions to every customer with the participation of our vendors, which is very important in this program. Operator: The next question comes from Renata Cabral with Citigroup. Renata Fonseca Cabral Sturani: The first one, I would like to ask if you could shed some light in the initiatives that the company is doing to mitigate the potential impact of the labor reform related to the reduction of working hours per week. We know that will be gradual. Just to understand the main initiatives here. And my second question is related to the announcement of the government in terms of investment in the country, the Plan Mexico. And how do you see those investments going towards the -- especially the south of the country where Chedraui has a big presence and the opportunity there? Jose Antonio Chedraui Eguia: Renata, well, about the labor hours reduction, we have been working already on it using our workforce more efficiently. We have already 3 programs going on where we believe we can become more efficient using the hours of our team at the store level. And we believe that we will suffer very little from this gradual reduction that will start in 2027. On the other hand, the investment that the government has announced for sure, benefits us when it reaches the cities and the areas where we participate. We saw what happened with the Tren Maya or with the Dos Bocas investment. And if that happens in our particular cities in the coming months or years, for sure, we will benefit from that. Thank you, Renata. Operator: The next question with Rahi Parikh with Barclays. Rahi Parikh: Can you hear me now? Jose Antonio Chedraui Eguia: Yes, we can hear you clearly. Rahi Parikh: Great. Great. I'm sorry for the issue earlier. So my question is kind of for the RCDC. What new technologies and AI are built now there versus the tour that we attended last year and what's remaining? So kind of just what's the goals in terms of technologies to include there, AI to help inventory management? Like what tools are out there for you to implement? And then I know you mentioned somewhat on like how RCDC helps margin a bit but do you have any estimate on cost savings going forward? Carlos Matas: Yes. So the initial start-up of our RCDC was relatively vanilla. So our second phase will include some more automated areas, et cetera. But our -- the first launch is really very vanilla. Most of the AI support that we're getting is within the tools that we use to forecast and determine demand at the stores. So that's obviously connected to our supply chain, and it's helped us quite a bit in terms of reducing our inventory levels at the RCDC as well as our stores. So the real use for us is an inventory management and assortment planning. Like I mentioned, we've got great stability currently at the RCDC but we still think that we've got some improvement in labor productivity as well as in more efficiencies related to our transportation function. Makes. Rahi Parikh: Sense. And then one other follow-up for this immigration for U.S. Do you see that you kind of have to raise wages to retain workers? I know you mentioned tougher there in terms of sales but just looking on the cost side. Carlos Matas: No, I don't think that we -- I don't think we're in an environment where we've got wage pressure. I think our wage structures at all 3 banners are very, very competitive. And we see that in our turnover numbers, which are probably just below industry average. So I think we're in good shape there. Operator: The next question comes from Alvaro Garcia with BTG. Alvaro Garcia: I have 2. One on Mexico. I was wondering if you can speak about the importance of assortment in your smaller formats. So we recently saw sort of Walmart talking about lowering or reducing their assortment size of Bodega Express. So I was wondering if you could talk about the strategic relevance of having the necessary assortment for your customers at Chedraui in your smaller formats in Supercito. And then my second question is on the dividend. You obviously have a net cash position. I know you're very much excited about growth, both organic and potentially inorganic in the future. But any sort of comments on what drove the decision to sort of increase it in line with inflation would be helpful. Jose Antonio Chedraui Eguia: Thank you, Alvaro. Well, about the assortment in Supercitos, even though we are trying to manage more efficiently inventory and SKU reductions always produce that. We are focusing that Supercito and every format fulfills their mission towards their customers. We are very aware that we want to be a proximity store and not a hard discount. We don't want to be a hard discounter. We want to differentiate for that. And we want to accomplish the mission of replenishment of a full basket. Therefore, the reduction possibilities in SKUs are limited to this strategy that we have put in place. To give you an idea, we have a little bit the double of assortment that we have against a typical hard discounter, for example. And we will continue with the assortment that fulfills the mission that we believe our proximity format is set for. On the other hand, the dividend, well, we have enough cash that we're not being able to use in our expansion program. And therefore, we just believe that there is better opportunity to use that cash for our investors than just having that cash sitting in our company invested in other investment opportunities rather than stores. If we cannot use the cash in stores or technology to become better or more efficient, we'll just increase dividends. Operator: Thank you. There are no further questions in queue at this time. I would like to turn the call back to management for closing comments. Jose Antonio Chedraui Eguia: Well, I just want to thank everyone for joining and hope to be talking to you at the end of this first quarter of 2026. Thank you again. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Iris Eveleigh: [Audio Gap] our full year results. As with every occasion, we will leave enough room at the end for your questions. With that, over to you, Leo. Leonhard Birnbaum: Yes. Good morning, everybody. Thank you, Iris, for the introduction also from my side. The past financial year has once again proven one thing. We at E.ON deliver on our promises, and we at E.ON are exceptionally well positioned to not only be the playmaker of the energy transition, but also a beneficiary of this transition. In a year that has been characterized by geopolitical instability and macroeconomical challenges, E.ON is a safe haven. One has to admit that our business is facing a secular growth opportunity. It has no U.S. dollar exposure. It's largely inflation protected. It's unaffected by U.S. tariff policy, and it's even largely shielded against the latest fear of an AI disruption. What more can you ask for in terms of resilience. But that doesn't mean that we are without challenges. And so let me now move to our -- my 4 messages before handing over to Nadia. First, we have delivered strong financial results for the year 2025. again. Second, we have not only delivered financially, we have also delivered operationally. And our focus on outstanding operational excellence means that we are at the forefront of the energy transition, and this enables us to execute our growth plan successfully now and also in the future. Third, our growth case is based on a secular growth trend, and this trend is extremely robust. It's driven actually by a broad set of structural drivers and not only by one thing changing. And it's largely independent of short-term economic and -- economical and political fluctuations. And fourth, we are committed to long-term shareholder value with a disciplined focus on value creation. We will grow our investments until 2030 and are ready to pursue further growth opportunities, but only once the parameters for RP5 in Germany are set. So on my first message, we have delivered on our financials with an adjusted EBITDA of EUR 9.8 billion and adjusted net income of EUR 3 billion, both actually reaching the upper end of our guidance range. In 2025, we have on top, executed, increased our group CapEx for the fifth consecutive year, and we have completed a record level of investments into Energy Networks up to 20% up year-over-year, supported by successful project executions across Europe. And this demonstrates again the continuous progress of our growth strategy driven primarily by our Energy Networks business. We are operationally well set up. Nadia will talk you through the details of the financial performance later. To my second message, we have not only delivered financially, we have also delivered operationally. In August 2025, we crossed a major milestone, around 110 gigawatts of renewable energy sources are now connected directly to our grids in Germany. Let me just give you some perspective. We operate around 1/3, if you calculate it in grid length of the German grid, but we have 70% of Germany's total onshore wind power capacity and around 50% of its solar capacity. We have 58% of the installed battery capacity, you name it. It's like the energy transition is happening and taking place in our grids. At the end of January 2026, just last month, we hit another milestone. We connected the 2 million renewable energy source to our German grid. For perspective, we celebrated 1 million somewhere in October 2023. So it took us 15-plus years to reach -- to do the first million, it took us 2.5 years to deliver the second million. The third million will happen in less than 2 years. That's the scale of acceleration that is currently just being driven by us. And in parallel, we are delivering on the smart meter rollout. All E.ON DSOs in Germany have met the mandatory 20% rollout target for smart meters with an increase of, on average, 60% in rollout volumes versus 2024. For us, at E.ON, this makes one thing clear, the energy transition is now an operational task on an industrial scale. And aside from massive investments, operational excellence is a prerequisite, not only to scale the business, but to stabilize also an increasingly complex system. Regarding operational excellence, let me share a few highlights from 2025 regarding standardization and digital transformation as well as some innovation examples. Within Energy Networks, we have successfully concluded our component standardization project in Germany. This gives our EU-based manufacturers visibility and builds the basis for long-term supply agreements on key components well into the 2030s. And it contains enough flexibility and scope to support a CapEx envelope beyond what we have in place right now. We are now rolling out this approach across our European DSOs as well to further strengthen supply chain planning and improve component quality across all our DSOs. And in these less standardized markets, we have already achieved a 20% reduction in technical specifications across key categories. Beyond standardization, we actively pushed the digital energy transformation by embedding digital capabilities deeply into our operations. Obviously, you can't integrate 2 million feed-in points without digitization. So in Energy Networks, for example, our new field assistant app in Germany provides technicians real-time visibility of the power grid real time. I emphasize real-time visibility. Early results show up to 45% less effort for circuit planning, up to 40% less documentation, enhancing both safety and productivity. In Energy Retail, we continue to invest into digital capabilities that improve efficiency and performance. Based on that, our U.K. business was able to increase digital sales by 30% in Q4 2025 compared to the same period 2024. And finally, as a playmaker, we do, as you would expect, also innovate. In Energy Networks, we are rethinking grid expansion. We developed a feed-in grid socket as we call it, that bundles renewable energy sources at a single grid connection point. The simplicity, speed and cost effectiveness of the feed-in grid socket means that developers can access capacity faster through online booking and achieve a quicker and cheaper route to grid connection. For our retail customers, we continue to rapidly expand our innovative offerings, and we now have around 16 flexible energy propositions across 6 markets, including the world's first bidirectional charging proposition launched with BMW in September 2025. So standardization, digitization, innovation, the message is clear. This is part of operational excellence, and this is how we deliver and build the foundation for future success. Let me get to my third message regarding the extremely robust secular growth trend that we are in. On our Capital Markets Day in 2021, which was the last one we did, we set a clear strategic course, focusing the business on energy networks and investing decisively in grid infrastructure. Since then, we have continuously ramped up our investments. When we compare the year 2021 to 2025, the level of energy networks investments has doubled. And many of the emerging growth drivers have not yet reached their full potential. Let me touch upon a few ones. Continued grid expansion and modernization. It's clear that grid reinforcements are necessary to deal with the integration of renewable energy sources associated -- and the associated increase in volumes. But that's also true for other drivers like data centers. In the south of Frankfurt, for example, we planned upgrades to the high-voltage lines, and that will increase transmission capacity by 2.5x replacing 170 old mass with 135 new ones. In data centers, we have last year committed to connect an additional 12 gigawatt of data centers to our grid in future years. And just as one example, we will build the connection for 700-megawatt data center in Nierstein, close to Frankfurt, which will be one of the largest grid connections for data center within Europe. E-trucks, 5 years ago, when we did a Capital Market Day, we were still assuming that hydrogen is going to take a large part of truck transportation. But right now, actually, this is not looking like it. We are moving towards electrification also here, and we are reaching the tipping point with the total cost of ownership approaching parity, if not having being already beyond parity. And the EU-wide CO2 fleet standards require manufacturers to reduce new fleet emissions. This is an emerging opportunity, but also a big commitment of E.ON for the green mobility transition. In Germany alone, we will be adding more than 160 new grid connections for high-performance electric truck charging infrastructure. That represents roughly half of the nationwide fast charging network for electric trucks as initiated by the German government. So to summarize, our growth case is robust, supported by diverse growth drivers that accelerate well into the decade ahead. And if one driver turns out to be less than in the past, always others have turned out to overcompensate for that. So we are extremely confident on that trend. And that brings me to my final message for today, the further upgrade of our networks investments that we will do. So we have rolled forward our guidance to 2030, and we will increase our 5-year CapEx envelope from EUR 43 billion to EUR 48 billion for the years 2026 to 2030. We continue to invest at a run rate of close to EUR 10 billion per year from 2027 onwards, which translates into a 10% power RAB growth in Germany. As said, we are operationally ready to invest more. Our processes and capabilities fully would support a higher investment pace that is also potentially really needed. As highlighted today, it is our continued operational excellence that enables us to capture and convert this growth into strength and value for our shareholders. And our attractive combination of organic growth with a continued dividend growth target of up to 5% per year offers attractive long-term value with an opportunity for more. Now a successful energy transition requires significantly more network investments. They are essential from a macroeconomic perspective to avoid cost. They are good for our customers. They are politically supported in the business case in itself crucial for industry. Therefore, our confidence that final RP5 package will be attractive enough to actually deliver on those CapEx envelopes remains unchanged. We need more infrastructure. More infrastructure is good for German customers. Therefore, we assume that the prerequisites will be in place. What we need as a prerequisite is the necessary regulation that gives us the long-term planning certainty and financial attractiveness to support this further expansion. With that, let me hand over to Nadia. Nadia? Nadia Jakobi: Thank you, Leo, and a warm welcome to all of you from my side. I'm pleased to share with you the details of our 2025 financial performance and our new guidance for 2026 and outlook to 2030. My 3 key messages for today are: first, we delivered a strong performance in 2025. Once again, our steady execution translated into strong full year results and record high investments, providing growth despite ongoing geopolitical and macroeconomic uncertainty. We achieved an adjusted EBITDA of EUR 9.8 billion and an adjusted net income of EUR 3.0 billion, both reaching the upper end of our guidance range. Our investments increased by 13% year-over-year to EUR 8.5 billion, supporting continued growth in our regulated asset base. Second, we introduced our 2026 guidance and provide an outlook to 2030. We expect to deliver more than 6% earnings growth, while shareholders continue to benefit from a reliable dividend growth commitment of up to 5% per year. This represents an attractive total shareholder return. We maintain strong investment momentum, increasing our 5-year CapEx plan by over 10% to EUR 48 billion, while strictly adhering to our value creation framework. And third, our strong balance sheet provides further opportunities to pursue additional investments beyond the current guidance once regulatory visibility on key RP5 parameters in Germany improves. At the same time, it provides us with a prudent buffer against potential risk. On my first message regarding our strong 2025 delivery. As we already anticipated earlier this year, our adjusted EBITDA came in at the upper end of our guidance range with EUR 800 million year-over-year growth. We saw a significant EBITDA increase in our Energy Networks business through accelerated investments in our regulated asset base across all our regions. Our annual network investments increased to EUR 7 billion in 2025. As is well known, the result was also driven by value-neutral timing effects. Further effects in Q4 bring the total amount to around EUR 400 million. Most of the effects came from our Energy Networks Europe business, driven by volume effects and recovery of network losses. The remainder is with our German Networks business, where higher volumes and lower redispatch costs added a high double-digit million euro amount. Our Energy Infrastructure Solutions business grew by around 5% year-over-year to EUR 588 million. The growth was driven by higher volumes compared to previous year and improved asset availability in the U.K. and Nordics. Additionally, we saw investment-driven organic growth as well as continued smart meter installations in the U.K. Moving to Energy Retail business. Here, we landed as expected at the midpoint of EUR 1.8 billion. The earnings development in the U.K. progressed as anticipated with the well-known effects continuing. In our B2C segment, customers continue to switch from SVT into fixed-term tariffs. In our B2B segment, contracts from previous years continue to roll off. Price adjustments in Germany from earlier in the year had a positive compensatory effect. Just for completeness, we had a negative high double-digit million euro one-off effect from efficiency programs in our Energy Retail and ICE business. This brings our total one-off effects to around EUR 300 million, resulting in a total underlying EBITDA in 2025 of EUR 9.5 billion. Our adjusted net income came in at EUR 3.0 billion at the upper end of our guidance range. We continued to see slightly higher depreciation costs caused by the increased digital investments with shorter useful lifetimes. At the same time, our interest cost rose due to the higher net debt level compared to last year and the higher refinancing cost for maturing bonds. On an underlying basis, this converts into EUR 2.84 billion of adjusted net income. We maintain a strong balance sheet. Economic net debt decreased by EUR 200 million quarter-over-quarter to around EUR 43.2 billion at full year 2025 despite the continued investments in Q4. Our investment increased by 13% year-over-year to EUR 8.5 billion, extending our track record of 5 consecutive years of annual increases following our strategic repositioning in 2021. Our strong operating cash flow of EUR 3.6 billion was the main driver of the debt reduction in line with the typical pattern. As a result, we closed the period with a comfortable debt factor of 4.4. This shows that we remain fully committed to a capital structure staying below our up to 5x promise to maintain a strong BBB/Baa rating. This balance sheet strength is further supported by 100% cash conversion rate, reflecting disciplined working capital management and the high quality of our earnings. Turning now to my second message, our new attractive guidance framework. For 2026, we are guiding an EBITDA of EUR 9.4 billion to EUR 9.6 billion and an adjusted net income of EUR 2.7 billion to EUR 2.9 billion. For 2026, we expect a broadly stable EBITDA development. In the Energy Networks segment, continued investments into the regulated asset base will be largely offset by cost for further growth in our Networks business. Our Energy Retail segment is expected to remain broadly stable at EUR 1.6 billion to EUR 1.8 billion with operational improvements, including increased stabilization of our procurement, largely offset by the structural deconsolidation of one of our participations, moving it to at equity accounting. In Energy Infrastructure Solutions, continued investments are expected to drive earnings growth in 2026. This development feeds through into our adjusted net income. Looking out to 2030, we expect our underlying earnings to grow by more than 6% on average per year. In absolute terms, that means adjusted EBITDA increasing over EUR 3 billion to around EUR 13 billion by 2030. Over the same period, we expect our underlying adjusted net income to grow at the same pace by 6% per year on average. This takes us to around EUR 3.8 billion by 2030, an increase of around EUR 1 billion. Let me now outline how each of our 3 business segments contribute to our growth story. In Energy Networks, we are stepping up investments in all our markets, which translates into underlying EBITDA growth of around 6% per year to 2030. Germany is by far the largest contributor, driven by continued investments in the power RAB. In addition, Sweden and Czechia are key contributors. In Energy Infrastructure Solutions, we expect to see a CAGR of 12% by 2030, turning into an EBITDA of approximately EUR 1.1 billion. The largest business drivers are B2B solutions, including on-site generation, battery opportunities and district heating and cooling. In Energy Retail, we expect to ramp up our EBITDA to EUR 2.1 billion by 2030. The growth is primarily driven by innovative products such as flexibility and e-mobility offerings as well as higher efficiencies stemming from the centralization of our procurement and further digitization. This translates into exceedingly strong cash generation. By 2030, our Energy Retail business is expected to generate a cash contribution of around EUR 7 billion, almost 3x what we plan to invest. Therefore, Energy Retail plays an important role in funding our investment program. Let me now outline the CapEx envelope that underpins our growth story. Since our strategic repositioning in 2021, we have consistently increased our CapEx envelope, and we are doing so again. We raised our CapEx to EUR 48 billion for the 5-year period to 2030. We have rolled forward our CapEx for another 2 years. Our CapEx amounts to around EUR 10 billion per year in 2027 and 2028. We will maintain this level in 2029 and 2030. This translates into a 10% power RAB CAGR in Germany, reflecting investments of more than twice our depreciation. This also increases the power share of our total WAP from 88% in 2025 to 94% by 2030. This expansion is fully aligned with our strict value creation framework, ensuring that each segment delivers a business-specific value creation spread. By far, the largest portion of the investment budget, around EUR 40 billion is allocated to our Energy Networks business. Most of this capital is allocated to power grids. In our Energy Infrastructure Solutions business, we plan to invest around EUR 5 billion over the 5-year horizon. These investments are mainly allocated to our district heating network, our industrial and commercial customers for decarbonized energy and heating solutions as well as to opportunities for data centers and batteries. Within Energy Retail, our investment focuses on innovative products and -- advancing our digital capabilities to service our customers in an efficient way. Let's move to our financing outlook. Our balance sheet capacity remains unchanged at EUR 5 billion to EUR 10 billion, even with a higher investment budget. We retain flexibility for selective value-accretive portfolio opportunities while benefiting from high cash contributing of our energy retail business. Hence, our strong balance sheet provides a solid foundation for additional investments while keeping a prudent risk buffer to preserve financial resilience. As Leo mentioned earlier today, the growth opportunities we have are robust and long term, particularly for power grids. And we stand ready to invest more, considering what is still necessary for a successful energy transition. We are operationally and financially prepared to increase our CapEx run rate in the outer years and invest an additional EUR 1.5 billion to EUR 2 billion per year, considering what is still necessary for a successful energy transition. But for that, we first need the necessary regulatory visibility for improved RP5 parameters. This brings me to my final message. With our new attractive outlook to 2030, we are fully committed to deliver sustainable earnings growth of more than 6% per year and grow our dividend up to 5% per year. And we have optionality for more based on the structural growth of power grids that is still needed. Our combination of organic growth alongside growing dividends offers attractive long-term value for our shareholders with an opportunity for more. And with that, back to you, Iris. Iris Eveleigh: Thank you, Nadia. And with that, we will start our Q&A session. Let me remind you all please stick to 2 questions each. And the first question for today comes from Wanda from UBS. Wierzbicka Serwinowska: Hopefully, you can hear me. Two questions, one for Leo, one for Nadia. Maybe let's start with Leo. Today, at the Bloomberg interview, you said you are quite confident that you will get a regulation that will allow high CapEx program in Germany. But at the same time, you didn't really raise your 5-year CapEx program. So what makes you confident? How the talks with the German regulator have been going so far? And when do you expect to have enough visibility to basically make up your decision on the financial headroom? And the question to Nadia, could you please talk about the assumptions behind your 2030 German network EBITDA? What allowed return did you assume? And what is the cost outperformance cut versus today that you assume in your 2030 numbers? Leonhard Birnbaum: So there is no new information that has emerged over the last months that has changed our position. So the confidence that I've shown is just a repetition of what I've said in the past. And what I also tried to say this morning it's absolutely clear that we have a structural shortage of infrastructure. It's actually not a German issue, it's a European issue, it's actually even in the U.S. It's a general issue. It's number one. Number two, bottlenecks in infrastructure are extremely expensive, and we see that they are especially expensive in Germany, but they're actually expensive all over the place. The third one, the acceptance, the fact that the energy transition becomes a business place -- business case depends on somehow solving this structural need. And therefore, like I think it has been acknowledged now by everybody that we need more infrastructure. It has been acknowledged by everybody that we need private capital for that. And therefore, I'm saying, well, then I'm confident that there will be a regulation in place that allows for private capital to be invested via E.ON into infrastructure. And therefore, I'm saying, I can't see why we would not get something like that with all the ongoing discussions. But clearly, it's not that I can point to a big revolutionary development since we last time met. Now on the question until when will we have visibility? This depends on the news that we get. Like this year, we have RP5 in Germany, we have RP5 in Sweden. But in Germany, actually, we have the OpEx adjustment factor we are expecting eventually, let's say, in the first half, some news what it really is and what it could mean so that we could potentially quantify it. We are expecting regulation on the gas side that would give us potentially a cross read. And we are expecting then the OpEx regulation in the next year with the cost base based on the cost audit that's being done right now. So it depends a little bit on the news that we are getting in the next -- let's say, in the next month. Nadia Jakobi: Yes. And regarding the assumption that we took, we -- please understand that we not disclose the single individual regulatory parameters. What we say and what we have said in the past, our goal is to reach our value creation spread of 150 to 200 basis points ROCE over WACC. And we would assume that we have included that. You can assume that we have included that in our guidance. Yes, full stop. Wierzbicka Serwinowska: So in that case, can I ask another question because I didn't really get anything about the 2030 German network EBITDA. Nadia Jakobi: Yes. So again, when it comes to the 2030 EBITDA, we are disclosing at this point in time that our overall networks result is at EUR 9.8 billion as long as I remember that correctly. And we are not disclosing what share of that is now within Germany or in the international business. Because if we were to do that in the end, we would sort of give -- I think we are giving quite some insights, but we don't -- also in the past, haven't given the further drill down into the subsegments. Wierzbicka Serwinowska: So you can't disclose the allowed return, which was baked into Germany in 2030? Nadia Jakobi: So what we are saying is our goal is that we aim to get the same value creation spread the 150 to 200 basis points. And our expectation is that all our Networks businesses live up to that. Iris Eveleigh: Thank you, Nadia. The next question comes from Julius Nickelsen from Bank of America. Julius Nickelsen: Yes, I have 2. And the first one is kind of a follow-up on the timing. So as you mentioned, there is the OpEx adjustment factor and then there's the gas draft determination. But let's assume those come out and the outcome is favorable. Is there scope to already do like a CMD or so after the summer to raise the CapEx? Or do we have to wait until basically 1 year, full year '26 until there's another opportunity for you to fully open the CapEx envelope? That's the first question. And then the second one is maybe a little bit cheeky, but if in your absolute bull case scenario, if regulation comes out, how you like and you can raise the CapEx, do you feel comfortable to give any kind of indication where EPS in 2030 might land in that scenario? That would be quite useful. Leonhard Birnbaum: Yes. So you rightly pointed out that timing is, let me call it a bit path dependent. And I would, at this point in time, not like to now say it's like let's revisit on the whatever day X in months Y because then we think the timing is too unclear. I would say the following. If we only get good news, then we will react to that. If we only get bad news, then we will react later to that. So sincerely, I can't give you a specific timing right now. This is in the hands of the regulator who now needs to first give us additional information so that we have something additional to say. And on the bull, I don't want to speculate now on bull, because I think we have given you a guidance what we expect. If -- and if the word would be a paradise, I would try to figure out what makes sense for my customers because then I would know that if I do something which is beneficial for my customers, it will be honored that I have done it. If I do something which is stupid for my customers just because I got a lucky strike somewhere, this will come back at me. So we more have a perspective to do. We do what is needed, and we are confident that the regulation will be good enough. We don't bank on bull's cases. Nadia Jakobi: Yes. Maybe adding to that, we have deliberately chosen that we just keep our annual run rate of CapEx at this level overall, E.ON, approximately EUR 10 billion from 2027 onwards because we have got very positive signs from politics, from what is needed from macroeconomic, also what regulator has been saying that he appreciates that there are higher returns and higher revenues needed, but then we haven't seen anything black on white. And that's why we neither increased our run rate nor decreased our run rate. And you need to bear with us, of course, as we don't know anything more, what we also said in Q3 that we would have hoped, we would know more by this time, but we don't. We cannot also now not guide for a specific EPS increase. On top of what we -- we would say we've already demonstrated, of course, quite a significant EPS increase with a very attractive 6% CAGR up til 2030. Iris Eveleigh: And the next question comes from Alberto from Goldman. Alberto Gandolfi: I think you already provided quite a good picture, so I'll avoid talking about returns. But I wanted to ask you one point on the assumption of the power networks, which is maybe 2 parts. The first part is, can we get a feel for how saturated is the German network? We are hearing that network is at capacity around Frankfurt. You're talking about all this gigawatt of data center demand. So do we know with this investment plan, what is the saturation level today? Is it running at 90%, 95% capacity? What will it be in 2030? And as a second part on the assumption, would you be able to tell us of the CapEx upgrade you presented today, how much is perimeter, how much is equipment cost inflation and how you think about that? And the second question is actually totally different. Your supply... Iris Eveleigh: I would say it's the third one. Alberto Gandolfi: Should I stop here, Iris? I will face the police. Iris Eveleigh: No, no, no. Alberto Gandolfi: Sorry. Sorry. Sorry. I will not do follow-ups. So in terms of cost savings, your supply retail business was originally created as a people business, but we are seeing companies putting out there recently big cost savings program, AI-driven facilities and software, natural attrition. So I wonder, is this target including a significant cost reduction effort? I noticed in your guidance, your holding costs are going down quite a bit, but I suspect there's much more to go. Am I right? Leonhard Birnbaum: Okay. Since the second question was the third one, I'll give a very short answer. Cost reductions are baked in. But I'm sure we will actually see much more opportunities for much further cost reductions, which we might not have baked in. But on the other side, we will see also pressure, which we might not have baked in. So in that sense, AI will change, will clearly change the retail business. But I think that's maybe a good point to make. It's like your colleagues came up with the Halo suggestion. I really think that the advantage which we have in the majority of our business in the ICE and energy networks is actually that we can't really be disintermediated because the disintermediation of the physical grid doesn't work because it's a physical grid in the end. So AI will completely change. Also ICE business will completely change Networks business, the way we run our processes, but it will not disintermediate us. So that's maybe a nice point to make here. Now on the add capacity, I think overall, we are in a better situation in Germany than a number of other markets, which we observe across Europe. We have taken note of the load, for example, in the Netherlands or we have taken note of what Endesa presented yesterday or what we have seen in the U.K. I think we are not there yet. But it's clear, whilst we had massive bottlenecks on the TSO level in the past, these bottlenecks are trickling down into the -- from the extremely high voltage into the high voltage and where we have solar also in medium voltage, not yet on a kind of like complete level as in other markets, as I just mentioned. Now 2 comments. I think we can't give a general statement. It really depends on the region. For example, in Eastern Germany, where we have massive additions of renewables, we are in many places, clearly at capacity already. In others, this is different. So we have to look at it on a regional basis. That is number one. Number two, it will depend massively on the upgrade, the revision of the grid connection regime, which is under current -- under discussion right now in Germany. I would say if the proposals which are on the table right now for a new grid connection regime, use it or lose it, something else than a first come, first serve, if that materializes, we can achieve much more with the same capacity. Whilst if we do not change the current picture, then I would think that the grid would run to full usage -- to being fully blocked very fast because we have, let's say, a speculative run for connections. So it depends a little bit on the political debate. And on the inflation and growth, we are continuously looking at that. I'm not sure, did we do in the context of the budgeting a new exercise then? Or is it still the 1/3 or whatever inflation that we... Nadia Jakobi: I think there was more that what we communicated like 1.5 to 2 years ago, when we look now at the higher level, we say from this level that we have been communicating our price inflation is at this point, moderate and it's primarily volume growth. But we, of course, as Leo has said, we have seen a step change of higher inflation when we last spoke about that. Iris Eveleigh: Thank you, Nadia. With that, we come to the next question. Thank you, Alberto. The next question comes from Pavan from JPMorgan. Pavan Mahbubani: I have 2, please. So firstly, and it's following up from Julius' question, Leo, but maybe in a different frame. Can you give us an indication of the quantum of which you think you can accelerate the CapEx to 2030? And should we be taking the EUR 5 billion to EUR 10 billion headroom as an indication of the upside you can see there? That's my first question. And secondly, related to that, are you able to talk about or give investors comfort on your readiness, as you mentioned in your opening remarks, to accelerate on CapEx? Do you already have the supply chain capacity that you need, your workforce? I appreciate the acceleration is not coming today, but given it's a big focus, I would appreciate some color around that. Leonhard Birnbaum: Okay. So I'll take the second one, and then Nadia will follow up on what you said in your speech on the additional quantum. So I would say, first, E.ON, we have put in the last 5 years, a big focus on operational excellence. I tried to say that in the speech. So -- and we are -- we have been building up a workforce. Again, in the last year, we had a net increase of the workforce. So we have built up in the networks around 7,000 additional people over the last years. So we have the workforce, number one. Number two is we have the supply chain contracts for the critical equipment. I cannot exclude that we will have a bottleneck here or there. But I think actually, overall, for the critical components, switchgear equipment, power electronics, transformers, cables, we are actually well set up. So we should be able to manage that. On the permitting side, we would need faster permitting that would be -- but we are -- actually, we are set up for the 8-year processes. If we would get an acceleration, we should have absolutely no problem there as well. And on the digitization side, I think we have now pushed the envelope really with the transformation programs that we have done. By the way, the last point is the one where I usually never get a question is the one that I find personally the most challenging one to deliver large-scale IT transformations at -- on time, on budget. So having said that, with the confidence that I have is we have achieved it year-over-year over the last 5 years. We have always achieved what we said that we would do with a few small exceptions from which we have learned. This year, we have achieved every single operational target that we have set for ourselves. I have absolutely no reason to believe that my organization would not be able to repeat that going forward also with a higher volume. But again, it doesn't come by itself. It's the result of very hard work on all of these topics. I hope that gives you enough color. We can obviously detail that in more afterwards. So Nadia on... Nadia Jakobi: Yes. So regarding the potential for additional CapEx. So when you look at total envelope being like easy to remember, EUR 10 billion per annum overall E.ON CapEx, out of that, approximately EUR 6.3 billion is for Energy Networks Germany. Out of that, approximately EUR 5.3 billion is dedicated to WAP effective -- power RAB effective Germany. So if you then take the EUR 4.3 billion, we would have an additional EUR 1.5 billion to EUR 2 billion per annum, where we could invest more at the -- in the outer years when we look at our network build-out plan that we did in 2024. Of course, these network build-out plans are, of course, also -- we will have -- we see no new network build-out plans, but the data that we've got compared to this network build-out plan that was issued in 2024, that would be this EUR 1.5 billion to EUR 2 billion more in CapEx from -- in the outer years. Leonhard Birnbaum: So operationally, we can. And financially, it depends on regulation. Iris Eveleigh: Thank you, Pavan. With that, next question comes from Harry. Harry Wyburd: This is Harry Wyburd from BNPP Exane. So 2 ones for me. So first, can we focus a bit on this grid connection regime reform because it's actually quite significant and it's actually hit seemingly quite a lot of resistance from certain political parties and lobbies. So if you -- maybe you could just remind us a little bit for those who aren't familiar, what has been proposed here and sort of locational reform and so on. How do you think that's going to end? And is that actually going to impact you because it could theoretically shift around where you're investing? And is that something that feeds into your CapEx deployment or operations and so on? And then the other one is on affordability. So we've had all these headlines on carbon, all these headlines on EU power market reform. I guess you're, in some ways, a sort of neutral observer here given you're not exposed explicitly to power prices. So I value your independent view on how you think this is going to end. So do you think we are going to get power market reform. Is that going to cut baseload power prices in Europe? And do you see this as something that's actually relevant for you if we end up with lower electricity prices via regulatory change and that triggers higher power demand? Leonhard Birnbaum: Harry, good seeing you. Two tricky questions as a price for seeing you. Now on the grid connection regime, first, let me just repeat. What we're currently seeing in terms of request is completely unsustainable. There's no question. We are seeing connection requests at E.ON only, we actually published those numbers, 500 gigawatts for batteries, 70 gigawatts for data centers. It's just absolutely unfeasible that we can deliver on that. Even what we only agreed to deliver is already stretching the limits in the envelope massively, 12 gigawatts on batteries, 16 gigawatts on data center or the other way around, I always mix, that doesn't matter. 28 gigawatts data centers plus batteries in 2025 only, plus 20 gigawatts, nearly 20 gigawatts in renewables. So there is a limit for that. Now what we are seeing is, we clearly see that there is speculation for grid connection because grid connection is scarce, so it must have a value. If I can secure it, then I have something which I can sell expensively. And since we have the first come first serve and no use it or lose it, actually, this is pretty cheap speculation. And therefore, I think something needs to happen. So this grid package, I think, is just a reaction to an absolute unsustainable situation that needs to be changed. Now for us as E.ON, it's like don't we -- I mean, it's like if we don't change it, we have to invest like hell and if we change it, we have to invest like hell. So it doesn't really make a difference. But it makes a difference whether we can actually connect customers. And what I'm really afraid of, if you ask me what's the biggest impact of E.ON is that the biggest impact on us would be if we don't get changes and we need to tell consumers that we can't connect them because the grid is full with solar farms, which we have to redispatch. That would make no sense. And that would be then very detrimental for our perception. So this is what I -- so I'm not concerned financially because I mean it's like the CapEx opportunity is just too big. But I'm concerned that we don't do an efficient energy transition and then we get an affordability backlash at the whole energy transition. So that's the point that I would really like to make here. Now what is materially in the package? I think you can differentiate 3 buckets of discussion. One bucket is, should we philosophically change the approach, not the first come, first serve, not -- should we introduce something like use it or lose it. And I think there is broad consensus that something needs to change in that direction. That's not contentious. Then the second one is we have many innovations that we could do to just be more efficient in how we connect, for example, renewables. We have technical innovation. That's not contentious either. It depends what the regulation we do, et cetera. For example, do we get combined connections between solar and PV? Do we -- your 100 megawatt of PV, do you always get your peak or you get 97%. So there are technical details. And then there's a third one, which I would call how do we achieve locational signals so that the expansion of the feed-in happens not in grid-constrained areas. That's one really contentious point because obviously, the renewable players, especially renewable players here have a big interest in getting only locational signals that they can calculate and which don't bite them too hard. But if they don't bite, as we say in Germany, then they are meaningless. So -- and that is now depending on the details. If you ask me what's going to happen, I think bucket #1 is going to change. Bucket #2 is going to change. Bucket #3 is something is going to happen. Whether it's going to be enough, we will see from the discussion. But I think it's absolutely the right discussion that we are having at this point in time. Now on the switch, that was regulation on grids. Now on the wholesale power, we obviously have looked -- I have also looked with interest at what was proposed in Italy or what will happen now in Italy. So I'm certainly not the best experts to talk about that. But actually, I would say it's not an economic consideration which has taken place. This is a political -- these are political actions. You are trying to achieve somehow a politically -- a target which you see necessary politically and then you just taking whatever tool works. I personally think that marginal pricing and the pricing is coming from that will be needed, but the position is weak because we know that if we go to 300 gigawatts of renewables in Germany, marginal pricing won't be the one that is going to incentivize investments anyway. So there will be -- there will need to be a change in the power market design. But what we see here is not building something which is sustainable in 2050 in a 100% renewable world. What we're saying here is a political intervention to achieve a political goal. Whether this is done efficient? I think the only debate that you can have is, is this more or less efficiently, but I think it's inevitable that we will see this more and more. Personally, I think the discussion will never go away on market design. But luckily, I'm not in this commodity volatile business on the generation side. For me, regulation on the grid side is already enough. Iris Eveleigh: Okay. Thank you, Leo. With that, next question comes from Deepa from Bernstein. Deepa Venkateswaran: So I had 2 questions. One on the data center opportunity. Can you quantify how much of the EUR 40 billion network CapEx is for connecting data centers? Just trying to get a feeling for how meaningful it is or it is not? So that's the first question. And secondly, maybe moving away from Networks. Your Customer Solutions business, you've had ambitions to improve your revenues from selling solar panels, batteries, maybe exploiting flexibility. I wanted to check how that development is going. Are you seeing the necessary uptake from consumers for these low-carbon solutions? Is it ahead of plan, in line? Just directionally, how is that going? I know it's a much smaller part, but obviously, you are projecting earnings growth in that business to 2030, and I'm assuming that this would be a part of that. So those are my 2 questions. Leonhard Birnbaum: I cannot quantify, maybe Nadia can, but I can't quantify how much of the EUR 40 billion is data centers. But I would say there is a remarkable difference between the data center boom in the U.S. and in Europe. So in our case, the infrastructure growth is really driven by multiple simultaneous factors that we're seeing, truckloading, data centers, renewable connections, heat electrification. So the growth trend is extreme -- or batteries and so on. So the growth trend is extremely robust. because it's driven by multiple factors. And we have not quantified how much of the million goes into batteries, into data centers and into renewables. I think the situation is different in the U.S. where data centers -- in some parts, at least must be the overwhelming driver. So sorry for that. On the Customer Solutions side, I think I can answer it. So yes, we have combined the flex, let me call it, non-commodity retail products that you alluded to. They're part of our retail business -- customer solutions business, I would say. We are seeing a tick up. We are seeing a nice tick up. It's number-wise irrelevant. You said that yourself rightly so. And we would like to see even more aggressive tick up operationally. There, we are actually readjusting every month, so to say. But it's moving. Iris Eveleigh: Thank you, Leo. With that, we move to -- we still have quite a few hands up. Maybe if someone just has one question so to get everyone the chance to actually still ask the question. Louis from ODDO is the next. Louis Boujard: Actually, the second one will be very fast. So I think it's going to be okay. So the first one, regarding the capital allocation, I was wondering, in case it's not going exactly in the right direction for you regarding the CapEx expansion, do you have any leeway in your capital allocation to eventually adjust and increase your CapEx envelope in the other geographies? Or eventually, would you consider higher payout or share buyback program in order to allocate maybe better your current financing capacities? That would be my first question. How would you do in a worst-case scenario? And the second question, which is quite fast, I guess, is regarding the underlying assumptions that you could have taken in your cost of debt by 2030. When I look at your guidance for the EPS, the EPS does not look highly demanding considering the EBITDA. So I was wondering if you were taking into consideration some increasing interest cost of debt in your assumptions for 2030. Leonhard Birnbaum: I take the first one. So we have a clear plan A, and we are pursuing this plan A. I don't want to speculate on a plan B. Nadia Jakobi: And as you know from us, we are always committed to value creation and to balance sheet efficiency. Leonhard Birnbaum: So I'm sorry, that sounds like now we don't want to treat you badly, but it's really as short and crisp. Nadia Jakobi: So the second one was cost of debt or sort of why we didn't increase the dividend? Leonhard Birnbaum: Cost of debt. Iris Eveleigh: Cost of debt assumptions, higher interest. Nadia Jakobi: Yes. On the cost of debt, we have -- when you look at -- we have been just issuing some of our new bonds at the beginning of the year. And when you look at that, we had an 8-year bond, we had a 12-year bond. And if you combine the 2, they were of an average of 3.7%, that is sort of actual numbers we had. I don't know, I think, 95 basis points credit spread on the 12-year duration bond, that is sort of one sign of guidance that I can give to you that also, I think we are communicating later in our pack some of the maturing bonds. So it's fair to say, as you would anticipate that some of the very low interest bonds are maturing up until 2030 and that need to be then refinanced at these levels that we have been seeing now in January this year. And that is also, as we have been highlighting, when you are confronted with a cost of debt for existing assets, which is just backward-looking 7 years and includes the low interest years, then of course, you cannot assume that you can still refinance at these low levels because everybody of us would love to still do the -- buy a house and finance it on the terms of 2020. Unfortunately, that's not possible. So I think that's kind of the indication that I can give to you. Iris Eveleigh: Thank you, Louis. And with that, we move on to Rob from Morgan Stanley. Robert Pulleyn: I have one question. We've spoken a lot about the regulatory terms to increase CapEx and guidance. But could we just dive into specifically which areas are you looking for from the regulator to improve versus the rest of draft materials we got towards the end of last year? Nadia Jakobi: I think, Rob, there is something -- one of that is what we have just discussed, i.e., being the cost of debt, both the level and also the fact that there is no mark-to-market for the cost of debt on all those assets that are built up until end of 2026. That's something where you cannot refinance at the levels in the market even as we do it in a very proficient way. Second one, I think we also debated that in this round when it comes to cost of equity, there is just some high-level explanations. We don't have clarity yet. Also this look-back period for the risk-free rate is important. MRP, even if we are going to a higher level, where we appreciate the arithmetic mean you can see that the market clearly demands an MRP of 6% plus. And there, we are still quite a gap apart. And then there are quite some other elements also regarding the benchmarking that are open and as Leo has just said, so far, we only know that there will be an OpEx adjustment factor, but that's about it. There hasn't been any specification how that's going to work. In principle, this is something that we clearly value and we are welcoming that this has been appreciated that when you grow your CapEx, you also, of course, will grow your OpEx. But so far, we don't know which kind of magnitude this is going to have. Iris Eveleigh: Thank you, Nadia. With that, we move on, thank you, Rob, to James from Deutsche Bank. James Brand: I've got one -- kind of one straight two questions. One question and clarification. So the question is on the benchmarking actually, the efficiency assessment. I think you talked about in the past as being quite tough or certainly getting tougher than it has been in the past, but then we had some new proposals come out before Christmas. So I was wondering whether you could just give us an update on whether the proposals there have moved in a more positive direction or whether you still think they're very challenging. And then the clarification is just on the timing. So obviously, we've got the paper on the OpEx adjustment factor and then the determination of the cost of capital for the gas networks. I think you mentioned you'd have visibility in the next month. Was that for both of those or just for the OpEx adjustment factor? Because I think the paper on the OpEx adjustment factor is due fairly soon, but it was less clear when the cost cuts of gas was due. Leonhard Birnbaum: So I'm always careful to say it will come out in March because my experience is then it turns out April, and I need to explain all the time where it was in March. So I would say OpEx adjustment factor first half, the gas side, second half of the year. So -- and rather go to the back end and be surprised if it happens earlier. So that on the timing. Second, in the final papers, there were no real substantial improvements. Therefore, the criticism on the benchmarking is still very clear. We actually have seen that it will be harder to achieve top efficiency, which is okay. That's fine. That's the challenge that the regulator should put in front of us. But we have still seen that redispatching costs are included in the operational benchmarking as influenceable cost. And since when it -- I mean, clear, 90% of the redispatching costs are with the TSOs, but out of the 10%, which are with the DSOs, we at E.ON get 90%. Why? Because we are the rural guys, which are connecting the renewables and basically putting redispatching into the picture just punishes exclusively E.ON, which has done the most investments, kind of like to achieve an energy transition. I repeat my word, 1/3 of the networks, 70% of the wind, 50% of solar, and then we get redispatch -- and then no agreement on localization signals and then we get the redispatching cost allocated on top of us. Still the same criticism. Really no changes in the final paper versus what we explained to you in the second half of last year. Iris Eveleigh: Thank you, James. And with that, we move to the 2 last questions, while the first one comes then from Ahmed from Jefferies and then Piotr from Citi. We'll then close the call. Ahmed Farman: I guess just a very quick follow-up question. You just mentioned -- gave us some sort of time lines, right? You said the OpEx adjustment factor and I think it's the draft for the gas distribution that you mentioned. Are there any other data points or milestones that are required from your side to get the clarity? Or are these the 2 critical data points? I just want to make sure sort of just for completeness that if there is a full -- there are other elements as well that we are just aware of what other regulatory updates are required. So that's my first question. My second question is on retail. This is a follow-up to an earlier question. So retail, if I look at the last couple of years of results, it sort of hasn't really delivered much growth, and you are guiding to growth going forward. I just wondered if you would explain a little bit -- you already talked a little bit about the drivers, but a more profile of this growth as to where the growth will come through. Obviously, you're sort of talking about a sort of flattish profile to 2026. But do we expect to see this growth profile already in '27? Or is this more back-end loaded? Leonhard Birnbaum: Yes, I'll take the timing question. So I understand from all of your questions that you would ideally want us to give a precise time line when is what materializing so that we can give you a further update. But -- I mean, this is really where I would need to say you need to raise those desires somewhere else, I'm afraid. I can only repeat what I just said. It depends a little bit what information we got. Look, last year, I told you, I am confident about the outcome because I still believe that if something needs to happen, eventually, it happens because the alternative is just unattractive. So I truly believe we are going to get a regulation which is sufficient to make the necessary investments because the investments are good for Germany, good for our customers. But having said that, it's kind of like I did not get anything positive last year that actually really helped me to say, I -- now look at this. This is why I'm right to believe that. Now if the next news that come out would clearly show in the direction that, let me say, a basic optimism is okay, then I can be bolder going forward and say, look, this works out, it will come to the right result. Let's make a judgment call. But if the same thing happens this year that happened last year that I get negatively surprised, like, for example, by this redispatching cost, which you all know annoyed me like hell, if something like that happens again or if whatever details come out on the OpEx adjustment factor make it irrelevant, then it's kind of like then I don't have something. So it's a bit past dependent. But clearly, like the people who can influence that time line are less us, I'm afraid. We can only do operational great work and show that what we are doing is beneficial for our customers and then expect that others will honor that. Nadia Jakobi: Yes. So coming to your energy retail question. So when you refer back in the past years, there were past years also from the energy crisis where we took on a lot of risk when it comes to revenues. So we had high prices. And now we have seen some normalization. We have still stuck to our 3% to 5% B2C margins. But of course, when you had a far higher revenue level, then that sort of meant that the absolute amounts reduced. So that's basically the reduction that you have been seeing coming from -- when you take sort of 2022 and '23 as a basis here. When you sort of go further back into the year 2020 or '21, you see that we've actually seen some significant increase also in our energy retail business. Second, I guess you are less interested in the past, but more into the future. We're very much aware that we are projecting stable EBITDA from 2025 to 2026. There's one technical effect in there, i.e., we are deconsolidating one of our entities and the equity contribution to that is then because of the joined up grid and retail business, that's now portrayed in the grid business, but going from EBITDA to only a net equity contribution. And then the second one, so we see some operational growth, but it's fair to say that some of the digital foundations that we need for future flexibility products and the ramp-up that we are seeing will be also late in 2026. And then when it comes to how near term the progression is, I think we have been guiding to an energy retail business in 2028. And then we see some further increase in 2030. So as you say, first stable, laying the foundations, and then we would expect to see some increases in 2027 going forward. Iris Eveleigh: And with that, we come to Piotr with the very last question then for today. And obviously, we're happy on the IR side to follow up on any further questions that you might have. Piotr? Piotr Dzieciolowski: I have just one big picture question to Leo actually about -- how do you think about the grid fee structures going forward in the context of affordability and the need of CapEx, in a sense that a lot of the growth comes from the data centers and therefore, the cost when it goes into the RAB, the connection it's being socialized and therefore, all of the consumers have to pay for it. Likewise, there are a lot of consumers that really have a lot of self-consumption and also pay less than for the infrastructure. How do you think -- in the context of affordability, would charging for infrastructure differentiated prices to different consumers would not be a solution? And likewise, when you think about the investments, there are certain investments like releasing redispatch costs and so on. So what is the return on the investments from the consumer perspective on this extra EUR 5 billion to EUR 10 billion CapEx that you propose to the regulator? Because if it's about the data center connection, I agree why the regulator may not be willing to give you the higher rate. But if it's about really saving cost for consumers, then he should be more than willing to spend -- for you to spend this money. Leonhard Birnbaum: Yes. I think actually, there is a misperception on the impact that data centers have on consumers. If -- now we take the German example and then we -- like in Germany, you have actually -- you pay grid fees and you can pay a lump sum for your connection... Nadia Jakobi: Construction grant. Leonhard Birnbaum: Construction grants. That's the word, okay. So you have construction grants and grid fees. Now data centers, the overarching target is to get fast access. So they are perfectly fine to pay high construction grants. That's number one, which means actually that the cost really socialized in the grid fees are not that big. Second is they are actually pretty big consumers. And we have energy-related and capacity related, I mean, fees in Germany. So what happens actually if a data center gets added into your DSO area, you as a consumer, a B2C customer, you see lower grid fees because then the same -- basically the same cost base is spread on a larger volume. So -- and that's actually the whole way how the energy transition can work. We need to increase electricity volumes so that we can allocate the higher cost base on a higher volume basis. And so specific costs stay constant or even decline. So data centers in a DSO area reduce the grid fees. Now on the generation side, they need additional power stations. That's what's being discussed in the U.S. right now. Obviously, if you have like in Tennessee, a 5 gigawatt, whatever data center, you don't want to put that into the rate base and then have the consumers pay for the 5 gigawatts of additional generation capacity. But if the data center comes with its own PPAs and new assets, then it's actually fine. So in our case, data centers in Germany would reduce the grid fees and actually would be beneficial. Now on the wholesale market side, they would need -- they would require more baseload capacity probably, which is why we think generation capacity needs to be added. But so for us, data centers are beneficial for us at E.ON, data centers are beneficial from an affordability standpoint. They make our life easier. Iris Eveleigh: Thank you, Leo. Thank you, Piotr. With that, we come to an end. Thank you all very much for participating and the interest in E.ON. And if there's anything else you would like to discuss, the IR team is happy to follow up with you. Thank you, Leo and Nadia. With that, I close the call for our full year '25 presentation. Take care. Bye-bye. Leonhard Birnbaum: Thank you. Nadia Jakobi: Bye-bye.
Operator: Good morning, and thank you for joining us today for Hovnanian Enterprise's Fiscal 2026 First Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast [Operator Instructions]. Management will make some opening remarks about the first quarter results and then open the line for questions. The company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the Investors page of the company's website at www.khov.com. Those listeners who would like to follow along should now log on to the website. I would like to turn the call over to Jeff O'Keefe, Vice President, Investor Relations. Jeff, please go ahead. Jeffrey O'Keefe: Thank you, Michelle, and thank you all for participating in this morning's call to review the results for our first quarter. All statements on this conference call that are not historical facts should be considered as forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include, but are not limited to, statements related to the company's goals and expectations related to its financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected and are suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements speak only as of the date they are made are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties and other factors are described in detail in the sections entitled Risk Factors and Management's Discussion and Analysis, particularly the portion of MD&A entitled Safe Harbor Statement in our annual report on Form 10-K for the fiscal year ended October 31, 2025, and subsequent filings with the Securities and Exchange Commission. Except as required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. Joining me today are Ara Hovnanian, Chairman and CEO; Brad O'Connor, CFO; David Mitrisin, Vice President, Corporate Controller; and Paul Eberly, Vice President, Finance and Treasurer. I'll now turn the call over to Ara. Ara, go ahead. Ara Hovnanian: Thanks, Jeff. I'll start by highlighting our first quarter performance and sharing insights into how we're navigating the current housing market. Brad will then dive deeper into our results and our strategy and followed by an opportunity for your questions. Let me begin with Slide 5. Here, we share our first quarter results alongside the guidance we provided earlier. Even with ongoing challenges both in the U.S. and around the world, our team consistently delivered, meeting or exceeding guidance across all the metrics for the quarter. Beginning at the top of the slide, total revenues reached $632 million, approaching the high end of our guidance range. Adjusted gross margin came in at 13.4% in the quarter, which was just shy of the midpoint of our expectations. Our SG&A came in at 13.3% better than the low end of our guidance. Income from unconsolidated joint ventures totaled $3 million, this was slightly below the midpoint of our expectations, although income from consolidation of certain joint ventures exceeded our expectations as we'll discuss in a moment. We're satisfied to report that both of the profit figures we guided to beat expectations. Adjusted EBITDA for the quarter was $63 million, which was significantly higher than our guidance range. Adjusted pretax income was $31 million, also significantly above the range we forecasted. We'll discuss this more later in our presentation. On Slide 6, we show the first quarter results compared to last year's first quarter. The comparison is difficult mainly because we've offered even greater incentives this year to maintain sales pace which has driven much of the year-over-year decline in profit. In addition, deliveries were lower due to slower market conditions. In the upper left-hand section of the slide, you can see that our total revenues fell by 6% compared to last year. We delivered 12% fewer homes, which was the main reason for the decrease but the land sale in the first quarter helped offset some of that decline. Turning to adjusted gross margin, we saw a year-over-year decline, primarily due to the additional incentives provided to help buyers manage affordability and challenges, a theme you'll hear throughout our presentation. Our current approach emphasizes maintaining steady sales and clearing older lower-margin lots and older QMIs. Looking ahead, as we open new communities where these incentive costs are already factored in during land acquisition, we anticipate stronger gross margins provided the market doesn't require further increases in incentives. But based on our recent sales, which we'll share in a moment, we don't anticipate that to happen. In this year's first quarter, incentives accounted for 12.6% of the average sales price. The majority of this cost was attributed to mortgage rate buydowns and essential tool for unlocking affordability and driving demand. This represents an increase of 40 basis points from the fourth quarter of '25. The quarter-to-quarter increases are beginning to level off, although it's still up 290 basis points compared to the same quarter a year ago and higher by 960 basis points versus the full fiscal year in '22, which was before the mortgage rates spiked began affecting margins on our deliveries. Offsetting the year-over-year increases in incentives, our base construction and option costs per square foot on delivered homes decreased 2% year-over-year in the first quarter. Additionally, our cycle times for single-family detached homes decreased 17 days to 133 calendar days in the first quarter of '26 compared to the same quarter a year ago. Looking at the bottom left section you'll see that our total SG&A expenses as a percentage of total revenue went up a bit in the first quarter. This was due to our revenue decreasing more than our SG&A costs even though we managed to reduce absolute SG&A expenses compared to last year. At the corporate level, we're investing more heavily in technology and processes for the future. While this should yield savings in the future, it is adding to SG&A in the current periods. Moving to the bottom right-hand section of the slide, while our profit exceeded our guidance, it declined 24% year-over-year primarily due to higher levels of incentives used this year. Our approach remains focused on efficiently turning over existing inventory advancing sales of quick moving homes and emphasizing a steady sales pace. At the same time, we're positioning ourselves to capitalize on new land opportunities that are expected to deliver improved margins and returns. Now looking at the sales environment on Slide 7. We're still using mortgage rate incentives to help boost sales, we had a reduction of only 35 contracts in a significantly slower delivery home environment. We think the drop would have been larger without the incentives we're offering. The decline mainly reflects ongoing market challenges and low consumer confidence by offering incentives, we're able to ease some of these difficulties and especially affordability and keep sales activity steady. On the encouraging side, if you turn to Slide 8, you'll see monthly traffic per community from August through January. Compared to last year, traffic increased significantly in 5 of the 6 months shown. The percentage increases grew steadily over the last 4 months with January showing the largest jump on the slide, an impressive 40% increase compared to the same month last year. The trend of increased traffic has continued in February. We're seeing encouraging sign of increased buyer engagement compared to last year. That said, continued economic and global uncertainties are causing some prospective buyers to remain cautious about committing to a purchase. As shown on Slide 9, a contracts over the past 12 months have fluctuated from month to month, reflecting ongoing shifts in a volatile housing market and consumer confidence and sentiment. January's 11% gain stands out as the highest year-over-year increase on the slide. And while 1 month does not make a trend, it's a promising sign. As of yesterday, our month-to-date contracts in February of '26, which is almost over, are up 13% over the prior year, gaining a little momentum. On Slide 10, you can see that the first quarter contracts per community have held fairly steady at about 9.5 contracts per community for the past 3 years. Notably, this year's first quarter was higher than the '97 through '02 levels that we consider a normal sales environment. On Slide 11, a we provide a closer look at monthly contracts per community comparing each month in the first quarter to the same month last year. For the first 2 months of the quarter, the sales pace was lower than the same month last year. But the January '26 sales pace was better than a year ago, so we're off to a better start than a year ago. This was the third metric for the month of January that showed significant improvements year-over-year, giving us hope that the spring selling season this year could be better than last year. Further, our contracts per community for February of '26 are on track to be higher than the same month a year ago. As shown on Slide 12, the value of incentives and mortgage rate buydowns has increased significantly over the past 4 years. The most notable surge occurred in early '23 when incentives rose sharply from 3.9% in the fourth quarter of '22 to 7.4% in the very next quarter, the first quarter of '23. Since then, incentives have continued to climb almost every quarter to the current level of 12.6% in this year's first quarter. While these higher incentives have put short-term pressure on our margins, they've been essential for maintaining steady sales and moving inventory. As I said earlier, happily, the amount of incentives seems to be reducing from quarter-to-quarter in the recent months. To further support buyers, we continue to offer a strong selection of quick move in homes or QMIs, as we call them. This approach allows buyers to take advantage of available incentives and purchase homes quickly and affordably. It's important to note that our new land acquisitions build in these levels of incentives and still meet our return requirements. This should lead to much better margins in the future as these new communities begin delivering. On Slide 13, we show that at the end of the first quarter, we had 5.7 QMIs per quarter. This marks the fourth quarter in a row where the number of QMIs per community has gone down, reflecting our ability to align starts with sales pace and optimize inventory levels. QMIs are homes that we've started framing but have not yet sold. As shown on Slide 14, the number of QMIs fell from 1,163 at the end of January '25 and to 742 at the end of January '26, that represents a 30% decrease in 1 year. In the first quarter, QMI sales comprised 71% of our total sales down from a record 79% in prior quarters, but still well above our historical norms of above 40%. The corollary is that our to-be-built home sales homes that are built to customers orders increased from 21% to 29%. Assuming these trends continue, our percentage of to-be-built deliveries will be higher in the second half of '26. To-be-built margins in communities that had both to-be-built and QMI deliveries in the first quarter were 780 basis points higher than QMI margins. Having more to-be-built deliveries in the second half of the year will be beneficial to our gross margins and overall profitability. We feel we can meet the current level of demand with the 742 QMIs that we have. We'll make appropriate adjustments up or down to our starts to ensure that we have enough QMIs to satisfy demand and not get ahead of ourselves at the same time. By focusing on QMIs, we sign and deliver more contracts within the same quarter. This approach means that we have fewer homes in backlog at the end of each quarter but a higher rate of converting backlog to deliveries. In the first quarter of '26, 41% of the homes we delivered were both sold and closed within the same quarter, the highest percentage we've recorded since we began tracking this metric in '23. While this makes it a bit harder to predict next quarter's results, it led to a backlog conversion ratio of 88%, much higher than our historical average of 56% for the first quarter since '98. We continue to closely manage our QMIs for each community, making sure the rate at which we start these homes matches the rate at which we sell them. Try to sell the QMIs before they are finished. Over the past year, our finished QMIs decreased 22% from 319 at the end of last year's first quarter to 248 finished QMIs at the end of the first quarter of '26. If you look at Slide 15, you'll see that despite higher mortgage rates and a slower sales pace nationwide, we managed to increase net prices in 32% of our communities during the first quarter. More than half of these price increases happened in Delaware, Maryland, New Jersey, South Carolina, Virginia and West Virginia, some of our stronger markets. In summary, our strategy continues to prioritize the swift turnover of inventory, maintaining robust sales of quick move-in homes ensuring a consistent sales pace and burning through our lower-margin land. At the same time, we're preparing to take advantage of emerging land opportunities that should result in stronger margins and returns. In addition, we've shifted our focus on new land acquisitions away from lower-margin entry-level homes on the periphery to more move-up homes in the A and B locations as well as focusing on more active adult communities. By staying disciplined in these areas, we're well positioned to adapt to market shifts and drive substantial growth in the future. I'll now turn it over to Brad O’Connor, our Chief Financial Officer. Brad O'Connor: Thank you, Ara. Before I get to the next slide, I want to comment on the other income line on our income statement. In the first quarter of fiscal '26, we took full control of 2 joint ventures that were previously not consolidated. For one of these joint ventures, this happened after our partners received their final cash distributions, which met their preferred return goals slightly earlier than anticipated because of the solid performance of the communities. For the other, it happened when we acquired a controlling interest in a previously unconsolidated joint venture in the Kingdom of Saudi Arabia. We then added the remaining assets and liabilities of both of these joint ventures to our balance sheet at fair value resulting in a gain of $27 million recorded as other income. Importantly, the individual communities from these joint ventures continue to meet our standard return metrics even after the step-up to fair value and after current incentives. As a reminder, this has become a normal part of the life cycle of our joint ventures as we have had other income from JV-related transactions 5x in the past 11 quarters. Before commenting further on our U.S. results, I want to briefly touch on our international operations. Although our operations in the kingdom of Saudi Arabia are not expected to contribute materially in the near term, the country's growing need for housing and the scale of the opportunity reinforces our confidence in the long-term prospects of this market. For fiscal '26, we only expect about 300 deliveries from the Kingdom of Saudi Arabia demonstrating the minor impact it will have on operations this year. Turning to Slide 16. We finished the quarter with 151 communities open for sale, up slightly compared to a year ago. We continue to see steady progress in increasing our community count as we focus on growing revenue. While challenging market conditions remain a hurdle, our expanding number of communities is helping us maintain overall home delivery levels. Looking ahead, we believe our newer communities are well positioned to deliver stronger results than older ones, supporting our ongoing growth plans. Slide 17 details our land position. We ended the first quarter with 35,560 domestic controlled lots, equivalent to a 6.7-year supply. Including joint ventures, we now control 38,764 lots. Our consolidated domestic lot count decreased 18% year-over-year, reflecting disciplined land acquisition and a willingness to walk away from or postpone less attractive opportunities. You can see our land control position has begun to stop the steep decline and flatten as land sellers are getting more realistic on values in many markets, and we were able to replace our deliveries and walkaways with new acquisitions that meet our return criteria, even with today's incentives. Also of note on this slide is the steady decline in owned lots. It has decreased sequentially in almost all of the quarters shown in alignment with our land-light strategy. Slide 18 shows the age of our lot position, both owned and optioned, broken down by the year each lot was controlled. The number in each bar represents the total lots that were controlled in that year, the number below each bar indicates the percentage of incentives used on homes delivered during that year. This slide illustrates that by the first quarter of '26 almost 23,000 of our owned or option lots were initially controlled in either fiscal '24, '25 or '26, by which time we are assuming more significant incentives in our underwriting of land acquisitions. In the first quarter, a majority of our home deliveries came from lots acquired in 2023 or earlier. These older lots present more margin challenges since they were originally purchased with much lower incentives than we're currently offering. As we move forward, we're steadily transitioning away from these less profitable lots to newer land that aligns better with the day's incentive environment, though the shift is gradual. At the same time, we're collaborating with some land sellers under option agreements to find solutions that help us share the market challenges and ease the impact. Our strategy remains clear. We're intentionally selling through lower-margin lots to free up capacity for new acquisitions that support our margin and IRR goals. The good news is we're still finding new land opportunities that meet our underwriting criteria even with current high incentives and the current sales pace. On Slide 19, we show our land and land development spend for each of the past 5 quarters and the quarterly average for all of 2024. Land and development spend has decreased in response to market conditions reflecting disciplined capital allocation and rigorous evaluation of every acquisition, factoring in current prices, incentive levels, construction cost and sales pace. We continue to identify compelling opportunities in our markets and remain laser-focused on revenue and profit growth for the long term. Our commitment to disciplined underwriting and strategic investment will drive continued success. In line with our evolving strategy, we're prioritizing the acquisition of land for move-up homes and prime A and B locations and expanding our focus on active adult communities, moving away from lower-margin entry-level developments on the outskirts. Turning to Slide 20. We ended the first quarter with $471 million in liquidity, well above our target range even after spending $181 million on land and land development and $9 million on stock repurchases. Usually, our liquidity decreases sequentially during the first quarter. However, thanks to our disciplined approach to land management, we saw the opposite, liquidity actually increased in the first quarter of '26 compared to the fourth quarter of '25, as a matter of fact, it is the second highest liquidity for any quarter on the slide. Slide 21 shows our current maturity ladder as of January 31, 2026. This reflects the refinancing we completed last fall. For the first time since 2008, all of our debt, aside from our revolving credit facility is now unsecured. This shift enhances our overall financial strength by increasing our flexibility, lowering our risk profile and positioning us well for long-term expansion. This refinancing is the most recent step in a decade-long process that illustrates our disciplined financial management and reinforces our ongoing commitment to a robust stable capital structure. On Slide 22, we highlight how we've successfully increased our equity and reduced our debt over the past few years. Over that time, equity has grown by $1.3 billion and the debt has been reduced by $754 million. Net debt to capital is now 41.4%, a substantial improvement from 146.2% at the start of fiscal 2020. While we still have work to do, we remain on track toward our 30% net debt to cap target. With $223 million in deferred tax assets, we will not pay federal income taxes on approximately $700 million of future pretax earnings, enhancing cash flow and supporting growth. Given the current volatility and challenges with predicting margins, we are only providing financial guidance for the next quarter. Our outlook assumes that marketing conditions remain stable with no major increases in mortgage rates, tariffs, inflation, cancellation rates or construction cycle times. As we rely more on QMI sales forecasting profit is tougher, while we performed at the top of our guidance for many quarters. Our goal is to provide realistic guidance that we can meet or beat if conditions are favorable. Our forecast includes ongoing use of mortgage rate buydowns and similar incentives but it does not include any changes to SG&A expense from phantom stock cost tied to stock price changes from the $112.65 closing price at the end of the first quarter of fiscal '26. Slide 23 shows our guidance for the second quarter of fiscal '26. Our expectation for total revenues for the second quarter is between $625 million and $725 million. Adjusted gross margin is expected to be in the range of 13% to 14%. We expect the range of our SG&A as a percentage of total revenues to be between 12.5% and 13.5%, which is still higher than usual. One of the reasons the SG&A ratio is running a little high is that we are making significant investments to improve processes and technology in many areas to significantly increase our efficiency in future years. We expect income from joint ventures to be between breakeven and $10 million, and our guidance for adjusted EBITDA is between $30 million and $40 million. Our expectation for adjusted pretax income for the second quarter is between breakeven and $10 million. Our second quarter guidance includes proceeds from a land sale that has already closed in the second quarter. While our second quarter profit outlook remains modest, we anticipate a rebound in adjusted pretax income during the latter half of fiscal 2026. Historically, our earnings have shown a tendency to strengthen as the year progresses and recent trends, including improved contract activity in January and February support this expectation. Additionally, the upcoming delivery of homes from our newer, higher-margin communities should further enhance results primarily in the fourth quarter. On Slide 24, we show 86% of our lots controlled via option up from 44% in fiscal 2015, reflecting our strategic focus on land light. Looking at Slide 25. we remain strong compared to our peers in controlling land through options. In fact, we have the fourth highest percentage of option lots, placing us well above the industry median of 57%. On Slide 26, we have the second highest inventory turnover rate among our peers. This is an important part of our strategy because it means we sell and replace our inventory more quickly than most competitors, demonstrating a more efficient use of our capital. This reflects many other factors in addition to land light. We see more opportunities to use land options as well as reduced lot purchase to construction start and construction start to completion cycle times, which would further help us improve our inventory turnover. On Slide 27, we show that compared to our midsize peers, we have the second highest adjusted EBIT return on investment at 17.2%. On Slide 28, we show our price to book value compared to our peers. We are trading slightly above book value and right at the median for all the peers shown on this slide. Given our high return on investment, combined with our rapidly improving balance sheet, we believe our stock continues to be undervalued. I'll now turn it back to Ara for some brief closing comments. Ara Hovnanian: Thanks, Brad. Despite a challenging housing environment, marked by affordability pressures and continued economic uncertainty, we delivered a first quarter that met or exceeded our guidance. While profitability declined year-over-year primarily due to higher incentives to support our sales in a very tough market, our focus on steady sales pace and efficient inventory turnover is paying off. We continue to prioritize sales pace over price, utilizing mortgage rate buydowns and other incentives to help drive demand and help more buyers overcome affordability challenges. Although, our recently -- our recent to-be-built contracts are yielding higher margins and they've begun to increase as a percentage of our total sales. On the topic of affordability, we appreciate any support from the federal government that could make homes more affordable and encourage more buyers to enter the market. Our strategy, while pressuring near-term margins enables us to clear older lower margin loss and position us for improved profitability as newer margin -- newer communities come online, communities that were already underwritten with today's higher incentive environment in mind. As we look ahead, we expect adjusted pretax income to improve in the latter half of '26 supported by stronger contract activity in the early months of the year, more higher-margin to-be-built homes and the anticipated contribution from our newer communities. While second quarter profits may be muted, we remain confident in our trajectory. We believe the delivery of higher-margin homes will bolster results as we transition to the back half of the year and grow our home deliveries and revenues. Operationally, we've made significant progress in aligning our inventory with current demand. The number of quick move in homes per community has declined for 4 straight quarters demonstrating our ability and agility and strong execution. Our backlog conversion ratio hit 88%, well above historical averages for the first quarter and we remain confident in our ability to meet homebuyer demand going forward. We feel like we're making great progress in burning through some of our lower-margin land and older QMIs, setting us up for a solid future. On the land side, we exercised discipline by walking away from less attractive properties, primarily during the entitlement process and reducing our lot count by 18% year-over-year. We continue to secure new opportunities that meet our margin and return targets. Our land light strategy with 86% of our lots controlled via options combined with one of the highest inventory turnover rates in the industry ensures that we remain nimble and capital efficient. We remain confident that we have sufficient land control to produce solid growth as the housing market returns to normal. Financially, our balance sheet and liquidity are strong, we ended the quarter with $471 million in liquidity, increased equity and further reduced net debt. With a net debt-to-capital ratio that has improved dramatically over the past few years, we're well positioned for long-term growth. Our recent refinancing moves have enhanced our flexibility and lowered our risk profile. Looking ahead, we expect that gross margins in the second half of '26 will gradually improve as we transition to newer, higher-margin communities. Our guidance for the second quarter assumes a steady market and continued focus on sales pace with prudent expense management and ongoing investment in process and technology improvements. Finally, as we've seen in the past, we expect significant volume in the latter half of the year. In summary, we're navigating a tough market with discipline and agility and a strategic focus on sales pace, inventory efficiency and land-light operations that should deliver tangible results. We remain committed to sustainable growth and value for our shareholders as the market conditions evolve. That concludes our formal comments, and I'll be happy to turn it over to any questions. Operator: [Operator Instructions] Our first question is going to come from Alex Barron with Housing Research Center. Alex Barrón: Yes, I guess on the topic of incentives and their pressure on margins. I'm kind of wondering if you guys feel there's going to be an opportunity this year to -- or is it worth the trade-off to maybe offer less incentives and maybe get slightly high -- lower sales pace but higher margins. How are you guys thinking or navigating through that right now? Ara Hovnanian: Well, Alex, that's a good question, and it's certainly one that all homebuilders are looking at. Some of our peers have clearly made the decision to offer less incentives, seek higher gross margins even with the slower volume that it usually translates to. In our case, we'd rather focus on pace versus price, so we'll keep up the incentives. We really want to burn through some of our lower-margin land. And you can't do that if you're trying to squeeze every last dollar of profit. The market has shifted since we contracted for some of the land parcels years ago. So we just want to burn through those, clear our balance sheet as we've been doing drive liquidity. We're at the second highest we've been in many, many years, most of it just sitting in cash and prepare ourselves for the land opportunities that are clearly showing up now as land sellers are becoming a little more realistic given the incentives that most are offering. Alex Barrón: Got it. And in terms of your percentage of specs QMI versus built-to-order, I know in the last few years, you guys have shifted more towards specs. What percentage are you doing of each? And are you thinking of doing something more balanced? Ara Hovnanian: Well, as we mentioned in the call, QMI sales actually dropped from 79% to 71% and that wasn't actually part of a conscious strategy to do that. It just so happens that some of our offerings really drove -- we often offer both QMIs and to-be-built, and it just so happens that the demand for to-be-built in our markets has been growing recently, again, not through a specific strategy, but it's just the markets of the reality. And the good news is they have significantly higher profit margins and less incentives. Customers that want what they want are willing to pay for what they want. So that's been a beneficial trend. Operator: [Operator Instructions] I am showing no further questions at this time. I would now like to turn the call back to Ara for closing remarks. Ara Hovnanian: Thanks so much. We're satisfied with our results exceeding. Meeting and exceeding our guidance is not easy in this environment. So we look forward to giving better results yet in the following quarters in the remainder of the year. Thank you so much. Operator: This concludes our conference call for today. Thank you all for participating, and have a nice day. All parties may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Innoviz' Fourth Quarter 2025 Earnings Call. [Operator Instructions] I must advise you that this call is being recorded. I would now like to hand over the call to our first speaker, Ada Menaker, Head of Investor Relations. Please go ahead. Ada Menaker: Good morning. I would like to welcome you to Innoviz Technologies' Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining us today are Omer Keilaf, Chief Executive Officer; and Eldar Cegla, Chief Financial Officer. I would like to remind everyone that this call is being recorded and will be available on the Investor Relations section of our website at ir.innoviz.tech. Before we begin, I would like to remind you that our discussion today will include forward-looking statements that are subject to risks and uncertainties relating to future events and the future financial performance of Innoviz. Actual results could differ materially from those anticipated in the forward-looking statements. Forward-looking statements made today speak only to our expectations as of today, and we undertake no obligation to publicly update or revise them. For a discussion of some important risk factors that could cause actual results to differ materially from any forward-looking statements, please see the Risk Factors section of our Form 20-F filed with the SEC on March 12, 2025. Omer, please go ahead. Omer Keilaf: Thank you, Ada, and good morning to everyone joining us today on the call. 2025 was a pivotal year for Innoviz in terms of customer engagements, production readiness and end market expansion. We achieved the financial and operational goals that we set for ourselves at the start of the year, growing our market presence and strengthening our financial foundation. Since the last earnings call, we announced that the major commercial vehicle OEM with whom we have an agreement for series production of Level 4 trucks is Daimler Truck and its subsidiary, Torc Robotics. We also announced our next generation InnovizThree with a smaller form factor and lower power consumption for behind-the-windshield integration, the holy grail for automotive applications. Combined with an RGB camera, the InnovizThree is a compact sensor-fusion model that simplifies integration and deployment. The InnovizThree is also more affordable than the InnovizTwo, which increases its potential TAM. You can actually see right now, we are being filmed using our InnovizThree LiDAR. I'll tell you more about it later on. Our InnovizSMART, which we introduced last summer for nonautomotive applications, is available for shipment, and we are seeing excellent traction with a variety of customers. We are very pleased with the inroads the InnovizSMART is making in the security market, and we recently announced that an InnovizSMART-based solution has been deployed across several sites in critical infrastructure as an off-the-shelf system comprising the LiDAR, cameras and analytics software. At CES, we demonstrated the InnovizSMARTer, integrated with NVIDIA Jetson Orin Nano to enable edge compute deployments in bandwidth constrained areas, simplified installation and cloud applications. To meet the demand of our automotive and nonautomotive customers, we have continued to ramp capacity at Fabrinet and expect production this year to be 3x to 4x higher than last year. On the financial front, in 2025, we grew revenue to $55.1 million, more than double the level achieved last year. Our gross margin for the year was 23% versus approximately minus 5% in 2024. OpEx for the year was $80.6 million versus $100.8 million in 2024, a 20% decrease. As we kick off 2026, our NRE payments plan stand on approximately $111 million versus $80 million at the start of 2025. We've recognized approximately $45 million of revenues of these NREs agreements in 2025. We have $66 million remaining. We expect to recognize almost all of our existing NREs in 2026 and 2027. And we expect to sign additional NRE payment plans in 2026. As our current programs reach SOPs and we win new programs across automotive and nonautomotive, we expect to see significant growth in LiDAR revenue over the coming years. Longer term, as sales of LiDARs expand, we expect them to make a growing proportion of revenues versus NREs. We believe that sales of LiDARs into the nonautomotive physical AI applications will grow from approximately 1% to up to 10% of our annual revenues in 2026, accelerating further in the coming years. In all, we believe Innoviz is in a very strong position for 2026 and the years ahead as we expect to play a significant role in what could be one of the most important technological advances of the future. After transforming digital workflows through software and large language models, AI is moving into the physical world. It will power vehicles, robots, infrastructures and machines that must perceive, reason and act under real-world constraints and real time. This transition, often referred to as physical AI, represents one of the largest and longest duration technology opportunities of the coming decades. Physical AI must function in safety critical environments, tolerate environmental variability and scale at infrastructure level. As a result, it requires a fundamentally different foundation with perception at its center. Perception powers world models, models grounded not in text or images, but in physics. And they are meant to emulate complex real-world systems. LiDAR is emerging as the most reliable method for digitizing the physical world into accurate real-time 3D representations, creating trusted world models that can drive machine decisions. Earlier this week, we published Part 1 of a white paper on the role Innoviz is playing and will continue to play in the rise of physical AI and how we bring world models to life. I invite you to read it on our website. Part 2 will be out soon. And in March, we will also host a webinar on the subject with Q&A. Please stay tuned for details. As the need for LiDAR as part of this new phase of physical AI becomes better understood and as the technical [Audio Gap] become more stringent, many players have been driven out of the market. We expect additional fallout in the future, with the market consolidating around just a few players. Automotive OEMs need behind-the-windshield solutions with lower power and smaller form factors. Nonautomotive applications, especially in the areas of industrial and security, demand enhanced reliability and safety. Innoviz stands ready to meet these challenging customer requirements. With the maturity and production readiness of our InnovizTwo and the smaller size, lower power consumption and lower cost of InnovizThree, we believe we are well positioned to become the world's premier large-scale supplier of LiDAR solutions, enabling autonomous driving and the rise of physical AI. And now let's jump into the details. Starting with our trucking customer win. Back in September, we announced that we were selected for series production of Level 4 autonomous trucks by a major commercial vehicle OEM. In December, we were very pleased to be able to name the customer, which is Daimler Truck and its subsidiary, Torc Robotics. Under the terms of the engagement, Innoviz will provide multiple LiDARs per vehicle for the customer's L4 Class 8 Freightliner Cascadia platform. We have already begun shipping units to support Daimler's trucking fleet. This partnership positions Innoviz' technology as a critical component in Daimler's truck strategy to bring autonomous trucks to the market. Deployment is planned across highway and regional routes in North America to help fleet operators improve operational efficiency and enhance road safety. Having met the requirements of one of the world's largest commercial OEMs, we believe we are well positioned to gain additional wins in the trucking space. And as we roll out new technologies, including an upcoming ultra long-range solution, we will continue to work with Daimler to explore additional opportunities based on our full portfolio of products. The agreement with Daimler that we just discussed underscores the traction we are seeing in Level 4 applications. As we said before, the case for Level 4 has become very clear to the automakers. They see the benefit of adding content to a vehicle, eliminating the driver and deploying the vehicles in fleets. Waymo's success in pushing others forward, and at CES, about 2/3 of the customers and potential customers we met were focused on Level 4 applications. We are working towards Level 4 SOPs with Mobileye, Volkswagen and Daimler Truck, and we believe we are the LiDAR company with the most significant Level 4 Western SOPs. I just recently toured the VW ID. Buzz production line in Germany, and it was truly impressive. This is the first automotive series production of a Level 4 robotaxi in the world. And it was very exciting to see our suite of 9 LiDARs being installed on each vehicle as part of the automated process. We expect fleets of these vehicles in 6 cities in the U.S. and in Europe this year, targeted to ramp in the second half of the year. We are also progressing on our Level 3 SOPs with the Mobileye Chauffeur and programs such as Audi expected in 2027. In terms of new programs, in addition to the strong interest in Level 4, we are also very excited about the increase in Level 3 activity as well as our continued work with NVIDIA. Level 3 is now viewed as a KPI for upcoming car designs. And there are multiple RFQs for programs aiming for 2028 and beyond. Many of these programs are targeting behind-the-windshield deployments. Several OEMs have recently discussed their Level 3 efforts, specifically mentioning LiDAR as a key component. With significant progress in LiDAR designs and the availability of mature technologies, automakers are exploring their options, and we are poised to compete and win on new RFQs with our solutions. To support our customers' efforts, we've introduced the InnovizThree. Over the last 10 years, the LiDAR space went through 2 phases. And we are now entering a third phase. In the first phase, there were many players, and the devices were largely proof of concepts. In the second phase, the automotive OEMs needed a mature, durable working product, and the number of players declined. As far as we are aware, there are only 2 companies that were able to launch a Level 3 product during the second phase, and Innoviz was one of them. The time, development and effort that Innoviz invested in the first 2 phases are the foundation of the InnovizThree, designed to enable us to meet the elevated requirements of this next phase. Here, the holy grail of automotive LiDARs is behind-the-windshield installation that doesn't compromise vehicle design or in-cabin environment. The InnovizThree has been designed to meet these challenges with a smaller form factor and lower power consumption. The InnovizThree also offers a lower price point. While the InnovizTwo cost approximately 70% less than the InnovizOne, the InnovizThree offers an incremental 35% cost reduction. This could make it a compelling solution for L2+ applications as well. At CES, we even showcased the InnovizThree combined with the camera. This solution simplifies OEM sensor integration and sensor fusion, streamlining packaging and enabling faster deployment. The LiDAR+ camera can also be used in applications such as drones, microrobotics and humanoids, further enabling physical AI. And by the way, as I said at the first of the call, we are using InnovizThree to make this call. I think you'll agree with me that this is unlike any other LiDAR image out there. By adding color capabilities directly into our LiDAR, we are giving OEMs a cleaner, more efficient, lower-cost path to multi-sensor perception without compromising vehicle design. While the automotive space remains our primary area of focus, let me touch on our progress with the InnovizSMART, which is now available to order and the newly announced InnovizSMARTer. The InnovizSMART is based on the InnovizTwo platform and optimized for nonautomotive applications such as security, smart city, robotics and others. One example is an InnovizSMART-based perimeter security solution which has already been deployed in several locations. This is an off-the-shelf system for protecting critical infrastructure and municipal areas. It combines our LiDARs with our partner's PTZ cameras and analytics software. Unlike radar and camera systems, the solution can detect movement behind obstacles such as trees and fences, maintains performance in harsh conditions and deliver reliable detection of slow-moving or camouflaged targets. The InnovizSMARTer integrates InnovizSMART LiDAR with an NVIDIA Jetson Orin processor that -- to deliver a one-box edge solution for real-time 3D perception, enabling wireless deployment of LiDARs in bandwidth constrained environments. At CES, we showcased the InnovizSMARTer by live streaming a point cloud of the Las Vegas Strip, which was compressed at the edge. The video you've been seeing in the recorded output, as you can see, it flawlessly show the landmarks, people walking, moving cars and even the textures of buildings. These are all great examples of what LiDAR can do in terms of helping build a world model for physical AI, and we are seeing a lot of interest in our smart products for a variety of end markets. Now let's talk about our outlook for 2026. Driven by ongoing NRE payments and the ramp of LiDAR shipments, we expect to grow revenues by approximately 27% to $67 million to $73 million. In 2026, we expect up to 10% of our revenues to come from nonautomotive physical AI applications, up from 1%. We expect new NRE payments plan of $20 million to $30 million in addition to our existing plans. We expect to add 2 to 3 new programs this year. And now I will turn it over to Eldar to discuss our financials. Eldar Cegla: Thank you, Omer, and good morning, everybody. Innoviz experienced significant growth and operational momentum in 2025. Revenues were at $55.1 million, a record year for Innoviz. We ended the year with approximately $72.1 million in cash, cash equivalents, short-term deposits and marketable securities on balance sheet. And we have no long-term debt. Cash used in operation and capital expenditure in the year was approximately $49.3 million. For the quarter, cash used in operation and capital expenditure was the single digit at $7.3 million, which included proceeds from sales of machinery. This was the second quarter of a single-digit burn in the year, demonstrating our commitment to lowering cash burn over time. We believe that our strong balance sheet and continued focus on operational excellence will provide us with the runway to reach customer SOPs into 2027. Now turning to income statement. Our 2025 revenues of $55.1 million more than doubled year-over-year, supported by NREs as well as sales of LiDAR units. Gross margins in the year was approximately 23%, an important step towards profitability. Going forward, we expect that we will continue to see quarter-to-quarter variability in margins due to the revenue mix and customer timing. Our operating expenses in 2025 were $80.6 million, a decrease of approximately 20% from $100.8 million in 2024. This year's operating expenses included $10.7 million of share-based compensation compared to $17 million in 2024. Research and development expenses for 2025 were $56.5 million, a decrease from $73.8 million in 2024. The decrease is primarily related to the allocation of costs related to sales of NRE and to operational realignment in Q1 of 2025. The year's R&D expenses included $6.2 million of share-based compensation compared to $11.2 million in 2024. 2025 was truly a pivotal year for Innoviz, and I look forward to what is ahead as we ramp the new product and secure additional program wins across the automotive and nonautomotive space. With that, I'll turn the call back to Omer for his closing remarks. Omer Keilaf: Thank you, Eldar. Before I wrap up the call and open for Q&A, I want to recap some of our recent developments. In 2025, we reported record revenues of $55.1 million, more than twice the previous year. We improved our gross margin and reduced our cash burn. We were selected to supply LiDARs to Daimler Truck for their autonomous trucking platform and made significant progress on our L3 and L4 programs. We continue to see a lot of interest in L4 and see a step-up in engagements in Level 3. We introduced the InnovizThree, which we believe meets the holy grail of automotive requirements for behind-the-windshield installation. We are building a strong presence in smart applications with our InnovizSMART and InnovizSMARTer. 2025 was a truly pivotal year for us, and we look forward to continued momentum in 2026. The transition to physical AI has begun, and perception is a foundational layer in bringing world models to life. Physical AI cannot tolerate ambiguity, and LiDAR is critical to the establishment of ground truth. LiDAR offers accurate, reliable data, and critically, it meets privacy requirements. We believe Innoviz is uniquely positioned at this inflection point. I look forward to telling you more about this later in March, when I will host a webinar to discuss our technology and its role in the implementation of physical AI. Please stay tuned for details. And with that, operator, let's begin the Q&A. Operator: [Operator Instructions] Mark Delaney with Goldman Sachs. Mark Delaney: Yes. I was hoping you could give more color on the guidance for 2 to 3 new wins in 2026? And in particular, I'm hoping for color on where you think those wins could come from and how close you think Innoviz is on converting on those new opportunities. Omer Keilaf: Yes, sure. So Mark, there are several programs that we are currently active on that are on Level 4, actually, that we expect to converge. On top of that, there are a few Level 3. So those are the ones that we are, I would say, more tangible, and we see good cadence and progress, and generally, we're in a good position for. Other than that, there are Level 3 programs which we are competing on. And they are split between InnovizTwo and InnovizThree. The InnovizTwo is based on programs that are trying to launch earlier. They kind of give advantage to an already automotive grade product that is going to production. And there, obviously, the InnovizTwo is a very mature product that we can offer. For those that are -- they need a product that is for behind-the-windshield. This is where we are offering the InnovizThree. And there, I believe that we are also in a good position, but those decisions probably will take a bit more time, maybe towards the second half of the year. But overall, those are the activities that we were pointing at. Mark Delaney: And could you also speak specifically to where Innoviz stands at converting on the SoDW with a top 5 auto OEM and the potential for that to convert into a series production award? Omer Keilaf: So we completed the SoDW, and we're in discussion with the OEM about the next steps. It's unclear yet what is -- how it will convert and when. Mark Delaney: Okay. And then lastly, guidance for revenue for 2026, I believe, assumes that 10% of the revenue comes from the nonauto market. Could you talk about how well covered that is in terms of bookings? In other words, have you already secured the design wins and orders to support that revenue outlook outside of the auto market this year? Or is there still work to do to achieve that? Omer Keilaf: So part of it is booked through our ongoing effort in the security market. This is where we're seeing quite high demand and a good fit. We went through several RFQs competing on different opportunities and came out with the upper hand due to the very impressive performance that our LiDAR offers. While many LiDARs that are active in the nonautomotive market, they are relatively low resolution and range, and therefore, were not really suitable for that market, our LiDAR, due to its unique high resolution and long range, we were able to unlock that market. And those are very premium market in terms of its safety level applications. So basically, everywhere we're going, we see a very, I would say, good appetite for what we're showing. We're also working on an ultra long-range LiDAR that I hope to be able to share a bit more soon. That will even take us even further in that market. And of course, we are still also in discussion with a very wide range of applications where are already being served by different LiDARs. But see the benefits of using a LiDAR which is automotive grade with high resolution and resilience to dirt, et cetera. So it's growing. It's growing fast. It's also, I would say, it's fun in a way, after working only with automotive customers, it's some -- fresh of -- fresh air sometimes. But it's -- generally, it brings a good vibe also to the team seeing the -- really, the variety of different opportunities and the excitement that we're seeing from our customers. Operator: Jash Patwa with JPMorgan. Jash Patwa: Congratulations on all the progress this quarter. I was having a hard time distinguishing between the LiDAR and camera feeds, so appreciate that intuitive demo. I wanted to start with a high-level question on the technology landscape. With AI disintermediation risk front and center for many investors, could you share your perspective on how LiDAR technology might be insulated from or even benefit from AI advancements? Relatedly, like do you see any risk that AI-driven improvements in alternative sensing solutions could ultimately limit the longer-term TAM for automotive LiDAR? And I have a follow up. Omer Keilaf: Sure. More than happy to talk about. Physical AI was practiced already in the last 10 years when it comes to autonomous driving using LiDARs in order to practice and develop AI to allow the car drive autonomously. It is actually only in the last couple of years where AI made a lot of progress and availability to many other sectors. And what we're seeing is that while for a very long time, AI was practiced on digital content, whether it's text or images where the generative AI was only trying to predict the next pixel or the next word, you see a desire to go into the physical world, where you can use AI to understand the world better, to analyze it and also possibly even predict it by being able to train those world models. The missing factor or the missing link, as I try to point that in my white paper, is related to the fact that all of those world models are based on simulation data that are also generated by AI. That creates a big problem when your AI is trained by data that is also provided by AI, you are creating a very big error that is inflated and you create a bias in your models that are targeted to create models that try to predict how the real world acts. What we're trying to point at is that by using a high-resolution LiDAR, you can actually connect to those world models and those digital twins that companies like NVIDIA are talking about with the SOC, where you connect those digital twins to life. The LiDAR will bring life to those models and will enable development of AI on the real world. And this is where we're seeing today AI being practiced in different industries, whether it's industrial or security or maritime. And basically, everywhere, you'll see -- in the future, you will have LiDARs that are going to be operated, whether it's outside our houses, and by cars or by infrastructure or by robots that are going to use LiDAR within our houses. So that data is going to allow AI to understand better, how the world really acts. There's obviously a lot of sensitivity when it comes to collecting all of that data. But I see the LiDAR as if we are connecting the world model to the Internet in a way that we are feeding it with real-time accurate information. And we see that more and more people are aware of AI capabilities and how it can be deployed in many applications, not only autonomous driving. And that's what we are currently working with, with different partners. And we'll elaborate more on our AMA, Ask Me Anything session. Jash Patwa: Awesome. I appreciate all the color there. Just as a quick follow-up. Congratulations on the Daimler Truck announcement. I think you already touched on this in your prepared remarks, but I'm curious if you could peel the onion further on why Innoviz was selected as the preferred short-range solution, but not for the long range variants. Could you provide any feedback from the negotiation process? And were there specific technology considerations or limitations that led the OEM to pursue a dual sourcing strategy? Omer Keilaf: Sure. With the full transparency at the time that Daimler Truck were evaluating for a long range, we were not even in the process, for whatever reasons that was. And only when the short range opportunity came up, they became aware of our solution. I can share with you that the relationship is very strong, and we are currently discussing about further expansions where Innoviz technologies can benefit Daimler and Torc on their mission. As we were mentioning earlier also, we are working on an ultra-long-range LiDAR that would actually be very efficient and valuable, not only for the security market, but also to the truck market. So this is the first -- this is only our first engagement, and I believe it will grow. Operator: Colin Rusch with Oppenheimer. Colin Rusch: As you get deeper into the physical AI space, can you talk a little bit about any sort of need to invest in incremental sensor fusion capabilities as well as functional safety and what the demand for functional safety might look like for you guys and how long you would -- it would take for you guys to bring that to market? Omer Keilaf: So actually, the requirements we're seeing from customers in regards to functional safety, they are well aligned with what we have already achieved for the automotive market. What we get people very excited about is our resilience of the sensor. The sensor -- the InnovizTwo sensor, for example, is very resilient to weather conditions and dirt. Those are the situations where an autonomous truck or car or taxi, you wouldn't want it to be in a blind spot whenever something happens, such as dirt on the window. That's a very unique proposition that Innoviz is providing. And that's part of those that want to install LiDARs on different infrastructure, they want to see available. Other than that, as I was referring to at the beginning of the talk about the InnovizSMARTer, that's our, I would say, next-generation InnovizSMART where we embed processing power to the edge, which helps in equipping the LiDAR in different end points that allow us to transmit the data with compression and connection into the cloud. Once you are able to connect the LiDAR into the cloud from different points and create a world model, it's actually quite easy to connect it to the other platforms such as the one that NVIDIA is developing in order to train your models and develop on top of it. So we understand the requirements for that flow. We're developing the tools that are needed. It does not require changes on the LiDAR design itself. And as you saw, we are also offering a LiDAR and camera fusion out of the box. So basically, we have all of the design already set up for such an infrastructure. Colin Rusch: Great. And then my follow-up is really around customer engagement. Certainly, there was an enormous amount of activity at CES. And I'm sure there's a lot of folks sampling. I just want to get a sense of the scope and scale of the customer engagement for you guys right now. Like working with the distributor is helpful, but I'm sure you've got a wide range of folks that you're engaged with directly. I just want to get a sense of how that's grown over the last year and really in the last couple of quarters from a kind of numbers perspective. Any color you can provide us in terms of the sampling activity would be helpful. Omer Keilaf: Sure. So obviously, the answer is split between automotive and nonautomotive. In the automotive market, we are well connected with all of the customers and engaged, I would say, periodically on a weekly basis with all of the customers, most, if not all. When it comes to the nonautomotive, this is where we'll see a huge step-up in our leads and engagements. Just to give you a reference. So 2 weeks ago, we were in -- we had a big conference at Innoviz, where we invited around 80 security consultants from Israel when it comes to the airports, harbors, train stations, et cetera. And we did some kind of an exposure visit where we showed them the technology. And I think we probably left that event -- only that event with tens of opportunities. The following week, we visited a defense conference and left the conference with, I think, a few tens of leads. So this is a market where we are growing our awareness, I might say, where we are getting in touch with customers that still require some exposure to the capabilities of the technology. Right now, we feel that in the defense market, security market, we actually are already having quite nice exposure as we are getting leads already, I would say, passively reaching out to us. We are growing our business development in the States, while we already have a nice position in Europe and Asia. So we are growing our, I would say, footprint in this domain. I think that this is why we are expecting 10x growth between last year and this year. And I actually think it's a modest assumption on what I believe our opportunity within this market, having that we have a good product in production, automotive grade, that is actually solving problems that others don't. Operator: Itay Michaeli with TD Cowen. Itay Michaeli: Great. Just wanted to dig in further into the comments on increased L3 activity on Slide 9. And specifically, we've seen a few announcements where the Level 3 hardware is going to be equipped standard fit across all vehicles. I'm curious if in your discussions and your pipeline, are you seeing a similar trend there? Or is generally, Level 3 still going to be sort of at initially low attach rate and then growing from there? Omer Keilaf: No. Actually, what we're seeing -- and this is also something that -- I think it's already in Part 1, but I'm probably going to touch that more deeply on our second part of the white paper. We're going to go deeper on the Level 3 automotive competition, et cetera. So we -- the LiDAR space over the last 10 years went through 2 phases, where the first phase was mostly prototyping and customers were becoming educated of what they need. In the second phase, you've seen several programs already going into production, but only actually eventually only 2 of them. I think the third phase, which we are -- that we see that we are -- the automotive space is entering is where the programs are targeting higher volumes. They see that the pricing of LiDARs have come down where it can enable it. The installation behind-the-windshield removes one of the last frictions as far as I see it. Because I saw a lot of friction in the past where LiDARs either in the grill were not optimized in terms of the height or on the roof in terms of the design of the vehicle. And I saw back and forth between the design team and the engineering team of the car company, where they were really struggling on how to make it work across all of their models. Being able to deploy it behind-the-windshield removes quite a big friction in that regard. Bringing a LiDAR to behind-the-windshield requires a very significant size reduction, power reduction because your -- the flux of sun that you need to absorb behind-the-windshield is quite high. The temperatures that you need to be operating is higher. And obviously, you need the performance that you need to offer is higher due to that innovation that is slightly expected from the window. So that's -- I see it as another notch where the complexity, or I would say, the moving target of the LiDAR requirements is kept moving. Over the last 8 years, you've seen 200 LiDAR companies don't meet the requirements of the first phase. The last 50 didn't meet the requirements of the second phase. And now we see the third phase where the requirements are elevated again to be behind-the-windshield. And to be honest, I'm not familiar with any technology other than the one that we're using that is a better fit for that with some of the other technologies just are not valued for that. So I'm actually excited about behind-the-windshield because I know that Innoviz is able to serve that market. And I believe that we'll be able to position ourselves as the leader here. Itay Michaeli: Terrific. And as a follow-up and I apologize if I missed it earlier in the call, on Slide 5, with the growth in non-auto LiDAR and physical AI, can you just mention how we should think about the impact to gross margins and ASPs for the company over the next few years? Omer Keilaf: Sure. I mean, obviously, those markets, just to give you some perspective, when it comes to the defense market or the security market, the technologies are priced at around $10,000 per sensor. Obviously, the sensor that we are offering is significantly better than the ones that are used today due to our ability to see beyond trees, beyond fences, small objects, and obviously offer many more features that were not even possible to even ask for. So the ASPs in these markets are higher. Since it's related to safety, then the need is clear, of course, in the landscape of the world that we live in. So this is why we focused on those markets early on because we also saw that, that's a market that other LiDARs are challenged with because they don't meet the range, they don't meet the resolution, and that's where we can come in without too much resistance. And of course, we can also penetrate other markets that are served today by LiDARs, such as the ITS, airports and the trains. Today, I had a discussion with someone from the team, which was talking with me about discussions with the electricity company, with the water company. I told him it fells like monopoly, like that we are starting to cover all of the infrastructure around us. It's a world of opportunities when it comes to physical AI. And what we're seeing is that the market that is today in opposed to automotive, where we are not displacing the radar or the camera, we're just coming on top, this is where you see the analysis talk about $10 billion of market size in a few years. When we talk about physical AI, we are looking at the TAM of cameras and radars because we believe we can replace them. And those TAMs are quite big. Meanwhile, we are providing a better value than them. Operator: Casey Ryan with WestPark. Casey Ryan: Thank you for a really great update, Omer and Eldar. Maybe one quickly for Eldar. And maybe you said this on the call, what do we think about OpEx kind of the run rate? Are we sort of going to be in the same level as we move forward? Or should we expect some meaningful changes for any reason, up or down, I guess, in '26? Eldar Cegla: So until now, the company has shown its ability to be very, I would say, efficient and modest in the way it conducts itself. Going forward, I think we will continue with this method of running the company. So I'm not expecting any dramatic change in that respect. Casey Ryan: Okay. And then more broadly, maybe Omer can talk about this, too. Does the drivetrain matter? If you look at automotive and trucking, it feels like a lot of the innovation for L3, L4 robotaxis have been on EV drivetrains. I'm not sure if that matters. Maybe that's just newer designs and they're more willing to integrate new technologies. But are the opportunity sets different in sort of ICE vehicles and sort of ICE production plans? Omer Keilaf: No, I'll say the following. So several years ago, the OEMs when they had to pick or design their future vehicle, they don't develop it on a yearly basis. They do it on a cadence of 4 to 5 years when they set a certain design, start working on it and eventually cut out of its different brands, but eventually, the platform itself serves multiple vehicles. Now several years ago, many of them have picked Level 3 and EV as kind of like what they need to do on their next vehicle. And in a way, I believe that the LiDAR market or the Level 3 market in the Western market was suffering due to the challenges that came up with the EV transition. And some of those platforms were delayed or even canceled. And I think that part of the reason, and I would say even my surprise, beginning of the year when we were meeting several OEMs that came up and we were talking about RFQs for Level 3, it became clear that their strategy related to EV or ICE is behind them in terms of like they've made their decisions, and that turmoil is kind of settled. And from that sense, Level 3 is back on the table because there are now, again, discussions on what exactly would be their platform. And they want to launch it because they eventually -- Level 3 was always on their map, but because of issues that they had with the platform of the EV, I think the LiDAR market was slightly delayed. So -- on the technology part, there is no correlation between EV or ICE to a LiDAR. You can operate autonomous driving on any type of vehicle. You just need that the platform would be developed. Casey Ryan: Got it. Okay. That's helpful. And so it sounds like '26 is setting up great for maybe a meaningful jump in terms of commercial revenues versus its percentage contribution in '25. I think in your initial comments, you said that production would double or triple, Omer? I missed that. I wanted to get... Omer Keilaf: The production is going to be up 3x to 4x. Our production site at Fabrinet is ramping up. We are prepared -- preparing towards the SOP of the Volkswagen and Mobileye, where we are expecting fleets of vehicles in 6 cities in the U.S. and Europe. And on top of that, there are Mobileye, other customers that are going to follow that in terms of SOP. So definitely, our production ramp-up is going to increase our sales of LiDARs, and that would also add in our sales in the nonauto market. Casey Ryan: Yes. Well, that's a very exciting outlook, I think, and a great trend point. Just one last point on the NREs that you have, the $111 million in total. Could you just give us a count on how many people made up that group of NRE contributors, if it was -- say, if it was double digits or single digits in terms of the number of customers? Omer Keilaf: So we're currently supporting multiple programs. I'm not sure what you mean about people, but they are currently in parallel -- we are supporting 4 or 5 programs in parallel, whether it's different programs within Volkswagen, different programs with Mobileye and Daimler Truck. So this is kind of like the number of programs that we are currently committed to and working towards an SOP. Casey Ryan: Okay. And then last question. Of the new NRE opportunities, would any of those be outside of automotive or trucking? Do you think they could fall into the physical AI category? Omer Keilaf: I think that our assumption right now is that, that still would come from the automotive market. That's our assumption right now. Casey Ryan: Thank you. It's a very exciting outlook for '26. So thanks for the update. Operator: There are no further questions. I'm handing the call over to Omer for closing remarks. Omer Keilaf: So thank you very much for taking the time to listen to our end of year earnings. We are experiencing a very exciting time where we're seeing LiDARs being used on so many different opportunities. As I was saying earlier during the Q&A, the vibe within the team is very high due to, I would say, the excitement that we see in our customers eye. So thank you very much, and see you soon. Operator: Thank you very much for your participation. This concludes our call. The session will now be closed.
Iris Eveleigh: [Audio Gap] our full year results. As with every occasion, we will leave enough room at the end for your questions. With that, over to you, Leo. Leonhard Birnbaum: Yes. Good morning, everybody. Thank you, Iris, for the introduction also from my side. The past financial year has once again proven one thing. We at E.ON deliver on our promises, and we at E.ON are exceptionally well positioned to not only be the playmaker of the energy transition, but also a beneficiary of this transition. In a year that has been characterized by geopolitical instability and macroeconomical challenges, E.ON is a safe haven. One has to admit that our business is facing a secular growth opportunity. It has no U.S. dollar exposure. It's largely inflation protected. It's unaffected by U.S. tariff policy, and it's even largely shielded against the latest fear of an AI disruption. What more can you ask for in terms of resilience. But that doesn't mean that we are without challenges. And so let me now move to our -- my 4 messages before handing over to Nadia. First, we have delivered strong financial results for the year 2025. again. Second, we have not only delivered financially, we have also delivered operationally. And our focus on outstanding operational excellence means that we are at the forefront of the energy transition, and this enables us to execute our growth plan successfully now and also in the future. Third, our growth case is based on a secular growth trend, and this trend is extremely robust. It's driven actually by a broad set of structural drivers and not only by one thing changing. And it's largely independent of short-term economic and -- economical and political fluctuations. And fourth, we are committed to long-term shareholder value with a disciplined focus on value creation. We will grow our investments until 2030 and are ready to pursue further growth opportunities, but only once the parameters for RP5 in Germany are set. So on my first message, we have delivered on our financials with an adjusted EBITDA of EUR 9.8 billion and adjusted net income of EUR 3 billion, both actually reaching the upper end of our guidance range. In 2025, we have on top, executed, increased our group CapEx for the fifth consecutive year, and we have completed a record level of investments into Energy Networks up to 20% up year-over-year, supported by successful project executions across Europe. And this demonstrates again the continuous progress of our growth strategy driven primarily by our Energy Networks business. We are operationally well set up. Nadia will talk you through the details of the financial performance later. To my second message, we have not only delivered financially, we have also delivered operationally. In August 2025, we crossed a major milestone, around 110 gigawatts of renewable energy sources are now connected directly to our grids in Germany. Let me just give you some perspective. We operate around 1/3, if you calculate it in grid length of the German grid, but we have 70% of Germany's total onshore wind power capacity and around 50% of its solar capacity. We have 58% of the installed battery capacity, you name it. It's like the energy transition is happening and taking place in our grids. At the end of January 2026, just last month, we hit another milestone. We connected the 2 million renewable energy source to our German grid. For perspective, we celebrated 1 million somewhere in October 2023. So it took us 15-plus years to reach -- to do the first million, it took us 2.5 years to deliver the second million. The third million will happen in less than 2 years. That's the scale of acceleration that is currently just being driven by us. And in parallel, we are delivering on the smart meter rollout. All E.ON DSOs in Germany have met the mandatory 20% rollout target for smart meters with an increase of, on average, 60% in rollout volumes versus 2024. For us, at E.ON, this makes one thing clear, the energy transition is now an operational task on an industrial scale. And aside from massive investments, operational excellence is a prerequisite, not only to scale the business, but to stabilize also an increasingly complex system. Regarding operational excellence, let me share a few highlights from 2025 regarding standardization and digital transformation as well as some innovation examples. Within Energy Networks, we have successfully concluded our component standardization project in Germany. This gives our EU-based manufacturers visibility and builds the basis for long-term supply agreements on key components well into the 2030s. And it contains enough flexibility and scope to support a CapEx envelope beyond what we have in place right now. We are now rolling out this approach across our European DSOs as well to further strengthen supply chain planning and improve component quality across all our DSOs. And in these less standardized markets, we have already achieved a 20% reduction in technical specifications across key categories. Beyond standardization, we actively pushed the digital energy transformation by embedding digital capabilities deeply into our operations. Obviously, you can't integrate 2 million feed-in points without digitization. So in Energy Networks, for example, our new field assistant app in Germany provides technicians real-time visibility of the power grid real time. I emphasize real-time visibility. Early results show up to 45% less effort for circuit planning, up to 40% less documentation, enhancing both safety and productivity. In Energy Retail, we continue to invest into digital capabilities that improve efficiency and performance. Based on that, our U.K. business was able to increase digital sales by 30% in Q4 2025 compared to the same period 2024. And finally, as a playmaker, we do, as you would expect, also innovate. In Energy Networks, we are rethinking grid expansion. We developed a feed-in grid socket as we call it, that bundles renewable energy sources at a single grid connection point. The simplicity, speed and cost effectiveness of the feed-in grid socket means that developers can access capacity faster through online booking and achieve a quicker and cheaper route to grid connection. For our retail customers, we continue to rapidly expand our innovative offerings, and we now have around 16 flexible energy propositions across 6 markets, including the world's first bidirectional charging proposition launched with BMW in September 2025. So standardization, digitization, innovation, the message is clear. This is part of operational excellence, and this is how we deliver and build the foundation for future success. Let me get to my third message regarding the extremely robust secular growth trend that we are in. On our Capital Markets Day in 2021, which was the last one we did, we set a clear strategic course, focusing the business on energy networks and investing decisively in grid infrastructure. Since then, we have continuously ramped up our investments. When we compare the year 2021 to 2025, the level of energy networks investments has doubled. And many of the emerging growth drivers have not yet reached their full potential. Let me touch upon a few ones. Continued grid expansion and modernization. It's clear that grid reinforcements are necessary to deal with the integration of renewable energy sources associated -- and the associated increase in volumes. But that's also true for other drivers like data centers. In the south of Frankfurt, for example, we planned upgrades to the high-voltage lines, and that will increase transmission capacity by 2.5x replacing 170 old mass with 135 new ones. In data centers, we have last year committed to connect an additional 12 gigawatt of data centers to our grid in future years. And just as one example, we will build the connection for 700-megawatt data center in Nierstein, close to Frankfurt, which will be one of the largest grid connections for data center within Europe. E-trucks, 5 years ago, when we did a Capital Market Day, we were still assuming that hydrogen is going to take a large part of truck transportation. But right now, actually, this is not looking like it. We are moving towards electrification also here, and we are reaching the tipping point with the total cost of ownership approaching parity, if not having being already beyond parity. And the EU-wide CO2 fleet standards require manufacturers to reduce new fleet emissions. This is an emerging opportunity, but also a big commitment of E.ON for the green mobility transition. In Germany alone, we will be adding more than 160 new grid connections for high-performance electric truck charging infrastructure. That represents roughly half of the nationwide fast charging network for electric trucks as initiated by the German government. So to summarize, our growth case is robust, supported by diverse growth drivers that accelerate well into the decade ahead. And if one driver turns out to be less than in the past, always others have turned out to overcompensate for that. So we are extremely confident on that trend. And that brings me to my final message for today, the further upgrade of our networks investments that we will do. So we have rolled forward our guidance to 2030, and we will increase our 5-year CapEx envelope from EUR 43 billion to EUR 48 billion for the years 2026 to 2030. We continue to invest at a run rate of close to EUR 10 billion per year from 2027 onwards, which translates into a 10% power RAB growth in Germany. As said, we are operationally ready to invest more. Our processes and capabilities fully would support a higher investment pace that is also potentially really needed. As highlighted today, it is our continued operational excellence that enables us to capture and convert this growth into strength and value for our shareholders. And our attractive combination of organic growth with a continued dividend growth target of up to 5% per year offers attractive long-term value with an opportunity for more. Now a successful energy transition requires significantly more network investments. They are essential from a macroeconomic perspective to avoid cost. They are good for our customers. They are politically supported in the business case in itself crucial for industry. Therefore, our confidence that final RP5 package will be attractive enough to actually deliver on those CapEx envelopes remains unchanged. We need more infrastructure. More infrastructure is good for German customers. Therefore, we assume that the prerequisites will be in place. What we need as a prerequisite is the necessary regulation that gives us the long-term planning certainty and financial attractiveness to support this further expansion. With that, let me hand over to Nadia. Nadia? Nadia Jakobi: Thank you, Leo, and a warm welcome to all of you from my side. I'm pleased to share with you the details of our 2025 financial performance and our new guidance for 2026 and outlook to 2030. My 3 key messages for today are: first, we delivered a strong performance in 2025. Once again, our steady execution translated into strong full year results and record high investments, providing growth despite ongoing geopolitical and macroeconomic uncertainty. We achieved an adjusted EBITDA of EUR 9.8 billion and an adjusted net income of EUR 3.0 billion, both reaching the upper end of our guidance range. Our investments increased by 13% year-over-year to EUR 8.5 billion, supporting continued growth in our regulated asset base. Second, we introduced our 2026 guidance and provide an outlook to 2030. We expect to deliver more than 6% earnings growth, while shareholders continue to benefit from a reliable dividend growth commitment of up to 5% per year. This represents an attractive total shareholder return. We maintain strong investment momentum, increasing our 5-year CapEx plan by over 10% to EUR 48 billion, while strictly adhering to our value creation framework. And third, our strong balance sheet provides further opportunities to pursue additional investments beyond the current guidance once regulatory visibility on key RP5 parameters in Germany improves. At the same time, it provides us with a prudent buffer against potential risk. On my first message regarding our strong 2025 delivery. As we already anticipated earlier this year, our adjusted EBITDA came in at the upper end of our guidance range with EUR 800 million year-over-year growth. We saw a significant EBITDA increase in our Energy Networks business through accelerated investments in our regulated asset base across all our regions. Our annual network investments increased to EUR 7 billion in 2025. As is well known, the result was also driven by value-neutral timing effects. Further effects in Q4 bring the total amount to around EUR 400 million. Most of the effects came from our Energy Networks Europe business, driven by volume effects and recovery of network losses. The remainder is with our German Networks business, where higher volumes and lower redispatch costs added a high double-digit million euro amount. Our Energy Infrastructure Solutions business grew by around 5% year-over-year to EUR 588 million. The growth was driven by higher volumes compared to previous year and improved asset availability in the U.K. and Nordics. Additionally, we saw investment-driven organic growth as well as continued smart meter installations in the U.K. Moving to Energy Retail business. Here, we landed as expected at the midpoint of EUR 1.8 billion. The earnings development in the U.K. progressed as anticipated with the well-known effects continuing. In our B2C segment, customers continue to switch from SVT into fixed-term tariffs. In our B2B segment, contracts from previous years continue to roll off. Price adjustments in Germany from earlier in the year had a positive compensatory effect. Just for completeness, we had a negative high double-digit million euro one-off effect from efficiency programs in our Energy Retail and ICE business. This brings our total one-off effects to around EUR 300 million, resulting in a total underlying EBITDA in 2025 of EUR 9.5 billion. Our adjusted net income came in at EUR 3.0 billion at the upper end of our guidance range. We continued to see slightly higher depreciation costs caused by the increased digital investments with shorter useful lifetimes. At the same time, our interest cost rose due to the higher net debt level compared to last year and the higher refinancing cost for maturing bonds. On an underlying basis, this converts into EUR 2.84 billion of adjusted net income. We maintain a strong balance sheet. Economic net debt decreased by EUR 200 million quarter-over-quarter to around EUR 43.2 billion at full year 2025 despite the continued investments in Q4. Our investment increased by 13% year-over-year to EUR 8.5 billion, extending our track record of 5 consecutive years of annual increases following our strategic repositioning in 2021. Our strong operating cash flow of EUR 3.6 billion was the main driver of the debt reduction in line with the typical pattern. As a result, we closed the period with a comfortable debt factor of 4.4. This shows that we remain fully committed to a capital structure staying below our up to 5x promise to maintain a strong BBB/Baa rating. This balance sheet strength is further supported by 100% cash conversion rate, reflecting disciplined working capital management and the high quality of our earnings. Turning now to my second message, our new attractive guidance framework. For 2026, we are guiding an EBITDA of EUR 9.4 billion to EUR 9.6 billion and an adjusted net income of EUR 2.7 billion to EUR 2.9 billion. For 2026, we expect a broadly stable EBITDA development. In the Energy Networks segment, continued investments into the regulated asset base will be largely offset by cost for further growth in our Networks business. Our Energy Retail segment is expected to remain broadly stable at EUR 1.6 billion to EUR 1.8 billion with operational improvements, including increased stabilization of our procurement, largely offset by the structural deconsolidation of one of our participations, moving it to at equity accounting. In Energy Infrastructure Solutions, continued investments are expected to drive earnings growth in 2026. This development feeds through into our adjusted net income. Looking out to 2030, we expect our underlying earnings to grow by more than 6% on average per year. In absolute terms, that means adjusted EBITDA increasing over EUR 3 billion to around EUR 13 billion by 2030. Over the same period, we expect our underlying adjusted net income to grow at the same pace by 6% per year on average. This takes us to around EUR 3.8 billion by 2030, an increase of around EUR 1 billion. Let me now outline how each of our 3 business segments contribute to our growth story. In Energy Networks, we are stepping up investments in all our markets, which translates into underlying EBITDA growth of around 6% per year to 2030. Germany is by far the largest contributor, driven by continued investments in the power RAB. In addition, Sweden and Czechia are key contributors. In Energy Infrastructure Solutions, we expect to see a CAGR of 12% by 2030, turning into an EBITDA of approximately EUR 1.1 billion. The largest business drivers are B2B solutions, including on-site generation, battery opportunities and district heating and cooling. In Energy Retail, we expect to ramp up our EBITDA to EUR 2.1 billion by 2030. The growth is primarily driven by innovative products such as flexibility and e-mobility offerings as well as higher efficiencies stemming from the centralization of our procurement and further digitization. This translates into exceedingly strong cash generation. By 2030, our Energy Retail business is expected to generate a cash contribution of around EUR 7 billion, almost 3x what we plan to invest. Therefore, Energy Retail plays an important role in funding our investment program. Let me now outline the CapEx envelope that underpins our growth story. Since our strategic repositioning in 2021, we have consistently increased our CapEx envelope, and we are doing so again. We raised our CapEx to EUR 48 billion for the 5-year period to 2030. We have rolled forward our CapEx for another 2 years. Our CapEx amounts to around EUR 10 billion per year in 2027 and 2028. We will maintain this level in 2029 and 2030. This translates into a 10% power RAB CAGR in Germany, reflecting investments of more than twice our depreciation. This also increases the power share of our total WAP from 88% in 2025 to 94% by 2030. This expansion is fully aligned with our strict value creation framework, ensuring that each segment delivers a business-specific value creation spread. By far, the largest portion of the investment budget, around EUR 40 billion is allocated to our Energy Networks business. Most of this capital is allocated to power grids. In our Energy Infrastructure Solutions business, we plan to invest around EUR 5 billion over the 5-year horizon. These investments are mainly allocated to our district heating network, our industrial and commercial customers for decarbonized energy and heating solutions as well as to opportunities for data centers and batteries. Within Energy Retail, our investment focuses on innovative products and -- advancing our digital capabilities to service our customers in an efficient way. Let's move to our financing outlook. Our balance sheet capacity remains unchanged at EUR 5 billion to EUR 10 billion, even with a higher investment budget. We retain flexibility for selective value-accretive portfolio opportunities while benefiting from high cash contributing of our energy retail business. Hence, our strong balance sheet provides a solid foundation for additional investments while keeping a prudent risk buffer to preserve financial resilience. As Leo mentioned earlier today, the growth opportunities we have are robust and long term, particularly for power grids. And we stand ready to invest more, considering what is still necessary for a successful energy transition. We are operationally and financially prepared to increase our CapEx run rate in the outer years and invest an additional EUR 1.5 billion to EUR 2 billion per year, considering what is still necessary for a successful energy transition. But for that, we first need the necessary regulatory visibility for improved RP5 parameters. This brings me to my final message. With our new attractive outlook to 2030, we are fully committed to deliver sustainable earnings growth of more than 6% per year and grow our dividend up to 5% per year. And we have optionality for more based on the structural growth of power grids that is still needed. Our combination of organic growth alongside growing dividends offers attractive long-term value for our shareholders with an opportunity for more. And with that, back to you, Iris. Iris Eveleigh: Thank you, Nadia. And with that, we will start our Q&A session. Let me remind you all please stick to 2 questions each. And the first question for today comes from Wanda from UBS. Wierzbicka Serwinowska: Hopefully, you can hear me. Two questions, one for Leo, one for Nadia. Maybe let's start with Leo. Today, at the Bloomberg interview, you said you are quite confident that you will get a regulation that will allow high CapEx program in Germany. But at the same time, you didn't really raise your 5-year CapEx program. So what makes you confident? How the talks with the German regulator have been going so far? And when do you expect to have enough visibility to basically make up your decision on the financial headroom? And the question to Nadia, could you please talk about the assumptions behind your 2030 German network EBITDA? What allowed return did you assume? And what is the cost outperformance cut versus today that you assume in your 2030 numbers? Leonhard Birnbaum: So there is no new information that has emerged over the last months that has changed our position. So the confidence that I've shown is just a repetition of what I've said in the past. And what I also tried to say this morning it's absolutely clear that we have a structural shortage of infrastructure. It's actually not a German issue, it's a European issue, it's actually even in the U.S. It's a general issue. It's number one. Number two, bottlenecks in infrastructure are extremely expensive, and we see that they are especially expensive in Germany, but they're actually expensive all over the place. The third one, the acceptance, the fact that the energy transition becomes a business place -- business case depends on somehow solving this structural need. And therefore, like I think it has been acknowledged now by everybody that we need more infrastructure. It has been acknowledged by everybody that we need private capital for that. And therefore, I'm saying, well, then I'm confident that there will be a regulation in place that allows for private capital to be invested via E.ON into infrastructure. And therefore, I'm saying, I can't see why we would not get something like that with all the ongoing discussions. But clearly, it's not that I can point to a big revolutionary development since we last time met. Now on the question until when will we have visibility? This depends on the news that we get. Like this year, we have RP5 in Germany, we have RP5 in Sweden. But in Germany, actually, we have the OpEx adjustment factor we are expecting eventually, let's say, in the first half, some news what it really is and what it could mean so that we could potentially quantify it. We are expecting regulation on the gas side that would give us potentially a cross read. And we are expecting then the OpEx regulation in the next year with the cost base based on the cost audit that's being done right now. So it depends a little bit on the news that we are getting in the next -- let's say, in the next month. Nadia Jakobi: Yes. And regarding the assumption that we took, we -- please understand that we not disclose the single individual regulatory parameters. What we say and what we have said in the past, our goal is to reach our value creation spread of 150 to 200 basis points ROCE over WACC. And we would assume that we have included that. You can assume that we have included that in our guidance. Yes, full stop. Wierzbicka Serwinowska: So in that case, can I ask another question because I didn't really get anything about the 2030 German network EBITDA. Nadia Jakobi: Yes. So again, when it comes to the 2030 EBITDA, we are disclosing at this point in time that our overall networks result is at EUR 9.8 billion as long as I remember that correctly. And we are not disclosing what share of that is now within Germany or in the international business. Because if we were to do that in the end, we would sort of give -- I think we are giving quite some insights, but we don't -- also in the past, haven't given the further drill down into the subsegments. Wierzbicka Serwinowska: So you can't disclose the allowed return, which was baked into Germany in 2030? Nadia Jakobi: So what we are saying is our goal is that we aim to get the same value creation spread the 150 to 200 basis points. And our expectation is that all our Networks businesses live up to that. Iris Eveleigh: Thank you, Nadia. The next question comes from Julius Nickelsen from Bank of America. Julius Nickelsen: Yes, I have 2. And the first one is kind of a follow-up on the timing. So as you mentioned, there is the OpEx adjustment factor and then there's the gas draft determination. But let's assume those come out and the outcome is favorable. Is there scope to already do like a CMD or so after the summer to raise the CapEx? Or do we have to wait until basically 1 year, full year '26 until there's another opportunity for you to fully open the CapEx envelope? That's the first question. And then the second one is maybe a little bit cheeky, but if in your absolute bull case scenario, if regulation comes out, how you like and you can raise the CapEx, do you feel comfortable to give any kind of indication where EPS in 2030 might land in that scenario? That would be quite useful. Leonhard Birnbaum: Yes. So you rightly pointed out that timing is, let me call it a bit path dependent. And I would, at this point in time, not like to now say it's like let's revisit on the whatever day X in months Y because then we think the timing is too unclear. I would say the following. If we only get good news, then we will react to that. If we only get bad news, then we will react later to that. So sincerely, I can't give you a specific timing right now. This is in the hands of the regulator who now needs to first give us additional information so that we have something additional to say. And on the bull, I don't want to speculate now on bull, because I think we have given you a guidance what we expect. If -- and if the word would be a paradise, I would try to figure out what makes sense for my customers because then I would know that if I do something which is beneficial for my customers, it will be honored that I have done it. If I do something which is stupid for my customers just because I got a lucky strike somewhere, this will come back at me. So we more have a perspective to do. We do what is needed, and we are confident that the regulation will be good enough. We don't bank on bull's cases. Nadia Jakobi: Yes. Maybe adding to that, we have deliberately chosen that we just keep our annual run rate of CapEx at this level overall, E.ON, approximately EUR 10 billion from 2027 onwards because we have got very positive signs from politics, from what is needed from macroeconomic, also what regulator has been saying that he appreciates that there are higher returns and higher revenues needed, but then we haven't seen anything black on white. And that's why we neither increased our run rate nor decreased our run rate. And you need to bear with us, of course, as we don't know anything more, what we also said in Q3 that we would have hoped, we would know more by this time, but we don't. We cannot also now not guide for a specific EPS increase. On top of what we -- we would say we've already demonstrated, of course, quite a significant EPS increase with a very attractive 6% CAGR up til 2030. Iris Eveleigh: And the next question comes from Alberto from Goldman. Alberto Gandolfi: I think you already provided quite a good picture, so I'll avoid talking about returns. But I wanted to ask you one point on the assumption of the power networks, which is maybe 2 parts. The first part is, can we get a feel for how saturated is the German network? We are hearing that network is at capacity around Frankfurt. You're talking about all this gigawatt of data center demand. So do we know with this investment plan, what is the saturation level today? Is it running at 90%, 95% capacity? What will it be in 2030? And as a second part on the assumption, would you be able to tell us of the CapEx upgrade you presented today, how much is perimeter, how much is equipment cost inflation and how you think about that? And the second question is actually totally different. Your supply... Iris Eveleigh: I would say it's the third one. Alberto Gandolfi: Should I stop here, Iris? I will face the police. Iris Eveleigh: No, no, no. Alberto Gandolfi: Sorry. Sorry. Sorry. I will not do follow-ups. So in terms of cost savings, your supply retail business was originally created as a people business, but we are seeing companies putting out there recently big cost savings program, AI-driven facilities and software, natural attrition. So I wonder, is this target including a significant cost reduction effort? I noticed in your guidance, your holding costs are going down quite a bit, but I suspect there's much more to go. Am I right? Leonhard Birnbaum: Okay. Since the second question was the third one, I'll give a very short answer. Cost reductions are baked in. But I'm sure we will actually see much more opportunities for much further cost reductions, which we might not have baked in. But on the other side, we will see also pressure, which we might not have baked in. So in that sense, AI will change, will clearly change the retail business. But I think that's maybe a good point to make. It's like your colleagues came up with the Halo suggestion. I really think that the advantage which we have in the majority of our business in the ICE and energy networks is actually that we can't really be disintermediated because the disintermediation of the physical grid doesn't work because it's a physical grid in the end. So AI will completely change. Also ICE business will completely change Networks business, the way we run our processes, but it will not disintermediate us. So that's maybe a nice point to make here. Now on the add capacity, I think overall, we are in a better situation in Germany than a number of other markets, which we observe across Europe. We have taken note of the load, for example, in the Netherlands or we have taken note of what Endesa presented yesterday or what we have seen in the U.K. I think we are not there yet. But it's clear, whilst we had massive bottlenecks on the TSO level in the past, these bottlenecks are trickling down into the -- from the extremely high voltage into the high voltage and where we have solar also in medium voltage, not yet on a kind of like complete level as in other markets, as I just mentioned. Now 2 comments. I think we can't give a general statement. It really depends on the region. For example, in Eastern Germany, where we have massive additions of renewables, we are in many places, clearly at capacity already. In others, this is different. So we have to look at it on a regional basis. That is number one. Number two, it will depend massively on the upgrade, the revision of the grid connection regime, which is under current -- under discussion right now in Germany. I would say if the proposals which are on the table right now for a new grid connection regime, use it or lose it, something else than a first come, first serve, if that materializes, we can achieve much more with the same capacity. Whilst if we do not change the current picture, then I would think that the grid would run to full usage -- to being fully blocked very fast because we have, let's say, a speculative run for connections. So it depends a little bit on the political debate. And on the inflation and growth, we are continuously looking at that. I'm not sure, did we do in the context of the budgeting a new exercise then? Or is it still the 1/3 or whatever inflation that we... Nadia Jakobi: I think there was more that what we communicated like 1.5 to 2 years ago, when we look now at the higher level, we say from this level that we have been communicating our price inflation is at this point, moderate and it's primarily volume growth. But we, of course, as Leo has said, we have seen a step change of higher inflation when we last spoke about that. Iris Eveleigh: Thank you, Nadia. With that, we come to the next question. Thank you, Alberto. The next question comes from Pavan from JPMorgan. Pavan Mahbubani: I have 2, please. So firstly, and it's following up from Julius' question, Leo, but maybe in a different frame. Can you give us an indication of the quantum of which you think you can accelerate the CapEx to 2030? And should we be taking the EUR 5 billion to EUR 10 billion headroom as an indication of the upside you can see there? That's my first question. And secondly, related to that, are you able to talk about or give investors comfort on your readiness, as you mentioned in your opening remarks, to accelerate on CapEx? Do you already have the supply chain capacity that you need, your workforce? I appreciate the acceleration is not coming today, but given it's a big focus, I would appreciate some color around that. Leonhard Birnbaum: Okay. So I'll take the second one, and then Nadia will follow up on what you said in your speech on the additional quantum. So I would say, first, E.ON, we have put in the last 5 years, a big focus on operational excellence. I tried to say that in the speech. So -- and we are -- we have been building up a workforce. Again, in the last year, we had a net increase of the workforce. So we have built up in the networks around 7,000 additional people over the last years. So we have the workforce, number one. Number two is we have the supply chain contracts for the critical equipment. I cannot exclude that we will have a bottleneck here or there. But I think actually, overall, for the critical components, switchgear equipment, power electronics, transformers, cables, we are actually well set up. So we should be able to manage that. On the permitting side, we would need faster permitting that would be -- but we are -- actually, we are set up for the 8-year processes. If we would get an acceleration, we should have absolutely no problem there as well. And on the digitization side, I think we have now pushed the envelope really with the transformation programs that we have done. By the way, the last point is the one where I usually never get a question is the one that I find personally the most challenging one to deliver large-scale IT transformations at -- on time, on budget. So having said that, with the confidence that I have is we have achieved it year-over-year over the last 5 years. We have always achieved what we said that we would do with a few small exceptions from which we have learned. This year, we have achieved every single operational target that we have set for ourselves. I have absolutely no reason to believe that my organization would not be able to repeat that going forward also with a higher volume. But again, it doesn't come by itself. It's the result of very hard work on all of these topics. I hope that gives you enough color. We can obviously detail that in more afterwards. So Nadia on... Nadia Jakobi: Yes. So regarding the potential for additional CapEx. So when you look at total envelope being like easy to remember, EUR 10 billion per annum overall E.ON CapEx, out of that, approximately EUR 6.3 billion is for Energy Networks Germany. Out of that, approximately EUR 5.3 billion is dedicated to WAP effective -- power RAB effective Germany. So if you then take the EUR 4.3 billion, we would have an additional EUR 1.5 billion to EUR 2 billion per annum, where we could invest more at the -- in the outer years when we look at our network build-out plan that we did in 2024. Of course, these network build-out plans are, of course, also -- we will have -- we see no new network build-out plans, but the data that we've got compared to this network build-out plan that was issued in 2024, that would be this EUR 1.5 billion to EUR 2 billion more in CapEx from -- in the outer years. Leonhard Birnbaum: So operationally, we can. And financially, it depends on regulation. Iris Eveleigh: Thank you, Pavan. With that, next question comes from Harry. Harry Wyburd: This is Harry Wyburd from BNPP Exane. So 2 ones for me. So first, can we focus a bit on this grid connection regime reform because it's actually quite significant and it's actually hit seemingly quite a lot of resistance from certain political parties and lobbies. So if you -- maybe you could just remind us a little bit for those who aren't familiar, what has been proposed here and sort of locational reform and so on. How do you think that's going to end? And is that actually going to impact you because it could theoretically shift around where you're investing? And is that something that feeds into your CapEx deployment or operations and so on? And then the other one is on affordability. So we've had all these headlines on carbon, all these headlines on EU power market reform. I guess you're, in some ways, a sort of neutral observer here given you're not exposed explicitly to power prices. So I value your independent view on how you think this is going to end. So do you think we are going to get power market reform. Is that going to cut baseload power prices in Europe? And do you see this as something that's actually relevant for you if we end up with lower electricity prices via regulatory change and that triggers higher power demand? Leonhard Birnbaum: Harry, good seeing you. Two tricky questions as a price for seeing you. Now on the grid connection regime, first, let me just repeat. What we're currently seeing in terms of request is completely unsustainable. There's no question. We are seeing connection requests at E.ON only, we actually published those numbers, 500 gigawatts for batteries, 70 gigawatts for data centers. It's just absolutely unfeasible that we can deliver on that. Even what we only agreed to deliver is already stretching the limits in the envelope massively, 12 gigawatts on batteries, 16 gigawatts on data center or the other way around, I always mix, that doesn't matter. 28 gigawatts data centers plus batteries in 2025 only, plus 20 gigawatts, nearly 20 gigawatts in renewables. So there is a limit for that. Now what we are seeing is, we clearly see that there is speculation for grid connection because grid connection is scarce, so it must have a value. If I can secure it, then I have something which I can sell expensively. And since we have the first come first serve and no use it or lose it, actually, this is pretty cheap speculation. And therefore, I think something needs to happen. So this grid package, I think, is just a reaction to an absolute unsustainable situation that needs to be changed. Now for us as E.ON, it's like don't we -- I mean, it's like if we don't change it, we have to invest like hell and if we change it, we have to invest like hell. So it doesn't really make a difference. But it makes a difference whether we can actually connect customers. And what I'm really afraid of, if you ask me what's the biggest impact of E.ON is that the biggest impact on us would be if we don't get changes and we need to tell consumers that we can't connect them because the grid is full with solar farms, which we have to redispatch. That would make no sense. And that would be then very detrimental for our perception. So this is what I -- so I'm not concerned financially because I mean it's like the CapEx opportunity is just too big. But I'm concerned that we don't do an efficient energy transition and then we get an affordability backlash at the whole energy transition. So that's the point that I would really like to make here. Now what is materially in the package? I think you can differentiate 3 buckets of discussion. One bucket is, should we philosophically change the approach, not the first come, first serve, not -- should we introduce something like use it or lose it. And I think there is broad consensus that something needs to change in that direction. That's not contentious. Then the second one is we have many innovations that we could do to just be more efficient in how we connect, for example, renewables. We have technical innovation. That's not contentious either. It depends what the regulation we do, et cetera. For example, do we get combined connections between solar and PV? Do we -- your 100 megawatt of PV, do you always get your peak or you get 97%. So there are technical details. And then there's a third one, which I would call how do we achieve locational signals so that the expansion of the feed-in happens not in grid-constrained areas. That's one really contentious point because obviously, the renewable players, especially renewable players here have a big interest in getting only locational signals that they can calculate and which don't bite them too hard. But if they don't bite, as we say in Germany, then they are meaningless. So -- and that is now depending on the details. If you ask me what's going to happen, I think bucket #1 is going to change. Bucket #2 is going to change. Bucket #3 is something is going to happen. Whether it's going to be enough, we will see from the discussion. But I think it's absolutely the right discussion that we are having at this point in time. Now on the switch, that was regulation on grids. Now on the wholesale power, we obviously have looked -- I have also looked with interest at what was proposed in Italy or what will happen now in Italy. So I'm certainly not the best experts to talk about that. But actually, I would say it's not an economic consideration which has taken place. This is a political -- these are political actions. You are trying to achieve somehow a politically -- a target which you see necessary politically and then you just taking whatever tool works. I personally think that marginal pricing and the pricing is coming from that will be needed, but the position is weak because we know that if we go to 300 gigawatts of renewables in Germany, marginal pricing won't be the one that is going to incentivize investments anyway. So there will be -- there will need to be a change in the power market design. But what we see here is not building something which is sustainable in 2050 in a 100% renewable world. What we're saying here is a political intervention to achieve a political goal. Whether this is done efficient? I think the only debate that you can have is, is this more or less efficiently, but I think it's inevitable that we will see this more and more. Personally, I think the discussion will never go away on market design. But luckily, I'm not in this commodity volatile business on the generation side. For me, regulation on the grid side is already enough. Iris Eveleigh: Okay. Thank you, Leo. With that, next question comes from Deepa from Bernstein. Deepa Venkateswaran: So I had 2 questions. One on the data center opportunity. Can you quantify how much of the EUR 40 billion network CapEx is for connecting data centers? Just trying to get a feeling for how meaningful it is or it is not? So that's the first question. And secondly, maybe moving away from Networks. Your Customer Solutions business, you've had ambitions to improve your revenues from selling solar panels, batteries, maybe exploiting flexibility. I wanted to check how that development is going. Are you seeing the necessary uptake from consumers for these low-carbon solutions? Is it ahead of plan, in line? Just directionally, how is that going? I know it's a much smaller part, but obviously, you are projecting earnings growth in that business to 2030, and I'm assuming that this would be a part of that. So those are my 2 questions. Leonhard Birnbaum: I cannot quantify, maybe Nadia can, but I can't quantify how much of the EUR 40 billion is data centers. But I would say there is a remarkable difference between the data center boom in the U.S. and in Europe. So in our case, the infrastructure growth is really driven by multiple simultaneous factors that we're seeing, truckloading, data centers, renewable connections, heat electrification. So the growth trend is extreme -- or batteries and so on. So the growth trend is extremely robust. because it's driven by multiple factors. And we have not quantified how much of the million goes into batteries, into data centers and into renewables. I think the situation is different in the U.S. where data centers -- in some parts, at least must be the overwhelming driver. So sorry for that. On the Customer Solutions side, I think I can answer it. So yes, we have combined the flex, let me call it, non-commodity retail products that you alluded to. They're part of our retail business -- customer solutions business, I would say. We are seeing a tick up. We are seeing a nice tick up. It's number-wise irrelevant. You said that yourself rightly so. And we would like to see even more aggressive tick up operationally. There, we are actually readjusting every month, so to say. But it's moving. Iris Eveleigh: Thank you, Leo. With that, we move to -- we still have quite a few hands up. Maybe if someone just has one question so to get everyone the chance to actually still ask the question. Louis from ODDO is the next. Louis Boujard: Actually, the second one will be very fast. So I think it's going to be okay. So the first one, regarding the capital allocation, I was wondering, in case it's not going exactly in the right direction for you regarding the CapEx expansion, do you have any leeway in your capital allocation to eventually adjust and increase your CapEx envelope in the other geographies? Or eventually, would you consider higher payout or share buyback program in order to allocate maybe better your current financing capacities? That would be my first question. How would you do in a worst-case scenario? And the second question, which is quite fast, I guess, is regarding the underlying assumptions that you could have taken in your cost of debt by 2030. When I look at your guidance for the EPS, the EPS does not look highly demanding considering the EBITDA. So I was wondering if you were taking into consideration some increasing interest cost of debt in your assumptions for 2030. Leonhard Birnbaum: I take the first one. So we have a clear plan A, and we are pursuing this plan A. I don't want to speculate on a plan B. Nadia Jakobi: And as you know from us, we are always committed to value creation and to balance sheet efficiency. Leonhard Birnbaum: So I'm sorry, that sounds like now we don't want to treat you badly, but it's really as short and crisp. Nadia Jakobi: So the second one was cost of debt or sort of why we didn't increase the dividend? Leonhard Birnbaum: Cost of debt. Iris Eveleigh: Cost of debt assumptions, higher interest. Nadia Jakobi: Yes. On the cost of debt, we have -- when you look at -- we have been just issuing some of our new bonds at the beginning of the year. And when you look at that, we had an 8-year bond, we had a 12-year bond. And if you combine the 2, they were of an average of 3.7%, that is sort of actual numbers we had. I don't know, I think, 95 basis points credit spread on the 12-year duration bond, that is sort of one sign of guidance that I can give to you that also, I think we are communicating later in our pack some of the maturing bonds. So it's fair to say, as you would anticipate that some of the very low interest bonds are maturing up until 2030 and that need to be then refinanced at these levels that we have been seeing now in January this year. And that is also, as we have been highlighting, when you are confronted with a cost of debt for existing assets, which is just backward-looking 7 years and includes the low interest years, then of course, you cannot assume that you can still refinance at these low levels because everybody of us would love to still do the -- buy a house and finance it on the terms of 2020. Unfortunately, that's not possible. So I think that's kind of the indication that I can give to you. Iris Eveleigh: Thank you, Louis. And with that, we move on to Rob from Morgan Stanley. Robert Pulleyn: I have one question. We've spoken a lot about the regulatory terms to increase CapEx and guidance. But could we just dive into specifically which areas are you looking for from the regulator to improve versus the rest of draft materials we got towards the end of last year? Nadia Jakobi: I think, Rob, there is something -- one of that is what we have just discussed, i.e., being the cost of debt, both the level and also the fact that there is no mark-to-market for the cost of debt on all those assets that are built up until end of 2026. That's something where you cannot refinance at the levels in the market even as we do it in a very proficient way. Second one, I think we also debated that in this round when it comes to cost of equity, there is just some high-level explanations. We don't have clarity yet. Also this look-back period for the risk-free rate is important. MRP, even if we are going to a higher level, where we appreciate the arithmetic mean you can see that the market clearly demands an MRP of 6% plus. And there, we are still quite a gap apart. And then there are quite some other elements also regarding the benchmarking that are open and as Leo has just said, so far, we only know that there will be an OpEx adjustment factor, but that's about it. There hasn't been any specification how that's going to work. In principle, this is something that we clearly value and we are welcoming that this has been appreciated that when you grow your CapEx, you also, of course, will grow your OpEx. But so far, we don't know which kind of magnitude this is going to have. Iris Eveleigh: Thank you, Nadia. With that, we move on, thank you, Rob, to James from Deutsche Bank. James Brand: I've got one -- kind of one straight two questions. One question and clarification. So the question is on the benchmarking actually, the efficiency assessment. I think you talked about in the past as being quite tough or certainly getting tougher than it has been in the past, but then we had some new proposals come out before Christmas. So I was wondering whether you could just give us an update on whether the proposals there have moved in a more positive direction or whether you still think they're very challenging. And then the clarification is just on the timing. So obviously, we've got the paper on the OpEx adjustment factor and then the determination of the cost of capital for the gas networks. I think you mentioned you'd have visibility in the next month. Was that for both of those or just for the OpEx adjustment factor? Because I think the paper on the OpEx adjustment factor is due fairly soon, but it was less clear when the cost cuts of gas was due. Leonhard Birnbaum: So I'm always careful to say it will come out in March because my experience is then it turns out April, and I need to explain all the time where it was in March. So I would say OpEx adjustment factor first half, the gas side, second half of the year. So -- and rather go to the back end and be surprised if it happens earlier. So that on the timing. Second, in the final papers, there were no real substantial improvements. Therefore, the criticism on the benchmarking is still very clear. We actually have seen that it will be harder to achieve top efficiency, which is okay. That's fine. That's the challenge that the regulator should put in front of us. But we have still seen that redispatching costs are included in the operational benchmarking as influenceable cost. And since when it -- I mean, clear, 90% of the redispatching costs are with the TSOs, but out of the 10%, which are with the DSOs, we at E.ON get 90%. Why? Because we are the rural guys, which are connecting the renewables and basically putting redispatching into the picture just punishes exclusively E.ON, which has done the most investments, kind of like to achieve an energy transition. I repeat my word, 1/3 of the networks, 70% of the wind, 50% of solar, and then we get redispatch -- and then no agreement on localization signals and then we get the redispatching cost allocated on top of us. Still the same criticism. Really no changes in the final paper versus what we explained to you in the second half of last year. Iris Eveleigh: Thank you, James. And with that, we move to the 2 last questions, while the first one comes then from Ahmed from Jefferies and then Piotr from Citi. We'll then close the call. Ahmed Farman: I guess just a very quick follow-up question. You just mentioned -- gave us some sort of time lines, right? You said the OpEx adjustment factor and I think it's the draft for the gas distribution that you mentioned. Are there any other data points or milestones that are required from your side to get the clarity? Or are these the 2 critical data points? I just want to make sure sort of just for completeness that if there is a full -- there are other elements as well that we are just aware of what other regulatory updates are required. So that's my first question. My second question is on retail. This is a follow-up to an earlier question. So retail, if I look at the last couple of years of results, it sort of hasn't really delivered much growth, and you are guiding to growth going forward. I just wondered if you would explain a little bit -- you already talked a little bit about the drivers, but a more profile of this growth as to where the growth will come through. Obviously, you're sort of talking about a sort of flattish profile to 2026. But do we expect to see this growth profile already in '27? Or is this more back-end loaded? Leonhard Birnbaum: Yes, I'll take the timing question. So I understand from all of your questions that you would ideally want us to give a precise time line when is what materializing so that we can give you a further update. But -- I mean, this is really where I would need to say you need to raise those desires somewhere else, I'm afraid. I can only repeat what I just said. It depends a little bit what information we got. Look, last year, I told you, I am confident about the outcome because I still believe that if something needs to happen, eventually, it happens because the alternative is just unattractive. So I truly believe we are going to get a regulation which is sufficient to make the necessary investments because the investments are good for Germany, good for our customers. But having said that, it's kind of like I did not get anything positive last year that actually really helped me to say, I -- now look at this. This is why I'm right to believe that. Now if the next news that come out would clearly show in the direction that, let me say, a basic optimism is okay, then I can be bolder going forward and say, look, this works out, it will come to the right result. Let's make a judgment call. But if the same thing happens this year that happened last year that I get negatively surprised, like, for example, by this redispatching cost, which you all know annoyed me like hell, if something like that happens again or if whatever details come out on the OpEx adjustment factor make it irrelevant, then it's kind of like then I don't have something. So it's a bit past dependent. But clearly, like the people who can influence that time line are less us, I'm afraid. We can only do operational great work and show that what we are doing is beneficial for our customers and then expect that others will honor that. Nadia Jakobi: Yes. So coming to your energy retail question. So when you refer back in the past years, there were past years also from the energy crisis where we took on a lot of risk when it comes to revenues. So we had high prices. And now we have seen some normalization. We have still stuck to our 3% to 5% B2C margins. But of course, when you had a far higher revenue level, then that sort of meant that the absolute amounts reduced. So that's basically the reduction that you have been seeing coming from -- when you take sort of 2022 and '23 as a basis here. When you sort of go further back into the year 2020 or '21, you see that we've actually seen some significant increase also in our energy retail business. Second, I guess you are less interested in the past, but more into the future. We're very much aware that we are projecting stable EBITDA from 2025 to 2026. There's one technical effect in there, i.e., we are deconsolidating one of our entities and the equity contribution to that is then because of the joined up grid and retail business, that's now portrayed in the grid business, but going from EBITDA to only a net equity contribution. And then the second one, so we see some operational growth, but it's fair to say that some of the digital foundations that we need for future flexibility products and the ramp-up that we are seeing will be also late in 2026. And then when it comes to how near term the progression is, I think we have been guiding to an energy retail business in 2028. And then we see some further increase in 2030. So as you say, first stable, laying the foundations, and then we would expect to see some increases in 2027 going forward. Iris Eveleigh: And with that, we come to Piotr with the very last question then for today. And obviously, we're happy on the IR side to follow up on any further questions that you might have. Piotr? Piotr Dzieciolowski: I have just one big picture question to Leo actually about -- how do you think about the grid fee structures going forward in the context of affordability and the need of CapEx, in a sense that a lot of the growth comes from the data centers and therefore, the cost when it goes into the RAB, the connection it's being socialized and therefore, all of the consumers have to pay for it. Likewise, there are a lot of consumers that really have a lot of self-consumption and also pay less than for the infrastructure. How do you think -- in the context of affordability, would charging for infrastructure differentiated prices to different consumers would not be a solution? And likewise, when you think about the investments, there are certain investments like releasing redispatch costs and so on. So what is the return on the investments from the consumer perspective on this extra EUR 5 billion to EUR 10 billion CapEx that you propose to the regulator? Because if it's about the data center connection, I agree why the regulator may not be willing to give you the higher rate. But if it's about really saving cost for consumers, then he should be more than willing to spend -- for you to spend this money. Leonhard Birnbaum: Yes. I think actually, there is a misperception on the impact that data centers have on consumers. If -- now we take the German example and then we -- like in Germany, you have actually -- you pay grid fees and you can pay a lump sum for your connection... Nadia Jakobi: Construction grant. Leonhard Birnbaum: Construction grants. That's the word, okay. So you have construction grants and grid fees. Now data centers, the overarching target is to get fast access. So they are perfectly fine to pay high construction grants. That's number one, which means actually that the cost really socialized in the grid fees are not that big. Second is they are actually pretty big consumers. And we have energy-related and capacity related, I mean, fees in Germany. So what happens actually if a data center gets added into your DSO area, you as a consumer, a B2C customer, you see lower grid fees because then the same -- basically the same cost base is spread on a larger volume. So -- and that's actually the whole way how the energy transition can work. We need to increase electricity volumes so that we can allocate the higher cost base on a higher volume basis. And so specific costs stay constant or even decline. So data centers in a DSO area reduce the grid fees. Now on the generation side, they need additional power stations. That's what's being discussed in the U.S. right now. Obviously, if you have like in Tennessee, a 5 gigawatt, whatever data center, you don't want to put that into the rate base and then have the consumers pay for the 5 gigawatts of additional generation capacity. But if the data center comes with its own PPAs and new assets, then it's actually fine. So in our case, data centers in Germany would reduce the grid fees and actually would be beneficial. Now on the wholesale market side, they would need -- they would require more baseload capacity probably, which is why we think generation capacity needs to be added. But so for us, data centers are beneficial for us at E.ON, data centers are beneficial from an affordability standpoint. They make our life easier. Iris Eveleigh: Thank you, Leo. Thank you, Piotr. With that, we come to an end. Thank you all very much for participating and the interest in E.ON. And if there's anything else you would like to discuss, the IR team is happy to follow up with you. Thank you, Leo and Nadia. With that, I close the call for our full year '25 presentation. Take care. Bye-bye. Leonhard Birnbaum: Thank you. Nadia Jakobi: Bye-bye.
Operator: Good morning, and welcome to the BMO Financial Group's Q1 2026 Earnings Release and Conference Call for February 25, 2026. Your host for today is Christine Viau. Please go ahead. Christine Viau: Thank you, and good morning, everyone. We will begin today with remarks from Darryl White, BMO's CEO; followed by Rahul Nalgirkar, our Chief Financial Officer; and Piyush Agrawal, our Chief Risk Officer. Also present today to answer questions are our group heads, Matt Mehrotra, Canadian Personal Business Banking; Sharon Haward-Laird, Canadian Commercial Banking; Aron Levine U.S. Banking; Alan Tannenbaum, BMO Capital Markets; Deland Kamanga, Wealth Management; and Darrel Hackett, BMO U.S. CEO. As noted on Slide 2, forward-looking statements may be made during this call, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially from these statements. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Darryl and Rahul will be referring to adjusted results in their remarks unless otherwise noted as reported. And I will now turn the call over to Darryl. Darryl White: Thank you, Christine, and good morning, everyone. First quarter results were very strong, building on our momentum from last year. We're executing on our commitment to deliver higher returns and profitable earnings growth. Adjusted EPS were $3.48, up 15% from last year and included a previously announced severance charge of $202 million that reduced EPS by $0.21. And we saw continued momentum in our ROE improvement. The bank achieved record pre-provision pretax earnings of $4.1 billion, powered by record revenue in each of our operating segments. Strong fee growth in our market-driven businesses and margin expansion in our Canadian and U.S. banking businesses from deposit growth and mix optimization positions us particularly well for when loan growth resumes. Our commitment to expense management and operational efficiency continues to enable strategic investments in technology and talent. Underlying expense growth was well managed, and we continue to target positive operating leverage again this year. Credit performance remains in line with our expectations, and our CET1 ratio of 13.1% remains strong and above our target even as we continue to buy back 6 million shares during the quarter. We're executing against a consistent strategy outlined back in Q4 of 2024 towards achieving and sustaining ROE of 15%. The progress we made last year and this quarter strengthens my conviction that we can achieve that goal as we exit 2027. We delivered peer-leading ROE improvement in 2025 of 150 basis points, and that momentum continued into the first quarter. Underlying ROE reached 13.1%, up 180 basis points from a year ago and 130 basis points from Q4. Consistent with last year, this reflected strong core operating performance across our businesses, including in U.S. Banking, where underlying ROE was up 150 basis points from Q1 of last year. Broad-based line of business operating performance contributed to strong underlying EPS growth of 21% and momentum is growing. Turning to our operating segments. In Canadian P&C, we're attracting more customers with deeper relationships, leading to consistent growth in core operating deposits, a key driver of earnings growth, which was up 8% from last year. Canadian Commercial Banking revenue grew 10%. New client acquisition is healthy and trending higher than last year. Clients continue to adopt our innovative treasury and payment solutions, driving 9% growth in operating deposits and 13% increase in TPS fees. Our One Client approach is key to our success and client referrals between commercial and wealth increased to 34%, resulting in a 75% increase in referral revenue. In Canadian retail, we continue to see above-market growth in checking accounts and operating deposits as well as strong growth in mutual fund sales of 13%, leveraging our personal bankers and our digital capabilities to drive fuller customer relationships. Our strategy to deepen engagement and loyalty will be further strengthened as we transition from AIR MILES to our reimagined Blue Rewards loyalty program this summer. Available to all Canadians, this program delivers personalized benefits, new partnerships and an intuitive digital platform, giving millions of members a simple, flexible way to earn and redeem rewards and will be fully integrated into the BMO mobile app. In U.S. Banking, we continue to execute on our strategy to accelerate performance and delivered record revenue and strong margin expansion. We're seeing momentum in personal account acquisition and net client growth over last year with a solid 3% growth in noninterest-bearing deposits. By the end of next quarter, we will be effectively complete with our balance sheet optimization efforts and expect to see positive commercial loan growth in the second half of the year, supported by currently strong pipelines. With the U.S. economy expected to outpace Canada for a fourth straight year and with our business mix, we're well positioned to capture growth opportunities as business activity expands. Wealth Management earnings were up 16% on stronger markets and net new asset growth. We successfully integrated Burgundy Asset Management, and we're seeing good client and employee retention and engagement. Our distinctive strength in innovation and speed to market continued to drive momentum across global asset management with the launch of BMO's broad commodity ETF and expansion of our European CDR lineup. Our commitment to delivering high-quality solutions for investors was recognized at the 2025 Fundata Fundgrade A+ Awards, where BMO ETFs and mutual funds earned a combined 27 awards, reinforcing BMO's position as one of Canada's leading investment managers. Capital Markets had a very strong quarter with PPPT of $893 million, driven by strong trading activity and higher advisory fee revenue. Our performance reflects continued strength in market-leading franchises, including a #1 ranking in ECM and a #2 position in investment banking share of wallet in Canada and robust equities trading and M&A activity in the U.S. Record results in our commodities trading business this quarter reflects our leadership position in the sector. We've been consistently ranked as the world's Best Metals and Mining Investment Bank by Global Finance Magazine now for the 17th year. And this week, we hosted our 35th Global Conference, the world's leading forum on this topic. Looking ahead, BMO is uniquely positioned to serve our clients playing leading roles in the AI infrastructure cycle and those in industries at the center of economic change. We have highly competitive and differentiated strengths across areas critical to future economic growth, including our metals and mining franchise, our leadership position in the Canadian energy sector and robust infrastructure, power and utilities capabilities. We're proud to be the official bank of the Canadian Defence Community, serving members of the military, reservists and their families. Across our Canadian Capital Markets and Commercial Banking businesses, we're supporting efforts to help growing defense industries, including participating in the development group for the Defence, Security and Resilience Bank. As we evolve our own AI journey across BMO, our digital-first AI-powered strategy is focused on scaling rapidly, advancing capabilities to deliver world-class client experiences and drive business value. We're creating a responsible AI-enabled ecosystem of tools where innovation supports human insight. Building on last year's launch of our generative AI-powered digital assistant in personal banking, we've introduced the same capabilities for the Canadian Commercial Bank, enabling our teams to quickly access policy and lending information. These are examples of how we're scaling AI-enabled intelligent tools to make every interaction faster and more confident, augmenting our teams and streamlining workflows to enhance client experience. In closing, our performance this quarter demonstrates momentum and progress. We're delivering value for our clients through world-class One Client experiences and for our shareholders through significant ROE and earnings growth since we outlined our clear path 5 quarters ago, and we're not done yet. We look forward to sharing further insights into our strategy and progress at the upcoming all-bank Investor Day on the 26th of March. And before I turn the call to Rahul, I would like to welcome him to his first quarterly call as our CFO. Rahul joined BMO in 2022 as CFO for our U.S. operations and Commercial Banking and brings deep experience across leading organizations with a strong focus on execution. Rahul, over to you. Rahul Nalgirkar: Thank you, Darryl. Good morning, everyone, and thank you for joining us. My comments will start on Slide 8. The bank delivered strong operating performance this quarter. The first quarter reported EPS was $3.39 and net income was $2.5 billion. Adjusting items are shown on Slide 42, and the remainder of my comments will focus on adjusted results. EPS was $3.48, up 15% from last year on record PPPT of $4.1 billion and lower PCL. Net income was $2.6 billion, up 11% from last year. As previously announced, our results include a charge of severance costs of $202 million or $147 million after tax related to advancing operational efficiencies across the bank and recorded in each operating segment. Excluding the charge, we delivered positive operating leverage of 1.1% and strong PPPT growth of 8% with ROE of 13.1%, up 180 basis points and ROTCE of 17.1%, up 220 basis points, reflecting continued momentum to enhance returns and accelerate growth. Revenue increased 6% or 8% on a constant currency basis, with broad-based growth across all businesses, including strong fee growth in Capital Markets and Wealth and NIM expansion in both P&C businesses. Expenses increased 9% or 5% excluding the charge. Total PCL decreased to $746 million with lower impaired and performing provisions. Piyush will speak to that in his remarks. Moving to Slide 9. Excluding the impact of the weaker U.S. dollar this quarter, average loans and deposits were relatively flat year-over-year and quarter-over-quarter. In Canada, residential mortgage and commercial loan growth of 2% remains muted, reflecting the softer economy and was offset by lower U.S. commercial loans due to the impact of optimization activities. These activities are now 90% complete, and we are beginning to see positive signs in the portfolio with underlying loan balances as at the end of January, up approximately 1% from the end of October. On deposits, we continue to manage decrease in term deposits, largely offset by growth in core personal and commercial operating deposits to enhance our deposit mix. Turning to Slide 10. Starting this quarter, we have enhanced disclosure of all bank NII and NIM to exclude Global Markets and Insurance to focus on core banking margins and exclude volatility associated with all global market activities. Prior periods have been reclassified to this basis. NII ex Markets was up 5% from the prior year or up 7% on a constant currency basis, driven primarily by continued margin expansion in Canadian P&C and U.S. Banking as well as higher NII in Corporate Services. Maintaining good NII growth despite muted loan growth reflects success of our initiatives to improve deposit mix in both countries. NIM ex Markets was 233 basis points, up 20 basis points year-over-year and up 3 basis points sequentially as we continue to benefit from higher ladder reinvestment rates, deliberate actions to improve deposit mix and disciplined pricing, partially offset by lower NII in Corporate Services compared with the prior quarter. In Canadian P&C, NIM was up 6 basis points sequentially, primarily due to the higher deposit margins from improving mix. U.S. Banking NIM increased a strong 13 basis points sequentially, driven by higher deposit margins as our deposit mix continues to shift to core deposits in both P&BB and commercial businesses as well as higher loan margins. Our guiding principle is to manage all bank NIM stability through the cycle. There are several factors which impact our margins every quarter. We expect tailwinds from ladder reinvestments and our deposit margin initiatives to continue to benefit us in the near term, and we are closely monitoring deposit pricing as the competitive landscape evolves. Moving on to noninterest revenue on Slide 11. NIR increased 9% from the prior year with strong growth in wealth, including Burgundy acquisition, higher advisory fees and stronger trading revenues as client activity and market performance remains robust. Card fees in Canadian P&C were elevated this quarter due to the impact of revised future reward redemption assumptions. Turning to Slide 12. Expenses grew 9% and were up 4%, excluding FX, the severance charge and higher performance-based compensation. Expenses are well managed as we continue to optimize cost to reinvest in talent and technology to drive future growth. Excluding the charge, operating leverage was 1.1% and our efficiency ratio improved to 55.8%. We expect to realize annualized savings of approximately $250 million from the charge with half realized in 2026 and the remainder in 2027. These savings will both support continued efficiency improvements and reinvestment in strategic growth initiatives. Expenses were up 8% sequentially or up 4% excluding the severance charge and represent seasonal uptick from employee benefits and stock-based compensation for employees eligible to retire. Turning to Slide 13. Our CET1 ratio remained strong at 13.1%. The ratio declined approximately 20 basis points sequentially with continued good internal capital generation more than offset by share repurchases and growth in source currency RWA, including the impact of ongoing methodology and model refinement of 17 basis points. We repurchased 6 million shares during the quarter and expect to continue repurchases while supporting deployment for growth and maintaining a strong capital position as we navigate towards our target of 12.5%. Moving to operating segments, starting on Slide 14. Canadian P&C net income was up 8%, reflecting solid PPPT growth of 4% and lower performing PCLs. Revenue was up 7% from higher NII, reflecting both balance growth and margin expansion. Higher NIR was driven by the above trend card fees, higher commercial TPS fees, investment gains as well as stronger mutual fund distribution fees. Expense growth of 11% reflected the severance charge and the higher technology costs. Turning to U.S. Banking slide on Slide 15, which speaks to the U.S. dollar performance. Net income was up 18%, primarily reflecting lower impaired and performing PCL. Revenue was up 2% from margin expansion, offsetting lower balances, reflecting continued disciplined optimization as well as higher Wealth Management and Commercial TPS fees. Expense growth of 4% reflected the severance charge as well as investments in talent and technology. Excluding the charge, PPPT increased 1%. Moving to Slide 16. Wealth Management net income was up 16% from last year and includes Burgundy results starting this quarter. Strong performance was driven by higher Wealth and Asset Management revenue, up 17%, reflecting higher markets, continued growth in net sales and strong balance sheet growth. Expenses were up 15% due to employee-related expenses, including higher revenue-based costs and the severance charge in the quarter. Turning to Slide 17. Capital Markets net income was up 11% from a strong first quarter performance last year, driven by strong PPPT growth of 8% and lower PCLs. Revenue was up 7%. Global Markets revenue increased 6%, driven by higher equities and commodities trading revenue, partially offset by lower interest rate trading. Investment and Corporate Banking revenue increased 9%, driven by higher advisory fees and equity underwriting, partially offset by lower debt underwriting activity. Expenses were up 6%, mainly driven by higher employee-related costs, including severance, partly offset by the impact of the weaker U.S. dollar. Turning now to Slide 18. Corporate Services net loss was $242 million and included the impact of the severance charge as well as seasonal employee benefit-related costs in the first quarter. In summary, we continue to build on last year's momentum with strong core operating performance across all our businesses. We delivered record revenue and at the same time, took actions to optimize our structural cost base to support investments and drive future efficiencies. These results reflect successful execution on the 4 strategic levers of our ROE journey over the last 5 quarters. I'm confident our businesses are well positioned to drive further growth and enhance returns. With that, I will now turn it over to Piyush. Piyush Agrawal: Thank you, Rahul, and good morning, everyone. We continue to operate in an environment of modest economic growth across North America with the U.S. economy maintaining its outperformance relative to Canada. After a year marked by lingering trade uncertainty, we see an environment of measured expansion, underpinned by resilient consumer spending and stabilizing inflation. In Canada, economic momentum remains constrained by softer labor and housing markets. Within this, we continue to see dispersion across sectors and borrowers with pressure more pronounced among higher leverage borrowers. Our approach remains disciplined. We are prioritizing proactive client engagement, balance sheet resilience and maintaining strong reserve coverage. The credit performance this quarter was largely in line with our expectations and reflective of the environment. As shown on Slide 20, total provision for credit losses was stable quarter-over-quarter at 44 basis points or $746 million with impaired provisions declining $11 million to $739 million. By operating segment, Canadian Personal and Commercial impaired losses were $497 million, stable to prior quarter. We continue to see higher delinquencies in certain segments of our consumer portfolio, particularly in parts of the GTA where unemployment remains elevated. U.S. Banking losses were $202 million, down $7 million lower compared to prior quarter. U.S. Commercial Banking losses of $128 million declined $32 million. Capital Markets impaired losses also decreased $8 million to $29 million. Turning to Slide 21. The $7 million performing provision reflects stability and strength in our existing reserve position. The $4.6 billion performing allowance continues to provide strong coverage at 69 basis points over performing loans, and we remain well reserved. On Slide 22, gross impaired loans decreased $228 million to $6.9 billion or 102 basis points, driven by lower formations in our commercial businesses, which decreased $403 million compared to prior quarter. We are seeing positive momentum in our wholesale businesses with lower formations to both our watch list and impaired loans. Looking ahead, trade issues between Canada and the U.S. remain unresolved and the USMCA renegotiation presents significant uncertainty. Given these factors, we continue to anticipate a softer economic environment in Canada. In the U.S., expansionary fiscal policies, supportive monetary policy and AI investments should support growth as we go through the year. These dynamics are playing out for our customers and reflected in our portfolios with a gradual improvement in the U.S. geography and elevated risks in Canada. As we look forward, we expect these to have somewhat a balancing effect and impaired provisions to remain in the mid-40 basis points range with quarterly variability. Our performance continues to be supported by the diversification of our portfolio and risk management capabilities, underscored by a strong risk culture. We remain disciplined and well positioned to support clients with our strong balance sheet and liquidity levels. I will now turn the call back to the operator for the Q&A portion of this call. Operator: [Operator Instructions] And our first question comes from Gabriel Dechaine from National Bank Financial. Gabriel Dechaine: I think the ROE performance this quarter, especially after some of the comments you made earlier this year is a standout, and that's a good thing, great progress there. But I don't want to be that guy, but the U.S. looks to be a little bit flatter. And we saw more ROE expansion in Canada and capital markets, whereas it was a bit more flat in the U.S. I guess my question is, do you still have confidence presumably in hitting that 15%, but the way you get there might be a bit different than the original plan because the U.S. was almost half of that expansion plan. Darryl White: Yes, Gabe, it's Darryl. I'll give you a topper on your answer, and then I might ask Aron to kick in, who's effectively executing the plans in the U.S. No, I would actually say in all facets, we're very much on track. When I look at the total company on the March up to 15%. If you go back to when we called out our objective in the fourth quarter of 2024, we were at 9.8% that year. If you look at how many quarters it will take us to get there, I'd sort of think about it as a total company, we're about 60% of the way there and 40% of the time. So in one way, if it were linear, which is not necessarily going to be linear, we're ahead of schedule. The U.S. was always going to come in a little bit later than the improvement in Canada as it evolves. And that's on track as well as we move to -- I would say, we're 90% through our optimization work in the U.S., and we'll be effectively complete on that, as we've said we would in the second quarter of this year. And then we should see some good acceleration there as well. We have -- I will point out before kicking it over to Aron here, we are up 150 basis points year-over-year in the U.S. ROE. So there's some nice contribution to the total bank ROE already with a lot more to go. But Aron, over to you on where we go from here. Aron Levine: Yes. Thanks, Darryl. Thanks, Gabriel. I think what you're seeing is the U.S. is really at this inflection point. As we've talked a lot about the optimization work now that we're 90% of the way complete. But loans and deposits are down about 3% to 5% as a result of that work. Of course, ROE up, as Darryl said, as our margins, and revenue is actually up 2% year-over-year. So we've seen really good progress, whether it be fee income on commercial TPS, M&A or noninterest checking. So now what you're seeing is this translation into the momentum we're starting to build in our pipelines. We're starting to see progress across the commercial. We have some areas like commercial real estate that are starting to show some growth. So all the things are pointing to exactly how we had said would operate in the first quarter and the first half of the year with real opportunity for growth in the second half and keep us on track to contribute to the overall ROE play. Gabriel Dechaine: Okay. Great. And then to be clear, I was talking about linked sequential quarter there. But sticking with the U.S., I look at the margin at 4%, that's definitely peak-ish. But as I look ahead, I actually want to see that go down because that means you're going to be deploying more balance sheet, loan lending and raising more deposits, which might result in a lower NIM, but more top line momentum. And I just want to get more, I guess, the outlook for loan growth, what are some of the pillars for that confidence, I guess? Is the breakdown of private credit a little bit of a tailwind for you, maybe? Aron Levine: No, my confidence comes from a couple of areas. One, if you look at the actions we've taken, right, the talent that we've built, especially on the West Coast has been impressive coming from lots of other areas of the industry, the way we've realigned the organization and the investments we've made in the business. If you look at all of those actions in addition to now the optimization work coming to completion and these pipelines growing, we feel like that's what's going to drive our growth. So the relationships we have with our -- with the clients, the way we provide industry expertise, we have momentum, and it's really been built off of all the work we've done over the last 5 quarters. So I think what you're going to see is a compounding effect of those investments we've made and the changes we've made over the rest of this year and into 2027. Operator: Our next question comes from Ebrahim Poonawala from Bank of America. Ebrahim Poonawala: I guess maybe first question, just following up, Rahul, on Slide 10 in terms of the net interest margin, I guess, as all of us think about the ROE improvement from here, you break down the 3 buckets, deposit margins, loan margins and the mix for the U.S. and CAD NIM. Maybe just unpack that for us as we think about the outlook for here, what's the level of margin expansion you expect on both sides of the border? And how should we think about the 3 components that you lay out in that slide? Rahul Nalgirkar: Sure. Thanks, Ebrahim, for the question. This is Rahul. Ebrahim, as we have seen last couple of quarters, we do recognize that we've had a nice NIM expansion. And while we have our guiding principle to manage NIM stability through the cycle, this expansion speaks to the success of our optimization and mix improvement efforts. And also, we've been opportunistic about ladder reinvestments when we saw the right opportunity. So as we now fast forward that where we are heading, the ladder reinvestments and the mix will continue to benefit us, perhaps to a lesser extent. And we are also closely monitoring how the competitive landscape evolves in both the countries, both for loans and deposits. So when you put it all together, we are still thinking about a relatively stable outlook in the near term for NIM. Ebrahim Poonawala: Got it. So you don't expect material expansion from here? Obviously, balance sheet growth is going to pick up and you expect the margin to be relatively stable? Rahul Nalgirkar: Yes. I mean if you think about it, Ebrahim, we have a lot of efforts going on, on our strategic initiatives to improve our mix, but also as loan growth picks up in both sides of the countries, pricing and margin will behave differently. So we are putting it all together as a package to say relatively stable. Ebrahim Poonawala: Got it. And I guess on that point on the loan growth, maybe, Aron, we've seen like Fed H8 data looks pretty good on C&I year-to-date, like commentary from the regional banks have been strong. Just talk to us if there's been a discernible change in sort of customer behavior in the U.S. around like wanting to invest and that's driving loan demand or not? You talked about CRE inflecting a little bit. And then maybe on the other side of the border, just the level of optimism, caution on the Canadian macro as we look out over the next 6 to 12 months. Darryl White: Yes. Thanks, Ebrahim. Yes, there's no question. We're hearing it from our clients. We're seeing it in the way the pipelines are building and the activity and the conversations we're having across both the commercial bank and the corporate bank with Alan, there's a lot of enthusiasm building across the businesses, and we're seeing that play out. Again, the optimization work we do sort of mute some of that excitement in the first quarter. But as that comes to an end, we'll see that come through the rest of the year. But in terms of client sentiment, we're hearing a lot of people that are feeling a little more comfortable again with some of the uncertainty and how to handle it and starting to invest again, and we're right there with them. Sharon Haward-Laird: And then Ebrahim. In Canada, I think the story is very much the same with 2 maybe main differences. The first being we don't have an optimization program. So that's not a headwind for us. And then the Canadian macro is maybe a little more uncertain as both Darryl and Piyush covered in their comments. But we have a lot of confidence in quarter-over-quarter momentum from here. And just to give you a sense of where that confidence comes from, it's increasing pipelines. We're starting to see acceleration in the middle market. And we've seen increased closings of deals for the first time since the tariff uncertainty arose. And so based on that, we've invested in people, we've invested in AI tools. And with the strong deposit growth, the TPS fees and our great revenue, we feel like we're really well set up as we move into the end of the year and importantly, into fiscal '27 as well. Operator: Our next question comes from Doug Young from Desjardins Capital Markets. Doug Young: Just going to the U.S. commercial loan growth. You talked a lot about optimization and various items, but maybe we can dig a little bit down into it. So can you quantify the portfolio optimization and what impact it had in the quarter? And what does 90% mean? And what impact will it have in the next quarter? Just to give some sense around that. And then I think there was mention of new -- record new client acquisitions in the U.S. Can you maybe flesh this out because it seems like you are kind of winning new business when we kind of pull out the optimization impact. Just hoping to get down into a little bit more detail around that. Darryl White: Thanks, Doug. So I think from an optimization standpoint, probably the best number is around $6 billion of sort of balance sheet loans reduction over the course of the last 4 quarters. Our loans are down about 5% across U.S. Banking. Remember, our optimization work is both on the deposit side as we've rolled off higher-priced CDs and are repositioning ourselves, both in the commercial business and the consumer business on higher quality, lower cost deposits. So you have optimization work that covers both sides, loans and deposits. And where you're seeing real momentum, again, if you look at our commercial TPS fees, up 23% year-over-year, up 17% quarter-over-quarter. That is this idea of we have great client relationships that we are now deepening with them. We're driving more high-quality cash for those clients. You look again at our noninterest checking, an important benchmark for us in terms of how we're doing on the consumer side of the business, creating primary relationships that we can then, over time, grow both on the wealth side and more. So everything we are doing in the U.S. now comes down to how we operate in our markets that are, a, very focused on markets; B, we're very focused on being a unified organization so that our wealth business, our commercial business and our personal business are going to market together. We're seeing that in higher referrals. We're seeing that in more closed business, and that's really important. And of course, the discipline that we're showing now on both risk and pricing, the goal for us is to not just grow but to grow in a sustainable way so that we do achieve our long-term targets of ROE. So it's all coming together. We feel very good about the progress we've made. We've got work to do, but we feel confident about where the momentum is pointing to over the next couple of quarters. Doug Young: And the evolution of growth being more in the back end, that outlook hasn't changed. Darryl White: Yes, the outlook is the same. We think there'll be mid-single-digit loan growth from here. And again, the execution from here really comes down to we've put great talent in the field. We've built an organizational alignment where we are working very well in the industries that we serve across both with our treasury partners and our capital market partners, and we're delivering the kind of industry expertise that ultimately wins clients and relationships, and that's what you're seeing. Doug Young: Okay. And then second question, maybe, Piyush, how do we think about the evolution of performing loan ACLs? I mean, Canada looks like it's a little bit more challenged. U.S. looks like it's a little bit better outlook in terms of -- from a macro perspective, you haven't been growing much, some loan book so like the performing loan. PCL hasn't been much because of that as well. So how do we think about that? And the macro outlook seems to be improving even though we have a lot of geopolitical uncertainty. So I know there's a lot that goes into the performing loan side, but how can you give us comfort around that and the evolution of that? Piyush Agrawal: Yes. Sure. Thanks, Doug. So we've ended the quarter at $4.6 billion, and it's a strong coverage of 69 basis points. As you know, our allowance goes through the rigorous process, reflects a range of downside scenarios, including some of the trade-related stresses. I think the question going forward is not whether uncertainty exists, it does, whether that's translated into observable changes in our portfolio. And so when I break that down between U.S., Canada, wholesale, retail, the U.S. is on a better footing. Our risk rating migration are drivers of what we are seeing in portfolio quality for flows into formations into watch list and embeds has been improving. So that's a good positive sign across in the U.S. And I would say also it's stable in Canadian Commercial. Now the Canadian Commercial macros are a little bit more softer. And so where we expect to see is until some of this uncertainty comes down, I don't expect any releases. At the same time, I think some of the performing provision will be consumed by what you're hearing on the call of the momentum on loan growth that's going to pick up. So again, when all of this bring back together, I'm not expecting any releases in the near term. I also don't see any large builds unless there's a big shift in the environment. And so loan growth is going to be the big driver for us going forward, especially as quality is stabilizing. So I'll leave it to exactly where we've ended the quarter in the same range as we go forward. Operator: Our next question comes from Paul Holden from CIBC. Paul Holden: So I want to continue sort of the line of questioning on the U.S. segment, but instead of talking about the loan growth, which is being well covered. Maybe talk about the deposit growth because I think the NIM, which you've also got a question on, is an important component of that. So if loan growth resumes, obviously, you're going to have to resume deposit growth and low-cost deposit growth. So maybe talk a little bit about the outlook there and how that will be achieved. Darryl White: Yes. Thanks. I'll hit a couple of comments, and then I think important that we will have more opportunity at Investor Day to go into a lot more detail, especially on this topic. But when you think about where we are on the consumer side, what driving to, again, being the primary relationship with clients is critical, right? And we do this with -- we have a whole series of different segments that we can work with clients. We have a great bank at work program that we work with sort of small business owners, both on their business and personal relationship. That program, we can expand to commercial clients, and we'll talk more about that again in a couple of weeks. We certainly have a big opportunity with our mass affluent segment where we can grow that deposits substantially. So across the board, we have a whole series of places that we can grow. Obviously, as we densify in regional coverage, certainly out West, there's opportunity there, and we're kind of pursuing that program as we've talked about in the past through our de novo. So right now, the key is we're showing 3% net checking growth. So as always, when you talk about deposit growth, it's both how you acquire and equally important is how you retain. And we're putting a lot of initiatives in place to make sure that we retain our clients and give them the client experience that makes them stay with us longer. So we'll talk more about that and other things as we get to our March Investor Day. Paul Holden: Okay. Fair enough. Second question is on Capital Markets. Obviously, a very strong quarter. So wondering if you can provide us sort of any thoughts on how that momentum may carry forward, particularly with investment banking, like Darryl has highlighted the strength of mining, and I think deals there continue to flow. Darryl White: Thanks, Paul. I appreciate both the question and the recognition. As you would imagine, we also feel very good about our performance this quarter and really view it as reflective of strength across our franchise with, as you point out, outperformance in very specific areas. To deliver $2 billion plus of revenue, it means that most of our businesses are doing well, and we did have areas of outperformance, specifically in Global Markets, it was our equity and equity derivative businesses as well as commodities. And then in investment banking, it's the advisory and ECM businesses that were led by our mining franchise that both you and Darryl point out, but it was also broad-based across our franchise. So the outcome is that this quarter's PPPT is above our trailing 5-quarter average of roughly [ $750 million ]. And as we look forward, the environment in markets continues to be constructive with volatility creating opportunities. And we have a very strong pipeline, yes, in the mining space, particularly, but across our franchises. So we are optimistic in our outlook. That said, we wouldn't necessarily extrapolate Q1 outperformance for the full year. And our focus on as a team is to exceed our trend line on a consistent basis. Operator: Our next question comes from Mario Mendonca from TD Securities. Mario Mendonca: Can I have you look at, I believe it's Slide 27. What stands out for me first is the credit card impaired rate at about 6%. I mean I suspect that relates to your exposure to the mass market, but that's just not a number I'm used to seeing at a Canadian bank. But secondary, it looks like it's stabilized here. So what I'm -- the question I'm asking is, what are we seeing here? Are we're seeing the exposure... Christine Viau: Mario, we lost you for a second. Could you just -- could you just repeat your question? Mario Mendonca: Sure. Can you hear me okay now, Christine? Christine Viau: Yes. Can hear you good now? Mario Mendonca: Yes, the credit cards, the loss rate there, the impaired PCL rate on credit cards, it's not a number you see too often at a Canadian bank at 6%, but it has stabilized. So what I'm getting at now is what is your outlook for the unsecured consumer? I'm thinking personal lending credit cards for BMO specifically in the near term. Do things look like they're improving somewhat as you heard from another bank yesterday? What's your outlook there? Mathew Mehrotra: Mario, it's Matt speaking. I'd go back to my comments on the last call. You've captured it well. We see stress at the lower end of the market. That's a broad phenomenon in the country. It is more visible for us. That's showing up in the losses that you're pointing up right now. We have, of course, made adjustments where we've seen risks elevate. We try to manage that risk. And on the flip side, we're focused on growth in our premium business, which is showing really good momentum. Premium account growth is up 13% year-over-year. Our quarter partnership is a part of that, but it's broad-based beyond that. We do see this business, obviously, it does ebb and flow with the macro environment. And so our outlook is tied pretty closely to unemployment and improvement in the Canadian economy overall. This quarter, your comments on the stability, we did see a good insolvency performance. That's a little bit hard to predict over time, but we do see this stabilizing for the most part. Mario Mendonca: All right. Just looking at the U.S., I acknowledge the $6 billion reduction in RWA over the last 4 quarters. Is there room to take the U.S. RWA still lower? Or are you essentially at the end there? Darryl White: Yes, I'll take it, Mario. It's Darryl. I mean, I think all -- optimization is a big word that's come up, to my liking, way too often with all of you as it goes through because it's kind of coming to the end, and we're going to be effectively complete on this on the end of the second quarter, as we've said. But it is, as you know, an ongoing BAU thing that everybody does. Do we see further significant reductions in the "program"? No. I think when we say we're kind of getting to the end, we're getting to the end. What you should see from here is the low-return stuff that still exists from time to time rolls off and better return assets roll on, and we'll continue to manage the mix, both on the loan side and the deposit side, as we said earlier, as we go forward. And if you kind of look out to where the market performs over the course of the rest of 2026 and '27 and then beyond, frankly, our expectation is that we'll perform and we'll protect market share, and we'll perform at the market or better as we go through that. Mario Mendonca: All right. One final quick thing. U.S. NIM, up 13 basis points in the quarter, the shift to core deposits from term, all these are positive things. That sounds contrary, however, to the guidance that U.S. NIM should be stable from here. That just doesn't seem -- I'm not sure I understand how that can be true. Both things can be true, the shift to core and stable at the same time. Rahul Nalgirkar: So Mario, primarily -- this is Rahul. So primarily, our guidance on stable is more at a bank core level. We will see variability within the businesses depending upon the strategic initiatives, especially like in U.S., Aron talked about mass affluent and checking and savings account growth there and depending upon also how the competitive landscape evolves. So at least in the near term, we do expect some more strength in the U.S. And then also as loan growth picks up, things would look different. So when you bring it all together, that's how we think about the U.S. But when I mentioned relative stability, that is at the bank -- all bank level. Operator: Our next question comes from Mike Rizvanovic from Scotiabank. Mehmed Rizvanovic: First one, maybe for Sharon. Just wanted to get a bit more color on the NIR in Canadian Personal and Commercial Banking. And I saw the comment on Slide 14 about above-trend card fees due to revised future redemption assumptions. Can you just give me a bit more granularity? I'm just trying to understand if that -- is that like a one-off on this quarter? Or is this like a new run rate? Because I noticed the card fees, $261 million in the quarter for the bank overall was pretty elevated versus historical. Mathew Mehrotra: Mike, I'll take that one. So on the card fees overall, the above trend that you're noting, we go through an ongoing process to evaluate our accrual rates relative to customer behavior. In this particular case, we saw accrual rates that were above reward redemption rates. And obviously, that's the gain that you're seeing in our fees. For fees overall, though, acknowledging that above trend item and a couple of other ones, we are seeing really good momentum in our commercial business, double-digit NIR growth and our mutual fund fees as well are doing -- are performing really well in line with the sales comments that Darryl made earlier. So overall, the outlook is solid on NIR acknowledging those above-trend items for this quarter. Mehmed Rizvanovic: So that is specific to the quarter. It's not like necessarily a new run rate. Is that fair? Mathew Mehrotra: No. You'll see a marginal benefit of that in the quarters to come, but nothing in line with what we've seen for this quarter. Mehmed Rizvanovic: Okay. So a bit elevated this quarter. It could come back now. Okay. Okay. That's helpful, Matthew. And then maybe just one for Piyush. I just wanted to get your thoughts on Canada's housing market. I know it's always very topical. And just some of the recent trends, things just don't seem to be getting better. And I know there's a lot of moving parts that make up your ECLs and all the assumptions that go into that. But do you have any concerns, any real concerns that a weak housing market, we're seeing inventories rise, sales volumes very, very weak. Are you concerned that if it just continues to move along this trend line that maybe it's more meaningful of a hit to the Canadian economy, not directly on the mortgage book per se, but just more broadly speaking. Any thoughts you could offer would be helpful. Piyush Agrawal: Yes, I can begin. I mean, broadly, the housing market, obviously, is a structural strength in the overall Canadian economy, and we have seen the softness in Canadian housing. You can see that in the offtake and new sales. Inventory has been up a bit. Some of this might be the winter effect. Some of this might be the impact of just the news uncertainty. But at some point, the backlog has to clear, and I think it will kick start as spring comes around. More in terms of our own portfolio, you're beginning to -- you're seeing higher delinquencies, and Matt touched on this. This is some of the stress in the Canadian consumer. We see that in consumer spend. We see this in other places. So that's the softness we've generally talked about. But I don't see that broadly for us or the Canadian market translate into higher losses. The LTVs are strong even with the refresh of the HPI decline, they remain strong and FICOs are good. And the behavior we've seen from renewals in the last few quarters has actually been very good. Delinquency levels of renewing customers, 1/3 of them at lower rates, some at a higher rate are actually comparable to the rest of the portfolio. So this will take some time, but I'm hopeful for the spring to come around and actually reinvigorate the market. Operator: And our last question will come from Darko Mihelic from RBC. Darko Mihelic: I wanted to circle back on the net interest margin discussion as well. And this may be a topic for the Investor Day and happy to defer to them. But I am just curious on one thing with respect to what we're seeing specifically in Canada. We saw some good deposit margin improvement. One of the things that I often do is I try and look and sort of see what banks are doing differently. And there is one place where you stand out very different from the crowd, and it's been for quite some time now, wherein the deposit market and particularly in term, your rates that you're offering are materially lower than your big bank peers, but very -- almost 100 basis points this morning, lower on term in the brokered deposit market. And so the question is, how long do you think this persists -- and how impactful has this been in terms of running off term deposits? And are you more or less running them off in the brokered market? And how long can this persist? And are we seeing any level of deposit competition heating up yet in Canada? Mathew Mehrotra: Yes. Thanks for the question, Darko. The overall story on deposits in Canadian P&C and Retail overall is we've been seeing really strong operating deposit growth, and that's been driven by really strong net customer growth. So we're getting primary relationships in the market at a faster rate than our competitors, and that's giving us the opportunity to optimize our term business. We think about our term business in 2 different parts. There's obviously the term that we sell to our own clients in our branches, digital channels, in our contact center as well as the broker term, which are the rates that you're looking at. Our optimization obviously focuses on first an operating deposit as needed, then term with our existing clients and third-party as sort of the final area where we'd look. And as the operating deposit performance continues to be strong and in line with the company's liquidity needs, we haven't really focused on driving that channel. And so it will sort of trend in line with our overall loan growth outlook for the company. Darko Mihelic: Okay. I'd imagine there'll be more follow-up when I see all bank results at your Investor Day, but I appreciate that. I guess where I'm going with this is if the outlook for margin is somewhat stable, I'm just wondering how has this sort of run its course on the term side in terms of deposit mix? Mathew Mehrotra: I would say it has not totally run its course. There's still some tailwinds that we'll see on this. It won't be at the rate that you've seen up to this point, but it will continue. Again, the underlying drivers of this are strong operating deposit growth and the opportunity that, that presents. And we expect that to continue, but of course, not to the same degree as you've seen. Operator: We have no further questions. I would like to turn the call back over to Darryl White for any closing remarks. Darryl White: Well, thank you, operator, and thank you all for your questions this morning. Look, to sum up, I would reemphasize that we had a very strong start to 2026. The momentum is continuing to build as we're focusing on what we've told you we would, which is improving our ROE and driving profitable growth. And as I said earlier, my conviction in achieving this outcome against our ROE objectives is very strong and on time. So with that, we look forward to speaking with all of you again on the 26th of March at our Investor Day. Thank you very much. Operator: This concludes the BMO Financial Group's Q1 2026 Earnings Release and Conference Call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Royal Vopak Full Year Results 2025 Update Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand you over to your speaker of today, Fatjona Topciu. Please go ahead. Fatjona Topciu: Good morning, everyone, and welcome to our full year 2025 results analyst call. My name is Fatjona Topciu, Head of IR. Our CEO, Dick Richelle; and CFO, Michiel Gilsing, will guide you through our latest results. We will refer to the full-year 2025 analyst presentation, which you can follow on screen and download from our website. After the presentation, we will have the opportunity for Q&A. A replay of the webcast will be made available on our website as well. Before we start, I would like to refer to the disclaimer content of the forward-looking statements, which you are familiar with. I would like to remind you that we may make forward-looking statements during the presentation, which involve certain risks and uncertainties. Accordingly, this is applicable to the entire call, including the answers provided to questions during the Q&A. And with that, I would like to hand over the call to Dick. D.J.M. Richelle: Thank you very much, Fatjona, and a very good morning to all of you joining us in the call today. I would like to start with the key highlights of the year. 2025 was another year of disciplined strategy execution and sustained momentum for Vopak. We delivered record financial results, executed our growth strategy and showed our commitment to create and distribute value to our shareholders. Demand for our services remains strong, which is reflected in a healthy occupancy rate of 91.4%. Despite currency headwinds, we delivered a record level EBITDA in 2025. We further optimized the portfolio, divesting our terminals in Korea, in Barcelona and Venezuela, while establishing our footprint in Oman and completing the IPO of AVTL in India. We also made good progress on executing our growth strategy. Some of our largest projects like REEF LPG terminal in Canada and Gate 4th tank in the Netherlands are progressing well. We have now committed around EUR 1.9 billion to growth projects since 2022 and are well positioned to reach our ambition of investing EUR 4 billion through 2030. We see this not as a target to spend, but rather as an opportunity to invest in attractive growth opportunities. Finally, we showed our commitment to distribute value to our shareholders. In line with our disciplined capital allocation priorities, we are announcing a shareholder distributions program of around EUR 1.7 billion through year-end 2030. Before we dive deeper into the results, let's have a look at where we stand in the execution of our strategy. In 2022, we launched our improve, grow and accelerate strategy. And in the first phase, we significantly strengthened our foundation, applying strategic portfolio management while increasing the exposure to gas and industrial terminals that led to an improvement of the operating cash return from 10.2% in 2021 to 15.6% in 2025. Our strengthened foundation positions us well to increase the pace of our investment commitments and growth CapEx in 2025. We are focused on executing our major projects, delivering them both on time and on budget. As these assets come online from 2027, we expect them to positively contribute to our return profile. And this will further accelerate our growth strategy execution as we look for continued ways to accelerate our investments in attractive growth projects. As we execute our growth strategy, we remain committed to distribute value to our shareholders. Since 2021, we have distributed around EUR 1.2 billion in dividends and share buybacks. And in line with our disciplined capital allocation priorities, we're making a step change now by announcing a shareholder distributions program of around EUR 1.7 billion through year-end 2030. Now back to our results. As mentioned, 2025 was a strong year in terms of strategy execution. We continue to improve the performance of our portfolio, generating a record level of operating free cash flow, leading to an operating cash return of 15.6%. In addition, we completed the IPO of AVTL in India, and we added additional investment commitments during 2025, of which the majority is allocated to grow our base in gas and industrial terminals. With regards to the accelerate strategic pillar, the developments of new supply chains for CO2 and ammonia as hydrogen carrier are moving at a slower pace than we initially anticipated. At the same time, we're pleased with the investments in the Netherlands and Malaysia on low-carbon fuels and sustainable feedstock infrastructure as well as the early stages of battery developments. Now let's look at our sustainability performance, where we have safety always as our top priority. And while these metrics demonstrate best-in-class performance, they fall short of our ultimate safety ambitions. Looking at the emissions, we're making good progress in achieving our long-term goals. With regards to diversity, despite our ongoing efforts, we've not yet realized the level of gender representation to which we aspire and are committed to improving this. Looking at the financial performance for the different terminal types we operate, we see an overall strong performance with higher results compared to last year despite currency headwinds. LNG markets remained well supplied while global LPG trade was marginally higher than 2024. Mainly due to some planned out-of-service capacity and a positive one-off last year, 2024, the results of the gas segment went down year-on-year. In the Industrial segment, growth is contributing and together with the one-off in the second quarter in 2025, we see a 15% increase, notwithstanding the uncertainty in the macro environment. Chemical markets were challenging for our customers in 2025, while our terminals continue to perform relatively stable despite some locations seeing lower occupancy rates. Energy markets, which we serve with our oil terminals continue to see strong demand and performance is driven by increased throughputs, higher rates and contract indexation. All in all, this has led to an increased proportional EBITDA to EUR 1,184 million and a strong operating cash return of 15.6%. Now let's move to the execution of our growth strategy. Since the start of our Improve, Grow and Accelerate strategy, we've committed a total of EUR 1.9 billion. Around EUR 550 million of this EUR 1.9 billion has been committed since the beginning of 2025. We're well positioned to achieve our ambition of investing EUR 4 billion by 2030, supporting our long-term operating cash return ambition of 13% to 17%. During 2025, we made good progress in expanding our capacity. The construction of our LPG export terminal in Western Canada and the 4th tank at our Gate terminal in the Netherlands are progressing as planned. Also, we're expanding our capacity in Asia with multiple FIDs taken in China, India, Malaysia and Thailand. In the Latin America region, we're expanding our capacity in Brazil and in Colombia. As mentioned, we've realized strong momentum in executing our growth strategy. We've already commissioned around EUR 650 million, and these projects are contributing to our results. Around EUR 1.3 billion is still under construction, and we expect to commission around EUR 775 million around year-end 2026, and that's related mainly to Gate 4th Tank and LPG in Canada. In the period '27, '28, we expect to commission around EUR 325 million and around EUR 175 million in 2029 and beyond. The already commissioned growth projects as well as the growth CapEx under construction will further reinforce our long-term stable return profile. 70% of our revenues are generated from contracts longer than 3 years, a 10% point increase from around 60% in 2021. Currently, around 40% of our EBITDA is generated by assets in gas and industrial. Looking ahead, we expect continued strong momentum. We've shown strong business performance in the recent years. The market indicators for storage demand remain firm, supporting the delivery of our growth projects and the resilient performance of our existing business. We expect this momentum to continue, and this is reflected in our long-term ambitions. We've raised our long-term operating cash return ambition to an annual range of between 13% to 17% and are well on track to invest EUR 4 billion growth CapEx through 2030. So let's wrap it up on this slide. We have an unparalleled global infrastructure portfolio, proven to be resilient in uncertain times. We expect a robust energy demand through 2030. And through our strategic locations and the critical link they provide will support further growth opportunities leading to long-term stable returns. With our ambition to allocate EUR 4 billion growth CapEx through 2030, of which EUR 1.3 billion currently under construction, we deliver clear tangible levers for growth. And last but not least, we have a strong focus on creating and distributing value to our shareholders through cash dividends and share buybacks. With that, I'd like to hand it over to Michiel to give more details on the full year and fourth quarter numbers. Michiel Gilsing: Thank you, Dick. And also from my side, good morning to all of you. As mentioned by Dick, 2025 was a strong year for Vopak with record results. We reported a record level of operating free cash flow, driven by our continued strong profitability and EBITDA to cash conversion. On a per share basis, proportional operating free cash flow increased by 7% to EUR 7.13. We reported a 68% increase in earnings per share, driven by higher net income and a lower share count. Net income increased by EUR 228 million, mainly due to a dilution gain of EUR 113 million resulting from the listing of our AVTL joint venture and an impairment reversal of EUR 181 million in cash-generating unit of the Europoort terminal. These results highlight the strength of our well-diversified portfolio, particularly in times of increased uncertainty and volatility. Simultaneously, we continue to ramp up our investments in attractive and accretive growth projects while returning value to our shareholders, which we will discuss in more detail later in the presentation. Let's take a closer look at the performance of the portfolio. Our operating cash return improved to 15.6%, driven by an increased operating free cash flow of EUR 823 million and a slightly decreased capital employed. Demand for our services remained healthy. Adjusted for currency movements and divestments, the proportional EBITDA increased by 4.3%, which we will detail further in the next slide. Moving on to our business unit performance overview. Excluding negative currency exchange effects of EUR 33 million and EUR 2 million divestment impact, the proportional EBITDA increased by 4.3% compared to 2024. A large part of this growth can be explained by the strong EBITDA contribution of EUR 20 million from our growth projects, particularly in China and the Netherlands. The results in our Asia and Middle East business unit were primarily driven by the results of a commercial resolution in the second quarter. Across the remaining business units, the performance was relatively stable. We are continuously focused on generating predictable growing cash flows to create value for our shareholders. We achieved this by growing our revenues while improving our profitability and cash conversion. In 2025, we improved on both our EBITDA margin, reaching 58% and our cash conversion reaching 70%. Driven by revenue growth, increased profitability and increased cash conversion, we have grown our operating free cash flow by 49% since 2021. As we have funded a fair share of our growth investments by divesting assets with lower cash generation abilities, the amount of capital employed has not significantly changed since then. The significant improvement in cash generation with a stable capital employed has led to a 5.4 percentage point increase in our operating cash return. Let's take a closer look at the drivers of improvement with regards to our cash flow per share. We can clearly see that the increased profitability is the main driver of improvement since 2021, driven by strong contributions from our growth projects and the resilient performance of the existing assets, our proportional EBITDA increased by EUR 184 million. This has had a net impact of around EUR 1.50 per share. Also, our cash conversion has significantly improved, primarily driven by a decrease in operating CapEx of 28%. This has had a net impact of around EUR 0.70 per share. Finally, we have executed 2 share buyback programs since 2021 with a total value of EUR 400 million, reducing our share count by around 8%. And adding these drivers together, we increased our proportional operating free cash flow per share by 62% since 2021. Shifting from proportional figures to consolidated figures, we get a good picture of the cash flow that became available for capital allocation on the holding level in 2025. Our cash flow from operations, which includes a healthy upstreaming of dividends from our joint ventures remains strong, showing a 2% increase compared to 2024. After deducting operating CapEx and IFRS 16 lease payments from CFFO, we arrive at the consolidated operating free cash flow of EUR 691 million, an improvement of 5% versus 2024. Factoring in the taxes paid and the financing cost, we arrive at a levered free cash flow of EUR 506 million. This represents the available cash before debt financing that we can strategically allocate to pay dividends, invest in growth or buy back our own shares. Our capital allocation framework consists of 4 distinct pillars, aiming to maintain a robust balance sheet, distribute value to shareholders, invest in attractive growth opportunities and yearly evaluate share buyback programs. In the next part of the presentation, I will highlight our key capital allocation achievements. Starting at our first priority, the balance sheet. Proportional leverage, which reflects the economic share of the joint venture's debt decreased to 2.6x compared to the end of 2024 when it was at 2.67x. If we exclude the impact of assets under construction, which do not contribute yet to EBITDA, the proportional leverage is at 2.06, which is the lowest level in the last 5 years. Our ambition for the proportional leverage range is still between 2.5 and 3x. To facilitate the development of growth opportunities that enhance our operating cash return, Vopak's proportional leverage may temporarily fluctuate between 3x and 3.5x during the construction period, which can last 2 to 3 years. Additionally, we maintain control of our financing expenses by limiting the exposure to volatility in interest rates. And we achieved this by borrowing predominantly at fixed rates. As mentioned, we have the long-term ambition to generate reliable and attractive returns for our shareholders. This is why we have announced a shareholder distributions program of around EUR 1.7 billion through the year-end 2030. This program will enhance our dividend policy while introducing a multiyear share buyback program. With regards to the dividend, we have the ambition to grow our payments by 5% or more per year. Also, we will increase our dividend payment frequency to semiannual. We propose a dividend per share of EUR 1.80 over 2025, representing a 50% increase compared to the payment made in 2021. To be clear, the proposed EUR 1.80 will still be paid in full in April of this year, subject to AGM approval. The first interim payment will be announced at the publication of our 2026 first half year results. Looking at the second component of the shareholder distribution program, the share buybacks, we have the ambition to buying back EUR 500 million through the year-end 2030, of which we expect to execute the first tranche of up to EUR 100 million over the next 12 months. As shown in the graph on the right, we have distributed around EUR 1.2 billion in dividends and share buybacks in the last 5 years. The announced shareholder distribution program of around EUR 1.7 billion through the year-end 2030 marks a significant step change. Moving on to the growth. Investing in growth opportunities is a key part of our capital allocation policy. We have the ambition to invest EUR 4 billion on a proportional basis by 2030 to grow our base in gas and industrial terminals and to accelerate towards energy transition infrastructure. At this point, we have already committed around EUR 1.9 billion to growth investments since 2022, of which EUR 650 million has been commissioned and is already contributing to our results. Around EUR 1.3 billion of growth projects are currently underway with the majority of them being delivered by the end of 2026. Once these projects become operational, we expect them to further contribute to the increasing free cash flow of our portfolio. This is why we feel confident in raising our long-term ambition for the OCR to between 13% and 17%. We continue to see attractive growth opportunities in the market that we will pursue in order to grow the cash generation of the portfolio. Our ambition remains unchanged to actively support our customers with infrastructure for the ongoing energy transition and to invest when opportunities arise at returns in line with our portfolio ambition. Let's bring it together in this slide. Since 2021, we have made significant improvements. Our financial performance improved with a double-digit increase of revenue and EBITDA. On the back of increased cash conversion, this growth has boosted our cash generation. The operating free cash flow per share, our main KPI for assessing value creation has increased by 62%. It is, of course, equally important that this increased cash flow is allocated in a way that is creating long-term value for our shareholders. And as you can see, that has been clearly the case. We decreased our leverage while significantly ramping up our growth investments. At the same time, we raised our dividend and reduced our share count. All in all, we're proud of the results that we have achieved. Before we move to the outlook 2026, let's take a brief moment to address our exposure to foreign exchange. If we look at the proportional EBITDA split by currency, we can see that 28% of our EBITDA is generated in euro, which means that for the remainder of the EBITDA, we face translation risk in our P&L. To be a bit more specific, we show on this slide the sensitivity of our proportional EBITDA to changes in U.S. dollar, Sing dollar and Chinese renminbi on an annual basis. For example, a 0.10 change in euro to U.S. dollar has a full year impact on an annual EBITDA of around EUR 32 million. The translation impact that arises from recent currency volatility is something we take into account in our outlook for the remainder of the year. We have updated the currency rates at the end of the year. Based on these updated rates, we expect a negative foreign exchange impact of around EUR 20 million in 2026 compared to 2025. Furthermore, taking into account the positive one-off in the first half year of 2025, we arrived at a rebased proportional EBITDA of around EUR 1.14 billion as a base for the outlook of 2026. For 2026, we expect EBITDA to be between EUR 1.15 billion and EUR 1.2 billion, reflecting an autonomous growth rate between 1% and 5%. We also expect a proportional operating free cash flow of around EUR 800 million for 2026. Operating free cash flow is a driver of value and distribution, and hence, we will start guiding on it. For the longer term, our ambition remains unchanged with regards to our leverage and growth projects. As mentioned, we are raising our ambition for OCR to between 13% and 17%. For shareholder distributions, we have announced a shareholder distribution program of around EUR 1.7 billion through the year-end 2030. Bringing it all together in this slide, 2025 was a strong year for Vopak. We reported a record level of operating free cash flow driven by our continued strong profitability and cash conversion. We have realized a significant step change, increasing our proportional operating free cash flow per share by 62% and increasing our OCR from 10.2% to 15.6%. Simultaneously, we continue to ramp up our investments in attractive and accretive growth projects while returning value to our shareholders. And with that, I hand it over back to you, Dick. D.J.M. Richelle: Thank you, Michiel. And with that, I'd like to ask the operator to please open the line for question and answers. Operator: [Operator Instructions] And the first question is coming from Jeremy Kincaid from Van Lanschot Kempen... Jeremy Kincaid: Congrats on the results. Three questions from me. The first 2 on the share buyback. Firstly, has HAL indicated what it plans to do with regards to the share buyback? Secondly, you've obviously kept your long-term CapEx ambitions, but obviously, you've talked to some larger potential CapEx programs in the future like South Africa or Australia. I was just wondering if you could provide us a bit of an update on either of those projects and how they fit into the outlook given this new share buyback and shareholder distribution framework. And then my third question is on REEF. There's been a couple of articles recently about a dispute with the First Nations community there. I was just hoping if you could provide an update and your thoughts on that dispute and whether it could impact your REEF development. D.J.M. Richelle: Thank you, Jeremy. First question, what we announced this morning is we do not have any agreement with any of the shareholders related to the share buyback program. That's been a standard language that we've used in the last 2 programs. So that's what we know for now. So no further news on the HAL position. But obviously, we know that if we were to have an agreement with HAL, that would have been noted in the press release. An agreement, meaning that they would like to sell as part of the share buyback program. That agreement is not in place. So I think that's one related to HAL. Then the second one, the long-term CapEx outlook, I think we're pretty clear in the confidence that we have in our ability to execute our growth ambition of the EUR 4 billion. Australia and South Africa are developing, I would say, in line. So maybe first, a few things on Australia, where we moved into definitive phase to prepare for an FID hopefully in the later part of 2026. That means the FSRU is secured. That means that the permit application is submitted, that all the technical details related to the location and environmental impact assessment has all been done and is currently subject to review questions and further due process. So we're well on track, I would say, for the Australia project. South Africa, I would say, in general, an environment that is a bit more complicated in terms of the permit process. It will take -- it's always hard to make the full estimate of how long that permit process is going to take. We're here dependent as well on power plant development in the area of Richards Bay, where we are planning the site. So we are still confident on the need for the country on our role that we can play on the location. But as you can see with these projects in an early development stage, it takes a bit of time to see how they will unfold. I think whether -- there are obviously big projects in our portfolio, both especially, I would say, Australia, but also South Africa. At the same time, we can also see that the pipeline of projects that we have is a healthy pipeline and the development is healthy. And on that basis, we are indicating and guiding the market on our confidence that we have for the EUR 4 billion in 2030. I think that's hopefully giving you a bit of background on that long-term CapEx plan and where and why the confidence is. And then towards your last question related to REEF and the news on some of the First Nations comments that have been made. We are obviously aware of what's happening. We are, at the moment, focusing on delivering the project, and that is going well. So the delivery of the project to be in service end of this year within the time line that we originally set and also within the budget that we originally set that is well underway. We continue dialogue with the relevant First Nations and all the relevant stakeholders. This is not only the First Nations, but it's local court, it's the federal government to engage in a very constructive manner to see how we can find a solution that works for everyone involved, while at the same time, also protecting our legal rights. And those are linked to the fact that we are currently constructing the terminal in line with the contracts and the permits that we have. And it's based on a contract with our customer, AltaGas, who is also our partner in the development of the REEF terminal. So that's probably the best I can say for now on this. Operator: And this question is coming from Thijs Berkelder from ABN... Thijs Berkelder: Congrats on the cash return announcement. Happy to see those. First question, yes, maybe more geopolitical. Can you indicate what is currently happening at your terminals in Fujairah? Looking at the JV result in Q4, it was clearly higher and also your proportional occupancy in Middle East, Asia has jumped to 96%. Secondly, can you maybe describe what 1 year with the Trump government. Can you describe what's the impact on your U.S. terminals business of the governmental change maybe? And thirdly, what grip can we have on the timing of, let's say, the new contracts for EemsEnergy? And what kind of costs are you assuming for EemsEnergy in '26? D.J.M. Richelle: Thanks, Thijs. Maybe first on VHFL -- on Fujairah, results overall continue to be healthy. The reason that the fourth quarter was significantly better than the third had to do with a contract that we started in the fourth quarter, in tanks that were empty in the third quarter. So that -- and it was quite a large capacity. It was planned to be taken up by the customer, but that was the reason that the results went up, but also occupancy-wise, it was sizable and therefore, had an immediate impact on the occupancy. I wouldn't say it's something that is linked to a structural change that happened from the third to the fourth quarter. You should look at it much more as a, I would almost say, a natural rollover from one party to another party that takes up capacity. And sometimes it's a few months without occupancy and then it's picked up again by the customer. So this was more or less planned and has nothing to do with geopolitical developments in that area. In general, as you know, Fujairah is -- has a very strategic location outside of the Strait of Hormuz. And that's one of the reasons that it remains a very attractive location, and that's what we expect also going forward. Your second question, we could spend the rest of this call on probably, but not related to the Vopak position, but just in more generic terms. Let's stick maybe to the pure Vopak position. Zooming in, I would say, on the U.S., just to put it in perspective, our U.S. position currently is 8 terminals and roughly, give or take, 15% of our EBITDA. And that continues to be relatively stable going forward. You have to kind of dive into the detail of it. The role of the terminals is either industrial, Corpus Christi or the Via terminals, ex Dow sites. So that's 4 out of the 8, and that's long-term contracts, yes, with a bit of variability, but long-term contracts and relatively stable. Then we have Deer Park that has a strong position and also quite some industrial connectivity to the production sites around. And a lot of what Deer Park is doing is actually local distribution in the U.S. There's not so much import happening over there. So yes, there's a bit of export that happens, but we haven't seen a big impact in 2025 on our Deer Park facility. And last but not least, we have a position on the West Coast, and that is supporting very specifically trade and bunker fuels with airports, or air travel in Los Angeles and the environment. So also there, we see a relatively normal demand for our services. So by and large, I would say, specifically to your question on what the impact of the Trump administration in the U.S. has been, this is the picture. I think if you look at it from a more broader perspective, obviously, the uncertainty that especially the tariffs are creating does not necessarily help create stability for investment and big investment decisions does not necessarily create a lot of stability around product flows around the world. So we've seen changes, and we've commented on that also during 2025 that we sometimes see changes in product flows. But I think the strength of our global portfolio and the diversification of the portfolio means that sometimes you see a bit of a drop in one location being picked up at another location. So I would almost say, by and large, it has -- it did not have in the short term, a big impact on what we see. For the longer term, it's probably -- well, you see how our outlooks are for the investment program, but also the return profile of the company towards 2030 and the announcement we make today. So we feel our position, strategic locations, diversified strong resilient network gives us confidence that the demand for our services will remain quite healthy in the coming period. Then your last comment on EET, a few things to mention over there. We indicated in '25 that we were working on that technical solution related to minimum send-out capacity of the terminal. That solution is now in place, still runs into the first quarter with minimum compensation to the impact of our customers, but then we run into a steady-state situation until '27. That's one. And then second, we're currently going -- as we are indicating in the press release, we're currently going through the process of the renewal of the terminal in 2028, and that process is ongoing. And that's too early to comment on it, but we expect in the coming months to be able to indicate what the next steps are going to be. And that's -- we're just in the middle of all of that at the moment. So I hope that gives you a bit of sense, yes. Thijs Berkelder: Yes. One add-on question on Asia and Middle East results. So the JV results and the proportional occupancy rates spiked because of what you described. But why is the proportional EBITDA then in Q4 down versus Q3? Is that something in Malaysia or so or India? D.J.M. Richelle: It's probably an element in Australia. It's a claim that we booked in Australia. That's the only thing I can probably indicate, Thijs. There's nothing fundamental. So it's more of a one-off element that we saw in Q4 in our oil terminal in Sydney coming up. But that has been. Thijs Berkelder: How large was that claim? Michiel Gilsing: Yes, that was quite sizable, so around EUR 2 million. And then we had in Darwin, we had the long-term contract came to an end in end of September. And then you see effectively, we have a drop in income in Darwin of around EUR 2 million as well. So those 2 together. So one is structural and the other one is more incidental. Operator: [Operator Instructions] And the next question in the queue is coming from David Kerstens from Jefferies. David Kerstens: I've got 3 questions as well, please. Maybe first of all, you indicated the phasing of the commissioning. And I think you said that in 2026, you expect EUR 775 million of growth projects to be commissioned. What is baked into your guidance in terms of EBITDA contribution for 2026? And what do you expect this EUR 775 million will start contributing in 2027? And I think you said EUR 650 million has so far already been committed. What is the EBITDA contribution related to what's currently already operational? And then my second question is on the oil storage market in the Port of Rotterdam. Can you explain what's happening there that triggered such a large reversal of the impairment? And is this only limited to the Port of Rotterdam? Or do you see the market conditions improving elsewhere as well? And then finally, maybe also a follow-up on the HAL question. I think HAL so far has not participated in the share buyback program. And as a result, their stake has increased. Can you update us on the ownership percentage following the latest share buyback that you carried out in 2025, please? Michiel Gilsing: Sure. Yes, on the phasing of growth CapEx, indeed, we don't disclose all the EBITDA contributions in terms of, let's say, exactly what has been contributed by which project, so not on an individual basis. We have given indications to the market on what gas infrastructure and infrastructure energy is going to contribute. So this 5x to 7x EBITDA then on new energy infrastructure, 6x to 8x, and on conversions of existing capacity, 4x to 6x. So the EUR 650 million, which has been commissioned is contributing in line with those multiples. So -- but we don't disclose each and every project. So you could take an average and think EUR 650 million, well, divided by whatever you think would be the average. That's one. And then the contributions going forward, yes, obviously, we don't give any specific guidance, but at least what we do is we give guidance on the strength of, let's say, the cash flow of the company by also announcing, let's say, confidence in our shareholder distribution program. So that means that these projects have to start contributing in line with, let's say, the expectations we have given to the market. Part of it indeed '26, but the bigger part of it in '27 because then the REEF project and the Gate project here in Rotterdam are going to contribute in full. So that is the guidance we're giving. And we're also giving guidance that by bringing these projects on stream, our cash return is not going to be diluted. So effectively, we've now upgraded the above 13% range to 13% to 17%. There's obviously always a bit of volatility in our existing business. But with bringing growth projects on stream, we should be able to be in that bracket of 13% to 17%. So that's what you may expect from us. And you also know, let's say, which kind of capitals we are allocating to the growth CapEx. So -- so in other words, things could be worked backwards from a lot of numbers we have given to the market, but we don't give any specific indications on the projects. That's on the first question. The second question, yes, the oil market in Rotterdam is much stronger than we thought a few years ago. And remember, when we took the impairment, it was the Russian invasion into Ukraine. The business was really down at that moment in time. We had quite a hard landing in the first half of 2022. Since then, we have recovered quite well in the Europoort. So we continuously look at the performance. We have updated our business plans for the Europoort, you see effectively in the coming years, we still expect strong results there. In the long, long, longer run, so obviously, there will be an energy transition impact, but we still think that the Europoort is well positioned to also be a viable terminal in an energy transition world. So overall, we came to the conclusion there is no other way than that we should reverse this impairment. And effectively, that means that all impairments, the significant impairments we took in 2022, which were related to SPEC, the Botlek terminals and Europoort are all being reversed now because we had a book profit on the Botlek. We reversed the SPEC one last year, and we reversed now the Europoort. So that's an indication that the business is relatively strong, and you see that back, obviously, in our cash flows of the company. And then the third question, yes, the ownership of HAL is presently at 52%. There is no -- as I said, there's no agreement, like Dick already mentioned, there's no agreement with anybody related to the upcoming EUR 100 million tranche. So you may expect that as a result of that, the HAL percentage will increase above the 52%. And then to be seen what will happen for the rest of the share buyback program because we will announce it tranche by tranche. Operator: Okay. We're going to carry on with the next question in the queue. And this question is coming from Kristof Samoy from KBC. Kristof Samoy: Yes. Congrats on the results and the improved cash distribution policy. A few questions, if I may. Regarding alternative energies, the fact that you've been revising your cash distribution policy considerably, can we read into that, that we shouldn't expect any major FIDs there in the coming years? And then I had also a question on Antwerp. We saw the news that Maersk will not continue with it plans to open a green plastic factory in Antwerp. Does this have any impact on your business plan for Vopak Antwerp Energy? And then finally, on REEF, could you elaborate a little bit deeper into the court ruling that has been made? And was it a ruling in substance, and is there still now a court case running or is there potential to open up a new case? D.J.M. Richelle: Thanks, Kristof. Maybe first one on the alternatives. So on the Accelerate pillar, I think we made it very clear in the release today, and I can only reconfirm it now that for the overall program of EUR 4 billion that we announced, we are confident that we can execute that program and to realize that ambition between now and 2030. I think that's the first part. The second part is related then, and we are also vocal about that. We see that in the -- our Accelerate bucket, so that's the infrastructure investments to support the energy transition that consists of 4 elements. It's low carbon fuels and feedstocks -- it's the CCS value chain and supply chain and it's the hydrogen supply chain, mainly with ammonia investment. And the fourth one is batteries. So if you take the second and the third, so CO2 and ammonia, we definitely -- well, we continue to see a slowdown in some of the developments over there and delay in some of the major decisions that we are dependent on to set up those supply chains. At the same time, we are still confident that batteries as well as low carbon fuels and feedstocks give us sufficient opportunities to realize the ambition that we set for ourselves in the Accelerate bucket. So it's a bit of a long answer, but the conclusion is the fact that we come up with an increased share buyback program or a share buyback program over the period of time is independent of the developments that we see in a specific segment where we identified growth opportunities. So confident with the overall growth portfolio and pipeline that we have and that we can execute that side-by-side the share buyback program that we announced today. I think that's the first part. And the second is related to Antwerp and Vioneo that is backed by A.P. Moller.So disappointing to see that they were not able to make a case for their big investment in Antwerp, disappointing for us, but I think even more so for Antwerp and to a bigger extent to Europe. It's a product that is in need in Europe, green plastics. There's a whole lot of logic on why it would make sense to do it over there, but they couldn't make it work despite the fact that they put a lot of effort in it had a lot of discussion with all the relevant stakeholders, but they unfortunately could not make it work and now are potentially shifting the production to China, which is a pity to say the least. I think for our plans in Antwerp, we had hoped that this would be a start in the Antwerp development, but we're not singly or single-handedly dependent only on the Vioneo development. We're happy with the developments on the land, making it ready for construction. We have a few other leads that we have been vocal about that we are following, and we're confident that, that location and the plans that we have will lead to an attractive development in the middle of the Port of Antwerp. So we will continue to inform you about the main steps there. And then last but not least, on REEF, I think the court ruling has been an interim ruling to get something dismissed in the court and the court basically said, no, it's not going to be dismissed. So the court case will still be held as originally planned, and that will have its course in '26 and '27. So only if the court would have said we would dismiss the case, then the whole case would have been gone now. That is not the case. So the court has basically said, as originally planned, we will hear the case in '26, '27. It will take some time. I think that's a bit more detail on the court case itself. Operator: Okay. And maybe as a follow-up, can you give us an update on Veracruz? D.J.M. Richelle: In what sense of the capacity over there? Kristof Samoy: Yes. And the reconversion plans. D.J.M. Richelle: Well, maybe a few things that we're still looking for parties to fill up the capacity in Veracruz. In 2025, second part of 2025, we've not been able to find that particular customer. We're working through getting the permits of making the change from the fuel distribution capacity to fill it up with chemicals. That is going according to plan, but will take some time in '26. I don't expect any capacity to be filled from the conversion in '26, and we continue to engage with a number of parties in this year to find someone that will occupy the tanks in -- for fuel distribution. There's definitely a logic for it, but it's not that easy. So we continue to push for that. Operator: We're now going to the last question in the line, and this line is coming from Quirijn Mulder from ING. Quirijn Mulder: So I have a couple of questions. My first question is about chemicals in China. You're now traveling on in this country for, I think, for 4 years now in the suffering from the chemical decrease or whatsoever, how you call it. So what are your plans with regard to Zhangjiagang for example, and your, or let me say, trading terminals? That's my first question. And my second question is about Eemshaven. So you expect for Eemshaven to have somewhat better results in 2026 compared to 2025. And the open season was closed, as we understand, there is a consideration to expand the capacity with an FLNG conversion of an FLNG transport vessel into an FSRU. Can you maybe comment on that sort of message we have heard about this? And then my final question about the share buyback program. If I make a comparison with SBM, for example, they have also a program, but they have left some room depending on the growth and the developments there with regard to the cash flow. Is that something you have also taken into account into your program? Or you -- let me say you are saying this is EUR 500 million, that's it, we don't have any upside here left. D.J.M. Richelle: All right. Maybe Zhangjiagang, specifically, no big change indeed in the situation of the terminal, relatively low occupancy in Zhangjiagang. Remember, that's the only wholly owned terminal. So that's the one that is in the occupancy also coming up and therefore, is being flagged. In terms of pure result and result contribution, it's minimal because let's not forget our China business, all the other terminals is in joint venture and is ITL, so industrial terminals with long-term contracts have developed strongly. So we've divested a few of the relatively smaller distribution facilities in that area, we've now also divested, although not China, but South Korea, we've divested Ulsan terminal at the end of '25. So the dependency on, as you call it, the distribution facilities has been reduced. And yes, we need to continue to look at Zhangjiagang and do everything that we have in our ability to make Zhangjiagang more attractive for the group. But again, it's not the one who has the main impact on our China business. I think the second question, EET, does it have better results expected to be in 2026? The answer is yes, probably because the MSO impact in '25 was there, and that is expected to be much less in 2026. The expansion and the fact that we've announced an agreement to change an LNG vessel and FSU into an FSRU basically allows us to -- for the expansion in -- or the expansion, I should say, in Eemshaven to basically have 2 FSRU vessels from the same FSRU owner and to actually adjust that second new vessel better to what the market services are that we want to offer. So it's actually a bit of an upgrade of the terminal, and we're happy with that opportunity. And as I said earlier to one of the earlier questions, we're currently going through the motions of the results from the open season and follow-up discussions that we're having with customers. So more to follow in the course of '26. And on the [indiscernible], Michiel will comment. Michiel Gilsing: Yes. On the share buyback, yes, we're confident that we can combine the share buyback, the dividend distributions with our growth ambition at the EUR 4 billion proportional CapEx, we would like to invest up to 2030. What we have tried to do is at least show that confidence by also announcing the shareholder distributions up to and including 2030 so that there is a good match. Yes, what there might always be reasons to change, let's say, the share buyback program, of course, but that wouldn't be the case if the EUR 4 billion is becoming the EUR 4 billion. But it could, for example, be the case if we do a major acquisition, but then we still need to prove to the market that, that acquisition is better than buying back our own share. And similar, if we would go far beyond, let's say, the EUR 4 billion, if we find growth opportunities, which are reaching a next level, but then obviously, we also need to update the market on a revised growth plan going forward. And we don't see that yet. But yes, those might be reasons to change our share buyback program over time. But as long as we stick to the EUR 4 billion, we will also have -- we also are confident that we can execute the share buyback program. Quirijn Mulder: However, if I look at what you said about your leverage at 3, 3.5x in periods of construction, if you look at 2026, then the construction of REEF is finished, and that means, of course, that you need something for 2027 quite big when you -- or '28 is quite big if you're going to reach that 3 to 3.5x in my view. Michiel Gilsing: Yes. But if you would think about an Australia project, that's going to be a sizable project. So that will drive up the leverage again. And obviously, we will have -- this year, we will do an increased dividend, but we also do an interim dividend, which is also going to increase the leverage. Then obviously, you have a few more investments which we could take maybe on the energy transition infrastructure, maybe on the battery side. So there's definitely new investments coming into play. And there's always a bit of volatility, of course, in our existing business. So it's not like -- of course, our cash flows are much more sustainable than what they were. But there's still volatility in the business, and that's what we also take into account. So yes, we still may reach, at a certain moment in time, somewhere between 3x and 3.5x for a certain time. And we gave an indication like up to maybe 2 or 3 years. But yes, that is to be seen still. That's also very much dependent on timing of growth -- big growth CapEx projects. Operator: Okay. Thank you very much. This concludes today's conference call. Thank you for participating. You may now disconnect. Thijs Berkelder: Thank you. Michiel Gilsing: Thank you.
Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to HNI Corporation Fourth Quarter and Fiscal Year-End 2025 Conference Call. [Operator Instructions]. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Matt McCall. You may begin. Matthew McCall: Good morning. My name is Matt McCall. I'm Vice President, Investor Relations and Corporate Development for HNI Corporation. Thank you for joining us to discuss our Fourth Quarter and fiscal year 2025 results. With me today are Jeff Lorenger, Chairman, President and CEO; and VP Berger, Executive Vice President and CFO. Copies of our financial news release and non-GAAP reconciliations are posted on our website. Statements made during this call that are not strictly historical facts are forward-looking statements, which are subject to known and unknown risks. Actual results could differ materially. The financial news release posted on our website includes additional factors that could affect actual results. The corporation assumes no obligation to update any forward-looking statements made during the call. I'm now pleased to turn the call over to Jeff Lorenger. Jeff? Jeffrey Lorenger: Good morning, and thank you for joining us. 2025 was a seminal year for HNI Corporation. Our members delivered excellent results as we reported a fourth straight year of double-digit non-GAAP EPS growth despite persistent soft and uncertain macro conditions. The positive momentum of our strategies, the benefits of our diversified revenue streams, our ongoing focus on items within our control, and the merits of our customer-first business model continued to deliver strong shareholder value. And late in the year, we completed the acquisition of Steelcase. This combination will not only transform our company, but also the Workplace Furnishings industry. On today's call, we will review our fourth quarter and full year 2025 results and provide some commentary around our expectations for 2026 and beyond including the benefits of the Steelcase acquisition. Before I discuss our recent performance, I want to reflect on the fundamental improvements we have driven at HNI. Our transformation has taken multiple steps in years. I will begin with Workplace Furnishings where margins have been reset. Three years ago, our legacy Workplace Furnishings business launched a profitability improvement initiative that was instrumental in expanding operating margin nearly a 1,000 basis points. In 2023, price/cost recovery following the period of elevated inflation drove the first phase of expansion. Since then, multiple portfolio management moves, ongoing network optimization efforts, KII synergies and the benefits of ramping our Mexico facility have supported consistent profitability improvement. Based on the initiatives already underway, including the recently announced plans to close our Wayland New York manufacturing facility, we have line of sight to continued operating margin expansion in the coming years. And our margin expansion story is increasingly supported by affirming macroeconomic picture in our Workplace Furnishing segment. I will provide more macro commentary later in the call. Shifting to our Residential Building Products segment, our evolution started with the strategic shifts following the great financial crisis. Since then, we have adjusted our cost structure, fully embraced lean manufacturing and continue to pursue a vertically integrated business model with the leading brands in all product categories. The result was more than a 1,000 basis points of operating margin expansion over the decade post 2009. In addition, since 2019, the efficiency, nimbleness and uniqueness of our Building Products business have supported consistently strong profitability with sustained operating margins in the mid- to high teens. This consistency of both margins and cash flow, our foundational elements to HNI's financial strength. We expect this profitability and cash generation to continue into 2026 and beyond. More recently, our focus in Residential Building Products has shifted to the front end of the business and on driving top line growth. Structural changes have been implemented to organize around the customer and ensure we have laser-focused go-to-market strategies to support our growth initiatives. These front-end investments are paying off in the absence of cyclical support. In 2025, we reported segment revenue growth of 6% despite continued weakness in the new home market. We expect to outperform again in 2026. This historical context helps set the stage as we enter the next exciting chapter of the HNI story. The acquisition of Steelcase unites two industry leaders to meet the dynamic marketplace and evolving needs of the workplace and accelerating in office work trends. We have brought together two highly respected companies with shared values, talented teams, strong financial profiles and highly complementary capabilities, innovation, thought leadership and operational excellence, chief among them. This strong foundation combined with expected synergies will accelerate our ability to invest in long-term operational enhancements, digital transformation, customer-centered buying experiences and products to meet evolving customer needs. Our integration efforts are underway, and we are leveraging a disciplined and proven approach informed by recent experience, while continuing to build on the iconic brands for which both companies are widely respected. HNI will now have total revenue of more than $5.8 billion, including all synergies, total adjusted EBITDA will be nearly $750 million and annual free cash flow will approximately be $350 million. We are now the market leader in both of our industries, Workplace Furnishings and hearth products. I can report that the integration of the Steelcase acquisition is off to a strong start. Six months following the announcement, we're even more confident in our move to add Steelcase to the HNI family. The complementary go-to-market nature of the two businesses from a capability, product, brand, customer and cultural perspective, has been reinforced as we have begun to work together. We also remain confident in our ability to deliver the targeted synergies of $120 million and drive margin expansion at Steelcase. Our current synergy projections are focused on the Americas business and do not include any revenue synergies. And importantly, we are laser-focused on minimizing any front-end disruption across our Workplace Furnishings businesses. As we have consistently stated, there are no plans to change dealer partnerships, sales forces or brand distribution. And as I've been traveling and engaging with our teams, it is clear that this continuity is being received positively by customers, industry influencers and our dealers. Now I will turn the call over to VP to provide some additional detail about 2025, discuss our outlook for the first quarter of 2026 and give some thoughts on how we see the full year playing out. I will then provide a longer-term perspective on the opportunities surrounding our businesses before we open the call to your questions. VP? Vincent Berger: Thanks, Jeff. I will start with some additional comments about 2025. Fiscal 2025 non-GAAP diluted earnings per share for our legacy business was $3.74, which increased 22% from 2024 levels. Again, this was our fourth consecutive year of double-digit earnings growth with the average annual growth rate exceeding 15%. Total net sales for the year increased 12% overall and 6% on an organic basis. Excluding all impacts from Steelcase, full year adjusted operating margin for HNI expanded 80 basis points, reaching 9.4%. The improvement was driven by volume growth, productivity gains, Kimball International synergy capture and price cost benefits. From a segment perspective, in our legacy Workplace Furnishings business, full year organic net sales increased 6% year-over-year, fueled primarily by the strength of our contract brands and the benefit of an extra week in fiscal 2025. Full year profitability, excluding the Steelcase stub period benefit from volume growth, our profit transformational efforts, KII synergy capture while we continue to invest in future growth initiatives. Full year non-GAAP operating profit margin expanded a 100 basis points year-over-year to 10.5%, as we delivered on our previously stated goal of achieving double-digit operating margin. Non-GAAP operating margin has expanded nearly 900 basis points over the past three years. Looking ahead, we expect revenue growth and margin expansion in our legacy Workplace Furnishing business for the full year 2026 even as we continue to invest to drive growth. In Residential Building Products, fourth quarter revenue grew more than 10% versus the same period of 2024. Driven by the strength in the remodel retrofit market and the benefits of the extra week. For the full year, revenue increased nearly 6% versus 2024. New construction revenue was flat with the remodel retrofit up a double-digit pace with solid volume improvement. Segment non-GAAP operating profit margin in 2025 expanded 60 basis points year-over-year to a strong 18.1%. We remain encouraged about the long-term opportunities tied to the broader housing market, and we continue to invest and grow our operating model and revenue streams. As we look to 2026, we expect modest segment revenue and profit growth despite ongoing challenges in the new construction market. Overall, as Jeff mentioned, 2025 was an outstanding year for HNI. Before I move to our outlook, a couple of comments about Steelcase's impact on the quarter. We completed the acquisition of Steelcase on December 10. Thus, we consolidated Steelcase's performance for the final three weeks of December into our reported results. The second half of December is a lower shipment and production period for our industries. Consequently, that stub period included seasonally lower levels of daily shipment activity while were more than offset by the recognition of full cost and expenses for the period. We excluded this impact from our adjusted results as it does not provide any fundamental insight into our performance. And as Jeff mentioned, the expected timing and magnitude of our projected $120 million of synergies and $1.20 of accretion are unchanged and unimpacted by the stub period. For the fourth calendar quarter, Steelcase generated strong results. Revenue grew approximately 5% year-over-year, and earnings grew about 9% from the fourth quarter 2024 levels, absent purchase accounting, restructuring and acquisition-related costs. Now I'll transition to our outlook. For 2026, as Jeff mentioned, we expect a fifth year of double-digit non-GAAP EPS growth. Revenue growth is expected to continue while we drive bottom line improvement. In addition, our network optimization efforts continue to support our ongoing earnings visibility story we've been discussing with you. Our favorable fourth quarter '25 results included accelerating the benefits of these efforts. Looking forward, these initiatives, which include KII synergies, the ramp-up of our Mexico facility, the closure of Hickory and the planned closure of Wayland are expected to yield an incremental $0.25 to $0.30 over the next three years. Approximately $0.10 of this will be recognized in 2026. Finally, we now are expecting modest EPS accretion from Steelcase in 2026, excluding the impact of purchased accounting. Finally, a few additional comments to assist you with your 2026 modeling. Combined, depreciation and amortization is expected to be approximately $175 million to $180 million. Interest expense is expected to be between $75 million and $80 million, and our tax rate should be approximately 25%. For the first quarter of 2026, we expect total net sales to increase by more than 130% year-over-year. Non-GAAP EPS is expected to decrease slightly from 2025 levels. Temporarily, first quarter earnings pressure is expected to be driven by revenue and expense recognition timing and the increased investment. Modest year-over-year revenue pressure in workplace is expected to be limited to the first quarter and we expect mid-single digits for the full year. Building Products revenue is expected to be up low single digits for the first quarter and the full year, and we expect year-over-year adjusted earnings per share to return in the second quarter and accelerate as the year progresses. Finally, a comment on cash flow and the balance sheet. Post the closing of the Steelcase acquisition, our balance sheet ended the year with a net debt-to-EBITDA ratio of 2x. We expect our cash flow strength to continue and accelerate with the addition of Steelcase. As a result, leverage is expected to return to pre-deal levels in the 1 to 1.5x range in the next 18 to 24 months. Finally, we remain committed to payment of our long-standing dividend and continue to invest in the business to drive future growth. I will now turn the call back over to Jeff for some long-term thoughts and closing comments. Jeffrey Lorenger: Thanks VP. Our fourth quarter and 2025 results demonstrate the strength of our strategies and our ability to manage through uncertain macroeconomic conditions, while we remain focused on investing for the future. We expect strong results to continue in 2026 driven by our margin expansion efforts, synergy recognition and continued revenue growth. As we look forward, the timing was right for the acquisition of Steelcase from a strategic, financial and cyclical perspective. We are increasingly bullish about the Workplace Furnishings demand dynamics as the macroeconomic picture continues to firm. Return to office continues to be a positive driver of activity with levels of remote work expected to continue to fall in 2026. Office leasing activity established a new post-pandemic high in the fourth quarter with annual leasing activity up more than 5% for the full year 2025 and net absorption of office space, which has historically been a leading indicator of future industry demand was meaningfully positive in the second half of 2025. In fact, JLL believes a new expansionary cycle in the office space has begun. While new supply of office space will remain a headwind, we see multiple cyclical drivers of growth outside of new construction. Moving to housing. Headlines continue to point to ongoing softness, especially in the new build space. Interest rates remain relatively elevated, prices remain high and affordability remains low. As a result, we expect continued new construction weakness in 2026. However, our structural changes and growth investments should allow us to continue to outperform the market. In remodel retrofit, we are assuming modest growth in 2026. This is consistent with the LIRA projections. In addition, we expect continued market outperformance in our R&R business. And importantly, we expect ongoing margin and cash flow consistency in this segment. Finally, our optimism continues to build around the addition of Steelcase to the HNI family. As I stated earlier, we are confident in our projected synergies of $120 million and accretion of $1.20. And as VP mentioned, we now expect modest accretion in 2026. We entered 2026 a transformed and fundamentally stronger organization. Upon recognition of all targeted synergies, the profile of HNI will include substantially higher earnings, stronger margins, greater cash flow and a continued strong balance sheet. This will enable us to deliver exceptional value to our shareholders, customers, dealers, members and communities. Thank you again for joining us. We will now open the call to your questions. Operator: [Operator Instructions] Your first question comes from the line of Reuben Garner with The Benchmark Company. Reuben Garner: Maybe to start just the clarification about the outlook for the year, given the stub period and your efforts to kind of show what the underlying business in the fourth quarter. Are the revenue and double-digit earnings growth comments for next year? Are they off of the base without Steelcase or the base with Steelcase? Jeffrey Lorenger: Perfect, Reuben. I'll kind of walk through the pieces. I think if you look at the -- on the face of the [ $346 million ], that's including the Steelcase stub as well as all the purchase accounting, which is close to $4.6 million headwind, if you take out the purchase accounting, it's $3.53. That's what you're going to want to compare to for the future years, because that's what's ran through the P&L. And if that specific number is going to actually be up 16% if you talk about the growth. And then if you look at the $3.74, that's excluding purchase accounting and the Steelcase stub period. Reuben Garner: And the double-digit growth for '26 would be off of which 1 of those 3 numbers. Jeffrey Lorenger: $3.53. Reuben Garner: Perfect. Okay. And then your comments about Workplace Furnishings in the first quarter. I don't think I heard you mention weather just seeing what's happening in some of the major cities in the Northeast and knowing that New York in particular is playing a role. Is that in the recovery? Is that driving the kind of flattish, I think you said first quarter? And what gives you confidence about the acceleration that you're expecting as the year progresses in the mid-single-digit full year guide, is there any kind of backlog or order numbers from Steelcase and HNI legacy that kind of gives you confidence in a pretty meaningful acceleration as the year moves on. Jeffrey Lorenger: Yes, Reuben, that's a good question. I mean, weather is always can be a impact. We don't really hang our hat on that. I mean I think it probably has some impact. It's been a little choppy. Even in the fireplace business, the hearth business, because they are outside and getting the homes to install. So there's a little pent-up there probably at a little headwind. But the bottom line is both when you look at legacy and Steelcase we've got really strong, healthy activity, bid counts, both number and dollars, particularly in the contract side or in the high teens. The funnel, our funnel metrics are up in count and in dollars and particularly in large projects, over $5 million. And I'd say these are consistent across what I would call both legacy and the Steelcase business, if you look at it. And that's what's kind of driving our confidence in addition to the macro topics that I talked about firming up on office and net absorption and things like that. So you got that going on macro and micro internally, we see these big numbers and presale activity numbers all trending nicely positive. Reuben Garner: And then, Jeff, you've had a little over 60 days, I think, if my math is right, since the deals closed as you've been able to kind of get in and meet with people, see how they do things. What have you learned? What kind of has surprised you to the upside or downside? What opportunities do you think you've kind of developed or seen over the last couple of months? Jeffrey Lorenger: Yes, it's a good question, Reuben. I spent a lot of time with the teams in Grand Rapids and a lot of time -- a lot of time in the market. And I would say first of all, confidence continues to grow on why we did this transaction. If you look at the customer reach and the complementary nature of the brands and the geographies go to markets, the talented teams are working well together. We're out of the gates quick. And then I would tell you that the positive response we've seen from customers, dealers, sales force, influencers, basically, people in the value chain as I've gone out in the market and talk to them are very positive on this combination. And so that's -- that's been a real -- I mean, we predicted that to be the case, but actually going to talk to customers in their locations. And here in the questions they ask and the enthusiasm they've shown for this. It's been really strong. Reuben Garner: All right. And I'm going to sneak one more in. I'm not going to count that first one as a full question. So the Building Products space. Your outlook for low single-digit growth is super encouraging, very impressive given how you performed in '25. It looked like you've changed some things up about how you're selling or displaying the product down at the builder show a couple of weeks ago. I guess, talk about what's driving your outperformance of the industry. There's not a lot of categories in building products, talking about kind of even flattish volume environments for this year. So for you guys to do it on top of what you did in '25, something has to be working for you. Can you just kind of dig into what you're doing there? . Jeffrey Lorenger: Yes, we can -- VP can comment on us as well. I mean I think we've started to talk about this a while ago, Reuben, which is really getting closer to the builders and the customer engaging in the market being laser-focused on what we can bring to the table for our customers. And it's been -- it's early days, but it's being really well received. I mean, we've got a great product lineup. We hit all price points, all fuel types. And as we get in and engage more specifically from a manufacturer side alongside our industry best-in-class distribution partners, the two things are really starting to have an impact. And combine that with the service model that we have in our large installing distributors, independent and our [ FHH ]. What I would tell you is it's, it's moving the needle. And so we got a good product pipe we're talking about in the electric category. And all these things are really starting to catch hold. And I think that's really what's going on. I mean it's, it's nothing more than really customer intimate focus where customers want to be met, whether it be in the R&R segment or in the new home segment. I don't know VP if you've got any other... Vincent Berger: Yes, Jeff, I'd add and the way we measure this, Reuben, is you can -- everybody sees the news of permits down 7% year-to-date, and they see contracting markets. We actually measure market by market and the initiatives that Jeff is talking about the intimacy, we can see that we're seeing better results on that. So those are share gains and in some cases, get more fireplace spec. So it's the controlling the controllables. And on the remodel side, we've done a nice job on the [ spoke ] side of our business. We've gone to a single brand to consolidate it. We've been able to get a lot more reach a lot more reach into the retail in the big box. So that was an area for growth that's inside the numbers as well. So the long-term investments are paying off. We still have a lot more to do to get to more markets and more builders, but we certainly are not pulling victim to a down 7% permit number. Reuben Garner: Great. Thanks for the detailed guys. Congrats on the strong close to the year and the strong outlook, the stock markets been a bit rational today, but I assume all this will work itself out and good luck in '26. Operator: Your next question comes from the line of Steven Ramsey with Thompson Research Group. Steven Ramsey: Good morning, everyone. I wanted to start on the synergy number, $120 million being Americas focused. A couple of things on that. First, I would -- given your past execution, I think there could be upside to that. I'm curious kind of what points or targets you would need to reach to potentially raise that down the road? And then secondly, it being America's focused seems to imply that Steelcase International is still projected to be a negative offset -- could that be a source of upside in the future? Vincent Berger: Perfect, Steven, I'll take it kind of in two pieces. The first, the $120 million that we originally announced is through our disciplined approach that we've learned through the KII process. You heard Jeff say we're still comfortable with that number. It takes every bit of three to six months to get the team working on the specific projects of how we're going to go execute it, which is why I've talked about accretion of $0.60 in the second year once these projects are up and running. And so to your question about timing, six months in, if we've learned more, we'll share more. But right now, we're focused on making sure we understand the buckets between procurement, logistics, SG&A and network optimization, and that we'll share with you as we learn more as we go. But I think the key thing from the last time we talked is we expected it to be neutral in year one. And now that we're in there, this is actually going to be modestly accretive in year one. And that's really good considering the capital structure and the additional shares that were issued that, it doesn't change our total target, but it shows that we'll start seeing the benefits of a little quicker. That's kind of question one. Question two, on International, that is not offsetting anything. This $1.20 stands on its own. The international business has very good assets. As Jeff said, with the business and the teams working together, we're getting up to speed on that business, whether it's APAC or EMEA, we're getting lots of insight of how the businesses in their go-to-market and their advantages. And I'd tell you the teams are energized right now to drive profit improvement plans. They're in place in all of those areas, and that will not be a drag on the $1.20. Steven Ramsey: Okay. That's great color. Wanted to think about the resi growth investments, and you talked about that being a consistent margin. Is the implication that 2026 resi margin is flattish with sales up? And is there a cadence for the year on the resi margin profile? Vincent Berger: Yes. I think that's the right way to think about it, Steven. That business is extremely flexible in profitability as you've seen it from whether it's $500 million or $850 million, it tracks between the 17% 18%. We are going to continue to make the investments Jeff was talking about with builder and getting closer to the builder. So we would expect those margins with the revenue growth to stay right around the same area. Steven Ramsey: Okay. And then maybe you can share a bit more on the resi growth investments and if those have shifted in the last year or so as you've started making those, it's clearly working and your -- it sounds like you're saying it's geared towards builders yet R&R is the growth drivers. Maybe you can kind of connect the dots there on the investments being more to builders, but the growth being from R&R. Vincent Berger: Yes. I think there's a couple of things on this one, Steve. One, when we talk about investments, this has been a three-year journey. The operational excellence of this business is what's allowed us to deliver the results. In the last three years, we've moved to a front-end structure. We brought in leaders running each of these business units that bring those front-end points of view. And they're the ones leading the charge in each of the intimacy models in both new home and existing home. We've also made a significant amount of investments in product and innovation. Part of this success and our offset against the market is we are entering new categories and new areas. Specifically, an example would be wood stoves and DIY. That's a large market. We didn't have a place in. So we're making investments with go-to-market there. It's allowing us to do it as well as what Jeff said on the electric side. So I think you're seeing investments on the new home and the remodel side as well, and they just pace to how they come in through the revenue streams are not always at the same time. Jeffrey Lorenger: Yes, I think it's a great point. I also would -- we're getting really good. I think someone else mentioned at the IBS show is a different look from what we've had in the past. We're connecting more to designers, interior designers. I mean there's a lot of focus there relative to design as well, Steven. So it's kind of across the board -- and I lump it all back to getting much closer and intimate with our geographic areas, design trends, customer intimacy in all the while working that with the changes VP talked about. It's been a couple, three-year run, and it's starting to pay dividends, and we're going to keep investing. Operator: Your next question comes from the line of Greg Burns with Sidoti & Company. Gregory Burns: I was just hoping to get a little bit more color on the profit headwinds in the first quarter. What exactly are they? And why are they going to be rolling off as we move through the balance of the year? Vincent Berger: Yes, Greg, it first starts with just some timing of the revenue. It's a little choppy on kind of how some of the contract side of the business, everything that Jeff talked about on the backdrop is all good and favorable for us. And if I look at even how orders came in, in the fourth quarter, the workplace was actually up 5% and Steelcase's actually showing up good order trends as well. It's just the timing of when that stuff is going to shift. So -- the revenue is the first piece, and we have a couple of comps just from last year that we're up against. That's why we do believe it's a short-term issue and the full year is more important. I think on the expense side, there's really two things happening bringing in the Steelcase family, there's a comp timing that's hitting in the first quarter that would have hit in the second quarter under their P&L. So that's a little bit of expense pressure. And we're still balancing our investments. We're still making sure that we're thinking about the long game and the macroeconomics tells us still to keep investing. So I think the revenue growth, the timing of the expense and that's continuing investment puts the short-term pressure, but more importantly, as we go through the year, you're going to see the double-digit EPS growth accelerate in Q2, Q3 and Q4 based on not only volume but the visibility story we're talking about. Gregory Burns: Okay. Great. I think last quarter, you called out some hospitality orders or the timing on hospitality orders. Could you just maybe update us on the hospitality market and if there's any any change there? Jeffrey Lorenger: Yes. No, there is not. The hospitality market is solid. We were up against the comp. But look, say similar to the contract market, pipeline is strong. Our business is making investments performing well. They have a market leader position in in-room furniture. And so we like that business a lot, and we expect that it will perform at or above prior year so. Operator: Your last question comes from the line of David MacGregor with Longbow Research. David S. MacGregor: I guess from our dealer conversations this quarter, it's pretty clear that demand for design support has accelerated pretty dramatically. And so just wondering if you can talk about the amount of work that you believe is developing in the pipeline, but maybe not yet in the order backlog -- and how you're thinking about the timing of that were converting to orders and then to sales dollars? Jeffrey Lorenger: Yes, that's the question, isn't it, David. I think you're hearing the same stuff that we're seeing, which is there's a lot of activity. It's -- I believe it's real. And we're actually -- just to get upstream on that a little bit, a lot of our businesses are deploying additional resources to help dealers and customers get things through the pipe, because that does become a backlog area relative to the ability to get things designed. We're also working on some AI tools and some other digital tools to be able to help that as well for the long game. But look, we -- historically, this business has had a pretty stable conversion kind of spec to order cycle. And post-COVID, it's been a little bit all over the map, and it hasn't really settled down. But I would tell you that once these things start and you see the commitment, particularly on the larger projects, they come in. It's just sometimes they don't fall perfectly in the areas. And the other thing that we're seeing with the Steelcase acquisition is their exposure to the large stuff that once it gets lit, it goes, it's robust. Now we're still working with them on how they view their timing and predict the order to revenue cycles and the spec to order cycles. So I can't really give you a great answer on -- it's 90 days or 60 days or it's 30 days. But it's real and it's volatile relative to when it gets put in. But we're bullish. David S. MacGregor: Yes, it's out there. There's no doubt about it. Second question, really just around the discussion around synergies and you talked about the $120 million -- it seems like you're bumping the '26 expectation a little bit. And I'm mindful that you haven't any change to the $120 million. But I guess the question is, is the better outlook on '26 a function of maybe incremental synergies that you've identified? Or is it really timing? And then I guess, related to that is the whole discussion on commercial synergies, which I fully understand why you don't want to get into too much detail around that at this point. But I'm wondering if you can just discuss it at a very high level kind of the actions you're taking to facilitate the eventual capture of those commercial synergies. Vincent Berger: Yes, I'll take the first part of that, David. The timing and the dollar of year one actually hasn't changed as it relates to the synergies. We had predicted a little bit more transition costs and some offsets in our original accretion analysis as you put the businesses together. So it's just -- as a result, we'll just get a little bit more of that that 2-year look of $0.60 a little bit earlier. So I would tell you that our philosophy hasn't changed, and our approach hasn't changed as we've set that number. Jeffrey Lorenger: Yes, David. And then on the synergies, yes, you're right, it's early days. And we -- what I would tell you, though, as I've traveled, we're seeing some nice, what I would call, organic connections between our networks to support revenue synergies, particularly with some of our open line brands. And so that when that formalizes more and gets more structured to it. We're going to kind of let it play out a little bit and see kind of how the natural system works, and then we can look more at that. But look, I mean it's going to -- we see some organic pull for some of that revenue. And it's early days, but we'll probably be talking about that down the road. But right now, it's -- I'm encouraged by what I see. . David S. MacGregor: Can I squeeze maybe one more in. And just maybe for the model, if you will, working capital in 2026 and how we should be modeling working capital. . Vincent Berger: We're going to -- we benefited with the pooling on the Steelcase balance sheet. We're actually sequentially improved a little bit. And just with the timing of expenses, we're going to need to make a little bit of an investment, David, but not significant when you think about the net working capital as we go into 2026 and beyond. . Jeffrey Lorenger: So -- but I think one more comment there, though. The operational discipline inside of the HNI piece as we bring into that balance sheet, I would tell you there's opportunity as we get into the out years. Operator: That concludes our Q&A session. I will now turn the call back over to Mr. Lorenger for closing remarks. Jeffrey Lorenger: Thank you for joining us today and your interest in HNI. We look forward to speaking with you again in April. Have a great day. Operator: Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
Operator: Good morning to all participants, and welcome to Grupo Comercial Chedraui's Fourth Quarter 2025 Commercial Conference Call. [Operator Instructions] Participating in the conference call today will be Mr. Jose Antonio, Chedraui's -- CEO of Grupo Comercial Chedraui; Mr. Carlos Smith, CEO of Chedraui USA; Humberto Tafolla, CFO; and Arturo Velazquez, IRO for the company. We will begin the call with the initial comments on Grupo Comercial Chedraui's fourth quarter financial results by the company's CEO, Mr. Jose Antonio Chedraui; and Chedraui's USA CEO, Carlos Smith. Thank you. You may begin. Jose Antonio Chedraui Eguia: Good morning to all, and welcome to our presentation of Grupo Comercial Chedraui's Fourth Quarter 2025 Results. I want to begin by sincerely thanking our valued customers for choosing to shop at our stores, especially during this challenging economic environment, both in Mexico and the U.S. Your continued trust inspires every day. I also want to probably recognize our employees unwavering dedication to advancing our 3 strategic pillars throughout 2025, their commitment to delivering a unique shopping experience, providing the best assortment at the lowest prices and consistently exceeding expectations has been crucial to strengthening our customers' loyalty. In Mexico, our same-store sales have once again outperformed ANTAD's self-service segment by 164 basis points, making an outstanding 22nd consecutive quarter of outperformance. For the full year, our same-store sales growth exceeded ANTAD's self-service by 140 basis points, making this the fifth consecutive year of remarkable achievement. At Chedraui USA, although sales were impacted by continued immigration enforcement and the U.S. government shutdown in October and November, EBITDA margin improved by 178 basis points to 8.6% and by 6 basis points to 6.9% when including additional noncash accruals made for general liability and workers' compensation claims in the quarter. This was supported by rigorous expense management and efficiencies from our Rancho Cucamonga distribution center. Finally, I'm pleased to note that we completed the most aggressive store opening year in Chedraui's history, and we surpassed our store openings target. In Mexico, we opened 65 stores during the quarter for a total of 142 stores in 2025. As such, we ended 2025 with a total of 1,067 stores in Mexico and the U.S. Our organic expansion will continue throughout 2026 as we expect to open 147 stores in Mexico, of which 17 of these are larger store formats and the remaining are Supercito. While in the U.S., we expect to open 5 stores, 4 El Super and 1 Fiesta. Now to start our presentation, please turn to Slide 4, where I will highlight key achievements of the quarter. Chedraui Mexico's same-store sales grew 3% in the fourth quarter of 2025 and surpassed ANTAD's 1.4% growth for the 22nd consecutive quarter. Chedraui Mexico's total sales increased 6.9% due to higher same-store sales and a 4.4% sales floor expansion. Consolidated EBITDA increased 101 basis points to 8.6% and 7 basis points to 7.7%, including extraordinary items in the quarter. Chedraui Mexico's EBITDA margin stood 8.7% and 8.5%, including an extraordinary payment to fiscal authorities from prior fiscal years. Chedraui USA's EBITDA margin increased by 178 basis points to 8.6% and 6 basis points to 6.9%, including extraordinary noncash accruals for claim liabilities. Net cash to EBITDA improved to minus 0.28x in the fourth quarter of '25 compared to the minus 0.18x in the fourth quarter of '24. We accelerated our organic growth in Mexico by opening 65 stores in the quarter for a total of 142 stores in 2025, above target. In the following slides, I will comment in more detail about our fourth quarter results. Turn to Slide 5, please. During the fourth quarter, consolidated sales declined 3% compared to the fourth quarter of 2024, primarily reflecting the currency translation effect for Chedraui USA sales from a 10% appreciation of the Mexican peso against the U.S. dollar. Consolidated EBITDA increased by 9.7% and EBITDA margin stood at 8.6%, a 101 basis point improvement. If extraordinary items for the quarter are included, EBITDA declined 2.2% to MXN 5,793 million, and EBITDA margin rose by 7 basis points to 7.7%. This performance reflects effective inventory and promotional management as well as a disciplined expense control across all business units. On Slide 6, our strategic M&A investments and organic growth strategy have continued to support the positive long-term trend in consolidated net income. Over the past 4 years, net income has achieved a compounded annual growth rate of 17.4%, highlighting the effectiveness of our growth strategy and disciplined financial management. Our return on equity has recently been affected by RCDC transition costs and nonrecurring items for the quarter. However, even after considering these factors, our long-term strategic focus drove 167 basis points increase in ROE in 2025 compared to 2021. This demonstrates our commitment to creating long-term value for our shareholders. In the following slides, we will review the main highlights of our businesses in Mexico and in the U.S. On Slide 7, our continued commitment to offer the lowest prices and targeted customer promotions with an assortment of products that our clients prefer and a unique shopping experience enabled us to achieve a 3% increase in same-store sales, outperforming ANTAD's self-service segment by 164 basis points in the quarter. During the last several months, we have focused on enhancing our e-commerce strategy to give customers diverse shopping options. As such, our e-commerce sales penetration increased by 70 basis points to 3.9% in the fourth quarter of '25 in Mexico compared to the same quarter in 2024. This performance was driven by higher customer satisfaction and stronger repeat purchase rates across our digital channels, in addition to our strong third-party partnerships with platforms such as Uber, Rappi, DiPi and Rappi Turbo, which have continued to enhance our growth. Please turn to Slide 8. Despite a weaker-than-expected consumption environment in Mexico, total sales in the quarter increased 6.9% compared to the fourth quarter of 2024, supported by a 3% increase in same-store sales and a 4.4% expansion in sales floor area. As commented, Chedraui Mexico incurred an extraordinary onetime payment to tax authorities corresponding to the revision of prior fiscal years, which impacted EBITDA margin by 20 basis points. EBITDA in the fourth quarter of 2025 increased 8.2% and EBITDA margin expanded by 11 basis points to 8.7%, driven by strict expense control, along with enhanced inventory and strategic promotional management, which was able to offset higher labor costs. If the extraordinary item for the quarter is included, Chedraui Mexico's EBITDA grew 5.8% year-over-year to MXN 3,271 million, while EBITDA margin declined 9 basis points to 8.5% of sales. I will now turn the meeting over to Carlos Smith, CEO of Chedraui USA, for his comments on our U.S. operations. Carlos, please go ahead. Carlos Matas: Thank you, Antonio. Good morning, everyone. Chedraui USA continues to operate in an environment with stricter immigration enforcement, and this quarter was further impacted by the U.S. government shutdown that occurred in October and November. Although we were able to increase our average sales ticket, these events negatively impacted the number of transactions at our stores, bringing our same-store sales negative for the quarter. As we stated on last quarter's call, we implemented strict expense controls to help navigate these headwinds, which were effective in mitigating our loss of operating leverage in the quarter. As Antonio referenced earlier, it's important to note that operating expenses were affected by additional noncash accruals made during the quarter relating to general liability and workers' compensation claims, which impacted EBITDA margin by 171 basis points. While the number of new claims is trending down, the cost to resolve these claims has increased, not only for us but across the retail industry. We continue to take actions to reduce the frequency and cost of these claims. I would like to highlight our commitment to delivering solid long-term results despite short-term challenges. Despite current trends, both El Super and Fiesta same-store sales have grown considerably over the last 4 years. When comparing 2025 data with 2021, the same-store sales compounded annual growth rate for El Super is 6.2% and 6.6% for Fiesta. Also, EBITDA margins over the same period increased by nearly 41 basis points for El Super and 310 basis points for Fiesta, even when considering the headwinds we faced in this fourth quarter. Now we will review the results of the fourth quarter. Please turn to Slide 9. Chedraui USA same-store sales declined by 2.8% in U.S. dollar terms compared to the same quarter of last year. This is explained by a decline in transactions at El Super and Fiesta due to immigration enforcement, the delay and partial release of SNAP benefits as a result of the government shutdown and a high same-store sales base comparison to the prior year. At Smart & Final, same-store sales decreased 0.9% in U.S. dollar terms, primarily due to lower transactions in Southern California, where immigration enforcement has been stricter than in other regions, coupled with the impact on SNAP benefits due to the government shutdown. Overall, Chedraui USA's total sales decreased by 2.2% in U.S. dollar terms. Additionally, the 10% appreciation of the Mexican peso against the U.S. dollar contributed to a sales decline of 11.6% in Mexican pesos. Please turn to Slide 10. EBITDA increased 11.4% in Mexican pesos while EBITDA margin rose 178 basis points to 8.6% as a result of disciplined expense control across the organization. If accrued noncash claim provisions are included, Chedraui USA's EBITDA in Mexican pesos declined 10.8% less than sales and EBITDA margin of 6.9% increased 6 basis points compared to the fourth quarter of 2024. The combined El Super and Fiesta EBITDA margin reached 8.5% compared to 8.9% in the fourth quarter of '24, mainly explained by the pressure on transaction count experienced at El Super. When accrued noncash claim provisions are included, EBITDA margin stood at 7.2% in the quarter. Finally, Smart & Final's EBITDA margin of 8.7% improved 379 basis points compared to the same quarter of 2024 and 171 basis points, including additional claim accruals. This is explained by the improvements in the RCDC operations and the aggressive perishable pricing campaign in the fourth quarter of 2024. This concludes our report on the U.S. operations. Jose Antonio Chedraui Eguia: Thank you, Carlos. Now we turn to the consolidated financial results on Slide 11. Consolidated sales of MXN 75,221 million declined 3% compared to the fourth quarter of '24, mainly explained by a 10% appreciation of the Mexican peso when consolidating Chedraui USA sales. Gross profit rose 2.9% due to favorable inventory and promotion management in Mexico, reduced RCDC costs at Chedraui USA and Smart & Final's price campaign in the fourth quarter of 2024. Gross profit as a percentage of sales stood at 23.2% in the quarter compared to the 21.8% in the prior comparative quarter. Consolidated operating expenses, excluding depreciation and amortization, decreased by 0.8% as a result of a strict expense control. When including extraordinary items in the quarter, operating expenses, excluding depreciation and amortization, increased 5.5% compared to the fourth quarter of '24. Consolidated operating income increased 19%, with operating margin increasing 101 basis points to 5.5%. If extraordinary items are included, operating income of MXN 3,403 million declined 1.4% compared to the fourth quarter of '24 with an operating margin of 4.5% at similar levels to that of the fourth quarter of 2024. Consolidated EBITDA increased 9.7% and EBITDA margin was up 101 basis points to 8.6%. When including extraordinary items, EBITDA declined 2.2% and represented 7.7% of sales, a 7 basis points increase compared to the prior comparative quarter. Financial expenses remained flat, explained by lower interest expense on Chedraui USA's debt and the appreciation of the Mexican peso against the U.S. dollar in the last 12 months. The prior was partially offset by lower financial income in Mexico, driven by lower interest rates. Consolidated net income amounted to MXN 1,846 million and MXN 1,344 million if extraordinary items are included. Finally, please move to Slide 12. We closed the year with a net cash position of MXN 6,923 million, and our net cash-to-EBITDA ratio improved to minus 0.28x from minus 0.18x in the same period last year. CapEx for the 2025 totaled MXN 8,549 million, representing 2.9% of sales and coming in below the prior year due to the significant investment in RCDC in 2024. Now please allow us to move on to the question-and-answer section. Operator: [Operator Instructions] The first question comes from Bob Ford with Bank of America. Robert Ford: Antonio, given the difficult economic environment in Mexico and the U.S., how are key value drivers evolving? And how are you thinking about differentiation and retention strategies? And then also, how are you thinking about channel opportunities over the intermediate term, particularly when it comes to small box and e-commerce in Mexico? And then lastly, with respect to the labor claims, I was curious if these are for cumulative trauma, right, something like a repetitive stress issue? And what steps you can take to protect against frivolous lawsuits, particularly in California? Jose Antonio Chedraui Eguia: Thank you, Bob. Well, I will comment about Mexico and then Carlos can talk about the U.S. Well, in Mexico, as you've seen, we're seeing a slowdown in consumption, ANTAD reported very low growth in sales. So we believe that what we're doing is trying to increase our penetration in every market within the formats that we already have put in place. We believe that there are still room in certain cities for the big boxes, which are very efficient and profitable. And then in other areas, we're going with the smaller boxes, mainly Super Chedraui and Supercitos. So we believe that with the formats that we have for physical stores, we are just in the right place where we want to be. On the other hand, as you mentioned, we're focusing a lot on the e-commerce side. We believe that we can increase our sales penetration closer to 5% this year. We're being very successful with our own platform as well as with the third-party operators. That includes Turbo, where we have a lot of expectations in the near future. delivering customers in less than 15 minutes. So that's a huge opportunity, not only to penetrate the markets where we have presence at the moment but even going to other markets without having to open a physical store. So we feel that we have the right physical formats and the focus in the e-commerce to reach our sales projections for this year, Bob. Carlos, maybe you can... Carlos Matas: Yes. Bob, Carlos here. Yes, the adjustment that we made is really related mostly to general liability claims in our stores, which is customer accidents, slip and falls and things like that. And as you probably know, this has been an industry-wide issue as it relates to the increase in costs as it relates to closing a claim. So if a claim cost us $10 4 years ago, those claims today are costing us 3x that. And this has been an industry-wide problem, as you can see through everyone's reporting. And the key for us is really to address frequency, frequency at our stores. What are we doing to make sure that our stores are -- that we're providing a safe environment for our customers. And the second portion of it is to be very aggressive in our claims handling process. So we've invested quite a bit of money internally to ensure that we sniff out what you call fraudulent claims, which there's always some. But our position is we take every single claim extremely, extremely seriously, and we try and process it as quickly as possible. So the key here moving forward is ensure that our frequency is down through our operations team and that once we do have a claim that, that claim gets closed as quickly as possible. Operator: The next question comes from Rahi Parikh with Barclays. The next question comes from Antonio Hernandez with Actinver. Antonio Hernandez: Just wanted to know how are you seeing consumer trends so far this year? I mean you already provided some guidance some weeks ago but wanted to get a clear picture on whether so far this year in both Mexico and the U.S. looks like what you expected previously or any changes in that? Jose Antonio Chedraui Eguia: Antonio, I barely heard your question but I understand that it's basically consumer trends, what you're asking about Mexico and the U.S. Is that correct? Antonio Hernandez: Exactly. So far this year in both Okay. Jose Antonio Chedraui Eguia: Okay. Well, consumption, we believe -- I'll talk about Mexico. We believe Mexico will continue to be slow in consumption, even though we have the soccer World Cup, which will help for sure. We still see that there is no reason why to think that consumption will pick up strong in the coming months, except for this particular reason of the World Cup. Being that said, we believe that we can achieve our guidance to be able to grow at least 3% same-store sales. We believe that's achievable. We are prepared for that. We have a strategy for every format of our physical stores as well as focusing in the e-commerce segment where we believe we can grow double digit. So we believe we're prepared for that. We're adjusting the assortment. We are being very aggressive in our pricing strategy and the new stores and the remodeling stores, we're making sure that the atmosphere, the service involved in those particular stores meet the expectations of the customer segments that we are trying to serve. So that would be about Mexico. Carlos Matas: Antonio, in the U.S., obviously, we operate in areas of high Hispanic densities, and that consumer is still a little bit weary through all of the immigration enforcement activity. So we're very aware of that dynamic in our markets. But in general, I will tell you that the consumer is stretched thin. Things are more expensive. And our customers are willing to shop in multiple places. So as they look for value to stretch their dollars. So it's imperative for us to execute properly on our strategy with our pricing, with our perishable assortment in order to provide that value that they're looking for. Operator: The next question comes from Froylan Mendez with JPMorgan. Fernando Froylan Mendez Solther: Can you hear me? Jose Antonio Chedraui Eguia: Yes, we hear you. Fernando Froylan Mendez Solther: First question is on the U.S. on the margin expansion on Smart & Final. It was really amazing to see the margin expansion. I know there are some benefits from RCDC. But should we think of this margin level as a sustainable one going forward? And if that is the case, should we think that there is some phase on the guidance for next year in terms of margin expansion in the U.S. That's my first question. And second, on -- more on Mexico regarding your first comment on the formats and how you are extending. Is there a very big difference in profitability between the big box and the smaller box formats? Color on that would be great. Carlos Matas: Froylan, this is Carlos. Yes, we had a very nice result in terms of margin expansion at Smart & Final. Last year, we started a very aggressive price campaign at Smart & Final. Our buying gross margin grew significantly quarter-over-quarter. A lot of that is related to now starting to see the benefits of our RCDC materializing but our team has done a fabulous job in other areas to lower cost of goods. And we've been able to maintain that aggressiveness in pricing, not only in our produce departments but also in other perishable categories as well as center store where our pricing indices versus our competitors are very, very strong. So we feel very good about our pricing position at Smart & Final. And yes, these are not only sustainable margins but we still see an opportunity to increase them. Jose Antonio Chedraui Eguia: And well, about format profitability, even though all formats meet our goals in return on invested capital and that it's quite similar in every format. The smaller formats tend to -- due to a lower investment tend to be more profitable. So we're always trying to focus on the opportunities that we have, the land opportunities and the customer we are trying to meet. If we could, we would maintain the combination of expanding a little bit faster in the smaller formats but maintaining the big boxes growing because they are profitable as well. Operator: The next question comes from Ulises Argote with Banco Santander. Ulises Argote Bolio: A quick one from my side. I was wondering if you could help us quantify there out of the 133 basis points improvement we saw in the gross margin. Can you help us understand a little bit with how much of that came from the RCDC benefits and how much of that was kind of other impacts that we had there in the quarter? Carlos Matas: Ulises, yes, the majority of the benefit comes from our gross margin line, which is a combination of improvements in our buying gross margin. I mentioned a little bit about that at Smart & Final. But if you look at Smart -- Super, I'm sorry, on an annualized basis, our purchasing gross margin grew 124 basis points. So you can really start seeing now the benefits of the RCDC materializing in cost of goods, which is great. And the second portion of that is that we are seeing great operating stability at our RCDC. Our productivity is improving every day. We're not exactly where we want to be. So we still have some room to grow, but we're happy with our progress. And our freight charges are continuing to come down. So the things that we mentioned as benefits of the RCDC are beginning to flow through, which is what we expected. Jose Antonio Chedraui Eguia: And in Mexico, well, I think we are getting better managing inventory but it's also important to mention that focusing on the customer base of MiChedraui customers and being able to promote more efficiently has benefited us lowering the cost of promotional activities that we would have in the past. Remember that we have almost 40 million customers in our loyalty program, and we are starting to do particular promotions to sets of customers. And we believe that in the near future, we can even go deeper and do particular promotions to every customer with the participation of our vendors, which is very important in this program. Operator: The next question comes from Renata Cabral with Citigroup. Renata Fonseca Cabral Sturani: The first one, I would like to ask if you could shed some light in the initiatives that the company is doing to mitigate the potential impact of the labor reform related to the reduction of working hours per week. We know that will be gradual. Just to understand the main initiatives here. And my second question is related to the announcement of the government in terms of investment in the country, the Plan Mexico. And how do you see those investments going towards the -- especially the south of the country where Chedraui has a big presence and the opportunity there? Jose Antonio Chedraui Eguia: Renata, well, about the labor hours reduction, we have been working already on it using our workforce more efficiently. We have already 3 programs going on where we believe we can become more efficient using the hours of our team at the store level. And we believe that we will suffer very little from this gradual reduction that will start in 2027. On the other hand, the investment that the government has announced for sure, benefits us when it reaches the cities and the areas where we participate. We saw what happened with the Tren Maya or with the Dos Bocas investment. And if that happens in our particular cities in the coming months or years, for sure, we will benefit from that. Thank you, Renata. Operator: The next question with Rahi Parikh with Barclays. Rahi Parikh: Can you hear me now? Jose Antonio Chedraui Eguia: Yes, we can hear you clearly. Rahi Parikh: Great. Great. I'm sorry for the issue earlier. So my question is kind of for the RCDC. What new technologies and AI are built now there versus the tour that we attended last year and what's remaining? So kind of just what's the goals in terms of technologies to include there, AI to help inventory management? Like what tools are out there for you to implement? And then I know you mentioned somewhat on like how RCDC helps margin a bit but do you have any estimate on cost savings going forward? Carlos Matas: Yes. So the initial start-up of our RCDC was relatively vanilla. So our second phase will include some more automated areas, et cetera. But our -- the first launch is really very vanilla. Most of the AI support that we're getting is within the tools that we use to forecast and determine demand at the stores. So that's obviously connected to our supply chain, and it's helped us quite a bit in terms of reducing our inventory levels at the RCDC as well as our stores. So the real use for us is an inventory management and assortment planning. Like I mentioned, we've got great stability currently at the RCDC but we still think that we've got some improvement in labor productivity as well as in more efficiencies related to our transportation function. Makes. Rahi Parikh: Sense. And then one other follow-up for this immigration for U.S. Do you see that you kind of have to raise wages to retain workers? I know you mentioned tougher there in terms of sales but just looking on the cost side. Carlos Matas: No, I don't think that we -- I don't think we're in an environment where we've got wage pressure. I think our wage structures at all 3 banners are very, very competitive. And we see that in our turnover numbers, which are probably just below industry average. So I think we're in good shape there. Operator: The next question comes from Alvaro Garcia with BTG. Alvaro Garcia: I have 2. One on Mexico. I was wondering if you can speak about the importance of assortment in your smaller formats. So we recently saw sort of Walmart talking about lowering or reducing their assortment size of Bodega Express. So I was wondering if you could talk about the strategic relevance of having the necessary assortment for your customers at Chedraui in your smaller formats in Supercito. And then my second question is on the dividend. You obviously have a net cash position. I know you're very much excited about growth, both organic and potentially inorganic in the future. But any sort of comments on what drove the decision to sort of increase it in line with inflation would be helpful. Jose Antonio Chedraui Eguia: Thank you, Alvaro. Well, about the assortment in Supercitos, even though we are trying to manage more efficiently inventory and SKU reductions always produce that. We are focusing that Supercito and every format fulfills their mission towards their customers. We are very aware that we want to be a proximity store and not a hard discount. We don't want to be a hard discounter. We want to differentiate for that. And we want to accomplish the mission of replenishment of a full basket. Therefore, the reduction possibilities in SKUs are limited to this strategy that we have put in place. To give you an idea, we have a little bit the double of assortment that we have against a typical hard discounter, for example. And we will continue with the assortment that fulfills the mission that we believe our proximity format is set for. On the other hand, the dividend, well, we have enough cash that we're not being able to use in our expansion program. And therefore, we just believe that there is better opportunity to use that cash for our investors than just having that cash sitting in our company invested in other investment opportunities rather than stores. If we cannot use the cash in stores or technology to become better or more efficient, we'll just increase dividends. Operator: Thank you. There are no further questions in queue at this time. I would like to turn the call back to management for closing comments. Jose Antonio Chedraui Eguia: Well, I just want to thank everyone for joining and hope to be talking to you at the end of this first quarter of 2026. Thank you again. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Good morning, and welcome to Orbia's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Diego Echave, Orbia's Vice President of Investor Relations. Please go ahead. Diego Echave: Thank you, operator. Good morning, and welcome to Orbia's Fourth Quarter and Full Year 2025 Earnings Call. We appreciate your time and participation. Joining me today are Sameer Bharadwaj, CEO; and Jim Kelly, CFO. Before we continue, a friendly reminder that some of our comments today will contain forward-looking statements based on our current view of our business, and actual future results may differ materially. Today's call should be considered in conjunction with cautionary statements contained in our earnings release and in our most recent Bolsa Mexicana de Valores report. The company disclaims any obligation to update or revise any such forward-looking statements. Now I would like to turn the call over to Sameer. Sameer S. Bharadwaj: Thank you, Diego, and good morning, everyone. Before we begin discussing this quarter's results, I would like to thank our global employees for their ongoing efforts through 2025 and their continued focus on solving our customers' challenges in difficult market conditions. I would also like to thank our customers for their ongoing partnership and trust. Turning to Slide 3. I will share a high-level overview of our fourth quarter and full year 2025 performance. Full year revenues of $7.6 billion increased 2% year-over-year and EBITDA of approximately $1.02 billion decreased by 7% compared to the previous year. Full year EBITDA included onetime items of approximately $90 million. Excluding these onetime items, full year adjusted EBITDA was $1.11 billion. Overall, global market conditions across Orbia's businesses were mixed but remained generally challenging in 2025, particularly across construction and infrastructure-related activities and regionally in much of Europe and Mexico. We did, however, see favorable trends emerge during the year in our Fluor & Energy Materials, Connectivity Solutions and Precision Agriculture businesses. In this environment, we remain relentlessly focused on exercising strong financial discipline. We continue to strengthen our leading market positions and to drive results through effective commercial and operational execution with a focus on both earnings and cash generation. Our cost optimization programs are on track and making important contributions as is our initiative to generate cash from noncore asset sales. We continue to look for more opportunities to simplify our business, further strengthen our balance sheet and drive cash generation to support our long-term strategic objectives. As we begin 2026, we expect market dynamics to remain challenging in some businesses with continued improvements in others. I will now turn the call over to Jim to go over our financial performance in further detail. Jim Kelly: Thank you, Sameer, and good morning, everyone. I'll start by discussing our overall fourth quarter results. Turning to Slide 4. Net revenues of $1.9 billion increased by 5% year-over-year, with growth coming from all business groups except Polymer Solutions. The increase was led primarily by higher volumes in Connectivity Solutions and better product mix in Fluor & Energy Materials. I'll provide a more comprehensive description of these factors in the business-by-business section. EBITDA of $227 million for the quarter increased 2% year-over-year, primarily driven by higher volumes and lower onetime costs in Fluor & Energy Materials and in Building and Infrastructure, partially offset by a decrease in Polymer Solutions. Adjusted EBITDA of $236 million declined 14% compared to last year, primarily driven by Polymer Solutions. Operating cash flow of $349 million increased by $67 million or 23% compared to the prior year quarter, driven by efficient working capital management and the absence of last year's unfavorable currency impacts, partially offset by net interest paid and higher taxes. The operating cash flow conversion rate for the quarter was 154%. Free cash flow in the quarter was $204 million, an increase of $80 million year-over-year, driven by an increase in operating cash flow and a decrease in capital expenditures. Turning to Slide 5. I'll now review our full year results for 2025. On a consolidated basis, net revenues were $7.6 billion, an increase of 2% year-over-year. Higher revenue came from all business groups with the exception of Polymer Solutions. The increase was led primarily by higher volumes in Connectivity Solutions and better product mix in Fluor & Energy Materials. EBITDA of $1.02 billion decreased 7% year-over-year with an EBITDA margin of 13.4%, a decrease of 124 basis points. These decreases were primarily due to lower volumes and prices in Polymer Solutions and onetime costs for Building and Infrastructure. These were partially offset by the absence of prior year onetime costs in Fluor & Energy Materials and higher revenues in Connectivity Solutions and Precision Agriculture. Excluding onetime items, adjusted EBITDA was $1.11 billion for the full year, representing a 7% decrease from the prior year and an adjusted EBITDA margin of 14.6% for the year. Operating cash flow and free cash flow were $645 million and $111 million, respectively, reflecting strong working capital performance and lower cash impacts from accruals, partially offset by lower EBITDA and higher taxes and net interest paid. The operating cash flow conversion rate for the full year was 63%. Free cash flow increased by $175 million year-over-year, driven by higher operating cash flow and lower capital expenditures. Capital expenditures of $405 million declined by approximately 15% compared to the prior year. Spending for 2025 included ongoing maintenance and investments to support the company's targeted growth initiatives. Orbia invested $144 million in strategic growth primarily dedicated to expanding capacity for medical propellants and custom electrolytes within our Fluor & Energy Materials business as well as advancing high-value product initiatives in Building and Infrastructure. The remaining $251 million was deployed to ensure operational safety and asset integrity. Net debt of $3.78 billion included total debt of $4.82 billion less cash of $1.04 billion. The net debt-to-EBITDA ratio was 3.70x at the end of the year, which decreased from 3.85x at the end of the prior quarter, driven by a decrease in total debt of $82 million and an increase in cash and cash equivalents of $49 million and an increase in the last 12 months EBITDA of approximately $5 million during the quarter. The leverage ratio increased by 0.4x compared to 3.30x at the prior year-end due to an increase of $162 million in net debt of which $147 million was due to the appreciation of the Mexican peso against the U.S. dollar and a decrease of $76 million in the last 12 months EBITDA, partially offset by an increase in cash and cash equivalents of $31 million. On an adjusted basis, net debt to EBITDA at the end of 2025 was 3.40x, which was a slight reduction from the level of 3.42x at the end of the prior quarter. For the full year, we recognized an income tax expense of $291 million compared to an income tax benefit of $127 million in the prior year. The change in the tax expense was primarily driven by the geographic mix of earnings, appreciation of the Mexican peso relative to the U.S. dollar, inflation-related adjustments and discrete items, including nonrecurring dividend repatriation and impairment charges. Adjusted for these items, the effective tax rate for the year would have been approximately 25%. Turning to Slide 6. I'll review our performance by business group. In Polymer Solutions, fourth quarter revenues were $558 million, a decrease of 6% year-over-year driven by lower operating rates in derivatives and lower prices in resins. This was partially offset by higher volumes in resins and higher prices in derivatives. Fourth quarter EBITDA was $33 million, a decrease of 55% year-over-year with an EBITDA margin of 5.9%, driven by lower prices and higher input costs. For the full year, Polymer Solutions had revenues of $2.4 billion, a 4% decline, driven by lower volumes in derivatives and lower prices in resins, partially offset by higher general resins volumes. Full year EBITDA declined 30% versus the prior year to $248 million with an EBITDA margin of 10.2%, driven primarily by lower resin prices, operational disruptions in derivatives and a key raw material supply disruption during the first half of the year. This was partially offset by lower fixed costs from cost savings initiatives. Excluding onetime items, adjusted EBITDA was $39 million in the quarter and $279 million for the full year, representing a decrease of 53% and 26%, respectively. Adjusted EBITDA margin was 7% for the quarter and 11.5% for the year. In Building and Infrastructure, fourth quarter revenues were $600 million, an increase of 4% year-over-year, driven primarily by higher volumes in Western Europe, Mexico and other portions of Latin America, favorable currency fluctuations and better pricing. This was partially offset by the impact of divestments of the India and Clay Pipe businesses that were completed earlier in the year. Fourth quarter EBITDA was $71 million, an increase of 34% year-over-year with an EBITDA margin of 11.9%. The increase was driven by lower onetime restructuring costs, better margins favorable product mix and continued benefits from cost-saving initiatives. For the year, Building and Infrastructure revenues were $2.5 billion, a decline of 1% year-over-year. The decrease was driven by the impact of completed divestments and weak demand in Mexico, partially offset by growth in Brazil and EMEA. Full year EBITDA of $246 million declined 10% year-over-year with an EBITDA margin of 10%, driven primarily by lower results in Mexico and Western Europe, higher material costs and higher onetime restructuring costs compared to last year. This was partially offset by better performance in the U.K. and Brazil and the benefit of cost savings initiatives. Excluding onetime items, adjusted EBITDA was $78 million in the quarter and $286 million for the full year, representing an increase of 20% and a decrease of 2%, respectively. Adjusted EBITDA margin was 13.1% for the quarter and 11.6% for the year. Moving to Precision Agriculture. Fourth quarter revenues were $279 million, an increase of 5%, driven primarily by strength in Brazil, Europe and Israel, partially offset by India and Mexico. Fourth quarter EBITDA of $33 million was slightly lower year-over-year with an EBITDA margin of 11.8%. The slight decrease in EBITDA year-over-year was driven by lower performance in the U.S., Mexico and Central America, partially offset by better performance in EMEA, Brazil and Turkey. For the year, Precision Agriculture reported revenue of $1.1 billion, an increase of 6%, driven by growth in Brazil, Peru and the U.S., partially offset by soft demand in Mexico. Full year EBITDA increased by 9% to $136 million with an EBITDA margin of 12.4%, primarily driven by Brazil, the U.S., Turkey and Peru, partially offset by negative impacts from currency fluctuations and Mexico. Excluding onetime items, adjusted EBITDA was $35 million in the quarter and $142 million for the full year, representing a decrease of 3% and an increase of 7%, respectively. Adjusted EBITDA margin was 12.5% for the quarter and 12.9% for the year. In Fluor & Energy Materials, fourth quarter revenues were $268 million, an increase of 21% year-over-year. The increase was primarily driven by higher volumes from pharma and upstream minerals and favorable prices across most of the product portfolio, partially offset by lower volumes in refrigerants. Fourth quarter EBITDA was $68 million, an increase of 107% year-over-year due to higher revenue in the absence of prior year onetime legal expenses, partially offset by higher raw material costs. EBITDA margin was 25.2%. For the full year, Fluor & Energy Materials revenues were $958 million, an increase of 11%, driven primarily by strong results across the product portfolio. EBITDA for the full year increased 14% to $267 million and an EBITDA margin was 27.8%. The full year increase in EBITDA was primarily driven by the absence of prior year onetime legal expenses, partially offset by higher raw material costs and higher operating costs in Mexico, driven by the appreciation of the Mexican peso against the U.S. dollar. Excluding onetime items, adjusted EBITDA was $68 million in the quarter and $267 million for the full year representing an increase of 3% and a decrease of 1%, respectively. Adjusted EBITDA margin was 25.2% for the quarter and 27.8% for the year. Finally, in our Connectivity Solutions segment, fourth quarter revenues were $226 million, an increase of 32% year-over-year. The increase in revenues for the quarter was driven by strong volume growth across all end markets and a favorable product mix, partially offset by lower prices. Fourth quarter EBITDA increased 61% year-over-year to $21 million with an EBITDA margin of 9.5%. The increase was primarily driven by higher revenues, higher capacity utilization and continued benefits from cost reduction initiatives, partially offset by lower prices. For the full year, Connectivity Solutions revenues were $918 million, an increase of 9%, driven by strong volume growth and favorable product mix, partially offset by lower prices. For the full year, EBITDA of $131 million increased 21% and EBITDA margin was 14.2%, primarily due to higher revenues, higher capacity utilization and the continued benefits from cost reduction initiatives, partially offset by lower prices. Excluding onetime items, adjusted EBITDA was $33 million in the quarter and $144 million for the full year, representing an increase of 105% and 23%, respectively. Adjusted EBITDA margin was 14.8% for the quarter and 15.7% for the year. Turning to Slide 7. I'd like to provide an update on our plan to improve operating performance, strengthen our balance sheet and reduce leverage as first outlined in our October 2024 business update. First, our cost reduction program continues on track, having delivered cumulative annual savings of approximately $200 million by the end of 2025 relative to the end of 2023 cost base. We've achieved approximately 80% of our targeted $250 million in savings per year by 2027. Second, the contribution from recently completed or close to complete organic growth initiatives, which are primarily focused on new product launches and capacity expansions, reached approximately $59 million of EBITDA during 2025. The goal is to achieve $150 million in incremental EBITDA from these investments by 2027. We expect an acceleration of these benefits in 2026, especially in Building and Infrastructure. We have signed agreements that generated proceeds of approximately $90 million from noncore asset divestments as of the end of 2025. We anticipate reaching our targeted $150 million or more by the end of 2026. Finally, as we indicated in the second quarter of 2025 results presentation, we have successfully extended all material debt maturities to 2030 and beyond, raising approximately $1.4 billion to refinance existing obligations. This proactive capital structure management enhanced our financial flexibility and helped to reduce near-term financial risk. With that, I'll now turn the call back over to Sameer. Sameer S. Bharadwaj: Thank you, Jim. On Slide 8, I will cover a few key milestones regarding our efforts on sustainability. In 2025, we remain focused on expanding and delivering sustainable solutions across all our businesses, staying aligned with our long-term strategy and customer needs. In Fluor & Energy Materials, we expanded our custom electrolyte facility in the U.S. and continued growing our portfolio of low global warming potential refrigerant gases and medical propellants. We also advanced construction of our new facility for next-generation medical propellant 152a in the U.K., which we expect to start production in early 2027. Within Building and Infrastructure, we enhanced our offering in urban water resilient solutions to address environmental challenges. We exceeded our 2025 sustainability-linked sulfur oxide emissions reduction target. Our progress was recognized once again by leading sustainability benchmarks in 2025. We maintained our standing in the S&P Dow Jones best-in-class MILA Pacific Alliance, the S&P Sustainability Yearbook, the FTSE4Good Index and the BMV ESG Index. Finally, we will publish our 2025 impact report on March 9, where we will provide further detail on sustainability performance. Turning to Slide 9. I will now discuss our outlook for 2026. The outlook for the year presents 2 distinct dynamics. We expect continued positive market momentum in Precision Agriculture, Fluor & Energy Materials and Connectivity Solutions. Meanwhile, Polymer Solutions and Building and Infrastructure end markets are expected to remain relatively weak. We expect growth in EBITDA from these segments due to the absence of the operational disruptions experienced in 2025 in the Derivatives business as well as from commercial initiatives and new product introductions in Building and Infrastructure. For 2026, the company expects that full year EBITDA will be in the range of $1.1 billion and $1.2 billion with capital expenditures expected to be approximately $400 million. The primary focus of capital expenditures will be investments to ensure safety and operational integrity as well as selective strategic growth projects, particularly in the Fluor & Energy Materials business group. Now looking ahead in each of our business segments for the year. Beginning with Polymer Solutions, the global PVC market is expected to experience continued excess supply. However, prices have recovered modestly compared to the trough levels seen in the second half of 2025. Recent governmental policy shifts, particularly in China and announcements of capacity rationalization in Europe and the U.S. should help support a firmer global pricing environment. The focus remains on maximizing production, maintaining strict control over fixed costs and cash and growing profitability. In Building and Infrastructure, market conditions are expected to remain subdued in Europe and moderate growth is anticipated in Latin America. Orbia anticipates incremental growth driven by greater adoption of new products, contribution from value-added solutions and ongoing benefits from cost optimization initiatives. In Precision Agriculture, we expect continued strong momentum across key markets led by robust demand in Brazil, solid project execution in Africa and the Middle East and sustained strength in U.S. permanent crops. The business will also advance growth initiatives through its new digital farming platform and new projects while capturing additional benefits from ongoing operational efficiency efforts. In Fluor & Energy Materials, we expect positive fluorine market trends to continue with strong demand to help offset the impact of raw material and mining cost inflation. Our operating philosophy is to ensure safe and stable mining and chemical operations and maximize the value of fluorine across minerals and chemical intermediates, refrigerants and medical propellants. Growth investments will focus on battery materials, next-generation medical propellants and mining infrastructure. And finally, in Connectivity Solutions, we anticipate growing demand driven by broadband expansion, new data center investments and the modernization of the U.S. electric power grid. Profitability is projected to improve, supported by these incremental volumes, higher plant utilization and the ongoing implementation of cost control initiatives. Consistent with our top priority to strengthen the balance sheet and the company's Board of Directors has resolved to approve and intends to propose to shareholders at Orbia's Annual General Meeting that no ordinary dividend be declared for 2026. In summary, our near-term priorities are to deliver on our commitments, delever the balance sheet, simplify operations and focus on our core business. We aim to improve EBITDA and cash flow through cost savings initiatives and growth from recently completed project investments, complemented by cash generated from noncore asset sales. These actions will enable us to improve our leverage and strengthen our balance sheet by the end of 2026 without relying on potential market recovery or further benefits from business simplification. We remain committed to meeting customer needs and generating long-term value for our shareholders. We are aware of recent media reports and market speculation concerning a potential divestiture of our Precision Agriculture business. We continually engage in assessing opportunities to optimize our portfolio and create value for our shareholders. As a matter of policy, we do not comment on market speculation or rumors. We are committed to providing material information to the market in accordance with our disclosure obligations and regulatory requirements. Any official announcements regarding Orbia's strategy, operations or financial structure will be made through press releases and filings in accordance with applicable law and stock exchange rules. Before we move to Q&A, I would like to share an important leadership update. After nearly 5 years of dedicated service as Chief Financial Officer, Jim Kelly has decided to retire from Orbia. Since joining us in 2021, Jim has reinforced financial and capital allocation discipline, enhanced reporting and internal controls and guided the company through a complex global environment with a clear focus on balance sheet strength, cash generation and long-term value creation. Importantly, Jim also built a high-performance finance function, developing leadership depth that positions us well for the future. He has been a trusted partner to our executive team and our Board. And as many of you know, he has played an outstanding role in engaging our external stakeholders, including debt and equity investors, analysts and ratings agencies. We are truly grateful for his contributions. He will remain with us through midyear to ensure a seamless transition internally and externally. Following a structured Board-led succession process, I am pleased to announce that Cristian Cape Capellino, a senior leader within a global finance organization has been appointed Chief Financial Officer effective March 15, 2026. Cape is a seasoned executive with over 23 years of experience, spanning public accounting and finance leadership roles within global industrial and manufacturing organizations. Since joining Orbia in 2020, he has held senior leadership roles across controllership, tax, financial planning and analysis and finance transformation within the finance leadership team. He worked in close partnership with Jim to strengthen governance, sharpen capital allocation rigor and modernize our global financial systems across more than 40 countries. Prior to Orbia, Cape spent more than a decade at Tenaris, an NYSE-listed global industrial company, where he held multiple senior finance and business leadership roles. Earlier in his career, he worked at Deloitte in audit and tax. He holds an MBA from the MIT Sloan School of Management and a public accountant degree from the National University of Cordoba. Cape understands our portfolio, our capital framework and our performance drivers. He is highly regarded by our global teams. His appointment ensures continuity and execution. Our strategic priorities and capital allocation plans remain unchanged. The Board and I are confident that this transition positions us well for our next phase of performance and value creation. Operator, we are now ready to take questions. Operator: [Operator Instructions] The first question today comes from Andres Cardona with Citi. Andres Cardona: Before I ask my question, I want to thank Jim for the partnership over the last 5 years and wish you very good luck in your next step. Sameer, the natural question at this point is the simplification idea of the business. Could you help us to understand the reach of this program if it is limited to noncore assets, relatively small divestitures? Or how can we think about this concept that seems to be at the center of the strategy of Orbia for the last year or so? Sameer S. Bharadwaj: Thank you, Andres. Let me address that question. As we've said before, our focus at Orbia, first and foremost, is to deliver on our results with a focus on EBITDA and cash generation and use the proceeds to delever and then simplify and focus our portfolio. So in that context, as we've shared before, the outcome of our strategy session late last year is that we will focus on our core value chains, okay? And there are potentially businesses that we see may not be directly linked with our value chains or not the best strategic fit, we will look for simplification opportunities. And as I have commented earlier, we continue to explore such opportunities in earnest. And if and when there is something material to report in accordance with our disclosure obligations, we will do so. Operator: The next question comes from Joao Barichello with UBS. Joao Pedro Barichello: I have 2 from my side here. So could you provide an update on [ Cora's ] new facility in the U.K. regarding how has been the project execution time line? What is the EBITDA contribution that you're expecting from it? And also, could you provide a little bit more of color on the main adjustments made in your adjusted EBITDA for the 4Q, but also for the full year of 2025? I mean, what were the main one-off events and how materially were they? That's it from my side. Sameer S. Bharadwaj: Very good, Joao. Let me take the first question, and I'll let Jim answer the second question. The investment that we are currently making in the U.K. is to build a large-scale industrial scale medical-grade 152a plant to support the commercialization of this next-generation global warming -- lower global warming potential medical propellant. As we've disclosed before, we already have a 600 tonne per year pilot reactor running, supporting the industry at this time with their qualifications and their scale up. And we have customer commitments to -- starting off early of 2027, where we will scale up this facility to 6,000 tonnes a year. And over time, as the industry transitions away from medical grade 134a to medical grade 152a, we have the asset required to serve the industry needs. So all the qualifications and scale-up is on track. We expect to complete construction of the facility towards the end of this year in time for the scale up at our customers. And the EBITDA contribution of this business, I do not want to talk about specific numbers right now, but is expected to grow very significantly over the next 2 or 3 years, okay? Jim Kelly: Thank you, Joao, for the question regarding the onetime items, the nonoperating items, we're strict in our definitions of what those are. And I'd say the definition really typically falls into 3 categories, one being particularly given the initiatives that we have on our delevering at this point in time, the restructuring costs that we incur in order to execute on those plans then as well any legal settlement or extraordinary legal costs that we have in defending historical cases that exist around the company. And then if there are any other true nonoperating impacts in any of the businesses that occur over the course of the year from an operational perspective. So let me go through in a little bit of detail on each of those. So for the full year, first of all, the number, as you would have seen, was $90 million. So that got us from the [ $1,020 million to $1,110 million ] going from reported EBITDA to adjusted EBITDA. The largest of the adjustments was in the restructuring area. That was about $45 million, and a lot of that was within our B&I business, where you've heard us speak about the footprint rationalization in Europe. So that -- we're in the middle of that process at this point in time. It's ongoing. And for that reason, we've incurred a number of restructuring charges there. And then smaller ones across some of the other businesses. There was a little bit in Polymer Solutions, et cetera, but the vast majority in B&I. Next after that was about $30 million of legal related. And of that, about $20 million was related to a settlement that took place during the year and the remainder is legal costs that were incurred to address outstanding cases that are -- that generally have long histories, go back in time and have nothing to do with what's taking place in the business right now. So again, in total, those were about $30 million and then on top of that, we had about $20 million that related to operational disruptions in one of our key suppliers in the Polymer Solutions business. We reported this back in the first quarter of the year. It was a little bit in first and second quarters that we incurred this. And again, that was about $20 million. So in total, those comprise the $90 million. If you're asking as well about Q4, the number was about $9 million in Q4, so not that material in the quarter. It was much more material in the earlier part of the year. Operator: The next question comes from Hernan Kisluk with MetLife. Hernan Kisluk: Congratulations to your career, Jim. So my question is on the revolving credit facility. I understand it has spring covenants that are not very far from being reached. So I'd like to understand if you are in conversations with the group of banks to amend waive or change the terms of the RCF, so you can maintain the availability? Jim Kelly: Thank you for the question. So you're correct in terms of the commitments that we have to meet. So in terms of the net debt to EBITDA, it's 3.5x or below and then interest coverage above 3.0. We are within those covenants at this point in time. So -- and also, remember, as you said, they are springing covenants. So they don't come into effect until or unless we have 2 of the 3 rating agencies saying that we are not investment grade. So with 2 of the rating agencies still supporting an investment-grade rating, the covenants are not in force. So right now, we are in a good situation. We have ongoing discussions with the banks that are part of the RCF. And should we get to a position where there is potential risk to the investment-grade rating, we would have discussions with them as to whether they would be willing to waive these covenants or not. Keep in mind, we do not draw on the RCF. We view it as, call it, an insurance policy for liquidity if or when we need it. But at this point, and it's been a while, a couple of years now since the last time we drew on the RCF. Sameer S. Bharadwaj: Yes. The only other thing I would add, Jim, is we have a highly focused plan to delever with or without portfolio simplification opportunities. And so we feel confident in our ability to do so over time. And portfolio simplification just allows us to get there sooner. Operator: The next question comes from Nicolas Barros with Bank of America. Nicolas Barros: I have 2 questions, right? The first one on your projects. Could you share the latest developments regarding the PVDF project and the same for the LiPF6, right, on time line, CapEx and EBITDA? And secondly, on tax reconciliation, right? So I would like just to clarify here the tax line, right? So taxes paid in 2025 were roughly $30 million, right, above 2024 despite your negative EBT, right? So should we interpret this as taxes coming from businesses that still generate positive EBT or I don't know, any further impact from the Mexican peso? And could you share expectations for cash taxes disbursement in 2026, please? Sameer S. Bharadwaj: Thank you, Nicolas. Let me take your first question, and I will let Jim answer the second question. Specifically with respect to the PVDF project that is in partnership with Syensqo. That project is currently on hold, subject to market conditions, and we will reevaluate the merits of those projects as we go along. With respect to the LiPF6 project, that project continues to proceed on track. And keep in mind, this is supported by a $100 million grant from DOE and close to $90 million in tax incentives from the state of Louisiana and federal tax credits. The total capital investment for the project, as we have said before and disclosed in our DOE grant materials is of the range of $400 million. And so the DOE grant as well as the tax incentive significantly reduce our upfront investment. The EBITDA contribution of the project with conservative pricing is in the range of $100 million to $120 million, okay? Now the market conditions remain quite favorable. Even in the last 6 months, the market dynamics for LiPF6 have tightened and pricing has gone up significantly to the tune of $25 per kg. Chlorine is also on the list of critical minerals. And so from a security of supply standpoint, the facility that we are working on the engineering of at this moment is going to be very well positioned to be successful when the plant is built. The market dynamics continue to strengthen with growth in energy storage, supported by the needs for stationary storage as well as EVs and hybrids. And given the fact that the industry is moving towards LFP-based cathodes, the amount of LiPF6 required for LFP-based cathodes is 50% higher than NMC-based cathodes. So all the dynamics are favorable for that project. And as I said, we are currently in the engineering phase, and this project will take about 3 years to execute. Jim, do you want to take the other question? Jim Kelly: Sure. So in terms of reconciliation of the tax rate, so as I discussed in my comments, you'd look at it on a normalized basis, you would look at a tax rate of about 25%. Now needless to say, the numbers you see are quite different from that, and there are a couple of factors that drive that. Operationally, where we earn income, so what we would call the geographic mix, of our earnings has a relatively material impact. And in fact, the issue there is that we have a lower share of our income in low tax jurisdictions. So that tends to have an upward effect on the rate. The more dramatic impact, I would say, and you see this on a year-to-year basis is the impact of the change in the Mexican peso to the U.S. dollar. So there's an FX and inflationary impact based on that. And that is largely driven by the fact that we have a U.S. dollar debt. And when there is a change in the Mexican peso rate, the reductions or increases in the debt balance are essentially treated as being taxable in Mexico. So with depreciation of 20% of the peso in '24 and an appreciation of 11% in '25, you see a dramatic swing in the effective tax rate year-to-year as a result of that. And then also internally, we had some cash movements, et cetera, some repatriations from other countries into Mexico, et cetera, that caused some rate implications as well. So that's the explanation on the rate. You also asked about cash taxes. So I would expect that for 2026, our cash taxes wouldn't change significantly from where we were in 2025, maybe some increase as we see increases in our overall EBITDA that we mentioned. But there are a lot of factors there that one would have to forecast, whether that be the change in the Mexican peso, the geographic split of the earnings, et cetera. But I'd say I would not expect a dramatic change in the cash outflows from taxes during the year. I hope that addresses your question. Operator: [Operator Instructions] Sameer S. Bharadwaj: If there are no further questions, let me try and wrap up the key messages. So first and foremost, we ended 2025 despite being a challenging year, we ended the year on guidance. And even though we were short on EBITDA, the company did extremely well from a cash standpoint. And with all of the initiatives that we said we would deliver on from a cost reduction standpoint, realizing benefits from growth initiatives and noncore asset sales and the reduction of working capital, we were able to end the year strong from a cash standpoint. Now looking into the year, even though Q4 was very challenging from a PVC pricing standpoint, we have seen a material change in Q1, and we will hopefully begin to see benefits in Q2 with China's elimination of VAT on PVC exported from certain types of facilities. And we've already seen the pricing of the various indexes go up by $60 to $70 a tonne. And eventually, that should start flowing through in our results as well. We are also hopeful of antidumping duties being imposed in Mexico and Brazil, which should also benefit the Polymer Solutions business. The Building and Infrastructure business continues to suffer from weakness, particularly in Northern and Western Europe and in Mexico. And with the reduction in interest rates and resumption of building and construction activity, and especially infrastructure projects, the operating leverage that we have created in that business should begin to benefit us. The other 3 businesses are bright spots. We are completely sold out in our Connectivity Solutions business running at very high utilization as demand from the telecom carriers as well as the growth in AI data centers and the power sector continue to drive demand growth. Fluor & Energy Materials, the supply chain is tight. The fluorine item is expected to remain tight over the course of the decade, and we are doing our best to optimize our production from the mine as well as place the fluorine into the highest value applications. And the pricing environment in that business continues to strengthen during -- over the course of the year. And then finally, the Precision Agriculture business ended the year strong and continues to have very positive momentum, especially in areas like Brazil and many of the excellent projects that we are doing in Africa, the business is on a continued improvement trajectory and should deliver stronger earnings year-over-year as well. So in summary, we are doing everything we can in terms of driving the top line, having strong discipline on our manufacturing costs as well as SG&A costs, driving lots of initiatives to optimize cash through working capital initiatives and noncore asset sales so that we can deliver the results, delever the company and then simultaneously have a continued focus on portfolio simplification so that Orbia can be more focused going forward. So with that, I'd like to wrap up the call and look forward to talking to you again on the April's earnings call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to The Mosaic Company's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. And now I'll turn it over to Jason Tremblay. Jason Tremblay: Thank you, and welcome to our fourth quarter 2025 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer. Luciano Siani Pires, Executive Vice President and Chief Financial Officer, will review financial results and capital allocation progress. We will then welcome Jenny Wang, Executive Vice President, Commercial, to join Bruce and Luciano as we open the floor for questions. We will be making forward-looking statements during this conference call. The statements include, but are not limited to, statements about future financial and operating results. They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release published yesterday and in our reports filed with the Securities and Exchange Commission. Please note in today's presentation and in our press release and performance data, we will refer to and provide various financial measures, including adjusted EBITDA, adjusted earnings per share, free cash flow, cost per tonne and adjusted effective tax rate, either on a total company or segment basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found in our earnings release. Now I'd like to turn the call over to Bruce. Bruce Bodine: Good morning. Thank you for joining our call. As we look back on 2025, I want to start by recognizing the work our teams delivered across Mosaic throughout the year. We asked a lot of our people, and they responded with tremendous effort. The other members of the executive team and I are grateful for their dedication. I will start today's call with a high-level review of the markets and our business. Then Luciano will provide some details on our financial expectations for 2026, and Jenny is here to address your market-related questions. Our key messages for today are: first, while the fourth quarter was weaker than we expected due to phosphate demand in the United States, U.S. demand is emerging as farmers prepare for spring planting in North America and global ag fundamentals are solid. Second, we are on track to improve phosphate production performance, and we have posted consistently good potash production throughout 2025. The work we have completed has restored our operational foundation and positioned Mosaic for a strong 2026. Third, we delivered meaningful cost and efficiency progress in 2025, and we have committed to achieve further reductions in 2026. Fourth, our extensive market access continues to provide a powerful platform for growth, especially in our Mosaic Biosciences business. And finally, in our capital allocation program, we have divested several noncore assets, Patos de Minas and Taquari as well as a pending transaction to sell Carlsbad that will allow us to focus attention and capital where it matters. Before I get into a more detailed review of the business and our outlook, I will turn to a high-level view of the market conditions and explain why despite the tough ending to 2025, our long-term outlook remains constructive. U.S. demand, especially for phosphate, fell sharply in the fourth quarter, pressured by affordability challenges and uncertainties surrounding government support. Recently, we have seen an increase in spring inquiries as growers look to nourish their soil, especially after last year's big crop and corresponding nutrient removal. As we enter the buying season across several key geographies, a compressed demand time frame is possible and could place additional strain on logistics capabilities. While overall North America potash and phosphate shipments declined in 2025, Mosaic's North America sales volumes proved more resilient, indicating we captured additional market share. Looking ahead, phosphate supply and demand dynamics are supportive as China continues to restrict exports to prioritize domestic demand and lithium iron phosphate battery demand continues to consume an even larger share of the world's phosphoric acid. Potash markets remain balanced with prices that appeal to the world's farmers and fertilizer producers alike. As we look at 2026, we expect global potash shipments to approach record levels driven by broad-based demand across most key geographies. And as a result, we expect to continue producing at high operating rates. While credit constraints remain a challenge in Brazil, expanding planted acreage and rising crop yields bode well for long-term Brazilian fertilizer demand. Demand also remains strong in other key growing regions of the world, including China and India. Now I'll move on to discuss our business and outlook. In phosphate, we delivered strong rock production last year with Florida reaching its highest level in three years and record mining production at Miski Mayo. Our top strategic priority in 2025 was to restore stability in our operations and normalize costs. While the recovery of our production volumes has taken longer than expected, we accomplished a great deal toward that goal. In our U.S. Phosphate business, we invested time and money across our assets to set ourselves up for reliably strong production, and we are seeing positive results. The key measure of our success is P2O5 output because acid gives us the ability to flex grades and products to meet demand and P2O5 production improved during the year. Our phosphate fertilizer production also rose through the year, and we expect consistently good production in 2026. We produced 1.7 million tonnes in the fourth quarter even with an extended turnaround at our Bartow facility as well as deliberate steps to adjust production amid soft U.S. demand. We are off to a strong start this year, and we expect to produce at least 7 million tonnes of phosphate in 2026. In potash, we are back at full operating rates at Esterhazy since the tragic fatality in December, and our HydroFloat project is ramping up. We expect to achieve record production at Esterhazy in 2026. International sales volume set a record last year, and we anticipate continuing strong demand in 2026. In fact, we expect to produce around 9 million tonnes of potash this year, a level similar to 2025, even after we complete the Carlsbad transaction. On the cost front, we are maintaining disciplined cost management through all market conditions. In 2025, we faced significant market volatility. When sulfur prices spiked at the end of the year, which we expect will significantly compress margins in our Phosphate and Mosaic Fertilizantes segments well into the first half of 2026, we moved quickly to protect margins and profitability. We have idled Araxa and Fospar in Brazil, our lowest margin operations until further notice. Turning to managing our controllable costs and driving operating efficiency. We made excellent progress on this front last year. We executed our mine optimization plan, improved our fixed labor costs, consolidated suppliers where possible and managed corporate costs well. Our business in Brazil was a standout, delivering cost improvements through increased mine production and the elimination of high-cost imported rock. In fact, rock output in Brazil reached near record levels in 2025. In phosphate, we began to reverse the cost pressures that arose from extensive maintenance activities in the first half of the year. Fourth quarter cash cost of conversion was $112 per tonne, which is an improvement of approximately $20 per tonne compared with a high watermark earlier in the year. This improvement is structural, not one-off. In potash, our cash cost of production averaged $75 per tonne in 2025 and would have been within our Analyst Day target range, if not for the extension of Colonsay, which carries higher costs. At Mosaic Fertilizantes, blended rock cost per tonne reached $97, the lowest level since 2021. We achieved our $150 million cost savings objective ahead of schedule in 2025. As we enter the new year, we are advancing a broad set of technology-enabled initiatives to drive the next wave of efficiencies from optimizing supply chains in North America and Brazil to improving how we manage contracts and vendors to enhancing productivity. These efforts have positioned us to deliver another $100 million in savings in 2026. Our other strategic pillars are leveraging our market access and redefining our growth. And here, too, we have made important strides. In 2025, we expanded our Brazil distribution capacity with the completion of a 1 million tonne blending facility in Palmeirante in the fast-growing agriculture region in Northern Brazil. The facility positions us to better serve customers in the area and to meet rising demand as credit conditions normalize. One of our most promising growth stories is Mosaic Biosciences. Our global market access, the strength of our brand and our long-term customer relationships provide significant strategic advantages for us. We launched five new products in 2025 and expanded commercialization in the Americas, China and India. Mosaic Biosciences is capitalizing on previous investments in R&D by expanding registrations of current products to our core markets and new geographies, now reaching 60-plus registrations and selling into 16 countries. The business consistently delivers stable gross margins in the 40s and future product launches should provide a pathway to higher margins over time. In 2025, Mosaic Biosciences doubled net sales to $68 million. Looking ahead to 2026, our expectation of continued adoption across our current portfolio, along with 8 to 10 anticipated new product launches positions us to achieve another year of doubling net sales. Mosaic Biosciences is delivering on the promise we saw from the start. It has become a truly scalable growth platform. The final element of our strategy is reallocating capital in pursuit of stronger returns. We continue to reshape our portfolio and strengthen our financial foundation last year. On the capital reallocation front, the transactions announced in 2025, including Carlsbad, are expected to generate approximately $170 million in proceeds over time and also allow for a reduction of $60 million in asset retirement obligations. More importantly, we will avoid significant capital expenditures that these assets would have required. While the proceeds from the transactions announced last year are modest, this continues the process that began three years ago and has already generated significant value. As an example, our position in Ma'aden equity is currently valued at about $2.1 billion. Looking ahead to 2026, we expect progress on multiple fronts. We're pursuing strategic alternatives for selected Brazilian assets, including unlocking incremental value from co-products, niobium and other critical minerals. We also expect to generate value through monetization of some of our Florida land holdings. A note on capital expenditures. We expect CapEx in 2026 to come in around $1.5 billion, higher than 2025 due to mine, gyp stack and clay settling area expansions in Florida. At the same time, cash spending on asset retirement obligations and environmental reserves are expected to decline by roughly $50 million, partially offsetting the increase as much of our closure work, particularly at Plant City is complete. Looking further ahead, we continue to expect capital expenditures to trend down, reaching approximately $1 billion by 2030, with ARO and environmental reserve cash spending also declining to about $200 million by 2030. Now I'll turn the call over to Luciano. Luciano? Luciano Pires: Thank you, Bruce. Good morning, everyone. 2025 was a challenging year for Mosaic from a cash flow perspective. Inventory builds in both finished products and raw materials weighted on cash flow for much of the year and intensified as demand weakened significantly in the fourth quarter. The impact was significant. Working capital reduced cash flow by $960 million for the year and contributed to an $829 million increase in net debt. The buildup in working capital changed our plans for the balance sheet. In November 2025, we successfully raised $900 million through three-year and five-year notes. While the original intent was to refinance a portion of the 2027 maturity, the fourth quarter demand downturn and the resulting increase in debt led us to reassess and to redirect the proceeds towards retiring short-term commercial paper. Our next maturity isn't until the end of 2027, and we continue to monitor markets for opportunity. Looking forward, how do we see '26 cash flows, debt and shareholder returns. In the near term, cash flow remains constrained by lower EBITDA. a result of the sharp increase in sulfur prices since December. Phosphate stripping margins are under pressure. Every $10 increase in sulfur prices adds approximately $10 million of quarterly expense. Compared with the prior year first quarter, we thus expect a roughly $250 million headwind to Q1 '26 EBITDA. This margin pressure also led us to idle Araxa and Fospar in Brazil until further notice. And given the uncertainty surrounding our production plans in Brazil, we're not providing full year 2026 Mosaic Fertilizantes sales volumes guidance. But we expect cash flow to improve progressively as the year unfolds. We expect our own phosphate production to improve, supporting better fixed cost absorption and higher profitability on incremental volumes. Phosphate prices are rebounding from recent lows in Brazil, and working capital release is expected to drive a significant cash flow uplift this year. On working capital, we exited 2025 with about 240,000 tonnes of excess inventory in phosphates versus the prior year. At current inventory values, this represents roughly $140 million of potential working capital release over the next few quarters from demand recovery alone. While the typical seasonal inventory build in Mosaic Fertilizantes will offset part of this capital release in the first quarter, it will set up a more pronounced working capital benefit in the second and third quarters. But beyond demand recovery, higher phosphate production provides another source of working capital release as we currently hold excess phosphate rock and stockpiles. In addition, movements in sulfur and ammonia could provide some relief. And taken together, we believe a $300 million to $500 million working capital release is highly possible, supporting meaningfully higher cash flow generation in 2026. EBITDA to cash flow from operations conversion rate reached a low point in the mid-30s range in 2025 versus a more normalized level of 70%. As working capital unwinds, we expect a meaningful improvement in this conversion rate. Now how should we think about capital allocation in 2026? We will continue to invest in our business. Capital expenditures are expected to be higher in 2026 than in 2025, driven primarily by required investment in new gyp stacks at multiple sites. The positive offset, though, is that asset retirement obligations and environmental reserve spending is expected to trend down. Taken together, as Bruce mentioned, total cash outlays for CapEx, ARO and environmental reserves are expected to be modestly higher than the prior year. This is a way of thinking that we suggest you to adopt going forward as ARO and environmental reserve spending will trend down for the next few years. We continue to see opportunities to reduce CapEx towards $1 billion by the end of the decade with ARO and environmental reserves steadily edging down to approximately $200 million. Overall, we expect to generate free cash flow after CapEx and other cash spend above the minimum dividend in 2026. This will allow us to prioritize debt reduction and subsequently pave the way to resume extraordinary returns to shareholders. I'll stop here and turn the call back to the operator for questions and answers. Operator: [Operator Instructions] And today's first question comes from Duffy Fisher at Goldman Sachs. Patrick Fischer: First question is just on phosphate or DAP. Can you triangulate what you're thinking? I mean, obviously, Q4, you're telling us that pricing was too high and farmers kind of balked at that. Pricing has come down now, but so have your margins pretty significantly in a relatively tight market, you'd argue you should be able to get margin expansion. So do you think you'll be able to price for that higher sulfur as we go through this planting season? And if you do, do you think farmers will actually buy? Or will they forgo DAP applications this year? Or do you think they just pushed it to the spring? Bruce Bodine: Duffy, thanks for the question. So, on DAP, definitely recognize that affordability for the farmers is still challenged, although better. And I say we see that improving in 2026 versus 2025, just given the dynamics on the ag commodity side. But to your point about pass-through on sulfur price, I don't know that we'll be able to pass through as much as maybe historically in a tight market given the affordability issues. But we do see, at least for us, anything above a stripping margin above $300, we still see very constructive being in the middle of the cost curve. And that's kind of how we're looking at that. So it will be interesting to watch what happens to sulfur coming out of Q1. We do see things looking to improve. I don't think that sulfur will revert back to some three-year-old, two-year-old number with a one handle or two handle on it. But we do see sulfur getting better, which should help on stripping margins. And then in addition to how we're thinking about that is that the more we push on getting to our full capacity on phosphate fertilizer production, it's just going to continue to expand with that fixed cost absorption, our margin to insulate us even more from some of the uncontrollables on the raw material side. So, farmer affordability, I think, is going to cover it. How much we can pass through, there probably is a limit. But we've got still a lot of room to go before we feel a lot of pressure on margin -- stripping margin standpoint for profitability around phosphate. I don't know, Jenny, any comments to it? Jenny Wang: Yes. I probably just want to add one point, Bruce. DAP price in North America, especially in the U.S. market has been pretty stable, and that is basically impacted by the farm affordability issues very acute in the U.S. market. If you look at the international market, we see very different dynamics. And you have major DAP consuming countries between China and India. And these two countries, the government basically subsidized their farmers. Therefore, we are seeing the price increases over the last five weeks for DAP in the international market. In fact, today, international market price for DAP netback is actually at higher -- at a premium than the NOLA price. So I understand the concerns on affordability. This is probably more severe in the U.S. market than the rest of the world. Bruce Bodine: Yes. I think that's a great point, Jenny, for everyone is the international market is a little bit disconnected from an affordability and constructiveness standpoint than maybe just the U.S. which is great given our distribution access, we will pivot as necessary to take advantage of that. Operator: And our next question today comes from Chris Parkinson of Wolfe Research. Christopher Parkinson: Bruce, when we take a step back and we just look at 2026 versus your Capital Markets Day expectations in terms of turnarounds, can you just kind of give us a walk-through of the phosphate production or asset portfolio, where we were, where we kind of were trending towards the end of the fourth quarter and where you expect to be in '26. You're back down to $112 in terms of conversion costs. How should we think about that as it relates to your greater than 7 million tonne production guidance for '26? Bruce Bodine: Yes, Chris, thanks for the question. I think our guide is based on -- and we talked about this the last quarter, kind of trailing demonstrated. But by no means does that mean that is where the status is going forward. So I can see where there's some disconnect and confusion, and Chris, and I'm happy to try to give you some color. So, in fourth quarter -- well, first, let me back up. To get to kind of the 8 million tonne rate, you need an operating factor of 80 -- low 80s, 81% of our overall fertilizer assets in North America. We were there in Bartow for much of 2025. We got there in Louisiana in the fourth quarter. We were in the mid-70s at Riverview in the fourth quarter. New Wales was a little behind with some issues that they were facing, still working through some operating consistency. As we've moved into -- so good quarter, saw improvements, particularly on P2O5 production from quarter 3 to quarter 4, and we're continuing to see that going into quarter 1. Bartow continues to run at its plus 80% operating factor. Louisiana is running also at that 80% threshold. Riverview is also approaching that 80%. So when you look at those three facilities in aggregate, kind of already at kind of that 80% operating factor, and we're seeing more and more days strung together at all facilities where they're at or above kind of that ultimate aspiration that we want to get back to. New Wales is in a turnaround as we speak. And we expect as they come out of turnaround into quarter 2 that they will be approaching that 80%. And again, New Wales is our biggest facility at 3 million tonnes of granular capacity. So we expect in the first half of the year to get through some of these turnarounds. Bartow has no more turnarounds for the year. New Wales will get through this major turnaround. Riverview has a turnaround in second quarter of this year. We expect even coming out of that turnaround to be better than they have been. So we're feeling very optimistic about production in the back half of the year. Hence, we said 7 plus, 7 is kind of where we've been over the last two quarters, but we see some upside, Chris, to your point. Luciano has got something to say. Luciano Pires: Yes. May I comment on the cost side. The $112 per tonne in phosphates is where it should be given the current production volumes. The $131 of Q3 was actually very abnormal because of lots of repairs done outside of turnarounds. And the rule of thumb is every 100,000 tonnes per quarter should represent kind of a $7 to $8 decline through cost absorption on this $112. So therefore, if the path from 1.7 to 2.0 would imply kind of between $20 and $25 per tonne decline over current levels of phosphate conversion costs. Bruce Bodine: Yes. So, Chris, we remain confident in our ultimate objective we talked about in Analyst Day, both on volume and cost to Luciano's point, getting below $100 conversion cost. And then we're continuing to focus on some of the last things of talent and training, discipline around our operations management system, better asset predictive maintenance and analytics, which continue to take us kind of to that next frontier. Operator: And our next question today comes from Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: I can see where your capital expenditures comes through your cash flow statement. Where does your ARO and environmental reserves cash spend come through? Is that part of operations? Or is that a capital cost, the $400 million in cash spend you talked about $408 million? Bruce Bodine: Thanks, Jeff. I'm just going to put this over right to Luciano. He's got that. Luciano Pires: Jeff, it actually is spread around a few lines. There's a little bit that comes through -- it all comes through the operational part of cash flows, nothing on the capital expenditures, but it's in between a few lines. You have accrued liabilities. For example, the current portion of ARO, when you spend on that, you decline accrued liabilities. You have a little bit on the net income line itself, the part of -- that offsets the accretion expenses. So it's a little complicated, but it's in the operational part of the cash flow statement. Operator: And our next question today comes from Vincent Andrews at Morgan Stanley. Vincent Andrews: Just to follow up on the CapEx, maybe the inventory a little bit. I think the Street had CapEx coming down about $300 million from '25 to '26. So I know you called out why it's going up. But could you talk about sort of what changed and what triggered the need to do this in '26 and your confidence that this will not leak into '27 and beyond? And then secondarily, you called out on the inventory line that you have excess phosphate rock inventory. So I'd just be curious if you could help us understand, is that because you thought you were going to produce more last year. So you bought excess rock where you thought rock prices were going to go up, so you bought ahead of that increase. Just trying to understand how you're going to work that number down. Bruce Bodine: Vincent, no, thanks for the question. On CapEx, as Luciano and I talked about, we had an interesting confluence this year of a number of waste disposal projects in gyp stacks and clay settling areas and tailings dam in Brazil as well that have all kind of hit from a timing standpoint at the same time. That is unusual. But I would tell you that the $1.5 billion that we've said is, I would say, is really the ceiling. We probably see that as a worst-case outcome and actually have some upside to that. But just to give you an example, you don't know exactly how much a gyp stack, for example, is going to cost until you do some of the ground survey work. And then you find that out and have to tweak the estimates. So those are type of things that happen. It's just clarification of what those waste costs are and then the timing of those given the exhaustion of existing capacity. So we have a gypsum stack at New Wales, a gypsum stack at Bartow, a gypsum stack in Louisiana, all happening in 2026. We have a tailings dam at Tapira, and then we have two clay settling areas, one winding down and another one being built at Four Corners. The good news is, is once you get beyond these, and that's why we have confidence that this number will come down in time, you don't build another gyp stack for another 4, 6, 8, even 16 years depending on the facility. And then clay settling areas last anywhere from two to five years. So these are lumpy when they do come through. It's unfortunate that they've all lined up together. It's not by choice, it's by necessity. And then once we're through this, we're very confident that the tail down to $1 billion towards the end of the decade is definitely possible. On the rock side, just a little bit, we don't buy rock on the external market like maybe other nonintegrated producers do. Our production of rock, I'm not going to say it's decoupled from the consumption, but there are largely two processes and then you manage rock production, rock inventory because we have millions of tonnes of available storage for rock inventory to kind of manage through the near term, the next two to three years. But given that production on the fertilizer side, with all the work that went into asset reliability in the first half and into the second half of the year, actually, we didn't consume as much. We built some of that rock inventory. But as I just talked about with two questions ago, we're seeing very good run rates. We'll start to more balance that out and actually start to reduce that rock inventory as we pull through more of that into finished goods. Luciano, do you want to add something? Luciano Pires: There's a slide on the presentation that shows a $346 million increase in raw materials. That includes both sulfur ammonia and also the rock inventories work in process. And it's about half and half the increase. So the potential is with increased production rates to release that roughly $170 million, $180 million of excess rock inventory. Bruce Bodine: And the other thing that inventory allows us to do on the rock side, particularly in Florida, is as we move into new areas, which we're going through a major area relocation right now at South Fort Meade, it gives us even some buffer to make sure that we don't run out of rock or the ability to blend our rock for consistency to our acid facilities. So it serves that purpose as well, Vincent. Operator: And our next question today comes from Lucas Beaumont with UBS. Lucas Beaumont: Just going to [ Fertilizantes ]. I just wanted to kind of ask about the volume outlook there. So you guys talked about the continued kind of challenges on the credit issues in Brazil and that your first quarter volumes are going to be down year-on-year. So if we assume that means maybe sort of 1.7 million tonnes or so and then your phosphate production is curtailed at least through sort of the first half with the cost challenges there. I mean that probably gets us to something flattish around 9 million tonnes for the year again. So, I mean, last year, coming into the year, you guys were sort of looking at 10 million to 10.8 million tonnes in volumes. You've added the capacity there. So you clearly have room to grow. So, I guess, could you just kind of help us frame how should we think about the volume outlook there for 2026? And then how we should sort of see your leverage to the upside to grow going forward? Bruce Bodine: Yes, Lucas, I appreciate the question. I'm going to ask Jenny to talk a little bit about the market side of Brazil. But we are still very much a believer in being in Brazil. As we've talked about before, we've been there for well over two decades and know how to navigate in that environment. The credit issues that are being faced in Brazil have caused headwinds to the type of market capture that we were hoping for when we put those 10.8 kind of million tonne numbers out there to not take risk in what you see maybe with some of our competitors have experienced, we have not had as much problems there. So we've taken a more conservative approach, but we do have as you've said, that kind of buffer to grow as the market rebounds and more stabilizes, not only in our existing facilities, but to your point, our new Palmeirante facility as well. So, Jenny, maybe you want to talk about how the market looks in '26 and then even beyond. Jenny Wang: Sure. Thanks. The market has been, as everyone knows, challenged by the high interest rate and the credit issues. We have really seen some major shift in the industry, both at the retailer side and also at the farmer side. The number of the filing of Chapter 11, the U.S. equivalent of Chapter 11 cases have increased over the last two years. The positive part of those challenges are the consolidations started to happen as well, both at the retailer side and also at the grower side. For 2026, we foresee this is going to be a challenging year as we go through this process. Therefore, if you think about the overall fertilizer shipment in the country, we may see some uncertainties, which, a, related to the farm economics and affordability; b, probably also related to the supply availability, especially on phosphate with the restriction of the Chinese export. So overall market is likely going to be flat and our own distribution volume, we will make a prudent decision on how much we want to sell, which customers we want to sell. We are not going to take credit risk, and we're not going to compete in the market where the business quality is not really good. Lastly, I would say, last year was a significant application of low-quality phosphate and key products out of China. And we have started to see the official report on the yield impact. And if there's any further under application of fertilizer in the current crop year, the ongoing safrinha corn or the coming sur season, the Brazilian farmers will have a very clear decision to make on what application rate they need to manage. So, in midterm, we are very optimistic to this market. Brazil is growing, it's expanding and yield is very important for the farmers. But before the market turned high, we need to manage through this process, especially in this year. Bruce Bodine: Lucas, I'm going to ask Luciano to talk a little bit on the cost side and the resiliency of kind of Fertilizantes from an interesting perspective. But no doubt, the raw material prices have provided some headwinds in that business, and we've made some moves. We're going to watch that closely before we decide on what to do next for maximizing shareholder value. And a lot of that depends on what happens with sulfur price and what happens with fertilizer price. And probably, hence, why we didn't guide in this regard is there's a lot to unfold in the next, say, month to 3 months for us to watch to get more comfortable on how things are going to come out. But regardless of that, I think it's worth Luciano talking about kind of the financial performance of that business. Luciano Pires: Yes, there has been some reactions notes with some disappointment about the performance of design in the fourth quarter. But I'd like to offer a different perspective. So because of high sulfur prices, we actually curtailed production. We removed 30% of our SSP production in Brazil. We also put our major site in turnaround, which was Uberaba. We anticipated a turnaround. We're not expecting. So it became stopped for -- so we produced significantly less. Our distribution margins because of the credit issues, they narrowed quite significantly. Sales dropped precipitously at the end of the quarter. And with all of that, still the business generated almost $50 million on EBITDA. And so that would be, I would say, a phenomenal performance for the set of circumstances that we faced and that we actually decided to impose to the business in the fourth quarter. So the platform is there. And as soon as the market conditions improve, you're going to see results rebounding pretty quickly. Operator: And our next question comes from Andrew Wong at RBC Capital Markets. Andrew Wong: I just had a couple of questions on the U.S. First, on the phosphate demand, it's been down pretty significantly for the past four years, but yields, the crop yields have still been pretty strong. So what should we take away from that dynamic? Are the just extremely, extremely depleted? Have farmers just been really efficient with applications? And then secondly, on the U.S. countervailing duties, I think that's up for review this year. Can you just go over that process? And how does the current high-priced phosphate market affect that review? Bruce Bodine: Thanks, Andrew, for your question. Let me start with your latter one, and then I'm going to turn it over to Jenny to talk about the lower phosphate in North America and any yield impacts or response to answer the first part of your question. On the countervailing duties, there really is no correlation to that on the process itself. But this process this year enters into its sunset review, which will kick off in April. And we're evaluating our needs to participate in that process as we speak. So a lot more to come there. And just to remind, as that process unfolds, duties do stay in place until an ultimate decision is made on the countervailing duties from the sunset review. I'll turn that over to Jenny now to talk about yields in North America. Jenny Wang: Sure, Andrew. We just want to remind ourselves on the shipment of phosphate in North America. Basically, the changes is really in the U.S. market. That was down to below 9 million tonnes in 2022, recovered in '23 to 10 million tonnes, '24, 10 million tonnes. And then we see a major drop last year, 8.5 million tonnes. So whether we should see yield impact, it is going to come in from the coming season, the current season. So, last year, the drop of this 14%, 15% of shipment of phosphate in the North American market, majority of them happened in fall application, meaning that is the tonnes go to the field in this spring for the spring crop. So the yield impact likely going to -- if there are major impact, it is likely going to be the current crop, the crop going to be going into the field. I would also see, say, the precision ag has made a lot of farmers make their decisions on cutting rate in the same time, looking for products that they are able to improve the use efficiency where that is the biologicals coming in play. Biologicals like our PowerCoat and BioPath, are not able to increase the supply of phosphorus. But in the time in one year or two, when the rate is not going to be applied as high as normally they do, the efficiency effect will come into play. So, in short, whether we will see a yield impact in North America in the U.S., like we see in Brazil, it is going to be this crop, we will watch. Operator: Our next question today comes from [ Evan McCall ] at BMO Capital Markets. Unknown Analyst: Evan McCall on for Joel Jackson. Just wondering what changed with this 2 million per tonne -- 2 million per quarter phosphate. That was the expectation for now a year later at the end of the year targeting 1.7 to 1.8. Operator: Evan, this is the operator. I apologize [indiscernible] Bruce Bodine: Sorry, we did not understand the question, it was pretty garbled. I don't know if it's your connection or where you are. If you want to -- I don't know, drop and try to get back in. Unknown Analyst: Okay. Operator: [indiscernible] your question now, sir? Unknown Analyst: Yes. Sorry about that. Just wondering what changed with the 2 million per tonne -- sorry, 2 million per quarter in phosphate and now the expectation is a bit lower at 1.7 million to 1.8 million tonnes a quarter. Is that just the turnaround in the first half and you'd expect to be higher after that? Or what are your thoughts on that? Bruce Bodine: Yes. No, we -- as we've talked about in, I think, prior quarters where we started, our guide is going to be on actually demonstrated prior trailing three months, which means that there's likely upside to the numbers, Evan. But until we see them, we're just being more cautious on that as we probably got ahead of our skis in the past. So, by no means have we lost confidence. And I think, hopefully, the proof points that I gave earlier to, I think, the second question on where we are from an operating factor alludes to the progress that we are making and the confidence that we have in ultimately getting to that full utilization to hit 8 million tonnes. Operator: And our next question today comes from Kristen Owen at Oppenheimer. Kristen Owen: Two brief ones for me. First is on mix. Just given some of the netback comments that you made, Jenny, can you help us in terms of how you're thinking about product mix and geographic mix in 2026? And then my second question just relates to the working capital. Can you give us a sense of how much of that working capital is tied up in Brazil? Bruce Bodine: Thanks, Kristen. I'll start with the working capital one and maybe turn it over to Luciano to give you a little more color on that one. Luciano Pires: Okay. So we're thinking about a release of $300 million to $500 million through a combination of factors through some release of rock inventories, the sales above production in the faucet business, Brazil as well, which ended up with slowed down sales at the end of the quarter. And therefore, we had to pay a lot of accounts payable for purchased nutrients that we didn't repurchase. So that dragged down working capital as well. So all these factors with normalization of demand should -- and production should come down. And our estimate is $300 million to $500 million of contribution for cash flow this year. Bruce Bodine: And then, Kristen, on product mix and geographic mix, I'm just going to turn it over to Jenny to give you the latest thoughts on that. Jenny Wang: Kristen, I think your question probably more towards to phosphate. Usually, our phosphate production goes around 55% to 60% stay in North America and the rest for the export market. This year, we are going to watch the market trend and demand very closely, especially in the U.S. market. I wouldn't be surprised to see increased sales of phosphate to the international market and the less percentage in North America. It is really market demand driven. Bruce Bodine: And I think, Kristen, what's driving that to Jenny's point, is how disciplined China stays to their export constraints. If it goes beyond the first half of the year, there may be even more opportunities on the international side. But we are getting reach out from customers who are traditionally may be served more by the Chinese export market looking for tonnes. And I think it's important to understand that from our view anyway, that the phosphate market is a supply-constrained market. So, people are out there, particularly in India, Southeast Asia, looking for tonnes that would otherwise more traditionally have been supplied through China. And given their discipline and policy announcements, there could be meaningful reduction again this year on exports available from China. Luciano Pires: And one of the reasons why the corporate segment is actually improving performance is because of our sales through China and India, which are accounted for in that segment. So there's increased contribution, EBITDA contribution, but within the corporate segment, which is the negative amount is declining. Operator: Our next question today comes from Benjamin Theurer with Barclays. Rahi Parikh: This is Rahi on for Ben. So just a couple of questions. From the $300 per tonne in sulfur cost in your cost of goods sold in 4Q and the benchmark levels hitting about $500 in late last quarter, is it reasonable to assume some average around $400 per metric ton for sulfur cost in 1Q? Or would this boost automatically, you think already in 1Q to $500 per metric ton for sulfur? And then also for Fertilizantes, is the $50 million EBITDA the go forward per quarter if production stays curtailed? Bruce Bodine: Thanks for your question. Let's start with your first one, sulfur. I'll probably ask Jenny to weigh in on this as well. But that sulfur price, as you've well noted, does flow through inventory. We do see in our current forecast, but more to come through that sulfur will moderate in price as the year goes on. But sulfur and COGS through quarter 1 to quarter 2 may actually increase as that higher cost sulfur that we negotiated in quarter 1 flows through inventory. Jenny, anything to add to that? And then on the second part of the question, what was the second part? I'll turn it over to Luciano. Sorry. $50 million is not -- I mean there's a lot of factors that go into quarter-by-quarter EBITDA. One is product mix. Seasonally, quarter 4, quarter 1 are always kind of low just given product mix, more nitrogen products and volume less on -- lower volume, less on our performance products like Mosaic Fertilizantes, which pull through a margin premium as an example. So there's a lot of things that depend on that. But $50 million is not the new normal. Luciano Pires: Yes, it's definitely going to be better than that, first and foremost, because Uberaba coming back and normalizing its level of production will uplift this. And we should expand our distribution margins as well. So we should expect a much higher EBITDA on a quarterly basis going forward. The wildcard is continued to be Araxa, which right now is idle. And currently, the expenditures are hitting -- although we are saving on CapEx and other things, the expenditures are continuing to hit EBITDA at a rate of around $10 million per month. But yes, but still with that, performance should improve. Operator: Our next question today comes from Edlain Rodriguez with Mizuho. Edlain Rodriguez: I mean this is a question for Jenny. So we saw the demand deferral or destruction in phosphates in Q4. Like are you surprised that farmers took a holiday in phosphate, but not on potash, especially given the two mineral fertilizers tend to be applied in tandem. Bruce Bodine: Yes. Go ahead, Jenny. Jenny Wang: Yes. I guess your question is probably more referred to U.S. Edlain Rodriguez: Yes. Jenny Wang: Am I surprised to the demand destruction on phosphate? I would say when we had this earnings call back in October for Q4, we did mention there were some uncertainties on the demand in Q4 on both phosphate and potash. One is related to when the U.S. government payment is going to be made. And the second part is really weather. Eventually, the weather didn't really come through that basically cut off some of the applications, which could have been in November and December. The demand destruction on phosphate are far greater than potash big part of the reason is potash affordability. The price are much more affordable than phosphate and nitrogen. Last question that you asked, that was a very interesting one because I thought the same. The U.S. farmers, they wouldn't go to the field only put down potash without getting nitrogen and phosphate in and indeed happened in December and in November. Some of the farmers, they basically -- they decided to wait until phosphate price getting reset, which, of course, we all know it is unlikely going to happen given the tight supply situation. But yes, indeed, there are farmers, they went to the field for potash application without phosphate. It is not very common. Operator: Our next question today comes from David Symonds at BNP Paribas. David Symonds: Just a couple of modeling ones left. So you mentioned that Faustina will be 50% more available in 2026 than it was in '25. I don't know how low we got in 2025, but can you just confirm if you did 7 million tonnes of phosphate production, how much of that is -- or how much of your ammonia requirement is served by Faustina in 2026? And then the second one, I'm not totally clear how you accounted for the increased value of your sulfur inventory. So could you just tell me, was there an inventory gain in your EBITDA, in your adjusted EBITDA in the phosphate business for the increase in the sulfur value? Bruce Bodine: Yes. On the ammonia one, just to confirm, David, we will -- given the turnaround we just did in quarter 4, and the upgrades that we've made at that facility. We expect 50% -- up to 50% more production out of that facility going into 2026 now that it's up and running. That will consume a larger percentage of our portfolio as consumed -- as produced ammonia. And that is going to be 35% to 40% of the portfolio versus much less than that, which we would have been exposed to market on. So the biggest component still remains kind of our strategic contracts, which are cost-based-ish. Then we've got 35% to 40% at times, maybe a little bit more from Faustina. Not only will Faustina consume its own ammonia fully, we'll have enough to ship into the Florida system. And then we'll be much less exposed with the remainder to spot. Luciano Pires: David, so there's absolutely no revaluation of inventory. There are no gains recorded on the EBITDA. The reason why prices affect inventory is mostly in Brazil because in Brazil, you have purchased nutrients. So if prices go up, you need to pay higher prices, and therefore, your inventory is recorded at a higher value. But in North America, which is everything is produced, inventory is recorded at cost of production and is not revalued, and there's no gain or loss. Operator: And our final question today comes from Mike Sison with Wells Fargo. Michael Sison: Just one quick one. You all said there was a $250 headwind in the first quarter given where stripping margins are at. If on Slide 14, the February '26 metrics don't change, is that a similar headwind for the rest of the quarters? And I understand sulfur is supposed to come down, hopefully. And any sensitivity on how that $250 goes away and what the important variables are as the year unfolds? Bruce Bodine: Yes. Thanks, Mike. Obviously, if sulfur price persists at that level, the component of margin erosion or to the stripping margin erosion for that sulfur would play would stay constant. We also see ammonia prices coming down throughout '26 as well. So there is some offset to that. And then ultimately depends on what we talked about earlier in the call is how much can be passed through on price and what ultimately happens with price to the realization on stripping margin. The other benefit that we will see is we'll see better -- from '25 to '26, better turnaround and idle cost. And we'll also see, as production improves, better fixed cost absorption on conversion cost that will buffer out some of that time. So not all is static. There's a lot of moving parts, but those are the variables -- the key variables that go into that. Luciano, anything else to add? Luciano Pires: Yes. So realized stripping margins in the fourth quarter were $444 per tonne. And so if you correct for the current sulfur prices compared to the $306 that was recorded in the fourth quarter, you would have somehow $400 per tonne of stripping margins. And so what would be the impact to the bottom line? So just to give you an example, today, at $444, the EBITDA margin per tonne was $108. That per se suggests if you just take $444 less $108 that $330 would have been the breakeven point at Q4. However, there's about a $50 penalty just because of turnaround expenses and other SG&A expenses divided by a very small sales volume. So I would say these two lines are kind of $50 above what they should be. So that puts us at $280 breakeven. And if you add the cost dilution that we expect in going for 8 million tonnes, like we should be around $250 per tonne of 3P margin breakeven. So in a normalized world at a $400 3P margin, we should be making $150 per tonne approximately. Just a ballpark for you to reason around the phosphate performance. Operator: That concludes our question-and-answer session. I'd like to turn the conference back over to Bruce Bodine for any closing remarks. Bruce Bodine: Thank you, everyone, for joining us. To conclude our call, I'd like to reiterate our key messages for today. Clearly, the second half of 2025 was challenging for Mosaic and the agriculture business, especially in the U.S. We saw demand drop significantly as farmers dealt with tough economics and uncertainty around government payments. That said, our outlook for 2026 is positive, in part because demand is emerging in the U.S. and remains strong in other key areas of the world, but also because of the progress we've made to strengthen Mosaic. We're on track to improve phosphate production, and we expect a strong year for potash production. We've made good progress on cost and efficiency, and we expect further strides this year. Our Mosaic Biosciences platform is growing quickly and holds meaningful promise for the future. And our capital allocation program continues to produce results with several divestitures of noncore assets in 2025. So, overall, Mosaic is well positioned to weather the storm and deliver strong earnings as business conditions improve. Thank you very much, and have a safe day. Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Welcome to the Southwest Gas Holdings Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's call is being recorded, and our webcast is live. A replay will be available later today and for the next 12 months on the Southwest Gas Holdings website. [Operator Instructions] I will now turn the call over to Tyler Franik Manager of Investor Relations of Southwest Gas Holdings. Unknown Executive: Thank you, John, and hello, everyone. We appreciate you joining the call today. This morning, we issued and posted to Southwest Gas Holdings website our Fourth Quarter and Full Year 2025 earnings release and filed the associated Form 10-K. The slides accompanying today's call are also available on Southwest Gas Holdings website. We'll refer to those slides by number throughout the call today. Please note that on today's call, we will address certain factors that may impact 2026 earnings and discuss longer-term guidance. Information that will be discussed today contains forward-looking statements. These statements are based on management's assumptions on what the future holds but are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions, regulatory approvals and a significant capital project at Great Basin Gas Transmission Company. This cautionary note as well as a note regarding non-GAAP measures is included on Slides 2 and 3 of this presentation, in today's press release and in our filings with the Securities and Exchange Commission, all of which we encourage you to review. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements, and we assume no obligation to update any such statement. As shown on Slide 4, on today's call, we have Karen Haller, President and CEO of Southwest Gas Holdings; Justin Forsberg, Chief Financial Officer and Treasurer of Southwest Gas Holdings; and Justin Brown, President of Southwest Gas Corporation as well as other members of the management team available to answer your questions during the Q&A portion of the call today. I will now turn the call over to Karen. Karen Haller: Thanks, Tyler. Good morning, everyone, and thank you for joining us today. Last year, we turned the page on our transformational strategy with the successful disposition of Centuri in September. The important milestone that completed our transition to a fully regulated natural gas business. This strategic step enabled us to fully pay down the remaining holding company debt strengthened our balance sheet and unlocked meaningful capital to reinvest in our core operations. With our focus now fully centered on our regulated natural gas business, we are approaching 2026 with a stronger foundation and greater flexibility to execute on our strategic priorities and the opportunities ahead. As a result of our full separation of Centuri, termination of the [ Icahn ] Cooperation agreement and strong strategic position, I determined that after nearly 3 decades with the company, it is the right time for me to retire. One of the most significant responsibilities of the CEO and Board of Directors is to plan for the CEO succession. The Board was prepared for this milestone and appointed Justin Brown, a Southwest Gas' next CEO effective May 8. As President of our Utility Operations over the last few years, Justin has played a critical role in executing on our strategy and positioning the company for future success. He has a proven track record leading our utility operations, and the Board has full confidence in him as Southwest Gas' next Chief Executive Officer. Justin and I have worked closely together for many years, and I'm confident that he is the right leader to guide the company in its next phase. I will remain involved as an adviser to the company through the end of this year to ensure a smooth transition. With that, let's turn to Slide 5. In 2025, we delivered strong financial performance with Southwest Gas adjusted net income finishing above the top end of our previously stated guidance range. This performance drove Southwest Gas adjusted return on equity to 8.3% for the year and was supported by our ongoing utility optimization efforts, effective cost management and constructive regulatory outcomes. Together, these results demonstrate the strength of our regulated business and our commitment to driving consistent, sustainable value for our customers and shareholders. We also remain optimistic about the future as we introduce 2026 and long-term guidance ranges, which we will cover in more detail later. We are initiating a $4.17 to $4.32 per share, 2026 adjusted earnings per share guidance range from continuing operations. We expect to see significant earnings per share growth of 12% to 14% from 2025 to 2030, driven by anticipated improvements in our regulatory environment with the inclusion of Arizona's formula rates and alternative ratemaking in Nevada, along with the opportunity we project to materialize at Great basin in Northern Nevada. Because of these opportunities, this growth is expected to be front-end loaded over the first 3 years. So we expect the earnings growth rate to be even higher through 2028 to 2029. And Jay Forsberg will walk you through the guidance in a few minutes. As we move to 2026, our strategy is anchored in operational excellence, financial discipline and regulatory progress. The work we accomplished in 2025 positioned us to focus on the priorities that we believe matter most in the year ahead, continuing to improve returns, advancing customer-focused investments, strengthening our regulatory frameworks and capturing growth opportunities across the service territories. Of note, we were pleased to announce earlier today that the Board of Directors approved a 4% increase in our annual dividend, beginning with the second quarter 2026 payout. We intend to maintain a disciplined strategy focused on investing in the company's capital plans, while sustaining responsible annual dividend growth. On the next slide, I will outline the key priorities that will guide our efforts throughout 2026. As you can see on Slide 6, we achieved a lot in 2025 with an active regulatory calendar, the introduction of and progress made on the 2028 great Basin expansion project, the completion of our financing plan and of course, the simplification of our business model through the full separation of Centuri. We are initiating our 2026 strategic priorities for the first time in decades as a fully regulated natural gas business. We are excited to direct our attention entirely to executing our regulatory strategy, achieving the next steps of the Great Basin project and preserving our balance sheet strength by implementing our 2026 financing plan. On Slide 7, I'd like to highlight that following the completion of our Centuri disposition, S&P upgraded Southwest Gas Holdings issuer and Southwest Gas Corporation's senior unsecured long-term debt credit ratings each to BBB+ with stable outlooks. This enhanced corporate risk profile further demonstrates the positive impact of our simplification strategy. As of the end of 2025, our cash balance was nearly $600 million, which we expect to utilize to fully fund current year dividend payments and to redeploy during 2026 into the utility business, and we have more than $1.3 billion of liquidity across the business, which enabled us to make strategic investments that are expected to generate stable, long-term returns. I'd also like to highlight the utility's substantial net income growth, which was primarily driven by positive regulatory outcomes and strong economic activity in our service area and further enhanced by cost optimization efforts. We are enthusiastic about the company's future, and we are confident in the promising opportunities ahead. With that, I'll turn the call over to Justin for a regulatory and economic update. Justin Brown: Thank you, Karen, for your generous words. And more importantly, thank you for your leadership and contributions to Southwest Gas over the past 29 years. I'm grateful for both our friendship and your continued partnership during this transition. It is both an honor and a responsibility to step into this role. I'm energized by the opportunity ahead and I look forward to continuing to work alongside our extraordinary team as we strive each day to exceed the expectations of our customers and our regulators and delivering safe, reliable and affordable natural gas service. . We have a strong foundation, a clear strategy and the right team to deliver. I'm confident in our ability to execute our plan with discipline and create long-term value for our stockholders. While simultaneously driving meaningful outcomes for all our stakeholders. Let me begin my portion of the presentation by turning your attention to Slide 9, where I'd like to begin with key regulatory developments in both Nevada and Arizona, as we prepare to file rate cases and what we anticipate will be catalysts for better aligning capital recovery with our investments, thereby improving long-term earnings visibility. In Arizona, we anticipate filing our rate case this week with new rates next year, and we plan to file our Nevada rate case next month and under the statutory 210-day process, new rates would become effective in the fourth quarter of this year. Importantly, both states now allow for potential alternative ratemaking adjustments following approval of a general rate case. While any mechanism remains subject to regulatory approval, we view these frameworks as constructive steps toward reducing regulatory lag and better aligning capital recovery. This slide provides a potential time line for how our alternative ratemaking opportunities in Nevada and Arizona could develop over the next few years, and we remain confident in our ability to work collaboratively with all stakeholders on meeting these milestones. While any mechanism remains subject to regulatory approval, we view these developments as constructive steps toward reducing regulatory lag and enhancing capital recovery alignment. In Nevada, Senate Bill 417 signed into law in June of 2025 by Governor Joe Lombardo authorizes alternative rate-making plants. The Public Utilities Commission of Nevada has continued its rule-making workshops to implement the legislation with recent sessions focused on draft policy language and stakeholder consensus. We are encouraged by the progress, and we continue to work collaboratively with all stakeholders. We currently expect the rulemaking to conclude in the coming months, which could allow alternative ratemaking adjustments to begin as early as 2028. In Arizona, the Arizona Corporation Commission adopted a policy statement in December of 2024, signaling their openness to having regulated utilities, proposed formula rate plans as part of future rate cases and the commission recently approved its first formula rate plan last week. We have developed a formula rate plan that will be included in our rate case filing, which I will discuss in more detail on the next slide. Overall, we believe these regulatory developments represent meaningful progress toward a modernized regulatory construct in both jurisdictions. Turning to Slide 10. As mentioned, we expect to file our Arizona rate case this week with rates anticipated to become effective in April of next year. Key elements of our filing include a revenue increase of over $100 million with a proposed rate base of $3.9 billion and a requested ROE of 10.25% plus a fair value return on rate base of 20 basis points relative to our equity ratio of approximately 50%. This case is primarily driven by the need to start recovering on the nearly $900 million in capital investments we've made for the benefit of our Arizona customers to ensure safe and reliable natural gas service. These investments result in a proposed increase in rate base of roughly $700 million, including post test year adjustments of approximately $360 million through November of 2026. As I mentioned previously, we will also be including a formula rate adjustment proposal. The proposal resembles the guidelines established in the commission's policy statement as well as some of the other recent utility proposals currently pending in front of the commission, including the mechanism the commission approved last week. We are looking forward to working with all stakeholders to effectuate a constructive outcome that minimizes bill impacts to customers and allows us to more timely recover our capital investments. On average, the proposed revenue increase in our case, translates to an expected bill impact of approximately $5 per month for our residential customers. We believe our proposal reflects a balanced approach that enhances safety and infrastructure reliability while maintaining customer affordability and as always, the outcome remains subject to commission review and approval. Moving to Slide 11. We are initiating 2026 as long-term capital guidance, which now incorporates the 2028 Great Basin expansion project. This marks the first time we have included the Great Basin project in our forward outlook, and this represents an important evolution in our capital plan. While our capital plan remains anchored in utility distribution investments, underpinned by our commitment to safety, reliability, system modernization and meeting the needs of our growing customer base, in 2026, we anticipate early stage spending related to -- Great Basin expansion, including engineering, environmental reviews, permitting and other preconstruction activities necessary to support an efficient project time line. Over the next 5 years, we expect to invest approximately $6.3 billion with roughly 73% directed towards Southwest Gas and 27% toward Great Basin. This capital mix positions Great Basin as a growing contributor to the company's growth story and long-term earnings platform. These investments support an expected 5-year rate base CAGR of approximately 9.5% to 11.5%. The inclusion of Great Basin provides incremental upside and diversification beyond our distribution system investments that we believe will maintain a sustainable growth trajectory of nearly 7% over the same period. We believe the combination of our distribution investments, coupled with new opportunities emerging through Great Basin provide a compelling long-term capital framework for the company and offer meaningful earnings and cash flow growth for our investors. Turning to Slide 12. We continue to advance the 2028 Great Basin expansion project and remain on schedule across engineering, regulatory preparation and commercial milestones. In December, we executed binding precedent agreements following a successful open season, resulting in nearly 800 million cubic feet per day of incremental capacity commitments. This supports an estimated $1.7 billion capital investment opportunity and reflects strong market demand for expanded transmission capacity. Upon placing the project in service we estimate incremental annual margin of approximately $215 million to $245 million, representing a significant step-up in our Great Basin earnings profile. We expect to file our formal CPCN application before the end of this year following the completion of our engineering design, environmental and cultural field work. The FERC and NEPA review processes are expected to occur during 2027 with construction to begin following FERC approval and with anticipated in-service date near the end of 2028. We recently achieved an important milestone with prefiling approval from the FERC. The FERC also encouraged evaluation of potential eligibility under Title 41 of the FAST Act, which is designed to streamline federal permitting through enhanced interagency coordination. We are currently assessing that pathway and its potential implications for project timing. As with any large scale infrastructure project, timing remains subject to regulatory approvals, permitting outcomes and supply chain dynamics. That said, we are proactively managing contractor engagement and procurement planning to mitigate execution risk and preserve schedule integrity. Capital deployment will ramp up as we move from engineering and permitting into construction in late 2027 and early 2028. We expect to accrue AFUDC on pre-service capital moderating near-term earnings impacts. From a financing standpoint, we are targeting a balanced 50-50 debt-to-equity structure. Debt is expected to be funded through Southwest Gas bond issuances, while equity requirements will be supported through a combination of holding company leverage capacity and modest equity issuances, including use of our existing ATM program. This approach supports project execution while preserving credit quality and long-term financial flexibility, preserving the strength of our balance sheet. We will continue to provide updates as we achieve key milestones throughout the course of this year. And with that, I'll turn the call over to Jay For who will review our financial performance for the year. Justin Forsberg: Thanks, Justin. Turning to Slide 14. While consolidated GAAP earnings per diluted share for 2025 were $6.08, this included discontinued operations. During the year, the company completed the sale of its remaining shares of Centuri on September 5, 2025, representing a full exit and qualifying Centuri for discontinued operations reporting. The transaction generated a net gain of approximately $260 million, which when combined with the Centuri performance throughout our period of ownership during the year contributed $2.83 per diluted share to consolidated GAAP earnings. . You can refer to Slide 32 in the appendix for a detailed breakdown of consolidated earnings for the year. Here, we present adjusted earnings per share from continuing operations, so you can clearly see the underlying business performance. As shown on the slide, adjusted earnings per diluted share from continuing operations increased nearly 19% from $3.07 in 2024 to $3.65 in 2025 and representing a $0.58 improvement year-over-year. This increase was driven by focused execution in our natural gas distribution business as well as significantly lower financing costs at Holdings. Southwest Gas earnings benefited from rate relief and continued customer growth, contributing approximately $0.30 per share to EPS. These margin benefits were partially offset by increased depreciation and amortization tied to ongoing capital investment, higher interest expense primarily related to regulatory account balances from overcollected purchased gas costs and modestly higher operations and maintenance expense. Lower overall expenses in the holding company were driven by a significant reduction in interest expense following the full repayment of prior holdco debt using proceeds from the Centuri transactions. This payoff was the primary driver of the improvement in earnings shown on the table. Turning to Slide 15. You'll see the year-over-year walk from 2024 to 2025 adjusted net income for Southwest Gas. Adjusted net income increased by 8.7% from $261.2 million in 2024 to $283.9 million in 2025, representing an improvement of nearly $23 million year-over-year. These results were nearly $9 million above the high end of our net income guidance driven largely by higher than forecasted COLI results, higher interest income from elevated cash balances and some delayed in-service dates, which resulted in D&A coming in modestly lower than anticipated. The primary driver of the year-over-year increase was a nearly $120 million improvement in operating margin. This reflects approximately $95.2 million of combined rate relief, primarily from the outcome of our Arizona rate case, $11.5 million of margin from continued customer growth as well as approximately $8 million related to recovery and return mechanisms and $5.9 million from the variable interest expense adjustment mechanism in Nevada associated with the IDRBs. These last 2 margin improvements are each wholly offset within operating income through D&A and interest expense, respectively. O&M increased $16.8 million compared with the prior year. Excluding incentive compensation expense that came in above target, the increase was approximately 1.9% over the prior year. Other drivers included higher employee-related labor costs, higher cloud computing expenses and higher outside services costs. These cost increases were partially offset by reductions in leak survey and line locating expenses. Overall, O&M finished the year close to budget, reflecting our efforts to manage costs while safely and reliably delivering natural gas service to our customers. Depreciation and amortization increased $27.6 million, driven by a 7% increase in average gas plant in service as we continue to invest in pipeline replacement, system reinforcement and new infrastructure for the benefit of customers, along with an approximately $8 million higher amortization related to regulatory account balances that I mentioned being offset in margin a moment ago. Other income declined by a net $1.9 million. Several offsetting items contributed to this decrease with an expected $12.6 million decline in interest income related to carrying charges on deferred PGA balances being the largest. This decline was partially offset by an increase in company-owned life insurance asset values gains on the sale of miscellaneous assets and the timing differences and contributions to the Southwest Gas Foundation compared with 2024. Net interest deductions increased $19.4 million, driven largely by the anticipated interest incurred on overcollected PGA balances and higher variable interest expense adjustment mechanism amount in Nevada associated with IDRBs. As I mentioned a moment ago, the impact of operating margin -- operating income of variable interest associated with the Nevada IDRBs is wholly offset in margin. Taxes other than income taxes made up largely of property taxes increased $5.1 million, while income tax expense was also higher year-over-year due to increased pretax income. You'll note that partially offsetting GAAP net income was a $16.4 million state income tax apportionment benefit associated with certain onetime events, and we have adjusted that income tax benefit for non-GAAP presentation to reflect the true run rate net income at Southwest Gas. In summary, the year-over-year improvement in adjusted net income is a clean, regulated utility story driven by strong operating margin growth from rate relief and customer additions, partially offset by modestly higher O&M and by higher D&A, interest expense and the impact of taxes. Moving on to Slide 16. We outline our expected near-term financing plan, which reflects disciplined funding supported by a strong liquidity position. We entered 2026 with a significant beginning consolidated cash balance of nearly $600 million, largely representing the remaining proceeds from the Centuri separation completed in September 2025 after having utilized a portion of those excess proceeds to pay dividends to stockholders during the second half of 2025. The liquidity at the holdco provides meaningful financial flexibility as we execute our capital program and we plan to fully fund stockholder dividends in 2026 using that holding company cash while also planning to infuse nearly the same amount of equity into Southwest Gas to fund our 2026 capital plan. The execution of this plan is projected to result in a nominal amount of cash on hand at Southwest Gas Holdings at year-end 2026. During 2026, we expect approximately $325 million of net Southwest Gas bond issuances, along with modest revolver usage to the operating company. Importantly, we do not anticipate any equity issuance needs during the year under the existing ATM program. Across the company, our $1.25 billion capital plan is the primary use of funds. This investment includes approximately $925 million of natural gas distribution system infrastructure expenditures with the balance of the plan supporting our planned 2028 Great Basin expansion project. Overall, our 2026 plan reflects balanced funding, strong internal cash generation, disciplined capital investment and a clear path to executing our growth strategy without the need for incremental external equity. Looking further out and turning to Slide 17, we highlight how our credit strategy is intentionally aligned with our long-term capital plan and why we believe maintaining a solid BBB+ profile is the optimal position for Southwest Gas Holdings during this investment cycle. For 2025, we calculate S&P adjusted FFO to debt of approximately 19.7% at Southwest Gas Holdings and 18.6% at Southwest Gas Corporation. These levels sit well above S&P's 13% downgrade threshold for each entity and above our targeted long-term operating range of greater than 17%. This long-term credit metric strategy is targeted to provide more than 300 basis points of cushion above the downgrade trigger at any point in our forecast period, which we believe is an appropriate level of planned headroom to absorb potential exogenous events such as volatility in weather, commodity prices, interest rates and the timing of regulatory outcomes. This disciplined credit positioning supports a balanced 50-50 capital structure at Southwest Gas and preserves efficient access to debt markets as we execute the more than $6 billion of planned investment through 2030. Due to our strengthened balance sheet and credit cushion, we believe we can forgo high-volume equity issuances, while utilizing the ATM for modest equity needs as well as the reestablish holdco leverage capacity as financing levers. Just as importantly, this approach directly supports our stockholder value framework. By maintaining visible headroom above downgrade thresholds, we believe this discipline will preserve lower cost capital access and create the foundation for consistent annual dividend growth while retaining important flexibility during peak investment year. In short, our objective is not to maximize a single credit metric but to intentionally manage the balance sheet to sustain BBB+ through the capital cycle. That discipline allows us to fund growth efficiently, protect our investment-grade profile and deliver durable long-term value to stockholders. As we highlighted on the prior slide, maintaining strong credit metrics is a core priority for both Southwest Gas Holdings and Southwest Gas Corporation. Slide 18 reinforces how our current capital structure, liquidity position and ratings profile support that commitment and provide flexibility as we execute our plan. On a consolidated basis, total net debt at year-end 2025 was approximately $3.2 billion after adjusting for the nearly $600 million of cash on hand, and the roughly $300 million of purchased gas costs or PGA balances. Notably, all of our outstanding debt is held by the utility. You'll see all of our current credit ratings on the right-hand side of the slide, both entities maintain solid investment-grade profiles with stable outlooks from all 3 major agencies. Turning to Slide 19, returning value to stockholders through consistent dividend growth remains a core component of our long-term strategy. The company has paid a dividend every year since 1956, reflecting the durability of our regulated utility model. Today, we announced that our Board approved a 4% increase in the annual dividend, bringing it to an annualized $2.58 per share for 2026, up from $2.48 previously. We intend to recommend future annual dividend increases to the Board, while maintaining a disciplined strategy focused on investing more than $6 billion in the company's capital plans and sustaining responsible annual dividend growth. Looking further ahead, as earnings and cash flows strengthen, particularly as the planned 2028 rate basin project comes into service and as projected regulatory outcomes improve, this disciplined framework creates meaningful upside potential for larger dividend increases over time as cash earnings grow. Moving now to Slide 21, I'll walk through our newly initiated 2026 and forward-looking financial guidance. We are initiating both 2026 guidance and long-term targets that reflect our current expectations for improvement in the regulatory construct in both Arizona and Nevada as well as the projected contribution from the potential 2028 Great Basin expansion project. Building on strong 2025 performance as a base year, we are initiating 2026 EPS guidance to land in the range of $4.17 to $4.32 per share. We expect the primary drivers of our projected performance to be continued operating margin expansion at Southwest Gas, supported by ongoing customer growth and rate relief across all our jurisdictions. In addition, we expect meaningfully lower interest expense related to holdco debt following the elimination of all debt outstanding at that level. I'll further outline the underlying assumptions supporting our plans on the next slide. Overall, the combination of strong core utility fundamentals and a more solid capital structure supports our confidence in the 2026 earnings outlook. Looking further out, we are targeting a 5-year adjusted EPS compound annual growth rate of 12% to 14% through 2030. This growth trajectory using an adjusted 2025 base year reflects continued customer additions, expected improvement in rate relief mechanisms and disciplined cost management along with incremental earnings from the expansion project at Great Basin as we currently expect it to come into service in late 2028. As Karen mentioned earlier, we currently expect our growth rate to be front-end loaded through 2028 and 2029 with about a 15% to 17% EPS growth rate over those periods, depending on how you model the timing of construction spending and associated AFUDC earnings as well as the anticipated improvement in earned ROEs from 2026 to 2028. As Justin Brown mentioned a moment ago, large projects are always subject to regulatory approvals, permitting outcomes and supply chain dynamics and our robust plan is also contingent on regulatory outcomes. We expect robust rate base growth supported by capital expenditures of approximately $1.25 billion in 2026, with a total of approximately $6.3 billion for the 5 years ending in 2030. This capital plan is focused on safety, system integrity, reliability and new business distribution system growth in the utility, along with the incremental investment required to support the growing transmission business. We are also initiating a 5-year rate base CAGR of 9.5% to 11.5%, also starting from a 2025 base, which is approximately $6.7 billion. Notably, when excluding the 2028 Great Basin expansion project, our run rate utility rate base growth is expected to be about 7% annually over the same period. Now turning to Slide 22. We show additional detail on the fundamental drivers and financing assumptions that underpin our guidance outlook through 2030. Beginning with margin, our plan reflects a clear regulatory cadence across our jurisdictions. As Justin previously outlined, the potential implementation of formula and alternative-based rate mechanisms in both Arizona and Nevada are expected to meaningfully impact margin as we refresh rates and implement the expected regulatory improvements. Further out, we expect incremental contributions from our other jurisdictions. Supporting this regulatory roadmap, we expect steady customer growth of approximately 1.4% annually across our service territories. For O&M, we remain focused on operational discipline with our target to keep O&M flat on a per customer basis, excluding the nonservice component of pension costs. We assume approximately $6 million to $7 million annually from company-owned life insurance, and we plan for normal natural gas price fluctuations based on current forward pricing curves over the planning horizon. With respect to income taxes, we expect that utilizing existing net operating losses should minimize cash tax payments and result in an effective tax rate in the high teens, barring any future corporate income tax policy changes. We utilize currently anticipated forward corporate debt curves as we model interest expense when incorporating future bond issuances. The timing of bond issuances is consistent with the capital plan we outlined earlier. As I mentioned, our strategy is designed to preserve balance sheet strength and flexibility while funding our elevated capital plan. Back to you, Karen. Karen Haller: Thank you, Jay Fors. Before we move into the Q&A portion of the call, I'd like to draw your attention to Slide 23, where we highlight our commitment to delivering exceptional customer service, disciplined financial management maintaining a constructive regulatory engagement and preserving strategic flexibility while advancing our strategic priorities and achieving strong financial performance. I am confident in our trajectory as a leading pure play fully regulated natural gas business. . The team is focused on ensuring we safely, reliably and affordably meet the needs of our customers every day in order to deliver value to our stockholders. With that, let's open the call for questions. Operator: [Operator Instructions] We will take our first question from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: Just really nicely done. I got to say at the outset, this is an incredible update, lots. To ask here, but really got acknowledged at the outset. And obviously, Karen, Justin congrats to each of you, respectively here. Really great high note here. If I can pivot into the questions real quickly, though, just to kind of start at the top, I'm sure others will have a bunch. Just talk about the equity, right? I mean big plan, big chunk that you guys are biting off here. How do you think about the timing of equity? Have you engaged with the rating agencies? To what extent are you going to get some latitude or give yourselves latitude in the [indiscernible] metrics through the construction cycle here. Just trying to gauge, obviously, you've disclosed '26 equity or lack thereof, but how are you thinking about the ramp '27, '28. And that's the first question. I've got a follow-up. Karen Haller: Thank you, first of all. I appreciate it. And I'll let Jay Fors answer that question. Justin Forsberg: I appreciate the question, Julien. I think it's a good question. When you think about the -- I'll start with kind of the credit metrics, things like obviously, we have more than 500 basis points above our downgrade threshold at this point. And and we are committing to targeting that up greater than 300 basis points in the plan. So when you think about our anticipated equity needs for our capital plan at the utility, we think we can utilize some pretty significant leverage capacity in the holding company first to sort of offset those with really minimal equity needs. I think a way to think about it. Obviously, as you mentioned, we don't anticipate anything -- needing anything in this year. But when you -- on a go-forward basis, I think the way I would put it is when you think about we have a shelf that expires at the end of 2026. We'll be renewing and extending that shelf. We don't anticipate upsizing our existing $340 million ATM. Julien Dumoulin-Smith: Yes, I suppose that's a signaling in and of itself as to how you think about the total equity needs you'll need through the plan, right? Justin Forsberg: Yes, we think so. Julien Dumoulin-Smith: Excellent. And then -- yes, indeed. And then look, let's talk about the project itself, right? I mean you talked about this capacity subscribed of nearly 800 MCF. Can you elaborate a little bit about the total scope of the project here? I mean Obviously, you got some incremental interest above that. Just talk a little bit about what the customer interest was and to the extent that the [ 1.7 ] could have ever go larger. I just want to try to tackle that here at the outset as well, just in terms of like the total eventual opportunity here and/or any other interests that does emerge [indiscernible]. You talked about data centers in Nevada, and ultimately serve that kind of customer load. What are you seeing on that front just to hit that as well. Justin Brown: Julien, it's Justin. And Yes, to your point, we went through kind of elongated multi open season process last year, and a lot of that was driven by just different inbound inquiries we received. And I think as we've described in the past, at some point in time, we had to kind of coalesce around an in-service date that the majority we're focused on. And so we picked the 2028 number. And that's really kind of what we locked in on those customers that were interested in service by kind of end of calendar year '28, we had to kind of draw the line. And so I think to your point, when we think about kind of future demand, future interest, I think there's definitely some there because we had received much more inbound requests than what actually signed up. But again, I think you have to look at it in terms of kind of the timing of the different interests and people's projects and kind of what they anticipate timing. So I think a couple of things as we move forward that I would encourage you to think about is, one, we continue to work on the design aspects. Obviously, when we have signed up capacity at a certain dekatherm a day, when you design the system, it doesn't come in at that exact number, it's virtually impossible. So we're going to -- when we complete the design, we'll compare that design, kind of efficient design to what capacity it actually hold. If there's an opportunity to do a supplemental open season to fill up any remaining capacity based on the design, we'll do that. I think we feel confident that there is demand there and interest that people would take that. And then I think when we think about dates beyond 2028, we'll continue to work with prospective shippers on kind of what their interest is, what their timing is and we can always look to evaluate, again, kind of maybe another open season for a different date down the road. Julien Dumoulin-Smith: Right. Last nuance here, if I can squeeze it in. Just the cadence of earnings uplift. I mean obviously, it's back-end weighted here. But can you speak to that as well as the -- what you're thinking on closing the gap on lag here in Arizona and Nevada as well as part of this updated plan. Justin Brown: Yes. I'll start with kind of the regulatory construct and kind of how we're looking about our continued effort and focus on reducing regulatory lag in our jurisdiction. So obviously, as I mentioned in my prepared remarks, this next couple of years is going to be very big for us in terms of we've got 2 sizable rate bases. We're getting ready to file. We think they're really going to be a catalyst moving forward in terms of being able to request formula rate adjustments as part of the rate case or in Nevada's case, using this rate case as kind of the springboard for that. . And so I think when we think about kind of those mechanisms and how they're going to be designed, obviously, each state is going to be a little bit different. But I think you can look at the [ UNS Gas ] decision from last week. And I think that's a pretty good proxy when you think about the facts and circumstances of UNS Gas kind of triangulating that with the policy statement and then some of the other proposals that are pending. I think we've always said we kind of look at hopefully being able to reduce kind of what has been kind of our historical gap of 160 basis points pertaining on any time. I think in combination with Nevada and Arizona, we're hoping to cut off about 100 basis points is what our goal is. Justin Forsberg: Julien, I can hit -- talk a little bit more about cadence like Karen and I both mentioned, right, the guidance, yes, it's really more front-end loaded, which I think is not what you're getting at, right? We have the run rate rate base growth [indiscernible] underlying [ LPC ] of about 7%, which really supports something that you kind of sort of model, if you will, through the whole 5-year plan is that earnings trajectory because as we tighten up that lag, it should be aligned pretty well with rate base growth. The earnings, the EPS growth should be, especially with the minimal equity issuances expectations. But I think when you think about these other things that Justin just mentioned plus the in-service anticipated at Great Basin that's where I pointed to that we see about 15% to 17% EPS growth rate over sort of that '28 to '29 from now. Operator: Your next question comes from the line of Elias Jossen from JPMorgan Chase. Elias Jossen: Maybe just thinking about the kind of post Great Basin and service earnings contribution. I know you've talked quite a bit about the back half versus the front half of the earnings CAGR. But can you just talk about maybe in 2030 when we start to see the full benefit of Great Basin what that earnings contribution could look like on a run rate basis? And because I think about some real inflection sort of in that 2030 time period based on those earnings contributions. Justin Forsberg: Yes, Elias. I think that's where we can point to the margin that we -- Justin mentioned, right, the $215 million to $245 million expected margin that we will get out of Great Basin. And with the sort of end of the year, toward the end of the year in service date in 2028. That margin contribution expected fully in '29 and in '30 because I'll just remind you and everybody on the call that we are expecting once we -- prior to in service that we would execute a minimum 20-year transportation service agreements that we would be bringing in that margin. And so that's kind of the Great Basin Contribution, if you will, for those outer 2 years to margin. And then you've got, as I mentioned a moment ago, the 7% kind of rate base growth of the underlying utility. Elias Jossen: Got it. And then I think you touched on a bit in the previous response, but just -- if we think about sort of the language in the slides that discuss rate case outcomes in line with historical experience, can we just bifurcate that between sort of percentage of ask in the rate case outcomes themselves, but then if the formula rate adjustments would be incremental to that and just think about the earnings contributions from those in that language specifically? Justin Brown: Elias, it's Justin. Yes, I think that's a fair way to look at it in terms of kind of just our historical success, if you will, in terms of the spread between our ask and what we receive. And I think that's a reasonable way to look at it. Operator: Your next question comes from the line of Chris Ellinghaus from Siebert Williams Shank. Christopher Ellinghaus: Congratulations, Karen and Justin. Have a great retirement, Karen. I really appreciate the new disclosures, by the way. Justin, can you talk about the progress in the Nevada workshops thus far? And any thoughts you have? Justin Forsberg: Chris, yes, you bet. So the legislation was passed last summer. They held their first workshop in September, held another one in January and February. And again, it's just kind of working through, putting together kind of draft language draft regulations. I think the -- the good thing about the commission is they really kind of put an emphasis on trying to get consensus among the stakeholders. So there's a lot of work around kind of just evaluating kind of the competing interest different language people want, what's required by the legislation. So there's just a lot of back and forth on working on that consensus. We had -- our last workshop was just last week, last Friday, I believe. And I think we feel pretty good about we're getting there at the end. And so we anticipate probably getting some kind of draft consensus regulations out from the commission here over the next month or two Christopher Ellinghaus: Okay. That helps. vis-a-vis the UNS Gas outcome, have you got any thoughts about ROE and relative to your discussion about the 100 basis point improvement target, does that incorporate your thoughts about where their head is on ROE? Justin Brown: Yes, Chris, this is Justin again. I think, generally speaking, I mean, that decision obviously just came out last week, but I think we've always kind of looked at that. And I think one of the things that we're going to see is that was, I think, one, the very first decision the commission came out with, and I thought that it was very much kind of directionally positive, generally constructive. And I think we're going to -- and I think they've said this all along that they want to kind of get cases in and kind of evaluate what they look like for each utility for larger gas, smaller gas electrics. So I think we're going to learn a lot more as APS and TEP kind of go through their process. And then as we continue to work with stakeholders on ours. But I think the good thing is, I think the parameters are kind of there when you look at the different proposals, when you look at the policy statement, when you look at the recent UNS Gas case that I think the fairway is kind of defined for everybody. And so we'll be able to kind of all work and see where we end up with the different utilities. Christopher Ellinghaus: Okay. And I guess this is somewhat of a difficult question, but the 7% sort of longer-term base Southwest Gas rate base growth that you talked about. I assume that's not necessarily consolidated in maybe the 2030 sort of endpoint is part of it. But that doesn't include any kinds of upsides that you see for Great Basin longer term. Is that right? Justin Brown: Yes, Chris, Justin again. Yes, you're spot on. That's just kind of when we think about the historical and kind of the current investment in the utility. That's really what that was designed as to kind of -- we expect kind of consistent strong growth at the utility, and that's what that reflects. So it doesn't include anything that would be kind of a one-off or any additional Great Basin opportunities that may come down the road and may materialize over time. Christopher Ellinghaus: Okay. Lastly, when you're talking about utilizing parent leverage for the Great Basin funding. Do you expect that to be permanent? Do you ever expect to push down any of the financing costs into Great Basin? Justin Forsberg: Yes, I think it's a great question, Chris. From our perspective, I think one way to look at that is we don't expect it to be permanent, I'll say that because we do expect -- I think what I'll where I'll go with this is we sold Centuri, which is an asset that was not contributing to the dividend, and we have these dollars to deploy, redeploy into an asset, which is expected to really throw off a lot of cash. earnings at the back end once it goes into service. And so Great Basin we'll have the capacity to give a pretty sizable dividend to the parent, which will help us eat into whatever leverage we put on the parent at that point in time. Christopher Ellinghaus: Okay. Let me ask you one more thing. Can we -- you talked about maybe having some larger upside to the dividend growth later. Can we presume that once Great basins in service? Justin Forsberg: Yes, I think that's fair. Kind of along the same lines, what I just mentioned. Operator: [Operator Instructions] Your next question comes from the line of Gabe Moreen from Mizuho. Gabriel Moreen: Just congrats again to Karen and Justin. I just had one question around Great Basin, although it's a little bit multipart. I wanted to dig down a little bit deeper in terms of locking down or squaring away some of the variables here around cost, whether it's E&C compressors, pipe, just kind of where you really stand in that process and how you might be thinking about derisking some of that at this moment. So maybe if I could -- if you can address that, that would be great. Justin Brown: Yes, Gabe, it's Justin. Yes, as I indicated in my remarks, I mean, I think we're working -- we're trying to be very proactive from a supply chain standpoint, working -- going through the prefiling process with FERC to just really kind of mitigate any of those kind of typical project risk, if you will. Obviously, shipper risk is another one in terms of -- and that's why we went through kind of an elongated process to kind of make sure that we have firm precedent agreements signed up in order to kind of, again, try to mitigate risk associated with the project. We'll continue to kind of work through those processes. I think to your point on kind of where we sit right now, we feel like that's a pretty good estimate of what the cost is. Obviously, working through with our EPC contractor and different things. I think one of the things that I would say is when we make the anticipated filing with FERC at the end of this year for the formal application, we'll have an updated cost at that point in time. So I think that's a good marker for kind of -- we're going with what we believe is kind of our best estimate right now. When we go through this process, we're going to know more in 9 months. And when we make that filing with FERC, we'll be able to dial that in even a little bit more. And so that's kind of a good mile marker, if you will, to kind of to keep a look out on in terms of kind of what we anticipate the final project cost to be. Justin Forsberg: Gabe, I can just add something. I think you're getting at as well. It is a balance, which I think it's what you're kind of pointing to between trying to minimize the spending prior to getting a certificate from the FERC with making sure that we're mitigating some of these supply chain issues that Justin talked about. And so from that perspective, the precedent agreement is just as a reminder, I think you guys know this, but it does require a certain amount of surety that the shippers have to put up as we spend as we carefully spend dollars in this early time period. Gabriel Moreen: I know I had 1 question, but 1 minor follow-up. To the extent you're going through the open season and you've got 800 million a day of capacity. To what extent were not further upstream constraints on procuring gas or capacity constraint on some of your customers here signing up for capacity? Justin Brown: Yes, Gabe, this is Justin again. I think that's really -- our understanding is our customers haven't expressed any restrictions in that regard. Obviously, that's something that they're responsible for, where we provide the pipeline for them to flow the gas supply that they purchase through. But yes, we're not aware of that. I think our understanding is there's sufficient capacity on the upstream suppliers as well to meet those needs. Operator: Your next question comes from the line of Ryan Levine from Citigroup. Ryan Levine: I had a couple of questions around just your guidance. In your -- by 2030, are you assuming that you're going to be at that 300 basis point distance from the [ 13% ] downgrade threshold? Is that embedded in plans? Or any color you could share around what's actually in your 2030 estimate? Justin Forsberg: Yes, I think that's a good question. I think the way you should look about -- folks should look at the greater than 300 basis points sort of target that we have out there really is kind of in the trough as we hit the maximum leverage at the holdco as we're -- whatever we have in our plan, right, as far as offsetting the equity needs using some holdco leverage. So it's not necessarily by 2030. I think based on kind of what I mentioned earlier in one of the Q&As around what Great Basin be able to -- is that permanent debt at the holdco, which I said it's not, right? So you'd actually see some -- I think some improvement in our -- in the current plan we have out there, we've seen some improvement in the FFO to debt metrics above that trough year, which is likely that 2028 year. Ryan Levine: Okay. And then similarly, around the regulatory lag improvement in your plan. Is the 100 basis points embedded in the 13% EPS growth rate? Or is that if you exceed that, would you be above that or kind of conversely, if you underperform? Is that -- are those the key drivers of the outlook? Justin Brown: Ryan, it's Justin. Yes, I think the guidance that we provided, we've made some reasonable assumptions around kind of the timing of formula rates and kind of what that might look like. So that's embedded in that range. Ryan Levine: Okay. Well, congratulations to Karen and Justin and appreciate the comprehensive update. . Operator: Your next question comes from the line of Paul Fremont from Liebenberg. Paul Fremont: Congratulations on the update and best wishes to Karen and also to Justin. Really 2 questions. One, if I go back to Justin's earlier comment of 15% to 17% through sort of Great Basin which, I guess, the first full year would be 2029. If I use that, I would come up with 2029, somewhere between [ 640 and 680 ]. Am I thinking about that correctly? Or am I missing something there? Justin Forsberg: Yes. Paul, I appreciate the question. Obviously, we can't give you a sort of guidance on that precision when you get out that far. But I think you are thinking about the run rate in terms of how I mentioned it. And meaning that -- and also the 2029 is that first full year of in-service? So obviously, it depends on how you think about the timing of modeling construction spending and associated EDC earnings as far as the ramp-up when you look at that. But I think the -- in terms of that full in-service year, that would be expected in the plan in 2029. Paul Fremont: Great. And then my other question relates to the RUCO challenge to the policy statement, which had initially been turned down by the courts. But I understand that at a higher level, there's now a hearing that's been scheduled on their complaint. Any comments on that update and what you're expecting to come out of that? Justin Forsberg: Paul, it's Justin. Yes, I think our thoughts are kind of consistent. I don't think anything has changed from how we viewed the challenge from [ RUCO ] from the beginning through the process where the court kind of denied it and then decided the Superior Court decided to give them kind of their day in court. So we -- this is kind of part of the normal process. They have an opportunity to make their argument. I think we we feel pretty strongly that there's a long precedent of the commission being able to have exclusive jurisdiction over ratemaking and doing things as part of a rate case. And I think you look at all the different regulatory mechanisms and that have withstood judgment over time. So I think from our perspective, we're not overly concerned, I haven't seen anything that causes us to be overly concerned about that challenge or kind of the procedural posture that it's currently in. Paul Fremont: And I guess if I look at the initial court ruling, I mean, I thought it was more sort of a technical issue in terms of having a certain amount of time to file and they missed that deadline. When the Superior Court opened that up, I mean, did they just sort of disregard that time limit? Justin Forsberg: Yes. My recollection, Paul, was there was kind of a couple of different aspects, but you're right. It was kind of initially denied on a technicality, which is why they appealed it. And then the court ultimately said, no, they need to have their opportunity to be heard, and that's kind of my understanding of the posture of the case right now is that they have an opportunity to make their arguments with the appellate court. Operator: This concludes the Q&A portion of today's conference. I would now like to turn the call back over to Tyler Franik for closing remarks. Unknown Executive: Thanks again, John, and thank you all for joining us today and for your questions. This concludes our conference call. We appreciate your interest in Southwest Gas Holdings and look forward to speaking with many of you soon. Operator: This concludes the Southwest Gas Holdings Fourth Quarter and Full Year 2025 Earnings Call and Webcast. You may now disconnect your line at this time. Have a wonderful day.
Operator: Good morning, everyone, and welcome to GAP's Fourth Quarter 2025 Conference Call. [Operator Instructions] Now it's my pleasure to turn the call over to GAP's Investor Relations team. Please go ahead. Maria Barona: Thank you, and welcome to GAP's Conference Call. I'd like to take a few moments to review the forward-looking statements as described in the financial disclosure statement. Please be advised that statements made today may not account for future economic circumstances, industry conditions, the company's future performance or financial results. As such, any information discussed is based on several assumptions and factors that could change causing actual results to materially differ from current expectations. For the complete note on forward-looking statements, please refer to the quarterly report. Thank you for your attention. It is my great pleasure to introduce Mr. Raul Revuelta, GAP Chief Executive Officer; and Mr. Saul Villarreal Chief Financial Officer. The gentlemen will be our speakers today. At this time, I will turn the call over to Mr. Revuelta for his opening remarks. Raul Musalem: Thank you, Maria. Good morning, everyone, and thank you for your time here today. I'm pleased to share with you the company's operational and financial highlights for the fourth quarter of 2025 which concludes a solid year despite the several external challenge that I will discuss today. I will begin with the quarterly passenger traffic and then move on the financial results, followed by a brief review of the full year. Passenger traffic decreased 0.9% during the fourth quarter compared to the same period of 2024. These first 4 months stems from the 2 clear separate dynamics within our portfolio. The first, in Mexico, traffic trends remained relatively stable despite varying performance across the different airports. While passengers growth was 2.9% of revenue was primarily supported by the implementation of the new maximum tariff approved and applied during 2025 as well as the expansion of the works in select markets. Secondly, as you are aware, Hurricane Melissa struck Jamaica on October 28, leading to the temporary suspension of operations at Montego Bay as well as Kingston Airports. This resulted in a traffic decrease of nearly 35% during the quarter. Although, there was no material damage to either airports, passenger traffic did significantly decline in November and December, mainly in Montego Bay. The main factor was the hurricane impact of the surrounding area as well as the hotel infrastructure were around 70% of the total capacity effect. On a positive note, the recovery of total capacity or total capacity as well as tourist infrastructure across the region has been better than expected. While the actual timing of a full normalization remain unclear, the Minister of Touring has indicated that hotel capacity is expected to return to 100% by the upcoming 2026 winter season. We remain confident in the long term fundamentals of the Jamaican market and its overall structural growth potential. Now moving on to the revenues. Combined aeronautical and aeronautical service revenues increased by 12.8%, reflecting the sustained structural strength of our business model. Aeronautical revenues grew by 12.6%, primarily driven by the aforementioned maximum tariff that were approved and applied during 2025 in Mexico as well as the continued expansion of our routes. New aeronautical revenues increased by 13.3% quarter-over-quarter. In Mexico, particular, commercial revenues were strong, mainly supported by the performance of the cargo and bonded warehouse business and the opening and renegotiation of commercial spaces under improved market conditions. The most dynamic segment includes Food & Beverage, Retail, Ground Transportation and Leasing Activities. EBITDA increased by 7.5%, reaching MXN 5.1 billion. EBITDA margin, excluding IFRIC 12, stood at 53.8%, a decrease compared to the fourth quarter '25 as a result of the higher concession fees in Mexico, additional head count and increase in maintenance costs due to the new operations of the jet bridges and Airbuses, a path that must now be operated directly by GAP, but was previously managed by the third party. In addition, this includes the impact of lower traffic and therefore, lower revenues in Jamaica in the aftermath of the Hurricane Melissa. Net income declined compared to the fourth quarter '24, mainly due to the higher financial expense and decrease in the interest income due to a lower cash average balance the FX effect as well as the lower interest rate. This is in addition to the provision of the deferred tax adjustment in the aggregate balance of the year. Now let us review the full year performance. 2025 was a year of a strong structural growth for GAP. Aeronautical revenue grew by 19.4% driven mainly by the new tariff applied during 2025 and a 2.7% increase in passenger traffic in Mexico. Non-aeronautical revenue increased by 26.5% for the year, further underscoring the strategic importance of our commercial platform. Non-aeronautical revenue per passenger increased to MXN 152 in 2025 compared to the MXN 123 in 2024, reflecting improved commercial execution, product optimization and a stronger contribution from cargo among the warehouse operations. The consolidation of the business has become a meaningful contributor to our revenue diversification strategy and strengthen the long-term sustainability of our income streams. EBITDA increased by 17.8% year-over-year, reaching MXN 21.3 billion with an EBITDA margin, excluding IFRIC 12 of 65.6% despite higher concession fee and our cost pressure, profitability remains solid and operational will remain disciplined. From a balance sheet perspective, as of December 31, 2025, we closed the deal with MXN 10.5 billion in cash and cash equivalents. During the year, we strengthened our capital structure throughout the issuance of bond certificates, while reducing certain bank loans pressures maintaining flexibility to fund our long-term commitments. In terms of CapEx, throughout 2025, we invest MXN 12.4 billion. This was comprised by the first year of execution under the 2025–2029 Master Development Program. CapEx in our Jamaican airports and the commercial investments. The CapEx for the 5 years period in Mexico will be focused on major terminal expansion and capacity enhancements, positioning us strongly for the future passenger growth and expanded commercial opportunities. Additionally, in December at the Extraordinary Shareholders Meeting the business combination between CBX and Terminal Assistant Agreement was approved. This strategic transaction will allow us to further integrate and strengthen the Cross Border Xpress platform, enhancing operational efficiency, expanding services capabilities and reinforcing our position in the Cross Border Passenger segment. The transaction is currently in the formalization process, and we expect this to contribute possibility to GAP's long-term value creation strategy. Let me touch on international expansion opportunities. The Parks & Cope standard process was ultimately canceled by the government. And as has been our track record, we remain disciplined in our capital allocation decisions and our remaining focus on projects that meet our strategic and financial return criteria. Therefore, we continue allowing growth opportunities that complement our existing portfolio strength over our shareholders' value. Before I continue with the presentation, I want to address the recent events concerning to the state of Jalisco, namely Guadalajara and Puerto Vallarta. Certain incidents were prepared throughout different locations of the state of Jalisco on February 22. And I just want to assume that gas facilities, the Guadalajara and Puerto Vallarta Airport remain fully operational on weekend and up until this moment. As many of you may be aware, the terminals rely on the protection of the Mexican National Guard as well as the Ministry of National Defense as part of the permanent coordination and security measures with the Federal Authorities. From an operational standpoint, we experienced flight cancellations, including 171 flight in Guadalajara and 134 flights in Puerto Vallarta during February '22 and '23. However, this February, February '24, we only had 4 cancellations in Puerto Vallarta and 11 in Guadalajara. And today, all the operations are back to normal. Thus, it has been a steady and consistent improvement from the weekend, as we work to regain normally after the events of the last weekend. The rest of the -- our portfolio continued to operate without disruption at this stage. We don't anticipate any additional impact. We are monitoring the situation, and we'll update the market as necessary. Back to the results and outlook, I would like to continue with a discussion on guidance. We do not include the CBX business combination and the Technical Assistance Agreement Internalization, which remain the formalization process. Once the final timing of the consolidation is confirmed, we will update you on the results. That being said, we expect 2026 to be another year of moderate growth, supported by the established structural drivers across our portfolio. Passengers traffic is expected to grow between 2% and 5%, reflecting the consolidation of routes developed to date, estimated load factors and the potential increasing frequencies and ship capacity across our network. On the revenue side, Aeronautical revenues are projected to increase between 9% and 12%, driven by the implementation of current maximum tariff in Mexico and Kingston airports in Jamaica, combined with traffic performance, inflation assumptions and projected exchange rates. Non-aeronautical revenues are expected to continue expanding from 6% to 9%, driven by improved contract condition and traffic growth. As a result, total revenues are expected to grow between 8% and 11% year-over-year. We expect EBITDA to grow between 8% to 11%, while the EBITDA margins will remain solid and approximately 65% or minus 1% reflecting continued operational discipline, while maintaining flexibility to observe external volatilities. Looking ahead, we remain confident in our strategic direction as we focus on our 4 growth pillars. The strengthening connectivity, expanding commercial revenues, disciplined execution of our infrastructure program and maintaining long-term leverage strategy. While external factors such as exchange rate volatility, natural events and global uncertainty may generate temporary expectations, cap diversified airport portfolio's strong domestic demand base, disciplined capital structure position us solidly to continue generating sustainable long-term value. We appreciate your continued growth and support in GAP. Thank you for joining us today, and we now open the floor to your questions. Operator: [Operator Instructions] Our first question comes from Gabriel Himelfarb of Scotiabank. Gabriel Himelfarb Mustri: Just can you give us a bit of color on Guadalajara and Puerto Vallarta, any cancellations seen or any lower bookings? And my second question is also -- is there -- can you give us a bit of color on -- do you think you might be expanding your footprint on the U.S. besides the CBX. Raul Musalem: Thank you, Gabriel. In the case of Guadalajara and Puerto Vallarta as we noted, I mean, we saw on the Sunday an important number of cancellations more than 100 in both airports. For the Monday, we began to see an important recovery. Just yesterday, we only had 4 cancellations in Puerto Vallarta and 11 in Guadalajara. And today, we are expecting that all the operations are back to normal. So what we are seeing for sure has a -- I mean, a major impact for -- on Sunday, but after that, the services from the airlines have gradually normalization process. Saying that, we are expecting that there will not be any additional impact for our airports in the coming days. Making like a big number of the impact of these 2 days, almost 3 days of impact. We are forecasting that -- or we are seeing that the possible impact was around of 50,000 passengers in these both airports. Jumping to the second question, the footprint in the U.S. beside the CBX, for sure, they align with our discipline for capital allocation, we will continue to looking for other opportunities. And for sure, with the platform, the CBX in the U.S., it opens the possibility for new investments in the U.S. we were still looking for opportunities that we -- that generates value to our shareholders and be completely accretive for the company. But yes, it will open the opportunity for additional -- or review additional projects in the U.S. Gabriel Himelfarb Mustri: And are you expecting the coming months, a decrease in traffic on Guadalajara and Puerto Vallarta from international passengers? Raul Musalem: I mean we are expecting that the trends that we have seen in the last months continue. For the case of Guadalajara, as you know, we have a positive number with all the openings of new routes from Canadian market, mainly, and also recompression or recovery from the classic VFR market, so Guadalajara, Los Angeles and South California in general terms. But also in the coming months, we will have the first 2 matches for the last elimination of this for the World Cup. So yes, we are expecting some additional passengers for sure in the coming months. And I mean, in general terms, connecting with this terrible news of the weekend, we are not expecting any further impact on the traffic. Operator: Our next question comes from Enrique Cantú of GBM. Enrique Cantú: So regarding the pending tariff adjustments, could you provide more detail on expected timing and visibility around their implementation? Raul Musalem: Yes. And then just going back on that. Last year, as you remember, in March of the last year, we have -- we increased 15% of general passengers fee in all of our airports. In September 1, we had another 7.5%, and in January -- on January 1, we increased around 5% to 6% depending on the airport. For all of that, we are seeing that the maximum tariff for the year, for sure, depending on the FX effect of the peso on dollar, we are growing around 95% of fulfillment. And in the summer, we will have 2 additional increases for our 2 airports Vallarta and Cabos. With all these put in place, we think that we could achieve the 95% of fulfillment on time. Operator: We will now move to questions submitted to the webcast platform, and I'll turn the call over to Alejandra Soto, Investor Relations Officer, to read the questions. Please go ahead. Alejandra Soto Ayech: We have one question from Andressa Varotto from UBS. And he's asking regarding your guidance. Can you break down traffic increase expectations for Mexico and Jamaica and how you are seeing a recovery from the Hurricane Melissa in Jamaica and the World Cup impacts in Mexico. Also -- well, and the other question, it was already explained. Raul Musalem: In terms of traffic, we are seeing, in our guidance, an increase on traffic that goes from 2% to 5%. In the other terms that we are seeing for Jamaica is, we are seeing at continuous recovery on the hotel capacity for Montego Bay, mainly. What we are seeing is for the end of the year, could be around minus 2% to 0% on increase of passengers. Why is it important to have in mind is that, the 2 main peaks of the terminal of Montego Bay or the 2 moments of increase of passengers for -- is -- the spring season and the winter season. . On this spring season, I will say that there will be a lack an important impact of the number of available hotel rooms in Jamaica. So we will expect that in this spring, winter -- spring season, the decrease of passengers continue. But for the winter season, that is the second big high season for Montego Bay, we are expecting that a full recovery of the total capacity of hotels on the island. With that in mind, we are expecting that minus 2% to 0% on Jamaica. Alejandra Soto Ayech: Thank you, Raul. It is the only question on the webcast. So I will turn the call again to the questions on the floor. Operator: We do have a question from Julia Orsi of JPMorgan. Julia Orsi: So just a question on capital allocation. So now that the Turks and Caicos process is pretty much over. Can you comment a bit on what's the priority on the capital allocation side? And that's it. Raul Musalem: Julia, I will say that in the first half of this year, we will be focused on all what means CBX and bring in all the efficiencies to our company, but that would be, I think, one of the biggest new projects bring into the company. But parallel to that, we are working in other projects and looking for other projects that could be interest for us. We will continue reviewing opportunities on the cargo facilities business. But I would say with the discipline that is like the part of the DNA of the company, we will continue only on projects that are completely accretive for our company. With that in mind, we will always continue within different projects. But for the moment, the only focus that we will have to brings additional value is all the process to bring CBX and the synergies to the company. Julia Orsi: Got it. And just a follow-up on the CBX. What is the expected timeline for the deal to be fully integrated into GAP? And I mean do you have any updates on let's say expected synergies throughout the year? How much should we capture this year. Raul Musalem: Yes. I mean, in general terms, what we are talking about the formalization process, we are in the middle of that. We are expecting that in the second quarter, of the year, we could fully consolidate all the transactions. In terms of the efficiency, it will be gradually on the year. I will say that if we begin with the consolidation in the second quarter, for the fourth quarter, we could show important efficiencies on the CBX consolidation process. I would say that the full program of what we think that could be the synergies of the company, we're going to fully implement it for the half of this year of '27. That would be -- I mean -- our first view of what we think that could happen for on all these project of CBX. Operator: There are no further questions at this time. I will turn the call back over to Mr. Raul Revuelta for closing remarks. Raul Musalem: Thank you once again for joining us today. Please contact our Investor Relations team with an additional questions you may have. Have a great day, and thank you for your attention. Operator: That concludes our meeting today. You may now disconnect.